Capitalist Backsliding? From Neoliberalism to 'Illiberal Market Economy' in Poland and Hungary

Abstract

In examining Poland and Hungary, we offer a case study of East and Central European nations and economies transitioning from liberal democracy and free-market principles to what we term an "illiberal market economy". This shift challenges the neoliberal model that underpinned the post-1989 transformations in the region. Furthermore, the emerging systems in Budapest and Warsaw defy conventional categories found in the Varieties of Capitalism literature. While these systems may exhibit surface similarities to coordinated market economies, such as increased state intervention and government expansion, they diverge significantly due to systemic clientelism. Patronal networks enable the ruling party to capture of the state, facilitated by the presence of weak or dependent institutions. Political monopolization of power fosters an environment conducive to rent-seeking and patronage, often reaching corruptive extremes, ultimately serving as coordination mechanisms within the economic system. Authoritarian politics in both Hungary and Poland instrumentalizes institutions to limit the free-market space, resulting in an illiberal market economy — a distinct form of state capitalism infused with an East and Central European character.