Central-East European business model will slow growth

Subject

The concentration of big business in domestic moguls’ hands.

Significance

The dominant business structure in Central-Eastern Europe (CEE) is best described as oligarchic: large corporates inextricably entwined with, and dependent on, political favour. Preferential treatment in public procurement markets, subsidies and tax breaks secure success for the chosen few. As a result, there is no incentive for innovation; unfavoured businessmen and small entrepreneurs compete with a decisive handicap.

Impacts

• Tycoons’ ascendancy will leave ever-less room for SMEs, except in the technology sector, while entrenching the power of political elites.
• Frustration with insufficient freedom of enterprise will drive international investors from CEE, likely to emerging markets.
• Backsliding on both democratic commitments and market regulations in Central Europe will discourage reform in the Western Balkans.
• Innovation and entrepreneurship will emigrate from CEE to countries with more supportive structures.