{"word_count": 7829, "character_count": 57288}
IntroductionThe rise of new economy has been interpreted in several different ways. There is no disagreement concerning the fact, however, that the term “new economy” refers collectively to the rapid changes of the recent years affecting productivity, employment and economic growth. A central feature of the new economy is the way in which the rapid development and application of information and communication technologies (ICTs) has triggered a whole series of innovations. These innovations have a considerable impact on the costs of interactions, transactions and information processing. New opportunities and better solutions become available enabling more efficient company organisations as well as more efficient market and innovation processes. In turn, this has a complex and radical effect on the structure and dynamics of the economy (Entrepreneurship…, 2001). The emergence of the new economy can be attributed to the interaction and combined influence of countless different factors. Competition among companies has been intensified by globalisation, both on the supply side (production at the lowest possible cost) and on the part of investors and capital markets who also generate more pressure. The ubiquitous presence of communication and information technologies has accelerated the long-term transition from industry to services but has also rendered the task of this transition more challenging. This is because products tend to contain an increasing share of added knowledge and become technologically more and more sophisticated. The internet and mobile technology have made possible hitherto radically new levels of information processing, retrieval, analysis and division of labour. Developed societies are spending ever growing amounts on research and development (R&#38;D). The results of research are converted effectively and quickly into applications, services and products. New sectors increased such as biotechnology, nano- and gene-technology. All of this has led to the fact that non-tangible factors - such as R&#38;D, brand names, know-how and human capital – have become extremely valuable constituting a central source of welfare (Barsi, Kanalas, Szarvák, 2005).The spatial structure of HungaryThe fundamental characteristics of state socialist economic control were the mitigation of inequalities on the regional (primarily county-) level and spatial equalisation. Consistent with the ideological system of the regime, this was implemented mainly through the centrally controlled location of industries, initially (between 1965 and 1975) as a result of direct government decisions1, later (after 1975) indirectly, through allowing for the spatial preferences of state-owned large industrial companies.This led to significant reduction in spatial inequalities on the regional levels (i.e. planning/economic regions and even more importantly counties) and in the dimensions under review (i.e. fixed investment developments, output indicators, fixed assets, income and employment). However, a number of insidious trends also emerged which later added to spatial inequalities. One was that marked de-industrialisation2 led to the post-industrial development of Budapest3, which proved to be a structural advantage over the countryside after the beginning of transition (1989-1990). Another characteristic was, that an industrial belt stretching in a North Easterly–South Westerly direction inside Hungary, which was the primary destination of large-scaled industrial investments4. (Figure 1).Key economic actors in the rest of the country included, almost invariably, industrial sectors satisfying local needs, labour intensive manufacturing sectors (food and light industries, particularly, textile and clothes, employing unskilled female labour) and local branches of large companies. Local branches were typical form of large socialist companies. Relying on one single resource (cheap and large number of unskilled labour) in the production process, they were, in fact, the local units of production of large companies in economically backwarded (so-called under-industrialised) regions of the country. Neither qualified management, nor an efficient and experienced administrative staff was available at these branches. Nor were any powers of decision-making delegated to them. After 1989-1990 large state-owned companies divested these branches, the majority of them were unable to survive under market economy conditions. By contrast, core-companies managed to remain in business through considerable sacrifices.Settlement-owned businesses and non-agricultural arms of co-operatives were established to employ permanently or seasonally available labour in local economies. The former were set up to implement the development-related tasks of local councils. Most were able grow under quasi-market circumstances prior to the transition. Later they were privatised predominantly by resident private individuals.Figure 1 : Regional structure of Hungary before the transitionSource : Krajkó, 1982. © MTA RKK ATIThe majority of former self-employed craftsmen had to work in cottage industry and small industrial co-operatives. Evoking the model of the Third Italy, the successful ones are still in business, producing specialised high quality commodities. Those that proved unfit for long-term operation either went out of business or their employees became self-employed again, or formed minor business partnerships.As was pointed out by economists and regionalists at the time, the snare laid by what looked equalisation was that equalisation came at a price, i.e. spatial inequalities became increasingly sharp in the individual counties (regions). Gábor Vági (Vági, 1982) outlined how development funds had been allocated within the individual counties. The development of county seats was accorded the highest priority. In the case of villages, which constituted the bulk of the settlement stock, however, budgetary funds slowed to a trickle. The reason why it engendered general social tension was that from the 1970s booming large agricultural companies contributed to development in villages heavily and ran a verifiable welfare system. Household plot production on the pieces of land allotted to members of the co-operatives was a source of supplementary income, which also resulted in tangible improvement in living standards, through a significant amount of extra work, though.The left-wing of MSZMP, which considered the class of organised industrial workers and, within this, skilled workers to be the backbone of the party, detected agriculture-fuelled rural convergence, and urged immediate steps in industrial areas. The rapid spread of quasi-private enterprises (1982) and, private companies (1984) proper foreshadowed the emergence of a new divide in the country’s spatial structure along a new dimension. (Nemes Nagy, Ruttkay, 1989) Subsequent studies (Rechnitzer, 1993) also attest to a similar spatial divide in entrepreneurial activity, which ran in a West-Easterly direction, while activity in large centres was outstanding.However, the emergence of predominantly small business units was only one spectacular, but not the most efficient factor that shaped the new economic spatial structure that evolved after the regime change. The two key processes were privatisation and greenfield investments, as the amount of capital that was involved in them (especially in the former) was far greater than what was involved during the enterprise boom. The transformation and privatisation of former state-owned (settlement-owned) companies did not have a significant direct impact on spatial structure in the first phase, as there was a change only in the owners of existing production capacity. However, the timing of privatisation, the sectors involved, the type of owners vested with decision-making powers, the corporate strategies on which developments were based and the results of these strategies did matter. Thus, in the case of privatisation it was quality components that were key to corporate level success and ability to adjust as well as, from a broader perspective, development prospects for entire settlements and regions (Nagy, 1998).In the case of privatisation it was existing supply that motivated investors. By contrast, greenfield investments were influenced by the market, logistical positions, accessibility, existing professional culture and the tradition of co-operation, depending on investor’s objectives. As regards privatisation, spatial inequalities of supply and the end of the privatisation process strengthened the economic position of the capital city and its wider space and that of Northern Transdanubian counties (Rechnitzer, 1998). However, the real cause of a dramatic increase in spatial inequalities was the regional distribution of greenfield investments. The regions which investors prioritised were practically identical to the space referred to in connection with privatisation, except that greenfield investments targeted rural space, the Austro-Hungarian border zone, the Vienna-Budapest axis and the capital city’s wider agglomeration space. (Figure 2).Figure 2: The spatial structure of Hungary after the transitionSource: Rechnitzer, 1993Inequalities in the spatial distribution of enterprises, privatisation and even greenfield investments alone would not have led to such sharp spatial differences that they actually did had they not been coupled with the crisis and phase-out of sectors which were the engines of growth in those regions that were less prioritised by capital. A lopsided industry with a wasteful pattern of raw material and energy consumption in former industrialised regions and regional economic models based on large-scale agrarian production as well as related manufacturing and light industry faced crisis. Neither privatisation, nor greenfield investments were able to help the regions concerned overcome it until the final years of 1990s. Increasingly strong separation between crisis and dynamic spaces engendered inequalities across the country, which in turn transformed the pre-regime change spatial structure profoundly and contributed to the entrenchment of internal division. (Figure 2).During the stages of development in the transition period, market forces added to regional inequalities. This dichotomy was clearly reflected in inequalities between the capital city and the provinces, those within rural areas and in the level of development of the constituents of the settlement network. Experience confirms that spontaneous forces in the Hungarian market economy, which, operate along neo-liberal principles, undoubtedly generate inequalities and division rather than integrate regions with different potential and relative advantages.The state development policy of the time also adopted neo-liberal principles, prioritising the sectoral approach over the regional one. This approach focused mainly on improving the competitiveness of the country as a whole, setting a pace of economic growth exceeding EU average and narrowing the productivity gap. It addressed social and regional tensions arising from, among other things, job losses, a lack of investments and less attractive investment opportunities through case-by-case interventions on the wrong scale. What further exacerbated the situation was that the state itself as a key investor5 significantly contributed to spatial inequalities6 (Nagy, 2005).The features determining the appearance and deployment of new ICT sectorsAlfred Marshall wrote over a century ago, that the falling price of communication will change the nature of constraining factors influencing the location of various sectors (Marshall, 1890). Since that time, the influence of the rapid and continuous development of information and communication technologies on the spatial organisation of economic activities has been subject of intense academic and political debates. A considerable part of the relevant literature is devoted to centripetal and centrifugal forces – to use Krugman’s terminology – that lead to the concentration or dispersion of certain sectors (Krugman, 1993). Centrifugal forces induce companies to choose locations far from other enterprises operating in the same sector, while centripetal forces concentrate company locations (industrial agglomerations).Marshall highlighted three important factors with a potential centripetal effect (Marshall, 1892):knowledge ‘spillover’: sharing innovations and exchanging ideas,labour supply: if employers have access to a wide, sufficiently qualified workforce, employees are likely to accept lower wages in order to reduce the probability of unemployment,intermediate inputs: access to intermediate inputs.In the course of academic debate beginning in the 1960s, many argued, due to the emergence and development of new technologies, background conditions would improve and thus a considerable part of industrial activities and services could move from centres to peripheral areas. The emergence of a “global village” was envisaged as the ultimate outcome of this process by Marshal McLuhan (McLuhan, 1964).Some regional researchers had a great hope about the rapid expansion of the new communication technologies to moderate spatial inequalities. However, the great scale of decentralisation processes expected, did not come into being. In the reality, the first phase of the expansion caused a further strengthening of central regions and major cities, and generally the reproduction and reshape of regional differences. Since the mid 1980s, it has been gradually realised that the ICT development would not necessarily lead to the deconcentration of population, it just made some activities (e. g. business and informatical services, R&#38;D) possible, by which some decentralisation tendencies could pass off (Erdősi, 1992). This observation proved right by the spatial analyses of the late 1980s, that affirmed the agglomeration area of big cities to be the main beneficiaries of the boom of ICTs (van der Knaap-Louter, 1989). The new challenges raised by the selection of sites for some kinds of companies (e.g. those of retail, wholesale and logistics) could be satisfied rather by these settlements and areas.This debate received new impetus in the early 1990s when the internet was made available for commercial use. It seemed that the internet and the ensuing communications revolution would liberate the economy from the “chains” of spatial distance. ICT products can easily bridge physical distance and overcome geographical obstacles (Quah, 1999). Therefore, the digital revolution could issue in the “death of distance” (Cairncross, 1997) since such “weightless” goods as software, databases, electronic libraries and the new media would be transmitted free of charge. On Quah’s account, transportation costs for a given output would no longer be dependent on the physical distance to be bridged, but rather on whether the consumer has access to the internet or not (Quah, 2001). If consumers find themselves outside the world wide web, they are not reachable – in which case transport costs are infinitely high. By contrast, if they are online, transport costs are zero. It was predicted, as a result, that the impact of centrifugal forces would be dramatically reduced. In other words, the more access to the Internet became widespread, the more radically would centrifugal forces wither away.New technologies would also make it possible for employees to work at any location. This digital economy could contribute the economic development of backwarded regions. The impact of new technologies would be palpable not only in new economic sectors, but traditional sectors would profit too, since access to world markets would be better than ever before.However, the emergence of Silicon Valley and that of other concentrations of state of the art ICT and high-tech industries tells about diametrically opposing trends. What happens in such cases is precisely that ICT improves the competitiveness of regions and cities already in an advantageous position. It seems therefore, that information technology and cities are tied up in a close, symbiotic relationship. Graham identifies three reasons for this:ICT locates close to already existing, high value-added industries and services thereby accelerating the dynamics of urban growth.A fragile world economy, innovation risks and complexity present in every sector have resulted in the fact that ICT came to be located in places where the “innovational environment” was adequate in order to maintain competitiveness.Finally, cities also generate demand for ICT: mobile and fixed telephone networks, computer networks, internet services. The main reasons for this are the following: the culture of modernisation in large cities, concentration of (all forms of) capital, relatively high level incomes, high concentration of internationally oriented and transnational enterprises (Graham, 2000).These factors have strengthened the positions of large cities (Barsi and Csizmadia, 2001). In addition, cities tend to concentrate important decision-makers. Despite all previous expectations, the importance of personal relationships (face-to-face communication) has not gone back at all. This is because in the course of personal encounters communication processes are enriched by changes in the colour of one’s voice, facial expressions and body language. It has also been shown that the creativity and efficiency of problem solutions will be greatly enhanced if the frequency of personal contact is increased (Sweeney, 1987). Once personal contact has been established, it can be maintained by technological means (phone, fax, email). Nevertheless, personal contacts remain a key area of communication (Grimes, 2000). As Meier-Dallach put it, ICT plays a great role in the area of “routine contacts”, but cannot replace “decision-making contacts” (Meier–Dallach, 1998).The significant territorial concentration of internet content providers is no coincidence either (Tuomi, 2001), for these enterprises must have access to adequate information and knowledge. Moreover, this is a kind of knowledge that is difficult to express in a digitalised or textual form. This problem is analysed by Collins in his study on the transmitting of scientific information (Collins, 1975, 1987). He called attention to the fact that in numerous cases, it is practically impossible to repeat scientific experience by merely reading out a description of the relevant findings. More often than not, physical proximity and “situation knowledge” is also required for this.In theory, therefore, ICT can have both centrifugal and centripetal effects. Ultimately, the interaction and resultant of these forces give spatial structure its final shape.In the following section of this paper, we are going to provide a detailed account of the role played by the ICT sector in the Hungarian economy and employment including sectoral characteristics, location factors, the spatial distribution of ICT enterprises and the changes of this distribution over time. We will seek to answer the question whether ICT activities really appear in a concentrated form and whether they really conserve territorial disparities or not.The importance of info-communication technology (ICT) sector and its increasing national economical significanceThe info-communication technology (ICT) sector has a serious close-up effect owing to the characteristics of “global industry”. According to some analysts, the quick and wide spread of the new information technology, the proportion of production beyond every preceding dimension, the decrease of the expenses of production and conveyance considerably contributed to the integration of half-periphery countries to the global economy, and to the moderation of global income inequality which has increased in quick tune till now. (Negroponte, 1995; Cairncross, 1997)The importance of the “new economy”, within this the ICT sector is increased by the fact that the realized telematical investments, applied new innovations, technologies and procedures contributed to the modernization of “conventional” industries and services depending on the investment of capital (Szabó, 2002). International and national, theoretical and empirical researches consecutively proved that even companies handling only production objectives pass through a continuous, intensive technological development and learning process (Szalavetz, 2003). However, the passive reception of elsewhere developed technology come true, since the use of imported technologies, their installation and setting into operation, already suppose the existence of local technological capacities on a sufficient level (Fransman and King, 1984). This innovation and absorption capacity helps to accumulate technology and knowledge, and this accumulation process affects the capacity and strengthens it. (Criscuolo and Narula, 2002) In this way, a positive spiral, a progression strengthening its own development, carries not only the ability of continuous renewal, but considerably contributes to the preservation of competitiveness of the given company.Table 1: The ICT sector’s share in the economy19951997199920012004In GDP (%)6,311,413,914,316,5In gross value-added (%)8,011,412,312,012,6Source: KSH (Central Statistical Office) The ICT sector in Hungary 1995-1997, 2001. And NHH (National Communications Authority) Statistical Yearbook on Telecommunications 2005The importance of Hungarian ICT sector is determinant, mostly because of the role of the dynamic augmentation of the “new economy”, its outstanding innovation performance, and its contribution to the development of other sectors of economy (processing industry, commerce, business services). In addition, in our opinion it is important to emphasis that its stress has been growing on the whole national economy since the middle of the 1990s (Table 1).The statistics demonstrate that between 1995 and 2004 the ICT sector increased its share by 10,2 % according to the gross output, and with 4,6 % within the gross value added in relation to the whole performance of the national economy. The economical closing up quality of the sector is well proved by the export orientation exceeding the average of the national economy, the prominently high gross value added per capita, the continually growing employment (while in the national economy between 1998 and 2004 the number of employed people increased with 4,9%, in the ICT sector it increased with 34,4%), and the monthly gross salary of employees exceeding the average of national economy with circa 39% (Table 2 and 3).Table 2: Indicators of the ICT sector economic share1998199920002001200220032004Share of export revenues from total net revenues, %        Economy overall21,022,223,423,922,824,423,5ICT sector overall43,347,242,949,146,350,444,0        Per capita gross value-added, current prices (in million HUF)*        Economy overall2,32,62,93,33,74,04,3ICT sector overall5,66,15,86,47,28,48,9Of which:       Manufacturing3,93,73,43,64,15,76,4Product-related services5,15,56,06,67,47,27,3Non-product-related services7,59,08,910,010,912,012,5        Number of employees (thousand people)         Economy overall2138,72131,7298,32233,52225,22213,202244,40ICT sector102,4112,9132,2137,1132,0128,3137,6Of which:       Manufacturing49,557,770,472,865,167,374,1Product-related services6,97,68,99,811,06,77,4Non-product-related services46,047,652,954,455,954,356,1        Value of assets invested (in billion HUF)*        Economy overall10211135641905023506253582953431645ICT sector9551 2941 6462 1922 1132 3402 455Of which:       Manufacturing149244344380313586567Product-related services314971791037463Non-product-related services7751 0001 2311 7331 6971 6791 825* 1 € = 245,93 HUF (Source: Hungarian National Bank, 31.12.2004)Source: NHH (National Communications Authority) Statistical Yearbook on Telecommunications 2005.In case of certain economic indexes within the ICT sector, it is observed that the dynamic growth will probably continue in the near future too, since after joining the European Union, it is conspicuous that companies are compelled to increase their efficiency because of the continuous augmentation of the market, and the growing number of competitors. A company which falls behind in the field of the reception of new technologies or it does not employ the information services may get into a serious handicap in competition. Therefore the market of knowledge-intensive products and information-intensive services is continually increasing, the market strategy specialized on this makes companies more competitive, and in case of products produced for the service sector, it can reduce the dependence on the upturn of economy (Dőry and Ponácz, 2003).Table 3: Key economic indicators of the ICT sector199920002001200220032004Number of active enterprisesEconomy overall802215847024840575860022882503871956ICT sector242312691028404307403510332617Of which:Manufacturing364337744290428941274046Product-related services2407257026862 78832111843Non-product-related services181812056621428236632776526728      Average monthly gross wage of employees, current prices (HUF/month/capita)*Economy overall7718787645103553122482137273145520ICT sector overall105462126627149620175389188540202073Value of investments, current prices (in billion HUF)*Economy overall2427,102831,703122,103408,503694,84155,0ICT sector244,1372,5304,4250,4248,1308,8Of which:Manufacturing73,7125,288,072,7106,6132,4Product-related services6,36,910,59,19,79,8Non-product-related services164,1240,4205,9168,6131,8166,6* 1 € = 245,93 HUF (Source: Hungarian National Bank, 31.12.2004)Source: NHH (National Communications Authority) Statistical Yearbook on Telecommunications 2005.The significance of the info-communication sector in the employment structureThe changes in employment structure gave a realistic picture on the state of the art of information society in certain units. According to Daniel Bell’s (Bell, 1973), Michael Hepworth’s (Hepworth, 1989) and Yonei Masuda’s (Masuda, 1988) conception, the major trend could be the emerging share of services, ICT-related and creative activities in parallel the strengthening dualistic face of the employment market, as Manuel Castells pointed out in his books (Castells, 1989; 2005). In a previous article (Nagy, 2002), we made an early experiment to define the information-active and passive working groups, focusing the regional inequalities. In the recent researches Jakobi (Jakobi, 2007) and Szépvölgyi (Szépvölgyi, 2007) used partly different methodology, but got the similar result in this case.During the determination of the proportions, the problem may be approached according to two tendencies, since the available sources also discuss the distribution of the employment on the basis of two different principal trend. The better-known and more used dimension is the stratification according to the national economic sectors and subsectors, the other also often used distribution is the proportion according to the main division of activity, and sub-division of activity. It will be well seen, that the results of examinations from two different approaches are not so far from each other, if the delimitation of the occupation scope is managed to be given relatively exactly (Table 4).The number of the occupation groups working in the information-intensive spheres of activity7 considerably shifted on three domains between 1990 and 2005: the number of employees working on the domain of law and sociology and in the sector of informatics increased, in parallel with this the number of technicians stagnating after a short period of decrease between 1990-1993. Owing to the fact that the number of employees decreased with over 1 million till 1996 and increased with 361.600 till 2005, the proportion of people working in the chosen advantaged occupation groups slightly increased.Table 4: Employees in IT-intensive working groups by regions (NUTS 2)IndexKözép-Magyar-országKözép-DunántúlNyugat-DunántúlDél-DunántúlÉszak-Magyar-országszak-Alföldél-AlföldHUNGARYEmployees total, 199610668594004583961953253753799064491534668793484825Share of IT-intensive workplaces, 19967,123,863,333,173,013,562,834,47Employees total, 200111626424468144153633367963920204657584708753690269Share of IT-intensive workplaces, 20017,263,423,123,243,292,942,834,43Employees total, 200512266264558574152963460674114095053154858163846386Share of IT-intensive workplaces, 200512,467,266,136,076,525,545,428,16Source: Microcensus, 1996; National Census, 2001; Microcensus, 2005. Central Statistical Office, Budapest IT-intensive working groups: engineers, natural sciences, law and social sciences, technicians, informaticsAt the level of NUTS 2 regions, the advantage of Central Hungary area continued to increase (the national average increased from 159% to 164%), and a slow equalization began among the other 6 regions (Table 5). Although none of these regions reached the national average, the difference between the strongest (Central Transdanubia) and the weakest (Southern Great Plain) rates decreased. The recession of Central Transdanubia region after 2001 is responsible for the great part of it, but the improving index-number of Southern Great Plain region affected it to the extent of 10%. The data of Northern Hungary and Northern Great Plain regions may be partly attributed to the fact that the activity rate is very low in this region, and the rate of low-qualified classes is outstanding within the unemployed and the inactive, serving as a base of the possible work-force augmentation. Thus probably the number of information-intensive groups would slightly increase besides a higher employment rate, and their rate would decrease to a low level – similarly to Southern Great Plain (Northern Hungary), or an even lower level (Northern Great Plain).Figure 3 : Territorial administrative units in Hungary (2001)During the examination of the distribution of sectors, it is worth to make a sharp distinction between the rate of employees working in the field of info-communication industries and information-intensive services. The two proportional number do not show correlation even on county level, namely the high rate of the IC-industry sector does not create development potential for the information-intensive services and return in the local economy. In this relation, the globalization, clearly demonstrable in the world economy until the 1970s became feebler because of the segmentation of the production chain and the transfer of production, nowadays the two processes separated from each other almost completely.Table 5: Employees in IT-industry and IT-related services by regions (NUTS 2)IndexKözép-Magyar-országKözép-DunántúlNyugat-DunántúlDél-DunántúlÉszak-Magyar-országszak-Alföldél-AlföldHUNGARYEmployees total, 199610668594004583961953253753799064491534668793484825Share of IT-industry employees, 19961,472,920,640,990,771,060,471,23Share of IT-related services employees, 19969,574,083,664,403,934,164,095,74Employees total, 200111626424468144153633367963920204657584708753690269Share of IT-industry employees, 20011,945,603,642,372,141,620,912,46Share of IT-related services employees, 200113,574,654,875,474,874,975,267,95Employees total, 200512266264558574152963460674114095053154858163846386Share of IT-industry employees, 20051,534,113,832,663,131,990,832,33Share of IT-related services employees, 200517,987,877,348,497,037,107,3010,83Source: Microcensus, 1996; National Census, 2001; Microcensus, 2005. Central Statistical Office, BudapestIT-industries: electrical and precision sectorIT-related services: finance and insurance, computer services, business services, research and development, media, tertiary educationCompared to world processes, the national situation shows specific characteristic only so far as the process started later in time, after the political transformation, but its running was much faster than in the western countries. The state-owned large-scale manufacturing companies in the examined activities were closed or divided into the constitutional compass of multinational companies, or new producing capacities appeared in the economic scope owing to “green-field” investments. In the first case, the existing synergies were completely eliminated, while in the latter ones the connection network of the companies were transformed/formed according to a different logic, the information flow with the parent company, the direct subcontractors and the users became decisive, synergies with an outward trend appeared slightly.It is not accidental that the high IC-industrial share did not drag the development of information-intensive services either in the case of Central or Western Transdanubia regions. While at the first example we may refer to the fact that companies seated in the capital and its conurbation zone are able to provide the service background, in the latter case it is not a sufficient explanation. The significance of IC-industries (telecommunication industry, electronic industry, instrument production) considerably increased between 1996 and 2001and after 2005, which clearly announces its role played in the manufacturing structure8. Outstanding cycle development occurred in Central and Western Transdanubia, and the importance of the sector did not increased in the employment structure only in the case of Southern Great Plain. The proportion of information-intensive services significantly increased within the economically active population between 1996 and 2005 both on national and regional level. The position of Southern Great Plain is quite favourable, since it stands second, just behind the national average (it reaches 98 % of it). Herewith a very sharp disparity exists among Central-Hungary region lead by Budapest and the rest of regions. The first one has continued to increase its advantage at the expense of the rest of regions (from 159 to 164%).Overall, it is obvious that the importance of information-intensive activities increased in the employment structure of Hungary after the second half of the 1990s.As markets and the employment expand, it is also worth investigating which specialised areas within the ICT sector have developed and will develop the fastest on the basis of products and services with higher value-added and their ability to adjust to and exploit economic conditions in Hungary.Characteristics of the Hungarian ICT sectorThe analysis of specialised sub-sectors of the ICT sector indicates that in recent years most enterprises have been launched in the area of ‘non-product-related services’. This field has recorded the highest investment figures. This is also where the value of assets invested have been the greatest and where the gross value-added expanded most dynamically (by more than 66% between 1998 and 2004). Within the area of ‘non-product-related services’, the sub-sectors of software development and consultancy, information technology and data processing have seen the most spectacular development, regarding both the number of companies and employment. At the same time, the largest investments in this area have been associated with telecommunications activities where more than 1200 billion HUF (amounting to approximately 61% of all ICT investments) have been invested in recent times (more precisely, between 1999 and 2005).The role of ‘manufacturing’ is also to be highlighted within the ICT sector because of the relatively high number of enterprises and employees, the dimensions of investments carried out and the innovation potential of the relevant activities. This area comprises eight specialised sub-sectors. The number of enterprises in processing industry was constantly increasing by 2001 (4.290 companies), but since then more and more companies cut back their labour-intensive processing activities or even moved abroad, due to the dotcom crisis and the slow decrease in Hungary’s competitiveness. By 2004, the number of enterprises decreased to 4.046, though the number of employees increased from 72.000 to 74.000, being an impact of some investments in greater value-added products by global companies to broaden their capacities.ICT enterprises in manufacturing are characterised by the high share of foreign capital (81%) and a particularly strong orientation towards exports, the most significant market activity within this sector. The significance of ICT manufacturing (e.g. computer and telecommunications appliances) is further increased by the fact that foreign companies settling in Hungary have introduced professional skills and production technologies at the majority of enterprises, previously unknown in this country. Moreover, products with high value-added started to become more important in the production structure requiring continuous development. Consequently, R&#38;D departments have been added to production facilities at several companies (e.g. IBM, Ericsson, Elcoteq, Flextronics, General Electric). ICT manufacturing, however, is still not very strongly embedded in Hungary. This sector is extremely sensitive to market shifts. Thus it reacts very quickly to international (e.g. ‘dotcom crisis’ and general economic recession) and domestic (e.g. decaying economic competitiveness in recent years) changes by restricting or shutting down production (e.g. IBM’s abandoning of its production site in Székesfehérvár). This process is also reflected in statistical figures of recent times. It can be seen that the willingness to invest has gone back, while gross added value has stagnated and the number of enterprises failed to grow. Unfortunately, the domestic subcontracting background is also inadequate. This can only be partly attributed to the limited potential of local companies. International studies have shown that information manufacturing is a sector in which local actors are most likely to operate in isolation, or else to connect almost exclusively to their base companies and own multinational networks independently from their host countries (Szalavetz, 2002).In order to reverse this unfavourable tendency and to further the integration of ICT enterprises in Hungary, it is important to enhance the potential of local companies, strengthen local technological diffusion (e.g. by intensifying connections between local industries and universities and by promoting cooperation between the ICT sector and information-sensitive economic enterprises), and to study the availability and quality of factors required for the location of this sector.These findings enable us to conclude that location factors crucially impact on the spatial distribution of lCT enterprises in Hungary, and can be observed to display a number of specific characteristics.Territorial distribution of the ICT sectorFollowing the sweeping social and economic transformation in the wake of system change, lCT enterprises appeared in larger numbers in more developed regions. These adjusted to new circumstances more perfectly and faster (Table 6).The extent of territorial concentration is indicated by the fact that more than two-thirds of all lCT enterprises (with legal status) were located in Budapest and Pest county in the early 1990s. It is to be noted that in these areas as well as in Fejér county not only were the number of lCT enterprises high, but their share in the total number of enterprises also exceeded the national average. This suggests that in these counties factors required for the location of ICT enterprises (e.g. skilled workforce, large markets, a wide spectrum of services, adequate infrastructural background) were available to a sufficient extent or at least in a more favourable combination than elsewhere.In any case, there are considerable disparities in the quality and quantity of location factors throughout the country. This explains the fact that even ten-fold differences among various areas could be registered in the county-level distribution of ICT enterprises in the early 1990s. We get an even more striking picture by studying the emergence of ICT companies at the level of micro-regions.The information and communication economy of the early 1990s was concentrated in a relatively small geographical area. Enterprises of this sector appeared in larger numbers only in the micro-regions of county and regional centers (county seats concentrated almost 80% of ICT enterprises) and in Budapest’s agglomeration zone. In two-thirds of Hungary’s micro-regions, however, no ICT enterprises at all or only very few have operated. The existence of such areas, where ICT enterprises were entirely missing or only very poorly available, well represented the massive information and communication disadvantage suffered by countryside regions. This handicap only exacerbated their deep-running economic, social and infrastructural problems and has negatively influenced their future development as well.Table 6: Distribution of ICT enterprises by county (NUTS 3)CountyTotal number of ICT enterprises*Total number of enterprises*ICT/total number of enterprises (%)199220061992200619922006Bács-Kiskun776142847181352,703,39Békés38276137781032,763,41Csongrád966502539139433,784,66Dél-Alföld21115406763401813,123,83Baranya936302656164433,53,83Somogy44303165196862,673,13Tolna30258110469682,723,70Dél-Dunántúl16711915411330973,093,60Hajdú-Bihar716112346173063,033,53Jász-Nagykun-Szolnok44347145997633,023,55Szabolcs-Szatmár-Bereg714171876156073,782,67Észak-Alföld18613755681426763,273,22Borsod-Abaúj-Zemplén917163208197112,843,63Heves27331103887562,63,78Nógrád2414690245722,663,19Észak-Magyarország14211935148330392,763,61Fejér1157712493156804,614,92Komárom-Esztergom574941960120292,914,11Veszprém333731844119981,793,11Közép-Dunántúl20516386297397073,264,13Budapest185313655320361921075,787,11Pest30238006361600764,756,33Közép-Magyarország215517455383972521835,616,92Győr-Moson-Sopron886852412178883,653,83Vas30312104182972,883,76Zala442921633105772,692,76Nyugat-Dunántúl16212895086367623,193,51Total322825681727834776454,445,38Source: KSH Cég-Kód-Tár (Company-code-register of the Central Statistical Office) 2006/4Economic associations whit legal status were registered according to the location of their headquartersFrom the second half of the 1990s, the dynamically growing presence of FDI, a generally improving economic performance and the development of optic fibre networks – following the privatisation of the telecommunications sector in 1994 – was accompanied by the proliferation of ICT companies on the domestic market. In accordance with international trends, the number of enterprises (with legal status) has increased about eight-fold in this sector during the last fifteen years. This growth can be attributed to the growing demand for information generated by a more and more liberal economy, the development of public administration and an increasingly democratic society and was certainly also driven by international tendencies (globalisation, information and communication revolution, preparation for ED accession etc.).The multiplication of ICT enterprises was accompanied by their gradual spread all over the country. This is well indicated by the fact that while 3.228 enterprises with legal status were concentrated in as few as 300 settlements in 1992, almost 26.000 companies operated in about 1.103 settlements in 2006. Despite overall decentralisation, Budapest’s and Pest county’s dominance further increased at county level (68%). In addition, even though the share of ICT enterprises increased in almost every county, the former ten-fold difference in the number of locations now became a twenty-fold gap (comparing Pest and Nógrád counties).These discrepancies have become even more dramatic at the micro-regional level. Regional centres which have seen more intense ICT activities formerly (micro- regions around regional centers) as well as the most favourably situated parts of the Budapest agglomeration now form ‘enclaves’ in their respective surroundings. Meanwhile, in about a third of all micro-regions, the number of ICT enterprises still fails to reach even 10% of the overall micro-regional average. The areas least attractive for the ICT sector are the micro-regions located on the internal peripheries of regions most severely hit by economic and social crisis – Northern Great Plain, Northern Hungary and Southern Transdanubia – close to national or county borders (Figure 4).Figure 4: Territorial distribution of ICT enterprises in 2006 / (ICT enterprises per 10.000 persons)Source: The author’s own calculations on the basis of data by KSH Cég-Kód-Tár 2006/4. (Company-code-register of the Central Statistical Office), ©Farkas J. Zs., Kanalas I., MTA RKK ATI, 2007Regarding the settlement network, the pattern of the appearance of ICT enterprises has closely followed the levels of settlement hierarchy. Approximately 90% of enterprises in this sector are concentrated in towns. Locations in regional centres are the main characteristics as two-thirds of all ICT enterprises. In addition, it can also be observed that the concentration of companies associated with the ICT sector is more significant than for all other types of economic organisations. These findings appear to confirm the view that proximity to settlements with central functions is a particularly high priority in the information and communication sector (Rechnitzer, Grosz and Csizmadia, 2003).Such a great concentration of ICT sector has been determined not only by local functions, market and solvent demand, but also by the establishment of communication infrastructure and the “information sensibility” of local societies – being both cause and effect the spatial diversities of Hungary on the field of information.Causes and regional distribution of information diversitiesICT development in Hungary accelerated by the privatisation of telecommunications in the 1990s, showing some special regional preferences even in the first years. ICT tools, services and branches – satisfying market demands – firstly appeared at densely populated economic and education centres, spreading from these to the rest of settlements. By 1990 the expansion was dominantly affected by the info-technological infrastructural conditions of the area, and the development strategies of telecommunication and informatical, considering quick profit as their most important aim. Therefore, optical networks and digital centers were created at first in settlements and areas with significant solvent demand. However, the technological gap has been constantly decreasing due to the network development of telecommunication companies, the liberalisation of telecommunication in 2002, the competition of new technologies (3G, WiFi, cable TV, ADSL, satellite communication) By now, the most serious boundary of ICT use, services and enterprises is built by the special needs of installation of the ICT sector, instead of technical infrastructure.Our calculations support the correlation between high education level, creative and innovative population, high salaries, a rich background of institutions and services, the presence of information intensive businesses (banking, real estate, tourism, media, logistics, higher education, R&#38;D etc.), an adaptive cultural environment, and the settling of ICT sector. The above conditions being concentrated in the space, some new types of regional diversities (to be measured by supply and activity) emerged besides the traditional dimensions of diversities (e.g. demographical, economical, infrastructural) in the last couple of years.Examining “information sensibility” at the level of micro-regions, the developed or developing areas concentrated along the most important transport axes (the motorways M1, M5 and M7). At the areas further to the South and the East from these axes, just some densely populated county-seat’s micro-regions stand out of their environments. Seeing this index at local level, spatial structure is not so clear as in the case of larger spatial units (Figure 5).Figure 5: Regional difference of the information preparedness in HungarySource: The author’s own calculations, ©Farkas J. Zs., Kanalas I., MTA RKK ATI, 2007Even the more well-supplied areas of greater “readiness” in Pest County and Nyugat-Dunántúl Region show a mosaic-like picture. In many cases, the favourable category is due to one central town (e.g. Sopron, Győr, Veszprém, Tatabánya, Székesfehérvár) and their few satellite settlements, while the rest of the area have just average or even more adverse indicators. The conditions of the Great Plain show something special, as in spite of the relatively lower level of information readiness at micro-regional level, quite a few towns (e.g. Szentes, Orosháza, Hajdúszoboszló, Derecske, Kiskunhalas) have favourable indicators. In this region, the greater size of settlements and the higher urbanisation level in comparison to the rest of the country seem to be distinctive conditions of IC development. It turned out during the qualification and classification of settlements, less geographical situation, and more settlement size and functions can determine information supply and activity.Through the evaluation of pointing for the qualification of settlements (Kulikowski, 2005), and the subsequent classification – by the optimalisation method of Jenks (Jenks, 1967), Hungarian settlements were divided into 5 categories.According to our analysis, only 10 percents of Hungarian settlements (though having 62 % of the total population) can be considered as settlements with sufficient information readiness and economical, human, infrastructural and income conditions. This low rate is a possible explanation for the slow expansion of ICT applications. Nevertheless, it is worth considering, that about 1.35 million people (13 % of the population) live in settlements with poor or no “information sensibility”, low income and education level and sparse population. In more than one third of these 1.600 settlements (574 ones), we could not find any ICT enterprises, domain name registration, any school nor other kinds of institutions having access to the web. Such settlements can be found almost exclusively in the small-village areas of Western, Southern Transdanubia and Northern Hungary regions.Another cause of the slow expansion of Information society in Hungary, also related to regional tendencies may be that the innovative aura of the well-developed, information ready cities is quite poor. This supposition is supported by our auto-correlation analysis on the neighbourhood relations of local information readiness (Figure 6).Figure 6: Regional autocorrelation of the information preparedness in HungarySource: The author’s own calculations, ©Farkas J. Zs., Kanalas I., MTA RKK ATI, 2007According to the analysis, only a very few number of regional or micro-regional centers have substantive impact on their environment. Budapest is the only settlement having a clear innovative aura, especially towards the West and the South, extending to a maximal diameter of 80 kms (50 miles). In this area, a further rapid information development can be predicted, due to the concentrated presence of some important deployment factors.Some similar tendencies can be observed in the area of Győr town and Lake Balaton area, however limited in space, accumulated by other factors than in the case of Budapest. In the case of Győr, industry, education end commerce play a distinctive role, while Lake Balaton area is developed mostly by services (tourism) and real estate sales.In the rural areas of Hungary, especially in the small-village areas Baranya, Borsod-Abaúj-Zemplén and Szabolcs-Szatmár-Bereg counties, the conditions are significantly more adverse. Urban centers of these areas are either deeply merged into their environment, or sharply different from it. Their innovative effect is very poor, being insufficient to cope with the weakness of adaptive background (active, adaptive communities, infrastructure, local functions, density of services and enterprises, R&#38;D activities) in the neighbouring settlements. There is a peculiar negative spiral working among the marginalising rural settlements mutually weakening the development potential of each other, and even setting back the development of their urban centres (e.g. Pécs, Nyíregyháza). In the greater part of the country, the lack of correlation marks not only the extreme diversities in the level of development between neighbouring settlements, but also their disability to adapt any impulses of development. The lack and/or weakness of dynamical centers out of Budapest form the most serious barrier of the rapid expansion of information society in Hungary.ConclusionThe rise of “new economy”, the step-by-step change of economic and social values in Hungary set up a series of challenges for political elite, entrepreneurs and companies and for the inhabitants, day by day. If Hungary wants to preserve, or strengthen its competitiveness in the globalised World economy, serious transformations are needed in the field of regional policy, as well. Regional differences in Hungary are very strict in the “traditional” economic (GDP, industrial output, export, added value) and social (activity rate, unemployment, wages, incomes, purchasing power) indexes as the result of transformation into market economy after 1990, however in the segments influenced by info-communication technologies the inequalities became significantly sharper.In this paper, the authors try to depict the main processes in the rising information society in a transitioning country from East-Central Europe, however, we emphasize the causes behind the scenes. The length of this paper is not enough to introduce the more detailed case studies and explain the most important consequences. In spite of this, there are at least three different types of adaptation processes to be described in Hungary, concentrating on the more advanced groups of settlements:1. The suburban zone around the capital city became the most important adaptation zone of the country, with Budapest in the centre, as a major gateway city receipt the new innovations coming through the global “space of flows” (Castells, 2005). This zone covers a 60-80 kms (40-50 miles) wide zone around the CBD of Budapest. The use and adoption of info-communication technologies is vigorous, thanks to the rapid transformation of traditional local societies. This transformation process has been even forced by those 300 thousands people having moved out of Budapest after 1990.2. The counties of the Northwestern part of Hungary are the success regions of economic transformation. The re-industrialisation process (led by FDI) and the rising business service sector means another, economic-led development way. The region is not homogenous in the case of ICT-adaptation. While small and medium-sized towns have a high level of use in new technologies, the transformation of rural areas (dominantly villages with less than 500 inhabitants) are lagging far behind. This dualistic structure in settlement hierarchy could slow down the process significantly.3. In the Southern and Eastern regions of Hungary, particularly in towns, economic restructuring is only one of the main renewing strategies, the transformation is based hardly on central institutional functions, as well. The employees of institutions belong to the regional, national or international importance central functions were the engines of ICT-use. The special programs organised by the central government played an important role in large-scale adaption (e.g. tertiary level education). In spite of the clear advantages in settlement hierarchy (larger villages, higher rate of population living in urban centres) in part of the regions (Alföld) in adaptation process of ICT innovations, the latest quality and structure of local societies and economies are barriers of the diffusion. The major problems are presented in the regions of Dél-Dunántúl and Észak-Magyarország, where the high level of inactivity in economy and society in use of ICTs combined with the disadvantages of settlement structure, as well. The differences among the levels of settlement hierarchy are the widest in these regions, and they reborn in all innovation waves of new generation ICTs.The central government of Hungary is not ready to solve all of the challenges. The implementation of Hungarian Information Society Strategy (MITS, 2003) has several problems, particularly in the field of equal opportunities. The regional and rural policy leave out of consideration the increasing digital gap and make priority to the “traditional” sectoral point of view. However, information society programs are parts of National Development Plan 2007-2013 (ÚMFP, 2007) and National Rural Development Plan 2007-2013 (ÚMVP, 2007). However, these programs will support only a small amount of money. This trend seems dangerous. Hungary has competitive advantages in the field of information society and the rivals from East-Central Europe (particularly Estonia, Latvia, Slovenia) and Worldwide has well defined policies and enough resources to compete.