On Financial Bubbles and Earthworms: Lessons from Hungary’s Rural Pyramid during its Economic Transition

Abstract

Abstract In the early 1990s, Former Eastern Bloc countries, including Hungary, experienced a broad transition from centrally-planned economies, managed by party-state bureaucracies, to privatised economies. Throughout the market liberalisation process, the Hungarian market embraced entrepreneurship as a mechanism for generating both private wealth and economic growth, despite a lack of experience and know-how in business management and financial education, made largely unavailable by the communist regime for more than 40 years. On these grounds, several Eastern European countries experienced the rise of Ponzi schemes. The Hungarian earthworm pyramid can serve as an interesting example of the financial pyramids that evolved during the transition of economies. However, some of the characteristics of the Hungarian earthworm pyramid suggest that it was a rather unique case when compared to other Eastern European pyramids during the economic transition period of post-communist nations. Our study concludes that, under different political and economic circumstances, the Hungarian bio-humus production by earthworms could potentially become a profitable venture, rather than a source for financial and societal damages.