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The Political Economy of Orphanage Systems, Criminal Socialisation, and Post-Soviet Moral Realignment

In the late Soviet and satellite economies, large-scale orphanage systems were not merely welfare institutions but instruments of labour allocation and social control. Chronic shortages of human capital, combined with authoritarian indifference to individual welfare, produced environments in which children—particularly orphans—were raised collectively, disciplinarily, and often brutally. Economic theory suggests that when the state substitutes for the family without adequate incentives or accountability, it generates moral hazard on a vast scale. In practice, this translated into institutional cultures where informal hierarchies, coercion, and criminal norms flourished.

From such systems emerged a darker externality: the recycling of institutionalised children into organised crime. Orphans raised by adults embedded in criminal networks—whether guards, administrators, or associated actors—were exposed early to rent-seeking behaviour, violence as governance, and loyalty enforced through fear. Over time, these children matured into operatives who reproduced the same structures, contributing to transnational criminal enterprises that mimicked the command-and-control logic of the Soviet state itself. The result was a perverse form of “human capital formation”: skills optimized not for productivity, but for extraction, intimidation, and illicit arbitrage.

Hungary’s post-2010 shift away from large residential institutions toward family-based care marks a sharp break with this legacy. The Orbán government’s closure of orphanages and transfer of children into foster and adoptive families has been controversial in execution but clear in intent. From an economic standpoint, the policy sacrifices scale efficiency for social return. Families, unlike institutions, internalise the costs of moral failure and the benefits of socialization. They are inefficient factories, but effective moral agents.

This transition weakens the residual power structures inherited from the Soviet era—networks that thrived on anonymity, disposability, and fear. It may reduce Hungary’s capacity for the ruthless forms of informal power once valorised in the shadow economy. Yet it replaces them with a different asset: social trust. In the long run, economies governed by families rather than gangs, norms rather than coercion, and legitimacy rather than brute force tend to be poorer in criminals but richer in stability.

In abandoning the brutal push-operations of institutional mass upbringing, Hungary signals not just a policy change but a moral realignment. The country may lose a certain gangster efficiency. It gains something more durable: a society less engineered for predation, and more inclined toward continuity, restraint, and responsibility.