Hungary underwent much change after 1867. The achievements of the Deákist and Liberal governments included the assimilation of the former outlying areas of Transylvania and the Military Frontier, a reform of the relations between the central government and the counties, and a general reorganization of the administration. The judicial system was modernized. Relations between the state and the churches were, after a long struggle, restated in 1894–95 on terms satisfactory to the liberal philosophy of the day. This completed the full emancipation of Hungary’s large Jewish population, who had already gone through the basic emancipation process in 1868, based on a law prepared by Baron Eötvös. In 1868 Eötvös also carried through an admirable elementary education act, and much headway was made in raising the educational and cultural level of the country. After long difficulties the national finances were put in order and the public debt reduced.

There was considerable economic progress in many fields. Agriculture remained the mainstay of the economy. The medium and small landowners had been hard-hit by the land reform of 1848, but the survivors were helped by the high agricultural prices and the secure Austrian market. Afterward, the general European agricultural depression plunged even the big landowners into difficulties, but these diminished near the end of the century when prices rose again, while the quality and quantity of production improved. Many branches of industry failed to survive the customs union with Austria, but agriculture prospered, and later, as domestic capital accumulated, a process of industrialization, helped by state legislation, set in and expanded rapidly after 1890. As late as 1910, agriculture was still the most important branch of the economy, and more than two-thirds of the population still derived its livelihood from the soil, while about one-sixth did so from industry and mining.

Urbanization proceeded apace. The growth of Budapest—formed in 1872–73 through the merger of Buda, Pest, and Óbuda—was meteoric. Its population during the age of dualism rose from 270,000 to nearly 1,000,000. Not counting Zagreb in Croatia, five other cities in the Hungarian realm (Szeged, Szabadka [Subotica], Debrecen, Pozsony, and Temesvár) had populations between 75,000 and 120,000, and a dozen more cities totaled about 50,000 inhabitants. The urban population for the country as a whole doubled from 2,000,000 to about 4,000,000. Communications were largely modernized, particularly through a Budapest-centred complex railroad system.

For all this, Hungary was still a relatively poor country. The continued extremely rapid growth of the population—from about 15 million in 1869 to more than 20 million in 1910 (with the population of Croatia gaining along the same lines)—had far outstripped that of the means of production. The growth of industry was still too slow to absorb the surplus rural population, and, in spite of a high emigration rate, which in the years before World War I averaged 100,000 annually, acute rural congestion had developed. While 35 percent of the land was held in 4,000 large estates, there were about two million small, or dwarf, holdings, and a further 1.7 million persons (wage earners) were totally landless. A large proportion of these rural workers were forced to live in conditions of extreme misery and near starvation. The living standards and conditions of the industrial workers, especially the unskilled, were also very low.

Emigration was viewed by many as a welcome safety valve, but some Magyars regretted that it had significantly reduced their presence in the multinational Kingdom of Hungary. As best as can be ascertained from the often conflicting Hungarian and American statistics, in the period between 1880 and 1914, about 1,800,000 Hungarian citizens emigrated to the United States. Of the U.S.-bound migrants, more than one-third (650,000–700,000) were Magyars, while the rest included Rusyns, Slovaks, Germans, Romanians, Croats, and other South Slavs. Significantly smaller numbers emigrated to western Europe and elsewhere.

The political structure was not modern. The unreformed franchise excluded the masses from political influence, and even the vocational organization that they were able to achieve was primitive. The industrial and financial development had been largely the work of Jews (who also played a large part in the professions) or of Magyarized Germans. Its own quasi-alien character and its small numbers prevented the Hungarian middle class from developing into a positive factor in the political life, which continued to be dominated by a landowning class whose social and political ideas failed to move with the times.

The “nationalities problem” remained intractable. After 1868 Hungarian political philosophy insisted more strongly than ever that the Hungarian state must be Magyar in spirit, in its institutions, and, as far as possible, in its language. Suggestions to the contrary, or appeals to the Nationalities Law, met with derision or abuse. In spite of the law, the use of minority languages was banished almost entirely from administration and even justice. While the autonomy of the church schools was hardly attacked until the 20th century, most denominations saw to it that all secondary education in their schools, with trivial exceptions, was in Hungarian. The Magyar language was also overrepresented in the primary schools, as it was in practically all instruction in the state schools founded from 1870 onward. For example—discounting Croatia, which had its own educational system—in 1912 there were 13,453 Hungarian-language elementary schools, compared with 2,233 schools that instructed in Romanian, 447 in German, 377 in Slovak, 270 in Serbian, 59 in Ruthenian, 12 in Italian, and 10 in various other languages.

By the end of the century, the state apparatus was entirely Hungarian in language, as were business and social life above the lowest levels. The proportion of the population with Hungarian as its mother tongue rose from 46.6 percent in 1880 to 51.4 percent in 1900. The Magyarization of the towns had proceeded at an astounding rate. Nearly all middle-class Jews and Germans and many middle-class Slovaks and Ruthenes had been Magyarized.

Most of the Magyarization, however, had been in the centre of Hungary and among the middle classes, and much of it was the direct result of urbanization and industrialization. It had hardly touched the rural populations of the periphery, and the linguistic frontiers had hardly shifted from the line on which they had been stabilized in the 18th century. In these areas, moreover, a hard core of national feeling had survived. This had weakened during the first decades after the Compromise but was reviving again at the beginning of the 20th century. This was especially so among the Romanians and was being encouraged from across the frontiers of Romania and Serbia and (in the case of the Slovaks) from Bohemia. Hungaro-Croatian relations too deteriorated, after a period of quiescence, when the Serbian government began propagating a theory of South Slav (Yugoslav) unity designed to detach the Croats from the monarchy.

Many of these developments threatened the very basis of the Compromise, and to this another uncertainty was added. Franz Joseph could be trusted to support and accept the policies of any Hungarian government that on its side maintained the Compromise loyally; but he was an old man, and his heir presumptive, Archduke Franz Ferdinand, was notoriously hostile to the Hungarian regime. In touch with many of its opponents, the archduke was credited with designs of overthrowing the Compromise to the benefit not of its traditional opponents, the Hungarian Independents, but of its enemies in the opposite camps, especially the nationalities.