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Other Heresies: Hungary

7 minute read
George Russell


In the fashionable neighborhood of Zugliget, overlooking downtown Budapest, the drabness of Communism seems a world away. Sleek, modern villas nestle beside Italianate mansions along the quiet, winding streets. Well-coiffed women in fur coats promenade upon the snow-dusted sidewalks. The district that housed many of Hungary’s pre war magnates now shelters a different breed of plutocrat: the entrepreneurs who have prospered under the country’s unique brand of “goulash Communism.”

Hungary’s 11 million people have long been the envy of the East bloc for their cautious success at replacing at least part of a Soviet-style centralized economy with profit-oriented agriculture cooperatives and carefully administered oases of free enterprise. Along Budapest’s glittering Vaci Street, the shelves of well-kept stores and boutiques are stuffed with Western videocassette recorders, luxury clothing and high-tech kitchen appliances. The nearby food markets display long racks of sausage and ham, mounds of fresh winter vegetables and ubiquitous garlands of crimson paprikas. Says a member of Hungary’s new economic gentry, a small-time plastics manufacturer known as Jozsef: “Are we rich? By Western standards, no. But here, we are quite comfortable.”

That statement by no means applies to all Hungarians, and the comfort that exists has been hard won. Hungary’s first experiments with marketplace reforms were crushed during the country’s 1956 uprising against Soviet domination. Paradoxically, the man who presided over the suppression of that revolt, Janos Kadar, now 73 and still the country’s leader, made today’s relative prosperity possible.

Even as he threw rebellious students and workers into prison, Kadar ordered economists to diagram an overhaul for the country. “It was clear that centralized planning had failed,” says Ivan T. Berend, president of the Hungarian Academy of Sciences. “If we were to provide a comfortable standard of living, market principles had to be introduced.” Unstated by Hungarian authorities was the premise that in return for that comfort the population would live passively under Communist rule.

Unveiled in 1968, the New Economic Mechanism gradually gave factory managers limited freedom from the tyrannies of rigid central planning. Among other things, they could make more decisions about production quotas without the approval of state authorities. Small-scale entrepreneurs were al lowed to open everything from private bakeries to boutiques and restaurants. In the countryside, profit-oriented cooperatives sprang up alongside Soviet-style collective farms. Vendors were allowed to set the prices of vegetables, clothing and many consumer goods freely.

One of the most effective reforms was the official sanctioning of the “second economy.” Typically working eight hours a day in a state factory or farming cooperative, Hungarians were encouraged to hold down additional jobs as taxi drivers, seamstresses, restaurant workers or shop clerks. They were also allowed to use their regular workplaces for private after-hours labor in a number of designated occupations. The reforms were roundly successful: between 1968 and 1978 real purchasing power rose more than 50%.

Since 1981, however, the standard of living has fallen about 6% as inflation, currently running at 10% annually, has eaten into the purchasing power of stagnating wages. The slowdown exposes the limitations of Hungary’s miracle. The economy remains dominated by state-owned companies that still look disturbingly similar to the ossified factories of its East bloc neighbors. Productivity is woefully low. Says Economist Berend: “Sometimes it seems that we have ended up with the worst of a planned economy and the worst of a market one.”

Many Hungarian technocrats feel that such problems can be cured, but only with greater economic freedom. Accordingly, additional reforms are being debated as part of Hungary’s new Five-Year Plan, which begins in 1986. But no one is sure if additional changes will reverse the pattern. But under Moscow’s watchful eye, Hungarian reformers are unlikely to move any faster. Says Marton Tardos, one of the country’s most respected economic analysts: “If the government is bold, we can set the economy on the right track. But I am not sure it can or wants to be bold.”


In theory, it is the very model of a modern Marxist enterprise. Yugoslavia’s clangorous Red Banner auto plant is located in a sprawling industrial park some 85 miles south of Belgrade. Inside a vast assembly hall, 16,000 workers turn out about 220,000 cars a year, including 55,000 copies of the small, ultra-cheap Yugo, the only Communist-built car sold in the U.S. Amid the factory hubbub, Radojko Suljagic, a department manager, extols the 78-member workers’ council that ostensibly controls Red Banner. The elective body, of which Suljagic is president, not only chooses factory management but also sets such basic policies as wages and production targets. Says Suljagic proudly: “It is the most important institution in the factory. It is the final step in decision making.”

A worker on the Yugo assembly line named Radoslav sees worker power at Red Banner differently. “We are producing a higher quality car than the others,” he says, with a gesture toward assembly lines that make autos for the domestic market. “We should be getting paid more, but we are not.”

Marxist theory and practice differ widely in Yugoslavia, in ways that were probably never foreseen by the regime’s founder, the late Josip Broz Tito. In 1950, Tito began to create “different forms of socialism” for his Communist nation. In his plan, the country would openly look to the West for trade and inspiration. Today, 800,000 Yugoslavs live in Western Europe, mostly West Germany, as guest workers, while their countrymen are also free to travel to the West, and openly aspire to a Western style of living. Says Zoran Mandic, 23, a clerk in a Belgrade bookstore: “Compared to the Bulgarians and the Poles, I am doing very well.”

At the heart of Yugoslavia’s brand of Communism is “workers’ self-management,” Tito’s notion that the means of economic production should belong directly to workers, rather than to the state. The Yugoslav system now depends on Basic Organizations of Associated Labor, which are, in theory, voluntary groups of workers who make any type of product.

The BOALS permeate Yugoslavia’s economic society, and are the Yugoslav equivalent of shareholders. They elect the workers’ councils, like the one at Red Banner, that serve essentially as a factory’s board of directors. Behind the democratic facade, of course, Communist Party control is ironclad. In theory, says a Western diplomat in Belgrade, the self-governing councils are “the purest form of Marxism.” But in practice, “the trade union and the management are all controlled by the local party in every big plant.”

Yugoslav Communism has been plagued by a Balkan variant of Murphy’s Law (“if anything can go wrong, it will”). Local empire building is rampant, a practice that is amplified by Yugoslavia’s strongly regional nature. The polyglot nation consists of six republics and two autonomous provinces, meaning that in each area regional bureaucrats have competing, equally wasteful strategies.

Unlike Hungary, some 85% of Yugoslavia’s cultivated land is privately owned, but the country gains little from that. Private landholdings average less than eight acres; farmers cannot benefit from any economies of scale. Says Davor Savin, counselor to the President of the Federal Assembly: “It results from the theory that socialism should prevent farmers from being old-style capitalists.” Partly for this reason, Yugoslavs spend 65% of their income on food, vs. 35% in Hungary.

Private enterprise has gained a toehold in Yugoslavia, but to a far lesser extent than in Hungary: only 12% of GNP, vs. 25% to 30%. The Yugoslavs have been far more reticent than the Hungarians in encouraging a “second economy.” Yugoslavia’s socialism does not guarantee job security, and allows prices to rise at near-market rates. Thus it has been plagued by ills that can afflict free-market economies: unemployment stands at 15% and inflation at 80%. Strikes, a theoretical impossibility in a system where workers are the bosses, are on the rise.

Nonetheless, in the wee hours in downtown Belgrade, Yugoslavia’s troubles are invisible. At the crowded Star discothèque, the local jeunesse dorée shows off in Benetton sweaters and Pierre Cardin shirts. Yugoslavs admit that things could be much better in their version of the workers’ paradise. But their restiveness is still curbed by the knowledge that things could also be much worse. –By George Russell. Reported by Kenneth W. Banta/Belgrade and Budapest

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