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The Hungarian Economic Reform

Published online by Cambridge University Press:  18 July 2011

David Granick
David Granick
Affiliation:
Economics at the University of Wisconsin. He is the author of Soviet Metal-Fabricating and Economic Development: Practice vs. Policy
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Extract

The Hungarian economic reform was introduced in the beginning of 1968. It clearly represents the most radical postwar change, in the economic system of any COMECON country, which has been maintained over a period of years and gives promise of continuity. It has rightly been heralded as a major shift to decentralization, since centralized physical planning of the activities of enterprises was essentially ended widi its introduction. But a study of the new economic mechanism's functioning at the enterprise level, three years after its introduction, suggests a somewhat different interpretation of the reform from the ones most commonly given.

Type
Research Article
Information
World Politics , Volume 25 , Issue 3 , April 1973 , pp. 414 - 429
Copyright
Copyright © Trustees of Princeton University 1973

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References

1 A Hungarian informant is the source for this. Other Hungarians put the figure a good deal lower, but I do not believe that they are as well informed on this matter.

2 See Kornai, János in Közgadasagi Szemle, No. 1, 1971.Google Scholar This has been translated as Working Paper No. 7 of the International Development Research Center of In diana University.

3 One may indeed argue, as is customarily done, that it is the high rate of investment which strains the economy and leads to a sellers' market. Total net domestic investment, measured in 1968 prices, was 20% to 24% of net national product during 1968–70. Hivatal, Központi Statisztikai, Statisztikai EvKönyv 1970 [Statistical Yearbook] (Buda pest 1971), 68–69.Google Scholar But if this be considered high enough to lead to such pressures on investment inputs, one is left with the need for additional explanations for the pressure on consumer goods. Certainly one can find reasons for this as well. Cf. for example Kornai's treatment (fn. 2) of four distinct causal factors for a sellers' market; he leans most heavily on a variant of the over-investment argument. But the explanation offered in the text as the dominant one has the clear attraction inherent in the principle of Occam's razor.

4 The 5% figure is calculated on the assumption that the entire compensation in crease is given in the form of higher wages, and mat wages are increased by the same percentage as that of the increase in the sum of wages plus pre-tax profits.

5 All Hungarian informants are in agreement as to this increase, which occurred first in 1968 as a result of high bonuses for top management. There are, however, no figures as to amounts.

6 Since Hungarian enterprises are rather large by the standards of odier socialist countries, the counterpart to the enterprise director in Hungary is considered to be the director of a Kombinat in the G.D.R. or of a centrala in Romania.

7 Statisztikai Evkönyv 1970 (fn. 3), 171 and 174.

8 Ibid., 166.

9 Such negotiations are often informal. But the national price board regularly negotiates as to changes—both in controlled and in “free” prices-with the enterprises which it regards as the price leaders of their industrial branches. Such negotiations appear to be carried on in all sectors of the economy.

10 The unweighted average for 1968–70 was 2.7%, compared to 5.1% during 1961–67. Ibid., 118.

11 Completed fixed investment declined in 1968, and increased during 1969 by only 1% over 1967. On the other hand, in 1970 such investment rose to 133% of the 1967 level. Ibid., 68–69.

12 This increase was 35% for imports from socialist and 40% from non-socialist countries, and 28% and 31% respectively for exports to the two groups. However, if the period is extended by one year, 1971 being compared widi 1967, the growdi rates are reversed: tentative figures show 62% and 58% for imports, and 46% and 26% for exports. These figures have been calculated from Statisztikai Havi Közlemények, No. 2–3 (1972), 51 and 105.

13 This process was not instantaneous. As of 1971, the principal allocations that were left were: (1) reservations of fixed quantities of seven categories of products for individual enterprises, die specific enterprises differing by product; (2) maximum or minimum quantities of eleven categories of items which were to be supplied to the trade network radier dian to producers. Space limitations prevent further development of the discussion of materials allocations.

14 This has mainly been evident as an improvement in the quality and mix of consumer goods. However, the quantity of goods and services consumed also rose at an annual rate of 5.7%; mis was much the same as during the two years prior to die reform, but compares very favorably with the rate of 3.9% for the longer period of 1961–67. Statisztikai Evkönyv 1970 (fn. 3), 74–75.

15 Considerations of space prevent the discussion of the political implications of the reforms and comparisons of Hungarian development widi mat in other socialist countries.