Perestroika In Eastern Europe

Hungary's Economic Transformation, 1945-1988

Gabor Revesz

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367282615
• eBook ISBN: 9781000315486
• Edition: 1
• Topic: History
• Subtopic: World History
• Index: History

In this analytical history of the reform process in Hungary, Gabor Revesz traces the country's efforts to transform a planned economy into a system of market socialism. He covers the assumptions, objectives, political pressures, and limitations that have shaped the reform.

1
Impressions

This book explores the economic system established in Hungary since 1948-1949. The main features of this system as it had evolved by the mid-1980s can be stated briefly:

• There is a one-party system in the country. From 1948 to 1956 the ruling communist party was known as the Hungarian Labor party; in November 1956 the name was changed to the Hungarian Socialist Workers' party.
• Most of the means of production are in public hands, owned by the state or by cooperatives.
• Nevertheless, the private sector accounts for a large share of production and distribution, mainly in the form of small businesses that are only partly or formally attached to the large socialist enterprises. These small entrepreneurs produce an estimated one-third of Hungary's gross national product (GNP) and dominate in some types of goods and services.
• The provision of goods and services is controlled by the market, not by so-called plan directives that typify the other socialist economies of Eastern Europe. Still, at the time of writing, Hungary's market system was incomplete and in some respects distorted.
• Hungarians have a much large and a better-quality assortment of goods available to them than do other Eastern Europeans. (Some cynics have suggested that economic conferences and other gatherings of experts and bureaucrats from socialist countries in Budapest tend to be scheduled for December, the better for foreign dignitaries to do their Christmas shopping.)

Despite all these factors, Hungary has never been among the economic pioneers; it cannot even be considered one of the more economically advanced nations. Its per capita gross domestic product (GDP) has been 40 or 60 percent that of Western Europe, and one-third that of the United States, since the turn of the century. In terms of economic development, Hungary ranks between Spain and Greece, but in those countries there are more significant regional disparities in living standards. In Eastern Europe, the German Democratic Republic (GDR) and Czechoslovakia are more advanced economically, Bulgaria, Romania, and Yugoslavia (which also has a strong regional differentiation) are less developed. Hungary is relatively small: 93,000 square kilometers and approximately 10 million people, roughly about the same as the state of Pennsylvania.

In explaining the Hungary of 1986 to the Westerner, it might help to begin not in the country itself but in the Austrian capital, Vienna—which, at the time of the Austro-Hungarian monarchy, was the seat of the king of Hungary as he was also the emperor of Austria. The city still offers a window on Hungary.

Hungarians do a lot of their shopping in Vienna, not just diplomats and business people, but tourists; of the Eastern European countries, Hungary probably stands second to Yugoslavia in the number of tourists heading West. There are exchange regulations, but every three years, Hungarians may buy a limited amount of convertible currency from the Hungarian National Bank to spend in capitalist countries (and for Hungarians, the exchange of currencies of Comecon [Council for Mutual Economic Assistance] countries is unrestricted). The convertible currency they receive for their forints will allow them about a month in Greek or Spanish campgrounds with modest meals, or two or three weeks in the cheaper hotels of Western Europe's smaller cities. The limits are similar to those France imposed in the early 1980s on the foreign currency that country's citizens could buy for travel outside the country.

Most of the Hungarian tourists swarming west visit neighboring Austria, and those with more distant destinations generally travel via Vienna. Hungarian tourist offices organize countless brief group tours to Vienna—these can be paid for in forints—and they are usually overbooked. The presence of all these Hungarians in the Austrian capital leaves its mark on the city, especially in summer.

In Mariahilfer Strasse or in Kärtner Strasse other visitors to Vienna may overhear conversations in a language that does not resemble English, German, or any of the Latin or Slavic tongues. One may see automobiles, including many unfamiliar small models, with "H" country-designation stickers on them; in shops, there are signs reading Beszelunk magyarul ("We speak Hungarian"); and on the streets, sales brochures are distributed in Hungarian. Advertisements declare "10 percent for Hungarians!" or "Cheap accommodations for Hungarians!" or "Hungarian customers may pay in forints!" (True enough, though the forints are accepted at half the official rate of the Hungarian National Bank.) How is it, one might wonder, that so many Hungarians are let out of their country—is it some socialist conspiracy?

Curiosity about Hungary can be partially satisfied by visiting the country itself, which is not difficult. Entrance formalities are minimal: The Hungarian embassy in Vienna will stamp an entry visa in your passport after a short wait, or visitors arriving by automobile or airplane can obtain a visa in a few minutes at the border after a polite customs check. Visitors traveling in Hungary should look at even the mundane sights—the houses and stores—as they will reveal something about the country's social and economic conditions.

Shops and Restaurants

There is competition in providing goods and services. Eyeglasses and watches, for example, are sold and repaired by state, cooperative, and private opticians. There are excellent restaurants—some of them small and privately owned, others owned by the state and leased to the operator (who, as he will readily admit, overbid—putting down, say, 1.6 million forints for three years' rent, an amount he claims will not be easy to recoup). In such places a complete meal, drinks included, costs perhaps 100-150 forints ($1 is worth about 50 forints at the official exchange rate), but one can eat fairly well for only 60-70 forints. There are also exclusive restaurants, some of them in large, state-owned hotels, where a meal may cost 300-500 forints. By way of comparison, the average monthly wage for workers in Hungary is about 6,500 forints.

The large state and cooperative food stories and the small groceries have a wide assortment of goods, but they tend to be crowded in the mornings and late afternoons as both husbands and wives generally work. Hungarians make a lot of trips to the grocery store: Stocking up for a week or more requires a large refrigerator, which most don't have.

Shoes are manufactured by both the public and the private sectors. The state shops have dull names (Shoe Store No. 15) and insipid advertising ("Buy Shoes from the Shoe Store") and sell a product to match. Some of the state products are exported—mainly to the Soviet Union, where Hungarian shoes are considered something special. Private cobblers can make fine shoes to order, but their prices may be three times those charged in the state shops.

Bakeries

Hungarians eat a lot of bread, and the bakeries offer an enormous assortment: potato bread, corn bread, rye bread, soya bread, baguettes, and crescent rolls (butter or salt; small, medium, and large). The plainest bread costs 10 forints (20 cents) a kilo; the more exotic kinds, 20 forints.

Bread is almost always available, though just before a long weekend there may be a shortage or a late shopper may have to make do with two-or three-day-old loaves. Until about 1981, shortages were frequent (even though wheat flour and the other ingredients were in sufficient supply), and the quality was often poor—evidence of the monopoly then held by the state bakeries. Now, with the help of state credits and tax subsidies, about 15 percent of the bread sold in Budapest is produced and marketed by small private bakeries. Loaves from state and private bakeries are displayed side by side in the government grocery stores, and the state product has improved enormously.

Markets

A food market, made up of many small stands, takes up a large part of downtown Budapest. It offers an array of domestically produced goods: vegetables and fruit, eggs, live and slaughtered poultry, dairy products, and sausages from state plants and household abattoirs—nearly everything edible that can be produced in a temperate climate. The market testifies to the fact that the people of Budapest and the other cities in Hungary have not known a serious food shortage since the early 1970s.

The food is sold by state and cooperative shops, private retailers, and the farmers themselves. Prices are usually close to those in the big grocery stores, but shoppers prefer the market if they have the time, largely because of the variety and quality of the goods available there. From a Western point of view, using the official rate of exchange, the prices are very low; if the so-called purchasing power parity rate were used, the prices in dollars would be significantly higher (see discussion in section "Family Budgets" later in this chapter). A kilo (2.2 pounds) of apples in winter costs 25-30 forints (50-60 cents). Chicken costs 100 forints ($2) a kilo; the best sirloin, 150 forints a kilo ($3). A liter of excellent milk, about a quart, costs 10 forints (20 cents) and keeps for about a week.

Hothouse vegetables—lettuce, horseradish, tomatoes—are available almost year-round. The price of such crops out of season, however, is high, partly because, thanks to the scarcity of foreign exchange, few vegetables are imported and partly because greenhouse production is very labor intensive and greenhouses are costly to heat. Another, and very revealing, factor is Budapest's increasingly active "vegetable Mafia," a combatant in a so-called tomato war.

The Housing Market

Although housing supply and demand are in relative balance in the countryside, the urban housing shortage is considered to be Hungary's worst quality-of-life problem, affecting established families as well as young people starting out on their own. Families with a per capita income of less than 3,000 forints ($60) a month are entitled to subsidized apartments, called state flats, after applying to the local council and paying a fee; for a relatively small two-bedroom apartment in an ordinary prefabricated building, the fee comes to 80,000 forints ($1,600).

Priority for these flats goes to families with children, to those living in confined quarters with retired parents or grandparents, and to those who do not live with their extended family but wish to do so. Families who have children, or who promise to have them after moving into a state flat, also benefit from a "sociopolitical discount," which for two children can equal the council fee.

In Budapest, a city of about 2 million residents, some 200,000-250,000 people are eligible for state flats. The wait, however, is often four to ten years, and it has lengthened as the proportion of state flats in new buildings has fallen steadily; in recent years, the figure has not exceeded 15 percent.

The public National Savings Bank builds and sells apartments, giving priority to prospective buyers who can offer a large down payment. Those without much cash can build their own house or buy into a cooperative building in which the flats—each with an additional room in the cellar and a garage—are the residents' personal property. As with other flats and houses purchased outright, property in cooperative buildings can be inherited.

Low-interest loans and other subsidies are available for buying or building flats, under a system designed mainly with sociopolitical considerations in mind. The National Savings Bank offers thirty-five-year loans of 300,000-400,000 forints at very good terms: 3 percent interest, compared to a recent inflation rate of 7-8 percent a year. The bank can also provide a fifteen-year personal loan of another 100,000-150,000 forints, but at 8-10 percent interest. In Budapest, a completed flat can cost 900,000-1 million forints ($18,000-$20,000 in Western terms), including the high, and steadily rising, value of the land.

In addition, state or cooperative companies can use their profits to provide employee housing subsidies of 150,000-200,000 forints, also at favorable terms. Workers in government offices and institutes have similar opportunities, although their employers have less money available for the purpose. All of these subsidies are In addition to the sociopolitical allowance noted earlier: 40,000 forints for one child and 80,000 for two, as well as an allowance for couples who commit themselves to having children later.

The difference between the various credits and the sociopolitical allowance on the one hand and the cost of the flat on the other must be presented to the bank in cash or in the form of a savings account before a construction loan can be approved. This requirement is not necessarily a burden, as the money can be borrowed from friends and relatives and repaid after the credit becomes available. In Budapest and other industrial cities, the great problem frequently is finding land to build on. In these cities, building lots are scarce and extraordinarily expensive; construction workers, building materials, and the required equipment are in similarly short supply. There are small construction entrepreneurs who will build houses on a turnkey basis, but only the wealthy can afford these builders as their charges exceed the unit prices used by the bank in determining the amount of a loan. Young people generally resort to do-it-yourself construction, enlisting the help of friends and occasionally a well-paid expert or two.

In Budapest, do-it-yourself construction can save 200,000-250,000 forints of the usual cost of building a house or an apartment building (prospective flat owners may get together to build their own apartment house), but the task is enormous, and not everyone is up to it. The job soaks up all leisure time for two or three years, during which time rent must still be paid, and the do-it-yourselfer must contend with frequent shortages of materials. Also, for the first few years after any new home is completed, before inflation chips away at the burden, the cost of repaying the various credits is very high. One meets young couples who must devote all of one partner's salary to financing the construction debt—not to mention the cost of furnishing the new home.

The Car Market

One-third to two-fifths of Hungarian families own a car, even though Hungary, which manufactures buses and trucks, produces no automobiles. As a member of Comecon, which encourages specialization and cooperation, Hungary waived car production—not a clever move, in local opinion, as Comecon countries do not produce enough cars to meet the demand and Hungary lacks the hard currency to import Western vehicles.

The model in greatest demand is the Lada, made in the Soviet Union under license from Fiat and locally dubbed the "Fiat Fiatovich." The Skoda from Czechoslovakia, the small and relatively cheap Trabants and Wartburgs from East Germany, the Romanian Dacia, and other Soviet, Polish, and Yugoslav cars are also available. Although new Western cars are not sold locally, some transactions, generally involving barter, may bring in a few hundred Volkswagens or Renaults, which does not make much of a dent in the demand. Of the fair number of Volkswagens, Renaults, Opels, and other Western European-made cars with Hungarian license plates, most have either been imported by Hungarians returning from work abroad or been sent by foreign friends or relatives as gifts, despite high customs duties. These cars may eventually be sold on the secondhand market.

As with new housing, the purchase of a new car involves patience. A 50 percent down payment to the state automobile monopoly earns a place on the new-car waiting list. After a car becomes available—a matter of a few months for the breakdown-prone Dacia, a year or eighteen months for the Skoda, two or three years for the models in greatest demand—the other 50 percent must be paid to take delivery.

Like the prices of other consumer durables and housing, car prices are not unrealistic when converted, at the official rate, into Western currencies, but in terms of local earnings they are very high. The Trabant costs 80,000 forints ($1,600), the 1200-cc. Lada goes for 140,000 forints ($2,800), and the Dacia costs 150,000 ($3,000). The excess demand for new cars determines the prices of secondhand vehicles as well: A one-to-three-year-old car in excellent condition sells for more than it did when new, and even a five-year-old Lada in good condition can cost 90,000-100,000 forints. The shortage also raises the price of secondhand Western cars, which are sought not only for their better quality but for the prestige of ownership. For example, a 1300-cc. Volkswagen Golf, three to four years old and in good condition, can sell for up to 400,000 forints ($8,000). (It should be noted that none of these prices quoted includes the registration charge for secondhand cars, which is 18 percent of the sales price.)

Other Durable Consumer Goods

Most Hungarian households have refrigerators, vacuum cleaners, and washing machines, and it can safely be said that even the poorest have televisions and radios. On the other hand, few Hungarians have dishwashers. Most household appliances are relatively small, and would be considered five or ten years out of date in Western Europe, but their cost is within the reach of middle-income families: 7,000 forints ($140) will buy a good refrigerator with 160 liters of cooling space and a small freezer compartment, and black-and-white television sets are available for 6,000-8,000 forints ($120-160).

Appliances that would not be considered obsolete in Western Europe, however, are rather expensive and available only occasionally. A high-quality, large-screen color television set costs 40,000-50,000 forints ($800-$1000); an older-model color set would cost 20,000-25,000 forints ($400-$500). A stereo, not state-of-the-art but of excellent quality, is in the 40,000-50,000 forint range as well. Small personal computers are available at two and a half to four times the Western European price, according to the official exchange rate. Thus, really up-to-date appliances are bought only by families that are financially well off.

Health Care, Child Care, and Schools

By international standards, Hungary has a high-quality system of health care, with more than 30 physicians and 100 hospital beds per 10,000 people. Treatment—as conspicuously placed signs in hospitals and outpatient clinics note—is available for free. The costs are financed mainly by social-insurance payments, which are set at a specified percentage of wages and paid by the employers.

A peasant or worker whose parents saw a doctor only when it was time to ask for the priest now visits a physician for the slightest complaint. Similarly, people whose parents were on a liquid diet because of a lack of teeth can obtain dentures from the state—though if they don't want their first smile to betray them, they may be fitted by a private dentist at their own expense. Physicians working in hospitals and clinics can also have private practices, but they are liable to a special tax on private income.

Free health care is considered a major achievement of socialism, but many people complain about it; both the pride and the complaints seem justified. The fact that it is free, for example, creates a nearly insatiable demand. Cynics say that lonely old people go to outpatient ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables and Figures
• Foreword
• Preface
• 1 Impressions
• 2 The Collapse in 1956 and Before (1945-1956)
• 3 The Decade After the Collapse (1957-1967)
• 4 Reform: The First Years (1968-1972)
• 5 Push for Growth and the Aborted Reform (1972-1978)
• 6 The Decade of Stagnation (1978-1986)
• 7 Toward a Breakthrough? (1987-1988)
• 8 Summary and Outlook
• Notes
• References
• Additional Readings
• Index