|
Hungary Prices
In a traditional command economy, prices function as
political instruments rather than as natural market
regulators
that respond to supply and demand. Central authorities set
producer and consumer prices, which bear little
relationship to
each other and often remain fixed for many years. Producer
prices
are those prices that enterprises pay for goods. Planners
use
producer prices to facilitate target-setting and to
determine
plan fulfillment. Consumer prices for all items except
housing,
foodstuffs, and other basic necessities are set at
artificially
high levels to avoid open inflation. Consumer prices for
essential goods are supposed to be set at market-clearing
levels,
but actual retail prices are often lower, causing
persistent
shortages and forced savings. Prices for imports and
exports are
based on current world market prices in trade with the
West and
on an average of past world market prices for trade with
the
Comecon countries.
In 1968 the NEM gave enterprises more flexibility to
set
prices and permitted market forces to influence prices.
Subsequent price reforms created a direct link between
world
market prices and Hungarian producer prices for most
items. The
government, however, could not allow prices to float
freely
because key enterprises faced little domestic or import
competition and could dictate the prices of essential
items in an
unrestricted market. Decades of arbitrary price, wage,
tax, and
subsidy policies also have left many imbalances in the
economy
that would cause significant dislocations if the
authorities
arbitrarily introduced a free market in one stroke.
In 1980 the authorities introduced a so-called
"competitive
price system" for industrial producer prices. The system
was
designed to simulate what domestic prices would be if
enterprises
faced significant market competition. The government
assigned
each enterprise to one of three groups according to a
series of
factors, including the amount of competition the
enterprise faced
in the domestic and foreign market. The different groups
were
subject to progressively less restrictive pricing rules;
enterprises facing the stiffest competition were generally
subject to the least restrictive rules. A 1984 reform
gradually
loosened administrative restrictions in order to permit
market
forces to guide the pricing decisions of a greater number
of
enterprises. In agriculture, the government set producer
prices
annually according to average production costs and other
factors,
and it used cost-plus pricing for most other sectors.
The NEM left consumer prices virtually untouched, and
by 1976
the average of consumer prices had fallen below the
average of
producer prices. The authorities subsequently adjusted
consumer
prices in order to manage demand, wean enterprises away
from
reliance on government subsidies, and reestablish a buffer
between producer and consumer prices. Over the course of
the
1980s, the government attempted to let market forces
influence a
growing number of consumer prices.
Data as of September 1989
|
