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Hungary Industrial Organization
In a centrally planned economy, only branch ministries
and
other government bodies can establish production and
distribution
enterprises, which are usually very large and have a
regional or
nationwide monopoly in their business activity.
Enterprises carry
on official economic relations through the ministerial
bureaucracy rather than through a market. State organs
appoint,
evaluate, promote, and dismiss enterprise managers, whose
main
responsibility is to meet or exceed plan targets.
Industrial organization in Hungary followed the pattern
of a
command economy until 1968, when the government granted
enterprises a modicum of autonomy. Reform advocates were
not,
however, powerful enough to force a restructuring of
Hungary's
industrial institutions. In the late 1970s, Hungary had
the
world's most concentrated industrial organization, with
699 state
enterprises employing an average of 1,569 people each. The
bureaucracy functioned in many ways as it did before the
reform,
supervising and directing large enterprises and trusts,
thus
stifling the development of true enterprise autonomy and a
market
mechanism.
On several occasions in the 1980s, the government
adopted
measures to decentralize Hungary's highly concentrated
industrial
organization in order to promote enterprise independence,
flexibility, and efficiency. In 1981 the authorities eased
restrictions on creating small- and medium-sized
enterprises in
the state, collective, and private sectors. The government
merged
three industrial ministries into the single Ministry of
Industry
in order to shrink the bureaucracy and cut the informal
channels
of influence that existed between the ministries and
supposedly
independent enterprises. Between 1979 and 1984, the
authorities
broke up 14 of the country's 28 trusts and divided a
number of
large enterprises into more than 300 smaller entities.
However,
despite the government's efforts, Hungary's industrial
organization remained one of the world's most highly
concentrated. This concentration led to the creation of
monopolies that suffocated competition in many production
areas.
In the late 1980s, the central government also continued
to
expect the Ministry of Industry to ensure supplies, and
both the
government and the enterprises continued to expect the
ministry
to intervene to remedy imbalances.
Also in the 1980s, the government took steps to
simplify the
complicated and time-consuming process of starting a
business. A
minister, the head of a nationwide government body, or a
local
council with prior approval from the minister of finance
could
found a state-owned enterprise. The founder defined the
enterprise's initial activity and supervised its
operation, but
other changes have eroded much of the control that
founders once
exercised. In 1985 most of Hungary's industrial
enterprises
introduced "democratic measures," under which the
employees
elected top managers directly or indirectly. The
government also
permitted enterprises to change their economic activities
without
prior consultation, provided that they informed their
founder and
the appropriate branch ministry of the change. Enterprise
councils or collective management were managing 77 percent
of the
industrial enterprises by 1986, while the Ministry of
Industry
continued to supervise the remainder. Even under
"industrial
democracy," an enterprise's founder could veto candidates
for
director and dismiss elected directors, and ministries
still
exercised critical influence. As Janos Kornai, a leading
Hungarian economist, has written, despite "industrial
democracy"
and the authorities' call for profitability and attention
to the
market, enterprise managers know that their "career, the
firm's
life and death, taxes, subsidies and credit, prices and
wages,
all financial 'regulators' affecting the firm's
prosperity,
depend more on the higher authorities than on market
performance."
In 1982 the government provided for the creation of
semiprivate and private industrial ventures, including
economic
work cooperatives (EWCs) and independent contract work
associations (ICWAs), to encourage entrepreneurship and
competition. EWCs were groups of no more than thirty
workers
employed by a state-owned enterprise who were allowed to
use the
enterprise's machinery outside normal working hours to
produce
goods under special contracts. The workers needed the
enterprise's permission to establish an EWC, and the
enterprise
often entered into contracts with the EWC itself. The
workers
received far higher wages for this additional work than
they did
for their regular jobs. In 1982 approximately 25,000
workers
participated in 2,775 EWCs; by the end of 1986,
approximately
450,000 workers participated in 35,205 EWCs. ICWAs were
self-organized and self-capitalized private groups that
performed
work under contract but had no affiliation to any single
state-owned enterprise. About half of an ICWA's members
worked
for the group full time. In 1982 Hungary had 2,341 ICWAs;
by
October 1983, that number had climbed to 4,463.
Data as of September 1989
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