Hungary The Economy
Large Kitchen for farm workers' meals, 1924
DESPITE WAR, DEPRESSION, revolution, foreign occupation,
and
periods of near chaos, Hungary's economy has advanced in
the
twentieth century from a near-feudal state to a
middle-level
stage of industrial development. The economic system has
undergone dramatic change since 1968, evolving from a
Soviet-type
"command" economy, in which government planners in
Budapest
dictated much of the country's economic behavior, into a
hybrid
that combined social ownership of the means of production
with a
stock exchange, central planning with aspects of a free
market,
and government intervention with a measure of enterprise
autonomy
and some private enterprise. After Hungary's failed
popular
revolution against communist rule in 1956, the government
opted
to foster domestic tranquility and legitimize control by
the
Hungarian Socialist Workers' Party by steadily improving
the
Hungarians' standard of living through economic growth.
For several reasons, the Hungarian economy can grow
only if
its factories and farms become more efficient and
competitive.
First, except for excess workers in existing enterprises,
Hungary
no longer has an untapped labor pool, such as the one that
existed after World War II in the female and peasant
populations.
Second, the country has a paucity of natural resources,
and
imports of raw materials have become more costly for
Hungary on
both Western and Council for Mutual Economic Assistance
markets.
Third, Hungary can pay for imports of raw materials and
efficiency-improving Western technology only by exporting
goods
whose quality and price are competitive in the world
market.
Since 1968 the government has launched two rounds of
economic
reform, seeking to boost efficiency and competitiveness.
The
first was the New Economic Mechanism, introduced in 1968,
in
which the government abolished universal compulsory
planning,
granted enterprises greater autonomy, and unleashed some
market
forces. The program stalled within four years, but a
burgeoning
balance of trade deficit, slumping performance,
deteriorating
terms of trade, and other problems prompted the leadership
to
start the reform process anew in the late 1970s. Since
then the
government has streamlined its ministries, dismantled some
huge
enterprises and trusts, stimulated the growth of small and
private firms, implemented a competitive pricing system,
decentralized foreign trade, created small stock and bond
markets, enacted a bankruptcy law, carried out banking
reform,
and levied
value-added (see Glossary)
and personal-income taxes.
In the late 1980s, a burdensome foreign debt,
inefficient
enterprises, raw-material supply problems, and stiffer
competition in the world market were just a few of the
problems
facing the economy. The country's leaders had to improve
Hungary's convertible-currency trade balance significantly
in
order to import the technology and raw materials necessary
for
further growth. At the same time, they had to maintain or
improve
domestic living standards and hold down unemployment and
domestic
inflation. The conjunction of Soviet leader Mikhail S.
Gorbachev's program of restructuring in the Soviet Union
and
Janos Kadar's replacement as party general secretary by
Karoly
Grosz in Hungary greatly enhanced the chances that the
government
would try to achieve further economic progress by
implementing
even more dramatic reforms.
Although Western observers agreed that Hungary had the
most
accurate and open reporting of economic statistics in the
communist world, they warned against accepting those data
at face
value. Economists in communist and noncommunist countries
used
different statistical concepts and procedures that
produced
differing images of Hungary's economic system. Hungarian
and
foreign analysts also complained that political expedience
had
sometimes tainted Hungary's official statistics.
Data as of September 1989
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