Hungary Flirts with Capitalism
SHANOR, DONALD R.
'NEW ECONOMIC MECHANISM' Hungary Flirts with Capitalism by donald r. shanor Miskolc A textile-printing machine operating in an old feed storage barn on a collective farm near this northern city...
...The profit picture is poor because the machine kept breaking down after the East German technicians who installed it and got it running went back home...
...and several women, who get about 20 cents an hour...
...The machine, built in East Germany, cost the collective half a million forints ($17,000 at the official rate of exchange), lent by the state bank at the usual rate...
...And if this is bringing back capitalism, then the Miskolc farmhands are as much for it as the liberal economists in Budapest...
...The difference with Czechoslovakia boils down to this," a neutral diplomat in Budapest said, "the Hungarians have the trust of the Russians...
...The biggest single source of conflict under the New Economic Mechanism is how to divide up the profits...
...There is also a contract from a fabric store in Budapest in the offing...
...an assistant, paid $90...
...Any reform involves a redistribution of power among the various elements in the economy and the regime...
...Still, most Hungarians feel they can indulge in experiments where the Czechs could not, because conditions here are different...
...Prices are set according to supply and demand, with the exception of a large number of basic items, ranging from bread to clothing, which are price-controlled to protect the consumer...
...the factory now gets to keep about half its profit, for investment or production bonuses...
...Now nearing the end of its third year, nem enabled the collective to get out of the sheep business when local conditions made it unprofitable, and to get into the textile business, which has not yet become profitable but promises to do so...
...The lesson of Donald R. Shanor reports on East Europe for the Chicago Daily News...
...That is what we have succeeded in doing in Hungary...
...As a Budapest economist said, "The union leaders' role is to persuade the workers that investment is necessary, that the profits cannot all go into their pockets...
...It reduces the role of the central plan and increases the responsibilities of the local managers...
...They do not know much about the workings of nem...
...The Soviets look on Hungary, they believe, as an extremely stable ally, unlikely to attempt a coupling of political experimentation with economic reforms...
...the Czechs did not...
...No one here needs to be reminded of the fate of Ota Sik's reforms in Czechoslovakia...
...The Mechanism permits individual factories, farms and other enterprises to make many of then-own decisions on what to produce and where to sell it, then lets them keep a large share of the profit for further initiatives...
...Under the Yugoslav system and the projected reforms in Czechoslovakia, the workers' councils have an important role in making management decisions...
...Such flexibility would not have been possible only a few years ago, and indeed is not possible today in other Soviet bloc countries...
...surpluses of others...
...plants were not charged interest on loans for building or machinery purchases, with the result that projects lingered unfinished for years...
...the collective farm's Party chairman decided to put in the machine on the advice of the local Party secretary, who had been told of the reforms...
...But it is possible that the floods of the spring and summer will have an adverse effect on the figures for the whole year...
...1956 is still too fresh, this thinking goes, for anyone to risk a new political crisis...
...Whatever the outcome of nem's third year, the debate in the Party —inside Hungary and abroad—will continue, for the scheme must be judged on political as well as economic grounds...
...Although part of the reason for this was certainly the decrease in the work week that went into effect with nem, conservatives in the Communist Party leadership soon began grumbling about "too much capitalism," and urging a return to more centralized methods...
...Nem uses the market to solve these three problems...
...Investments, too, follow capitalist laws...
...In 1969, the first year the Mechanism was in full motion, industrial production increased by only 3 per cent...
...nem was introduced because of three main malfunctions of the old economic system: scarcity of some items...
...NEW ECONOMIC MECHANISM' Hungary Flirts with Capitalism by donald r. shanor Miskolc A textile-printing machine operating in an old feed storage barn on a collective farm near this northern city is as good a symbol as any for nem, Hungary's New Economic Mechanism...
...Czechoslovakia introduced economic reforms, but failed to maintain a social and political equilibrium...
...Profit, not numerical plan fulfillment, is the enterprise's gauge of success, and an instrument of future successes...
...It would be a mistake to suggest, though, that it has proved an instant cure for the ills of the economy...
...Like the big green machine in the feed barn, nem has had a number of puzzling breakdowns and a disappointing performance record in many respects...
...Union representatives sit in on the frequent meetings that determine where the money will go, but they have no real influence...
...To make matters worse, since the national work force grew by the same amount, productivity actually stagnated...
...In the first instance, enterprises had no authority to increase production unless it was called for in the central plan, and it took months or even years for demand to make itself felt through the planning system...
...But there is nothing like an economy ticking along well to increase the popularity of a ruler...
...A Hungarian economist was more cautious in his explanation...
...Through hard work and his considerable personal appeal, Kadar has been surprisingly successful during his nearly 14 years in office...
...And in the case of investments there was a similar lack of controls...
...If all goes well, everyone concerned will benefit—if not from profit sharing, then at least from steady wages and a pay rate considerably higher than that for farm work...
...At the moment, the plant is run by a manager, paid $105 a month...
...In the second, factories with stockpiles of unwanted merchandise were rewarded by the Budapest authorities for numerical fulfillment of the plan, while little notice was taken of their failure to sell their goods...
...In the first quarter of this year, there was a sharp rise in both industrial production and productivity: Production went up 8 per cent with only a 2 per cent increase in the labor force...
...Another result of the 1956 events is Party Chief Janos Radar's need for all the popularity he can muster, for himself and for the regime installed by the Soviets when the revolt failed...
...No manager now wants to sec money tied up in unfinished projects...
...On the collective farm outside Miskolc, there have been no meetings as yet to distribute the profits from the textile-printing machine because there have been no profits...
...Now a free-lance expert from Miskolc comes out once a week and production is more steady...
...The government bank lends money at 8 per cent interest and, to those factories deciding to put their profits into savings, it pays 7 per cent...
...investment waste and mismanagement...
...If the economy is changed radically, the other factors must remain stable...
...Economists in Budapest point to this as evidence that nem has turned the corner...
...They know this because both sides have the lesson of Prague staring them in the face...
...In Hungary, however, the union role is still the traditional one of passing down government directives to the workers...
...The Russians know that Kadar will continue press censorship and not loosen the Party grip on the trade unions and other possible rivals for power...
Vol. 53 • September 1970 • No. 18
