Economy in Hungarian People's Republic, 1., post-1956 steps

Hungary was colloquially known as the happiest barrack in the Eastern block due to perceived greater freedom and quality of life its citizens enjoyed. Compared to other soviet countries, Hungarian human rights record was relatively clear and the people enjoyed many amenities and were unkown to chronic shortages and long queues. Lot of alternative culture was tolerated to a degree, best described by Kádár's slogan "Who is not against us, is with us".

Lets get into detailed economic history.

The main lesson learnt from the 1956 regime for Kádár and the Party was the importance of keeping people fed and satisfied with their lives. While the 1956 revolt certainly had lot of ideological elements it couldn't have happened without a failing economy, constant shortages and general lack of common goods, coupled with great extortions from the still large agricultural sector (1954-55 marked probably the only years in history when Hungary couldn't produce enough food for its own!), excessive military spending and over-focusing on heavy industry development.

Following an inital period of political stabilisation and huge retorsions, The Party turnt to revising ithe whole economic doctrine. The centrepiece of all economic decisions will from now on be improving quality of life. This is extremely important point and will be recalled numerous times in this writing. Practically every decision, plan, idea was subordinated to this doctrine. This however didn't really mean raising everyone into middle class, rather, it meant satisfying the workers and labourers.

This was first undertaken by large investments into light industry and agriculture to produce goods. The focal aim was to always have and make plenty of food, both for consumption and export, being Hungary's main trade item at the time. The prices of foodstuff were centrally dictated, and they genereally stayed constant! for long long years, despite inflation and increasing wages. Quality was not stellar but acceptable.

For the people to have money, already in 1956 Hungary aquired large loans from the USSR and spent it on raising wages mainly. In 1957 the first larger reform attempt was sketched up. What it included was pretty much introducing elements of market economy, less direct orders, creating economic agents (companies managed by workers councils). However most of these were quickly redacted ue to general economic stabilisation.

The early 60s showed a strong growth but by 1965 lack of national capital begin to slow down investments, necessiting borrowing from international credit. The hoped source of new indogenous capital was agriculture. Collectivisation was sped up, both through concessions and force. Compulsory delivery for private farmers was suspended, small scale private agriculture fully legalised and regulated, the welfare state was extended to these peasents too. This worked and agriocultural production increased by ever year.

The 1961 5-year plan laid the goal of surpassing capitalist countries by the 1980s. In 1962-ben the Party's 7th congress declared "we have laid down the foundations of socialism and can begin building a modern socialist society".

cont. of last post

A note on intra-block trade at the time, and how it related to Hungary. Due to the 1956 revolution, Hungary's situation in the Comecon gained new freedom of space. As Hungarian production simply couldn't keep up and frankly just couldn't produce all the populace needed, the Comecon supplied the rest in exchange for Hungarian goods, notably agricultural items, but also (low quality) industrial products. The most famous were the Ikarus buses, as Hungary was assigned to be bus producers of the Eastern block. The other great benefit of Comecon was bountiful cheap energy, mainly in the form of oil and gas from the USSR, supplied way under global market prices, enabling upkeep of wasteful, inefficient production practices.

The successes of the 60s encouraged the party leadership to redesign the whole economy, marking the start of the so-called New Economic Mechanism.

The reform started on January 1, 1968.

The central invention of the reform was redesigning the whole plan-driven economy. It gave more autonomy to companies, limited markets replaced orders as the main mechanism. Collectivised busineses got a degree in freedom in choosing what exactly they produced, prices of global and internal markets started to converge. The totally centraslied distribution of resources was no more, and depending on company perfomance interests of leaders and workers were recognized.

The reforms were in effect until 1972, despite the Prague spring. However in 1972 the largest 50 industrial and food companies were put under central orders again, pretty much killing off the reform.

This step is begging questioning, One element was the fact that now that company perfomance was taken more into account, naturally some workers and leaders (but especially leaders and managers) started to receive greater payments thus income inequality grew, much to the disdain of labourers elsewhere. Unions spoke out loudly.

Two, due to limited freedom in production, certain kolhozes and companies started working for existing market holes, yet again creating additional income for themselves. This was of course not allowed for large corporations at all to maintain economic integrity.
As such payments again become heavily regulated, but all this did was giving rise to grey incomes. For example many workers simply stayed inside plants using the machines to produce then sell it for their own pockets.

Finally these the practices of the NEM did not increase export, partially because agriculture was still just too dominant in this area, partially because foreign policy did not accodomate to the NEM. In fact the choice of said 50 companies was very much due to trade worries and to boost export.

Post 1972 economy planning can be said to be Janus-faced.
Improving living and goods supply were still maintain as the main goals, but on the other hand the system become increasingly anti-reformist and in particular did not like societal changes

The reforms did not change the position of workers, they did not do any actual structural remaking, but it did change consumption habits, to the dismay of the Party.

The 1973 oil crisis drastically changed the outlook of the socialist economy. The naive expectation that it would just magically stop at the borders were quickly overcome by cold reality. This was because Hungarian and Comecon economies were way more connected to global markets than it was commonly thought.

Trade deficit, already a concern become a huge issue. The abundance of cheap credit in the 70 offseted this --and this capital was invested into three areas: One, general living, two, energetic projects, three, technological research.

One was obviously a dead end in terms of returns, two for most part failed (plans for new huge coal mining abandoned after it was found out most of our coal is just too deep, and a plan for a large hydro power station was eventually stopped by enviromentalist, a NPP was however realized but its price wasn't gained bacj until the late 90s) and generated lots of political strife that become the seeds for later democratic movements, three can be characterized as "enthusiastic attempts, but still far from anything done in the West".

Bump

By 1979 it become obvious that past attempts were too weak and something drastical had to be done.

Since the legitimacy of the system was founded on increasing living quality, everything become subordinated to it.
Aquiring credit continued, now used for subsidization of corporations and to pay back previous loans.

The shock came in 1981 after Polan defaulted; Hungary was literally hours from the same fate, but thanks to good conenctions established in the last decade, the country now got credit from private banks as well too, and have entered the IMF.
But these came at a price and demands to introduce market economy elements strengthened.

The 80s were characterized by quasi-reforms: Legal grounds of two-tier banking, small private enterprises and a new neutral tax system was laid down, but actual existence and operation was either not granted, was only on paper, or in case of enterprising, was barely tolerated. Real structural reforms were defeated at the hands of lobbysist from the large conglomerates. And Kádár itself was simply not willing of any large refom, only small corrections.

By this time it was impossible to keep up with making living better. Income inequality begin to seriously be visible between those working private, in the grey, doing it "smart", and those that did not. The general health of the society was abysmal. Alcoholism rampaged, suicide rates skyrocketed, corruption and loophole-abusing was accepted integral to the system and to maintain a decent living.

The first opposition was from intellectuals dissatisfied with the system. They came from two primary groups - urban ex-marxist thinkers who following the post-1972 antireformism were removed from their positions, and those called thel 'folk' writers. The first group critized the party's ideology and the way economy was heading in, called on for greater publicity, wider rights, while the writers were critical of the decisions effects on the rural population, concerned with depopulation and abandonment of traditions, and the rights of Hungarians living otuside the borders.

Despite different grounds and goals, they quickly found each other and agreed on many points accepting the heritage of 1956, using same forums to meet, elevating certain past writers to prominence (István Bibó notably), samizdat publishing flourished.

Against the groups, the Kádár regime used "soft repression". discussion was ignored, police freqently harassed them, and they also used their own avalible cultural tools - journals, newspaper, censorship, silencium, staff dismissals. However no truly tough act was made, fearing their Western financial connections.

In 1985 on the 13th congress amidts deepening crisis the slogan was economic growth was declared, unsuprisingly to be financed by even more Western loans. The then $8-9 billion debt doubled, and repayment become a mass burden. By 1987 the total failure of the system to rejuvenate was obvious to anyone.

And so this terminally ill system was inherited by the democratic powers in 1989, but thats a whole another story.

Thanks the informative posts OP.

OP, are you writing this yourself? If not, can I get the source for reading later?