Since the end of the 1970s and the beginning of the 1980s, the crisis of the "Hungarian model" has gone very deep. The government applied an austerity cure that cut net investment almost by half from 1978 to 1982, and the living standard of the population dropped dramatically. The country moved closer and closer to insolvency.
In 1982, Hungary was the second Comecon country to join the IMF. In joining, it adopted one of its notorious adjustment programs, which was designed to reduce demand throughout the economy by restric- 15 tive tax, wage, and interest policy, and by July 25, 1988 • #146 International Viewpoint
I HE DYNAMIC young Groscz took over the post of general secretary from the old man Janos Kadar, not apparently without some jostling behind the scenes. Otherwise, it would be hard to explain the two-hour delay before the special party congress began its decisive session. But that is not the only thing that attracted the interest of Western sensationalist journalists to the new Hungarian party chief.
After his visit to Margaret Thatcher, during which he openly expressed his admiration for the British prime minister's free-market orientation, there can hardly be doubt any longer about Grosz's line. And if there had been, it would have been swept away by the first actions of the new party chief — a strengthening of austerity policy and the introduction of a severe antiinflationary program.
Many Western observers try to portray Grosz as the trustee of a bankrupt Hungarian economy. In fact, the head of Hungarian "actually existing socialism" is himself a part of the bankruptcy of this system - a confession of the bureaucracy's disorientation in face of the crisis.
The historical sources of this crisis lie, on the one hand, in the structures created in the Stalin era; and, on the other, from the failed attempts at reform over the last twenty years. It finds its expression today in inefficiency, in a tight integration into the capitalist world market - going hand in hand with fading hopes of achieving competitiveness — and in massive foreign debts.
The economic policy of the last period of the Kadar regime rested, fundamentally, on the conditions that were created in the 1960s, in particular the "New Economic Mechanism" that went into force on January 1, 1968. These measures, moreover, foreshadowed many aspects of Gorbachev's "revolution" in the USSR:
• Every enterprise was supposed to function independently in market conditions, and no longer given directives about who to sell goods to and at what price.
• The guiding instruments and institutions were cut back, and compulsory targets eliminated.
• Allotting resources and producers' goods was shifted from the central authorities to the trade organizations.
• Incentives and the search for profit were guided by a unified price system.
Along with this went the possibility of forming private and cooperative enterprises. The reform policy rapidly ran up against its political limits, namely the Brezhnev principle of "no experiments," and in 1972 it ran out of steam. The "father of the reform, " Reszö Nyers, left the Politburo in 1973. This is worth noting because now, 14 years later, the special party con-
HUNGARY • POLAND further compressing state investment. Parallel to this, there was a "third wave of reforms," in which a series of measures were taken — price reform was instituted to let world prices operate also in the domestic economy; private initiative and small enterprises were to be promoted, and their autonomy of decision-making widened. The banking system was to be restructured. All of this was supposed to be accomplished by 1985. Living standards continue to nose-dive
From 1980 to 1985, the national income dropped twice (in 1980 and 1983) in comparison with the previous year. And this marison with the previous vear. And this was in a period in which all the Comecon countries — except Poland in 1980/81 — still showed a positive growth rate.
In 1986, another law was passed that provided for closing plants and introduced state unemployment benefits. In the meantime, the debt burden has been growing heavier and heavier. In September 1987, it was over $16 billion. And the last estimate (in May 1988) indicates that it may already be $17 billion.
Living standards are continuing to nosedive. According to official estimates, at least 200,000 people are temporarily unemployed. A million Hungarians are living below the subsistence level. And according to the data of the Communist youth organization, the majority of people in Hungary are now living only at the 197172 level.
There is hardly a Hungarian family that can still make ends meet on the [normal] wages of both parents. Of the roughly 5 million wage earners, about 4 million have a second job. The workday has stretched to between 12 and 14 hours. Health and family life have been severely affected. The breakdown of human relations and social/ psychological problems are driving up the rate of illness....
After Karoly Grosz took office as premier in June 1987, he immediately became one of the main supporters of this course. His "opener" was a new tax law, in particular a completely new sort of value-added [sales] tax introduced on January 1, 1988. It increased prices by at least 15%. Many say (for example at the party congress) that the increase was as much as 20%....
The three pillars of the historic gains of the East European countries are collective ownership of the means of production, central planning and the state monopoly of foreign trade. Such economies can only work if those concerned hold these instruments in their own hands.
If the immediate policy of the Hungarian leadership is counterposed to these principles, that leads to the following conclusion: The bureaucracy's answer to the economic catastrophe for which it is res16 ponsible is to increasingly dismantle the remaining historical gains. * International Viewpoint #146 • July 25, 1988