The Hungarian reforms of the 1980s

May 15, 1991

The forces which eventually overthrew the Stalinist system in Hungary can be traced as far back as the immediate aftermath of the 1956 uprising, which was crushed by Soviet tanks. Last week, LASZLO ANDOR and PETER ANNEAR described the economic reforms of the '60s and the undermining of the economy in the '70s by domestic and international changes, particularly the rise in oil prices and interest rates. In this article, they describe the accelerating crisis of the '80s.

After 1984, the economic crisis remained the major factor, even for the party leaders around Janos Kadar, who based their legitimacy on the improvement of living standards. But political change brewing beneath the surface came into the open in 1987, when Prime Minister Gyorgy Lazar lost his post to the reformer Karoly Grosz.

Talk of creating a "socialist market economy" justified a new wave of economic reform that occupied the next two years. This aimed as much as possible to abolish regulation, expose the economy to world market competition and initiate changes in the ownership structure. Kadar's politbureau, however, still abided by the tripartite "criteria of the enemy", which included those who wanted large-scale reprivatisation, those who wanted to secede from the Warsaw Pact and those who wanted a multiparty political system.

The contradiction was resolved in May 1988. Janos Kadar was replaced by a group of five party leaders (the so-called two plus three): Karoly Grosz, closest to the old party structure; Miklos Nemeth, who later introduced the privatisation process; Rezso Nyers, an early reform communist; Imre Pozsgay, who represented Hungarian Glasnost; and historian Janos Berecz, a party ideologist who led the defence of the 1956 crackdown.

The new leadership was ready to make deeper changes; in the summer of 1988 Grosz, who became party secretary, stunned a US audience by saying 25% of the Hungarian economy could be foreign owned. As well as being party secretary, Grosz remained prime minister for another six months. Kadar had not combined party and state positions since the 1960s.

In November 1988, Grosz was replaced as prime minister by Nemeth, who remained in the post until the March-April 1990 national elections in which the Hungarian Socialist Workers (communist) Party lost power. Grosz remained general secretary till October 1989, when the Socialist Party was formed by the congress of the HSWP.

Contrary to later claims that he obstructed the economic reforms, Grosz was prime minister when the regime prepared a host of new ownership regulations. As deputy justice minister, Tamas Sarkozy composed a "company act" and a "transformation act" — introduced as legislation in 1989 under Prime Minister Nemeth — to facilitate the reorganisation of state enterprises as share companies. (Grosz did, though, oppose multiparty political reforms.)

Official ideology changed course. For the first time, a criticism of exclusive state control of the means of production, carefully couched enationalisation", was introduced. The object was to minimise political influence over the economy by separating the enterprises from the ministries. While "ownership" remained undefined, through the national planning office, the Nemeth government consciously began to draw up a privatisation program.

What began in reality was a so-called spontaneous privatisation benefiting almost solely the management layer. Managers could form a private company, separate the best part of an enterprise, take a loan to buy it and repay the debt gradually from profits.

By the spring of 1989, following the removal of Berecz (who had led the attack against the 1956 uprising and hence lacked all credibility), the political line-up inside the politbureau reflected only disputes over party organisation and personnel — who would lead it and how it could retain power. In the face of the crisis, the government lacked an economic and social program of its own.

In the form of the Social Democratic Party, the Hungarian Democratic Forum, the Free Democrats, the Young Democrats and the Small Holders Party, the opposition emerged legally in early 1989. Originally demanding "equal chances for private and public ownership" through denationalisation, after a gradual, tactically astute process, the opposition later presented its real program for a total change towards private ownership and the restoration of property to those who had been expropriated.

The Nemeth government simply adopted the opposition program. One farcical event symbolised the regime's impotence. The tiny, aggressive October Party announced an "anticommunist Saturday" (in the style of the old forced "voluntary" Saturday labour of Stalinist times) to destroy a big floral red star in a city square. Overnight, the office responsible for parks turned the star into a circle.

Worse, the government demagogically adopted every nationalist opposition demand, fostering nationalist sentiments about Hungarians in Romanian Transylvania and in Slovakia to gain popularity and legitimacy. The further right the opposition went, the further the government followed. The reformers wanted so much to prove they were for marketisation, during the Nemeth government they spoke about a "market economy without adjectives" in contrast to the "socialist market economy".

This mirrored the pattern in the West in the 1970s, when Social Democratic and liberal parties, like the British Callaghan Labour government and the Carter Democrats in the US, grabbed conservative opposition policies, including lower taxation (of the rich), privatisation, deregulation and a tight monetary control. But it was not authentic; the reformers surrendered their own political identity but could never satisfy the real conservatives, so they had to go.

In the summer of 1989, the HSWP and the opposition arrived at "round-table negotiations" for preparing the transfer of power. The only question was whether, as in Poland, posts in the new government would be reserved for the old rulers.

The new Socialist Party was formed out of the old HSWP in October 1989. However, within two months, rejecting the new leadership, the the HSWP began to reorganise, hoping to find a new Kadarist leadership in the mould of Karoly Grosz.

The governing Socialist Party and the Social Democratic parties (locked in mutual combat) were discredited and had no chance of winning the first multiparty elections in March 1990. But even if they had, they had already abandoned all left-wing, social welfare policies.

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