But who gets to be the capitalist?

Wednesday, May 22, 1991

Hungary is on a course towards the re-establishment of a capitalist economy — but many questions remain unanswered. In this article, concluding their series on the overthrow of the country's Stalinist version of socialism, LASZLO ANDOR and PETER ANNEAR describe the fight over the spoils.

The various new-right, neo-conservative parties are based on different social layers vying to emerge as the new capitalist class.

Four parties compete for the role:

  • Representing a bureaucratic layer of enterprise managers, local administrators and party secretaries seeking to become an organic part of the transition, the Socialist Party (the reformed Hungarian Socialist Workers Party — the name of the Communists) pressed for "spontaneous privatisation" to continue, though it did not oppose foreign capital nor the small entrepreneurs and favoured giving some shares to the workers. Bureaucrats within the Ministry of Finance, for example, drafted regulations for privatisation that favoured friends who would form a private company which the administrators then joined. This was a totally uncontrolled process.

Inside the Socialist Party were also genuine left-wing elements, though they were not well organised.

  • The Free Democrats — neo-conservatives and neo-liberals closest to foreign capital — agitated for the return of emigre Hungarian capitalists. The most pro-IMF party, they accepted spontaneous privatisation for the sake of a faster transition, and opposed investigation of would-be local business owners to protect those who sought to legalise illegal gains. This was the "lumpen bourgeoisie".

The Soros Foundation, established in the 1980s by one such emigre, US resident Gyorgy Soros, brought Hungarian intellectuals and liberal politicians to the West to study capitalism. Four people met to create this foundation: Soros, Jimmy Carter, Zbigniew Brzezinski and liberal politician Miklos Vasarhekyi (who in 1956 was secretary to Imre Nagy).

  • In the late 1980s, the Hungarian Democratic Forum (MDF) grew as a kind of populist anti-system movement criticising the large state enterprises, favouring small entrepreneurs as a "potential bourgeoisie" and looking to the countryside, where small-scale economic activity is usual. The chairman of the Entrepreneurs Party appeared on the MDF electoral list because the Entrepreneurs were not strong enough to win a parliamentary seat.

Established in the 1970s, when market reforms had already created an ambitious entrepreneurial layer, the Entrepreneurs Party grew more rapidly in the 1980s, when changes in enterprise regulations and taxation stimulated small-scale privatisation.

  • Reprivatisation, or the restitution of previously is represented by the Smallholders Party. Strongest in agriculture, it demanded a return to the land ownership relations of 1947, before collectivisation, but said very little about urban small enterprise.

Legislation stalled

Due to permanent infighting between these parties, no significant legislation about economic transition has been passed since the March-April 1990 national elections. In fact, all current privatisation regulations were created by the HSWP government of Miklos Nemeth. Missing are: the land act, the foreign property act and the so-called employees share ownership program (which is also called for by people in the trade unions).

Nor has the compensation bill, a compromise between the MDF and the Smallholders Party, been enacted. The MDF, which opposed compensating those expropriated postwar, could not form a government without the Smallholders, who wanted full compensation in agriculture. The draft bill grants compensation which is proportional and regressive in time — a higher proportion for those expropriated in 1948-49, lower for 1950-52 and so on.

Simply identifying the former landowners is a tortuous task. Land offices in every town are working days, nights and weekends to sort out the totally crazy situation. Television showed staff crying and one director unable to use his office because it was full of paper.

This ill-conceived legislation provides for a voucher which can be traded on the stock exchange or discounted in the financial markets, in place of the return of physical property, while former landowners will be paid the value of the land itself. Both measures are a form of uncontrolled credit and are so expensive that Nemeth recently claimed the tiny stock exchange would collapse. Serious inflation is unavoidable.

Uncontrolled monopoly

Meanwhile, everything is under the control of the uncontrolled State Property Agency, which is a total monopoly. The national economy is more concentrated, in a smaller number of arbitrary hands, than at any time in the previous 40 years. The agency represents the owner, sells the property and alone checks and controls itself.

Indecision about the profitable Ikarus bus enterprise, which Mercedes Benz may buy, shows how uncertain the process is. Ikarus was temporarily closed in 1990, when the Nemeth government stopped exports to the USSR, and faced similar problems with the change to hard currency in trade with the USSR. Ikarus has a niche in the markets of the USSR, the Arabic countries and to some extent in the USA. It could either be sold as a going concern or used to fill the government coffers.

Many companies are bought just to be closed down. Fifty-one per cent Tungsram — which has 7% of the world lighting market and subsidiaries in Ireland and elsewhere — was sold to the Vienna bank Girozentrale for only US$100 million. Within a year, Girozentrale resold its shares for US$150 million to General Electric, which closed some sections, sacked workers, abolished Tungsram exports to the e no new investments.

In one contract drafted by the State Property Agency for the sale of an enterprise to a Swedish firm, only one thing was missing — the price. This is almost an ex lex situation (outside the law) in which ministry insiders have a relative freedom for robbery.

Rorting is common. For instance, a bureaucrat asks an associate in Zurich to invest in a Hungarian enterprise at the lowest allowable limit, which may be in kind rather than cash ("know-how" or packaging or resalable products, like Italian shoes, or even something totally useless). They form a joint enterprise and repatriate the profits. In such ways, foreign investors benefit from major concessions drafted by the Nemeth government, including tax breaks of up to five years and unrestricted repatriation of profits.

Ideology and reality

The arguments for privatisation are largely neoclassical: public enterprise is inherently inefficient; British Prime Minister Thatcher successfully privatised in the 1980s; privatisation, or reprivatisation, achieves historical justice and a return to a moral path; without Western capital there can be no economic development; industry and commerce can grow only with the expansion of the market.

The reality is different:

  • Nowhere in the world is there inherently efficient private enterprise, and the British privatisation, which involved only a small proportion of the economy, caused enormous social dislocation within a major industrial power.

  • While the East European economies must find links with the world market, this could be achieved by more flexible economic forms while maintaining the efficient aspects of the nationalised economies; this does not require open slather for Western capital.

  • Expanding commodity production as the means of economic growth was already the result of the 1960s agricultural reforms, which provide a model for economic reorganisation involving not only the use of the market but also some form of controlled "privatisation".

  • Typically, the new-right ideologists have not drawn attention to "cherry picking" by elements inside the bureaucracy who are privately appropriating the profitable parts of productive firms, a totally legal (under current legislation) but illegitimate process.

Having dismantled much of the machinery of economic management, the government has less capacity for structural and regional planning and is thus incapable of achieving economic optimisation. The economy is exposed not only to the chaos of the world market, but also to the will of an increasingly small group of powerful decision makers.

Some call the present situation "the highest stage of Stalinism", or "market Stalinism", and regard it as the "communists saving their power". If you interpret the Stalinist counter-revolution of the 1950s as the expropriation of popular power by a bureaucratic layer, s power is now even more concentrated within the same strata, with a new leadership layer at the top and with a totally different ideology, these descriptions makes some sense.

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