Recent small business reforms in Hungary: a unique socialist experiment.

Hungry has since 1968 been in the vanguard of economic reform movements unfolding in the east-bloc countries. With the exception of reform measures in Yugoslavia, the measures introduced in Hungary in 1968 represent the most radical central planning system changes of any of the countries belonging to the Council for Mutual Economic Assistance (CMEA). These changes firmly establish the foundations for what can be characterized as a "socialist market economy" in Hungary.

The purpose of this article is to report on a most recent and bold development in Hungarian reform: the creation, as of January 1, 1982, of radically new forms of small business organizations. The available experience with those new organizations as of early 1983 are also presented, based on descriptions by Hungarian sources. Finally, Hungarian economists' and planners' suggestions for future changes and improvements in Hungarian economic organizations are discussed and evaluated.

The success or failure of the measures currently being implemented in Hungary will undoubtedly affect the direction of reforms in other east-bloc countries. It is clearly important, therefore, to assess the meaning of these reforms as well as the thinking of Hungarian reformers on future directions for change.

DECENTRALIZATION MEASURES OF 1968

The principal feature of the 1968 reform measures in Hungary was decentralization of the planning mechanism, a move which significantly extended the decision-making power of enterprises to areas previously reserved for higher administrative levels, such as that of economic ministries and central planning bodies. Enterprises were thus freed of the previously obligatory plan assignments and could develop autonomous production and distribution plans. The role of economic ministries was reduced to coordination and provision of assistance and guidance for the preparation of such plans. Centralized materials allocation was abolished as well.

Ministries henceforth exercised influence over enterprise management through the provision of appropriate financial incentives or disincentives, involving such "economic levers" as tax rates, interest rates, and loans. "Indicative planning" largely replaced "command planning," and the influence of market forces grew considerably. Prices, for example, were partially freed from central control and in many cases were allowed to fluctuate freely in response to demand and supply. Thus, while in 1968, 86 percent of food and consumer articles had an official price, in 1980 only 72 percent of such articles belonged to this category. Similarly, in the metal-technical sector, only 13 percent of products were freely priced in 1968, but by 1980 that percentage had increased to more than two thirds. "Market socialism" seems an apt characterization of a system that increasingly attempted to blend central guidance with local enterprise autonomy and freely functioning market forces towards the achievement of national development objectives.