Perestroika In Eastern Europe by Gabor Revesz

Author:Gabor Revesz [Revesz, Gabor]
Language: eng
Format: epub
Tags: History, General
ISBN: 9781000315486
Google: kKiaDwAAQBAJ
Publisher: Routledge
Published: 2019-05-28T03:01:45+00:00

Investment and Capital Allocation

During the first years of reform, there had been contradictions with regard to investment policy. Investment is a lengthy process, with decisions sometimes made years ahead of their implementation. When the reform began, investments that had been decided on long before were still in the pipeline—buildings were under construction, machinery was being produced or shipped. These projects reflected the beliefs, methods, and power structure of the era before the reform.

The reform changed the way companies invested. Using their somewhat increased autonomy and new financial muscle, firms placed investment orders that reflected their own priorities. As a result, the growth of investment in the early 1970s far exceeded what had been planned. Investments discharged in 1970 were 18 percent higher than the 1969 figure: in 1971, they were 10 percent higher still. One special problem was that sometimes firms refused to take machinery imported from Comecon countries under intergovernment agreements.

Government agencies reacted to such developments both economically and administratively. They reduced credit lines, raised profit taxes and other payments, and pressed firms to accept the Comecon machinery, supplying credits for the purpose. Branch ministries intervened strenuously, studying and reporting on corporate plans in what became an obligatory review.

Among other things, such reviews dealt with yearly plans. The members of the "ministerial jury" were high-ranking officials of branch ministries and other officials, including deputy ministers. Although the jury's decision was not binding, its very existence undermined the principle that corporate plans were the responsibility of a company's CEO. As noted above, the minister (or the ministry acting in the minister's name) was the CEO's employer, and if the CEO did not follow the jury's "recommendations"—there were a few such cases—he was bucking the chain of command.

The fourth five-year plan, for 1971-1975, was ratified after the reform was launched but before the Comprehensive Program was accepted, and its original investment targets imposed strict restraints on firms in the competitive sector. The investment structure was determined largely by big projects chosen at the government level, by so-called goal-oriented clustered investments, and by industry-level investment targets with associated credit lines. Still, the original targets left some room for profitable firms to spend their own investment funds, apply for credit, and make modest improvements on their own.

Soon, however, in line with the Comprehensive Program, almost all investment resources were channeled to large projects. Forty percent of the large investments originally slated were canceled and replaced with others three times as expensive. Individual investment projects chosen centrally accounted for 20 percent of the country's total investment allowance. These large investments were concentrated in the energy and raw-materials sectors, which reflected the pursuit of autarky, and other sectors were pushed into the background.

Beyond these individual investment projects, Central Development Programs were begun in petroleum-based synthetics, gas consumption, the aluminum industry, vehicle production, and the computer industry. One-fourth of Hungary's investment resources were spent on these programs in 1972-1978, not counting related auxiliary investments. Central Development Programs were all based on Comecon cooperation and served the Comecon goal of autarky.

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