The Economics of Feasible Socialism by alec nove

Author:alec nove [Nove, Alec]
Language: eng
Format: epub
Tags: Business & Economics, Economic History, Economics, General, Political Science, Political Ideologies, Communism; Post-Communism & Socialism, History & Theory
ISBN: 9781136031045
Google: _Q6PAQAAQBAJ
Amazon: B000OYEXIM
Goodreads: 20848955
Publisher: Routledge
Published: 1992-03-15T00:00:00+00:00

The Hungarian Reform

Hungary’s experience shows all this clearly. In examining Hungarian experience, it is necessary to abstract from specific circumstances of the time: for instance, the adverse terms of trade after 1973, or the complications due to the failure of Hungary’s Comecon partners to adopt similar reforms. What can Hungary’s experiment with the ‘new economic mechanism’ tell us about the consequences of strengthening the market mechanism and eliminating (at least in part) the centralisation of microeconomic production and allocation decisions?

In 1968 the Hungarian leadership adopted a measure which greatly strengthened the role of the market mechanism, dismantled the administered material allocation system and abolished the compulsory plan targets in relation to output and assortment. It was intended to link domestic prices with those on the world market, so that, subject to import duties and certain other restrictions, enterprise managers could buy and sell across borders. Prices were partially de-controlled. Managerial bonuses were linked to commercial results, to profits. Investments were henceforth to be financed mainly by interest-bearing credits, with the enterprise responsible for around half of all investments. In agriculture the imposition of compulsory delivery quotas was discontinued, and a wide range of non-agricultural activities was undertaken by the collective (co-operative) farms. Private enterprise on a small scale was allowed, in towns and in villages. Central planning was to be confined to ‘macro’ magnitudes, together with key sectors such as energy and transport. There would still be, for instance, quinquennial plan targets for specific products, but these would be indicative and not obligatory.8

The so-called New Economic Model was not consistently applied, and there was some retreat from its full rigour. There were many cases of direct central intervention, including ad hoc subsidies, directions to deliver to specific customers (e.g. to Comecon partners under bilateral agreements), limits placed on imports and on co-operative enterprise. This is not the place to go into the many modifications and policy zigzags which followed the original reform of 1968, though it should be borne in mind in assessing its significance that it was not fully or consistently applied. The question we shall now put is the following. Given that the reform was designed to overcome the principal defects of Soviet-style centralised planning, how far can it be said to have succeeded? Which of these defects can therefore be curable by ‘Hungarian’ methods?

A most valuable survey was presented by Kornai in his lecture to the Irish Economic and Social Research Institute.9 He, like most others, claims that the reform of 1968 was reasonably successful. But certain stresses and strains have come to light. Perhaps the most important for us are those that he enumerates which concern a contradiction between principles of efficiency and those of what he calls ‘socialist ethics’. Thus any system of incentives, if it is to be effective, must be associated with inequalities, and if it is linked with profit is bound to conflict with the principle of equal pay for equal work. As we shall see in discussing the Yugoslav model, the

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