Business Practice in Socialist Hungary, Volume 2: From Chaos to Contradiction, 1957–1972 3031239318, 9783031239311

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PALGRAVE DEBATES IN BUSINESS HISTORY

Business Practice in Socialist Hungary, Volume 2 From Chaos to Contradiction, 1957–1972 Philip Scranton

Palgrave Debates in Business History

Series Editors Bradley Bowden, Tacitus Forum, Melbourne, VIC, Australia Michael Heller, Brunel Business School, Brunel University, London, UK Gabrielle Durepos, Mount Saint Vincent University, Halifax, Canada Jeffrey Muldoon, Emporia State University, Emporia, USA

Scholarship in business history often produced divergent opinions that seldom engage with each other. Business historians have continued their scholarly endeavors with little obvious concern to the popular discontents around them. This book series will foster debate among business historians, bring together a variety of opinions from around the globe to confront the key issues of our time with the intent of becoming a fulcrum of debate. The series will use a broad understanding of “business history” so that it brings together work that is currently operating in tandem with each other without ever engaging with each other: work from business and management history, social history, economic history, cultural history, labor history, sociology, and political history whose focus is societal rather than personal or narrowly institutional. The series will focus on the following current debates in the field: the nature of globalization; the nature of capitalism; the nature and effects of western civilization (particularly as relates to industrialization); the mediatisation of business; gender, class and identity; and business and shifts in wealth, power and inequality. Within these topics there is passionate dissension, creating an opportunity engage multiple perspectives. Editors Bradley Bowden, Tacitus Forum, Australia Michael Heller, Brunel University, UK Jeffrey Muldoon, Emporia University, USA Gabrielle Durepos, Mount Saint Vincent University, Canada Editorial Board Bernardo Batiz-Lazo, University of Northumbria, UK Arthur G Bedeian, Louisiana State University, USA Amanda Budde-Sung, US Air Force Academy, USA Andrew Cardow, Massey University, New Zealand Matteo Cristofaro, University of Rome, Italy Sébastien Damart, Paris Dauphine University, France Carlos Davila, University of the Andes, Colombia Nick Dyrenfurth, Curtin Research University, Australia Anthony M. Gould, University of Laval, Canada Scott Hargreaves, Institute for Public Affairs, Australia Albert Mills, Saint Mary’s University, Canada Jean Helms Mills, Saint Mary’s University, Canada Elly Leung, University of Western Australia, Australia Jan Logemann, University of Göttingen, Germany Mairi Maclean, University of Bath, UK Vadim Marshev, Moscow State University, Russia Patricia McLaren, Wilfrid Laurier University, Canada Peter Miskell, Henley Business School, University of Reading, UK Milorad Novicevic, University of Mississippi, USA Nimruji Prasad, Indian Institute of Management Calcutta, India Michael Rowlinson, University of Exeter, UK Stefan Schwarzkopf, Copenhagen Business School, Denmark Philip Scranton, Rutgers University, USA Grietjie Verhoef, University of Johannesburg, South Africa James Wilson, University of Glasgow, UK

Philip Scranton

Business Practice in Socialist Hungary, Volume 2 From Chaos to Contradiction, 1957–1972

Philip Scranton Rutgers, The State University of New Jersey Camden, NJ, USA

ISSN 2662-4362 ISSN 2662-4370 (electronic) Palgrave Debates in Business History ISBN 978-3-031-23931-1 ISBN 978-3-031-23932-8 (eBook) https://doi.org/10.1007/978-3-031-23932-8 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To the memory of Éva Balogh (1936–2021), editor and principal writer for Hungarian Spectrum, whose daily, penetrating analyses of her homeland’s descent into authoritarianism were invaluable and are irreplaceable.

Preface

This study is a successor to my 2022 analysis of business practices in Stalinist Hungary: Creating the Theft Economy, which reviewed the tortuous path Soviet occupiers and Magyar communists traced in their efforts to build a socialist economy and society in Central Europe, 1945–1957. Their project did not go well. Holding political and military power did not prove sufficient to win the support of more than a fragment of the nation’s ten million citizens. Instead, most Hungarians coped with a situation they could little affect, evaded rules and regulations which they judged exploitive, and sought every economic means, lawful or not, to augment their inadequate wages, salaries, or farmstead earnings. The Party and the administration led by Matyas Rákosi prioritized heavy industry (mining, steel, metalworking) over consumer goods and consumption, an emphasis reflecting Soviet priorities in the early Cold War. By the time Stalin died, key ministers and officials had acknowledged that central planning, the top-down guidance of and control over all economic activity, was deeply flawed, if not impossible to manage. This was due to inadequate resources for addressing the economy’s complexity, as well as the contingencies and unintended consequences that accompanied capital investment, technical change, material supply, and every aspect of agricultural practice. Hungarians had continued to use market transactions wherever feasible, cultivating an inventive array of illegal practices to address shortages, solve problems, and generate revenues in agriculture, construction, commerce, and manufacturing—the four sectors explored in Volume One. vii

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A reformist “new course” projected in 1953 did not survive pushbacks from orthodox Stalinists condemning revisionism and nationalism, but hardliners’ resumption of authority in 1955 only aggravated fractures between state and nation. Nikita Khrushchev’s not-so-secret report (February 1956) denouncing Stalin’s crimes discredited the Maximum Leader’s Hungarian acolytes, many of whom resigned, as did thousands of disillusioned Party members. Polish disturbances in summer 1956 resonated with upheavals across Hungary, forcing Rákosi’s departure while rejecting Soviet domination and urging that Soviet troops return home. Explosive Budapest demonstrations in October brought the unlikely Imre Nagy to national leadership, pledging and promulgating broad reforms. Within weeks, Russian tanks and troops restored “order” by sending waves of death and destruction across the capital and the provinces. Arrests, imprisonments, and executions followed (including Nagy in 1958), but a cruel irony surfaced gradually. There was no road back to Stalinism; Rákosi’s state, with its unlimited powers and its secret police, could not be set in motion again. Instead, the Soviets installed a Party-state headed by bland, unassuming János Kádár, a veteran Communist earlier imprisoned by Hungary’s wartime fascists and later by Rákosi as well. His ability to negotiate the swirling rapids of Bloc policy shifts across three decades, along the way accomplishing many of the ’56 rebels’ goals, remain remarkable achievements in Hungary’s twentieth-century political history.1 This volume looks closely at the enterprise dynamics that paralleled and intersected with political initiatives in the aftermath of the 1956 rebellion. The arc of the two volumes, stretching from 1945 through 1972, recapitulates the durable initiatives by ideologues and experts to create an alternative to capitalism, and in time, to Stalinism as well. It also loosely echoes the trajectory outlined in Rudolf Bi´cani´c’s mid1960s distillation of patterns among authoritarian economic development programs featuring “a centralized, administrative and bureaucratic mechanism, led by politicians and based on experts.” Bi´cani´c, a scholar of developing nations including his own Yugoslavia, was a professor of law, economics and planning in Belgrade (1946–1968), well versed in comparative studies of “agricultural economics, foreign trade, and sociology.” Two years before his untimely death, he published an inductive, empirical summary of the postwar generation’s fantasies and foibles in chasing prosperity, whether under capitalist or socialist rubrics. Outlining “the black cycle of developmental policy,” his analysis appeared under a surely

PREFACE

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memorable title: “How Not to Develop a Country: An Essay in Economic Pathology.”2 Here is how it worked (or didn’t). A nation’s rulers, having decided that growth is “a good thing,” often initiate a four-part sequence whose elements Bi´cani´c characterizes as the economics of Overlord, Overstrain, Underground, and Overchange. In the first phase, those in power have “a Mission” and are cheerfully overwhelmed at how “epic” their program will be. They assume a monopoly of decision-making: “The magnitude and grandeur of the task is supposed to justify all measures, excuse all errors and provide benefits for all in the end.” This rather soon gives way to a second stage, Overstrain, where maximizing development “has created bottlenecks everywhere.” Anticipated gains are not realized and cracks emerge between older or disfavored trades and the new, “propulsive sectors,” with resources heaped on the latter so as to achieve favorable results. This generates overcapitalization at the growth edges and underfunding elsewhere, most commonly in goods for households. Such constriction “leads to a consumers’ revolt which strains the whole social fabric until it ultimately bursts at the seams.” In parallel, overcapitalization delivers dreadful outcomes: “Making of products which no one will buy of their own free will;… industries built in places where there are no raw materials; railways which do not have enough goods to transport to use their capacity; purchase of expensive agricultural machinery which nobody uses, etc.”3 In tandem with these stresses, citizens realize that their needs for income, goods, security, or development are not being met; enterprises recognize comparable shortcomings in the way things work. This fosters underground practices, which Bi´cani´c formalizes as “when aims (wants) are covered by other than legal means, by non-institutionalized actors acting in non-transparent conditions in the same environment in which overground activity is taking place.” Everywhere, “the bounds of legality snap.” These are “the economics of disintegration,” with the populace prioritizing self-interest, particularly the elite, whose “disregard for risk and personal integrity,” whose “willfulness, arbitrariness, violation and crime” imperil the entire project. Looking through practices in the USSR, the satellites, the U.S., and among Asian and Mediterranean

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regions, Bi´cani´c identifies seven practical options for impropriety: “disloyal competition” (off the books buying and selling); tax evasion; black marketeering; public corruption (official frauds, favoritism); theft and pilfering (including embezzlement and bribery); illicit capital export; and “the two plans technique” (official “for those upstairs” and operational). This Smörgåsbord of deviationist opportunities, once again, is hardly confined to authoritarian regimes, though it seems simpler to institute where democratic constraints are absent. As bottlenecks and disappointments proliferate, as underground behaviors metastasize, leaders face the prospect that their development policies are unworkable, hence the advent of Overchange. “Change becomes the slogan of the day. Everybody talks of change and all measures of development tend to be explained and justified and all errors excused—by the magic of the word ‘Change.’” Struggles among the ruling cadres center on whose version of change is most promising, what values must be adopted to secure altered priorities and practices, and crucially, what must be changed and by how much (and what left alone). Defenders of the current mode of operation rest silent; “most of them will pretend to be for change,” while waiting for the fever to subside so as to assert new claims to authority—a revised Overlordship perhaps.4 An eclectic, if officially Marxist economist, Bi´cani´c offered a Weberian moment, an “ideal type” which identifies the principal features or aspects of a process without expecting that every exemplar will exhibit each element. So in Hungary for example, illegal capital export was a minor matter, whereas every other option in the economic crimes menu was energetically exercised. An ideal type is compelling when it triggers a surge of recognition in the reader/observer: “So that’s what’s going on!” From that flash, in the best cases, come fresh questions; for example, in what appears to be an Overchange phase: Who’s not talking, presenting proposals, offering critiques? What can we learn about the current structure of influence by probing for silences? What resources do the quiet folks possess, either to frustrate or obstruct eager changers or to undermine the efforts they undertake once having installed new practices? Both volumes of Business Practice in Socialist Hungary are deeply engaged with change processes—voluntary, persuaded, coerced, unanticipated. Readers

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might wish to keep Bi´cani´c’s ideal type in mind so as to avoid any simplification of efforts at building socialism or resisting it. Complexity rests near the heart of every transformation—here, first toward, then away from socialist ideals, projects, plans, and institutions. It’s a non-linear, unpredictable story, and all the more useful for that. Oak Bluffs, Massachusetts September 2022

Philip Scranton

Notes 1. See Philip Scranton, Business Practice in Socialist Hungary, Volume One: Creating the Theft Economy, New York: Palgrave Macmillan, 2022, Ch. 7. 2. Rudolf Bi´cani´c, “How Not to Develop a Country,” in Turning Points in Economic Development, The Hague: Mouton, 1972, vi, vii, 118. The essay was first published in the Paris journal Tiers-Monde (1966), and was translated as Chapter V for this posthumous collection of his work, edited by C.A.O. van Nieuwenhuijze. 3. Bi´cani´c, “How Not to Develop,” 117–123. 4. Ibid., 124–131.

Acknowledgements

This study, like its predecessor, developed without the aid of research grants or fellowships, in large part because its author is an emeritus professor no longer eligible for many funding opportunities. Yet, financial support was hardly needed for the project, insofar as the vast archival collections used were wholly accessible online, without user fees or charges. Nevertheless, I must express deep gratitude one more time to the Rutgers University Libraries, whose database subscriptions, extensive interlibrary loan services, and ever-responsive staff proved indispensable to the research process. It’s been over a decade since I left the University’s teaching staff to focus on scholarship; and the Library system has continued throughout to ensure access to materials and support when things online don’t function as expected. My deepest thanks to them all. Unlike other monographs I’ve published, Business Practice in Socialist Hungary has not been previewed through papers/chapters offered in seminars and at conferences, thanks to the COVID pandemic and the cancellation of everything. Instead, I have shared documents and drafts with a number of colleagues whose responses and suggestions have been invaluable. They include my closest colleague, Patrick Fridenson of the Ecole des Hautes Etudes en Sciences Sociales, Paris, with whom I’ve been zooming every two or three weeks for several years, and Lee Vinsel at Virginia Tech and Andrew Russell at SUNY Polytechnic Institute, whose pioneering inquiries into the criticality of maintenance and repair continue to be a source of inspiration. Prof. Andrew Popp of the Copenhagen

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ACKNOWLEDGEMENTS

Business School provided comments at critical junctures, which I much appreciated. My sincere thanks to each and all of them. Those of us who continue publishing late into our careers move past the decades when acknowledgments of (and apologies to) parents, children, cousins, pets, department chairs, computer repair-persons, et al. take their place in the brief comments preceding the main sections of a monograph. Old folks like me gradually turn to acknowledge the inspiration provided by colleagues who are no longer with us. So at this juncture, I wish to acknowledge the wise good humor and incisive critical intelligence of Chris Kobrak, who published widely in business history and taught at ESCP, Paris, and the University of Toronto until his untimely death in January 2017. Chris was, after a fashion, a nineteenth-century Liberal critiquing twentieth-century institutions; we disagreed about everything but food and wine—perfect. Second, this book is dedicated to the memory of Éva Balogh, whose daily Hungarian Spectrum posts were for 14+ years a source of constant insight into her homeland’s descent into “soft” authoritarianism. Having emigrated to Canada after the 1956 Soviet invasion (aged 20), she earned her bachelor’s degree at Carleton, trekked to New Haven for a doctorate, and taught Central European History at Yale for eight years before venturing into the publishing world. Her sudden death in 2021 silenced a voice valued by thousands who prize democracy and truth over arrogance and deceit.

Praise for Business Practice in Socialist Hungary, Volume 2

“This book examines a major problem: after the failure of orthodox socialist enterprise led to Hungary’s 1956 revolt, could a reformed socialist enterprise become viable? Using an enormous array of new sources, Philip Scranton shows that contradictions multiplied both on the way to satisfying the needs of society and while learning from foreign technologies and ideas. Contradictions surfaced between limited national resources and the necessity of extensive importing, between consumers’ aspirations to abundance and the myriad of segmented and regulatory institutions which supported austerity, between the larger potential of agricultural co-ops and the catastrophes of nature. Contradictions also between the reform’s multiple industrial and commercial initiatives and the staunch defenders of bureaucracy and control. And last, contradictions between business, planning and academic groups searching for growth/innovation and the social costs of change, threatening old guard elites. The latter torpedoed the reforms: quantity remained antagonistic to quality and stagnation became synonymous with socialism. This was the product of a final contradiction, between the spread of knowledge among new generations and the monopoly of a single political party, far from democracy. A telling lesson on markets, consumers, business and civil society, brilliantly told by Philip Scranton.” —Patrick Fridenson, Ecole des Hautes Etudes en Sciences Sociales, Paris

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PRAISE FOR BUSINESS PRACTICE IN SOCIALIST …

“In this second volume of Business Practice in Socialist Hungary, Philip Scranton continues his lifelong career trajectory of challenging existing approaches in business history and calling fellow historians to fresh perspectives. Yes, in socialist Hungary, Scranton finds many of the fabulous failures in business and industry that were famously endemic in state socialism, but there are surprises on every page; and even in the face of failures, it is astounding how much the Hungarian people managed to get done. Most of all, Scranton’s history, which draws on a fascinating body of archived materials, should be heard as a rallying cry to other scholars: back to unexamined primary sources! It’s there we’ll find new tales.” —Lee Vinsel, History of Technology, Virginia Tech, Virginia “This book is required reading for anyone who wants to understand how industrial economies work: not along the clean and rational lines of expert planning, but through the gritty realism of humans coping with hunger, poverty, ambition, and corruption. The setting of From Chaos to Contradiction is the widespread suffering and confusion in the aftermath of Hungary’s popular uprising in 1956. Scranton documents the human, technological, and economic dramas that Hungarians endured at the crossroads of socialist visions, shambolic markets, and the tragic clash between authority and truth. It’s hard to finish this study without a deep sense of sympathy—if not pity—for anyone who dreams of creating prosperity from the chaos of industrial production and ideological conflict.” —Andrew L. Russell, Professor of History and Dean, SUNY Polytechnic Institute, USA

Contents

1

Reassembling the State and the Economy, 1957–1967 Priorities Continuities Changes/Transitions Useful Bits on Money, Prices, and Growth

1 5 12 15 22

2

The Essential Illusion: Collectivizing Agriculture, 1957–1963 Recovery, 1957–Early 1959 Mobilization, 1958–1961 Nothing Fails like Success

31 34 42 56

3

Making TSZs Work, 1961–1966 Dreadful Weather Assists Consolidation, 1961–1963 Stabilization and Reassessment, 1964–1966 Conclusion

4

Construction—Badly Planned and Oddly Organized, 1957–1967 Housing Diversified Enterprises: State-Managed Construction Construction Materials, Old and New, and Their Problems, Old and New A Quasi-Conclusion

69 72 90 111 125 129 137 152 165

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5

6

7

CONTENTS

Commerce—Supply Struggling with Growing Demand, 1957–1967 The Web of Purchasing: Bringing Farm Products to Users Retailing: State Stores, Public Markets, and Illicit Entrepreneurship Services: The Neglected Commercial Domain Foreign Trade, Briefly Conclusion Fabricating the Future—Manufacturing from the Top Down, 1957–1967 Legacy Issues from the Rákosi Era, 1957–1961 First Responses: Mergers and Structural Reorganizations, 1962–1964 Second/Parallel Response: Shifting Sectoral Priorities The Export Magnet Conclusion

177 180 194 207 214 217 227 230 238 245 254 265

Production Practices—Manufacturing from the Inside Out, 1957–1967 Continuities from the Rákosi Years Industrial Positives: Getting Some Things Right Conclusion

273 275 296 314

8

Reform and Contradictions, 1968–1972 Paradoxes, Not Solutions The NEM and Agriculture: The Risks of Being Business-Like The NEM and Construction: Continuity vs. Creativity The NEM and Commerce: Making Markets Count The NEM and Manufacturing: Diverging Paths Conclusion: Orthodoxy Buoyant, Reform Deflating

323 325 331 342 349 357 368

9

Afterword

381

Note on Sources

391

Index

395

List of Figures

Fig. 1.1

Fig. 2.1 Fig. 3.1

Fig. 4.1

Fig. 4.2

Fig. 5.1

Spare parts humor in the Budapest satirical weekly, Ludas Matyi 12 November 1959, 3 (Source https://archive.org/ details/ludasmatyi19561971/LudasMatyi_1959__pages6 51-700/page/n39/mode/2up [accessed 11 November 2021]. Cartoon by András Mészáros) Hungary Counties Map with County Seats. Source www.mapsopensource.com/hungary-counties-map.html A Soviet SK-4 combine harvesting grain, Hungary 1972. The phrase across the front means “No Smoking” (Source FOTO:Fortepan—ID 89614. Donor: Tamás Urbán. Courtesy of Wikimedia Creative Commons) Construction in Budapest’s Seventh District, Erzsébet (Lenin) körút 18, 1961 (Source FOTO: Fortepan—ID 10423: Donor: Jankovszky György. Courtesy of Wikimedia Creative Commons) Project officials inspecting work on the Elizabeth Bridge reconstruction, 1964 (Source File—Erzsébet híd építése Budapest.jpg, Donor: Chermusky. Courtesy of Wikimedia Creative Commons) Road rage in Hungary: Front cover of a Budapest satirical weekly, 1970 (Source:Ludas Matyi, 8 October 1970. Artist: György Várnai. Conserved at Internet Archive: https://archive.org/details/ludasmatyi19561971/Lud asMatyi_1970__pages601-650/page/n23/mode/2up [Open Source, p. 624])

15 47

101

138

152

199

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LIST OF FIGURES

Fig. 5.2

Fig. 6.1

Fig. 6.2

Fig. 6.3

Fig. 7.1

Fig. 8.1

Motorcycle buddies with a Polish Komar model, Budapest, 1966 (Source FOTO:Fortepan—ID 59482. Donor: Antal Braun. Courtesy of Wikimedia Creative Commons) Aerial view of Csepel iron & steel, 1963, located on a Danube island just south of central Budapest (Source FOTO:Fortepan–ID 18,268. Donor: MHSZ. Courtesy of Wikimedia Creative Commons) D4Ks plowing heavy ground in the DDR, near Zinndorf, 1965. Note the stylized logo on the snub nose. With the engine ahead of the wheels, D4Ks virtually hugged the ground (Source Deutsches Bundesarchiv, Digital Image Archive, Accession Number: Bild 183-D0917-0009-002. Photographer: Krueger. Courtesy of Wikimedia Creative Commons) John Deere 4020, six-cylinder diesel tractor, a worldwide best-seller, at a 2007 US farm equipment show (Source https://www.flickr.com/photos/fun_flying/315374 1051/. Photographer: D. Miller. Courtesy of Wikimedia Creative Commons) Budapest shoemakers at work, Fehérhegy utca 2., Délbudai Cipész Ktsz., 1961 (Source FOTO: Fortepan - ID 104352; Donor Budapest F˝ ováros Levéltára. Courtesy of Wikimedia Creative Commons) The Dunaújváros steel complex (formerly Sztálinváros), 1970 (Source FOTO: Fortepan—ID 13,597; Donor: MHSZ. Courtesy of Wikimedia Creative Commons)

201

237

258

259

303

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List of Tables

Table 2.1 Table 5.1 Table 5.2 Table 5.3 Table 5.4

TSZ Lands by County, December 1956, December 1958, and March 1959 (in 1000 Cadastral Yokes) Crops—state purchases vs. sold/consumed by producers, 1957–58 and 1960–61 FCCs and state retailers, main types with average sales, 1958 Distribution of durable consumer goods/1,000 Hungarians, 1957–64 The structure of Hungarian Foreign Trade, 1965, import-export by main groups

46 182 195 197 217

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CHAPTER 1

Reassembling the State and the Economy, 1957–1967

Cold factory chimneys outnumbered smoking ones 3 to 1. A huge plant that has converted bauxite into alumina… no longer stained the snowy fields with its reddish fumes… The Budapest City Council reported that, to meet the emergency created by the revolution, licenses have already been issued for individuals producing building materials [or] consumer goods suitable for export. This is “to revive private initiative which has long been neglected.”… One of the reasons why food is still plentiful in Budapest is that the farmers are bringing it in and selling it on the open market at prices which, though fixed by the Government, are far higher than formerly. —New York Times, 1 January 1957.1 In May 1957, I was unable to buy common brooms, because they were not manufactured. I had to go to the market places where I could buy one, two, and sometimes 20 brooms from the farmers who [made] them at home… Actually everybody was puzzled [at] how the people of Budapest managed to make a living. Nobody could live on his legal salary… There were many people working illegally at different places. Even the orders concerning the so-called work-books and other personal documents were circumvented. People had false documents or took up jobs under a false name. The newspapers wrote up such cases pretty often and there were even more cases which were not detected by the authorities. —Hospital purchasing agent, July 1957.2 © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Scranton, Business Practice in Socialist Hungary, Volume 2, Palgrave Debates in Business History, https://doi.org/10.1007/978-3-031-23932-8_1

1

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P. SCRANTON

There seems… to be considerable money about. Much of this money had been gained in the black market, which continues to thrive, and from bribery and corruption rife in the nationalized industries. It comes also from private trade, to which the Government of János Kádár has given some head. The number of private merchants has increased about 32 percent compared with a year ago. Also, the abolition of compulsory deliveries of foodstuffs to the state coupled with a good harvest has put money in the pockets of the peasants. —New York Times, 17 December 1957.3

On the fourth of November 1956, as Soviet tank formations rolled in to crush a popular uprising, János Kádár addressed the nation to announce a new administration. Using a broadcast frequency hosted by Radio Moscow, he accused the displaced “Rákosi and Gero clique” of outraging the working classes through its “many grave mistakes.” In the same breath, he denounced “the weakness of the Imre Nagy Government” as threatening “worker-peasant power and the very existence of our country.” Asserting that he was seizing the reins of state authority to defend “our socialist achievements,” Kádár also acknowledged numerous shortcomings: “We know that many questions are still awaiting a solution in our country and that we have to cope with many difficulties. The life of the workers is still far from what it ought to be in a country building socialism.” Outlining a 15-point program for “the restoration of peace and order,” Hungary’s Soviet-installed Premier closed by claiming: “Truth is on our side. We will win.”4 The ambiguities buried in those simple, final statements animated the first of Kádár’s three decades as Party and state leader. During the Rákosi years, truth had perennially been up for grabs—ideology drove policy. Struggles would continue, especially over whose version of what was happening was reliable. Party factions and rival ministries interpreted the same information in sharply different ways. Notoriously, whereas the Budapest press repeatedly voiced official optimism about socialism’s progress, provincial newspapers documented the opposite— apathy toward work and violation of regulations, alongside widespread theft and embezzlement (“crimes against public property”).5 Moreover, it was far from clear who constituted “our side.” Who was this “we” Kádár claimed he was representing? The Russians had selected him, after all, not the Hungarian Workers Party (which had collapsed in October);

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REASSEMBLING THE STATE AND THE ECONOMY, 1957–1967

3

and he would soon authorize thousands of arrests, hundreds of executions, and the dismemberment of the Hungarian Army (which had largely supported the revolt). His 15 points did include elements from Nagy’s program, particularly “changing the methods of economic management, taking into consideration the capacity of the country, so that the population’s standard of living may be raised as quickly as possible.” Other items on that roster would never draw breath: viz., “The government will not tolerate the persecution of workers under any pretext whatever for having taken part in the most recent events,” “the elimination of bureaucracy,” and “workers’ management must be realized in the factories and enterprises.”6 Nope, not a chance, not with mass arrests, bureaucracy’s rapid restoration, and elimination of the workers’ councils created during the revolt. Looking back from the 1970s, a Yugoslav reporter summarized the situation: “Rarely had any governing group such as the one headed by János Kádár come to lead a country in a situation in which many saw nothing but despair ahead. The party was smashed, the nation without leadership, the army in collapse, the economy paralyzed, and the state mechanism stalled.”7 A June 1957 US intelligence report assessed the Kádár administration, neatly revealing the long road ahead toward a workable “we.” The analyst, while hostile, captured key elements of the situation. The current government doesn’t enjoy even that minimum independence that the Rákosi government had had. The Kádár [group] mirrors the directions given from Moscow. [It] needs to accomplish the following: A. Secure the confidence of the Soviet leaders. B. Find within the corresponding organization in the Soviet Union that person or those persons who will serve as patron(s) to the Hungarian incumbent. C. Create within the country a foundation which will permit continued political survival.

The Soviets aimed to convene a “completely reliable” administrative center, albeit one “more or less acceptable in the eyes of the outside world.” Kádár met their requirements. A working-class Communist who spent the war years in Hungary, not in Moscow like so many others, he was imprisoned and tortured under Rákosi’s regime and released by Nagy’s successor administration. Neither a Stalinist nor a revisionist, he continued “to regard himself as a ‘centrist.’” Over time, this stance would

4

P. SCRANTON

serve Kádár well, but in 1957 factory workers plainly despised his allegiance to the Soviets. Farm folks kept their opinions to themselves—the state had extended Nagy’s ban on forced deliveries8 and allowed food prices (and their incomes) to rise. The report offered two summary points, one dead-on, the other dead wrong: “In the true meaning of the term, there is no ‘policy line’ in the current government. And there will be none in the future, either; for no matter how deteriorated the moral atmosphere in Hungary, no matter how much denunciation takes place, the populace will continue to reject the Kádár regime.”9 Always seeking a middle way, Kádár avoided ideological commitments well into the 1960s, when “reform” superseded both Stalinism and revisionism as policy mainsprings. He also vacillated in foreign relations, alternating between efforts to please the Russians and maneuvers to test their tolerance for national deviation. Yet, Hungarians did not “continue to reject the Kádár regime.” They came to terms with it and acted accordingly, frequently striving to optimize their incomes and minimize risks, much like business people and workers in capitalist lands. Enthusiasm for building socialism was negligible, but enthusiasm for living as well as possible was palpable. In that light, what is distinctive and defining about Hungary’s post1956 decade is that the bottom-up coping behavior millions had practiced during Stalinism10 was now being adopted at the top. Kádár and his comrades did not spend their days formulating brilliant programs to advance socialism, but instead, picked their way through minefields— of Soviet (and Western) policy initiatives and reversals, of indifference, bitterness and resentment at home (promises made and abandoned) and of constant evidence confirming waste, failure, and stagnation. Over the years, most Hungarians nevertheless came to regard János Kádár with bemused acceptance—he was all they had, he spoke to them in person and in understandable language, and his policies made daily life better (if only very gradually). Reportedly, he even laughed at jokes that mocked him. The old Rákosi dread receded once reprisals faded after the last brutality, executing Imre Nagy in 1958, gave way to serial amnesties for political prisoners.11 Thirty years later, looking back from 1989 at four decades of Hungarian Communism, a team of historians and social scientists led by Ivan Berend, affirmed that the revolt little affected the basic institutions of state and economy despite substantial alterations of practice.

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The institutional and political structure, power structure, and bureaucratically-centralized and monolithic ownership structure of the Stalinist model were preserved in an essentially-unchanged form. Connected to this was the essentially-unchanged ideology which served to legitimize this model… Within this old framework, however, significant transformations occurred, primarily in the elimination of tyranny and lawlessness, in changing the dictatorial character of power, and in their gradual replacement by a future-oriented, more humanitarian utopia. But the preservation of the earlier… structures erected many taboos and prescribed strict limits for change.12

By 1965–1966, when debates about reforming the system morphed into the New Economic Mechanism, Kádár supported the drive to overcome central planning’s structural defects by pushing authority and responsibility down to lower levels of enterprise operations and by curtailing the intrusive micro-management ministerial officials had long used to “guide” firms and farms.13 Before that venture could be launched, Kádár and his colleagues had foundational work to do in the late Fifties and early Sixties, as the polity and the economy both needed repair. These issues and actions will be reviewed in three clusters: Priorities, Continuities, and Changes/Transitions. Priorities highlight tasks the new regime had to accomplish so as to govern without guns. Continuities reflect those elements of state, economy, and society which rested unaffected by the 1956 upheaval—conditions and constraints that persisted. Changes/Transitions reference the perceptions and projects which triggered fundamental reviews of “socialism thus far,” as well as systematic efforts to improve outcomes through shifts in policy and practice.

Priorities Rebuild the Party and begin governing: The Hungarian Workers’ Party could boast some 800,000 members in summer 1956, but 90 percent fewer after the November invasion. Most members quit the Party during and after the revolt; the most common reason for joining had been job security, not belief, but security had vaporized. Budapest workers’ October defection from Stalinism could be seen “in the mass destruction of their Party membership cards, thousands of which were strewn along the streets of the suburbs, Csepel and Ujpest.” As winter neared,

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the Party leaders had lived through a stupefying spectacle—the almost complete disappearance of the Communist Party—the disbanding of its membership, the collapse of its administrative network, and the decay of its local organizations. Since [October], everything had been done without and against the Party. Its grip over… every activity in the country had gone limp and lifeless.14

Shortly before the invasion, Kádár, Nagy, and a cluster of centrists abandoned the shell of the collapsing HWP in order to form its successor, the Hungarian Socialist Workers’ Party, ideally reflecting the nation’s “peculiar characteristics” while “free of Stalinism and any kind of dogmatism.”15 On 6 November, Radio Budapest broadcast news that their provisional committee (all but Kádár would later be replaced) had “started on the reorganization of the party,” pledging to “isolate itself from the mistakes of the Rákosi clique… not in order to deny the achievements of the past 12 years, but to avoid the extremes of both right and left.”16 Whatever their aims, HSWP leaders instantly had to face “a manpower shortage” of staggering dimensions: those heading Party committees in enterprises and agencies had resigned (thousands had emigrated), rebellious former members had been arrested, while few replacements could be found amid the turmoil of strikes, border crossings, and reprisals.17 Soon it was clear that the new Party had no hope of gaining even the modicum of enforced or opportunistic support which its predecessor enjoyed. Total Party membership on the last day of December 1956 was 103,000 in a population of 10 million. Membership was particularly low in the workingclass areas of Budapest. There were only 340 Party members in the Csepel Iron Works with 38,000 workers. In another factory that employed 1,000 people there was only one Party member, where there had been 400 previously.18

Strenuous recruiting efforts by activists from the reconstituted Party proved “not very successful” in attracting “new blood.” As well, initial appeals to former members to join “the empty ranks of the HSWP were resisted by both the workers and the intellectuals.” Meanwhile the Party’s rural units had never been robust. During 1957, however, the “claimed” membership rose to 400,000, at least half of whom were political functionaries (50,000), members of security forces and militias (100,000), and

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government employees (50,000). Eventually, migrators from the original Party constituted over 80 percent of the HSWP’s ranks, a problem in itself, as an estimated one-third of these were “old guard” Stalinists, “dogmatists.” Their presence in county and local administrations created nagging problems for Kádár’s ministries, because they resisted programs to incentivize production and increase goods circulation as violating core tenets of Marxism-Leninism.19 The regime could not govern without them as it could not replace them. Restore wrecked agricultural co-ops (TSZs 20 ) and farm production: In 1956, a second campaign to expand collective farming had crested and faded, adding just 491 new TSZs to the roughly 4000 in place at the drive’s outset. Their share of Hungary’s arable land was only 21 percent. “Parallel to this, the numbers leaving cooperatives, and indeed of cooperatives breaking up, grew ever more quickly,” leading to “a severe multilayered crisis in the agrarian sector” by the fall. Before the invasion, “more than half” of the TSZs “dissolved and about 63 percent of the land under collectivization was returned to individuals,” placing 80+ percent of farmland in private hands. The next year, co-op membership shrank to 154,000, the lowest since 1950; in a two-million-strong farm workforce, 1.6 million occupied the “private sector.”21 Most ongoing co-ops were feeble, for they contained “the most impoverished segment of the farming community—former agricultural laborers and share-croppers.” During the upheaval, in another episode of spontaneous strategizing, farmers undertook “multidimensional and multilayered self-organization. Villagers did not wait for central directives but took the organization of life in their communities into their own hands, at the same time formulating demands… concerning what matters required urgent action.” Their agendas were “surprisingly mature and thought-through,” a recent analyst judged, suggesting core issues (e.g., no forced deliveries and free market selling) that had long been evident. After 4 November, Kádár’s state initially ignored their proposals, but they soon resurfaced in farm policy. In July 1957’s “agrarian theses,” agriculture officials stepped away from Soviet models. They repudiated the punitive policies of the Stalinist era and eased the burden on the cooperative and private farming sectors by abolishing compulsory deliveries, formally ending state control of sowing patterns, and adjusting agricultural prices in favor of producers. They also suspended

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forced land consolidations and permitted the purchase and sale of small landholdings.22

Aided by local agents, ministries worked to reconstitute defunct co-ops, making little mention of further collectivization. Even if angry families “withdrew” their donated land, they held insufficient acreage for independent farming, and could not duplicate the TSZ’s access to seed, feed, fertilizer, machinery, or capital. By late 1958, 2700 co-ops again functioned, 40 percent fewer than in 1956, but a sharp increase over 1957. Their land share had fallen to just 15 percent, about even with Hungary’s State Farms, centers for large-scale grain production, livestock breeding, and technological modernization. Hence, with private families holding 70+ percent of the usable countryside, “at the end of 1958, Hungary was the least collectivized of the People’s Democracies, with the exception of Poland.”23 To encourage renewed plantings and revive livestock investments, the Kádár team avoided crackdowns on market selling (and pricing) and reiterated the revisionists’ judgment that agriculture had been wrongly deprived of adequate investment capital. Soon grains, vegetables, and fruit began flowing steadily to state purchasers and urban market stalls. Yet, problems from the Rákosi years returned. Resz˝ o Nyers, chair of the National Federation of Cooperatives, reported that an investigation of 300 TSZs mounted in 16 counties detected “inventory shortages” of 22 million forints in 1955, 36 million in 1956, and 26 million in 1957 [$2 million; $3.1 M and $2.4 M, at official exchange rates]. “Abuses” were universal, notably co-op officials’ “unpardonable excessive expense accounts.”24 Equally disturbing, rural outmigration seemed to be accelerating; in Bács County alone, 13,000 mostly young people had exited in 1955, 15,000 the following year, and 26,000 in 1957. Analysts suggested moving small industrial plants to country towns and helping co-ops emphasize profitable vegetable plots, fruit orchards, and vineyards.25 Finally, Machine Tractor Stations, created in 1948 to provide mechanical services to state farms and TSZs, suffered from inadequate spare parts supplies, too few “maintenance mechanics,” and the perennial drift of tractor drivers to steadier, better-paid work hauling materials or goods for factories.26 Before rural districts fully settled down, the Kádár administration launched a third round of collectivization in 1959 and 1960, pleasing the USSR.

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Regain control over factories and industrial workers: During the revolt, thousands from Budapest’s machinery and metalworking plants took up arms against Rákosi and the Soviets; steelworkers and others in provincial manufacturing centers like Györ, Ozd, and Miskolc also rebelled. Everywhere they created workers’ councils to participate in decision-making and sustained illegal strikes for months protesting Soviet occupation, contributing sizably to an economic contraction of 21 billion forints [$1.9B, 20 percent of GNP] and an unfavorable balance of trade. Unlike farmers, most workers rejected the replacement regime, which reciprocally distrusted them, arresting some and discharging more. Reconstructing factory Party committees was thus keenly important to restoring “work discipline”; but for the first Kádár year, there weren’t enough experienced cadres to fill the posts. Thus, threats and coercion had to serve amid a climate of reprisals. Suppressing the workers councils in November 1957 silenced critics from the factory floors. Carrots could come later.27 With plan targets in ruins, more than getting production up to speed was at stake for the new regime. Stalinist-era industry had driven relentlessly toward meeting quantity goals, but in so doing generated low-grade products—imprecise tools and shoddy fabrics—hardly welcomed abroad and tough to sell at home. Reviving manufacturing (and its crucial export revenues) thus demanded a shift toward quality which in turn depended on technology upgrades, “the re-tooling of industry.” But Hungary was effectively broke. What to do?28 Sharp wage constraints to curtail consumption and fund capital investment had been the classic Rákosi tactic; but doing that in 1958 could intensify workers’ bitterness. By contrast, budget juggling was attractive—draining money out of “cultural, social and building investments” to replace aged machinery, thus improving productivity and quality. A sensible notion, but the transferrable funds proved insufficient, whereas quality gains were unlikely without altering quantity-based performance incentives. Bonuses for topping volume targets were cherished and defended, especially by managers. Adjusting them would become exceedingly complex, as quality indicators differed in each sector and no agreed-upon measurement tools existed. A second initiative involved reintroducing “production competitions,” an old Stalinist ploy in which plants’ work brigades strove to win honorific titles and “hero” banners by outpacing one another in beating output norms. Wrong place, wrong time. “The results were disappointing. The competitors were unwilling, competitions were slack and norms lagged behind their targets.” Profit sharing next took center stage.

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Ostensibly offering workers as much as a month’s extra pay when plants exceeded targets, it proved a thin incentive; for in practice rewards on that scale were rarely distributed. Nonetheless, Kádárhad committed his government to lifting standards of living and consistently pursued this goal into the 1960s.29 The simplest tactic, raising wages, was a non-starter; with limited consumer goods production capability, this could trigger inflation—more money chasing too few goods. Instead, the Kádárists allocated capital to light industry for expanding output and improving clothing, appliances, and household goods, seeking the converse—ample goods drawing scarce money. The lure of consumption could entice workers to push production upwards. Observers local and abroad agreed by the early 1960s that this strategy was working, though not exactly as planned. Stoking desires for refrigerators and televisions fueled not only shop floor drives to score premiums but also myriad, illicit “moneygrubbing” schemes to boost household incomes. Still, “a moderate but constant improvement of living standards became a definitive characteristic of the period.” By 1963, Kádár’s planners determined to reorganize manufacturing’s management and sectoral organization, as had their predecessors. A sequence of decrees “abolished” ministries’ direct control over enterprises of all sorts, decentralizing responsibility, as “Soviet industrial reorganization” had attempted. This move created a roster of intermediate “trusts” to supervise plan fulfillment at the enterprise level, ostensibly displacing ministerial oversight. The scheme was, if not a sham, at least a diversion, for ministries retained control over “important investment programs,” production coordination with Bloc partners, “fixing of prices,” the “rules of accountancy,” and much else.30 To be sure, manufacturing stabilized by the early 1960s, but growth was essential. Reduce fear and curtail surveillance: Before Stalin’s death, Rákosi’s security services drew on an extensive network of informants, often trapped through their own indiscretions into spying on neighbors, workers, or Party members. Predawn arrests and compulsory relocations to remote districts were standard fare. The political police (AVH31 ) clubbed and tortured prisoners to extract confessions implicating other “enemies of the state,” operating scores of prisons and forced labor camps to exploit and punish their targets. Nagy’s cabinet pledged to release thousands and restrain the AVH, but its capabilities were modest and its tenure brief. In 1956, Budapest rebels targeted and killed scores of AVH officers, then captured and ransacked its Andrássy St. headquarters. The

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intruders soon became targets of Kádár’s “excessive reprisals of 1957– 58,” a wave of “selective” arrests, jailings, and executions that eradicated popular opposition and restored order.32 Yet rather than extending coercive practices and governing by fear, Kádár renewed his November 1956 commitment to “learn from past mistakes.” Police raids on suspected dissidents dwindled toward zero; initially scattered, then “comprehensive” amnesties followed for those charged with “counterrevolutionary” actions in 1956, as well as other “politicals” imprisoned under Rákosi. Monitoring citizen behavior was wrested away from security forces and assigned to “social organizations,” People’s Control Committees (PCCs), which could investigate anyone but arrest no one. Barriers to travel within and beyond the Bloc diminished; the government also facilitated rather than obstructed trips to Hungary by Westerners bearing hard currencies. (Those traveling by car were urged to bring a variety of spare parts, though.) Tourism entailed welcoming foreigners to a festive not a bleak capital, so the state hastened to repair damage from the Revolt, to renovate old hotels, and to build new facilities that could house, feed, and entertain visitors. In education, “the abolishment of discrimination on the basis of social origin in university admissions policies” reversed a Rákosi-era standard. Since 1948, colleges and institutes had rejected the offspring of bourgeois professionals, business owners, and landholders, preferring the children of peasants and proletarians. Unanticipated talent had emerged; but often as not, students from poor families had floundered, being inadequately prepared for higher education. Perhaps, most dynamic was the administration’s ruling that expertise was more salient than political credentials when filling job vacancies. Non-Party members would no longer be excluded from managerial, technical, educational, and policy posts, though naturally they could not be appointed to Party offices.33 The cultural scene opened up; once-banned writers again finding their voices and their audiences. Budapest’s legendary humor blossomed in clubs and reviews, to wit: Since 1957, we have been more strict in enforcing traffic regulations, making quite sure that no one drives on the left or overtakes on the right. We have fought a battle against the rightists, the leftists, and the mediocres [centrists]. It is interesting to see that the fight against the last, although not the most difficult, is certainly the longest… Petty bourgeois tendencies are still with us, but we no longer use our personnel departments to brand

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people as “bourgeois”; we just turn them into bourgeois people ourselves by giving them family houses, washing machines, and vacuum cleaners.34

The new atmosphere derived at least rhetorically from Kádár’s transformation of an old Party adage: “Those who are not with us are against us.” The new version was inclusive, not exclusive: “Those who are not against us are with us.” The regime’s practical, sensible shifts in political practice thus had positive consequences: Although the broad masses of the population could not accept the simplistic… designation of October 1956 as a counterrevolution, they saw that János Kádár’s government was striving in the interest of the people and the country, for the implementation of many elements… of the endeavors and democratic popular demands drafted by the party opposition between 1953 and 1956.

These steps led toward “a new and independent model of socialism, in which not every sphere of life was burdened with politics and which offered incomparably more human living conditions.” Instead of a forced austerity in service of an imaginary but glorious future, Kádár “offered society a feeling of well-being and, during the era’s best period, the experience of everyday progress.”35 Considering socialism’s first tumultuous decade in Hungary, this was no minor matter, although residues from the Rákosi era and longer-term continuities made further achievements all the more difficult.

Continuities The most significant condition Hungary had to negotiate going forward under Kádár was its subordination to Soviet power and interests. His regime would follow Khrushchev’s lead faithfully, especially regarding “de-Stalinization” and strategies to improve economic performance. After Khrushchev’s fall in October 1964, Kádár worked diligently to assess Kremlin political dynamics so as not to misread emergent “lines.” Soviet troops present across the nation remained a source of distress for “national communists,” although for “dogmatists” they represented comradely defenders of socialism. Ferenc Váci’s judgment in 1961 was dire: “Any regime installed and maintained by foreign armed forces constantly faces an insoluble dilemma. Public opinion will demand the

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withdrawal of the foreign army as a condition of its cooperation with a government which, for its continued subsistence, is bound to rely on the foreign forces that brought it into power.”36 Yet that judgment was, if not actually wrong, only temporarily relevant. Kádár’s state did not brandish Soviet forces to stay in power; the people paid scant attention to them, coping and grumbling. Russian troops’ visibility steadily diminished; they stayed put on their bases (except for periodic exercises), as had generally been the case before 1956. One unanticipated benefit: Hungary’s defense expenditures became quite modest, hovering around four percent of GNP, a dramatic drop from ca. 30 percent in the early 1950s war panic.37 As before, Soviet economic plans prevailed over schemes to address Hungary’s needs. For example, when Soviet planners began emphasizing chemical industry expansion, so too did Budapest. Hence, steel mill funding shrank. Substantial capital investment in heavy industry did continue, if at a slower expansion rate, rather than being reduced in favor of serious spending on consumer goods (light industry), agriculture, and infrastructure.38 Like Rákosi, Kádár ran a one-party state, but not a unified one. Factional rivalries that had preceded the revolt resumed, at first behind the scenes, before congealing into clusters of neo-orthodox Stalinists stressing discipline and control vs. a “find our own path” coalition of revisionists, non-Party technocrats, and agricultural specialists (Zsuzsanna Varga’s “agrarian lobby”), seeking to remedy shortcomings in ideology, planning, and implementation. The latter prevailed at the highest levels for much of the 1960s, but conflicts among ministries continued, with Heavy Industry anchoring the traditionalists and Agriculture the pragmatists and reformers. As expected, orthodoxy persisted in local administrations, precipitating struggles with incoming “experts” trying to raise TSZ profitability, rationalize road transport and repair, or assure completion of construction projects. Depending on points of view, there were either never enough technicians, engineers, agronomists, or accountants, or far too many of them.39 Just as prior to the Revolt, state agencies held responsibility for overseeing economic activity; the gap between their assignments and their ability to execute them remained. Not only were there ongoing and extensive evasions of state decrees, regulations, and laws concerning enterprise operations, both public and private actors also committed offenses that robbed businesses and agencies of untold millions of forints. An insufficient supply of accountants contributed to weak auditing, but

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their oft-noted cupidity (along that of too many bookkeepers and enterprise treasurers) was itself a source of trouble. Perversely, improving training facilitated more sophisticated scheming. As a Baranya County police chief put it: “New methods of embezzlement are constantly being thought up by the guilty.” A Western observer, drawing on the Budapest press, added: “On the state and collective farms, as well as in shops and factories, practically everybody is out for extra-legal gain through embezzlement, pilfering and the like. Now and then there are… trials to prove the necessity of vigilance against corruption, but most people risk arrest without hesitation.”40 Frauds and thefts of materials and goods diverted resources from planned channels to private purposes—drinking and partying at the low end, home building and car buying at the high. Unlicensed entrepreneurs resurfaced in commerce, construction, and agriculture, as did industrial mini-workshops, which used company tools and materials to make small wares for market sale.41 Finally, the ministries could not correct earlier patterns of poor coordination and defective cooperation among suppliers and users along production chains. The spare parts famine continued, for example, and an unending sellers’ market left downstream manufacturers prisoners of upstream firms’ interests and priorities. Similarly, in construction projects and agricultural purchasing/distribution, disregard for plans and contract provisions led to uncertainty, delay, and waste. Administrative initiatives to end the chaos proved as ineffectual in the 1960s as they had been a decade earlier (Fig. 1.1).42 At the macro-level, Kádár’s regime confronted persistent problems of resource constraints and import–export dependencies, as well as sedimented group interests. Industrialization had deepened Hungary’s reliance on imported raw materials and machinery; it possessed next to no metal ores, too much low-grade coal and too little petroleum. Its metalworking plants could not fabricate the full range of production technologies needed. Thus, Hungary had to sell sizable shares of its output abroad. In that sense, building socialism oddly depended on markets—politicized exchanges within the Bloc, with the Council for Mutual Economic Assistance (CMEA/COMECON) undertaking to manage complementary specialties among the nations, and competition in the West, where price and quality comparisons with capitalist products too often proved embarrassing. This dynamic created domestic flash points, as the best quality fruits, vegetables, wines, and processed agricultural goods left the country, as did manufactured items that passed special export

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Fig. 1.1 Spare parts humor in the Budapest satirical weekly, Ludas Matyi 12 November 1959, 3 (Source https://archive.org/details/ludasmatyi19 561971/LudasMatyi_1959__pages651-700/page/n39/mode/2up [accessed 11 November 2021]. Cartoon by András Mészáros)

inspections. Citizens resented being left to choose among second-rate commodities. Plant workers on occasion damaged goods being packaged for international clients; when rejected for export, they would have to be sold at home. Regime policies raised farm incomes appreciably more than those of the industrial workforce, however. High state-established food prices angered factory hands, as well as clerical, transport, and government employees, stretching their pocketbooks and renewing an old hostility toward “rich” rural folks. Strains between Party members and non-Party people continued, but now because loyalists no longer received preferment for choice positions increasingly secured by better credentialed outsiders.43 Overall, continuities between the Rákosi and the Kádár eras were numerous and striking, preserving diverse rules, organizations, and practices created by Hungary’s Stalinist leaders. Equally challenging, however, were the changes or transitions triggered by the Revolt and the unavoidable recognition that, thus far, efforts to build socialism had floundered.

Changes/Transitions A fundamental shift in governance emerged with Kádár: Party members and parliamentarians now openly discussed and critiqued proposals and

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programs emanating from planning offices, administrative departments, and the Council of Ministers. The press weighed in far more crisply than ever; academic journals sponsored debates about options; and officials sat for interviews to supplement formal announcements (especially about price changes). Boneheaded policies no longer went forward without opposition, though some did so despite opposition. Moreover, what Rákosi had falsely advertised as “people’s democracy” commenced taking material and social form. For example, PCCs solicited information on malfeasance in political and economic units, conducted investigations despite organizational resistance, and reported their findings to county and local councils, or in serious cases, to prosecutors. State security forces no longer acted like wild bulls, disregarding procedures and answerable only to top leaders; once inserted into the bureaucracy, they became subject to law and discipline. Industrial unions received a formal voice in reviewing enterprise plans, including in effect a veto over significant changes, though they rarely asserted it. As well, the exit of war-era Stalinists began creating vacancies for a second generation of central administrators—younger, better educated, and energetic—extending the push to valorize expertise over Party standing. The transition from following dictatorial directives to discussing and debating proposals and options demanded more time and effort from officials, which may also help account for the decline of their interventions into enterprise practices. Workloads interfered with meddling.44 Although state agencies appointed factory directors, TSZ members “elected” their chairmen and other co-op officials, once a pro-forma ritual at end-of-year meetings. No longer, as after the collectivization’s third wave (1959–1960), farmers mobilized regularly to identify problems and present demands to managers. When dissatisfied, they voted them out, often after raucous and unruly denunciations. Party conservatives found this offensive; “too much cooperative democracy” promoted anarchy, or at a minimum, disrespect to authority. Before’56, rural Party secretaries had bemoaned members’ indifference to management practices. Now contentious members were taking perhaps too much interest in governance. As prospects for restoring private farming faded, incoming TSZ households appreciated that all three legs of their income stool (family plots, outside work, and co-op earnings) had to be sturdy.45 In consequence, many vocally insisted that leaders be competent and diligent, and at times, inventive. If young people migrated because city jobs delivered regular pay packets, whereas TSZ work did not, what were chairs

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going to do about it? If rising animal husbandry on household plots created demands for increased fodder, how was this to be worked into the plan? When members shunned field labor to work in family vineyards or orchards, allocating particular co-op tracts to individual households and guaranteeing them a portion of the harvest might reset incentives. If this looked like a regression to sharecropping, so what? If such activity seemed to be “moneygrubbing” rather than dedication to socialism, where had observers been dozing all these years? Material incentives had to be devised, tested, and sharpened precisely because rural Hungarians prioritized family income over boosting GNP, something policymakers surely knew but declined to acknowledge. A 1962 report intoned, rather feebly: “All energy once devoted to fighting enemies of socialism ought now to be concentrated on the development of the economy.” As export imperatives required a rising output of quality farm products, departures from Marxist-Leninist principles could hardly be avoided. Nevertheless, orthodox Party members resented such “backsliding” and in time would respond aggressively.46 Decentralization went beyond experiments in people’s democracy, surfacing in the geography of planning and investment, as well as in enterprise administration. Physical planning had assigned co-ops and state farms specific mixes of crops and livestock, with targets for each that determined acreages committed to grains, fodder, potatoes, sugar beets, etc. Setting this aside, Kádár’s Ministry of Agriculture moved carefully in two directions, toward greater TSZ autonomy and toward state farm specialization. Each year a third or more of Hungary’s farm co-ops failed to reach their goals, many recording deficits which Budapest subsidies had to cover. Supervising TSZs through recommendations and advice instead could facilitate enterprise-level planning that took local conditions and capacities into account. Selecting crops suitable for area soils, expected rainfall, and the available labor force could generate higher yields and greater co-op incomes, reducing or eliminating subsidies. TSZ officials could make advance contracts with state purchasing agencies, fixing harvest prices, and even arranging for progress payments during the growing season. This in turn would permit cash disbursements to working members. Legitimizing market sales of produce not under contract augmented earnings across the calendar. This approach often did not work as expected, of course, for interfering local councils replaced ministries as overseers, People’s Controllers conducted annoying (to TSZs), time-consuming investigations, and rifts between directors

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and members repeatedly interrupted work routines. Even so, relative autonomy was a tangible improvement.47 At State Farms, still subject to central planning, specialization was the new byword. Created from great estates and comprising about 12 percent of arable land, they had focused on large-scale farming and husbandry, especially bread grains (wheat, rye), feed (oats, alfalfa), and cattle raising. In the 1960s, the state shifted these assignments toward building competencies in seed growing, crop improvement, and livestock breeding (including show horses), or through consolidations, toward full mechanization of grain production on the American model, including intensified use of chemical fertilizers and pesticides.48 Following Nikita Khrushchev’s fabled visit to Iowa in September 1959, Hungarian agricultural managers commenced study trips to the U.S. and invited American farm experts reciprocally. Major revisions in planning, management, and accounting took place at state farms, notably, calculating differential costs of outputs as a means to exclude the “unprofitable” and expand the best performers. Here the goal was simplification, not just higher earnings. Planners believed state farms raised too many crops; such profusion was uneconomical. Thus enterprises in each region should narrow their plantings to those most viable locally, creating specialization on site, but diversity in the aggregate, as different crops would thrive in Hungary’s varied soils. Only the late 1960s reforms brought full decentralization, but these early Kádár changes did loosen the top-down controls that had governed state farms since 1948.49 Decentralization had a spatial dimension as well. During the twentieth century, population, administration, cultural and manufacturing enterprises had all increasingly concentrated in Budapest, as did higher education to a somewhat lesser degree. The capital region held 20 percent of Hungary’s citizens, over half of its manufacturing capacity, as well as peak institutions in publishing, theater, film, music, science, engineering, and economics. Comparable patterns had appeared across Europe, especially in metropoles like Paris, Vienna, or Istanbul, located in nations with few or no dynamic secondary cities. In the context of nuclear war fears, Budapest’s overdevelopment seemed a serious liability; one or two A-bombs could send Hungary backwards a century or more. Rákosi’s Stalinists had used deportations and internments to expel the capital’s “bourgeois elements” and “class enemies” and tried to stanch the rural influx by tying work, food, and schooling to documented locales of origin. The first worked, opening thousands of offices, homes, and apartments to

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Party members, the second not so much. Incomers occupied city sheds, garages, basements, and war-damaged buildings, took illegal jobs, faked credentials, and risked arrest, all to be in Budapest, with more food, better pay, and broader options than in the provinces. Nothing could arrest the flow. From the war’s end to 1960, Greater Budapest added 600,000 residents (reaching 2.2 M) and another 300,000 during the Sixties.50 As these figures suggest, Kádár’s decentralization policies didn’t work either, but at least they were different. The administration funded upgrading provincial higher education, improved primary, secondary, and vocational schools, and multiplied apprenticeships for agricultural specialists and training for local officials and TSZ managers. Planners assigned products from Budapest’s huge industrial enterprises to plants in distant factory towns (Miskolc, Györ), dispersing capacities while clearing space at Csepel or Újpest. Construction of new factories, power stations, and warehouses well away from the capital also received funding.51 The Agriculture Ministry promoted small manufacturing units (woodworking, food processing) as “auxiliaries” to TSZs, creating steady rural jobs that might keep young folks in place. The state tasked technical and economics/accounting graduates to spend their first few career years in provincial towns, in hopes that they might stay on. Even the Ministry of Domestic Trade got into the act by “modernizing” village retailing— widening the range of personal and household items on offer, culling dead stock, adding the stylish goods young people sought, and introducing self-service food shopping, which cut the time housewives spent gathering daily necessities. Finally, Budapest completed the full electrification of the countryside, so that families everywhere could plug in their radios (replacing battery models), TSZs could cool milk, eggs, and meat (reducing waste), and households could install lines for lighting and appliances (increasing DIY and contract construction work, plus demand for refrigerators).52 Taken together, these measures delivered “everyday progress,” but they did not halt rural outmigration. The aging of TSZ members and the consequent, nagging labor shortage in agriculture continued.53 Just as the state pushed co-ops to calculate crop expenses vs. returns and focus on profitable plantings, industrial ministries pressed producer and consumer goods manufacturers to rationalize their product ranges. This was a huge step, as under directive planning, volume was central, costs were peripheral, and funding transfers covered revenue shortfalls. Implementing “socialist profitability” departed from customary practice,

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something the Party orthodox or enterprise directors hardly embraced. Notwithstanding their reservations, targeting profitability had solid Soviet credentials: in September 1962, leading economist E. G. Liberman published in Pravda a detailed outline for a new responsibility system which stressed profits, devolved planning to the company level and offered a banquet of bonuses for raising both output and quality. Emphasizing bonuses upset the orthodox, but thrilled directors and managers, unsurprisingly. As Liberman explained, once using his scheme, firms will stop asking for, and hiring superfluous manpower, for this will reduce profitability, and consequently, the incentive fund. [This] fund, formed in accordance with the level of profitability achieved, should be a uniform and exclusive source of all kinds of bonuses. It is important to consolidate collective and individual material incentives. Let the enterprise have more freedom in using “its own” share of profit! [Moreover,] at present profitability falls if enterprises master the production of many new goods or new machinery, That is why we have worked out a scale of additional bonuses that depends… on the share of new goods in the plan.54

Separate, substantial bonuses for accepting trial-and-error lags when making new products could potentially crack firms’ reluctance to alter familiar but loss-making routines. It also laid foundations for “rationalizing” prices, which had borne little relation to expenditures. If firms tracked and minimized costs, state agencies could base price setting on realistic, rather than arbitrary or ideological foundations. That said, rethinking the cost-price linkage was serious political business. Since 1948, prices had their roots in implementing socialist priorities, not in market exchange (of course), not in expense calculations. Pricing based on costs expanded the money-centered empire, among consumers, workers, and farmers and up to the high plateaus of national planning and economic management.55 Embracing this change entailed other costs than numerical ones, political stresses that heightened contradictions between plan and market, Party principles and material incentives, the orthodox and the revisionists, or the interests of farmers and workers. A comprehensive reform, the New Economic Mechanism (1968), both descended from and reflected these tensions, but could not resolve them. Paying greater attention to consumption required addressing one of building socialism’s casualties: the commercial infrastructure. Urban retailers and rural shops (FCCs56 ) received supplies from monolithic

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wholesale enterprises which in turn secured clothing, furniture, appliances, and personal items, each from a single manufacturer (the “one plant” policy). Not only were choices narrowed by the lack of alternative makers, enterprises resisted changing styles and designs, as doing this would initially slow output and risk missing bonus targets. Second, planners had little interest in service firms, personal or technical, because they produced nothing tangible. Hairdressing or appliance/equipment repair were irrelevant to the socialist project, unworthy of resources to upgrade skills or facilities or programs to train apprentices. Third, state officials judged custom makers of not just clothing and shoes, but also cabinets, tile ovens, or decorative objects as troublesome residues of the bourgeois era. The central price office set low rate schedules for such work, which discouraged entry and stimulated illegality. To broaden consumption, however, market failures stemming from planning exclusions had to be addressed. By 1960, in many rural districts and villages, no one remained who could re-sole boots, and no one had surfaced who could fix a radio or a washing machine. Hence, Kádár’s Domestic Trade officials sought to reinvigorate a cohort of artisan cooperatives (KTSZ Kisipari Termelöszövetkezet ) formed in the 1950s, to increase licensing of private retailers, repair shops, dressmakers, and barbers, and to strategize about recruiting successors for aging service providers. Some KTSZs could be commissioned to cut and sew fashionable women’s wear and children’s clothes, which would enliven FCCs and urban retailers; other co-ops could be assigned to home renovations and finish work on newly built and purchased apartments. Individual service specialists could work with clients directly, stepping around the slow moving bureaucracies. As The New York Times reported: “The Budapest regime has given its blessing to an increase in the number of private shops performing services. Hungarian officials have emphasized [that] they would like to see… such shops in the smaller towns and villages, where the service network is rudimentary.”57 In the best case, the disconnect between the regime’s grand projects and the needs of ordinary citizens could be repaired. In reality, the service sector never carried sufficient economic weight to be prioritized amid competing demands for financial and organizational resources. To the orthodox, service represented a capitalist remnant, whereas for others it was too unimportant to merit sustained attention. Last, transitions in Hungary’s relationships with the USSR, the Bloc, and the West may be explored on two fronts: politics and trade. As the Sixties opened, Hungary’s fealty to the USSR continued. Khrushchev’s

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reforms encouraged Bloc emulation, which Hungary resolutely undertook. The rotund Premier dissolved secret courts (troikas ) which had ignored lawful procedures, ended political trials, invited state officials to attend Central Committee discussions, dissolved Stalin’s Machine Tractor Stations to give state farms control over machinery, and undertook to replicate successful American practices in education, farming, and enterprise management.58 These shifts legitimized Hungary’s efforts to curtail state “lawlessness,” promote policy debates, transform Tractor Stations into rural repair and maintenance centers, and reach out to the West for technical knowledge, joint ventures, production contracts, and research collaborations. Commercial relations with the Soviet Union altered as well. Russian managers in Hungarian firms trickled back home; quality shortcomings with materials imported from the USSR diminished; and trade negotiations replaced the postwar decade’s predatory pricing that had assured Soviet advantages. In addition, initiatives to devise Bloc-wide divisions of labor replaced COMECON’s former role as a mechanism for meeting Soviet economic priorities. In part, this stemmed from a nearly universal recognition that the People’s Democracies lagged the capitalist West in technology, consumption, and organizational capabilities. Perhaps, distributing production assignments across the Bloc (buses here, trucks or tractors there, autos elsewhere) could maximize effective use of resources, although this was simpler in some sectors than in others. As well, strictures against the West providing key materials and machinery to socialist states, long championed by the U.S., began relaxing. Hungary’s technical and commercial connections to Switzerland, West Germany, Sweden, and Italy gathered strength. Bearing more directly on market openings, when Cold War politics initially blocked shipping American wheat to Hungary in the early 1960s, Canada and Australia stepped up to fill the gap.59

Useful Bits on Money, Prices, and Growth Hungary’s currency is denominated in forints, which throughout the socialist decades were not freely convertible into dollars, francs, or Deutschmarks. Ruble conversion rates within the Bloc facilitated statemanaged import–export enterprises, but until the mid-1960s, few Hungarian businesses could purchase abroad on their own accounts. During the Fifties, the official dollar exchange rate was ca. 11 ft. per $1US, which provided the occasional incoming Western tourist as little

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purchasing power as possible for their money. The forint’s black market (and export) value was half or less of this, 22–25 ft/$, a rate smart negotiators played with to buy more goods for less cash. In the Sixties, recognizing the disparity, the official rate shifted to 23 ft/$, but the unofficial value moved into the 30-40ft/$ range. Meanwhile Hungary’s prices, due to systematic subsidies of some items and overcharging for others, were hardly comparable to Western prices. Rent was cheap, meat and clothing were expensive, transit cost little, while health and higher education were practically free. Third, incomes of workers further complicated the picture. A decent factory or clerical wage in the 1960s could be 2000–2400 ft/month, at the official exchange rate perhaps $100. But if rent demanded just ten percent of this sum, commuter tickets another five, this in theory would leave a sizable residual for consumption spending. However, food purchases often took 50 percent of earnings, and clothing demanded savings (a winter coat for 2500 ft; low-quality shoes at 400/pair, custom-mades, 800–1000), as did furnishings. Families headed by industrial or office workers needed two earners to achieve a measure of comfort, most women being paid somewhat over half what men earned (in a largely sex-segregated employment structure). These constraints accounted for vocal protests against price increases, for the pervasiveness of unlicensed entrepreneurship and for the theft of money and materials. The state had consciously suppressed workers’ wages and farmers’ selling prices in order to generate surpluses for industrial and infrastructure investments. If this was no longer tenable, if improving consumption was key for securing assent to the Kádár regime, if raising wages threatened inflation, and if Soviet funding could hardly be expected, Hungary was in a pickle. Three ways out might seem plausible. First, convince farmers and workers to exert themselves to boost productivity per hectare or per factory hour by reducing waste, by upgrading equipment (and maintenance, cutting idle time) and by increasing diligence and attention to quality outputs. Second, Hungary could build an export surplus by selling high-value agricultural and manufactured goods, especially to the West, while confining imports mostly to cheap raw materials, thus generating funds for manufacturing consumer goods and to replace obsolete technologies. Third, the state could free industrial and agricultural managers and engineers to produce what markets seemed to demand and let producers determine selling prices, thereby radically reducing dead inventories, fostering efficient resource use and creating sizable profit

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streams, part of which could be harnessed to underwrite projects of national value. Such a trio could become a socialist growth strategy, replacing older commitments to comprehensive planning and control that had brought both stasis and crisis. These and other streams of policy and practice revision percolated through the Central Committee, Council of Ministers, and Planning and Price Offices by 1964–1965—all well aware of reform explorations in Poland and Czechoslovakia. Their deliberations led to a formal announcement of the New Economic Mechanism project. Among its aims were to expand market transacting, while supporting enterprise autonomy, flexible pricing and distributed (rather than central) planning. By 1967, trial implementation of NEM provisions commenced in agriculture; the program’s full rollout came on 1 January 1968. Contradictions and conflicts ensued, triggering unintended consequences and reigniting factional battling between orthodox and reformist Party sections in 1970–1971. The conservatives prevailed in a November 1972 Central Committee meeting that reversed or suspended elements of the NEM, resulting in core advocates being dismissed from lofty positions and restoring the prerogatives of central authority dear to the Party orthodox. Within a year, the first Oil Crisis caused inflation of import prices and trade deficits, setting off a spiral of debts and deficits that effectively closed off the nation’s path to growth and technical modernization.60 This is why Volume 2 of Business Practice in Socialist Hungary ends in 1972. Unable to master or resolve deep contradictions in economic policy and enterprise practice, socialist Hungary stalled, then failed in 1989. This study next moves to reconstructing and assessing business practice in the early phase of the Kádár era, 1957–1967—first in agriculture, then in construction, commerce, and manufacturing (as in Volume 1). Implementing what the leadership imagined and planned regularly departed from expectations, as state agents could not reliably manage everyday enterprise and individual behavior. A final chapter reviewing the NEM shows that the gap between policy and practice could not be closed. On the ground, despite substantial economic achievements, “building socialism” became ever more difficult, then impossible.

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Notes 1. John MacCormac, “Hungarians Face Changing Regime,” New York Times, 1 January 1957, 16 (hereafter NYT). 2. Columbia University Research Project on Hungary Interview No. 439, 48, 62, Open Society Archives, Budapest, Hungary, File 414-0-2-260 (hereafter HU OSA). 3. “Hungary Strives for Gay Holiday,” NYT , 17 December 1957, 9. 4. William Shawcross, Crime and Compromise: János Kádár and the Politics of Hungary Since Revolution, New York: Dutton, 1974, 88–89. The first Nagy cabinet had been in power during 1953–1954. 5. Radio Free Europe Situation Report (hereafter RFESR), 10 August 1962, HU OSA 300-842-92-60. See also RFESR, 23 October 1959, HU OSA 300-8-47-88-72. 6. Shawcross, Crime and Compromise, 89. ´ 7. Miloš Corovi´ c, “Hungarian Nocturne,” Politika (Belgrade), 2 April 1975, Joint Publication Research Service Report 64808, 24–31 (hereafter JPRS). 8. During the Rákosi period, the government compelled private farmers to deliver the bulk of their harvests to state agencies, which paid only a fraction of their market value, often 20–30 percent. The state sold these products to consumers or exported them at much higher prices, using surpluses to fund industrial investments. This policy was deeply resented in rural areas and often evaded, at the risk of prosecution, prison, and/or land confiscations. 9. Central Intelligence Agency Information Report (hereafter CIAIR), “Probable Political Alignments,” 21 March 1958, CIA-RDP8T00246A041200510001-7. For confirmation, see Ferenc Váli, Rift and Revolt in Hungary: Nationalism vs. Communism, Cambridge: Harvard University Press, 1961, Ch. 27. 10. See Philip Scranton, Business Practice in Socialist Hungary, Volume 1: Creating the Theft Society, New York: Palgrave Macmillan 2022, Chapter 2. For a theoretical perspective, see Robert Chia and Robin Holt, Strategy Without Design: The Silent Efficacy of Indirect Action, New York: Cambridge University Press, 2009. 11. “Hungary Decrees a Wide Amnesty,” NYT , 22 March 1963, 3; “3500 Set Free In Hungary,” NYT , 13 April 1963, 3. 12. Ivan Berend, et al. “40 Years of Communism in Hungary,” Társadalmi Szemle (Social Review), February 1989, Joint Publication Research Service, EER-89-083, 16. 13. George Mueller and Herman Singer, “Hungary: Can the New Course Survive?” Problems of Communism 14 (January–February 1965): 32–38; Ivan Berend, The Hungarian Economic Reforms, 1953–1988, Cambridge: Cambridge University Press, 1990, Ch. 5–12.

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14. Váli, Rift, 286–287. 15. Ibid., 304. 16. George Ginsburgs, “Kádár and the Resurrection of the Hungarian Communist Party: A Study in Political Techniques,” Australian Journal of Politics and History 10(1964): 16–32. In contemporary usage, which seems odd today, “left” signaled orthodox Stalinists and “right” the revisionists and reformers. Váli suggests that in addition to those two and Kádár’s centrists, a fourth group of “national communists” surrounding theorists like György Lukács sought a separate Hungarian path to socialism (Rift, 301–302). 17. CIAIR, “Probable Political Alignments,” 2. 18. G. R. Urban, “Hungary, 1957–1961; Background and Current Situation, Part One,” 16 May 1961, 80, HU OSA 300-8-3-3394 (RFE Background Report, hereafter RFEBR). 19. Ginsburgs, “Resurrection,” 27, 32; Váci, Rift, 402–404. 20. Termel˝ oszövetkezet = producer cooperatives. 21. CIA Research Aid, “Labor Supply and Employment in Hungary, 1949– 1958.” January 1959, Table 4, “Agricultural Employment,” 10 (CIARDP79S01048A000600100001-4). 22. Joanna Goven, “The Gendered Foundations of Hungarian Socialism: State, Society and the Anti-Politics of Anti-Feminism, 1948–1990,” Unpublished Ph.D. dissertation, University of California, Berkeley, 1993, 121–122. 23. Urban, “Hungary 1957–1961, Part Two,” 237, HU OSA 300-8-33428; Váci, Rift, 461–462; Varga, Miracle, 81–86. See also “New Farmers’ Cooperatives formed in 1958,” Esti Hirlap (Evening News, Budapest) 17 May 1958, 6, JPRS 278, 95–96, which confirms the recovery to about 2650 TSZs from a December 1956 low of 1600. Poland had, at this point, essentially abandoned collectivization, See George Kennan, “Impressions of Poland, July 1958,” Memorandum to CIA (CIA-RDP80R01731R000200140090-0) and Abbott Smith, “Comments on George Kennan’s Memorandum,” 14 August 1958 (CIARDP79R00904A000400030026-9). 24. “Protection of Public Property,” Esti Hirlap (Evening News, Budapest), 11 May 1958, 1, JPRS 277, 68. 25. “Internal Migration and How to Cure It,” Nepszava (People’s Voice, Budapest), 24 May 1958, 3, JPRS 310, 22–23. 26. Urban, “Hungary, Part Two,” 236, 251–252. 27. Ibid., 210–211; Shawcross, Crime and Compromise, 90; RFEBR, “Hungary Abolishes Workers Councils,” 19 November 1957, HU OSA 300-8-3-3255.

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28. Loans from Bloc nations, mostly the USSR, covered only 15% of the GDP losses. They were welcomed, but far from adequate. (Urban, “Hungary, 1957–1961,” 210.) 29. RFEBR, “Development of Work Competition Movement in Hungary Since the Revolution,” 16 April 1959, HU OSA 300-8-3-3335; Urban, “Hungary, Part Two,” 212; RFEBR, “Borba on Hungarian Profit Sharing System,” 21 July 1959, HU OSA 300-8-3-15566 [Borba (Struggle) was a Yugoslav Party newspaper.]; RFEBR, “The Hungarian Profit Sharing System,” 4 March 1960, HU OSA 300-8-3-3382. 30. RFEBR, “The Reorganization of the Management of Hungarian Industry,” 6 February 1963, HU OSA 800-8-3-3522; RFEBR, “The Structural Reorganization of Hungarian Industry,” 12 March 1963, HU OSA 300-8-3-3524; Berend, “40 Years,” 20. 31. “Authority for the Protection of the State”—Many officers were exNazis from Hungary’s fascist Arrow Cross party, reportedly recruited to the secret police in 1945 by Soviet NKVD agents who “asked if they wouldn’t like to reconsider their political views” (Shawcross, Crime and Compromise, 55). 32. Berend, “40 Years,” 19; Váci, Rift, 395–399. See also https://www. historylearningsite.co.uk/modern-world-history-1918-to-1980/the-coldwar/hungarian-secret-police/ (Accessed 1 November 2021). 33. Berend, “40 Years,” 19; Váci, Rift, 423–425; RFEBR, “Hungarian Economic Control Organs More Active,” 6 February 1958, HU OSA 300-8-3-3295; “Life in Hungary Is Easing for Some,” NYT, 22 January 1960, 3; “Budapest Weighs Shift in Controls,” NYT , 30 January 1960, 7; “Hungary’s Innate Hospitality,” NYT , 28 February 1960, XX37; “Reds in Hungary Ease Their Curbs,” NYT , 24 April 1960; 16; “Hungary May End Curb on Students,” NYT , 29 October 1961, 4; “Kádár Eases Party’s Struggle Against Non-Reds,” NYT , 7 March 1962, 8. 34. RFEBR, “Hungarian Communists Mock Their Own Follies,” 13 April 1962, HU OSA 300-8-3-3462. For a scholarly review based on field work in the early 1970s, see Iván Szelényi, Socialist Entrepreneurs : Embourgeoisment in Rural Hungary, Madison: University of Wisconsin Press, 1988. 35. Berend, “40 Years,” 19. See also “East Bloc in the 60s: Comfort Supplants Fear as Incentive,” NYT , 17 September 1963, 14. 36. Váci, Rift, 422. 37. Zoltán Berény, Soldiers and Politics in Eastern Europe, 1945–1990: The Case of Hungary, New York: St. Martin’s Press, 1993, 59, 73–74. 38. Peter Sugar, A History of Hungary, Bloomington: Indiana University Press, 1990, 386–392. See also Charles Gati, “The Kádár Mystique,” Problems of Communism 23:3 (1974): 23–35, esp. 26–27; “Soviet Is Trying a Chemical Cure,” NYT, 10 January 1964, 45, 59.

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39. Zoltán Bagdy, “The Policy of Compromise: A Study of the Kadar Government, 1957–1962,” unpublished MA thesis, American University, 1965; Zsuzsanna Varga, Miracle, Ch. 3. 40. Paul Ignotus, “Hungary’s Longing for Normalcy,” Problems of Communism 9(March–April 1960): 27. 41. One such operation, inside a state railway locomotive repair shed at Disogyör (Borsod County) produced “rust-free steel knives, lighters, photograph frames, meat beaters [and] mortars for kitchen use, statues and other consumer goods.” When exposed, those involved were demoted “to jobs with less pay” (Eszak-Magyarorszag (Northern Hungary), 12 June 1960, JPRS 5162, 35 (hereafter EM). 42. JPRS 26354, 9–10. In Veszprém, two women, aged 26 and 28, managing a coal distribution center “systematically” arranged to sell thousands of tons privately for years. In 1963 alone, they created 199 forged bills and falsified financial statements to cover the frauds, which yielded them 130,000 forints (6–7 years of a factory worker’s income). Prior takings could not be documented due to missing records. Their motivation: “the desire to live a high life, buy a car, [and] drink immoderately” (Veszprém Naplo (Veszprém Diary), 20 May 1964, 8, JPRS 25767, 27–28). 43. “Hungary Prepares for Market Drive,” NYT , 19 May 1963, 6. 44. Lavinia Stan, “Goulash Justice for Goulash Communism?” Studia Politica: Romanian Political Science Review 7(2007): 269–291; “Kádár Urges Criticism,” NYT , 1 May 1960, 71; “Budapest Calls Purge Complete,” NYT , 16 September 1962, 21; RFEBR, “The Trade Union Veto: A Lesson in Deterrence and Timidity,” 10 August 1970, HU OSA 300-8-3-3753. 45. Nigel Swain, Collective Farms Which Work? Cambridge: Cambridge University Press, 1985, esp. Ch. 1 and Appendix I. 46. RFESR, “Opposition to Grassroots Dogmatism,” 10 August 1962, 2, HU OSA 300-8-47-92-60; JPRS 24939, 4 June 1964, 20–22. As an example of “excess” democracy wreaking havoc in Hadjú-Bihar, TSZ leaders, unable to order members into the fields, negotiated with them to harvest corn and alfalfa in spring 1964, agreeing on a 15 percent share of the yield as payment. Part way through the work, a group suddenly demanded an increase to 20 percent and downed tools. Co-op officials, agreeing that that this was wrong, visited the families involved, urging them to resume harvesting. They discovered that the “ring leaders” were several money-hungry men who usually shunned field labor “and hoped to get just as much income as possible from their private household plots.” Persuasion finally worked, but the lesson was clear: “a few activists can trigger all sorts of trouble.” This whole sequence, of course, stood a far distance from Stalinist practice. See Hadjú-Bihar Napló (Hadjú-Bihar Diary), 21 May 1964, 3, JPRS 25767, 25–26.

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47. Anna Burger, “Agricultural Development and Land Concentration in a Central European Country: The Case of Hungary,” Land Use Policy 18(2001): 259–268; Varga, Miracle, Ch. 4–6; Xavier Richet, The Hungarian Model: Markets and Planning in a Socialist Economy, Cambridge: Cambridge University Press, 1985, Ch. 2 & 3. 48. In the 1950s, some state farms focused on supplying TSZs with essential inputs. Reportedly, between 1953 and 1957, they sold co-ops “45,000 carloads of selected seeds, 4050 breeding bulls, 1100 colts, 30,500 boars, 74,100 sows, and 15,000 rams.” In addition, they made available “13.5 million eggs for hatching and 74,000 purebred fowls” to boost poultry raising. See Szabad Föld (Free Soil) 27 April 1958, 2, JPRS 904, 23 (hereafter FS). 49. Varga, Miracle, Ch. 2, esp. 81; E. Kirayi, “Reorganization of Planning on Hungarian State Farms,” Internationale Zeitschrift der Landwirtschaft (1960) No. 6, 14–20; L. Szakonyi and L. Páli, Principles for the Development of Accounting and Recording Methods on State Farms, Budapest: Agrárgazdasági Kutató Intézet, 1967. 50. János Timár, “Planning the Labor Force in Hungary,” Eastern European Economics 4:2/3 (1965–1966): 1–145; https://en.wikipedia.org/wiki/ Demographics_of_Budapest (accessed 8 November 2021); “Red Europe Hurt by Rural Exodus,” NYT, 3 June 1962, 12; “Budapest’s Lure Spurs Migration,” NYT , 20 August 1965, 19. 51. RFEBR, “Hungary’s Measures to Decentralize Industry Meet Resistance,” 8 July 1960, HU OSA 300-8-3-3374. 52. “Hungarian Plan Spurs Farmers,” NYT , 1 November 1964, 8; By the end of 1959, 84 percent of villages had electricity, vs. 40 percent in the late 1940s. 53. “Industry Growth Slows in Hungary,” NYT, 18 September 1963, 21; RFEBR, “Shortage of Manpower in Hungarian Agriculture,” 23 June 1961, HU OSA 300-8-3-3414; Urban, “Hungary 1957–1961,” 245. 54. E. G. Liberman, “Plans, Profits, Bonuses,” Pravda, 9 September 1962, translated in Problems of Economics, 8:3(July 1965): 3–8. 55. “Economic Problems Spur Debate in Hungary,” NYT , 26 November 1964, 15; for agriculture, see Ferenc Erdei, “The Factors and Sources of TSZ Profitability,” Agrártudomány (Agronomy), December 1958, 46–50, JPRS 1303-N, 16–21. 56. FCCs were Farmers’ Consumer Cooperatives, which supplied daily-use commodities, agricultural machinery, tools, and fertilizers, while anchoring locally the “government’s bulk-purchasing and contracting network” and serving as “contracting agents” for state insurance and for scheduling MTS services” (SF , 18 May 1958, 9, JPRS 908, 41).

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57. “East Bloc Eases Curb on Business,” NYT , 10 May 1964, 29: RFEBR, “Consumer Services in Hungary,” 22 June 1963, HU OSA 300-8-33537; RFEBR, “Hungary’s Program for Developing the Artisan Sector of the Economy,” 13 October 1965, HU OSA 300-8-3-3537. Supervising KTSZs was a serious problem, though. See JPRS 2591, 21–22 (Veszprém tailors’ illicit entrepreneurship); JPRS 2360-N, 33 (SzabolcsSzatmár shoemakers stealing leather for private jobs); and JPRS 7832, 26 (Fejer carpenters refusing to make pharmacy cabinets—too much work, little profit). Positive reports were common, also, but many documented KTSZ artisans being drawn into export contracts, not serving local needs (JPRS 1346-N, 10 [Borsod]; JPSR 2942, 49 [Hadjú-Bihar, toys]). 58. https://en.wikipedia.org/wiki/Nikita_Khrushchev (accessed 9 November 2021). The MTS dispersion did not go well. Agricultural enterprises had to purchase tractors and machines without discounts for age and condition. MTS technicians rejected being attached to scattered farms and relocated instead to cities, seeking other jobs. In consequence, farm machinery could not be adequately maintained or effectively operated. State farm spending to buy and house tractors, etc. exhausted capital budgets, so they ordered little new equipment. As MTS demand for agricultural technologies had vanished, the industrial blowback on farm machinery builders was substantial. 59. Andrew Felkay, Kadar’s Hungary and the Soviet Union, 1956–1976, Unpublished Ph.D. dissertation, Temple University, 1984; “Hungary Admires U.S. Management,” NYT , 29 April 1962, 10; “Concern Proposes Hungary Grain Deal,” NYT, 6 October 1963, 38; “New Corn Shipment to Hungary,” NYT , 30 October 1963, 8; “Seafarers Delay Hungarian Grain,” NYT , 10 December 1963, 68; “$7.4 Million in Wheat Sold by Canadians to Hungary,” NYT , 3 November 1964, 2; “Hungary Pushing East–West Trade,” NYT , 31 May 1965, 20; Stuart MacDonald, Technology and the Tyranny of Export Controls, London: Palgrave, 1990; Urban, “Hungary, 1956–1961,” 252–264. 60. Berend, Hungarian Economic Reforms, Ch. 13–21; Csaba Nagy, “The Oil Price Explosion and Its Effects on Hungary,” in Is Hungary Really Different? ed., Katalin Botos, Heller Farkas Papers, 7:1(2009): 46–55.

CHAPTER 2

The Essential Illusion: Collectivizing Agriculture, 1957–1963

“The income from the cooperative farm is not considered… as safe as the one from the private plot. This explains why some of the new cooperative members throw all their energies into working their private plots and only work halfheartedly on the cooperative land.” This was certainly the experience of the Party Secretary who visited the backsliding co-op at Fony [Borsod] and “was deeply shocked by what he saw there”: most members were found to own more land than allowed by law and “not even the members of the Party cell were willing to work systematically on the collective farm,” —G.R. Urban, 1961.1 The number of still independent farmers seems to be much higher than [we] thought… in Csongrad Country [alone] there are still 6,500 individual farmers… Their leanings [toward] speculation should be countered by applying the laws against such activity, but otherwise persuasion should be used… This, on the whole tolerant, soft-pedaling attitude of the regime is a result of its main concern: to keep agricultural production going. —Radio Free Europe Situation Report, July 1961.2 It may seem that collectivization only 2–1/2 years after a severe cataclysm was a premature notion, and that neither a firm material or political base had been assured for it. Nonetheless, one of the key tests of the new era was passed successfully… first of all thanks to the fact that in collectivizing the peasantry, no procedure tended to kill the initiative and

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interest of the producers. Someone correctly remarked that after collectivization, everything was done to be sure that the cooperatives did not become unproductive [like Soviet] kolkhozes. ´ —Miloš Corovi´ c, Belgrade, 1975.3

Farming in postwar Hungary was hard work, but farming collectively was harder, due to scale, complexity, and political uncertainty. Planners held tightly to Soviet (and capitalist) notions that mechanization and consolidation reduced costs and hiked yields.4 Establishing this virtuous cycle would provide ample foodstuffs for the nation and highquality export products to fund key imports, particularly raw materials and machinery. Adopting modern farming practices like mono-cropping and using chemical fertilizers/pesticides would permit Hungary to duplicate the success of American agribusiness, but in order to serve socialism and the nation, not to fill greedy shareholders’ pockets.5 Such expectations may have been plausible for TSZs on the wide Hungarian plain (the Alfold) but made little sense for the half of the nation’s arable land located on hilly, if not mountainous terrain. Moreover, mechanization had many ghosts in its machines: the mismatch between tractors or caterpillars, soil characteristics and diverse farm tasks, the displacement of labor by capital in a society guaranteeing work for all, and the routine underutilization of costly equipment, which given the spare parts famine, too often wound up damaged, idle, and rusting.6 Yet in an unplanned outcome, by the late 1970s Hungarian agriculture became celebrated as a socialist triumph. Inverting the prior pattern, the USSR began assessing to what degree its agricultural reformers could learn from Hungary’s advances.7 A 1985 study, “Collective Farms That Work?”, epitomized observers’ surprise and ambivalence—as the question mark signaled.8 A plausible answer to that query could be: “Yes perhaps, though not through central planning, but by subverting and reconfiguring it through local compromises and improvisations.” Another dimension of Hungary’s third collectivization drive was an “essential illusion,” the assumption that duplicating established Soviet practices was straightforward, and, if complicated, neither surrounded by uncertainties nor likely to yield troublesome unintended consequences. This is consistent with comments by Albert O. Hirschman in reviewing contemporaneous large-scale agricultural projects in Pakistan, Peru, and Uruguay: “people are apt to take on and plunge into new tasks because of

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the erroneously presumed absence of a challenge—because the task looks easier and more manageable than it will turn out to be.” Indeed, the only way we can bring our creative resources fully into play is by misjudging the nature of the task, by presenting it to ourselves as… routine, simple, undemanding of genuine creativity… [Thus, people] take up problems they think they can solve, find them more difficult than expected, but then, being stuck with them, attack willy-nilly the unsuspected difficulties – and sometimes even succeed. People who have stumbled through the experience just described will of course tend to retell it as though they had known the difficulties all along and had bravely gone to meet them.

Hirschman argued that in general “we find it intolerable to imagine that our more lofty achievements, such as economic, social or political progress, could have come about by stumbling rather than through careful planning.”9 Just so. He suggested ironically, that had projectors been able to accurately estimate the costs and pitfalls of the schemes they were framing, they would have stopped in their tracks. But they didn’t and they still don’t, which is why megaprojects always have budget overruns, delays, unexpected technical glitches, design corrections, policy changes, and end results which fail to correlate with what had been planned.10 Thus it was with collectivization in Hungary (and a decade later, with nationwide economic reform). Not fully appreciating what you are confronting is the essential illusion, both shielding actors and empowering them. In three sections, this chapter reprises Hungary’s post-1956 rural trajectory from collapse of the collective sector to the consolidation of state-organized, locally managed farm enterprises: Recovery, 1957– 59; Mobilization, 1959–61; and Nothing Fails Like Success (challenges confronting new and revived co-ops). Chapter 3, “Making TSZs Work, 1961–66,” will explore the “consolidation” process that brought stability and modest growth to the cooperative sector. The arc of the discussion reflects Zsuzsanna Varga’s crucial insight that under Kádár the state commenced learning from the people and their economic initiatives: “From 1961 on, the formation of directives by the Ministry of Agriculture was always preceded by an analysis of the experiences of the co-ops in the [previous] year. The directives for the new year were issued on the

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basis of these.”11 Surely a profound shift from Rákosi-world, but getting there took a while.

Recovery, 1957–Early 1959 Factional battles over agricultural policy dominated the immediate postRevolt years, as a reformist “agrarian lobby” gathered strength, headed by Central Committee member Lajos Fehér, seconded by veteran agronomist Ferenc Erdei. Opposing forces led by agriculture minister Imre Dögei and his deputies sought only “to minimize the mistakes of Rákosism.” Drafting 1957’s Agrarian Theses, which framed an agenda for revitalizing rural production, set continuing conflicts in motion. Drawing on Lenin, the hardliners sought, as before, to force private households into TSZs, this time through “economic compulsion”—letting “the difficulties of farming small plots” drive them to join. Fehér argued such tactics would never persuade families to increase output and achieve “expanded reproduction.” The state had to offer rural people ways to increase their incomes and provide funding to help them to do so (fertilizer, tools, barns, storage sheds, better roads).12 Doing this would fulfill unmet promises Stalinist planners had made since 1948. The lobby prevailed, delivering a frank appraisal of farming’s course thus far: Because of industrialization that did not reflect sufficiently the endowments of the country, sufficient material resources did not get to the development of agriculture. Because of this, it is still the case that Hungarian agriculture uses insufficient fertilizer, that its machinery is impossibly outdated, with poor capacity and made of weak materials, that there is too little modern mechanized equipment, [that] possibilities for irrigation are not exploited and so on. As a consequence of all of this, we have made… little progress compared with the pre-war situation.13

The lobby’s and the ministry’s chief assignment was stimulating private farmers to intensify plantings and expand animal stocks while stabilizing the reconstituted cooperatives. Dögei’s cohort sought to eliminate farming outside state control, accusing Fehér’s group of “a kind of worship of the peasantry.” Even so, both parties remained convinced that “large-scale production” was the ultimate goal. Kádár temporized, leaving Dögei’s dogmatists in charge of the agriculture ministry (until 16 January

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THE ESSENTIAL ILLUSION: COLLECTIVIZING …

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1960), while supporting the lobby’s Theses and negotiating to relieve Soviet pressure for “socialist restructuring,” i.e., further collectivization.14 Erdei explained that the Kádár approach centered on “winning the confidence of the working peasantry… by making socialist agriculture attractive.” This meant completing a “double task”—delivering “technical aid to the whole of agriculture” and ending “administrative measures apt to turn the individually farming peasantry against the cooperative farms.” TSZ leadership would be “entrusted to those in whom the village population has confidence;” co-op structures, plans, and income distributions would reflect “diversified local solutions.” Last, state assistance would focus on “consolidating cooperative farms” to increase output, but this “must not lead to the supplanting or liquidation of individual household plots.”15 From a planning perspective, however, the private farm problem could not be ignored. Holders of 5–15 cadastral yokes (7–20+ acres), work with hand tools and horse-drawn equipment, couldn’t improve their “low level of productivity.” With over 70 percent of farmland family-owned, this meant that the effort made by individual farmers to cover their own needs plays an anachronistically important role, while commodity production is relatively small. Small peasant farms that strive primarily to provide for their own requirements, do not exploit even the most favorable gifts of nature. [They] grow cereals and fodder where all the necessary natural conditions for more intensive culture exist… Under such circumstances it was not surprising to find relative stagnation in agriculture, even if the mistakes committed in agrarian policies before 1956 were not considered.16

Orthodox state managers might welcome a path to collectivization and thereby to more efficient resource use; but in 1957, “it seemed that the HSWP expected Hungarian agriculture to be multi-sectored in the long run.”17 For example, the village of Csepo included 4,000 yokes (5,600 acres) of good land, with 630 (880 acres) devoted to a 95-member TSZ. Another 1,200 families owned fields and vineyards. Three quarters of them occupied fewer than five yokes (