Economic Reforms in the Kádár Era
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The thinking behind the 1956-57 reform had as its point of departure correctional measures that had been proposed during the economic debates in pre-revolutionary times. Its essence was to rationalize and thus increase the efficiency of Hungary's centralised command economy. Among the advocates of such reforms, as far back as Imre Nagy's first premiership of 1953-55, were György Péter, Director of the Central Statistical Office; Tamás Nagy, of the Hungarian Academy of Sciences' Institute for Economics; the agricultural economist and sociologist Ferenc Erdei; and among younger economists, Tibor Liska, Péter Erdôs, Kálmán Szabó and Sándor Kopátsy. And then, of course, there was János Kornai, whose dissertation for his advanced doctorate (or Candidate's degree as it was then called), bearing the title Overcentralisation in Economic Administration, had already become a subject of debate amongst economists in September 1956.
The discussions were rejoined as soon as the Revolution had been crushed. At first they were even encouraged by the new leadership. In December 1956 the reorganising Hungarian Socialist Workers' Party (HSWP) resolved that
the government is to engage the competent state organs and the country's top economics experts in working out an economic policy that is appropriate to the new situation. This economic policy should in every respect build on our [i.e. Hungary's] economic resources and characteristics. It should facilitate the assertion of individual initiative and expert knowledge. Financial incentives need to be employed in all areas in line with the interests of the people's economy, thus promoting technological development, ameliorating quality, reducing the costs of production, and raising the productivity of labour... The chief issue of our entire economic policy is to make the gradual raising of the workers' standard of living the primary standpoint in the distribution of the gross national product and in the preparation of investment plans.1
A number of expert committees were set up to work out what specifically needed to be done, and their work in turn was co-ordinated by two steering committees that were headed by György Péter and Professor István Varga, an economist formerly of the Smallholders' Party who had been passed over in the early Fifties.
The proposals that they came up with by the spring of 1957 aimed at a radical overhaul of the command economy. Essentially they were aimed at ensuring the autonomy of enterprises, to replace direct plan-based orders with economic incentives, and to bring in a new value-related pricing structure. The centre would retain a wide scope for itself in just one area, that of investment policy. Setting themselves against these radical proposals, which in the discussions at the time were often branded as revisionist, Andor Berei, István Friss, Géza Ripp and other economic policy experts favoured maintaining the old system or making only insignificant adjustments to it. In the October 2nd, 1957 issue of Népszabadság, the Party's daily newspaper, Friss went so far as to write of Kornai that "he rejects our entire socialist-style economic system. For want of other alternatives, he presumably wishes to exchange it for capitalism."2
The upshot of these disputes was that the radical proposals were shelved and a few none too major corrective measures were implemented, among which were a cut in the quantity of centrally set plan indicators, a more flexible approach towards the quantitative fulfilment of planned norms and the introduction of a profit-sharing element into the wage system. Fixed pricing and the rigid separation of producer and consumer prices were left unchanged, though the subsidised prices of domestically sourced raw materials were replaced by actual prime costs of production.
So when it comes to drawing a balance of the first post-revolutionary attempt at reform, the mountains went into labour and produced a mouse. The putting aside of that December Party resolution and Kádár's backing off may be explained by a number of factors, the most important of which must have been Soviet reluctance and the strength Hungarian hardliners drew from that to mount a counterattack. This was not only aimed at the reforms as such but at Kádár personally. If Khrushchev had been toppled and his opponents had allowed Mátyás Rákosi and his fellow Stalinists to return from their enforced sojourn in the Soviet Union after 1956, "In the best case Kádár would have been given his marching orders, and in the worst case he would have shared the fate of Imre Nagy and his associates," Tibor Huszár, Kádár's biographer, ventures on this episode.3 A further factor must have been the spectacular results of the reconstruction set in motion in the months immediately following the Revolution; for many, these results covered up the regime's organic sickness and gave the impression that radical intervention was unnecessary. Accordingly, the National Party Conference that convened in June 1957 adopted a motion that
In regard to the system of economic leadership, the Party conference wishes to place it on record that it attributes decisive significance to the central guiding role of the state. For that reason, the Party conference rejects those mistaken views which deny that the state needs central guidance and control.4
That negative balance had to be adjusted in two respects. One is that, though no overall reform took place, connective measures were introduced to increase welfare. The most important here was a pay increase of, on average, 18 per cent, which was achieved through a 20 per cent reduction of the tax rates levied on selfemployed artisans, followed soon afterwards by concessions to retail shopkeepers and self-employed professionals. Pensions were restored or regularized for state employees, people were allowed to choose their job and workplace, wide-ranging fare concessions were introduced for public transport. Thus, in 1957, out of the total number of railway passenger-kilometres travelled, only 27 per cent were subject to full fare and 15 per cent were completely free of charge under these concessions.
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Perceiving how chaotic conditions had become in rural areas, Kádár gave free rein to the corrective steps that were being urged chiefly by Lajos Fehér (Secretary of the Central Committee of the HSWP and from 1962 Deputy Chairman of the Council of Ministers) and Ferenc Erdei. The most important of these was a keener appreciation of the role that was played by household plots, which was a shrewd adjustment to the land- and property-oriented mentality of the peasantry. In a departure from earlier practice, every member of a family (and not just the family as a unit) was entitled to roughly one hold of land to farm in his or her own name; along with this, the restrictions on families keeping livestock were relaxed. As a result, it was possible, from the mid-Sixties onwards, for mini stock-farms to rear their animals on fodder produced on the household plot or on the collective's land. Not only did these private farms account for a large proportion of the food demand of the rural population, but by the latter half of the Sixties they were supplying 22 per cent of the produce purchased by the state.
Another important innovation, as compared with the way collective farms functioned (by organizing work in brigades and remuneration based on work units done by such teams), was a shift to a system of share-tenancy system. Under this, on an annual leasehold basis, a family or kinship group, even a cluster of neighbours, was allowed to take over sole responsibility for the cultivation of specific parcels of the collective land-generally for root crops that require regular hoeing-on an annual leasehold. Such groups would be paid not only the centrally determined sum for the work units they had supplied, but could retain as much as 25-50 per cent of the value of any surplus production. This gave a co-operative's members a very direct stake in improving crop yields. By the mid- Sixties, more than one third of the cultivation of collective land was organized in this way; the system, of course, had a long history, albeit under very different patterns of land ownership. Its role declined as mechanization advanced, but even in 1970 it accounted for 27 per cent of all output.
The adding of greater flexibility to wages was a third innovation. In places where people were unable or did not wish to go in for share-tenancy, or where the nature of the activities-animal husbandry, for instance-did not allow this, cashor produce-based bonus schemes were resorted to, and these similarly rewarded overfulfilment of the work units dictated by plan targets. Eventually, the payment in cash or produce of regular monthly advances became a general rule. One of the enterprises that was in the forefront of these innovations was the Red Star Cooperative at Nádudvar, a village outside Debrecen in eastern Hungary, which was headed by István Szabó, who later became president of the National Council of Co-operative Farms, the other that at Barcs headed by Pál Losonczi, later Chairman of the Presidential Council. In 1960 Losonczi succeeded Imre Dögei as Minister of Agriculture. Dögei was unable to accept the idea that co-operative farms should be run like business enterprises.5
Authorisation of the farming of household plots and share-tenancy, along with the greater flexibility that was given to the system of remuneration-opponents, it goes almost without saying, deemed them to be "capitalist deviations"- resulted in a speedy improvement in yields and a regeneration of the agricultural sector. These were spectacular results and they played a big part in the December 1964 decision of the HSWP Central Committee to undertake reform of controls across the whole state sector, that is the whole of the economy. Kádár, who was more secure in power by this point in time, felt able to see off his dogmatic adversaries and so set the ball rolling; he was further encouraged by the fact that just before him Khrushchev had embarked on a similar reform package in the Soviet Union. In other words, it seemed at first that a favourable wind was blowing from Moscow. Another impetus was the slackening in the rate at which manpower from agriculture was bleeding into manufacturing, a prime source of economic growth: the proportion of the workforce employed in agriculture had fallen from 54 per cent in 1949 to 25 per cent by 1970, which likewise was an argument for undertaking a comprehensive general reform of the economy.
The responsibility for reforming the system of central planning was given to Rezsô Nyers, a former Social Democrat, who was then in his forties and serving as the Central Committee's secretary for economic policy. Reform-minded economists had already been gathering round Nyers back in 1963-64-a group which included not just György Péter, Tamás Nagy, Lajos Fehér and Ferenc Erdei, but also the professor of economics Imre Vajda, József Bognár, who was a former Smallholders' Party politician, Miklós Ajtai, Director of the National Planning Bureau, and other economists, including Béla Csikós-Nagy, Mátyás Tímár and István Hetényi. The preliminary analysis was carried out by 11 working groups; by March 1965 they had completed their critique of the existing regimen and by October of that year they were able to put forward an initial draft of the basic principles of reform. Their preliminary studies had been preceeded by fierce internal disputes which attracted fairly widespread attention. Party leaders like Béla Biszku, Gyula Kállai and Dezsô Nemes and a substantial number of cadres together with many leading lights among the country's intelligentsia, such as the writer Péter Veres, saw in this thinking an abandonment of fundamental socialist principles and the ceding of ground to undesirable "petty bourgeois" attitudes. By contrast, and on varying grounds, people such as György Lukács, then the doyen of Marxist philosophy in Hungary, and Gyula Illyés, a living classic as a poet and the most prominent of the country's populist writers, stood solidly behind reform. Kádár opted for the cautious balancing act that typified him and took issue both with the "conservatives" and with Nyers. Thus, the resolution passed by the Central Committee in November 1966 was a compromise, but it still envisaged significant changes. A key passage in this document runs:
It must be made possible that the supply and demand of goods and contingent economic categories-the market, prices, production costs, profit, credit, etc.-be given a significantly greater, active scope in the socialist economy than has been the case hitherto.6
Ultimately, the "New Economic Mechanism" that came into force on January 1st, 1968-the NEM-ushered in three essential changes. It reduced the role of central planning in production and investment, thereby increasing the autonomy of enterprises, some of them being granted foreign trade rights; it introduced distinctions between consumer goods that were sold at centrally fixed prices, at ceiling ("maximal") prices and at market-driven prices; and finally it gave much more scope than previously for pay and incomes to be linked to performance.
Under the reform as originally conceived by Nyers and his fellow economists, the economic reform was supposed to be followed by a wider reform of the political system, which would have comprised two major prongs: greater independence for local government (councils), in line with the autonomy granted to co-operative enterprises, and the conversion of the existing counties into regional administrations. The thinking behind this, however, envisaged an eventual separation of powers. This was explicitly acknowledged by Nyers on a Party platform in the spring of 1969. An overwhelming majority of Party leaders, however, would have none of this, nor did it receive support from Kádár himself.7
Thus, economic reform, rather than being rounded off by political reform, eventually lost its impetus and entered a phase of stagnation and temporary retrenchment from 1972 on. As with most of the major about-faces in Hungarian politics between 1945 and 1989, the Soviet Union lay behind this one. Under Brezhnev's leadership from 1964 on, the Soviet supremos had not been enamoured of the NEM, but had not vetoed it outright. Their standpoint, as communicated to Mátyás Tímár and Nyers, amounted to "it is not advisable".8 However, in talks at Zavidovo in the Ukraine, in February 1972, Brezhnev made it clear to Kádár in no uncertain terms that changes would have to be made because "dangerous tendencies", as he put it, were asserting themselves in Hungary.9
On this occasion too, albeit not immediately or completely, Kádár submitted to the Soviet diktat. This adversely affected many in politics and in the ranks of the intelligentsia. The reformers in the most exposed positions-Nyers and Lajos Fehér among them-were sidetracked and "Lukácsist" thinkers, who were toiling over the renewal of Marxism-János Kis and Mihály Vajda, among them-were expelled from the Party and/or dismissed from their posts. That was the price that had to be paid to enable the essential components of the 1968 reform-the dropping of obligatory central planning targets, greater entrepreneurship and market-orientation for enterprises, partially liberalized prices, etc.-to stay in place. This half-turn was attended by serious downswings. As a result of state intervention in regard to incomes, the number of people who were lifted into the highest tax bracket doubled, even trebled, in 1973-74. This came with a drop of purchase prices for produce and a raising of prices for fodder; owners of livestock responded by slaughtering their animals. In the second half of 1974 the national stock of sows fell from 417,000 to 290,000. Increasingly, Hungary turned to the international markets for loans to offset its balance of payment deficits.
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The 1989-90 change of regime demarcated itself from the entire Kádár era, ranking it to be, along with the early Fifties, no more than a historical detour. Nevertheless, research into the economic structure of that period is bound to ask what success Hungary's reforms enjoyed, unique as they were within the socialist bloc. According to data provided by the most recent international comparison- not too impressive. Angus Maddison has calculated that per capita GDP grew 2.8- fold over the period between 1950 and 1988, whereas the figure for Czechoslovakia, which set out from a similar point of departure but, by and large, was held back from the introduction of any substantial reforms, was 2.5-fold, and that for Poland, which did not dabble with any reforms, it was 2.4-fold.10 Is it therefore quite possible that even without reforms Hungary would have been the socialist bloc's "merriest barracks", with its population rising to become one of the world's leading consumers of fat and eggs? Is the link between per capita GDP and living standards, quality of life and attitudes towards life much more indirect than we are accustomed to think? Or could this eminent writer on economic history have simply got it wrong? Those are questions that will have to be addressed by anyone who undertakes the job of a comprehensive assessment of the Kádár era.
1 
Henrik Vass & Ágnes Ságvári (eds): A Magyar Szocialista Munkáspárt határozatai és dokumentumai 1956-1962 (Resolutions and Documents of the Hungarian Socialist Workers' Party, 1956-62), 2nd edn. Budapest, Kossuth, 1973, p. 22.
2 Cited by Iván T. Berend: A magyar gazdasági reform útja (The Path of the Hungarian Economic Reform). Budapest, Közgazdasági és Jogi Könyvkiadó, 1988, p. 114.
3 Tibor Huszár: Kádár János politikai életrajza (A Political Biography of János Kádár), vol. 2. Budapest, Kossuth Kiadó/Szabad Tér Kiadó, 2003, p. 43.
4 Vass & Ságvári (eds.), op. cit., p. 85.
5 Iván T. Berend: op. cit., pp. 150-176 and Zsuzsanna Varga: Politika, paraszti érdekérvényesítés és szövetkezetek Magyarországon 1956-1967 (Politics, Enforcing the Interests of Peasants and Cooperative Farms in Hungary, 1956-67). Budapest, Napvilág, 2001.
6 Henrik Vass (ed.): A Magyar Szocialista Munkáspárt határozatai és dokumentumai 1963-1966 (Resolutions and Documents of the Hungarian Socialist Workers' Party, 1963-66). Budapest, Kossuth, 1968, pp. 238-239.
7 Tibor Huszár: op. cit., p. 43.
8 Ibid., p. 320.
9 Tibor Huszár: Kádár. A hatalom évei 1956-1989 (Kádár: the Years in Power, 1956-89), Budapest, Corvina, 2006, p. 193.
10 Angus Maddison: Monitoring the World Economy 1820-1992. Paris, OECD, n.d.
Ignác Romsics
is Professor of Modern History at Eötvös Loránd University, Budapest. His best-known book in English is Hungary in the Twentieth Century, Budapest, Corvina, 1999.
