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INDUSTRIAL RELATIONS AND ECONOMIC REFORM IN SOCIALISM: HUNGARY AND YUGOSLAVIA COMPARED

Ellen Comisso

Industrial relations systems both reflect and influence larger political structures and power relations within states and economies everywhere, and East Europe is no exception. It is hardly accidental, then, that since 1979 advocates of economic reform in Hungary have sought to modify the industrial relations system of the state sector of the economy. This has been done as part of a program to decentralize one of the most highly concentrated industrial structures in the world.

Two recent changes are particularly noteworthy. The first, allowing for the establishment of Enterprise Contract Work Associations (ECWAs), affects the organization of work in the firm. ECWAs are groups of workers—two to thirty people—who contract with their own firm to carry out tasks the enterprise cannot otherwise perform or that can be done at a lower cost through the new arrangements. ECWAs neither employ independent means nor bear risks; instead, they use enterprise facilities and inputs the firm provides. Nevertheless, participating in them allows workers to earn far more than they can even by working overtime; at the same time, their establishment permits management to allocate labor and rewards more efficiently and flexibly than it can during normal working hours.

The second change was initiated by the Hungarian Socialist Workers’ Party (HSWP) in 1984 and enacted into law in 1985. The law will be implemented gradually over the next few years and affects enterprise governance itself. Many of the functions of ownership in all but the largest firms are being transferred from the supervisory ministry to enterprise councils elected at least in part by employees. Such boards will have the right to select and evaluate enterprise directors (subject to ministry veto) as well as define enterprise plans, approve annual financial statements, determine the allocation of profits between investment and personal incomes, set up subsidiaries, and decide on mergers.

Such reform innovations accompany other measures affecting prices, investments, taxes, wages and the like.¹ These broader, macroeconomic changes are direct descendants of the New Economic Mechanism (NEM), Hungary’s “original” economic reform enacted in 1968, many principles of which were ignored after 1972. In fact, many of the 1979 reforms were simply changes that had been scheduled in 1968 and were never made, or measures that were introduced a decade ago and subsequently reversed. Taken as a whole, then, the “new” NEM represents as much a return to a set of policies that had been abandoned as a completely new departure in economic policy. Hence, in order to assess the significance of the current reform wave, it is worth analyzing why so many of the original provisions and expectations surrounding NEM were put aside in the 1970s, and what were the causes for the ensuing recentralization of the economy.² Moreover, since the NEM of 1968 did not include any of the changes in the industrial relations system the measures of the 1980s initiated, it is important to assess the degree to which the industrial relations system in effect at the time contributed to the “rearrangement backward” that took place in the 1970s.

One way of gauging the impact of the industrial relations system on the ability of central governments to introduce economic decentralization and structural reform in socialist economies is by comparing Hungary’s experience under NEM with developments in Yugoslavia in the 1950s. The planning model, whereby central development preferences were to be communicated to firms via market manipulation rather than direct instructions, was fundamentally similar.³ In both cases, enterprise autonomy was restricted by high taxes on profits (in fact, Yugoslav firms in those years paid an even higher portion of their profits to government bodies than their Hungarian counterparts in the 1970s did), accounting rules limiting firms’ discretion over the funds left at their disposal, supervision of enterprise financial arrangements by the national banks, and politically determined wage and bonus regulations. Price controls, differentiated turnover taxes, and multiple exchange rates were also among the armory of instruments both governments deployed to actively shape the economic environment; in both cases foreign trade was conducted largely through licensed trading companies, and arrangements were punctuated by quantitative controls as well. Finally, the linchpin of both the Yugoslav and Hungarian systems of “visible hand” planning was centralized investment allocation. In both countries, the rate of investment was set centrally; part of investment funds came directly from budgetary sources and went to specific projects earmarked by the national government, while the remainder was allocated through central banks according to criteria set by national planning authorities. Moreover, investment funds in Hungary and Yugoslavia alike were loaned at quite varied but normally subsidized rates.

Similar patterns of economic behavior matched the similarities in the overall economic framework. Investment cycles were the name of the game in both Hungary and Yugoslavia; bankruptcy was unheard of in either. On domestic markets, firms were typically price makers rather than takers; in both cases, manufacturing activities tended to expand quite independently of the raw material base or import capacities of the economy to support them. Meanwhile, firms faced greater uncertainty trying to predict the next round of government regulations than in assessing market conditions. Production and investment programs were designed around the expectations of the political and bureaucratic figures whose approval was required for their adoption. As much energy was devoted to haggling with officials for access to foreign currency for imports, special tax exemptions, favorable price rulings, and hidden subsidies as was given to addressing questions of productivity, costs, and efficiency.

Nevertheless, the outcome of the tensions between center and periphery in Yugoslavia was a major economic reform in 1965, radically curtailing the regulatory and redistributive role of the central government and marking the abandonment of effective planning altogether. In Hungary, in contrast, similar pressures led to the extension of central controls, a decline in the orienting function of prices, and a gradual erosion of enterprise autonomy. Indeed, despite the attempt of NEM to decentralize and deconcentrate the economy, the number of independent enterprises and cooperatives in 1978 was actually a good deal lower than in 1967, while their average size had increased.⁴

Certainly, there are great differences in both the international environments of the 1950s and the 1970s as well as in the two countries themselves (from their levels of development to the degree of ethnic homogeneity) that help to explain such contrasting outcomes. Not the least of these are differences in the international alignments and domestic political structures of the two states, contrasts which, at the microeconomic level, materialized as two very different industrial relations systems.

In Yugoslavia, the introduction of socialism was an integral part of a strategy for creating an autonomous nation-state.⁵ For one, a socialized economy could supply state-building political elites with resources to build state structures able to withstand the pressures of rival states in the international system. For another, the institutional network thereby established could serve to incorporate a heterogeneous, conflict-prone, and highly parochial population into a setting that would bind its loyalties to a larger (multi) national community.

Hence, popular allegiance was to be to the new Yugoslav state, not to the class mission of a universalistic party. The effective political community thus consisted of all Yugoslav citizens, whose loyalties were to be formed through their involvement in new state institutions: the more people worked in socially owned firms, sent their children to public schools, or received medical care from socialized hospitals, the more the nation-state in which these institutions were embedded would become a part of their daily life. And their commitment to defending them would be greater.

Claims on the larger national community—whether for higher wages, instruction in the native tongue, or vaccination against smallpox—were thus made through participation in state organizations,⁶ whose activities, in theory, would reflect the preferences of the specific constituencies they incorporated. The task of the League of Communists (LCY), in turn, was to selectively articulate and mobilize those preferences in ways that contributed to the state-building enterprise itself. The party thus played a critical role in defining, filtering, and delimiting the use of political power and the claims state institutions could make. Nevertheless, insofar as the nation-state defined the Yugoslav political community, the party’s own ability to mobilize resources to achieve its objectives depended heavily on the cooperation it could exact from state bodies with a far more inclusive and much less disciplined membership.

In contrast, the initial establishment of socialism in Hungary was primarily for the purpose of restructuring class relations. Moreover, it was the platform of a political party whose power base was not, for the most part, national or domestic at all. Rather, the Hungarian communist party’s ability to achieve its objectives depended on the political and military backing it had from a foreign power—namely, the Soviet Union. With such support, power was taken away from society, and social groups formed on the basis of the traditional social order and then concentrated in the hands of political elites committed to wholesale social transformation. Introducing centralized economic planning was a critical tool in this effort. Placing an enormous quantity of resources in the hands of political leaders, it allowed them to subordinate state, society, and economy alike to the goals of rapid and extensive industrialization, rural transformation, class mobilization, and maintaining the international strength of the Soviet Union, whose support and protection was vital for defending the socialist project in Hungary itself. Thus, state structures in Hungary were never designed to compete with other states in the international arena; moreover, consciously creating a standardized socialist state that could not reflect national specificities or particularities made it incapable of commanding much popular allegiance.

In effect, the Hungarian transition to socialism narrowed the effective political community from the citizens of the nation-state to the members of a highly centralized Leninist party, a party whose priorities were ordered as much by the international exigencies of the Soviet alliance as by the national goals of its domestic population. The state and the mass organizations consequently became vehicles for implementing party preferences rather than mechanisms for articulating society’s wishes.

Unlike Yugoslavia, then, claims on collective choices in Hungary were not made through participation in state bodies, whether they were the national Parliament or the industrial firms. Rather, they could be advanced through involvement in and appointment to party committees whose decisions state institutions carried out. Moreover, within the party itself, power flowed from top to bottom. As a result, access to genuine political influence depended on the support leaders enjoyed in higher party bodies, and not on their ability to mobilize a constituency below, whether among grassroots party members, employees of (nonparty) state organizations, or residents of local communities.

In Hungary, political power remained the monopoly of a hegemonic party able to command obedience from a state administration without power of its own. Accordingly, even when NEM was adopted in 1968, it was not because social groups or state organizations pushed for it, but because the party itself—after several years of low growth rates, stagnating living standards, and balance-of-payments difficulties—felt its ability to steer the economy would be enhanced if its preferences were communicated to microlevel state or economic actors via economic parameters rather than through detailed instructions.

The Hungarian industrial relations system reflected this power structure as much as its Yugoslav counterpart mirrored very different political exigencies. In Yugoslavia, the LCY’s need to rely on domestic support following its expulsion from the Cominform led to the adoption of “visible-hand” planning in the economy and self-management in the firms. Moreover, branch ministries were eliminated and plans were formulated and implemented on a geographic basis, with local and national governments playing the major roles.

In Hungary the initial transition to central planning was accomplished only when the party emancipated itself from the need for domestic support. It was accompanied by adherence to the Soviet model of “one-man” management in the firms. Accordingly, a director’s authority did not depend on an ability to forward the interests of the firm or its employees, but on carrying out the instructions of superiors; elaborated within the state bureaucracy, such instructions ultimately reflected the priorities of top party leaders. NEM saw an important change in these priorities and instructions, but not in the political status of the enterprises themselves. Consequently, “one-man” management remained intact. Moreover, if plans were less detailed and no longer binding, local governments did not play a role in them; rather, plans continued to be made and coordinated through vertical and horizontal ministries that, after 1968, were legally responsible for implementing NEM within their respective spheres of jurisdiction.

At the enterprise level, directors and high-level executives in Hungary continued to be appointed by a branch ministry with the approval of the party committee within whose nomenklatura the position fell.⁷ In contrast, after 1950, managerial personnel in Yugoslavia were selected by a workers’ council representing the labor force of the enterprise and a committee of the local (commune) government, together with the endorsement of local party officials. Equally important, formal authority for enterprise decisions in Yugoslavia was shared with the workers’ council, which had to approve all production, financial, and investment plans as well as enterprise statutes regulating salaries, work relations, and similar matters. In Hungary, however, despite the existence of committees for consultation with the labor force and even a campaign for “workshop democracy” in 1975–76, decision making remained a managerial prerogative.

Not the least of the decisions Yugoslav workers’ councils were authorized to make concerned the allocation of yearly net profits between investment and consumption and the distribution of the share marked for consumption among members of the firm’s labor force. In Hungary, however, wage determination and profit distribution were products of agreements concluded between management and enterprise-level trade union branches.⁸ Executive bonuses were awarded by a workers’ council in Yugoslavia; in Hungary they came from the ministry with jurisdiction over the firm.

Last but hardly least, self-management in Yugoslavia signified not only a set of decision-making arrangements within the firm but also a basic ideological tenet of the politico-economic system. Consequently, enterprise sociopolitical organizations (particularly the LCY and the trade unions) had the task of making it function: namely, making sure meetings were called, that quorums were present, that proposals were approved by the appropriate bodies, and that neither they themselves nor the management usurped the decision-making rights of the workers’ councils. In Hungary, in contrast, the task of the party and trade union branches in the firm was to control management and protect workers by ensuring that general political priorities were respected and centrally determined statutes were enforced in the firm.

The consequences of these arrangements were twofold. First of all, Yugoslav firms—and especially the managerial and “self-managerial elites” within them—developed a much stronger interest in enlarging their sphere of autonomy than Hungarian enterprises ever did. Second, labor-management relations in Yugoslav firms allowed enterprise elites to mobilize the labor force itself in support of this goal; in Hungary, however, management had neither a constituency nor allies within the firm to organize on behalf of expanded enterprise independence, and indeed, labor-management relations militated in precisely the opposite direction. In short, the operation of the two industrial relations systems not only made the objectives of enterprise elites very different, but it also provided them with very different sets of political resources with which to realize those goals.

Self-management in Yugoslavia, 1950–65

Factors Shaping Enterprise Objectives

An insight into the dynamics behind these outcomes requires a preliminary understanding of the background and role of Yugoslav management in the 1950s. Certainly, Yugoslav executives in these years were a far cry from the sophisticated business people they evolved into by the 1980s. For the most part they lacked as much in qualifications as in managerial experience, knew little of entrepreneurship, and were distinguished mainly by their political reliability and commitment to building a uniquely Yugoslav model of socialism.⁹ They enjoyed close and cordial relationships with local political leaders, often having fought together with them in the war and typically having come to the enterprise in the first place via the local government or party organization rather than through an independent search by the workers’ council that became characteristic in later years.

Yet once installed as enterprise director, an executive’s power base—that is, the ability to mobilize resources inside and outside the firm on behalf of his own goals—was very much his firm, its labor force, and its economic contribution to the surrounding area. And although offering employment, supplying free labor for community projects, and lending enterprise facilities for social purposes all won the director recognition for good citizenship, the bottom line of good performance was the revenue the enterprise could generate for Yugoslavia’s fiscally hungry communes¹⁰ and the earnings it could pay its employees.

The problem, of course, was that enterprises frequently could neither produce the income local governments wanted and needed nor the wages workers desired while simultaneously performing all the civic obligations local governments expected from them. If firms were to employ as many workers as political leaders thought desirable and charge prices political leaders thought fair, profitability and local taxes on profits were likely to be the victims. If firms produced the wide variety of products local elites wanted to make available to residents and enterprises in the area, production runs were bound to be short, specialization minimal, and competitiveness outside the local market weak. Despite the political commitment of the native son, the close friendship, and the constant collaboration with regional political figures, then, enterprise directors increasingly found themselves forced to choose between good citizenship and good management as the 1950s progressed.¹¹

Critical to the choice many managerial elites made was the presence and role of the enterprise self-management bodies. Here, as already noted, the first generation of Yugoslav executives had but minimal qualification. Even in traditionally urban areas, a large number of small shops were suddenly transformed into factories gearing up for mass production with only former skilled workers trained in artisan methods and work rhythms at their helms. Needless to say, in less industrialized areas the shortage of trained cadres was even more severe.

Nevertheless, precisely because managers did not know how to manage, they turned elsewhere for help. One gets the sense of the early workers’ council as a body composed of the more ambitious and educated members of the workforce that functioned as a kind of managerial committee forced to collectively resolve the issues no one was individually qualified to decide.¹² Managers also came to rely on the workers’ councils insofar as their members were also informal leaders of the work collective. On the one hand, their approval of a managerial recommendation would facilitate its acceptance by the labor force as a whole, and on the other, they served to communicate demands from the labor force to the management.

Significantly, as workers’ councils were elected by and accountable to the enterprise labor force, they had none of the divided loyalties between firm and locality that often characterized the management. Their perspective was uniquely that of the firm, and their very raison d’etre was to mobilize solidarity around the plant.¹³ Moreover, though an enterprise director typically had standing in the region or the local community even prior to assuming leadership in the firm, this was much less likely to be the case of an individual member of a workers’ council. The latter, more often than not, was an individual rising from the ranks of the labor force, whose chances for advancement depended heavily on the opportunities—in salaries, bonuses, and promotions or in housing and training—the enterprise could provide.¹⁴

But it was not only the individual motives of council members that made enterprise self-management bodies jealous of their authority. Institutionally, the power of the workers’ council itself depended on its ability to make decisions for the firm and see them carried out, and when its already enterprise-oriented membership convened as a group, the whole was typically greater than its parts.

The suspicions of the self-management bodies were not, for the most part, directed at enterprise executives. As many have pointed out, power in the self-managed firm is not played out as a zero-sum game between management and labor. Rather, it is a positive-sum game, in which the ability of a workers’ council to make effective decisions depends on having a strong management and vice versa.¹⁵ Furthermore, barring occasional cases of corruption and nepotism, management’s interest in enterprise welfare did not diverge from that of the enterprise labor force; executives typically wanted higher wage scales as much as workers did, and everyone was in favor of more and better equipment and work organization.¹⁶

Rather, the suspicions of enterprise activists turned toward outside agents—political or economic—that constituted barriers to making decisions they (rightly or wrongly) judged best for the firm. In this regard, simply because workers’ councils had decision-making rights on a wide range of issues did not necessarily mean they could do what they wanted. A host of regulations restricted their discretion on everything from management selection to wage regulation, and it was the local government’s responsibility to enforce them. Equally important were the financial constraints imposed on the firm by heavy taxes on profits and the need to finance investment and imports with funds from outside sources. In this, not only commune approval but the personal and political clout local officials could bring to bear on central authorities often proved critical to the success of enterprise plans. These powers formed the material base for much of the “meddling” in enterprise affairs so common among local governments in the 1950s. Moreover, even the most stridently independent work collectives could hardly put up much resistance when they depended on such meddlers for the funds and flexibility vital for enterprise development.¹⁷

Hence, the key issue the establishment of self-management posed in Yugoslavia in the 1950s was not whether workers and workers’ councils could control enterprise management, but whether workers’ councils and management together could control enterprise operations, as opposed to sharing that control with various external political bodies charged with regulatory tasks. In this context, workers’ councils constituted a steady source of enterprise-centered pressures on a management that otherwise might have been tempted to look for its cues outside the firm entirely.

Management thus came to play a critical intermediary role between the enterprise and political authorities, and a variety of strategies emerged.¹⁸ Ideally, a clever director could have cake and eat it too: make external authorities and ambiguous regulations the eminence grise for plans the director wished the firm to pursue, and at the same time utilize the “demands and needs of the working class” in the firm to get what he wanted out of political bodies—who, especially in the case of the communes, were far from adverse to aiding local firms in any case. A second strategy was to fashion enterprise plans in collaboration with political elites outside the firm and present them to the self-management bodies—who had no alternative plans to use as a standard for judgment—as being in the enterprise’s own interest as well. Both strategies depended on the support and confidence management enjoyed from the workers’ council, but in the expansionary climate of the 1950s, these were normally forthcoming.

More importantly, however, such strategies depended on both the willingness and ability of local political elites to cooperate. If local leaders were unsympathetic to the firm for whatever reason (for example, it might be a small enterprise surrounded by large ones, or the director may have sided with the losers in a local power struggle), if they looked askance on the ambitions a director entertained for the enterprise (as when firms tried to expand to other regions, and communes feared a loss of tax revenues), if they lacked strong ties to central allocation networks (and so could not lobby effectively for investment funds), or if local political elites themselves disagreed over what they wanted from local firms (such that no predictable or consistent reaction to enterprise requests was possible), the feasibility and desirability of either strategy were greatly reduced.

But enterprise self-management created a possibility for managerial elites to pursue a third strategy. Here, management identified its own fate with that of the enterprise, based itself politically on the support of the workers’ council and the work collective, and used its position in the locality to advance its own definition of enterprise interests and resist the incursions of local political leaders in enterprise affairs. For several reasons, such a strategy was particularly appealing to larger firms located in the more developed and urbanized areas.¹⁹

First of all, the local economy itself was less dependent on the employment and free services of any single firm. At the same time, the local political leadership was far more interested in the revenues the enterprises could generate to cover the infrastructure needs rapid urbanization created than in their fulfillment of particular community tasks. Thus, the political outlook of local authorities itself reinforced the “enterprise first” propensities of the self-management bodies.

Second, not only were directors more likely to be better qualified for their managerial roles in these areas, but even if they weren’t, it was far easier to recruit a qualified staff and middle management to compensate for the lack of expertise at the top. Thus, directors could utilize enterprise resources to fashion business policies and, as a result, such policies tended to reflect enterprise rather than regional priorities.

Third, even with—and in large part, because of—the workers’ councils, directors had much greater control over the use of enterprise resources than over the actions of political authorities. In the firm they stood at the top of the organizational hierarchy and easily constituted the natural leadership of the work collective.²⁰ In the local political community even a politically prominent director was only one among equals in a context where government and party bodies alike were beset with a multitude of problems and conflicting claims, all demanding urgent attention.

Finally, pursuing an enterprise-based strategy that management itself could have a heavy hand in shaping meant that rather than finding himself on the defensive vis-à-vis the autonomist sentiments of the self-management bodies, a director could mobilize and exploit them to channel enterprise solidarity to his own and the firm’s advantage. And indeed, strengthening a firm economically was often the best route to political clout as well: if a director became a success to be emulated by others and could point to the contribution his firm made to the economy, he was also likely to be a man heeded in wider political bodies as well.²¹

For such reasons, a strategy that called for differentiating enterprise interests from local and regional ones and giving the former priority became increasingly popular among enterprise elites outside the developed regions as well.²² In some cases, managerial elites who had initially expanded their firms through political cooperation began to find the major barriers to further growth were precisely the taxes, regulations, and officials that had once been so helpful. In other cases, centrally initiated campaigns against excessive localism drove a wedge into local political elites, creating conflicts within them over how much independence local firms should have. There was a material basis for political conflicts among local elites as well that was exacerbated with economic development. That is, it became increasingly difficult to tailor enterprise operations to local community needs while expanding enterprise income to use as a tax base. Likewise, it became increasingly difficult to reconcile the desire to maintain local markets as a monopolistic outlet for local firms with the goal of providing the wide assortment of goods that higher living standards demanded.

With divided authorities on the one hand and the solidaristic pressures of the self-management bodies on the other, directors quite understandably began to turn to their own work collectives as a more reliable and predictable—not to mention controllable—ally and source of support. And by mobilizing their own distinct constituency, they could exert independent influence on the local balance of political forces as the debate over development strategies heated up at the start of a new decade.

Thus, expanding the sphere of enterprise autonomy was very much in the political interest of both managerial and self-managerial elites in many areas, as it seemed to simultaneously promise greater power over enterprise operations and increased influence within the region. Moreover, increasing enterprise control over the resources it produced was in the economic interest of many firms as well. This was particularly the case with larger, more prosperous, and dynamic firms producing commodities in high demand. Such firms understandably resented seeing 70 percent of their profits drained off each year in taxes. Equally understandable, they disliked the barriers to their expansion caused by the lack of uniform market conditions widely varying local regulations gave rise to, by the attempts of local elites to close off markets to outside firms altogether, and by the price controls, wage regulations, import quotas, and other administrative measures erratically applied to them. In addition, insofar as expanded use of the market for allocative purposes presaged a price reform as well, even firms who were not doing so well in the hothouse development conditions of the 1950s began to feel that they would fare better if they were free to charge prices that reflected their real costs of production.²³

Political Resources for Realizing Enterprise Goals

Enterprise elites in Yugoslavia, then, had real incentives to expand the firm’s sphere of autonomy. In addition, the labor-management relations that self-management brought into being meant they could do something about it as well: the work collective itself could be mobilized by management and its support used as a political resource with which to pursue enterprise goals.²⁴

Self-management enshrined the workers’ council as the representative of workers in the enterprise, thereby creating a direct link between management and the labor force, in which both shared an interest in the successful operation of the firm.²⁵ It was this institutionally created community of interest, reinforced after 1957 by legislation that tied workers’ incomes more closely to enterprise performance, that encouraged workers’ councils to take their cues from management as to what business policies were in the interest of the work collective. And it was this same institutionally created community of interest that made them all too willing to rally their constituency around demands for greater autonomy once managerial preferences shifted in that direction and provided them with a source of leadership.

As for the enterprise LCY and trade union branches, they were not organizations based in the firms. Rather, the LCY and other sociopolitical organizations were merely units of larger, national associations, and the directives they conformed with politically were formulated at national levels. Hence, they had no particular stake in enterprise autonomy per se. But to take the case of the League, although its individual members who were elected to the self-management bodies might argue for its positions at workers’ council meetings, the LCY branch itself had strict directives not to replace the council as the representative of the labor force. Consequently, unless League members could convince others to follow their lead, it could not maintain its influence within the firm. Not surprisingly the easiest way to do this in many cases was by tailoring its own preferences to those of the self-management bodies.

Moreover, the task of the party and trade unions to strengthen the self-management bodies typically meant articulating their demands in wider party and trade union forums. Significantly, the LCY organizations most able to convince enterprises to follow their lead were precisely those most adept at satisfying the demands the latter would make in their own interest. Consequently, once a coalition between management and the workers’ council emerged, it was not only able to mobilize the work collective on behalf of “augmenting the material base of self-management,” but could also find allies in the enterprise sociopolitical organizations as well.

Pressures from enterprises for greater control over their earnings took their clearest form in the debate over incentives, a discussion that became increasingly heated at the start of the 1960s. For the firms, diminishing the scope of political decision making and administrative intervention seemed to promise a more rational allocation of capital, a real incentive to cut costs and increase productivity, and an opportunity to expand in ways of their own choosing. In particular, greater control over profits meant lower taxes (and hence, a greater incentive to make profits in the first place), a more predictable source of funding (their own reserves), and prices more reflective of supply and demand than of the prejudices of government officials. For workers, if their enterprises were no longer subjected to a politically determined high rate of forced savings, a greater share of earnings could be devoted to wages, putting teeth into income-sharing plans and stimulating productivity.

But if widening the scope of the market promised benefits for the enterprises, elites based in the state administration and party apparatus took a less sanguine view of increasing enterprise autonomy. For the latter, there were serious doubts of the actual ability of the market to produce results consistent with the development goals they were committed to achieving. Higher wages could lead to inflation as much as increased productivity; cutbacks in bureaucracy might in practice lead to lowering the social standard of living and widening still pronounced regional inequalities.

Equally important, the end of command planning and the inauguration of self-managed socialism had made discretion in disposing of economic resources a vital determinant of political power. With resources, one could reward one’s followers, punish one’s detractors, redeem promises to one’s constituency, bargain with others on an equal footing, and see one’s own vision of a better life materialize. Hence, the same factors that made enterprise elites anxious to enlarge their access to resources and their ability to dispose of them independently made central authorities and political elites in national government and party bodies reluctant to cooperate. For national political elites, the loss of discretionary funds and regulatory authority meant losing a key set of rewards and penalties at their disposal for disciplining the political behavior of enterprise and political elites in the provinces. Thus, the debate over the relative economic merits of “plan” and “market” was as much over who would control resources as over how they would be allocated and what would be done with them. Not surprisingly, elites based in central organs not only resisted local incursions on national power, but as long as they were united in that resistance, the control over resources they exerted made them a force to contend with.

In fact, if the conflict between enterprises and political authorities had been the only conflict over economic policy in Yugoslavia in the 1950s and 1960s, it is doubtful that the 1965 economic reform would ever have taken place. Given the center’s actual control over resources, enterprises simply lacked the political clout to push through a reform of that magnitude. Moreover, they were far from united on what autonomy should mean and the degree to which it was desirable. Many enterprise elites—managerial and self-managerial—were well aware that they might have less control over resources and fewer resources to dispose of once their ties to political authorities allocating capital and favors lost their importance. Indeed, it was only a split in the national political elite itself over what was the most effective way to control both the provinces and the enterprises within them that finally produced the 1965 reform. If that split did not occur independently of self-management in enterprises and local governments, it was hardly determined by it either.²⁶

Yet what the autonomistic aspirations of enterprise elites did mean was that once the economic reforms did go into effect there was a real constituency to support them that was strategically placed to exploit the new economic and political opportunities they offered. This was not to be the case in Hungary.

“One-man” Management and Economic Reforms in Hungary, 1968–78

Factors Shaping Enterprise Objectives

In Hungary, the industrial relations system of the firm led to a set of outcomes quite different from those in Yugoslavia.²⁷ Not only did Hungarian management derive few political or economic advantages from enlarging the sphere of enterprise autonomy to start with, but it had no constituency or allies inside or outside the firm to mobilize on behalf of such a goal.

For one, none of the tensions caused by Yugoslavia’s “social ownership” formula appeared in Hungary, even after 1968. In Yugoslavia ownership rights were shared by local governments and self-managing work collectives, each with its own set of priorities, interests, constituencies, and political resources. Predictably, conflicts arose without any clear authority to settle them. Disputes could then be resolved by a variety of means, including direct bargaining among the actors involved, negotiations mediated by local party leaders, and tests of strength among disputants in which the victor dictated the terms of the settlement. In all cases, however, conflicts created political opportunities for those involved in them to forward their own goals for their own institution and even for the wider community. As a result, exercising the legal rights of ownership in Yugoslavia was itself a political action, entailing building alliances, accumulating political resources, and making strategic calculations.

In Hungary, however, no such ambiguity surrounded ownership rights.²⁸ They were clearly lodged in the state, and formal ownership functions were exercised exclusively by a supervisory ministry. If such ministries were legally accountable to the government, they were politically accountable to the HSWP, which in practice appointed the government, prescribed its program, and exercised checks (“Kontrol”) on the state bureaucracy to ensure proper implementation.

The situation was thus quite different from that of Yugoslavia. There, state organizations were genuine political actors, able to formulate their own objectives and mobilize political and economic resources to achieve them. In Hungary state bodies were essentially bureaucratic agencies, whose competences were defined juridically and whose tasks and goals were prescribed politically by the highest echelons of the HSWP itself. Unlike Yugoslavia, therefore, the tasks and priorities that state and economic organizations carried out were determined outside the state bureaucratic and industrial structure itself. Within it, a legal and bureaucratic chain of command was established, such that the interests of its hierarchically ordered components (e.g., ministries and enterprises) basically consisted of satisfying the expectations of the next highest level of authority—ultimately, the top political leadership of the HSWP.²⁹

As the lowest link in a bureaucratic chain of command, enterprises could certainly bargain with their administrative superiors, but only within arenas and over issues defined outside the state itself. Such bargaining could not reflect any interests enterprises or ministries had that were independent of the HSWP. It typically took the form of lobbying for exceptions should a strict application of the rules jeopardize an organization’s ability to satisfy its superiors. Moreover, since exceptions were granted on an individual, case-by-case basis, their logic militated against forming organizational coalitions—a genuinely collective and political action—to alter the rules themselves, as could occur in Yugoslavia.³⁰

Although state officials do not have access to political power in the course of exercising legal authority during their full-time jobs, they can achieve political influence by participating in the hierarchically arranged party committees that approve their appointments. But in that context, the political resources they can deploy to forward their policy preferences are not the demands of subordinates within their organization but the support they can rally from higher echelons in the HSWP. The availability of such support, in turn, depends on factors such as the substance of the proposals officials advocate (i.e., whether they accord with generally accepted party priorities), their standing within the HSWP itself, their personal connections, and the degree to which the organizations they legally manage perform to the administrative standards of the day—regardless of whether or not the officials personally agree with them. Such support, then, may well be inversely related to the attempts to pursue organizational objectives different from those superior authorities select for them. Moreover, support from above is quite independent of officials’ popularity within their own organizations. In short, where Yugoslav directors located a constituency in the firm itself and sought to articulate (their vision of) its interests in wider political forums, the constituency of their Hungarian counterparts was the HSWP, and its was the party’s (version of its own) interests they represented in the firm.

Hence, after 1968 Hungarian enterprises did not seek to realize profits because they themselves had any intrinsic advantage or independent interest in doing so. Rather, they did so in conformity with new political priorities and changed expectations of administrative superiors; in effect, profits merely replaced high outputs or lower costs as a basis for managerial bonuses.

The situation was thus quite different from Yugoslavia. There, profits were the means through which enterprises and the elites within them could achieve goals the firm itself defined. Consequently, realizing and controlling profits were frequent causes of conflicts between enterprises and political bodies. In Hungary, however, profits were merely an indicator of the degree to which an enterprise achieved the objectives its administrative superiors determined. If those objectives were such that profitability suffered, it was the objectives, not profitability criteria, to which the firm conformed.

With the adoption of NEM, then, Hungarian managers initially concentrated their efforts on creating the conditions in which their enterprises could now show an annual profit, just as they had previously concentrated their efforts on creating capacities to satisfy quantitative targets. In many cases this entailed making exactly the kind of changes NEM envisioned: altering production programs to meet buyers’ needs, making better use of plant capacities, modernizing production processes, and expanding exports. In other cases it simply involved lobbying for investment funds at subsidized rates, expanding output at favorable prices, or getting special subsidies and premia. But in either case, an enterprise’s major ally in its pursuit of profits was its supervisory ministry.³¹

Thus the cost-benefit tradeoff associated with enterprise autonomy was quite different in Hungary and Yugoslavia. In the former, management and enterprises had little to gain from acquiring greater independence from central control, if only because it was the center itself that defined what a “gain” was in the first place. At the same time, given what enterprises required in the way of resources to show a profit (or perform whatever other tasks they were assigned), they stood to lose a great deal by cutting their ties to the only agencies who could procure these resources for them.

The procedures for handling the shortages that continued to plague the Hungarian economy after 1968 graphically illustrate the contradictory relationships that developed between enterprises. Frequently, enterprises had to continue unprofitable lines of production simply because they were the only domestic supplier of the commodity in question. If many enterprise directors did not appreciate the burden their monopoly position placed on them, they nevertheless depended on ministry intervention to guarantee inputs (from investment to raw materials) for their more lucrative lines of production. Therefore, the benefits that would be derived from leaving the ministry’s fold were slight. Likewise, ministry support before the Price Commission could be crucial, and it also could provide special subsidies to firms whose profit pictures were negatively affected by their performance of social obligations.

To take an empirical case, the steel boom of 1974 encouraged Hungarian steel companies to increase the quantity of output available for export. Exporting steel was particularly appealing since world market prices were at an all-time high while domestic prices were under strict control. For the same reasons Hungarian steel consumers sought to avoid purchasing imports and proceeded to hoard in the grand style: while steel consumption in 1974–75 increased by 9 percent, steel orders shot up by 20 percent. The industry, under an injunction to satisfy domestic requirements prior to exporting, ran to its ministry in protest. Its efforts on behalf of its clients proved successful when the Finance Ministry imposed a special inventory tax on steel to discourage hoarding.³²

In such a case all parties might well have been better off had steel companies been able to choose their markets and had prices been decontrolled and imports liberalized. Nevertheless, unless such conditions applied to all enterprises, it was not in the interest of any one of them to create such conditions for itself. In Yugoslavia, enterprises competed for markets, and greater freedom from supervision, taxes, and regulations carried individual benefits for firms. Hungarian firms, in contrast, competed for supplies and inputs on a sellers’ market; in such a context independence on the part of an individual firm literally placed it at a disadvantage vis-a-vis its competitors with strong ministerial allies.

Moreover, if the vertical industrial ministry had legal responsibility for enterprises in its jurisdiction, it was far from the only central agency regulating them, as the intervention of the Finance Ministry in the steel case indicates. But because of its special position vis-a-vis the firms, the branch ministry was a critical mediator and partner when it came to persuading other central regulators to adapt their own rules to a particular case. Such support was particularly vital for enterprises who struck out in new directions, where existing rules did not cover the new circumstances. Not surprisingly, then, directors who sought to introduce innovations in their firms drew closer to their ministry in Hungary, whereas the more dynamic and innovative Yugoslav enterprises sought independence from regulatory authorities.³³

For example, in 1976 the Hungarian shoe industry found itself facing the evaporation of its export markets along with widespread complaints from foreign and domestic consumers alike over the quality and assortment of its output. One firm began to consider the possibility of altering its production assortment to produce more stylish shoes of a higher quality in smaller lots. It found that diverting capacities for these purposes would have entailed reducing the quantity of cheap, mass-produced shoes it normally manufactured for the domestic market, requiring a special dispensation from the Ministry of Internal Trade. At the same time, wage norms would have to be modified to give additional premia to workers engaged in producing the new shoes, since existing piece rates were geared to shoes requiring less workmanship and labor time. Accordingly, the special assent of the party branch, the trade union, and the Ministry of Labor would have to be obtained. Next, since labor and raw material costs would be higher per unit produced, existing price regulations would have to be altered, an exception only the Materials and Price Commission could grant. Nor was this the end of the story: special import arrangements would have to be made, retail outlets modified from a self-service to a salon format, and penalties for a profit above what was considered an honest level rescinded. The Quality Shoe Factory finally did succeed in producing 200,000 pairs of specialty shoes for export in 1977, but even then, the Price Commission balked and none of the new production could be marketed domestically at a profit.³⁴

It is hardly surprising, then, that even enterprises seeking to increase their competitiveness on the market cooperated closely with tutelary authorities. Indeed, the cases in which Hungarian enterprises did establish some distance from supervisory ministries were exceptions that proved the rule. One set of cases was the occasional firm singled out by the government for a special, high-priority central program where the director was an important political figure in his own right. The RABA Motor Works, commissioned to participate in a special CMEA (Council for Mutual Economic Assistance) vehicle program, is such an example. Here, the necessary capital and inputs were assured from the start, and between the importance of the program and the prominence of the director, the enterprise literally overshadowed the ministry.

Another area in which enterprises were left more to their own devices was among smaller firms in light industry. The cause was not the strong position of the firms or the directors, but their marginal importance in the economy as a whole and the weak position of the ministry. The firms were thus forced to finance their development out of their own resources, borrow from the bank at (for Hungary) competitive rates, and search out their own markets since the ministry lacked the clout to garner special privileges for them. Yet far from making the enterprises jealous of their autonomy, it simply made them envious of industries enjoying a position closer to central authorities. Significantly, when the textile industry had its chance to corner investment capital for modernization in the early 1970s, it opted for the most centralized form of capital allocation available—the central development program—despite the fact that the large number of firms in the industry and the great diversities among them made such a format least appropriate from an economic point of view.³⁵

The fate of small-scale local plants and cooperatives also illustrates the perils of standing on one’s own. After the adoption of NEM local governments were encouraged to set up small industrial workshops out of their own revenues, utilizing local facilities and supplementary funds supplied by the National Bank. Since taxation was a prerogative of the national government, local governments did not enjoy increased tax revenues from these economic activities, as in Yugoslavia. Nevertheless, small workshops helped employ local residents and stem migration to urban agglomerations. For the economy at large, they provided flexibility and products that were unprofitable to be manufactured in large quantities. As such, along with small workshops in the cooperative sector, they complemented and competed with larger enterprises in the socialist sector proper. Moreover, precisely because they were small, they were not supervised by an industrial ministry. So they did not face the strict regulations that covered pricing, production assortment, labor practices, and other operations that characterized the large firms in the socialist sector.

The very success of the small firms under NEM was the main cause of their downfall. If they regularly supplied large firms with inputs or services, the enterprises eventually sought to absorb them. Or, when they competed successfully with large enterprises on either labor or product markets, the socialist firms would try to take them over.

On the one hand, given enterprise ties to the ministry and central authorities and the legal obligation all had to maintain profitability in the socialist sector, the argument that this objective could be better realized by absorbing a well-run, small plant in a related field of production was an attractive one for all concerned. Ironically, the rationale for such mergers was often that large firms, with the resources of the socialist sector behind them, would be more adept at expanding the more lucrative activities of their smaller counterparts or realizing economies of scale (and/or lower subcontracting costs) by merging capacities and labor forces, despite the fact that it was typically small size, small lots, and labor flexibility that made the small firm more profitable in the first place.

On the other hand, the large socialist enterprises were saddled with so many political and administrative constraints that small firms either lacked or could easily evade, they necessarily competed at a disadvantage and were literally disallowed from adapting their own operations appropriately to meet the challenge. The Quality Shoe Factory is a case in point, and its experience was hardly an isolated one. But given the political and administrative resources enterprise elites did have at their disposal, a strategy of absorbing the small firms to meet the expectations demanded of them was an eminently rational one. Similar dynamics prevailed in the cooperative sector of the economy as well: the result was the Great Hungarian Merger Movement of the 1970s.³⁶

Significantly, small firms put up little resistance to their incorporation into larger units, nor was much protest lodged by the local government who founded them. The contrast with the behavior of Yugoslav firms and communes, who aggressively resisted central pressures to amalgamate enterprises across regional boundaries, is striking.

Equally dramatic are the differences in the behavior of larger firms in the two countries. Where Hungarian firms sought to absorb their competitors, Yugoslav enterprises often reacted to competition by pressuring local authorities to close off regional markets to new entrants. When Yugoslav firms depended on inputs from a distant supplier, they would try to duplicate its capacities within their own walls or locality; in Hungary, merger activity was the response. Likewise, Yugoslav enterprises deployed the threat of competition politically, seeking to emancipate themselves from regulatory constraints or to extract political favors to meet it. In Hungary, however, the reaction was a classic bureaucratic one: firms abided by their regulatory constraints and helped extend them to other sectors of the economy, following rather than influencing the political cues to which they responded. Finally, the nature of competition itself differed in the two economies. In Yugoslavia, enterprises competed for sales and markets; in Hungary, they competed for supplies and inputs. Hence, even small firms could find their access to resources improved as their profitability declined thanks to incorporation into a major enterprise.

Thus where expanded autonomy in Yugoslavia appeared to promise enterprises increased opportunities to create and control their own operations and finances, from the perspective of the Hungarian firm, autonomy promised precisely the opposite: responsibility for losses and bad performance in administratively determined conditions very likely to lead to them. Likewise, increased control over economic resources in Yugoslavia could be translated by enterprise elites into increased political influence within both the firm and the larger community. In Hungary, in contrast, increased size and resources meant that firms could meet the expectations of superiors but that their control over their own operations declined. In effect, the more resources a firm had access to (e.g., the more monopolistic its market position was), the less discretion it had over how to dispose of them.

No matter how much Hungarian directors lamented the effects of supervision from above, they never developed any real interest in emancipating themselves from it. Accordingly, where the enactment of the Yugoslav economic reform of 1965 found a constituency among the firms ready and willing to take advantage of their new freedom, recentralization in Hungary was accompanied by passive acceptance from those whose active opposition would have been most necessary to halt it.

Intrafirm Power Relations and Enterprise Autonomy

The structure of power within the Hungarian firms was hardly coincidental to management’s lack of interest in autonomy. In Yugoslavia enterprise self-management bodies played a critical role as a source of pressure and support for reducing external political and administrative constraints on their freedom of action. Though management was needed to supply leadership and articulation to the solidaristic sentiments of the workers’ council, it would undoubtedly have been highly reluctant to do so without the presence of such a highly legitimate ally in direct contact with the labor force.

In Hungary, however, there was never any workers’ council (or, indeed, any other body whose institutional loyalties were solely within the firm) to either form a source of constant pressure against the incursions of external authorities or constitute a vehicle for mobilizing the labor force to this end. Instead there was no direct link between management and labor, and executives dealt with workers through the enterprise-level branches of the party and trade unions.

For example, the campaign for “workshop democracy” in the 1970s was led and managed by the trade unions, who set up “consultation committees,” canvassed the workers, ensured attendance at meetings, and interpreted and transmitted the discussions to both enterprise management and wider political forums.³⁷ Not surprisingly, where wage pressures from Yugoslav workers came to be articulated as a claim for greater enterprise control over the value it produced, wage pressures in Hungary either strengthened the union and party’s ability to control management (and so reduce enterprise independence and flexibility) or pushed management back up into the arms of the ministry in search of special “wage preferences.”³⁸

There were other consequences to these contrasting internal arrangements. Management had no internal pressure on it to resist ministry “suggestions” it felt were unwise for the firm, and even if management did seek to expand the issues over which the enterprise could decide independently, it also had no organizational means of its own to mobilize the labor force in support.

For example, let us assume a director sought a grant of discretion from tutelary authorities to reorganize production and redefine jobs, as the Lenin Steel Mill did in response to the international steel crisis of 1980. Even if the reorganization promised higher wages for workers, there was no way the director could show workers were willing to make the changes unless the trade union and party branch also supported the restructuring. Not surprisingly, the first step the director of the Lenin Mill took was to call a meeting of the enterprise political aktiv; with its support, he then turned not to the enterprise labor force, but to the county party committee to back up his proposals to the supervisory ministry.

Meanwhile, conflicts between management and enterprise social organizations may have been infrequent, but they certainly occurred.³⁹ Their presence in the firm could be a real threat to an innovative executive, and in cases of conflict, the support and solidarity ministry personnel provided to management could be crucial to the outcome. Alternatively, a director could turn to the city or county party committee for support, lest he encounter opposition from internal social organizations. As a result, management had an incentive to maintain close ties to external political bodies and ministerial authorities to maintain its position within the firm as well as to protect its status in the larger economy. In effect, the industrial relations system in Hungary created a community of interest between management and ministry and management and party, whereas in Yugoslavia a community of interests shared by management and labor emerged.

Both enterprise party and trade union organizations in Hungary were similar to their Yugoslav counterparts in that they were low-level branches of larger national organizations. Like Yugoslav party and trade union branches, they had no interest in enterprise autonomy per se. But in Yugoslavia the mass organizations and party cells had the task of strengthening the self-management bodies, who, as the legitimate representatives of the enterprise labor force, could exercise power in the plant quite independently of them. In Hungary the task of party and trade unions in the firm was to control both management and labor force so that neither exercised power independently of the working class as a whole—or more precisely, to maintain its interests as interpreted by the top echelons of a vanguard party.

Consequently, they were far less subject to managerial manipulation on behalf of purely enterprise-centered interests than were either the Yugoslav sociopolitical organizations or the enterprise-based self-management bodies. Yet for the same reason, they were also far less likely to take up the immediate demands of workers in particular firms. Thus, when workers would seek to bargain over norms and premia, they typically turned to their supervisor rather than the shop steward for support.⁴⁰ Likewise, responding to a survey asking how to increase managerial effectiveness, a large majority of workers suggested that “listening more to the workers and not only to the leaders of the social organizations” would make a major improvement.⁴¹

In the case of enterprise party organizations, such insulation from the immediate claims of workers follows logically from the HSWP’s adherence to democratic centralism. In a party where power flows from top to bottom, the ability of low-level branches to exercise power within state organizations depends on the backing their leaders have from higher party bodies and not from the support they derive from the grassroots membership—let alone employees of the organization who are not even HSWP members themselves.

But neither do Hungarian trade unions necessarily use their discretion to advance their membership’s subjectively perceived interests either inside or outside the firm. Like state officials, union leaders are approved for their positions by the party, whose policies they implement within their organizations. And like enterprise directors, union leaders’ constituencies is the HSWP, not the members of the organizations they lead, who have no means to keep them accountable in any case. Thus, when NEM awarded the trade unions an enlarged voice in the enterprise, it was not because the unions or their members demanded these rights, but because the party thought they should have them.

Significantly, the so-called union opposition to NEM that arose in the 1970s was hardly a product of worker pressures or membership “interests.”⁴² By and large, workers were not negatively affected by NEM, especially once a bonus system highly preferential to management was revised in 1969. Indeed, to the degree the supply of consumer goods improved because of the reform, the qualitative value of workers’ incomes (i.e., what they could actually buy with their earnings) rose. Moreover, although income levels in the cooperative and private sectors—particularly in agriculture—rose more rapidly than in the state industrial sector after 1968, wages in the large enterprises remained relatively high, especially in industries given preferential treatment by state planners.⁴³ Rather than threatening egalitarianism, allowing incomes outside the socialist sector to increase above previously depressed levels may very well have decreased differentials among labor in the different sectors of the economy.

Equally important, a substantial proportion of the Hungarian proletariat works in both the private and state sectors, and this proportion increased with the expanded opportunities NEM provided.⁴⁴ While such labor mobility benefited workers making a move, it posed serious implications for the political clout of union leaders: should a significant segment of the labor force fall outside normal union channels, the leadership’s influence in party policy-making forums could be severely compromised.

Even workers employed exclusively in the socialist sector could have benefited from the expansion of private and cooperative activities had labor shortages been exploited to raise wages in the firms. But for the unions to have led them in this endeavor would have put the former on a collision course with central authorities and the larger political leadership anxious to restrain inflationary pressures. Rather than mobilizing their following, then, union leaders pushed for an across-the-board wage increase in 1972, the maintenance of central wage controls, and measures that restricted the activities of cooperatives and taxed private incomes more stringently. In sum, the union leadership sought to ease the labor shortage for its own reasons rather than taking advantage of it to benefit union members.

Placing social organizations responsive to cues generated independently of particular enterprise and labor force exigencies between management and labor in the firm thus gave Hungarian management a structurally weak base from which to inspire loyalty and cooperation from the enterprise labor force. Unlike Yugoslav directors, Hungarian managers were institutionally incapable of playing the inherently political role of leading the work collective and articulating its interests to influence larger processes of collective choice. Rather, politics—the autonomous formulation of collective objectives and the mobilization of resources to achieve them—remained the monopoly of the centralized and hierarchical HSWP, while enterprise managers accomplished the objectives administrative superiors assigned through their use of legal authority over enterprise business operations. Industrial relations in Hungary were therefore bureaucratic rather than political, and management’s relationship to the enterprise labor force was that of a superior to subordinates, not that of a representative/leader to constituents/followers.

For workers in state-owned firms, they had the same “rights” all other units of the state administration enjoyed: the right to become an “exception” to a rule whose strict observation jeopardized the probability of carrying out the purpose for which the rule was adopted. Hence, just as enterprises could bargain with ministries over issues and in arenas they themselves did not define, workers could bargain with management in arenas and over issues that were delimited by the genuine political actors who often did not participate in the bargaining at all. While a firm’s petition for an exception would involve a request for a special tax exemption, export premia, pricing rule, or investment decision in order to better meet objectives it did not select, exceptionalism for workers involved an adjustment of norms, an increase in overtime, and special wage preferences in order to facilitate enterprise plans they played no role in formulating. In both cases exceptions were justified by the special circumstances of the individual or group requesting them, and in both cases exceptionalism militated against forming wider, genuinely political coalitions to change the rules themselves.

Moreover, just as the ability of an enterprise to become an exception to a rule in no way indicated an excercise of genuine political power, neither was endemic workshop bargaining a sign of any independent political power workers had acquired. For example, despite serious labor shortages, high turnover, absenteeism, and widespread shopfloor bargaining in the 1970s, personal incomes by and large followed plan projections; inflationary pressures came from overinvestment, not workers’ ability to achieve wage increases.⁴⁵ The latter was indeed the case in Poland. But there, workers achieved a considerable degree of autonomous organization after the 1970-71 strikes, in direct contrast to Hungary where no challenge to the HSWP’s monopoly of the means of collective action appeared after 1956. In effect, then, the ability of small groups of workers to become an exception to existing work rules is (like the ability of enterprises to be exempted from ministry regulations) more an indicator of the lack of independent clout both workers and enterprises have, when rules are made to start with, than a sign of labor strength.

To the degree workers’ preferences do enter the political arena, it is normally through individual actions taken outside organizational frameworks rather than by coordinated group efforts. Yet a large number of individual exits do not a collective voice make, and political leaders have a wide latitude for response. Thus high labor turnover can lead to higher wages, but it can also be countered by hiring freezes and making job changes more difficult. Likewise, high demand for a consumer good—be it meat or telephones—may cause its output and availability on domestic markets to rise, but it can also result in price hikes, rationing, or the disappearance of the product from domestic markets entirely. Hence, the fact that an exit option is more freely available to Hungarian workers than to Yugoslavs, where the economy is marked by high unemployment rates, certainly does mean workers’ welfare is greater in the former. Yet welfare is in no sense an indication of political power; it is simply the result of the priorities Hungarian party leaders have endorsed quite independently of workers’ subjective demands and preferences. As one Hungarian economist quipped, political leaders find out what workers want by reading Marx and Lenin; they can hardly ask workers themselves given the lack of any autonomous worker organization.

Some note should be made of the effect of labor shortages on the distribution of power in Hungary. In economies with active price mechanisms, suppliers of scarce commodities gain discretion over their allocation. They may raise their price, engage in discriminatory practices against buyers, or use market power to discipline suppliers of inputs. Moreover, such economic power can often be translated into political influence as well: monopolistic producers or suppliers, for example, may use economic threats or inducements to pressure political elites to enact legislation (from tariffs to regulation and licensing arrangements) preserving their market position. Thus the presence of a labor market in conditions approaching full employment allows workers to raise the price of labor while strengthening the ability of unions to bargain collectively with employers and politically with government leaders.

Hungary, however, lacks an active price mechanism and even in the heyday of NEM, the best that could be done was to simulate what might be the effect of active prices through administrative decisions. Meanwhile, however, the lack of real markets meant that suppliers of strategic commodities—enterprises supplying goods, banks supplying capital, or workers supplying labor—lost discretion over their allocation when shortage conditions prevailed. The steel industry’s dilemma in 1974 was a case in point: not only did the industry have no control over the prices it charged on the domestic market, but it was prevented from taking advantage of favorable opportunities abroad until domestic needs had been met. And it faced such restrictions, not despite its monopolistic position but because of it. Moreover, if being a monopolistic producer increases the amount of administrative constraints on a supplier’s sphere of action, supply shortages enhance the amount of external political constraints on its activities as well. That is, when resources are overcommitted, it is the party’s task to ensure that projects with political priority get their necessary share, and it has the power to cut red tape and intervene directly in administrative routines precisely for this purpose.

Hence, economic shortages enhance the strategic role of the party and not the suppliers of scarce commodities. This is no less true for labor, insofar as an active labor market does not exist in the socialist sector either. Tight labor markets have not acted to give Hungarian workers more economic power; in the 1980s, for example, real wages have stagnated despite the persistence of full employment. Nor do labor shortages act to give workers political power: nothing remotely approaching Poland’s Solidarity emerged when austerity was imposed in Hungary. Tight labor markets in the 1970s, however, did have the result of greatly increasing the discretion local party officials exercised over regional employment practices.⁴⁶

Given the political context and the industrial relations system within which NEM was introduced, then, it is hardly surprising that Hungarian enterprises did not protest the erosion of their autonomy that ensued in the 1970s. For management, greater enterprise autonomy promised few economic benefits for the firm and political and administrative problems for its directors. For directors who attempted to meet the challenge of the market, ministry support could be even more important than for those who tried to shield themselves from it. Indeed, had industrial ministries been abolished in 1968, the lack of genuine markets would have forced enterprise management to invent a substitute for them. Nevertheless, the fact that management’s main partner was located in a central bureaucracy (or alternatively, within the hierarchy of a hegemonic Leninist party) was as much a factor militating toward economic recentralization in Hungary as was management’s coalition with a body based within the firm an important factor strengthening pressures for economic decentralization in Yugoslavia.

In addition, not only did management have little interest in preserving enterprise independence, it also had no political resources available to advance such an objective. The fact that it relied on organizations whose loyalties and constituencies lay outside the firm to communicate with the enterprise labor force meant it lacked any mechanism to mobilize the labor force around purely enterprise-centered goals. At the same time, the fact that workers had no effective political power in any case meant management had scant incentive to invent such a mechanism either.

Conclusion

The reforms enacted in Hungary in the 1980s have indeed made major changes within the state administration. The industrial ministries were consolidated and streamlined, a number of very large firms were broken up, and new rules for price determination, wage regulation, and capital allocation were put into effect. Moreover, the new NEM has included changes in the industrial relations system within the firm as well, as evidenced by the ECWAs and plans to introduce self-management.

Although economic and administrative relations within the state have been modified, the political relationship between the state as a whole and the HSWP remains intact. The latter retains its monopoly of political power as in the past, and state organizations—from self-managed firms and local governments to ministries and Parliament—remain essentially apolitical, bureaucratic actors who bargain with each other over how to accomplish objectives the HSWP selects.

The question, then, is whether changes in the state administration can have any effect on the distribution of power within the HSWP or on the way the HSWP uses the power it commands (i.e., on the development strategy and priorities it actually selects).⁴⁷ That is, are the new reforms likely to strengthen the influence of reform advocates within the party, thereby creating new political barriers to a replay of the 1970s scenario of recentralization? Further, do the changes made in the industrial relations system act to increase both the commitment and the political capacity of enterprises to preserve their own autonomy? And finally, to what degree is advancing the cause of economic reform synonymous with advancing the political power and economic welfare of workers?

Let us first consider the new ECWAs.⁴⁸ A popular innovation, they included approximately 200,000 workers by 1984. At the same time, numerous problems with their operation have also appeared. For example, because work “on contract” is so well paid, the establishment of ECWAs can easily be regarded by employees not included in them as little more than managerial favoritism. Likewise, ECWAs were intended to organize work in the firm on a spontaneous, economic basis, rather than on the traditional, bureaucratic, and hierarchical one. Yet, since ECWAs can only contract to do work that enterprise management authorizes, they have often simply become a device through which firms can short-circuit highly regulated labor relations to perform their traditional activities rather than being a means for introducing innovation and new lines of activity. As a result the actual work individuals perform within ECWAs is frequently the same work they do on their regular jobs, but the fact that it is better paid creates rivalries and jealousies within the labor force. Furthermore, their contribution to efficiency must still be established. Although individual labor productivity is clearly higher in ECWAs than in the traditional work organization, in many cases they may operate to simply deter workers in the state enterprises from moving to jobs in private or cooperative sectors where their labor could be deployed far more efficiently.

Meanwhile, ECWAs are purely economic entities. Certainly, the more flexible, contractual format gives workers increased autonomy in their jobs: “It is an undebatable achievement of the [ECWA] that while during the regular hours of work the worker has no active role in organizing his own work, in the [ECWA], where time is money for him, he does have such [a] role. The rational organization of his work becomes the immediate interest of the [ECWA] member.”⁴⁹

In addition, ECWAs increase labor’s bargaining power with management and in this sense represent an important, politically approved extension of the arenas and issues over which intrafirm bargaining can occur. They do not, however, give workers any political power, and existing or would-be ECWA members have no role in determining the rules governing their formation. Significantly, the imposition of a 10 percent surcharge on firms with ECWAs in February 1985 did not bring about protests from either management or labor; on the contrary, “many managers consider[ed] the introduction of the surtax as a kind of signal and exhibited[ed] a cautious behaviour towards small ventures.”⁵⁰

The surcharge was part of a package of measures regulating small ventures in Hungary to prevent unfair economic competition—the same accusation that presaged the reversal of NEM in the 1970s. Not surprisingly, significant opposition to ECWAs and other new forms of economic activity materialized at high levels of the HSWP, and they became a major issue of debate at the 1985 Party Congress. If efforts to impose further limits on their formation were beaten back by reformists, this was due more to the difficult circumstances under which the economy is still operating, and not to any explicit political support ECWAs or their members provided. As we have seen, support from below and demands originating outside the HSWP itself are simply not very valuable political resources in Hungary. Indeed, if managers saw the surtax as a signal and reacted with caution, workers did not respond at all.

Interestingly enough, reformists have countered the opposition by proposing that all work within enterprises be organized on an ECWA-contractual basis, a move that would strike at the traditional enterprise hierarchy from within. Moreover, they suggest finding a way to give ECWAs and other small-venture forms political representation as well.

Political representation would certainly help institutionalize ECWAs as a permanent fixture of the Hungarian economic scene, but it need not constitute a radical political innovation—much less a way of giving ECWA members real political power. All politically recognized social interests in Hungary have a form of political “representation”: workers have unions, young people have KISZ, the youth organization, even enterprises have a chamber of commerce. As we have seen in the case of the trade unions, such organs of social representation operate according to standard “transmission belt” formats. They thus act more to control and manage their members than to voice their demands, participating in the definition of members’ “objective” interests within the HSWP much more than articulating and mobilizing their subjective interests outside it.

If ECWAs become members of such a transmission-belt organization, several consequences will follow. First of all, one can indeed expect its leaders to be committed to the expansion of ECWA activity in Hungarian firms, since—like all leaders—their influence will depend on the size and strategic value of the activities for which they are responsible. Moreover, such a leadership—like that of the unions and the other mass organizations—will have clout where it counts: in the HSWP. To the degree ECWAs are genuinely in workers’ interests, this would not be an insignificant development. Likewise, insofar as the propagation of ECWAs and small ventures is part of a broader reformist program, such an organization would give it an additional base of politically relevant support.

One can also expect such a leadership—again, like that of all mass organizations—to be accountable to the HSWP and its top echelons in particular, and not to the ECWAs or their members. Hence, one can expect it to regulate and routinize their formation, despite the fact that such bureaucratization need not be in the interests of ECWA members and indeed is antithetical to the entrepreneurial functions reformists intended them to have. In effect, one would get an expansion of the use of ECWAs qua collective teams and work brigades along with an atrophy of ECWAs qua in-house entrepreneurs. From that, it would be a small step to regulating the incomes ECWA members generate much along the lines wages are currently regulated, strengthening the clout of national ECWA leaders within the HSWP while eroding the grassroots bargaining power ECWA members currently enjoy.

One can, however, imagine an alternative mode of political representation for ECWAs and small ventures that would simultaneously reinforce the HSWP’s hegemonic political position and allow it to take the real preferences of ECWA members (as opposed to leaders) into account in determining its own priorities.⁵¹ That is, rather than following the traditional pattern of establishing one transmission belt organization with a monopoly of representation of all eligible to join it, the HSWP could set up several transmission belt organizations that would compete for members.

Their leaders would still be approved for their positions by the party and would thus remain accountable to it. Hence, they would continue to implement party directives within their own organizations. Nevertheless, once organizations must compete for members, leaders have an incentive to use their discretion in interpreting directives in ways that would maximize their organization’s following. Moreover, insofar as mass organization leaders often play critical roles when the HSWP adopts directives that apply to their own functions, such leaders would also have a reason to use that influence on behalf of expanding and retaining their membership, as opposed to simply equating their own views and interests with those of a captive following.

Workers would certainly still be prohibited from forming their own organization, but they would be able to shift support among party-approved rivals with at least slightly different bases of appeal. By doing so, they would not only have more bargaining clout within the firm, but competing ECWA representatives would have an incentive to articulate their more general preferences within the party as well. For example, if there is genuine interest among workers to engage in “intrapreneurial” activities within their own firms, one could expect that interest to be reflected by even a transmission-belt organization, once it became anxious to recruit such individuals and groups into its own ranks.

ECWAs, then, appear to promise substantial economic benefits to workers and possible political advantages, too. Economically, they may increase income differentiation among workers, but significantly, such differentiation does not occur at the expense of non-ECWA members, who retain the traditional protections employment in the state sector provides. Moreover, to the degree the use of ECWAs enhances enterprise profitability, they can also increase a firm’s ability to raise overall wages; in that case, their operation indirectly benefits even those who are not themselves ECWA members.

Politically, if there were competing ECWA transmission-belt organizations, they would have the same incentive to generalize ECWAs to the labor force as a whole that a single, monopolistic representative would have but without the temptation or ability to impose a uniform model on all small units. Moreover, even if such organizations cater their appeals exclusively to ECWA members, this need not imply that the rest of the labor force go unrepresented. Indeed, trade union leaders might, for the first time, have a real cause to bargain on behalf of their members.

As for the introduction of self-management, if enterprises (or enterprise elites) turn out to be willing and able to translate what is in fact a considerable grant of legal autonomy into genuine political influence, the consequences could be important. Although the absence of any real change in either the relationship between the state and the party or in the organization of the highly centralized HSWP makes such a development unlikely, both the provisions of the new law and the political climate surrounding its adoption do, for the first time, at least make it possible.

In this regard, it is important to note that the law adopted in 1985 created a significantly stronger version of self-management than could have been anticipated on the basis of proposals and discussions aired in 1983-84.⁵² Not only were more enterprises affected by the new law than originally envisioned, but the sphere of authority of the new enterprise councils was enlarged to the point where it was roughly comparable to that of a capitalist board of directors.⁵³ At the same time, the councils’ composition was narrowed to include only individuals employed within the enterprise, thereby excluding representatives of outside agencies (like the Chamber of Commerce, independent experts, and ministry officials) with no strong ties to the particular firm. Certainly, representational arrangements in Hungary provided enterprise management with a much stronger and more legitimate presence on enterprise councils than it ever had in Yugoslavia.⁵⁴ Yet interestingly enough, in Yugoslavia, it was precisely enterprise management who turned out to be the intra-enterprise group whose position in the firm and society gave it the greatest stake in expanding enterprise autonomy and made it most capable of mobilizing the labor force to this end.

Hungarian firms in the 1980s have thus acquired both a very different legal status and industrial relations system from the ones they had in 1968, when the first economic reform measures were enacted. Equally significant, many of the new powers of the enterprise councils—in planning, investment, finance, and personnel and organizational questions—have been awarded at the expense of the industrial branch ministries upon whom enterprise management had been so dependent in the past. Even in the selection of enterprise directors, the traditional rights of ministries to nominate chief executives has been reduced to the weaker power of vetoing an enterprise council’s choice. All in all, then, the new legislation gives Hungarian firms considerably more formal control over their own operations than their Yugoslav counterparts had in the 1950s.

Nevertheless, although altering the legal status of enterprises and redefining labor-management relations within them may be necessary conditions of economic decentralization, they are far from necessary and sufficient. The larger politico-economic system must also work to make it worthwhile for enterprises to operate independently and to endow firms with the political resources needed to resist central incursions into their internal affairs.

In Yugoslavia this was indeed the case, and controlling a state institution like a firm or a local government allowed its leaders to utilize the resources it generated and the constituency it encapsulated to make claims on larger collective choices—from demanding specific resources to shaping the resource allocation mechanism itself. Independent organizations were a power base, and leaders within them had incentives to resist incursions into their autonomy as well as the political resources to make such resistance into a political issue.

In contrast, organizational independence in Hungary in the past has typically entailed renouncing access to centrally allocated resources and encountering stiffer obstacles to generating resources on one’s own. Moreover, political power has been monopolized by the HSWP, and leaders in state organizations have had as little incentive to protect their independence as they have had political capacity to do so. The fate of Hungarian cooperatives in the 1970s is illustrative in this regard. In both agricultural (collective farm) and small industrial and service cooperatives, the labor force had representation in managerial organs that was at least as strong as it will be in the new self-managed firms. The cooperatives were not under ministry supervision either. Nevertheless, when the HSWP decided to consolidate them and restrict their activities, there was very little they could do about it.⁵⁵ As for the Association of Cooperatives, rather than come to the defense of its affiliates, it helped supervise the merger movement and regulate the new, enlarged units much in the manner of a ministry.⁵⁶ Meanwhile, since mergers expanded the number of cooperative members, they watered down individual voting strength and hence interest in cooperative decisions; they thus freed the management from internal pressures while increasing its responsiveness to and dependence on external political and administrative bodies. Not surprisingly, by 1978 the difference between working in a cooperative and a state firm was minimal.⁵⁷

The question, of course, is whether anything today would prevent the same scenario from occurring in the 1980s among the self-managed firms. That is, do enterprise elites now have the kind of incentives to preserve their organizational independence that were present in Yugoslavia and which the cooperative leaders lacked? And if so, do they have the political resources to deploy for such a purpose?

Certainly, leaders in Hungarian firms will continue to differ from those in Yugoslavia insofar as they will not benefit politically from organizational autonomy. In Hungary, nonparty organizations will not function as a power base, and an enterprise’s ability to generate resources or attract investment will not necessarily increase the political influence of the responsible management. Nevertheless, if an increasing share of resources is in fact allocated by market mechanisms (as the macroeconomic reform measures seek) rather than through administrative channels, more efficient Hungarian firms should find their efforts rewarded by easier access to investment, working capital, imports, and the like as well as by the ability to pay higher wages and bonuses. Hence, Hungarian firms may have an economic incentive as strong as the political incentive Yugoslav enterprises had to resist centralization and external intervention in their decisions. For example, Hungarian directors may find themselves no freer to play a major political role in local or national affairs, but they may instead find they can pursue what they judge to be wise business strategies with far less restriction. Similarly, workers would not acquire greater power in perhaps shaping national housing policy but they might find their enterprise with more funds with which to purchase apartments and themselves with more influence over their distribution.

Clearly, the efficacy of such economic incentives will depend on a number of factors, not the least of which is the quality of the management selected by the enterprise councils and the degree to which it is committed to and rewarded for good entrepreneurship. Equally important will be the extent to which the enterprise councils can be used to create a community of interest among management and labor based on advancing the interests of the individual firm. If party and union branches coopt worker representation, the self-management bodies will reflect party and union priorities rather than those of the enterprise labor force. Needless to say, the former are far less likely to place a premium on enterprise autonomy, profitability, and wage levels, and far more likely to emphasize coordinating enterprise activities with general economic goals and maintaining solidaristic income policies. The fact that the introduction of self-management was delayed in 1985 partly to allow enterprise social organizations to educate workers not to use the new arrangements to vote themselves wage increases suggests such a possibility is real.

More profoundly, the impact of economic incentives on enterprise behavior depends heavily on whether or not market mechanisms actually govern resource allocation in the economy. Certainly, the reduction of the branch ministries’ jurisdiction suggests enterprises will be less shielded from market forces than in the past. Yet the change should not be exaggerated, since many of the industrial ministries’ responsibilities have in practice simply been shifted to other agencies of the central government (e.g., the Materials and Price Commission, the Planning Office, the finance and foreign trade ministries). Nor is the continuation of heavy and relatively detailed regulation particularly surprising, given the high degree of concentration that characterizes the Hungarian economy. With competition virtually nonexistent on so many product markets, it is doubtful that simply giving enterprises greater control over their own operations will lead to greater efficiency in the economy as a whole. And if it is difficult to imagine enterprise councils of socialist firms even closing down unprofitable operations, it is even more difficult to imagine their consenting to having their firms broken up into smaller units merely for the sake of introducing greater competition. Yet in the absence of real competition, the economic lives of enterprises will necessarily continue to depend on their subordination to administrative authorities, giving firms greater incentives to let their objectives be defined for them in the central government, than by them, in the enterprise councils.

Whether enterprises will have the political capacity to defend their legal right to control their operations in substantive terms is equally unclear. In Hungary changing the industrial relations system within the firm has not been accompanied by altering the relationship between the party and the state, which began to occur in Yugoslavia with the 1952 Party Congress there. The degree then to which enterprises can really make their own decisions will again be more heavily influenced by the political winds prevailing in the HSWP than by the aspirations of enterprise leaders and councils.

Working in the enterprises’ favor is the fact that the adoption of such a strengthened version of self-management in Hungary suggests that the constellation of forces dominating the HSWP is at least temporarily composed of leaders determined to provide “scope for socialist enterprises to operate as true ventures” and to replace “hierarchical dependence” with “democratic responsibility.”⁵⁸ With such political backing, even if the support of work collectives is insufficient to overcome administrative barriers to innovative business strategies, enterprise elites have an alternative constituency to turn to for aid—one within the HSWP itself. Likewise, the enterprise labor force may find its enterprise council too weak politically to enforce claims made on its behalf. But to the degree the councils even articulate a version of worker aspirations different from that traditionally espoused by the party and trade unions, the result could be to force enterprise social organizations to take serious account of rank-and-file preferences in order to compete effectively for worker loyalty and retain control of their membership.

If the scenario described above is what actually occurs, it will be no small change indeed on the Hungarian economic and political landscape. Yet many factors suggest it is highly improbable. For one, even if the introduction of self-management creates an economic community of interest between elected executives of self-managed firms and the enterprise labor force, the fact that the labor force enjoys no more political power than before means that preserving enterprise autonomy may not necessarily be a means for advancing those interests in what remains a highly politicized and bureaucratized allocation process. In effect, all self-management in Hungary may do is loosen the ties of enterprise management to ministries while tightening the dependence of both management and enterprise councils on the HSWP.

Moreover, influence within the centralized and hierarchic HSWP continues to depend on the strategic value of activities for which leaders are politically responsible. Significantly, strategic value is not equivalent to economic value, and an enterprise producing a necessity at a loss is far more valuable politically than one producing nonessential items at a profit. Likewise, large firms whose operations affect the national economy are preferable to small ones of marginal importance. Consequently, to the degree self-managed firms may require political intervention to forward their economic interest, they have an incentive to increase their size, engage in merger activity, and acquire monopoly status even if this implies increased regulation and compromises the ability of the enterprise labor force to influence enterprise business strategy.

In addition, if Hungarian firms do use their new legal power to respond more to market cues, greater differentiation in profits and personal incomes will undoubtedly develop among them. The political reaction to such differentiation in the past has been to amalgamate weaker and stronger economic units, often to the detriment of both and with scant concern for the preferences of employees. It is entirely possible for this pattern to repeat itself in the future, particularly since the persistence of a highly monopolistic and regulated economic environment makes the charge of unjustified profits a telling one.

Finally, although the tendency of labor-managed firms to guard their autonomy may create serious obstacles to the continuation of central planning, it is no guarantee that enterprises will use that autonomy in economically optimal ways. If the establishment of self-management is followed by a new round of overinvestment by firms, widespread price increases, and inflationary wage pressures, the experiment is likely to harm reformist efforts to bring modified market socialism to Hungary rather than to forward the cause. In that case one can expect reformist influence in the HSWP to erode not only together with enterprise autonomy but because of it.

In both Yugoslavia and Hungary, then, the political and economic impact of the industrial relations system depended heavily on the politico-economic structure within which it was situated. In Yugoslavia self-managed enterprises were part of a project for creating a national political community.

Hence, they had both an interest and a political capacity to protect their economic autonomy. At the same time, precisely because self-managed firms had the power to preserve their independence, political considerations easily eclipsed market cues when they made their economic decisions. As a result, if it proved impossible to coordinate their activities through administrative and political means, after 1965 it proved no less difficult to coordinate their activities through a price mechanism.

In Hungary the introduction of self-management in socialist-sector firms is part of a project for creating a more efficient economy. Although such firms and their labor force may well acquire an economic interest in preserving their rights to make their own decisions, they lack the political power to enforce it. Their future will thus depend heavily on political winds within the HSWP that they will have little opportunity to shape. And ironically, the political consequence of enterprises’ using their autonomy to pursue their economic interests in a highly monopolistic and protected economy may be to reinforce pressures from the center to take that autonomy away.

Notes

Acknowledgments: The fieldwork on which this article is based was generously funded during 1981–82 by the International Research and Exchange Board and the German Marshall Fund. The article was completed while the author was a fellow at the Center for Advanced Study in the Behavioral Sciences. I am grateful for the financial support provided by the Exxon Educational Foundation during my stay there.

1. For a summary of recent reform measures, see Paul Marer, “Economic Reform in Hungary: From Central Planning to a Regulated Market,” in U.S. Congress, Joint Economic Committee, East European Economies: Slow Growth in the 1980s (Washington, D.C.: U.S. Government Printing Office, forthcoming); idem and Ellen Comisso, “Explaining Economic Strategy in Hungary,” International Organization 40 (Spring 1986):421-54; Marton Tardos, “How to Create Efficient Markets in Socialism” (paper presented at the Conference on the Soviet Union and Eastern Europe in the World Economy, Kennan Institute, Washington, D.C., Oct. 18–19, 1984); and Xavier Richet, “Politiques d’ajustement et réformes institutionnelles en Hongrie,” in Marie Lavigne and Wladimir Andreff, eds., La réalité socialiste (Paris: Economica, 1985), 169–83.

2. For some analyses of the causes and dimensions of the reversal of the 1968 reform, see Comisso and Marer, “Economic Strategy;” Edward Hewett, “The Hungarian Economy: Lessons of the 1970s and Prospects for the 1980s,” in U.S. Congress, Joint Economic Committee, East European Economic Assessment, vol. 1 (Washington, D.C.: U.S. Government Printing Office, 1981), 483–525; Richard Portes, “Hungary: Economic Performance, Policy, and Prospects,” in U.S. Congress, Joint Economic Committee, East European Economies Post-Helsinki (Washington, D.C.: U.S. Government Printing Office, 1977), 767–815; János Kornai, The Economics of Shortages, vol. 2 (Amsterdam: North Holland, 1981); Marton Tardos, “Enterprise Independence and Central Control,” Eastern European Economics 15 (Fall 1976):24–45; Teréz Laky, “The Hidden Mechanisms of Recentralization in Hungary,” Acta Oeconomica 24, nos. 1–2 (1980):95–109; and László Antal, Fejlödés—Kitérövél (Budapest: Pénzügyi Kutatási Intézet, 1979).

3. Descriptions of NEM are numerous. See Portes, “Economic Performance,” 766–75; David Granick, “The Hungarian Economic Reform,” in Morris Bornstein, ed., Comparative Economic Systems, 3rd ed. (Homewood, Ill.: Irwin, 1974), 218–33; Istvan Friss, ed., Reform of the Economic Mechanism in Hungary (Budapest: Akademiai Kiadó, 1968); O. Gadó, ed., Reform of the Economic Mechanism in Hungary, Development 1968–71 (Budapest: Akademiai Kiadó, 1972); and Alec Nove, “Economic Reforms in the USSR and Hungary: A Study in Contrasts,” in A. Nove and D. M. Nuti, eds., Socialist Economics (Baltimore: Penguin, 1972).

On Yugoslav planning of the 1950s, see Deborah Milenkovitch, Plan and Market in Yugoslav Economic Thought (New Haven: Yale University Press, 1971); Albert Waterson, Planning in Yugoslavia (Charlottesville, Va.: University of Virginia Press, 1964); Rudolf Bićanić, “Economic Growth under Centralized and Decentralized Planning: Jugoslavia—A Case Study,” Economic Development and Cultural Change 6 (Oct. 1957); idem, “Interaction of Macro and Micro–Economic Decision in Yugoslavia, 1954–1957,” in Gregory Grossman, ed., Value and Plan (Berkeley: University of California Press, 1960); and Ellen Comisso, Workers’ Control under Plan and Market (New Haven: Yale University Press, 1979).

4. See Mihály Laki, “Liquidation and Merger in the Hungarian Industry,” Acta Oeconomica 28, nos. 1–2 (1982):87–108.

5. On state building, see Charles Tilly, ed., The Formation of National States in Western Europe (Princeton: Princeton University Press, 1975); Perry Anderson, Lineages of the Absolutist State (London: New Left Books, 1974). In effect, socialism could perform in the twentieth century many of the functions capitalism performed in the sixteenth. On Yugoslav aims, see Vladimir Dedijer, The Battle Stalin Lost (New York: Grosset and Dunlop, 1973).

6. By state organizations I mean public institutions established under law. In Yugoslavia state organizations are normally self-managed in one way or another (the armed forces is the major exception). Their functions, however, differ. Some are directly engaged in economic or productive activity; these are “enterprises.” Other supply social services (e.g., schools, hospitals). Others perform regulatory functions (e.g., local, republic, and national governments); in the Yugoslav jargon, these constitute “socio-political communities.” Yet others are largely concerned with financial transactions (e.g., banks). All, however, are public bodies. The mass organizations (e.g., the League of Communists, the trade unions) are secondary associations whose purposes are self-defined, in contrast. In Yugoslavia they are called “sociopolitical organizations.”

Readers should note that I employ the same terminology in describing Hungarian arrangements. There, state organizations are not self-managed, however. But they include both economic organizations (e.g., enterprises and banks) as well as administrative hierarchies (e.g., the various ministries), and local and national governments. All must be distinguished from the party and its apparatus, which operates distinct from but parallel to the state administration. Whereas the state administration operates according to public laws government bodies adopt, the party operates by its own statutes.

7. This did not necessarily mean the executives themselves had to be party members, although normally this was the case. See Bennett Kovrig, Communism in Hungary (Stanford: Hoover Press, 1979):340–53.

8. It must be stressed, however, that in both cases, the determination of income levels and salary differentials was made within the framework of centrally determined regulations. On the role of trade unions in Hungarian firms after 1968, see William Robinson, The Pattern of Reform in Hungary (New York: Praeger, 1973), 235–50. On wage determination in Yugoslavia in the 1950s, see Howard Wachtel, Workers’ Management and Workers’ Wages in Yugoslavia (Ithaca: Cornell University Press, 1973).

9. Author’s interviews, 1981. See also Slobodan Bosnic, “Profesionalna struktura i pokretljivost,” in M. Ilić, ed., Socijalna struktura i pokretljivost radničke klase Jugoslavije (Belgrade: Institute za društvenih nauka, 1963), 397–406; S. J. Rawin, “Social Values and the Managerial Structure: The Case of Yugoslavia and Poland,” Journal of Comparative Administration 2 (Aug. 1970): 130–50; A. Barton, B. Denitch, and C. Kadushin, Opinion-Making Elites in Yugoslavia (New York: Praeger, 1973).

10. Unlike Hungarian local governments, whose budgets were funded by taxes levied by the national government and allocated by centrally set formulas, Yugoslav communes derived a large share of their revenues from local taxes they themselves levied. In addition, they performed many of the regulatory tasks (e.g., controlling prices and wages) that were performed by central branch ministries in Hungary. On the functions of the commune, see Comisso, Workers’ Control, 44–50; J. Dordević and N. Pasić, “The Communal Self-Government System in Yugoslavia,” International Social Science Journal 63 (1961):399–408.

11. See Albert Meister, Socialisme et autogestion (Paris: Editions du Seuil), 65ff.; Juraj Hrženjak, “Neki problemi radničkog samoupravljanja,” Ekonomski Pregled 8, no. 5 (1957):311–18.

12. See Comisso, Workers’ Control, 234–36; Živan Tanić, “Neke tendencije u dosadašnjem radu radničkih savjeta,” Sociologija 2 (Feb. 1961): 101—12; Meister, Autogestion, 89–90; Rawin, “Social Values,” 140; Jiri Kolaja, “A Yugoslav Workers’ Council,” Human Organization 1 (1961):27–31; J. Brekić, “Pokretljivost u organima radničkog samoupravljanja,” Sociologija 3 (Jan. 1961):61–70.

13. See Miloš Ilić, “Radnička klasa Jugoslavije i globalno jugoslovensko društvo,” in Ilić, ed., Socijalna struktura, 100; Comisso, Workers’ Control, 9–23; Adizes, Industrial Democracy, 200ff.

14. See Brekić, “Pokretljivost,” 67; Ašer DeLeon, The Yugoslav Worker (Belgrade: Yugoslav Trade Unions, 1962), 18. Peasant workers, whose incomes did not depend entirely on their wages, were typically underrepresented in the self-management bodies.

15. See Josip Županov and Arnold Tannenbaum, “Control in Some Yugoslav Industrial Organizations,” in A. Tannenbaum, ed., Control in Organizations (New York: McGraw-Hill, 1968), 91–112; Ellen Comisso, “Workers’ Councils and Labor Unions: Some Objective Tradeoffs,” Politics and Society 10, no. 3 (1981):251–79.

16. See DeLeon, Yugoslav Worker, 27, 72; Slavko Luković, “Ekonomsko poslovanje radničkih savjeta,” in A. DeLeon and L. Mijatović, eds., Kongres radnickih savjeta (Belgrade: Rad, 1957), 255–95; R. Radosavljević, “Radnici o nekim pitanjima čistog prihoda i ličnog dohotka,” Sociologija 3 (Jan. 1961):70–9.

17. On meddling, see Meister, Autogestion, 79–90; and “Discussions,” in DeLeon and Mijatović, Kongres.

18. See Meister, Autogestion; “Discussions,” in DeLeon and Mijatović, Kongres; Josip Županov, Samoupravljanje i društvena moć (Zagreb: Naše Teme, 1968); and Joel Dirlam and James Plummer, An Introduction to the Yugoslav Economy (Columbus, Ohio: Merrill, 1973).

19. On regional variations in enterprise-government relations, see Paul Shoup, Communism and the Yugoslav National Question (New York: Columbia University Press, 1968); and Dennison Rusinow, The Yugoslav Experiment (Berkeley: University of California Press, 1977).

20. See Comisso, “Councils and Unions,” 251–79; Emerik Blum, “The Director and Workers’ Self-management,” in M. Broekmeyer, ed., Yugoslav Workers’ Self-Management (Dordrecht, Holland: D. Reidel, 1970), 170–200; and Mladen Zvonarević, “Socijalna moć, informiranost i motivacija u procesu samoupravljanja,” Naše Teme 13 (June 1969):900–918.

21. The case of Energoinvest’s Emerik Blum is illustrative. See his “Director and Self-management,” in Broekmeyer, ed., Yugoslav Workers’ Self-Management, 170–200.

22. See Rusinow, Yugoslav Experiment, 81–138.

23. See ibid., 81–138; Milenkovitch, Plan and Market, 100–200; Shoup, National Question, 227–61.

24. Political resources can be thought of as sources of support “valuable” for advancing claims on collective choices.

25. See Comisso, “Councils and Unions,” 253–62; Županov Samoupravljanja, ch. 1; and Branko Horvat, An Essay on Yugoslav Society (White Plains, N.Y.: International Arts and Sciences Press, 1969). The point here is not that all interests of labor and management in Yugoslav firms coincided, which in fact was not the case. Rather, the point is that self-management created an institutional structure strongly skewed in favor of strengthening and representing interests they shared while weakening and delegitimizing the bases of conflict. Thus, interests workers shared with management were easily articulated by workers’ councils; interests whose satisfaction management opposed typically could only be advanced through strikes and other actions much more difficult to organize.

26. See Rusinow, Yugoslav Experiment, 108-38; Josip Županov, Marginalije o društvenoj krizi (Zagreb: Globus, 1983); Branko Horvat, Privredni sistem i ekonomskih politika Jugoslavije (Belgrade: Institut Ekonomskih Nauka, 1970).

27. Most descriptions of “one-man” management describe the Soviet experience. See Joseph Berliner, “Managerial Incentives and Decision-Making: A Comparison of the United States and the Soviet Union,” in Bornstein, ed., Comparative Economic Systems, 396–427; Jerry Hough, “The Soviet Concept of the Relationship Between the Lower Party Organs and the State Administration,” in R. Cornell, ed., The Soviet Political System (Englewood Cliffs: Prentice-Hall, 1970), 250–71; David Granick, Management of the Industrial Firm in the USSR (New York: Columbia University Press, 1955).

28. On ownership rights in Hungary, see Lajos Ficzere, The Socialist State Enterprise (Budapest: Akademiai Kiadó, 1974); Geza Peter Lauter, The Manager and Economic Reform (New York: Praeger, 1972); Tardos, “Efficient Markets”; and Wlodzimierz Brus, Socialist Ownership and Political Systems (London: Routledge and Kegan Paul, 1975).

29. The relationship between the state and the party is described in greater detail in Comisso and Marer, “Hungary,” and in Ellen Comisso, “Introduction: State Structures, Political Processes and Collective Choice,” International Organization 40 (Spring 1986):195–238.

30. James March and Herbert Simon make the following distinction between politics and bureaucratic bargaining: “Politics . . . is a process in which the situation is the same as in bargaining—there is intergroup conflict of interest—but the arena of bargaining is not taken as fixed by participants.” In Organizations (New York: Wiley and Sons, 1958), 130.

In Hungary, the “arena of bargaining” among state organizations is very much “taken as fixed by participants.” For example, legislation passed in 1971 allowing young mothers to be paid to stay home with infants had a crippling effect on an already labor-short textile industry. Nevertheless, the industry made no attempt to oppose the legislation: “It was demographic policy,” an executive explained. (Author’s interviews, 1981). Such passivity can be contrasted with the aggressive lobbying efforts of the American textile industry when minimum wage proposals are debated in Congress.

More recently, austerity hit the steel industry in 1978–79. The firms and the metallurgical ministry proceeded to scale back previously ambitious expansion plans. Bargaining was certainly intense, but it was over how much to cut back, and how much investment (as opposed to, say, employment or wages) to reduce in particular, quite in accord with overall party priorities. Author’s interviews, 1981. See also “Milliardos Fejlesztés—Gondokkal,” Figyelő, March 14, 1979.

31. Case studies of both successful and unsuccessful enterprise adaptation to NEM appear in Marton Tardos, ed., Vállalati magatartas—vállalati környezet (Budapest: Közgazdasági és Jogi Könyvkiadó, 1980). See also David Granick, Enterprise Guidance in Eastern Europe (Princeton: Princeton University Press, 1975).

32. Author’s interviews, 1981. See Endre Megyeri, “A magyar vaskoházsat iparpolitikai irányelvel,” MKKE Department of Industrial Economies, Oct. 1975 (mimeo).

33. See Mihály Laki, “Az állam szerepe az új termékek gyártásában, as új technologiak alkalmazásaban,” Kösgazdasági Szemle 7–8 (1978):807–19; Granick, Enterprise Guidance, 282–316.

34. See Judit Hamar, “A magyar cipöexport strukturája, ipari és villágpiaca háttere,” Konjunktúra és Piackutáto Intézet, April 1980 (mimeo), 53–56.

35. Author’s interviews, 1981. See also Béla Greskovits, “A ‘kvási-Vállalatol’ a ‘Szivásos Monopoliumig’: A vállalati szervezet fejlődési útja az 1950-és, 1960-és, es 1970-és évek magyar textiliparban” (Ph.D. diss., MKKE, Budapest, 1979); and György Moldova, A Szent Tehén (Budapest: Magvetö, 1980).

36. See Mihály Laki, “Liquidation and Merger in the Hungarian Industry,” Acta Oeconomica 28, nos. 1–2 (1982):87–108; Gábor Revész, “Enterprise and Plant Size of the Hungarian Industry,” Acta Oeconomica 22, nos. 1–2 (1979):47–78.

37. The kind of worker consultation that occurred in traditional production conferences is described in Miklos Haraszti, Salaire aux pieces (Paris: Seuil, 1973); on “workshop democracy,” see Mrs. Aladar Mod and Gyúla Koszak, A munkások retégződése, munkája, isméretei és az üzemi demokrácia (Budapest: Akadémiai Kiadó, 1974).

38. See Dominique Redor, “Le’économie du travail en Hongrie,” CNRS report of research sponsored by the Hungarian Academy of Sciences, Oct. 1980 (mimeo), 40–42.

39. See Granick, Enterprise Guidance, 298.

40. See Lajos Héthy and Csaba Makó, Munkasok, Érdékek, Erdékegyeztetés (Budapest: Gondolat, 1978), 53–99.

41. See Mod and Kosza, Üzemi demokrácia, 67.

42. Such an interpretation of union opposition to NEM is suggested in Robinson, Pattern of Reform, 310–45, and Portes, “Economic Performance,” 786.

43. See E. Szalai, “The New Stage of the Reform Process in Hungary and the Large Enterprises,” Acta Oeconomica 29, no. 102 (1982):35n.

44. According to one estimate, in 1975 half the working class lived in villages. See Rudolf Andorka, “Hungary’s Long-Term Social Evolution,” New Hungarian Quarterly 20 (1975):88. Labor turnover apparently jumped from 20–25 percent to 41 percent in 1970. See Julius Reszler, “Recent Developments on the Hungarian Labor Market,” East European Quarterly (Summer 1976):255–67; and Révész, “Enterprise Size,” 47–68.

45. See Hewett, “Hungarian Economy,” 491.

46. Author’s interviews, Dec. 1983. See K. Fazekas et al., MTA Közgazdaságtudományi Intézet Közleményei 29 (Budapest: MTS Közgazdaságtudományi Intézet, 1983).

47. For example, Hungary elected its first parliament by contested elections in 1985. Certainly, competitive elections do not necessarily mean the Parliament itself has any more power than it did when single slates were presented. However, the fact that several major party figures lost elections in their district will presumably diminish their influence in the HSWP itself. Likewise, György Aczél may yet stage a political comeback within the HSWP thanks to his successful electoral campaign for parliament.

48. My information here is drawn by György Varga, “Small Ventures in the Hungarian Economy” (paper presented at the Ninth Hungarian-U.S. Roundtable on Economics, Berkeley, Cal., June 9–12, 1985, mimeo). See also David Stark, “The Dynamics of Organization Innovation and the Politics of Reform in Hungary” (paper presented at the Conference on the Social Consequences of Market Reforms in China and Eastern Europe, Santa Barbara, Cal., May 8–11, 1986, mimeo).

49. Varga, “Small Ventures,” 21.

50. Ibid, 36.

51. The following proposal is my own and is not under active consideration in Hungary.

52. My account of the new law is drawn from Bela Balassa, “The ‘New Growth Path’ in Hungary” (unpublished, Oct. 1985); and Tamás Bauer, “The New Hungarian Forms of Enterprise Management and Their Economic Environment” (working paper for the 1985 Radein Research Seminar, Summer 1985). Their descriptions can be compared with the one given by Marer, “Economic Reform,” and in László Csaba, “New Features of the Hungarian Economic Mechanism in the Mid-Eighties,” New Hungarian Quarterly 24 (Summer 1983):1–20.

53. Initial accounts suggested that only firms with less than 500 employees would elect councils. In the final law, well over two-thirds of all Hungarian firms (and a similar proportion of industrial workers) will have some form of self-management. In firms with less than 500 employees, the director will be elected by a general assembly of the entire workforce; in larger enterprises directors will be selected by an enterprise council. Only public utilities in the wide sense of the word (e.g., power plants, mines, oil refineries, gas and water companies), trusts, and enterprises classed “under administrative control” for special reasons will continue to be subordinated to branch ministries. The latter group is expected to be composed of about one-sixth of all firms and one-third of the workers.

Enterprise councils define enterprise plans, determine the allocation of profits between investment and incomes, approve financial balances and annual reports, and decide on modifications in the enterprise’s line of activity by approving mergers, new subsidiaries, membership in associations, and the like. Last but hardly least, they elect the director, subject to ministry veto. Originally, it was proposed that about one-third of council members be drawn from outside the enterprise itself.

54. Tamás Bauer’s account is as follows: “The council should have not more than 50 members, at least the half of whom should be elected by the staff. No more than one-third of the other half is to be nominated by the director, while the rest are executives, heads of divisions, establishments, etc. who are ex officio members of the council as stated in the statutes of the firm.” Bauer, “New Forms,” 5.

55. See Julia Varga, “Egy ipari szövetkezeti fúzió tőrtenéte,” Szociologia nos. 3–4 (1980):413–25; Laki, “Liquidation and Merger,” 90.

56. See Mihály Laki, Vállalatok megszu̎nése és ősszevonâsa (Budapest: Közgazdasági és Jogi Könyvkiado, 1983); Tardos, “Efficient Markets,” 10–12. Regarding the merger movement that took place among collective farms, see Nigel Swain, “The Evolution of Hungary’s Agricultural System Since 1968,” in Paul Hare, Hugo Radice, and Nigel Swain, eds., Hungary: A Decade of Economic Reform (London: Allen and Unwin, 1981), 225–52.

57. Author’s interviews, 1981.

58. F. Havasi, head of the Economic Department of the Central Committee, cited in Bauer, “New Forms,” 7.