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Free enterprise eases the control of collectivism

(Page 2 of 2)

Stereo sets were big two or three years ago. Now some store windows display videotape recorders or personal computers. They are expensive, and thus out of the reach of most Hungarians. But a growing number of forint millionaires (1 million forints equals $22,000) can buy them.

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''This is not a classless society,'' noted one observer, referring to wide differences in wealth and in culture.

Although most cars are Soviet Ladas or other Fiat designs of East European origin, there are some West German Mercedes or Swedish Volvos on the streets with private license plates. A few shops display expensive and stylish fur coats in their windows.

Western journalists have paid much attention - perhaps too much - to Hungary's efforts to introduce elements of the free market in its economic system. But these reforms give the Hungarian economy a special vitality compared with those of their East-bloc neighbors.

Here are some new signs of greater enterprise:

1. State enterprises:

These can now freely form subsidiaries to carry out certain manufacturing activities. These are taxed separately. They can employ as many people as they need.

Also, state-owned companies can set up a small company to carry out service activities employing up to 100 workers. (There are more than 130 of these.)

Or they can encourage the creation of ''intra-enterprise work collective'' (called VGMs). Full-time employees of the company, in an arrangement with the enterprise, will use the equipment of the company either to fill in some gaps needed by the company or to do work for outside clients. They do this in their spare time, acting like private contractors. There are more than 7,500 of these today, employing some 100,000 workers part-time.

Adam Juhasz, secretary of state in the Ministry of Industry, complained that the two-year-old VGM system ''has not developed the way we expected.'' They are mostly doing work for the state enterprises, rather than outside projects. ''We made the enterprises independent,'' he said. ''We are not entitled to intervene.'' But he wondered if their economic benefits were worthwhile.

State-owned retail or restaurant chains can now lease out a store or restaurant to employees. They pay a rental on the basis of an estimated turnover , and the lessee reaps any profits.

2. Cooperatives:

The law, according to Mr. Ory, makes it easy for a group of as many as 15 or 20 people to set up a small cooperative for manufacturing or some service activity. The administration is simple, allowing flexibility. Members can be moonlighters. Some 250 of these have been started up within the last two years.

Small groups can be set up within the 860 larger industrial and service co-ops, much like VGMs in state enterprises. They use the facilities of the co-op to carry out some enterprise. There also are co-op branches - more than 925 of them. Co-ops are active not only in simpler retail or manufacturing activities, but in such areas as computer engineering, software, and consulting services.

Members of these co-op work enterprises must take financial risks, much like those setting up a small private business. Should the enterprise go bankrupt, they can lose their financial interest in the co-op.

''This is a departure from the usual socialist form of securing the individual from risk,'' Mr. Ory noted. ''But this recognizes that rewards are relative to risks.''

3. Private firms:

As long as an individual has no criminal record and does have the necessary qualifications, he can set up a private business. One form is known as a ''work collective'' (GM), which seems to be something like a partnership in Western terms.

Local councils cannot block the creation of a new private business. Previously, if there were, say, several hairdressers in an area, the council might forbid the establishment of another hairdresser. Now the new one can compete with the older establishments. Losing enterprises can go bankrupt, with their owners even losing their homes.

By now there are more than 13,500 private shops, compared with 9,000 in 1970. These employ some 123,000 workers, or about 2 percent of the entire work force. There are some 4,800 GMs, employing about 24,000.

Some of these forms of business activity - private, co-op, or within state enterprises - are so new that their nature is still evolving. In any case, Mr. Ory notes, they are ''growing fast.''