In Hungary, it's getting easier to strike a deal with Western capitalists. Eyeing Western profits, Hungary has opened a stock market and relaxed restrictions on outside investment in local firms. And a new business school, to open next year, will teach free enterprise. Heavy industries, like the locomotive factory at right, may face sharp cuts in their subsidies from the state. Some may even be forced to shut down.

At the giant Lenin Metallurgy Works, the difference between capitalism and communism comes down to a simple question of price. The Lenin Mill produces steel which it sells both in Western and Eastern Europe. For its sales to the West, it receives world market prices. For the East, it receives less than its own production costs, the result of an arbitrary barter agreement between communist governments.

``In the West, we have a good business,'' says General Manager Laszlo Drotos. ``In the East, we need subsidies.''

His complaint, not long ago hushed up, has become an open rallying cry for reform. The Hungarians are counting on building greater and greater commercial ties with the capitalist West. At the same time, they are trying to rationalize and reduce burdensome commitments with the communist East.

A Western-style business school will hold its first classes in January in a 19th-century chateau just outside of the capital. A stock market has already opened in a Budapest office building. Capitalist companies soon will be able to buy shares of Hungarian companies up to 100 percent, although officials insist that the state will retain control of key industrial sectors.

The new rules represent a breakthrough for the Soviet world, which previously has limited Western participation to less than 50 percent.

``We are putting our fate in the hands of the world market,'' says Miklos Pulai, Director of the Central Plan. ``That means competing in the West.''

It also means overhauling uneconomic business arrangements in the East, where half of Hungary's present trade is conducted.

Since communist currencies are not convertible, the Lenin Steel Mill receives no rubles for selling steel to the Soviet Union. A central Hungarian clearing bank instead receives Soviet goods, which are often hard to price, and the Hungarian government pays the Lenin Mill in local currency.

State companies last year lost a staggering $2 billion on trade within the common East-bloc commercial organization Comecon (the Council for Mutual Economic Assistance), according to Minister of Trade Jozsef Marjai.

The Hungarian Minister of Trade has told the companies to end these losses or go bankrupt. And over the summer, he backed up his word by cutting export subsidies 4 percent.

``Without modernizing Comecon,'' Plan Director Pulai explains, ``it will be difficult for us to introduce a true market economy.''

Soviet leader Mikhail Gorbachev agrees.

The Soviet Union ironically doesn't profit much from its Empire. It often accepts substandard East-bloc products in return for their oil and gas which otherwise could be sold to the West.

Glasnost (openness) and perestroika (restructuring) mean making Soviet foreign trade obey market rules.

Billions of dollars of new loans taken from Western Europe show that the Soviet leader is counting on expanded commercial relations with the West.

Until now, losses on trade with Eastern Europe have been shrouded in secrecy. Mr. Gorbachev now openly calls for a solution to the problem and talks of creating a ``convertible ruble'' within Comecon.

Individual Soviet companies already are free to strike joint venture deals with their East European counterparts.

At the Tizsai Chemical Works in Leninvaros, General Manager Lajos Sipocz says his firm will produce an agricultural fertilizer with a Soviet firm just a few hundred miles away over the border.

``In the past, such a deal would have had to been approved in Moscow,'' Mr. Sipocz says. ``This time we worked directly with the enterprise.''

Similar deals still remain much easier to strike with the West - and much more desired, for the business expertise they teach and the technology they bring.

Istvan Feher, director of the Petofi Agricultural Complex, recently signed a contract to begin producing Dijon mustard for a French company. After the resounding success of McDonald's first restaurant in Budapest, he is eyeing another joint venture possibility.

``We want to expand our food processing production - perhaps by setting up Kentucky Fried Chicken franchises,'' Mr. Feher says. Soviet farms do not offer offer him such possibilities. ``They aren't up to our level,'' he says.

Such Western foreign investment traditionally was limited by difficult access of Hungarian goods to Western markets and rigid rules over company control. A trade agreement signed this year with the Common Market should help. So should the new stock exchange.

``There's a lot of foreign interest in buying our stock and creating joint ventures,'' says Zsigmond Jarai, stock exchange chairman. ``We should double our foreign investment in one year.''

(The enthusiasm with which Hungarians are embracing capitalist tricks is exhilarating. Business education here used to consist of little more than Marxist economics. Zsuzsanna Ranki, director of the new Hungarian Management Center, says she had no problem convincing her communist bosses that they needed a Western-style business school.

``Everybody loved the idea,'' says Mrs. Ranki. ``If we are going to compete with the West, we need to learn their techniques,'' she adds.)

Hard decisions still must be made. At the stock exchange, Mr. Jarai complains that the authorities want to sell off unprofitable state companies, but refuse to touch the better firms which could attract more foreign participation.

``I would have no trouble selling shares in Herrend Porcelain,'' he says. ``It's much harder to sell companies which have made losses for the past 30 years.''

Perhaps even worse, Hungarians are asking where do perestroika's limits lie? If export subsidies are ended, then inefficient heavy industries such as the Lenin Mills must be slimmed down or even closed.

That means job losses - and breaking contracts with fraternal countries.

Hard-line Czechoslovakia and East Germany have warned the Hungarians to be careful.

But manager Drotos plans to go ahead anyway.

``Look, we'll just have to give our Eastern countries something other than steel,'' says Drotos. ``There's just no other way.''

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