Hungary: A Taste of Luxury

Central planning with an old capitalist trick

With typical Magyar verve, Hungarians have managed to bring a sense of style and vitality to their brand of socialism, making it the gem of Marxism-Leninism. Fashionably tailored men and chic women bustle through Budapest's business and shopping districts, while imported autos (mostly East German Wartburgs and Soviet-made Zhigulis and Ladas) jam its streets. The city's elegant cafes and restaurants serve rich pastries and gourmet meals without the sullen service all too common in other East European cities. Billboards and newspapers (although not television) display imaginative and colorful ads urging consumers to buy a myriad of goods, from baby powder to air mattresses. To the rare visitors from the Soviet Union, most of this is unbelievable. One Russian, gazing into a Budapest show window, could not believe that the department store was state-owned (it is). "It's impossible," he said. "These things are too beautiful. Besides, there are no queues."

As in other East bloc states, education and medical care are free, while cultural and sporting activities are plentiful and cheap with opera tickets costing $1.50. In contrast to their Warsaw Pact allies, most of the 10 million Hungarians are free to travel to the West; a surprisingly wide variety of books, magazines, movies and records from non-Communist countries are available.

Much of the credit for Hungary's success belongs to Party Boss Janos Kadar, 65, who came to power when Soviet troops and tanks crushed the abortive freedom fighters' uprising of 1956. Shy and self-effacing, Kadar has gradually eased the party's absolute control of society. In 1968 he introduced the New Economic Mechanism, the blueprint for Hungary's unique approach to a Marxist-Leninist economy. Hungary has carried out many of the reforms for which Czechoslovakia was branded a heretic by Moscow in 1968. "We haven't talked about 'socialism with a human face,' " says one Budapest journalist. "We simply put it into effect."

At the top of the economy, Hungary scarcely differs from other East bloc nations. The state owns nearly 100% of the means of production. But Kadar's N.E.M. permits an unusual degree of flexibility. Factory managers, while gearing output to the central plan, can innovate to improve their product and enhance its consumer appeal. They are even allowed, within discreet limits, to compete with one another on price and delivery dates. As an incentive for managers and employees to design, manufacture and market high-quality goods, the party's economic planners often use an old capitalistic ploy: material rewards in the form of bonuses and wage hikes.

Hungary's price structure is less rigid than in most Marxist-Leninist states.

One-third of all goods--mostly staples such as bread, subway fares and utility rates--have fixed price tags. These can only be changed by government edict, and sometimes the hikes are abrupt. Last year canned fruits, juices and jellies jumped as much as 35%. On a second third of the country's goods--primarily semifinished products like piping that factories sell one another--prices fluctuate within relatively narrow bands set by officials. Market forces determine all other prices, such as those on luxury items, personal services and travel arrangements.

The government has learned that bureaucrats cannot successfully manage the supply and demand of highly personalized goods and services. As a result, free enterprise has been allowed limited growth in the form of 56,000 privately owned service outlets and 11,000 retail stores.

Among them: laundries, hair salons, auto garages, tailor shops and bakeries.

Ferenc Billein, 70, and his 77-year-old wife are typical of this new class of small-time capitalists. Their vegetable and fruit store offers some of Budapest's finest produce. Every day but Sunday, Ferenc rises at 1 in the morning and heads for the country to buy high-quality produce from farmers who have tiny private plots. (Only about 4% of Hungary's farm land remains in private hands, but it yields up to 50% of the country's fruit, eggs, vegetables and poultry.) While their store grosses about $1,000 a month, this seemingly handsome income by East European standards, does not allow the Billeins to cut down their 18-hour workdays.

"We only work, work, work," Ferenc cheerfully told TIME'S David Aikman. "I can't go to the movies or the theater; my only splurge is a beer on Sundays. If we stopped working, we would have to live on my pension of $73 a month, and that would be impossible. If I wanted to hire a helper, I would have to pay the government $200 in taxes for him. As it is, taxes take $420 of our sales, while another $150 goes for overhead."

Hungary is not trouble-free. One chronic difficulty is that Budapest's central planning creates mismanagement and inefficiencies that lead to overproduction of some goods and shortages of others. Unless they have connections, Hungarians must wait about five years for delivery of a car. Housing is scarce, creating a black market in apartments. Red tape strangles so many transactions that bribery is often required to get the bureaucratic process moving. Lawyers, doctors, hairdressers and even gas station attendants can pocket as much as $ 1,000 a month as "gratuities" for services rendered or influence exerted. Corruption presents an especially serious moral dilemma for foreign businessmen, who report that Hungary's officials have been known to ask up to 1 1/2% in kickbacks from state contracts.

There is widespread grumbling about the corruption, but otherwise Hungarians seem generally content with a system that provides them with a bit more freedom and a few more luxuries than their East bloc neighbors enjoy. This is one reason why Hungary has no dissidents to speak of. Writers and artists practice a kind of self-censorship, aware that the Kadar regime allows them about as much freedom as they can reasonably expect. Many Hungarians worry about their political future. Says one writer: "Sometimes when I wake up pessimistic in the morning, I wonder what will happen after Kadar. The problem is that you cannot make him into an institution." Perhaps the only thing that Hungarians can count on is that Communism will continue to rule their lives, and that whoever rules the party dares not risk offending Moscow. The Soviets keep 90,000 troops encamped on Magyar soil.

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