Hungary's Bitter Experience of Capitalism

We are republishing this article on the effects of the transition to capitalism in Hungary first published in Socialist Appeal issue 20, March 1994. "Miles and miles of closed factories greeted me as I travelled into Budapest. The contrast in downtown Budapest could not have been sharper. The swish, but very expensive shops and well dressed shoppers made me feel I had risen out of the Metro into a different world. The advent of capitalism has produced a polarisation of the population in terms of appearance, mood, wealth and lifestyle. A small, but significant section of people were living very well, but the vast majority, especially those in some country areas, where wholesale factory closures removed the sole employer, were sinking into poverty, unemployment and hopelessness."

Hungary's move towards capitalism has produced a new political, economic and social crisis

(we are republishing this article on the effects of the transition to capitalism in Hungary
first published in Socialist Appeal issue 20, March 1994)
by Julianna Grant

A visit to Budapest holds many promises: the chance to catch up with old friends, have the odd feast, not to mention a fulsome quantity of Hungarian wine. But for a visitor who has not been there for nearly 3 years a shock awaited.

The general feel of the place was different from anything experienced before. I caught the bus and Metro from the airport and, looking through the window, miles and miles of closed factories greeted me. This area of Budapest has never been particularly pretty but the sad dereliction visible told me this was a different place from the one I had known.

The contrast in downtown Budapest could not have been sharper. Unending traffic, with as many Mercedes limousines and BMW's as Wartburgs, Ladas and Trabants; the swish, but very expensive shops and well dressed shoppers made me feel I had risen out of the Metro into a different world.


As my visit unfolded, this impression was reinforced. The advent of capitalism has produced a polarisation of the population in terms of appearance, mood, wealth and lifestyle. A small, but significant section of people were living very well, but the vast majority, especially those in some country areas, where wholesale factory closures removed the sole employer, were sinking into poverty, unemployment and hopelessness.

This was definitely not the great dream many had at the fall of the Berlin Wall and after the last election, when a right-of-centre coalition of the Hungarian Democratic Forum (MDF) and the Smallholders Party was elected in Hungary. The mood then was against everything that bore the stamp of the Stalinist past. Red stars were removed from public buildings, all statues of the old regime were removed. People believed the free market would bring democratic rights, happiness and prosperity. In three years most Hungarians have learned by bitter experience that capitalism has no answers to Hungary's economic and political troubles.

Hungary was amongst the first of the Eastern European countries to encourage extensive participation on the world market. Kadar, Communist Party chief and Prime Minister, turned Hungary outwards from the end of the 1960's and achieved rising living standards as a consequence. However, the limitations of this started showing long before the Stalinist regime fell, and are having severe repercussions now. The Hungarian economy is in dire straights. It is being affected by the world recession, and while foreign investment figures are favourable in comparison with most other Eastern European countries the majority of this is not into manufacturing, or is mostly based on exploiting cheap labour. The investment of General Electric in the electrical giant Tungsram Rt. has recently risen to 99.6%, therefore the decisions taken at all levels will represent the interests of this multinational and not those of the Hungarian economy. According to World Economics Weekly (HVG) the main areas of Western investment are in property, banking, communications and trade, the only manufacturing investment is in car production and the food industry.

The balance of payments deficit increased every month last year. During the first 9 months of 1993 it increased from 300 million dollars to 2.1 billion dollars, and in spite of 5 devaluations of the Forint it reached 2.7 billion dollars by October. This was why a further short term, emergency credit facility has been granted by the IMF. However, this was only after they had suspended substantial loans under an agreement made in 1991 aimed at stabilising and restructuring the Hungarian economy because they were displeased with the government's inability to reduce the budget deficit as agreed. That is not to say that they did not try.

Runaway inflation reduces the value of real earnings, the social wage is under permanent attack, state subsidies to a wide variety of everyday items are being reduced or abolished, house building is non-existent, council flats are being sold for a song, wages are held down, etc. Only recently the lower levels of VAT rose from 6% to 10% and many zero rated goods and services are now charged at 10%. To follow the recent rise of 40% on medicines from next January, they also intend to introduce 10% VAT on medicines. You cannot afford to be ill in Hungary today.

The huge foreign debt is the second largest in Eastern Europe and continues to grow. At the last count it stood at $23 billion. To service this debt the government has to do the IMF's bidding, but cannot always achieve the cuts the IMF demands. Drastic reductions in state subsidies, wages and the social wage have their limits, especially in a country, which until recently had a way of life dependent on state subsidies. It is difficult to make cuts anywhere near the degree that would make any difference to the deficit without risking a social explosion. Another drain on the government's resources is unemployment which is ever increasing, and even though the qualification criteria have been tightened up, there are nearly 400,000 unemployed receiving benefit, out of a registered total of almost 700,000 - this, in a country of barely 10 million. Some areas suffer from unemployment rates of over 30% where a large plant or mine, having been the sole employer has closed down. Crime, especially violent crime flourishes in this environment of hopelessness.

State Ownership

Another demand, much favoured by the IMF, is the reducing and eventual ending of state ownership of industry and subsidies to industry and banking. This has not been possible to achieve because of the fear of movements of workers, and in spite of closures and privatisation the vast majority of heavy industry remains in state ownership and the subsidies are still flowing. As recently as December the Finance Ministry provided an extra 120 billion Forints to shore up 8 commercial banks.

In the first 10 months of 1993 exports fell by 24% while imports grew by 4.7% over the same period. During a parliamentary debate in December it became clear that income from agricultural exports dropped from 2.8 billion dollars in 1992 to 1.8 billion in 1993 and that the main reason for this was an absolute drop in production, partly blamed on drought, the uncertainty of credit facilities to farmers and the low price paid to producers. However, the cat was let out of the bag, when in the same debate, it was revealed that due to privatisation nearly 9% of productive land was now lying fallow. There has been a drop in the number of cattle, pigs , fruit production fell by 46% and vegetables by 29%. Even in favourable circumstances this spells disaster for a sector of the economy traditionally able to bring in foreign exchange.


Privatisation has spelt disaster in Hungary. Not only is agriculture reeling from its effects, but the large number of closed factories I saw on the outskirts of Budapest are only a small proportion to have suffered that way. The 'share owning democracy' aggressively promoted in 1990 turned into the misery of whole-sale unemployment and a fertile ground for corruption as the previous nomenklatura turns itself into the capitalist class. 1993 was rife with scandal, some of which brought to the surface not only the rottenness of the whole governmental and commercial structure, but the lengths to which the authorities would go to stifle discussion and disclosure.

Even under Stalinism, once the dark days of the 1950's were over, a certain amount of open criticism of the regime was not only allowed, but promoted by Kadar. He knew that as a safety valve, the odd political cabaret let people feel they were free and it forestalled real discontent from surfacing. Not in the new, free and democratic Hungary however! A popular news item, which looked critically at the previous week's events has disappeared from the television screens because its creators were not prepared to work under the direction of the new editor, appointed by the Government and known for his extreme right wing views. The Director Generals of both the Radio and Television service have been replaced by governmental appointees to facilitate close control of the media.

Why all these moves to gag opposition? There has not been much in the way of movements of workers during 1993 but that is not to say nothing has been happening. While the general mood is still fairly depressed and inactive, the earliest signs of stirrings in the ranks of most sections of society are visible.

In June, 10,000 public sector workers, mostly teachers, demonstrated when it was announced their pay rise had been postponed for a year. Most public sector employees in Hungary are not even paid the minimum agreed according to their contracts and, even if they were, it would be totally insufficient to survive. All the trade unions organised in the public sector threatened to strike and an agreement was made, by which the pay rise will be jointly borne by the government and the local authorities.

There was also a 2 hour warning strike by the Hungarian Airline Pilots Association (HUNALPA), in which they called upon all pilots to join them and which resulted in a pay rise of 35-40%. This victory spurred aircraft technicians at Aeroplex Kft., jointly owned by Hungarian airlines (MALEV) and Lockheed, to down tools and, in spite of British scabs imported by management they won a pay rise in line with inflation.

The impasse of the Hungarian economy, the growing discontent in both city and country, coupled with the pressure on the government by the IMF has resulted in a political polarisation to both left and right. Istvan Csurka split from the ruling MDF and formed his own party last November. Certain parallels with Zhirinovsky in Russia have been drawn, but Csurka is more subtle and the MDF is still keeping him close. His "Party of Hungarian Truth and Life" (MIEP) has gathered all the extreme right-wing discontents of the MDF around him. His ultra nationalist, anti-liberal, anti-capitalist and anti-communist demagogy is reminiscent of the early propaganda used by Hitler and Mussolini. Splits in the other party of the government coalition have gathered pace during 1993, and after earlier crises there is now at least four versions of the Smallholders Party. The Young Democrats (FIDESZ) have sharply shifted to the right as they saw the MDF losing ground and manoeuvred to fill the vacuum.

The main gains in 1993 have been made by the Hungarian Socialist Party (MSZP) which is the main successor to the previous Hungarian Socialist Workers Party (MSZMP), or Communist Party of the Stalinist regime. Opinion polls and some local elections have shown a steady rise in their fortunes, and point to the fact that most people learn by personal experience.

A survey of voting intentions for the General Election in May reveals that since September the MSZP's support has increased 9% to 25% of those who definitely intend to vote. Whether you intend to vote is also an excellent indicator of the politicisation of people and the December poll revealed that since March those who definitely intend to vote increased 10% and those who definitely will not vote declined 9%. The government coalition's popularity has declined from 23% in March 1993 to 18% last December. Being there I did not need to study opinion polls. Everybody from youth in the streets, in the Universities, in the working class areas to aged ladies who used to be my mother's old friends were adamant that the government is in for a trouncing. A defeat of Canadian proportions is entirely possible for the MDF and its coalition partners. However, almost everybody I talked to expressed their doubts that any of the others would do much better. The likelihood is that there will be a Socialist (MSZP) and Free Democrat (SZDSZ) coalition after the election. This would be quite a result, only four years after the word "socialist" could not be mentioned on the streets of Budapest without the serious fear of causing an incident.

Reformist Programme

However, the likely programme of a reformist social democratic/liberal green coalition will do nothing to solve the severe crisis of the nascent capitalist Hungarian regime. Some people I talked to have been groping towards some solutions that are neither "unbridled capitalism" as they call it, nor the totalitarian image of communism which they suffered from since the War. They do not believe that a system like that exists, but they would like to believe it. Some I discussed with have responded to the ideas of workers democracy, a nationalised economy, which is run by the workers not by bureaucrats, and an army of the people not professional soldiers. Many cherish the idea of looking after our planet and working in harmony with the people of the world. The 1990's problems need solutions that have been laid down in the classics of Marxism, by Marx, Engels, Lenin and Trotsky. Their books are not on display in Hungary, although some of Trotsky's works have been translated and are available now. Their readership is still very small, limited to the intelligentsia and academics. The mighty struggles that are coming will restore all these classics to their rightful place and will arm the workers of Hungary, enabling them to finish what they started in 1956, take power and establish a new society free from war and want.

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