1978-1989 - Reform of the Reform
By 1978 Hungary's dismal economic performance made it clear even to the counterreformers in the leadership that a "reform of the reform" was necessary. Return to central control had only rewarded inefficiency and stifled innovation and initiative. Enterprises ignored market signals, and shortages plagued producers. Large amounts were invested in poorly conceived projects, and a trade deficit accumulated. Hungary's hard-currency debt reached US$7.5 billion by 1978 and had jumped to US$9.1 billion by 1980.
In 1978 the government admitted that its attempt to shield Hungary from world economic conditions could not be continued. Hoping to improve its trade balance with the West and avoid forced rescheduling of its debt, the government announced its intention to boost exports. This policy change marked the beginning of a new wave of reforms. First, the price system was restructured to bring consumer prices gradually in line with world market prices and to ease the burden of subsidies on the state budget. Next, producer prices were reformed to bring about more rational use of energy and raw materials. Finally, the government overhauled exchange-rate and foreign-trade regulations.
In 1979 and 1980, the government implemented a number of institutional reforms. The new reforms abolished branch ministries and replaced them with a single Ministry of Industry intended to act as a policy-formulating body without direct authority over enterprises. Large enterprises were broken up into smaller firms. In 1982 the government legalized the formation of small private firms, including restaurants, small shops, and service companies, and it permitted workers to lease enterprise equipment, use it on their own time, and keep the earnings from their products. In 1984 the regime introduced new forms of enterprise management, including supervisory councils that would include worker-elected representatives. New financial institutions also emerged, and a 1983 government decree allowed enterprises, cooperatives, financial institutions, and local governments to issue bonds.
In the early and mid-1980s, Kadar had encouraged a limited amount of political liberalization. The HSWP maintained its monopoly on political power, but the norms of democratic centralism were looser than in other countries of Eastern Europe. County party secretaries acquired the freedom to make decisions of local importance, including control of personnel. The government again exhorted delegates of the National Assembly to scrutinize laws and government policies more critically.
In 1983 a new electoral law required a minimum of two candidates for each national and local constituency in general elections. Trade unions began to defend workers' interests more energetically. Journalists were urged to expose low- and mid-level corruption and abuse of power, although they could not criticize the regime's basic tenets. The leadership also bolstered economic reforms of the early 1980s with a foreign policy geared to a greater degree than before on trade with the West, and it maintained this course during the deterioration of superpower relations in the early 1980s. Thus, the economic reforms of the late 1960s had also come to provoke a measure of political reform and changes in foreign policy. These new departures were inspired in large measure by Hungarian nationalism, a force that had long encouraged Hungarians to control their own destiny and to resist the hegemony of their larger, more powerful neighbors.
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