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Economics and Human Values
György Varga
At the outset I would like to talk about the core of the transformation to a civil society by raising two philosophical questions. One is contained in that key word we so often use in central Europe-- revolution. But what type of revolution did we really start in central Europe in 1989? I hope you don't expect me to give the answer. It is, I think, still too early for anyone to do that. However, some scholars in Hungary and in Poland have suggested that it is a postponed revolution following up the revolution which had been fought 200 years ago. If we look at the goals and the objectives of that revolution--parliamentary democracy, pluralism, free press, and so forth--it seems to support this suggestion at least in part.
György Varga Yet in some of the central European countries, those social forces which should lead to the development of the new society are still not at a stage to carry out the transformation. This explains why revolution from above has become the typical model of transition. This revolution from above has the unprecedented task of creating market economies, which by their nature should be developed from below.
The other key word is systemic change. Perhaps it is a subjective judgment on my part that the old regime really could not create a coherent, well functioning, self-regulating social and economic system. Only the ruling power was coherent, unified, not society and not the economy. The task now is the creation of a system.
The Hungarian situation is to some extent unique. As a consequence of the 1956 revolution, the regime gradually became a soft dictatorship. Between 1965 and 1985 a dual structure evolved. The dominant role of the centralized economy was redistribution. But gradually a second economy emerged. The two lived side by side. The roots of the market mechanism are to be found primarily in the rapid spread of the economy and, from the early eighties, in what became a legalized private sector. However, I have to underline that in Hungary the private sector was never totally absent. The symbiosis of this dual structure has been the main characteristic of Hungarian society for a long time.
The monolithic party elite was gradually replaced by professional technocrats. One could observe a vigorous migration of professionals into the elite, and the newly emerged managerial class replaced the old economic commissars. This unique structure in Hungary made possible the emergence of an entrepreneurial class, in part a pseudo-entrepreneurial class. It also resulted in a relatively greater freedom of choice for individuals both as employees and primarily as consumers. Finally, it made possible the beginning of the revival of a civil society in Hungary. In some respects playing the role of a political opposition, the dual structure helped break up the one-party system. It made possible the peaceful transition from a party state to a parliamentary democracy.
Systemic change and economic transformation should be considered simultaneously. The transformation of Hungary's political system and of its economic system are mutually dependent and reinforce one another. Although the full transformation will take time, a market economy should be created with all deliberate speed because the values of political pluralism are most in harmony with autonomous decentralized economic decision-making. A market economy promotes such values as entrepreneurship, tolerance, and willingness to compromise. The democratically elected government has already achieved some important results in creating a market economy. Imports have been greatly liberalized; prices are almost entirely liberalized; aggregate demand is regulated by a very tight monetary policy. Inflationary pressure is still strong, but under control. Institutions of a modern capital market have been created, such as the Budapest stock exchange, brokerage firms, and an agency to insure fair competition. There is a two-tier banking system. One of the most important phenomena is that the number of new businesses has increased thanks to liberalization and deregulation. While the number of business organizations was 11,000 at the beginning of 1989, in the middle of 1991, the number was 38,000, of which 30,000 are limited liability companies. Sole proprietorships are excluded from this number. Because of liberal regulation policies and the relative political stability, the number of joint venture companies grew by 3,000 during the first half of 1991. The total number of joint ventures exceeds 9,000 in Hungary.
All the best scholars published beautiful books on how to transform capitalism into socialism. Not the other way around. So we are learning by doing. In spite of these achievements, however, the country is not free from dissatisfaction and disillusion. This may in part be explained by overheated expectations. Many people anticipated an immediate improvement in living conditions, and the market economy was presented as a promised land, as a paradise. The hard fact is that the gross domestic product has been declining for three years. The volume of consumption has been declining for two years. The rate of inflation is 36 percent. The rate of unemployment is close to 7 percent and still rising. Inequalities among people and groups are growing, and finally, but most importantly, the country has a huge accumulated domestic and foreign debt. Servicing this debt is a very great burden: the net capital outflow is about 5 percent of the total Hungarian gross domestic product. Yet Hungary has managed to make its payments on interest and principal.
The ruling coalition committed itself to developing a market economy in Hungary, similar to the German or the Scandinavian ones. But it is still not clearly defined what ways and means can and should be used to reach this goal. There is disagreement, even within the government, on the roles of market forces and of the state. If a consistent and comprehensive economic policy has not yet been defined, it is because a consensus is still certainly lacking.
In order to restore civil values such as loyalty to fellow citizens, respect for the law, fairness, philanthropy, tolerance and volunteerism in central Europe, the individual owner should be the central actor in the process of privatization. . . . The lack of consensus is primarily reflected in the process of privatization which is the key to the transformation. The countries of central Europe are facing a tremendously difficult task for which there are no historical precedents. There are no signposts, no guidebooks to be followed. All the best scholars published beautiful books on how to transform capitalism into socialism. Not the other way around. So we are learning by doing. In connection with privatization, the basic issues still to be addressed are the following: privatization with foreign versus domestic capital; spontaneous privatization (that initiated by the management of firms) versus government-controlled privatization; institutional versus individual ownership; concentrated versus distributed ownership. I'm not going to explain the pros and cons of each option, except in one case directly related to this conference. The notion of privatization, in my view, is more than transforming state-owned assets into private property. Privatization is a process in which the private sector as a whole grows and gradually becomes the dominant factor in the economy. The strategic goal of the process is of a social and political nature. Instead of seeking very short-term gains by privatizing state property, privatization should promote a broad layer of independent and autonomous entrepreneurs and institutions. Privatization should result in the emergence of a strong middle class, which is the pillar of a civil society. In order to restore civil values such as loyalty to fellow citizens, respect for the law, fairness, philanthropy, tolerance and volunteerism in central Europe, the individual owner should be the central actor in the process of privatization, at least at the early stage of the process. I emphasize this because there are many mistaken moves in central Europe in transforming state-owned firms into joint stock companies. These are often only a simulation of private ownership since many of those companies are owned by other state-owned corporations or banks. Hence, I call the process a simulation of privatization.
Foreign capital is playing an important and indispensable role in the transformation of state assets to private ownership. But a civil society cannot be restored unless capitalism is rooted in domestic soil. Therefore the governments of central European countries should encourage domestic savings and the accumulation of wealth.
We have several different types of entrepreneurs in Hungary. We have very small, often family, businesses. Then we have a new entrepreneurial class which has emerged from the members of the old political and professional elite. For example, we have professionals, notably all the engineers from state-owned enterprises, who have started their own businesses. There is also a group of entrepreneurs who with foreign companies started their own businesses. Our entrepreneurs are often seeking very short-term gains. They try to avoid long-term capital commitment, which they can easily do because they can select a market niche where they enjoy a monopolistic position. We might generalize by saying that in the United States, entry into the market is relatively easy, but to survive is extremely difficult. In Hungary, the situation is just the opposite. It is extremely difficult to enter the market. But if you are there, it is much easier to survive.
The role of the state in the economy in Hungary is still strong. In fact, the rate of redistribution of the gross domestic product by the state budget has not declined. It is still 63 to 65 percent--extremely high. The process of privatization is very slow. Since 75 percent of the assets are controlled by 2,000 state-owned firms, the government finds it easy to intervene. The economy has still not been freed from political influences. My conclusion, then, is that if the countries of central Europe cannot in a relatively short period overcome their economic difficulties, I don't exclude the possibility of a political rearrangement. We are not living in a time when we can say that the play is over.
Introduction
W. Robert Connor
Civil Society
and the Present Age
Bronislaw Geremek
Economics and
Human Values
György Varga
Religion, Nationalism,
and a Civil Society
Conor Cruise O'Brien
On Being Sane
in the Midst of
Madmen
Eduardo Rabossi
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Revised: February 1998
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