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Home  Tr@nsit online: Janos Matyas Kovacs |
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The above list includes quite a few concepts that rest on simple dichotomies, use notions that have been taken over from Western/Southern-based classification schemes uncritically, or merely refer to the provisional character of the new capitalist regimes. Moreover, the suggested types are normally rooted in the current history of only a few countries, more exactly, in snapshots of one or two fields/processes of the post-communist transformation (ownership, new elites, corporate governance, welfare regimes, etc.). Nonetheless, they reflect the beginnings of a paradigm shift from systems theory to (historical) institutionalism and new political economy, from ideal to real types, and from deductive to inductive analysis. Ignoring the excessively ideological attempts at unveiling communist/nationalist/neoliberal/neo-colonial, etc. conspiracies, one could build on the historical/cultural thrust of these typologies, not to mention the „local knowledge“ of their authors, which comprises even anthropological nuances. One crucial step would be missing though: the fields and variables of comparison ought to be arranged in an elegant but parsimonious and operational scientific framework. Fortunately, a large part of this framework does not have to be reinvented, even if it needs considerable adjustment. One may jump on the bandwagon of the ongoing methodological controversy on what is called the „Varieties of Capitalism“ (VoC). While Comparative Economic Systems is still thriving, VoC has begun its fight for succession. Institutional experts of various disciplines join forces to explain even small dis/similarities between the capitalist arrangements at local, sectoral, national and regional levels. What is considered a quantité négligeable in the shadow of the Big Systems, may prove to be of vital importance in understanding the comparative performance of capitalist regimes. In the initial version of the „Varieties of Capitalism“ framework, firm structures, industrial relations, finances, education, etc., and their institutional complementarities were examined in great detail. The analytical precision notwithstanding, the countries were put in only two pigeon holes (liberal vs coordinated market economies) in the end. Also, VoC studies are criticized for the static and “impersonal”/”lifeless” nature of the paradigm. Institutional change remains largely unexplained, and its actors are overshadowed by the institutions’ complexities. By now, however, VoC scholars began to experiment with third types, too (mixed, mid-spectrum, managed, state-influenced, etc. market economies) to accommodate Southern Europe, Latin America and other „in-betweens“. Moreover, they are interested in the intricacies of state regulation as well as in the microfoundations of institutional change and its discursive environment. Thus, in principle, the experts of Eastern Europe received an open invitation to help enlarge the group of “third-type” countries in the theory. However, despite the efforts made by pioneering researchers in Comparative Capitalisms (incidentally, they are the ones who experiment with the most reliable adjectives quoted above), VoC still uses the example of new capitalisms in Eastern Europe as a passing reference to „hybrid“ cases rather than considering the region as a fertile soil for producing new comparative models. What can we learn from the “early birds” of Eastern European VoC studies? How delightful are their new songs? Does the Latin truism “varietas delectat” apply to them? The authors agree that the region’s economies cannot be adequately grasped by the standard VoC terminology. In Eastern Europe the institutional configurations are still fluid, the new capitalist regimes are highly exposed to the world market, and the transformative capacity and ideology of the state cannot be ignored. Thus, comparison must lay an emphasis on external dependence and agency, and take into account a few additional variables such as industrial policy, social inclusion, identity politics, etc. As a consequence, the dual scheme applied by the VoC theory has to be extended including, to quote an influential pair of authors, also the types of “state-crafted”, “world-market driven” and “embedded neoliberalism” as well as of “neocorporatism”. Others focus on the emergence of capitalism and talk about a different triad: “capitalism from below, above and without”, distinguishing hybrid, patrimonial and liberal types. Many of the Eastern European comparatists reject VoC before trying to apply it, treat the selection of their own comparative variables as axiomatic (whereby mixing the policy and institutional variables) and do not control their hypotheses rigorously. Despite the claim of realism and accuracy, the specter of (neo) liberalism haunts the research programs of the Eastern European VoC specialists. This makes many of their critical conclusions foregone. They tend to suspect “neoliberal blueprints” everywhere, identify adverse (and only the adverse) effects of neoliberalism in the behavior of the transnational companies and international organizations that are in turn labeled as agents of Americanization (and regard them as direct or indirect sources of new authoritarianism, nationalism, populism in the region). This proposition (characteristic of dependency theories) is becoming increasingly popular, especially with the deepening of the current recession. Behind the growing number of types one still sees the standard VoC dichotomy of liberalism versus coordination, and most of the authors cannot get rid of the old symbolic partition of Eastern Europe: Central Europe versus the rest of the region. My country is given a privileged place in the aforementioned preliminary typologies. It is portrayed as a prototype of neoliberal capitalism with an extremely large private sector, a high degree of foreign ownership (exercised primarily by transnational companies), loose forms of state regulation, a shrinking welfare state, weak trade unions, etc. Quite a few of the above adjectives were invented to comprehend the Hungarian version of the post-1989 economic regimes in Eastern Europe. In fact, the metaphor of the waiter who bows and scrapes to the rich guest, of the hawk that has no mercy on its victim, or of the auctioneer who sells the family silver to the highest bidder may appear in other countries as well whereas designations such as Wild-Eastern, Latin-American, predatory, gangster, etc. capitalism are also frequently used in Hungary. To make things even worse, the neoliberal program, goes the argument, has been implemented by a political elite that is a direct heir of communism (cf. “nomenklatura capitalism”). The old-new elite, embodying an alliance of Moscow, Brussels and Chicago, opened up the country to global Big Business, thereby wasting the initial advantages of the transforming economy that had been granted by Kadar’s goulash communism. According to this interpretation, instead of a smooth transition to welfare capitalism (like in Slovenia), Hungary made a radical turn by excessively deregulating its markets, privatizing its public assets and sacrificing social peace, following a Grand Design in the framework of a “reform dictatorship” (cf. “designer capitalism”). Thus, its nascent capitalist regime became incredibly exposed to the world market, and, as evidenced by the current crisis, that exposure made the economy perhaps the most volatile among the Eastern European ones. Volatility is both external and internal: due to the shattering of the previous social contract, the growing dependence on the West has not been counter-balanced by inner solidarity. The state does not protect its citizens from the adverse effects of global capitalism; just on the contrary, it amplifies these effects in an unpatriotic and asocial manner. In obeying the austerity programs prescribed by the Washington Consensus, it paralyzes the economy and weakens social cohesion just to apply austerity measures again. This narrative, shared not only by the extreme left and right, rests, in the last analysis, on a conspiracy theory that includes the image of the “soft communist” past that seems more and more acceptable in retrospect, a Great Chance that was missed in the very beginning, a wrong master plan that has been stubbornly pursued ever since, a process of corruption, an unbearable present and a gloomy future. The anti-heroes of the story are the neoliberals – a fuzzy notion that refers to a large variety of actors ranging from human-rights liberals, through new entrepreneurs, socialist turncoat-politicians and white-collar criminals all the way down to the Eurocrats, not to mention the Russians, Americans, Jews, etc. The personification of the wrong-doer depends on the political color of the narrator. The conclusion is preprogrammed: Hungary is a paradigmatic example of how the forced introduction of an “inorganic” neoliberal project leads to the bankruptcy of a regime that left behind communism with big hopes in 1989. 3. Liberalization in the Kadarist trapThe incessant lamentation about neoliberalism seems a bit ironic if one opens a Budapest newspaper today to check the object of criticism. It will report on a middle-income country of 10 million Hungarians, in which only 4 million work legally, 2.5 million pay taxes (but 8 million are entitled to vote), almost 1 million disabled are in early retirement, 1 million serve as state employees, and 3.300 local self- governments are elected on a less than 100 thousand km2-large territory. The newspaper will carry bitter editorials on strange facts day by day: according to them, the tax rates, their progressivity and income centralization (the latter is beyond 50 percent) reach Scandinavian levels while tax evasion exceeds Mediterranean ones (the informal sector produces at least 25 percent of the GDP). On paper, almost one million people earn minimum wage to avoid taxation. There is no flat tax but there are a lot of tax exemption schemes. Most of the small firms belong to pseudo-entrepreneurs and serve the purpose of tax relief. The capital markets are underdeveloped, the individual shareholders constitute a small minority, and the legal defense of market transactions, including anti-trust regulation, is weak. The “strategic” companies enjoy government protection in the framework of shady political deals. In quite a few markets barter relations prevail, and the organization of local economies shows pre-capitalist traits. The lion share of education and health care is free, and the pension system’s larger half is publicly financed. Universal social services suffered only a slight reduction and just a minor part of welfare provision was privatized. Family assistance, sick pay, unemployment benefits as well as housing and public transportation subsidies are comparable with those of the most generous welfare states in the West. The indicators of social inequality are below the European average (the Gini coefficient is about 30 percent). Any major attempt to move away from an imaginary European Social Model provokes angry reaction from the EU headquarters and the charge of social dumping. The governments tend to overspend, use foreign debts as a safety valve, postpone painful decisions to restore equilibrium, and when the house already burns, prefer temporary austerity measures to further liberalization of economic institutions. The business lobbies cherish strong contacts with the state administration. The economic programs of the political parties are full of interventionist goals and boasting of social protectionism and nationalism. The sociological surveys and opinion polls keep on presenting data on the insatiable appetite of Hungarians for state paternalism, the lack of pro-market attitudes, fear from globalization, and a large-scale acceptance of corruption, free-riding, etc. No major civic initiative occurs to safeguard (neo) liberal values, the media is practically silent about the advantages of competition but very noisy about the “victims of capitalism”, and no prominent economist of the country calls him/herself a neoliberal (Hayekian, Friedmanite, etc.). If these phenomena remind the observer of a neoliberal regime par excellence, then I am afraid that the notion of neoliberalism has to be defined in very broad terms to include powerful income redistribution by the state, a clear propensity for overspending, a hypertrophyc public administration, a generous welfare sector, etc. as well as a series of “empty” economic institutions that lack liberal cultures. In addition, that sort of neoliberalism would be unconscious, shy or clandestine, which has no prophets and avoids all kinds of proud self-propaganda. It would not be too hard to forget about these doubts and accept the descriptive core of the neoliberalism thesis while rejecting the value judgments surrounding it. One should only emphasize some of the “beauties” of the neoliberal project (rapid growth and technological change, expansion of market freedoms, integration into the world economy, etc, including their trickle-down effects), and assert that without that project Hungarians would fare even worse today. I will nonetheless take the bumpy road of challenging the interpretation as a whole by demonstrating that the pre-1989 hopes
My counter-narrative does not need malefactors with a conspirative master plan in their pockets. The motive of a deliberate radical turn is replaced by a stop-go cycle of liberal institutional change contingent on popular expectations rooted in the Kadarist social contract and the opportunist behavior of the elites adjusting to them. And vice versa, the cycle consisting of ever shorter “go” and longer “stop” phases would not have emerged if the elites had not found a comfortable place for themselves within the old-new contract and had not raised those expectations. This behavior represented an instinctive “business as usual” attitude rather than devotion to a risky new model of society. Furthermore, agreeing on the fact that a Great Chance has been missed, I do not think that it was the possibility of a gradually managed, “socially sensitive” liberalization of the communist economy that has remained unexploited since 1989. For exactly this pattern of liberalization could be observed in Hungary during the first few years of the 1990s, bringing the country to the brink of the abyss. In my view, the Great Chance materialized not in 1989 but some years later when in 1994/95 it became clear for certain groups of the elite that insisting on some main chapters of the inherited social contract would lead to a devastating economic collapse, and the need for quick and credible measures of stabilization opened a small window of opportunity for renegotiating the whole contract. However, the window was closed (slammed) in a year or so. Since then, a version of the Kadarist goulash has been cooked again and again both by left- and right-of-center governments following nearly the same recipe. Seen in retrospect, the “big hopes” prior to 1989 were actually rather small: frequently, they aimed at fulfilling the old promises of the communist regime rather than formulating new (and different) ones, at welfare rather than efficiency and freedom, at security rather than risky institutional innovation, at piecemeal, controlled change rather than repeated shocks, at short-term smaller success rather than a long-term bigger one, in sum, at reform rather than revolution. More exactly, the expectations (both popular and elite) did not expressly exclude revolutionary moves provided the non-revolutionary ones are not disturbed by them. A sort of a twisted interpretation of the Pareto improvement rule was tacitly applied. Its maximalist version ran like this: if in the course of the post-communist transformation no one is worse off in plain economic/social terms in the short run, then, and only then, the elites may venture to make one citizen better off by means of liberal institutional (economic or political) change. When the latter promised fast improvement in the former (i.e., when the “circus” also resulted in “bread” like in the 1988-1990 period), it was not rejected but such an “efficiency/freedom for welfare” tradeoff was not welcome if it required medium- or long-term sacrifice. Otherwise, the elites tended to opt for muddling-through policies, delaying far-reaching institutional change. Que sera, sera… As a consequence, what on the level of individual private firms became clear rather fast, namely, that radical liberalization produces welfare, among others, through budgetary discipline, could not be proven on the level of public policy. The elites were not willing/able to accept the short- and medium-term social costs of liberal reforms especially once the “state of grace” was over, and corporatist and parliamentary counter-power began to strike roots some years after 1989. They could not solve the “liberalism versus democracy” paradox because they kept on listening to those electoral groups who were at risk to become temporary losers of the transformation. Instead of working hard for the patience of these groups, the elites accepted or even promoted their impatience. It is no wonder therefore that the so-called “big systems” ranging from health care, through education to public administration continued to swell the budget deficit. Of course, the maximalist version of the improvement rule was not applied in the real word. No government on the planet can dream about pleasing (appeasing) everyone. The narrow stratum of the natural “winners of the transformation” (big entrepreneurs, employees of transnational companies, etc.) did not need much support. The political elites targeted a much larger segment of the population, which may form a potential majority (state employees, pensioners, small entrepreneurs, etc.) that is, citizens, in the minds of whom goulash communism had been imprinted, who were dependent on the state, many of whom had a strong voice in the media (e.g. teachers, medical doctors, etc.), and counted as active voters. If the majority seemed fragile, say, because of an increase in the number of losers of the transformation (low-skilled workers, members of the agricultural cooperatives, etc.), the elites did their best to enfranchise their upper strata by “election candies” and by reviving the Kadarist propaganda mixed with a moderate approval of new freedoms. Shaping a secure constituency was occasionally supplemented (decorated) with nationalist and religious rhetoric. The main target group in forming “redistributive coalitions” has always been the middle class (most often its middle and lower strata) whereas the growing but politically passive underclass was allowed to leave (locked out of) the social contract without much scruple. Winning the elections every four year occurred as a new objective. Avoiding any large social upheaval in between by abstaining from risky institutional change was, however, a deep-seated instinct governing political action. 3.2. A political business cycle To put the economic history of my country in the past twenty years in a nutshell, its long “political business cycle” showed a surprising continuity between the pre- and post-1989 period. When, during the years of the so-called “transformational recession” (output decline) of the early 1990s, Hungarian society faced for the first time that the “Pareto rule” may be broken, it sent powerful signals (ranging from the cab drivers strike of 1990 to the parliamentary elections in 1994) to the new elites, indicating deep dissatisfaction. Actually, the rule had already been broken in the second half of the 1980s but that failure was partly compensated by the welfare gains of political liberalization (e.g., free travel, entrepreneurship, etc.), and the general promise made by all elite groups in the first democratic elections that the goulash that grew a bit colder during the last years of communism would be heated up again in the near future. The ailing social contract would be reconstructed soon. The national-conservative government that called itself “the calm force” and won in 1990 was immediately confronted with that promise. Although it did not want to risk the original Kadarist compromise and the peace and quiet of the negotiated transition, its cautious program of economic liberalization inevitably resulted in considerable welfare losses due to a whole series of reasons (huge foreign debts, collapse of the Comecon market, etc.) outside its sphere of competence. This is the time when about 1 million people lost their jobs, and as a pain killer, part of the pension system started working as a substitute for unemployment assistance, and micro-firms began to mushroom with the aim of tax evasion. Irrespective of the transformational recession, the business cycle followed basically the same logic as earlier: to put it simply, government-induced overspending (fiscal expansion) led to a balance-of-payment deficit; the foreign credits were financing consumption rather than investment until the country became incapable of repaying its debts and obtaining new credits. In a small, open, import-intensive economy this is a clear danger discussed in all textbooks, yet, a great majority of communist governments (not only in Hungary) convinced themselves that insolvency would be prevented by accelerating (cf. uskorenie) economic growth/exports/modernization, etc. precisely with the help of increased spending. In their eyes, even the price of overspending was to be paid to keep the promises they made to the citizens. After having experienced in 1989/1990 that no major debt relief (e.g., a new Marshall Plan) would occur, the elites began to accept, though with quite a bit of anxiety, that raising state revenues through privatization was the only new solution to avoid or alleviate austerity they caused by irresponsible fiscal policies. Before applying economic restrictions, the National-Conservatives decided to warm up the goulash first (without engaging in large-scale privatization) but probably they would not have been able to defeat the former Communists (now Socialists) in matters of political cuisine even if they had begun to appease citizens earlier. The government offered the people too little too late while the Socialists promised the voters heaven and earth (alluding to the “golden age” of the Kadar regime). As a consequence, they did not dare to take austerity measures even following their landslide victory in 1994. They decided to opt for radical stabilization policies (the so-called Bokros package) only at the verge of economic collapse and under the pressure of the liberal coalition partner in 1995/96. Liberalization was mixed with welfare reduction – a combination that spoiled the popular image of thorough institutional change right away (not the first and not the last time in Hungary during the past forty years). What is regarded by the above-mentioned typologies as neoliberal excesses of the Hungarian variety of capitalism today (dominant foreign ownership, privatization of welfare regimes, etc.) emerged under the threat of the imminent catastrophe. Foreign capital-based privatization gained momentum, universal welfare services were reduced, free social provision was combined with co-payment schemes, etc. with a view toward stabilizing the economy. They were considered by the Socialists as necessary but provisional means to the end of restoring the macro-balances by reducing the deficit rather than as coordinated elements of an upsurge of liberalization. Following the first results of stabilization, the government slowed down institutional change resolutely but this did not save the ruling coalition from the election defeat in 1998. The National-Conservatives who placed the protection of the interests of the “decent small people” (the “burger”) in the center of their political rhetoric, erased most of the remnants of the Bokros package while exploiting its macroeconomic achievements for reinforcing the old-style social contract. The ideal of social safety and honest prosperity for those who work was in use again, and the concept of the strong and “caring” state was widely advertised. True, the government modified the scope of the Kadarist discourse a little: for instance, the term of “toiling masses” was changed to “taxpayers”, and the national features of the goulash were fiercely emphasized. Meanwhile, it refrained from putting forward any program whatsoever to relaunch liberalization. In the second half of their term, the National-Conservatives lured the Socialists into a populist game of “who lies bigger?” The new Socialist-Liberal government that came to power in 2002 could not (did not really want to) release itself from this trap for four years, won another election by promising the people much more than it could deliver, and committed itself to some institutional change (in health care, taxation, local administration, etc) only under the recurrent threat of economic collapse in 2006/2007. The new initiatives of modest privatization and marketization in health care and higher education were rejected by a national referendum demanded by the opposition – a victory that will lock the latter into the traditional social contract if they succeed in chasing away the current coalition in 2010. For the time being, austerity is not accompanied by any serious attempt at liberalization, which anticipates the return of economic hardships in a few years. If nonetheless the current government manages to stabilize the economy for a short time (while making itself extremely unpopular through the restrictions), then the next one will not be forced to launch institutional reforms that may break the established course of the political business cycle. Again and again, insisting on the contract led to a severe crisis once the reserves that were accumulated by means of temporarily suspending the contract by austerity measures dried up, and external sources got scarce. It is more than likely that if during the first decade of the 21 st century, the world market had not boomed, foreign debt had not been extremely cheap, and the EU accession had not served as a cushion, the current domestic crisis of Hungary (that preceded the global financial meltdown) would have broken out much earlier. Similarly, if large-scale, predominantly foreign-led privatization had not taken place during the 1990s, it is the state-owned industries, banks, etc. and the home-grown small- and medium-sized private enterprises that should have struggled to maintain the unreconstructed vast public sector ranging from self-perpetuating government agencies to good-for-nothing village schools – a hopeless task indeed. The elites made a historic choice: they let the easily marketable part of the state assets quit the social contract in order to save it as such, i.e., to retain a paternalist regime with the help of the redistribution of the revenues stemming from this transaction as well as with that of the remaining part of the assets. This was not a thoroughly designed plot even though quite a few members of the old and new elites have profited from it enormously since the first steps of “spontaneous privatization” in 1988/89. Importing a huge amount of capital through major privatization deals proved to be a clever decision by the elites: the booming TNC-based new private sector was strong enough to support the rest of the economy and finance an overblown state for a decade or so but too weak to attain a significant reduction and liberalization of the public sector. The cumulative effects of the incoming capital were feeble, leading to the well-known phenomena of islandizaton and dualization. For the time being, instead of calling into question the established social contract, most of the foreign economic actors accepted to be involved with it on the basis of the “live and let live” principle. And their employees who were supposed to become champions of rational calculation, meritocratic values, etc., march behind the populist party leaders carrying a poster “There is free lunch!”. Following two decades of this kind of political business cycle, the current state of liberal reforms in Hungary can be understood less and less with the logic of the “half full -- half empty” glass. Since the partial privatization of the pension schemes in 1977, no major move of liberalization has been made by any of the governments. The Hungarian mix of capitalism got stuck in terms of legal-organizational change in the previous century while informally it regressed toward the point of departure of the transformation process. This was primarily due to the opportunist behavior of the elites; an attitude that conserved many of the popular expectations rooted in the Kadarist social contract. The current coincidence of the local and global crises is likely to enhance opportunism. Undoubtedly, the fresh stabilization program of the government formulates a few new goals (e.g., cutting taxes, pensions and family provisions simultaneously). However, the return of the ideal of the paternalist state (at this point from the West) is receiving a warm welcome by almost all factions of the elites in Hungary, the warmest by the National-Conservatives, predictable winners of the forthcoming elections. In sum, even the current economic earthquake is not big enough to impose a radical liberalization program on the country, and urge its citizens to bury Janos Kadar for good. 3.3. Toward the social market? How do the two narratives relate to each other, and what kinds of capitalism do they suggest? The first narrative presumes that an abrupt neoliberal turn destroyed the existing foundations for an “organic”, evolutionary option, i.e., for developing a kind of Soziale Marktwirtschaft with a Hungarian face. Allegedly, this ideal was inscribed in the Kadarist model (in a more biased formulation: that is what Kadar always wanted to, but the Soviets did not let him, do). In leaving the world of socialist market economy, the country could have made a soft landing in that of social market economy. According to the second narrative, however, that is precisely what happened: Hungary arrived in a particular kind of social market economy. To be sure, it has not followed Swedish or German/Austrian patterns; rather, to remain with the European examples, it chose a “Mediterranean” variety of the social market, approaching probably the Italian model the most. True, no detailed analysis has proven this assumption yet. What seems nonetheless certain is that today, Hungary is miles away from a full-fledged (neo) liberal type of capitalism. It did not go the “American” (Anglo-Saxon) way although some of its institutional/cultural features remind the observer of US-style capitalism. In witnessing the diffusion, by means of the acquis, of a „West-European average“ of capitalism to the East (ranging from monetary policies, through equal opportunity laws to the standardization of the health conditions of chicken farms), one can’t help recognizing a sort of „Little America“, too, that had started emerging in Hungary before the EU accession gained momentum. A low share of public ownership in industry, banking, housing, etc., emerging forms of “managerial capitalism”, a partially privatized pension system, a low rate of unionization (and corporatist self-organization in general), permissive hire and fire regulations, lax rules of environmental protection, etc. – can one easily disregard these features of new Hungarian capitalism? Or, to focus on economic cultures per se, is it possible not to realize the similarities in terms of the style of entrepreneurship (reckless rivalry, informal business-making, underregulation, etc.), propensity for self-exploitation, individualism, suspicion toward the state, etc., in large groups of society? The country could not go the American way because whenever it tried to take resolute measures at liberalization, these bounced back sooner or later, formally or informally, from the wall of the social contract inherited from communism, or later from that of the European regulations. Ironically, part of the economic cultures that seem to follow US patterns (e.g., the much criticized “Wild-Eastern” style of entrepreneurship) was actually born in the shadow economy under communism. In a sense, Hungarian capitalism today is an evolving hybrid, far from being a mature creature that combines current American and European traits with past communist ones. “Kadarism with a capitalist look”, “Kadar without communism”, etc. – high-sounding expressions such as these are being created by journalists to grasp the hybrid nature of the nascent capitalist regime in Hungary. As mentioned earlier, the terms of both “goulash communism” and “goulash capitalism” were invented for this purpose. Yet, they also stood for the consumerist propensity of the regimes, their strong inclination for disregarding budget constraints, foreign debts, i.e., for free-riding on the future – a feature called “fiscal pedophilia”. Permanent overspending to buy political stability was regarded by many as a detestable feature of the late communist regime, an integral part of the Lebenslüge of Janos Kadar who, following the 1956 revolution, managed to bribe the society into oblivion in this way. In 1989, one might suppose that, once the society experienced the dismal failure of this strategy under late communism, “the dinner party on the board of the Titanic” could not go on any longer. Capitalism would begin with a tabula rasa at least in the field of the formal economic rules of the game. These would be filled, in the not too distant future, with economic cultures of the same provenance. Hence, veritable capitalist institutions will crystallize which would guarantee prudent (responsible, non-myopic, non-corrupt, etc.) behavior not only in the private but also in the public sector. Seemingly simple matters were expected: budgets would be balanced, exaggerated/false promises would not be made, the economic actors would exercise self-restraint, the consensual agreements would be observed, etc. As we know now, things turned out to be much more complicated at least in the following four respects:
If, despite all this, one insisted on stretching the definition of a neoliberal type of capitalism as far as to include the Hungarian economy, he/she ought to make large efforts to disregard the fact that this economy
Apparently, one also has to consider large-scale corruption, rent-seeking and free-riding, as well as all kinds of related social maladies (e.g., low level of trust and solidarity), as quintessentially neoliberal phenomena in order to put Hungary in this pigeon hole. But aren’t these cultures rooted in history stretching back as far as to early modern times rather than in the nascent capitalism of our days? And are they really neoliberal? Forcing the country into the role of a neoliberal scapegoat camouflages, I believe, the ambiguous features of its emerging capitalist regime. The government can overtax and tolerate tax evasion at the same time; it can be big in size but weak in resisting state capture or providing firm legal conditions for property rights and market transactions. And conversely, the economic actors may compete in the market freely but also join forces with the state to acquire monopoly positions. Public vices mix with private virtues and vice versa, formal economies with informal ones, political intervention with business power, etc. Obviously, similar ambiguities characterize the other emerging capitalist regimes of Eastern Europe as well, not to speak of some of the established capitalisms in the West. However, their historical sequences and the internal composition of the hybrids unfolding from these sequences vary greatly. The specific Hungarian sequence seems inexplicable if one disregards its starting point(s). Despite my long-time resistance to the concept, I will assume in the following section that the key (one of the keys?) to “goulash capitalism” is to be found in “goulash communism”. 4. Fixing the expectations4.1. Goulash communism revisited The above line of thought could not hide the fact that, even if I try to portray the Kadar regime with the help of rather neutral concepts such as hybridity and consumerism, I am biased. My narrative is not powered by nostalgia. Just on the contrary, what many considered a golden age, I regarded as a golden cage. As time passed, Kadarism has become more and more appalling in my eyes as I recognized the ultimate sin of communism: with its last breath, it determined the “post-communist condition” for a long time. To put it bluntly, since 1989, Hungary has continued to vote “pocket Kadars” in power. 1956 (what else?) is the obvious point of departure. The story of the 33 years separating the two revolutions is too familiar to retell. What interests me here is the state of the Kadarist social contract and the related expectations at the story’s end, in 1989. In harmony with the regime’s founding doctrine „who is not against us is with us”, crude forms of terror, mobilization and indoctrination were partly replaced during the 1960s by a pattern of social integration based primarily on corruption that offered the citizens private consumption and popular culture, opening up to the West, welfare chauvinism toward the East, regulated embourgeoisement, depoliticising of public life, etc. in exchange of self-restraint (self-censorship). Altogether with more carrot and less stick than in most other countries of communism, Kadar managed to lure citizens into a regime they regarded first as perhaps acceptable and improvable, later as normal or even desirable. Internal solidarity between the social strata was hampered by a comprehensive ban on collective action, which was combined with incentives for individual coping strategies (primarily in the shadow economy), creating the petty bourgeois archetype of Homo Kadaricus. This archetype was reinforced by the image of the talented, entrepreneurial-minded, informal, tricky Hungarian who can profit even from communism, and by traditional elements of symbolic geography (Hungary as an integral part of Central Europe) Complying with the premise in the promise made by the regime „we do not provoke you if you do not rebel” was tantamount to observing a set of taboos that ranged from the truth about the ’56 revolution and the bloody “consolidation” afterward, through the Soviet occupation, to one-party rule and state ownership. The taboos delineated the frames of an implicit social contract, in which one could find a relatively convenient place for him/herself but rarely an immaculate one. The citizen was urged to be silent not only about the political crimes committed by the regime but also about the privileges and the dubious business dealings of the nomenklatura. In exchange he/she was reassured that the party leaders will close one eye (this was the notorious winking by Kadar), if they recognize that the members of the glorious working class steal, cheat or lie to make ends meet. Ostensibly, such a complex machinery of social coordination could not have been invented, operated and justified exclusively by writers, journalists, artists and philosophers, i.e., not infrequently, converted prophets of the ’56 revolution, or by opportunist church leaders. To turn a cruel retaliation into business as usual, Kadar needed not only opinion leaders with rhetorical skills and, if possible, non-communist past, on his side but also a rather innovative apparatus of the party-state and -- more and more badly – social engineers. They were requested to invent and deliver „economic mechanisms” (to use a contemporary term) in support of his ambitious program of reconciliation/corruption. To put it simply, Kadar needed more carrot, and did not have to wait long during the mid-sixties for an offer by the professional carrot producers, the economists, who had been experimenting with the technology of what they called „socialist commodity production” since 1953. That offer contained a series of reform programs that domesticated the command economy, made it capable of meeting a good part of the expectations raised by the regime, and justified „stealing, cheating and lying” as regular bargaining strategies in the socialist market and the shadow economy. Over a quarter of a century of reform-making in Hungary, the designs of market socialism became occasionally more radical and sophisticated but their basic doctrine supporting the foundation philosophy of the Kadar regime did not change. Notwithstanding the fact that the economic programs were assisted by sociologists, political scientists, legal experts and even historians, it was the “reform economists” who played a crucial role in construing the myth of sustainable and acceptable communism. While a minority of the reformers, the radical reform economists cooperated with the nomenklatura under the assumption (which proved to be correct in the end) that the medicine they prescribed would become a poison in the long run, the majority believed in or put up with helping the system to survive by mixing a dose of market in central planning that had proven unable to keep the Kadarist promises. They were delivering the myth of long-term sustainability. Preaching acceptability meant that in the lack of a first-best solution, one cannot but opt for a second-best one which, compared to the actual alternatives in the Soviet empire, still seemed to be the most efficient and humane. In preparing for the New Economic Mechanism during the 1960s, democratic socialism, a concept mixing the ideas of the 1956 Revolution and the Prague Spring, was considered the first-best model by the reform economists. They needed about three decades (and a series of big disappointments) for drifting to the ideal of democratic capitalism. Until then, they willy-nilly accepted the most harmful thesis the philosopher, György Lukacs ever formulated: „the worst socialism is better than the best capitalism”. In the late 1970s, when the economists realized that „bad socialism” did not want to improve itself, what is more, the net results of the recurrent incremental market reforms deteriorate, they began to turn to Realpolitik: if one cannot expect communism to disappear soon or ever, let us make it the least unacceptable. Thus, they began to work on the “reform of the reform” in the 1980s in order to repair the disintegrating social contract and prepare a new one that may fit in well with the geopolitical option of Finlandization or Austrianization – probably, the wildest dream of the non-communists (and an increasing number of communists) at that time. To sum up, the essential features of the social contract under goulash communism were the following: As regards the political configuration of the contract,
As regards the basic economic principles of the contract,
As regards the cultural context of the contract,
The above is of course a stylized view of the Kadarist social contract for two reasons. First, it is squeezed into a two-person model that identifies the party and the state on the one hand, and ignores the vast differences between the main groups of society on the other. In a more sophisticated analysis welfare should also be discussed as a multi-dimensional concept (including work, consumption, lifestyle, etc.) that may overlap with freedom. The contract cannot be fully linked with the Kadar era, as it conserves a great many features emerging prior to 1956. Furthermore, it is not static, shows cyclical traits, and becomes softer in the long run, raising hopes/fears about its disintegration in the 1980s. Second, this social contract was the habitat of at least two species. Thus far, I have focused on Homo Kadaricus, an ideal-typical petty bourgeois who found for him/herself a comfortable place in the lukewarm water of a relatively permissive and well-to-do communist regime. He/she was convinced that things would not change in his/her lifetime. Moreover, any change would threaten society with sliding back to the bad old times prior to the contract. “We are safe until Kadar is alive”, went the popular saying. At the same time, the contract also provided home for workers and small entrepreneurs (mostly in the shadow economy), managers of market-oriented state-owned firms, reform-minded government officials, etc., many of whom got accustomed to hard work, self-exploitation, innovation, respect for professional knowledge, independent decision-making, lively competition, rational business calculation. Although they also did not want to overthrow the communist regime, quite a few analysts found their “proto-capitalist” cultures promising. All the more so, because with time, Homo Kadaricus, too got contaminated with these cultures, and showed ambiguous attitudes to the established social contract. In retrospect, they both represented the “sunny side” of Kadarism, an unintended consequence of market socialism. Whatever one may think of the collaborative/servile attitude of the reformers, they greatly contributed to the “disenchantment” (Entzauberung) of the communist economy by legitimizing concepts such as money, entrepreneurship, rivalry, calculative behavior, Western practices, etc., and delegitimizing the idea of central planning. At that time, the metaphor of the goulash did not seem appropriate to cover this ambiguity. It either idealized consumerism, pragmatism, a communist Sonderweg, etc. by invoking the image of a traditional Hungarian warm dish that is a soup and a main course at the same time, spicy enough to satisfy the connoisseurs, or, like in my own case, referred to a boring, opaque mixture that assimilates its “noble” ingredients. Yet, the question intriguing the radical reform economists, the future liberals in the 1980s might have been formulated this way: how could these ingredients be saved from sinking in the suspicious liquid? 4.2. Radical reformers and sticky expectations Since then, more than two decades have elapsed but this question is still with us. It was already suggested that path dependency can be explained by the strength of the Kadarist social contract and the expectations it imprinted in the popular mind and in the attitudes of the old-new elites. But how could the expectations become sticky, one may ask, if it is well known that, in the course of the 1980s, the fabric of the social contract considerably weakened, the elites escaped ahead to save as much as possible of it by making iconoclastic concessions while the radical reformers were keen on using this opportunity to transcend its limits. In this last chapter I would like to challenge the notion of keenness by showing that even the most radical variants of the pre-1989 economic scenarios of the transition in Hungary remained in the trap of the Kadarist compromise. One leg in, one leg out ... By and large, their basic concepts conformed to the popular expectations raised by the Kadar regime, and found easy access to the programs of the new political movements and parties in the second half of the 1980s. Even the radical programs were not generating “big hopes” (though promising a lot), instead, contributed to the fixation of the long-established expectations, thereby dramatically narrowing down the room, in which the nascent capitalist regimes could maneuver a few years later. While some of the radical reform economists thought they put forward revolutionary programs, they allowed the society (including the future elites) to remain unaware of much of the basics of capitalism. The citizens were unprepared for the first shocks of the post-communist transformation, and urged the elites to return to the world of the traditional contract. To be sure, the majority of the elites did not have to be urged too much to do so. Even if they had cherished neoliberal ideas, the period between the cab-drivers strike in 1990 and the sweeping victory of the Socialists in 1994 would have convinced them of the fact that what they saw, namely, the long shadow of Janos Kadar was no fata morgana. Below I will focus on the radical reformers, a powerful professional group in the field of producing programmatic ideas under late communism. The relationship between popular expectations and theirs is an unclear issue given the lack of any synthetic research on the former. Therefore, I cannot but presume that – with the help of the programs adopted by the emerging political classes – the reformers not only reflected but also strongly affected public opinion. Or to use a softer formulation, they did not shatter the pillars of the prevailing public opinion. By reform economists one understood in Hungary a large group of experts representing an overwhelming majority of the profession. The group embraced almost all influential scholars and a good part of high-level government and party officials in economic administration as well as enterprise managers, journalists, lawyers, etc. By the second half of the 1980s, one could hardly find textbook-Stalinists or neo-Marxists among them. (At the other extreme, the number and influence say, of Hayekian liberals were always a quantité négligable.) At that time, the reformers consisted of pragmatic, middle-of-the-road thinkers who composed their programs from the mosaic stones of the doctrines of workers self-management, entrepreneurial socialism, informal entrepreneurship, and the social market economy, often with a reference to a Third Way leading between communism and capitalism. Occasionally, the radicals in the group (members of both the academia and the anti-communist opposition) joined forces with moderate reformers in the communist elite. The former became founding members or fellow-travellers of the liberal parties, the Free Democrats and the Young Democrats (Fidesz) while the latter entered the new socialist party led by Rezsö Nyers, the father of the New Economic Mechanism in 1968, who was put on ice by Kadar for one and a half decade. Former reform economists occured in the right-wing parties, too. Virtually with no exception, the economic programs of the new political elites were written by them. If below I succeed in underpinning the thesis that much of what the radical reformers demanded remained in the trap of the Kadarist social contract, then that thesis will apply to the moderates even more. In what follows, I will bring the core principles of the pre-1989 transformation programs suggested by radical reform economists into five clusters to identify the expectations they convey about the “brave new world”. Above all, I will refer to the most influential collective works such as the “Social Contract” (1987) of the future Liberals, the “Turnaround and reform” (1987) written by leading radical reformers, the early party programs of the Liberals (1989/1990), and two other transition scenarios (Bridge, 1990, Blue Ribbon,1990) authored partly by the same scholars and politicians. Of course, the review would be incomplete if the best-reasoned and most well-known scenario, Janos Kornai’s “Road to a Free Economy” (1989) were ignored. 4.2.1. Capitalism or the market? Western analysts of the communist reforms in Hungary used to qualify the radical experts as “closet capitalists”, and were greatly surprised to see that the big coming out did not happen even after 1989. What they supposed to be a trick of self-censorship turned out to be the reformers’ deepest conviction: most of the economists advocated the market rather than capitalism, or if they nonetheless did flirt with the latter, they called for a coordinated, socially-sensitive, self-managed, national, etc. variety of it. They did their best to avoid using the term “capitalism”, and, in searching for patterns to follow, they preferred talking about the “developed world”, the “advanced industrial states” or simply “the West”. The capitalist was called “entrepreneur” or “businessman”, and in defining the bases of comparison, the reformers referred to the example of Germany and Austria rather than to that of the Anglo-Saxon countries. Interestingly enough, they insisted on this kind of discourse even after censorship had evaporated, and they had converted from reformers into transformers. Actually, they had strong reservations about the “uncoordinated” varieties of capitalism and/or did not want to provoke their readership who presumably shared these reservations. The missionary voice was rather weak, even the radical reformers wanted to adapt to the worldview of their audience rather than to teach them any number of “commandments” of modern capitalism. Symptomatically, moral issues ranging from work ethic, through market justice, to fair business practices, or from regulating rent-seeking, through respecting the law, to the virtue of paying taxes, were an anathema in late reformist reasoning. What they thought of capitalism was much closer to the views of Fernand Braudel, Karl Polanyi or Joseph Schumpeter than to those of Ludwig von Mises and Friedrich von Hayek or any other Chicago economist. The radical reform economists learned a lot from their prime political allies, the Free Democrats, especially in the field of anti-totalitarian, human-rights-based discourse. However, the legal argumentation that transpired already from the first major document of the liberal opposition (“Social Contract”) did not impress them greatly. Moreover, the new party did not really help the reformers solve their core problem of how to reconcile their classical liberal and social-liberal egos in economics. The party did not prove to be less schizophrenic than they were. A temporary reconciliation was provided by the common enemy, the party-state, and the strong assertion by the president of the Free Democrats, Janos Kis that „moral egalitarianism“ (social liberalism) is more viable in terms of practical flexibility and also fits the intellectual traditions of Eastern Europe better than anything closer to libertarianism (neoliberalism), easily reassured even the radical reformers. According to their first manifesto in 1989, the Free Democrats were united in (a) firmly rejecting any ideology of the Third Way; (b) demanding a mixed economy which is dominated by -- possibly personifiable -- private ownership; (c) not discriminating against foreign capital in a rapid privatization process. However, they did not make it clear which variety of modern capitalism they wanted Hungary to adopt. No one knew in the party what the dominance of private property should mean: 51 or 99 per cent? The references in the successive party programs to employee shareholding, co-determination, the institutional forms of capital ownership, the dominance of the public sector in health care and education, etc., indicated that the Free Democrats were searching for compromises somewhere between Bad Godesberg and Chicago (probably closer to the former than to the latter). As they stated in their election program, achieving the predominance of private ownership "is not a question of following abstract models". The liberal aspirations of the radical reform economists were certainly moderated by the inherent statism (elitism, interventionism) and constructivism of reformist thought. Under communism, the reformer wants to "introduce", to "build up" market economy, and -- paradoxical as it may be -- asks the regulators to help deregulate. He/she always has a positive reform program, a master plan to experiment with, and finds the idea of spontaneous evolutionary change inadmissibly passive. Nevertheless, because the reform economist lacks a definite image of the future (where does the Third Way end?), these positive programs tend to focus on the process of reformation. Consequently, if it makes sense at all to speak about liberalism in this context, reform economics embodies a sort of "progressional" liberalism, rather than a liberal discipline derived from a definite -- though abstract -- ideal vision of the future or the past. The reformer sees the market in a pragmatic-utilitarian way as a device for "repairing" the communist economy. In his view, the market does not embody justice in itself. It is, however, capable of working as a machine (cf. the term "economic mechanism") which is geared, or even at times switched on and off, by the state. This sterile notion of a market purged of property rights lends a mechanical/instrumental character to reformist liberalism. Liberal thought remained rootless in Hungary even during the 1980s. In the absence of a firm philosophical background, the trial-and-error procedures of reform-making could only lead to a pragmatic (profane) rediscovery of liberalism. Liberal ideas resulted from practical choices, I would say, for want of a better solution, and were often against the moral conviction of the reform economists. (With this kind of liberalism, it would be futile to look for religious roots.) To be sure, the romantic anti-capitalist feelings inherited from Marxist teachings by the early reformers began to wane as the years passed. Churchill's bon mot that democracy is the worst except for all other political systems, however, was still very popular even after 1989 whenever economists discussed private property and the market. Marketization and some kind of privatization were considered musts: necessary evils rather than "the best of all possible worlds". The latent animosity even radical reform economists felt toward the "inhuman" market was supported by traditional arguments that defended the principle of equal opportunity, social justice, etc. Hence, the good old “plan-and-market” discourse accompanied the reformers till the end: true, in the second half of the 1980s they preferred to speak of regulation instead of planning but were reluctant to trust in some kind of superiority of the market. Rather, they entertained the view of an abstract symmetry between the "good plan" and the "good market". 4.2.3. Privatization or decommunization? The reformers presumed that the market as a neutral mechanism can work with various forms of ownership, and these forms can be mixed almost arbitrarily. They kept a distance to the term “privatization” and talked in the 1980s about “ownership reform” instead but not simply out of precaution or cowardice. Many reform economists, including the radicals, were convinced that in large fields of the economy (public utilities, the welfare sector, strategic industries, etc.) private ownership would be an inefficient or expressly harmful solution, and that even in the so-called competitive branches it might suffice to simulate its operation. No one put forward, for instance, the privatization of the railways, the hospitals or the electric power plants. The insurmountable political obstacles to reform-making during the 1970s and early 1980s led the Hungarian economists to the firm conviction that the dismantling of the party-state is a sine qua non for taking further steps in liberalization. This experience, however, did not offer reliable instructions as to the ways and means, or the appropriate degree ("a point of no return") for reducing state ownership. The mushrooming of half-hearted programs of privatization in the late 1980s was also due to the fact that it was not the state as such but rather the party-state that had become discredited in the reformers' eyes. The failure of the reforms could easily be traced to the vested interests of well-identifiable lobbies, i.e., large firms, sectoral ministries and trade unions that could not have been so powerful without being cemented by party rule. Also, in Austria, Italy or Sweden the reform economists saw a great many state-owned enterprises (among them huge government holdings) which were earning profits. They were at least as impressed by these, not to speak of the success stories of Japan and the NICs, as by the contemporary deregulation drive in Britain and the United States. Finally, as to their own experience in "privatization under communism", the shadow economy as an alternative to state ownership failed to totally convince even the radical reform economists. They protected informal entrepreneurship against every attempt made by party hard-liners at criminalization but regarded clandestine private property as a weak form of ownership that actually profits from the state sector. Hungarian reformist thought offered a jumble of non-private-property-based concepts of dismantling the party-state during the 1980s, whose authors were united only in their wish that the party should withdraw from the management of economic affairs, and in their demand that firms should be separated from state authorities. Besides Tibor Liska's “entrepreneurial socialism” project that targeted a peculiar sort of collectivist free-market capitalism, a whole series of programs envisaging quasi- or pseudo-privatization were initiated by the reform economists. Some of these programs were born even after the Kadar regime had begun to collapse. The idea of voucher privatization that might have emerged from the Liska model did not enchant the reformers too much. However, the concept of self-management that they had been reluctant to borrow from Yugoslavia for twenty years moved to the center of the transition programs of scholars like Tamas Bauer, Lajos Bokros and Attila Karoly Soos. More importantly, this concept also became an important component of the "Social Contract" advocated by the liberal opposition. At the same time, other radical economists such as Laszlo Antal, Laszlo Lengyel and Marton Tardos, while doubting the virtues of self-management, still believed in state holdings, cross (or plural) ownership, etc., that is, in creating a capital market within (or at the margin of) the state sector. Finally, in 1989, Janos Kornai who had scornfully called this market a game in a "plastic Wall Street", and did not celebrate self-management either, called for supporting the organic development of a private SME sector instead of forcing the privatization of large state assets. In his view, the private sector might become larger than the public one within five to twenty years. 4.2.4 The state: engineering the transition The reform economist's nightwatch-state was also awake during the day. Someone has to control liberalization, most reformers claimed at the end of the 1980s, otherwise it would derail. To be sure, the state administration was not at all alien to them: they had been giving advice to (or worked as) its members, forged alliance with its representatives in elaborating/selling the reform projects, and – as mentioned earlier – did not trust in the self-regulating capacity of the market. Even the radical reformers were sure that i n the course of the transition, they would not be able to overlook the Hayekian paradox of how to reach, without "constructivist rationalism", a spontaneous order by starting out from an extremely non-spontaneous one. The distance to be covered between the point of departure and even the least liberal stage in the process of transition was so large, the communist legacy was so pressing, and the tasks of transformation were so divergent and sometimes contradictory that engineering would be necessary. Even the abolition of planning should be planned somehow, like marketization cannot be left to the market, went the favorite dialectical arguments of the reformers. On the eve of the revolution, the Hungarian economists thought they had to cope with the simultaneous tasks of stabilizing, restructuring (modernizing), deregulating (marketizing, privatizing) and opening up an economy that was at the brink of a severe recession and an external payment crisis. The legacy of the communist regime included stagflation, huge foreign debts, falling real wages, etc. and a low level of tolerance exercised by citizens toward the government. Solving one problem could aggravate another in the short run (cf. stabilization and unemployment, or marketization and inflation). Then, there were paradoxical tasks to perform: e.g., privatization, in principle, is a precondition both for marketization and democratization, but in the real world it also helped the old elites survive. The reformers feared that rapid and spontaneous liberalization could backfire because laissez faire favors the strong, and at the outset strength was with the established party-state monopolies. Setting the priorities, sequencing the tasks, experimenting within unprecedented circumstances, harmonizing the transformation moves and defining their speed, checking the economic actors of the old regime, balancing the lobbies and maintaining social peace, etc. – in their eyes all seemed to call for the “visible hand”, i.e., a strong "medium state". The reform economists were confident that at least the first major moves in liberalization should be strictly controlled by the government. The state might make one or two steps back only after the "first push", that is, after the "normal" institutional conditions of the market have already been created and the threat of the economic crisis has faded away. The “missing agents” of future capitalism should be substituted for a while. The first scenarios by the radicals about the initial phases of the transformation showed how prevalent the idea of strong-intermediate state intervention was (cf. Kornai's term "stabilization surgery"). To avoid misunderstanding, these programs did not propose shock therapy. Nonetheless, tight money policies, price controls, income restrictions, structural and regional development plans, new welfare schemes, etc., were important components of them. State redistribution and regulation today (though to a lesser degree and by finer means than earlier), Soziale Marktwirtschaft tomorrow and "regulated deregulation" in-between – simply put, this was the core of the message the late reformers sent to their audience in both the elites and society. This program offered the government a large variety of roles to play: it could work as a crisis manager and an building engineer, a security guard and an arbitrator, a trainer and a chief of laboratory, a medical doctor and a dispatcher, a programmer, and a designer, a tourist guide and even a garbage collector, etc. – roles that harbor activist/interventionist temptations. The radical reform economists were certain that, in performing these roles, the state would not go beyond a kind of s ound (defensive) interventionism. Nevertheless, they did not want the state to be disturbed in engineering the transition. In contrast to the civil society-oriented and constitutionalist approach taken by the emerging liberal party, the economists flirted with the idea of a not too transparent, not too formalized “reform dictatorship”: please let us work at last, they told their political allies, after so many years of tutelage and censorship by the party-state, we do not want to be inhibited either by your human-rights activists and social policy dreamers or by your rule-of-law enthusiasts. Trust us, we will work it out. 4.2.5. A smaller portion of goulash? The ambiguities of the radical reformers’ institutional projects reflect a partial satisfaction with the Kadarist social contract even in its twilight phase. As seen above, the crucial clause they wanted to erase in the contract was the communist party’s privileges in economic decision-making. They were in no doubt that the agony of the party state opened a window of opportunity for them to launch a coherent and deep-going stabilization program that had been jeopardized by the political compromises built in the previous stabilization plans by the nomenklatura. They were also aware of the fact that stabilization and liberalization are two sides of the same coin. If there were no “turnaround” in the former, to quote the title of an early transition program of the radicals, institutional change might vanish in the economic chaos, and vice versa, if there were no “reform”, the unchanged institutions would produce a new economic crisis soon. Therefore, the reformers decided, besides liberalization, part of which was initiated/tolerated by the communist rulers (introducing a two-level banking system, promoting the legal transformation of companies, opening up the economy to the West, etc.), to challenge some of the “goulash promises” of the regime as well. This was all the more difficult as Kadar’s communist successors managed to mobilize the last reserves of the old social contract to please citizens (e.g., alleviating semi-private entrepreneurship, taking the first steps in “small privatization”, liberalizing foreign exchange, easing travel restrictions, etc.). The last two years of communism entered the economic history of my country under the heading of “Gorenje tourism” to refer to those millions of Hungarians who visited Austria and Germany to buy durable goods. Hence, it did not come as a surprise for the reform economists that practically all new political parties declared their firm intention to cook the goulash further. Thereby, the rising political classes spoiled the competitive position of those few in the political market who might have ventured to address their constituency with “blood sweat and tears”-style slogans. Although the Free Democrats were the most thrifty in pledging the people short-run welfare gains, they put pressure on their economist friends: “we badly need tangible goods, they said, which we can offer the citizens, not tomorrow but today; we cannot feed them only with the new freedoms if meanwhile our rivals are not ashamed of inviting them to the Paradise of Western consumer societies; in recent years, Kadar broke his traditional promises one after the other, we are expected to deliver right after the honeymoon is over”. The biggest threat was, however, that the former Communists and the National-Conservatives would join forces to corrupt the citizens into something we would call today a leftist, red-white-green version of goulash-capitalism. Thus, even if the radical reformers had wanted to rush ahead to reach the realm of neoliberalism, they were once again paralyzed by political contingencies. They also had to reconcile themselves with the fact that there was no chance to say good-bye to self-censorship forever. The Soviet Union was still alive, the Russian troops did not leave Hungary yet, and one could not reasonably exclude the possibility of a coup d’ état to be organized by communist hardliners any moment. The memory of 1956, 1968 and 1981 haunted the reformers until the elections in 1990 or even further. Let us hurry up without provoking the Communists too much, they said, thus, locking themselves into a familiar contradiction for a few more years. As professional crisis managers they suggested turning to the West, loosening the ties to the Soviet markets and tightening the belts at home. They focused on redressing the macro-balances and did not bother too much with slow growth (even stagnation) and the bankruptcy of loss-making large public firms even if these resulted in unemployment, a brand-new and highly controversial phenomenon in a still-communist regime. Harden the budget constraints on all levels, the reformers kept repeating Kornai’s recipe, no matter if it referred to such explosive issues as the curtailing of certain price subsidies and social services. They resisted costly plans for restitution and did not come up with comprehensive projects of voucher privatization (or other kinds of Volkskapitalismus) that they found archaic and luxurious. While this “cold-hearted” attitude earned the radical reformers the misleading title of Chicago Boys, they exercised self-restraint in a whole series of equally important matters. Despite all inclinations for interventionism and elitism, they did not opt for shock therapy, an across-the-board change of the ruling elites, and for sacrificing the potential losers of the transformation. Just on the contrary, they exhibited a “warm-hearted” behavior in advocating (a) to portion out of the pain of stabilization in a gradual way (e.g., by curbing state expenditures rather than real wages, or prolonging debt repayment); (b) to maintain the integrity of state administration (especially in fiscal and monetary policy), to allow for “spontaneous privatization” and other “nomenklatura buy-out” programs as well as to avoid witch-hunting in general; (c) to protect not just the most vocal groups in the middle class but also the poorest ones in society as a whole. As to the latter, the radical reformers pioneered in supporting self-organization in the civil society, including the new trade unions. It is only with the wisdom of hindsight that some mock at their illusions with regard to a new Marshall Plan, a rapid accession to the European Community, major savings from liberalization, low social costs of the transformation, strong trickle-down effects, a long honeymoon period and a quick journey through the “valley of tears” of stabilization. In any event, it was perhaps the most utopian among the expectations made by the reformers that they presumed that, by achieving a critical mass of liberal change, the new economic institutions would keep the transformation going almost automatically. So they did not feel the need to suggest “ultra-radical” moves either in terms of liberalization or austerity. It was not just out of tactical finesse that they did not launch a frontal attack on the Kadarist social contract. In harmony with the Free Democrats, the reform economists offered a new social contract, in which Homo Kadaricus could still feel relatively comfortable. The promise of a steady progress of welfare, and the “Pareto rule” were not made questionable. On the contrary, citizens were reassured that liberal institutional change and the new freedoms would not disturb that progress. They would be kept at the necessary minimum should they seriously threaten the status quo in terms of the “well-deserved living standards”, a catchphrase in Kadarist rhetoric. Certain groups of society might be asked to make small, temporary sacrifices (the emphasis being on “small” and “temporary”), however, the middle classes, in the broad sense of the term, would not lose. For the large majority, habitual economic entitlements would not be cancelled, and the new freedoms (legal security, local self-government, or just the chance for freely choosing your medical doctor or the school for your children) will sugarcoat the change. According to the reformers, the usual portion of goulash might diminish for a short while but the society would not have to alter its customary rules of conduct. “Don’t worry, you need not change”, sounded the overall message sent to citizens. At this point, even the radicals ignored both Kornai’s fierce critique of paternalism and the liberals’ rule-of-law and solidarity discourse, and, instead of paying attention to the cultural prerequisites of liberalization, engaged in a pragmatic way of thinking that bordered on cynicism. Idealizing the sly entrepreneur in small business, the “creative” manager in the state-owned company, or the smart worker who cheats his/her bosses, they conveyed rather parochial expectations concerning the “Capitalist Type of Man”. The reformers did not warn citizens that the “brave new world” is not a present given to them by the elites but a result of hard work, self-restraint and joint sacrifice. It is not to be achieved through breaking the rules, free-riding on fellow-citizens or the state (what is the same, isn’t it), and cementing monopoly positions. Like communism, capitalism also has a few taboos (private property, rational calculation, budgetary discipline, etc.), and you do not simply walk over from the world of the old taboos to that of the new ones. Transition is not just milk and honey, the “quid pro quo” rule applies in comparing the advantages and disadvantages of the two regimes. The principles of competition, self-reliance, merit-based welfare distribution and solidarity can be harmonized but forging consensus over them is extremely tedious. Briefly, a new social contract will also have to come from below, it must be sweated out. Even the radicals failed to admit: we are sorry, that is what we call a revolution. I am afraid they failed to admit this to themselves, too. In the light of the elitist tradition in reform economics, I do not think that they lacked the necessary civilizational fervor to teach the “Hungarian savages” the essentials of capitalism. Rather, the reformers had in mind a much less formalized, much more flexible, much less rule-abiding, that is, much less “moralizing”, much more “adventurous” capitalist regime. Also, as already mentioned, they trusted in the efficiency rather than the justice of private ownership and the market, and were persuaded that this was not a problem they could and should solve before the transition started. With an instinctive gesture of historical materialism, they supposed they do not have much of a choice. It is the new institutions that would produce the adequate cultures sooner or later, and the bulk of these cultures would be imported from the West anyway. Be as it may, the reform economists told themselves, we would cross that bridge when we get there. Right now let us make the first push: it will be more than enough to get rid of communism with the help of negotiations and without a total economic implosion. Revolution? But we are reformers, aren’t we. Were the reformers responsible for the fact that Hungary entered the new world with expectations that, after 1989, dragged the nascent capitalist regime down the road leading back to the old social contract? The “average” reformer was definitely instrumental in working out the underlying philosophy and modus operandi of goulash communism, as well as in justifying economic cultures, including popular expectations, that did not let the goulash diminish or cool down. The radicals among the economists, however, were thought to be pioneering “system changers”, to make a rough translation of the Hungarian term. The economic history of my country over the past two decades may help decide, I believe, which half of their split ego (simply put, the reformist or the revolutionary one) affected the post-communist transformation to a greater extent. Earlier, I was convinced that the radical reform economists paved the way to revolutionary developments at least in two crucial areas:
For a long time, my only suspicion was that their interventionist propensities would impair these principles, and after a while even the radicals would refrain from advocating liberal (let alone, neoliberal) projects of institutional change, thereby getting stuck in the world of left-wing social democracy. Today, I am sorry to contend that they contributed to the emergence of goulash capitalism not only by being a soft friend of capitalism but also by not being a hard enemy of the goulash. In showing a great dose of understanding toward some of the basics of economic institutions/cultures inherent in the Kadarist social contract, the radical reformers made the core expectations raised by the communist regime legitimate. Moreover, they missed a historic chance. By the late 1980s, the Kadarist promises lost much of their credibility, popular expectations ebbed, hence, the economists might have turned to society with the (then imprudent) slogan: “if you want more goulash, cook it yourself”. Instead, they did not resist the song sung by the choir of the overwhelming majority of the old and would-be new elites: “you will have plenty to eat, just wait a bit; we have to reorganize the kitchen first.” Was that chance really historic? In all probability, what the radicals could have achieved on the eve of the revolution with the help of a more principled discourse would have been a humiliating election defeat of the Liberals. This did not happen, hence, apart from a few exceptions, the reformers were not forced to rethink their own position in liberal thought. They even seemed to enjoy the tension between being labeled/bashed as neoliberals and taking pride in social liberalism. Meanwhile, they coated the expectations about the forthcoming regime with some additional glue. As a consequence, Hungary arrived in the “brave new world” with a whole bundle of sticky expectations originating in the Kadarist social contract – a fait accompli for the old-new elites; expectations that, in a sense, preprogrammed the political business cycle for the subsequent two decades. Above, I raised the question of responsibility. This is not a court trial, and how on earth could I pass judgements? The mere fact that I aired some of the aforementioned doubts already in the 1980s does not authorize me to condemn or forgive anyone. As an „outside insider” I know how difficult it was to invent a coherent liberal program amidst a whole lot of illiberal or not-really-liberal ones under unprecedented political conditions and lacking information on both liberal economic thought in the West and the varieties of „really-existing capitalism”. It is perhaps not a totally different question though why after twenty years that particular coherent program is still not to be seen. 5. ConclusionWhy deny that the above expedition into the past is contingent on a varying gaze of mine at contemporary Hungarian history. I am moving in circles. In the early 1990s, I was already anxious about the strength of the legacy of “soft communism” but some years later the surprisingly rapid progress of liberal institutional change in the economy (even if it was forced or simply unintended to a large degree) convinced me that the magic boundary separating communism from capitalism in the economy has been surpassed. Revisiting the Kadar regime would be of no use, I thought, except for the purpose of identifying communism as a strange cultural source of capitalism. Experiencing, however, that economic liberalization was brought to a halt at the end of the 1990s, and the new economic institutions got permeated with goulash, I became persuaded that Hungary’s muddling through the “lost decade” in the new millennium could not be explained if one ignored the long-term influence of the old social contract. One is strongly advised to taste the goulash but falling in love with the metaphor would remain a poetic exercise unless one reconstructs the consecutive stages of transcending the Kadarist contract and relapsing to certain parts of it. Understanding present-day capitalism in my country requires a careful examination of the emergence of a multitude of blends as far as institutions, policies and cultures are concerned. Applying the scheme of “tradition, emulation and invention” to Hungary’s recent economic history may reveal how expectations become sticky and why a self-perpetuating social contract inhibits borrowing or creating economic institutions that contradict its logic. In this way, the analyst develops immunity to overgeneralization and theories of conspiracy in searching for a realistic typology of new capitalism. The Hungarian story is probably not quite unique in Eastern Europe. Nevertheless, the other new capitalist regimes in the region have coped with their inherited social contracts in many different ways, and a profound historical analysis would demonstrate that they have managed to “construct” a large variety of types of capitalism by now. The target is moving though: a contract can be “renegotiated”. W e know quite a few long-established capitalisms in the West and the South, in which it is also close to a suicide for a government to experiment with austerity, a small step toward privatization in social policy brings millions to the streets, or in which business is at arm’s length to politics – all this without having ever had a dictator called Janos Kadar. But we are also familiar with societies that had reached a modus vivendi with similar dictators but were, two decades after the death of the „Father”, already brave enough to reject his last will. [*] György Dalos, Archipel Gulasch: die Entstehung der Demokratischen Opposition in Ungarn, Bremen 1986. |
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