Hungary Re-Linking: State Socialism & the Transformation of External Linkages (PCEE 18, 1991)...

8/4/2019 Hungary Re-Linking: State Socialism & the Transformation of External Linkages (PCEE 18, 1991) Jzsef Brcz.

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Hungary Re-Linking: State Socialism andthe Transformation of External Linkagesby J6zsef BOr6cz The Johns Hopkins University

Program on Central and Eastern Europe Working Paper Series #18

Earlier versions of parts of this paper were presented at the Annual Meeting of the HungarianSociological Association, Budapest, June 24-28, 1991, and in the Program in Comparative andInternational Development Colloquium at The Johns Hopkins University. This research has beenpartly supported by the Osterreichische Fremdenverkehrswerbung, the Atlantic Studies Program andthe Program in Comparat ive International Development at The Johns Hopkins University, and theHungarian Institute for Public Opinion Research. The author wishes to thank Endre Sik and AnjaOsiander for comments on an earlier version and Agnes Hars for assistance in obtaining some of thedata on labor flows.


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Abstract

This paper examines large-scale social change under ardeventually away from semi peripheralstate socialism by focussing on the transformation of Hungary's external linkages. It points out thatthe contrast between the first and second economies and the formal-versus-informal-distinction areboth useful for discerning various arrangements of extemallinkages in terms of their direction andintensity. It suggests that, at present, Hungary's formal linkages are being refocus sed on (primarilyWest-Central European) core actors while its informal linkages map out a more even sociogeographical distribution including limited "horizontal" integration with other East-CentralEuropean societies.


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Hungary ae-Linking: s tate sociali .m andthe Transformation of External Linkage.

This paper examines large-scale social change under and,eventual ly, away from, semiperipheral s ta te socialism byfocussing on the t ransformation of Hungary's external l inkages.I t considers changes in the s t ructure of external l inkages asfundamental components of creating and maintaining variousregimes of external dependency under s ta te socialism. I t pointsout tha t the contrast between the f i r s t and second economies andthe formal-versus-informal-distinction are both useful fordiscerning various arrangements of external l inkages in terms ofthe i r direct ion and in tensi ty . Finally, it suggests tha t , a tpresent, Hungary's fOrmal l inkages are being re-focussed on(primarily West-Central European) core actors While i t s informall inkages map out a more even socio-geographical dis t r ibut ionincluding l imited "horizontal" integration with other EastCentral European societ ies .

Linkages. FOrmal/Informal sectors. First /Second Economies

The word "linkage" i s used in a t l eas t two, remotely related yetdist inguishable ways in the discourse of dependency and, ingeneral, of macro-comparative social science. Albert o.Hirschman's (1977) "generalized l inkage approach" re l ies on a

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fa i r ly res t r ic t ive conceptualization focussed on economic growth.For him, "linkage effects" stand for net excess investmentgenerated by the introduction of a par t icular industry or branchin the economy.2 A much more widely used, and more relaxed,metaphorical usage considers l inkages as re la t ively s table ,ins t i tu t ional ized and patterned bundles of contacts and flows ofpeople. commodities. money and information. I t i s the crossborder var ian t of the l a t t e r denotation - - L e . , "externall inkages" - - tha t th i s paper wil l ut i l i ze . 3

For the argument below, it i s useful to map out two furtherpairs of conceptual opposit ion. In economic sociology, thecontrast of fOrmal versus informal sectors is used to dist inguisheconomic act iv i t ies according to whether or not , under condit ionsof regulated capital ism, they are performed under supervision,regulation and taxation by the s ta te . On the other hand, thepair-concepts of the f i r s t economy versus the second economy wereintroduced by Hungarian economic sociologist Is tvan R. Gabor and,for the l a s t ten years, they have been uti l ized widely asinstruments to dist inguish two important sectors of s ta te

Precisely, Hirschman's defini t ion reads: "I havedefined the l inkage effects of a given product l ine asinvestment-generating forces tha t are se t in motion, throughinput-output re la t ions , when productive fac i l i t i e s tha t supplyinputs to tha t l ine or ut i l ize i t s outputs are inadequate ornonexistent". (1977, p. 72)

3 Space l imitat ions forbid the expl ic i t treatment of theimportant problem of the role of ideas, id eologies, values,information, preferences, ta s tes , and morali ty emerging from thecontacts and flows to be addressed here.3


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socia l i s t economies according to whether a par t icu la r income earning act iv i ty is performed within or outside the planned and/or state-owned-and-state-controlled - - Le . , " f i r s t " - s e c t o r . ~ The relat ionship of the two pai rs of concepts above implies tha t any t ransformation of s ta te socialism into s t a t e regulated capitalism marks a large-scale s t ructural t rans i t ionfrom the "first-versus-second-economy" contrast to the "formalversus-informal" contrast . Given the above conceptualization ofKohlism, the aboli t ion of the project of s ta te socialism and theres torat ion of "st raight" semiperipheral dependency presentsprecisely tha t t ransi t ion. 5

There is nothing inherent in the conceptual pairs of formal-versus-informal sectors and f i rst-versus-second economies tha tforces t he i r analysis within the confines of t e r r i to r i a l s ta tes .Some of new American ins t i tu t ional economic sociology has in factut i l ized the formal-informal opposit ion to capture the socioeconomic speci f ics of cross-border contacts and flows. The res tof th i s paper wil l experiment with the use of both the " f i r s t -

I t s signif icance for pol i t ica l processes and classformation aside, the "first-versus-second-economy" dis t inct ionhas extremely wide ramifications in terms of the flows ofsubsidies between various kinds of act iv i t ies and actors in s ta tesocia l i s t economies.5 The implications of the problem of the t rans i t ion fromthe firs t-second to the formal-informal conceptual opposit ion i s ,clear ly , the most crucial issue of East-Central Europe's economict ransi t ion from s ta te socialism. I t cannot be explored here. Thefocus of th i s paper i s on some of the basic implications of th i schange for external l inkages.

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second" and "formal-informal" opposit ions as conceptual tools inan analysis of ins t i tu t ional ized cross-border processes, i . e . ,external l inkages. For th i s argument, formal external l inkagesre fe r to those s table cross-border contacts and flows t ha t arerecorded, regulated and taxed ( that is , in th i s case, levied) bythe s t a t e . Informal external l inkages stand for contacts andflows across the borders of the cap i t a l i s t s ta tes outside therealm of s ta te supervision, regulat ion and dut ies . First-economyexternal l inkages are those tha t occur within the confines of the"planned" (state-owned) sector of the s ta te socia l i s t economy,while second-economy external l inkages are those tha t take placeoutside tha t realm under s ta te socialism.

HUNGARY'S EXTERNAL LINKAGES

Sta l in i s t Linkages

The essence of the Stal in is t system of imperial power wass ta te- izat ion of the means of production, implying theel iminat ion of the formal-informal contrast as such through theobl i terat ion of direct-personal property ownership, coupled withisolat ionism, t ha t is , the subject ion of a l l external l inkages tothe s ta te ' s direc t - to ta l is t ic control . (Isolationism i s thus theextension of s ta te- izat ion to the realm of external l inkages.)Manipulation of external l inkages was a cent ral tenet , and a

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logical condit ion of the working of, the Sta l in i s t version ofs ta te socialism. 6

The s ta te- iza t ion of a l l cross-border contacts and flowsindicated an imperial effor t to re-or ient the East-CentralEuropean s t a t es ' l inkage s t ructure in a double sense: (a) to cutprevious t i e s with the non-social ist par t of the world economyand (b) to cu t "horizontal" connections of the region 's socie t ieswith each other by replacing them with imperial mediation. As aresu l t , East-Central Europe was forcibly removed from i t shis tor ica l focus of dependency, i . e . , west-Central Europe,especial ly Germany and Austria. Meanwhile, organically developed,symbiotic relat ionships within the region - - already shaken bytwo world wars and the Great Depression - - were also broken up asthe region 's economies came to be subjected to the Sta l in i s tproject . The essence of the effor t was to focus the externall inkage s t ructure of the region 's individual s t a t e soc ia l i s tsociet ies on a single imperial center . 7 The Sta l in i s t period 'sextreme isolat ionism implied the denouncement of a l l "secondeconomy" types of external l inkages as i l l egal by defaul t .Stalinism represented a gigantic effor t whereby a l l cross-bordercontacts and flows were ei ther s ta te- ized or banned.

6 This point has been elaborated in Borocz (1989b).The obvious fa i lure , and rapid abandonment, of th i sproject had much to do with the re la t ive technological andeconomic underdevelopment of the imperial center in contrast toi t s pol i t ica l semi-colonies.

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Linkages under KAdArism

The second, less brutal period of s ta te socialism - - theKadar-era - - was marked by the large-scale transformation ofHungary's external linkage structure. The relaxation of theprevious regime's r ig id res tr ic t ions on cross-border contacts andflows came to be a fundamental component of the per iod 's sof t ,"winking dictatorship". The KAdarist compromise, however, did notmean in any wayan a l l -ou t give-away of l inkage-restr ict ions assuch. The new system of external l inkages was worked out throughconfl ic t and gradual, often very hesitant and lopsided, "reforms"introduced over the entire period of Kadarism.

The t rans i t ion from the Sta l in i s t l inkage system to KadArismcan be summarized, schematically, as a combination of followingthree main elements:

(1) the par t ia l re-orientat ion of the s ta te ' s own externall inkages,

(2) a careful opening-up of the f i r s t economy towards theEuropean core of the world market and for horizontal l inkageswith other East-Central European s ta te soc ia l i s t s ta tes , and

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(3) a slow and gradual process of extending t ac i tpolitical-economic concessions - - as developed in the domesticsecond economy - - to external l inkages as well .

Fi rs t , the s ta te ' s own l inkages were rearranged. Day-to-dayimperial controls over running the local s ta te were replaced by amore ef f ic ien t , "strategic" regime of control . The occupationalmil i tary force took a low-key approach and foreign pol i t i ca ladvisors re t reated to broad policy issues and personnel policy.Meanwhile, the s ta te re-established bi - la tera l contacts and flowswith the neighboring small subject s ta tes of the region. Finally,and very importantly, the early 1970's general atmosphere ofRealpoli t ik and detente provided access for the Kadarist s ta te tolarge sums of s ta te credi ts mostly from private lenders: between1970 and 1979, the Hungarian s ta te ' s gross debt doubled a t thespeed of every three years, and reached the level of USD 17.7bil l ion by 1987 (Vilaggazdasag, 1989 quoting the National Bank ofHungary). In essence, core capi ta l came to valorize Hungarianlabor by lending to the soc ia l i s t s ta te during the Kadaristperiod.

The intercourse of the Hungarian f i r s t economy with formalsectors in the core produced a growing t rade in investment goodsas well as consumption i tems. Tradit ionally strong Hungarianproducts were re-introduced in West European markets and someactors of the Hungarian f i r s t economy were able to modernize

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themselves from such revenues. The Hungarian economy re-orientedi t s e l f towards t rade with the non-state-social i s t par t of theworld. The share of hard currency deals in Hungary's to ta lforeign t rade increased from i t s lowest point of 30% in importsand 29% in exports in 1960 to 38% and 39% in 1970, 50% and 57% in1980 and 57% and 58% in 1988, respectively. (Computed from KSH1965: 1970: 1975: 1980: 1989a) In 1990, the share of hard-currency t ransact ions in Hungarian commerce climbed to 70% inboth exports and imports, (Heti vilaggazdasag 1991a) and reachedthe level of 100% on January 1, 1991, when non-convertiblecurrency t rade was off ic ia l ly abolished.

Cross-border labor migration also emerged, especially fromHungary to the German Democratic Republic and from Poland,Vietnam and Cuba to Hungary, under careful control and closesupervision by the s ta te and party organs of the part ic ipat ingcountr ies . Hungarian workers were sent to East Germany with theaim of al levia t ing some of the s t ructural tensions of theHungarian indust r ia l labor market and t ra ining Hungarian labor inthe more advanced East German industry. The bi la tera l s ta teagreement concerning th i s in i t ia t ive was signed in May, 1967. 8These flows were based on two-year contracts and peaked in 1972and 1973 with a t o t a l of 12 thousand Hungarians working abroad,

Unless noted otherwise, information on s ta te-contractedand -regulated labor flows was collected via interviews,conducted by Agnes Hars (Hungarian Labor Research Ins t i tu te) ,with off ic ia l s of the Hungarian Ministry of Labor (ea r l ie r , s ta teOffice for Wages and Labor).9


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(KSH 1975b; 1989) most of them in the German Democratic Republic(Holczl and Szakacs 1989). These numbers dropped to 4 thousand by1981 (KSH 1989). state-contracted flows of Hungarian labor toEast Germany stopped by the end of 1983. The to ta l number ofHungarians having worked in the German Democratic Republic underthe umbrella of th i s agreement i s estimated a t cca. 40,000.

The placement of Polish labor - - especially miners andconstruction workers - - in Hungary was agreed upon in foreignt rade accords whereby Poland's mounting debt to Hungary would bedecreased by the direc t exportation of ski l led labor from Polandto Hungarian companies. (Even the building of the HungarianMinistry for Construction and Urban Development was renovated byPolish workers.) In 1985, the number of Polish guestworkers inHungary reached the mark of 8000. By today, tha t figure hasdropped to about 3000.

The CUban and Vietnamese arrangements had been of similarcharacter to the Hungarian-East German bi la tera l s ta te agreement,combined with provisions for t raining and technology t ransfer .Between ear ly 1985 and the end of 1987, altogether 3200 Cubanworkers arrived in Hungary to work for four years, primari ly inthe t ex t i l e industry. Vietnamese workers were also employedmainly in the t ex t i l e industry.

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Polish guestworkers were often bet ter-paid than the i rHungarian colleagues - - in some cases, four times higher hourlywages were paid to Poles than to the i r Hungarian counterparts forperforming the same tasks with the same in tensi ty (H61czl andSzakacs 1989) - - so tha t a ser ies of shop-floor wage confl ictswas bound to emerge, exacerbated by various cross-border t radeunion confl ic ts . The presence of the Polish t rade union,Sol idar i ty , complicated matters even further. H6lczl and Szakacs(1989) present data from three companies tha t , in contrast toPoles, CUban and Vietnamese t rainees and labor were paid on parwith, or less than, t he i r Hungarian colleagues. Their working andl iving conditions have also been worse.

Labor flows from Hungary to core labor markets, unmediatedby the s ta te , were re la t ively insignificant due to the "shortstay versus no return" character of Kadarist t ravel arrangements:in order to be able to spend an extended period of time abroad,Hungarian labor had to "defect", i . e . , leave Hungary with aregular t our i s t ex i t visa and claim pol i t ica l asylum in thedest inat ion core country. ' The only notable exception from th isrule was a Hungarian-West German intergovernmental agreementsigned in the early 1980s. Under th i s provision, a maximum of2500 Hungarian workers were allowed to work in West Germany.(This quota was raised to 5 thousand in 1990 and 10 thousand in

, Diplomatic service, t rade representatives and employeesof a handful of Hungarian companies undertaking investmentprojects abroad, are exceptions from th i s rule .11


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1991.) Essential ly, th i s agreement has only allowed for workperformed through subcontracting arrangements between a Germanand a Hungarian company: the worker remained employed and paid bythe Hungarian firm. Direct employment in West Germany without thepart icipation of a Hungarian company was excluded from th i sagreement and had been, unt i l early 1990, technical ly i l l egalaccording to Hungarian law.

The combination of a l imited freedom of le isure t ravel withthe s t a t e ' s ban on entering into legal employment abroadprecluded return to Hungary unt i l a new ci t izenship had beenobtained. That price was high enough to dissuade much ofpotent ia l spontaneous labor emigration so tha t re la t ively fewHungarians have resorted to th is solution, notwithstanding theavailabi l i ty of tha t option since the gradual easing of exi t visares t r ic t ions around the mid-1960s unt i l about f ive years ago.

By the early 1980s, Hungary had become the s ta te socia l i s tcountry with the world's highest per capita foreign t our i s tpresence, measured both in terms of arr ivals and t our i s t nights .Hungary's tourism saturat ion surpassed the mean of non-statesocia l i s t Europe. 'o In 1988, the t o t a l number of foreign arr ivalsin Hungary reached 17.9 million or, about 1.7 arr ivals per capita(KSH 1990).

Borocz (1990) reaches th i s conclusion on the basis ofcomputations with data from senior (1983).12


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The presence of a growing number of foreign vis i tors ,especial ly those with hard currency - - note tha t convertiblecurrency revenues made up about two-thirds of a l l recordedtourism incomes in 1988 (KSH 1990) - - , gave an important boost tothe Hungarian second economy, par t icular ly in the accommodation,food, medical and other related service sectors. Those Hungariandentis ts , beauticians and hairdressers, for instance, whospecial ized in providing services to Austrian, west German oru.s. vis i tors invented a creat ive way to integrate the informalconsumer sector of a core country with the s ta te soc ia l i s t secondeconomy of semiperipheral Hungary. By the mid-seventies, wellover half of the country 's tour i s t accommodation capacity hadbeen made up of private "rooms-to-let" located in housing unitsordinari ly used as noncommercial residences, often rented fromthe s ta te a t very subsidized ra tes . In 1989, the share of thenon-state-owned, -planned or -run par t of the tour is t sector wasestimated very conservatively a t 68.5% of the to ta l roomcapacity, with 48.9% of the to ta l never regis tered, regulated ortaxed. (Nepszabadsag 1991) About two-thirds of the country 'stourism-related incomes are estimated to have been realizedoutside the s ta te sector, never entering into the financialchannels of the f i r s t economy (Nepszabadsag 1991). state-owned,large hotel and other tourism-related service companies - - oftenj o in t ventures with multinationals or located a t the end of suchsubcontracting chains - - have had a near-monopoly posi t ion in there la t ively small four- and f ive-s tar segment of the tourism

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market. Meanwhile, the lower segment of tourism services enjoying incomparably greater solvent demand on par t of WestCentral European, East-Central European as well as Hungarian tour i s t s - - almost completely exited from the realm of the s ta te ' s structures of ownership, planning, and control.1!

On the reverse, the Hungarians' massive "shopping sprees"for consumer electronics and home appliances in Vienna, a resu l tof re la t ively relaxed t ravel and customs regulations by theHungarian author i t ies , channeled incomes in hard currency fromthe Hungarian second economy back into the formal and informalsectors of the Austrian economy. Without taking into accountHungary's second-economy types of external l inkages related toincoming tourism, it would be impossible to explain the Hungariant ravel lers ' purchasing power tha t found i t s outle t in theViennese re t a i l sector. This process accelerated and took nearunmanageable dimensions between early 1988 and l a te 1989. 2

I! The only sizeable s l ice of the lower segment of tourismservices tha t remained under the s ta te-redis tr ibut ive , "planned"arrangement was state-subsidized holiday resor ts run, and oftenowned, by the t rade unions under heavy control by the s ta te .11 Hungarian buses and cars repeatedly clogged up t r a f f i cfor hours on the roads between the Hungarian border and Vienna.

On November 7, 1989 - - a s ta te holiday a t the time in Hungary,commemorating the anniversary of the Russian Revolution - - , thenumber of Hungarian Christmas shoppers in Vienna was estimated toexceed 1 million (or, 10% of the entire population of Hungary andover 50% of the population of Vienna). As a resul t , the ViennaCity Council had to introduce special measures to handle theflows of Hungarian shoppers in and around the various shoppingareas.

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Results of a survey taken among the Hungarian vis i tors ofVienna during the peak of such flows indicate tha t nearly half ofthem did not stay overnight in Austria ( th is is an indi rec t signof a focus on short shopping t r ips) and more than 50% marked"shopping" as the f i r s t purpose of t he i r t r ip . (Boosted sa less t a t i s t i c s in Vienna and elsewhere around Austr ia 's Hungarianborder substant ia te th i s conclusion fur ther . ) Over hal f of theHungarian respondents had vis i ted Austria a t l eas t four t imes bythe time of the survey. This i s a l l the more remarkable as themean gross income of Vienna's frequent Hungarian vis i tors fromthe Hungarian f i r s t economy was less than USD 160.00 monthly - approximately the equivalent of one-third of the Austrian minimumwage a t the t ime. These data suggest the existence of a verysizeable group of Hungarians with an acute in te res t in the small-scale importation of consumer items from Austria through a t leas tpar t ly informal channels and access a t l e a s t par t ly to hard-currency incomes from the Hungarian second economy_ (After B6r6cz1989a) Much of Austro-Hungarian tourism between the l a te 1970sand the la te 1980s had been based on close "vert ical" externallinkages between the Hungarian second economy and Austr ia. 13

I t i s an added irony of the s i tuat ion tha t one of themost popular i tems imported th i s way from Vienna by Hungarianswas a freezer box made in Yugoslavia and shipped to Viennathrough Hungary. Notwithstanding the fact tha t the same productwas also sold in Hungary - - and tha t the Hungarian industry hadalso been manufacturing a freezer of s imilar or be t te r qual i ty - , it was calculated to be more advantageous to purchase theYugoslavian-made one in Vienna and to haul it to Hungary on topof small , packed family cars through endless queues a t the bordercustoms checkpoints.

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In a para l le l development, the "horizontal" t i e s ofHungary's f i r s t and second economies to the f i r s t and secondeconomies of the neighboring s ta te socia l i s t countries have alsoincreased during the Kadarist period. Aside from bi - la tera l t radebetween companies of the f i r s t economy, it was during th is periodtha t s table ins t i tu t ional arrangements of what has beensarcast ical ly cal led in Hungary the "COMECON-markets", haveemerged. Mainly Polish, Czechoslovakian and Hungarian ci t izensinvented th is t rade ins t i tu t ion - - the petty smuggling of l i c i tand, very rarely , i l l i c i t , commodities. This t rade was based onthree conditions: (1) the complementary character of some aspectsof the region's economies, (2) country-by-country differences inthe s t ructure of subsidies on various groups of commoditiesresul t ing in substant ial price inequali t ies , and (3) the r ig id ,inflexible nature of "off ic ia l" CMEA-trade tha t was unable toaccount for market pressures resul t ing from the f i r s t twocondit ions.

By the end of the period, mainly Polish t rave l le rs - - manyof them guestworkers in Hungary and, thus, int imately familiarwith arrangements in the domestic second economy as well asdynamics of market demand - - established themselves as a firmsegment of discount consumer supplies in Hungary's second economyin commodities ranging from chi ldren 's shoes to small machinetools , from linenware to automobile par ts , and from hard l iquorsto hard currency. On the reverse, Yugoslav ci t izens of Voivodina,

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Northern croat ia and Eastern Slovenia - - along with Austriansfrom Burgenland - - (that i s , residents of the regions next to theHungarian border) specialized in large-scale "private" foodimports from Hungary. A similar form of regional cross-borderintegrat ion emerged - - under the umbrella of bi l a t e ra l provisionscal led "small-border-traff ic" - - around the Hungarian-Slovakianand Hungarian-Romanian borders. By the l a te 1980s, thepract i t ioners of these small-scale informal t rade l inkages werejoined by residents of the Western Ukraine shopping for a l lmoveable consumer items in Eastern Hungary. In a s imi lar vein,the Lake Balaton area had become, by the mid-1970s, a re la t ivelyquiet meeting point for German families sp l i t by the "innerGerman"border. Catering for such "family-reunification" holidaysemerged as a dis t inc t , s table and ins t i tu t ional ized branch of thesecond economy of the tourism services sector in Hungary.

Early during th i s period, the Hungarian Forint obtained thes ta tus of an overvalued, "quasi-hard" currency in the secondeconomy of COMECON consumer t rade, notwithstanding the Hungarians ta te ' s res t r ic t ions on the exportation of cash. As a resu l t , itbecame the only s ta te socia l i s t currency to be quoted a t theexchange counters of a l l major Viennese banks. This author ' sfieldwork interviews suggest tha t the Viennese banks' supplies ofHungarian cash had been brought in mainly by Polish t rave l le rs ,and demand was based mainly on the Viennese lower-middle andworking class seeking cheaper holiday opportunit ies in Hungary

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over and beyond the comparative advantages arising from the twosoc ie t ies ' income dif fe ren t ia l tha t was a t f ive- to- ten t imesbased on the off ic ia l Hungarian exchange ra tes . This par t icularphenomenon indicates the emergence of a fa ir ly complex system ofintegrat ion between (1) the Austrian formal sector - - in th isexample, the banks and the tour is ts - - , (2) the Hungarian f i r s tand second economies - - tour i s t and other service providers inHungary - - , and (3) East-Central European cross-border t rade ofthe second economy type - - mediated mainly by Polish t rave l le rs .

Hungary's External Linkages in the Aftermath of s ta te Socialism

The t ransformation of Hungary's external l inkage s t ructurewas an important component of the pol i t ica l t rans i t ion away fromKadarism. The ongoing metamorphosis of the country 's l inkages t ructure implies the following preliminary observationsconcerning the main components of tha t change:

(1) the "180-degrees" re-orientat ion of the s t a t e ' s ownl inkages by radical ly decreasing the weight of the Sovietcomponent, by substant ia l ly reducing and, a t the same t ime,qual i ta t ively re-def ining s ta te - to -s ta te re la t ions with theregion 's other former subject countr ies and, most importantly, byins is t ing on the construction of strong t i e s with West European

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core s ta tes with an eventual fu l l membership in the European Community as a pronounced objective;

(2) the self-removal of the Hungarian s ta te from l inkagesbetween the Hungarian economy and foreign (core) capita l ; and

(3) the gradual replacement of the first-economy-versussecond-economy opposit ion with the contrast of formal-versusinformal sectors in external l inkages, much to the pat tern ofother semiperipheries, made possible by the complete abandonmentof res t r ic t ions on the movement of individuals by most s ta tes ofthe region.

The turn-around of the Hungarian s t a t e ' s own l inkages hasbeen occurring under condit ions of an external double bind. Theremoval of the soviet component of s ta te- to-s ta te l inkages hastaken place ynder control by the Soviet component. The decisionto perform, and the par t iculars of, the withdrawal of the foreigntroops took place entire ly on the foreign occupier 's terms. Visaobligation has been abolished for ci t izens of most European andNorth American core countr ies while the introduction of a visasystem for Soviet and perhaps other East-Central European c i t izens i s being seriously considered in Hungary.14 The

Czecho-Slovakia has recently joined the EC-countries,Austria and Poland in placing res t r ic t ions on the entry ofRomanians. This l e f t Hungary as the only country of the regionwhere Romanian ci t izens could t ravel without an entry visa and/orproof of financial support . Not for long. In early October, 1991,19
http:///reader/full/Hungary.14http:///reader/full/Hungary.14


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contract ion of the Soviet-centered world empire has occurredunder extremely peaceful, closely watched conditions in EastCentral Europe's Soviet-occupied s ta tes so tha t the eventualformal termination of the Warsaw Pact took place, during thesummer of 1991, almost without notice by the region 's media. Onthe other hand, the post -s ta te-socia1is t pol i t ica l t ransi t ion hasinvolved severe pol i t ica l violence in both countr ies of the area(Romania and Yugoslavia) which had had no imperial mili tarypresence on t he i r so i l a t the beginning of the collapse of t he i rparty-state-based pol i t ica l ins t i tu t ional system. Of those two,the country tha t had been the more independent from Sovietcontrols - - Yugoslavia - - is experiencing the bloodier and lesscontrollable t ransi t ion from s ta te socialism. I t appears tha t theSoviet Army has played an important s tabi l iz ing role in theperiod of the post -s ta te-socia1is t t ransi t ion in East-CentralEurope.

The behavior of the newly-sovereign Hungarian s ta te , for i t spar t , continues to be profoundly influenced by the s t a t e ' sexternal debt burden,'5 manifested in s t r i c t IMF controls over

the Hungarian government also introduced measures to curbinformal, undocumented labor inflows. During the f i r s t ten days,over forty-thousand foreigners, overwhelmingly Romanian ci t izens ,were refused entry for being unable to present evidence ofsuff ic ient funding for t he i r intended stay in Hungary.

15 Currently, the country 's gross debt is estimated a t USD20,258 mill ion or, the equivalent of about 100% of the annual GDP(Werner 1991). Three-fourths of it i s owed to private banks whichprecludes any pol i t ica l re-schedu1ing arrangement as seenrecently in the case of Poland. This represents the highest per20


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the s ta te budget as well as major economic policy issues and thefact tha t the Soviet Union, previously by far the l a rges t exportmarket of Hungarian goods, is pract ical ly insolvent while itcontinues to be the main supplier of such vi ta l energy sources aso il and natural gas to Hungary. I t i s a sign of the in t r ica tediff icul ty wherein the Hungarian government finds i t s e l f tha t themaintenance of Hungarian-Soviet t rade and the preservation of theUSSR as Hungary's stable, strong export market has come to be amain issue of negotiations between Hungary and west European andNorth American core actors. The energy s i tuat ion i s exacerbatedby the fact tha t Hungary's only non-Soviet oil- import pipel ineruns through war-torn croatia.

As a resu l t of Hungary's domestic capi ta l shortage,legis la t ion providing preferential tax conditions for foreigninvestors over domestic enterprise , and the Hungarian s ta te ' sheavy debt burden, there has been a modest increase in foreigndirec t investment in Hungary's formal sector . Opinions oninterpreting the size of tha t investment diverge: it can beclaimed tha t foreign direct investment - - an increase from USD400 million to USD 1,143.3 mill ion (a change from 1.99% to 5.73%of the country 's to ta l external debt and 6.7% to 17.35% of thecountry 's to ta l internat ional reserves) between July 1990 and

capi ta debt in Europe and the debt service ra t io i s over 50% ofthe country 's revenues in hard currency (Werner 1991).21


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July 1991 - - (Heti vilaggazdasag 1991b) i s in fact much lowerthan expected-feared by many.

The main discernible tendencies of th i s t rans i t ion are thefollowing: (1) in te res t in real esta te development predominatesover industr ia l production; (2) investment with the purpose ofpenetrating the Hungarian and/or East-Central European marketpredominates over production for core markets; and (3) evidenceof the re-emergence of some pre-war l inkage pat terns can also bedetected: some of the companies and private investors tha t appearwith serious intentions of investing in the Hungarian economy areones t ha t had had s ignif icant his torical presence in theHungarian economy. sometimes what i s purchased i s the very samecompany tha t had belonged to today 's "new" direct investorear l ier , confiscated by the Stal in is t s ta te af ter World War I I .What i s common in processes of foreign direct investment inHungary during the Kohlist period is tha t foreign capita lvalorizes Hungarian labor without having to be funneled throughthe Hungarian s ta te . This leaves for the Hungarian s ta te the taskof securing legis la t ive condit ions for such enterprise ,especial ly in guaranteeing repatr iat ion of prof i t s , labor peaceand infras t ructural background conditions.

Although there i s nothing in Hungarian business legis la t iontha t explic i t ly forbids direct investment by enterprises from theregion 's other former bloc-economies - - i . e . , the emergence of

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horizontal l inkages in th i s f ie ld - - , the entire region 's endemiccapi ta l shortage certainly works to prevent such new forms ofregional integrat ion from taking shape. (Pol i t ica l nationalismexacerbates th i s problem further. ) In addition, under economicpolicy-pressures from foreign creditors, the National Bank ofHungary has recently terminated i t s pract ice of guaranteeing thedirec t exchange of the region's currencies in Hungary - - with theCzecho-Slovak Crown being the l a s t one to "fa l l" . This forcesEast-Central European regional integrat ion to take place with themediation of one of the three most important hard currencies inth i s region, namely the Deutsche Mark, the Austrian Schil l ing orthe U.S. Dollar, leaving informality as the only direc t source offoreign exchange for t ravel l ing f inal consumers within theregion. East-Central Europe's move to "hard-currency-basedexternal-accounting" has great ly contributed to the collapse ofregional t rade in the formal sector, given the serious shortageof hard currency a l love r East-Central Europe. Talks onal ternat ive regional frameworks of economic union - - to replacethe defunct CMEA - - are in an extremely preliminary phase.Pol i t ica l currents and endemic instabi l i ty are making regionaleconomic integrat ion less than desirable for the pol i t ica l e l i t e sof the s ta tes tha t could potential ly par t ic ipate in i t .

The emerging s t ructure of informal external l inkages seemsto be taking a form tha t i s somewhat different from formalprocesses. Informal l inkages appear to involve not only ver t ica l

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(core-to-semiperiphery) but horizontal (intra-regional)direct ions as well .

Undocumented labor migration concerns present-day Hungary intwo ways: there has been an upsurge in the presence ofundocumented Hungarian labor in Eastern Austria and, to a lesserdegree, in the Central European countries of the EuropeanCommunity. At the same time, undocumented foreign labor,especial ly from Romania and the western Ukraine, has appeared inHungary's informal labor market. Several open-air marketplacesand public t ransportat ion hubs in Budapest have evolved intoinformal labor recrui t ing centers of sor ts , and the use ofundocumented labor i s spreading in the urban constructionbusiness, in seasonal tourism services and in small-scaleagricul ture .

The process began in 1987 (Sik, Tarjanyi and Zavecz 1989;Sik 1991) with the unexpected inflows of Romanian ci t izens - mostly but not exclusively ethnic Magyars, with est imates of theto ta l number of arr ivals between 25 and 40 thousand or, theequivalent of .25% to .4% of Hungary's to ta l population. Mempersof Romania's Magyar community claimed pol i t ica l asylum in Hungaryon grounds of being prosecuted in the i r own country for t he i rMagyar ethnic i ty . Most of them received some form of permit tos tay. They were rather smoothly absorbed into the Hungariansociety which provided them with a textbook example of an

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"advantaged" context of reception (Portes and Borocz 1989, p.620-5), s imilar to the immigration of East European Germans tothe Federal Republic and tha t of Jews to Is rae l . Due to thel imited conver t ibi l i ty of the Hungarian Forint and endemicshortages of consumer supplies in Romania, t he i r cash remittancesare of less importance: it is in direct commodity flowsregular g i f t packages of shortage items - - tha t family- and kinbased t ransfers of subsidies have been taking place from Hungaryto Romania (S1k e t a l . 1989, p. 25). The conceptual importance ofthe inflow of these immigrants - - somewhat misleadingly called"refugees" in Hungary - - was tremendous: it represented the f i r s tsocia l l inkage established by external "penetration" duringdeclining Kadarism, tha t was based a t l eas t par t ly on the formalinformal contras t (over and beyond the "old" f irs t-versus-secondeconomy dis t inc t ion) .

Very importantly, undocumented labor immigration to Hungaryhas continued af t e r the fa l l of the Romanian dic ta tor . Thisinvolves even more clearly informal-sector arrangements foraddi t ional Magyar arr ivals from Romania, those non-Magyarc i t izens of Romania who had not yet received pol i t i ca l asylum ina core country, new Magyar and other inflows from the CarpathianUkraine and elsewhere in East-Central Europe - - including a fewmembers of the Soviet mili tary who refused to re turn home withthe troop withdrawal - - , and a handful of non-Europeans l iving inHungary in various precarious immigration statuses ranging from

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overstayers of student visas to recent arr ivals with unsett ledclaims for pol i t ica l asylum. Given the l i t t l e recent his tory ofimmigration to Hungary, s ta te immigration legis la t ion andpol ic ies are indecisive in th i s regard, especially as fa r ascr i t e r ia for granting refugee s ta tus to ethnic non-Magyars andlega l procedures for obtaining labor permits are concerned. As aresu l t , the new Hungarian pol i t ica l par t ies ' discursive behaviorosc i l la tes between all-embracing and a l l - res t r i c t ive rhetor icposit ions." The s i tuat ion i s bound to become tenser with thein tensif icat ion of labor conf l ic ts in the Hungarian economy andwith the impending l iberal izat ion of Soviet ex i t visa pol ic ies .An addit ional development is the replacement of Polishguestworkers with Ukrainians through new bi - Ia tera l agreementsand recent inflows of war refugees from croat ia .

Informal petty t rade across s ta te borders continues a t fu l lforce. Ethnicity plays an important par t in organizing thespecif ics of these cross-border l inkages: Poles, Ukrainians,Gypsies, Serbs, Croats, Slovaks and Magyars with variouspassports special ize in different commodities and use di f fe ren tnetwork s t ructures in maintaining cross-border l inkages. Onepossible explanation for the surpris ing s tabi l i ty of theHungarian Forint vis-a-vis hard currencies today - - with s t r ee t

16 At the height of the flux of the pol i t ica l t rans i t ionin 1989, there emerged the idea of establ ishing a small Chinatownin Budapest by allowing settlement for Hong Kong businessmen andt he i r families who would be expected to se t t le some of theHungarian s t a t e ' s debt in exchange.26


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ra tes no more than 5% above off ic ia l bank exchange ra tes - - i sthe excess supply of hard currency brought in by Yugoslav andPolish t ravel lers based on those countries ' "free-market l iberal"economic s tabi l iza t ion projects , 'coupled with addit ional suppliesfrom the management of the new jo in t ventures in Budapest who arepaid in hard currency, and the deplet ion of Hungarian demand forhard currency due to decreases in mobilizeable incomes inForints .

SUMMARY

Isolationism - - the to ta l i s t ic s ta te- iza t ion of externall inkages - - was a defining character is t ic of Stalinism si tuatedin the context of the cap i t a l i s t world economy. Any opening-up ofexternal l inkages represents a move away from tha t model, andpart icular configurations of external l inkages are crucial ,defining aspects of any exist ing arrangement of s ta te socialism.In Hungary, the opening-up of external l inkages began earlyduring the Kadar-era. I t became a focal point of confl ic t and animportant component of the successive waves of lopsided,"winking" pol i t ica l compromises struck during the ensuing period.The Kadarist l inkage s t ructure was character ized by the re establishment of l inkages with the core s ta tes under the Kadarists t a t e ' s control - - i . e . , the gradual self-removal of the imperials ta te from the Hungarian s t a t e ' s relat ions with the West-European

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core, especially core capi ta l - - and the t ac i t acceptance of al imited system of external l inkages outside the planned sector aslong as it did not involve direct ut i l iza t ion of labor by corecapi ta l through direct investment or labor emigration. Indi rectut i l iza t ion of labor was made possible through mediation by theHungarian s ta te which successful ly inserted i t se l f between corecapi ta l and Hungarian labor . The recent move away from s ta tesocialism involves the emergence of ins t i tu t iona l arrangementsaimed to res tore direct t i es between core capi ta l and Hungarianlabor through di rec t investment and labor migration unmediated bythe s ta te , coupled with an attempted 180-degree turnaround offOrmal l inkages. Meanwhile, informal l inkages operate on a moreeven geographical spread than t he i r formal counterpar ts ,involving intra-regional horizontal integrat ion as well asvert ica l bonds.

The Hungarian case of the t ransi t ion from s t a t e socialismindicates t ha t localized s t ra tegies of resis tance against themacro-structural process of more direct , unambiguous dependencyon core capi ta l , and search for horizontal al ternat ives , appearlargely confined to the mercurial world of informali ty. A mainquestion of Hungary's post-s ta te-socia l is t future is whether thepowerful informal sector tha t is emerging there wil l be of the"f lexible specialization" kind - - following the famous "posit ivecase" scenario of the I ta l ian region of Emilia Romagna - - or the

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much gloomier "survival" type known from most of th e r e s t of theworld.

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REFERENCES

Borocz, Jozsef . 1989a. "Vienna's Hungarian Visi tors . A Profi le .Research Report to the 6sterreichische Fremdenverkehrswerbung", Vienna. Mimeo. 1989b. "Mapping the Class Structures of State Socialism

- - - - ~ i n - - E a s t - C e n t r a l Europe". Research in Social s t ra t i f ica t ionand Mobility, 8:279-309._____ 1990. "Hungary as a Destination, 1960 - 1984". Annalsof Tourism Research, 17:19-35.____ ~ ~ _ . forthcoming. "Dual Dependency an d Property Vacuum:Social Change on the State Socia l i s t Semiperiphery". Theoryand Society.Heti vilaggazdasag. 1991a. "Magyarorszag osszes kiilfoldi

adossaga. Gazdasagi adat tar" . (Total Foreign Debt ofHungary. Economic Data Archive) Heti vilaggazdasag, August3:93.___ ~ _ . 1991b. "Magyarorszag osszes kiilfoldi adossaga.Gazdasagi adat tar" . (Total Foreign Debt of Hungary. EconomicData Archive) Heti vilaggazdasag, October 5:93.Hirschman, Albert O. 1977. itA Generalized Linkage Approach toDevelopment, with Special Reference to Staples" . pp. 67-98in Manning Nash Ced.) Essays in Economic Development andCultural Change in Honor of Bert F. Haseli tz. Supplement,Economic Development and Cultural Change, 25.Holczl Ferencna and Laszlo Szakacs. 1989. "Val la la t itapasztalatok as tanyek a kulfoldi munkaer6foglalkoztatasaban". (Enterprise Experience and FactsConcerning the Employment of Foreign Labor) Munkaugyiszemle, 4:25-7.KSH. 1965. Kiilkereskedelmi avkonyv (Foreign Trade Yearbook).Budapest: Kozponti Sta t i sz t ika i Hivatal .___ - = ~ . 1970. Kiilkereskedelmi evkonyv (Foreign Trade Yearbook).Budapest: Kozponti Sta t i sz t ika i Hivatal .____ ~ ~ _ . 1975a. Kiilkereskedelmi evkonyv (Foreign TradeYearbook). Budapest: Kozponti Stat iszt ikai Hivatal .____~ ~ ~ . 1975b. Stat iszt ikai evkonyv. (S ta t i s t i ca l Yearbook).Budapest: Kozponti Sta t i sz t ika i Hivatal .

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______ 1980. Kulkereskedelmi evkonyy (Foreign Trade Yearbook).Budapest: Kozponti Sta t i sz t ika i Hivatal . 1989a. Kulkereskedelmi evkonyy (Foreign Trade

- - - - - Y ~ e - a - r b o o k ) . Budapest: Kozponti Sta t i sz t ika i Hivatal 1989b. Sta t i sz t ika i evkonyy.(s ta t is t ica l Yearbook).- - - - - B ~ u - d ~ a p e s t : Kozponti s t a t i sz t ika i Hivatal .

____ ~ ~ . 1990. Idegenforgalmi evkonyy (Tourism Yearbook).Budapest: Kozpontl Sta t i sz t ika i Hivatal .Nepszabadsag. 1991. "Turizmus vol t , van es (meg inkabb) lesz".(Tourism: There Was, There I s , and There Will Be - - EvenMore) Nepszabadsag, July 8:16.Portes , Alejandro and J6zsef Borocz. 1989. "ContemporaryImmigration: Theoretical Perspectives on I t s Determinantsand Modes of Incorporation". International Migration Review,23: 606-30.Senior, Robert. 1983. World Travel Market. New York: Facts OnFile Publicat ions.S1k Endre. 1991. "Az t rdektelenseg es Komorodas kora. MenekultekMaqyarorszagon". (From Disinteres t to Disillusionment.Refugees in Hungary) Beszel6, March 9:8-9.S1k Endre, J6zsef Tarjanyi and Tibor Zavecz. 1989. "osszefoglal6je lentes az erdelyi menekultekr61". (Summary Report onTransylvanian Refugees) pp. 5-58. in Az erdelyi menekultek."Erdely"-vizsgalat . Budapest, TarkioVilaqqazdasaq. 1989. "Maqyarorszaq ad6ssagallomanya". (Hunqary'sStock of Debt) Vilaggazdasag, November 23.Werner, Riecke. 1991. "Szolgalat i szabalyzat: Ad6ssaqmenedzseles"(Rules of Service: Debt Management) Heti vilaggazdasag,August 3: 90-1.

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Hungary Re-Linking: State Socialism & the Transformation of External Linkages (PCEE 18, 1991)...

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