Shaky Path to a Free-Market World

Tim Baker

September 17, 1990|By Tim Baker

BUDAPEST — Budapest. A HUGE bronze statue of Karl Marx dominates the central foyer of the Budapest University of Economics on the banks of the Danube in this ancient Eastern European capital struggling to find its way from a stifling communism to a prosperous free-enterprise system. The old ideologue sits on his marble pedestal and reaches out his hand in a gesture of earnest objection. But on this first day of classes as the new semester begins, the young Hungarian college students pay him no attention.

As the students head off to register for their new courses, Marx suffers a more immediate indignity than being ignored. Directly to the left of his statute, a large, bright yellow poster announces a new ''Business Administration'' course on capitalistic business techniques sponsored and taught by the international accounting firm of Arthur Andersen.

The poster says the course will focus ''the idea of profit and money,'' concepts anathema to Marxists. To add ridicule to rejection, some wit put a paper beer in the discredited prophet's outstretched, disputatious hand.

This has not been Marx's year in Eastern Europe. A visit to this university reveals a great deal about why. Up until a year ago, this institution was named the ''Karl Marx University of Economics,'' but the faculty had abandoned Marxist economics years before the name change. Indeed, much of the basic thinking behind Hungary's economic liberalization began here.

Today, the school continues to play a major role as a ''think tank'' in the country's march toward a free-market economy. Both the foreign minister and the minister for international economic relations taught on the faculty here before joining the new government last spring.

The students present a better barometer of this country's future than the faculty, however. Over a three-day span. I talked with a number of them, in the halls, over lunch in the school cafeteria and over many beers down in the students' basement pub. After midnight my notes became fuzzy, but these young people left me with one clear impression; they believe in the direction in which their country is headed and they have a strong optimism about the future.

Hungary will need its young peoples' optimism because the path ahead is more treacherous than most Westerners realize. The rejection of Marxism was the easiest stop on the journey. The transition from the dead end of a centrally managed socialism to the merciless dynamics of a market economy will not be achieved without substantial pain. Inflation here has already reached 25 percent and threatens to escalate.

Unemployment has already passed 30,000. The government expects it to reach 100,000 by the end of the year, as more and more hopelessly inefficient, state-run factories are allowed to fall into bankruptcy. Unemployment of less than one-tenth of 1 percent would not shock Americans, but joblessness is a new and frightening experience in Hungary where, under communism, heavily-subsidized, state-run factories essentially guaranteed jobs to everyone, regardless of the profitability of the enterprise.

The students I talked with here realize that the most difficult and important economic transition steps remain untaken: privatization and the abolition of overt and hidden state subsidies. Although Hungary began abolishing rigid, Stalinist central planning in 1968, it has never gone beyond that step to establish a true market economy.

State-owned enterprises still account for 85 percent of GNP. Only 2 percent of the country's economic assets and 7 percent of its employment is accounted for by private enterprise. These two figures explain Hungary's continued economic malaise. The well-publicized decentralization of Hungary's economy after 1968 failed to create capitalism's essential ingredient: capitalists.

Hungary is now set to embark upon the privatization of its state-owned enterprises. At first, the government encouraged the managers of its state companies to privatize by establishing joint ventures with foreign companies, but the result soon demonstrated that this process enabled the managers to take ** personal financial advantage -- they ended up with equity stakes and lucrative managerial contracts. The country will not permit such an ungoverned privatization process to create an entrenched managerial class capable of enriching itself at everyone else's expense.

The government is now debating various alternative systems. Soon it is expected to announce a new privatization program which will enable the process to resume. Badly needed imports of foreign investment, managerial skill and technology into Hungary's economy can then operate under a system in which foreign companies know what they are purchasing from whom. The number of privatized joint ventures has already jumped from less than 100 in 1988 to more than 700 today.

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