Ownership Relations

INTRODUCTION

Marx and Engels believed that the communist economy would be a marketless economy, based on collective ownership of the means of production. In their Manifesto of the Communist Party (Marx-Engels Reader, 1978) Marx and Engels characterised bourgeois private property as ‘the final and most complete expression of the system of producing and appropriating products that is based on class antagonism, on the exploitation of the many by the few’ (p.

Marx and Engels made it clear in their Manifesto of the Communist Party (pp. 484-5) that their call for the abolition of private property referred to bourgeois property. They assumed that the property of petty artisans and small peasants would be destroyed by industry. From the same work it is also clear that socialisation of the means of production should proceed gradually.

It can be assumed from their writings that nationalisation of the means of production was for them only the first step in the process of socialisation of the means of production. Since their objective was to create associations of producers which were self-managed, it is only natural that in their concept producers were supposed to have control over the means of production.

NATIONALISATION

The Bolsheviks seized power in 1917 with the intention of crushing capitalism and building a socialist system in its place. Socialisation of the means of production was regarded as one of the most important means of achieving this goal. The Bolsheviks intended to carry out socialisation in non-agricultural sectors first in the form of nationalisa­tion, which in the Soviet and later in East European practice meant confiscation. Only foreign owners got some compensation after long negotiations. Agriculture was not regarded as ripe for socialisation for political (in order not to endanger the alliance with the peasantry) and economic reasons (because of its huge dispersal into many small holdings). However, one of the first decrees of the Bolshevik government in 1917 confiscated large estates, formally nationalised agricultural land and limited the amount of land peasants could hold to their capacity to cultivate it.

The Bolsheviks did not intend to implement nationalisation right away after the seizure of power. The first provision in this area was only a decree on Workers’ Control (14 November 1917), which entrusted workers with the right to supervise management and control production (Dobb, 1966, p. 83). The Civil War, which accelerated the already-existing chaos in the economy, was instrumental in precipitat­ing nationalisation. There is some evidence that the Bolsheviks wanted to limit nationalisation to a certain number of enterprises of great importance and to preserve a mixed economy for some time (Nove, 1982, p. 54). Even the leftists of that time, Bukharin and Preobraz- henskii, suggested leaving small scale production out of nationalisa­tion. Though there were no good economic reasons, small-scale production was also nationalised by the end of 1920 (Nove, 1982, pp. 69-70, 77) and, with this, the preconditions for the working of market forces were largely eliminated.

The new economic policy (NEP) meant a change in nationalisation. A 1921 decree returned all enterprises with less than 20 workers to their original owners, or allowed such businesses to be leased to other people.

The two provisions (partial denationalisation and abolition of compulsory deliveries) meant a restoration of market relations including a revival of money circulation in much of the economy. This process was strengthened by the introduction of a new stabilised currency (1923). The fact that large enterprises, though they remained in the hands of the state, were given quite considerable autonomy and were operated on the profit principle, also fostered market forces.

NEP came to an end, and with it coordination of the economy by market forces, with the start of the planned economy and with the collectivisation of the means of production in agriculture (private plots are disregarded here). The first five year plan with its problems and difficulties in grain supply was instrumental in putting the intended collectivisation on the agenda earlier than had been expected.

The Soviet pattern of socialisation of the means of production was in substance adopted by East European countries. However, it was not carried out in its entirety right after the Second World War. At that time, the Soviet Union was interested in maintaining good relations with the West, and therefore tried to avoid measures which might tarnish these relations. Also, the CPs, for internal political reasons, did not want to disrupt the coalition with non-communist parties which existed at that time in most countries, all the more because the question of ‘how’ and ‘when’ political power would be seized was not clear. For all these reasons, the CPs embarked basically on a two-stage nationalisation programme.

As soon as the CPs seized political power (in 1948-9), they forgot their promises. A drive for fully-fledged nationalisation came into motion, a drive which included a variety of methods, ranging from tightening the tax screw and barring access to raw materials to pressure and intimidation. In a relatively short period of time, the private, non- agricultural sector was liquidated in most countries. True, a small part of the private sector was turned into cooperatives; however, they were subordinated to the control of the state bureaucracy too.

Soon after the start of the second stage of nationalisation, a big push for the collectivisation of agriculture started. Though East European countries did not use as much violence as the Soviets did, collectivisa­tion was not free of pressure and intimidation. As in the USSR, members of the collective farms were allowed to own a small private plot where they could keep animals as well as cultivate certain crops for their own needs and mostly also for sale.

All-embracing nationalisation meant also an elimination of many small factories and service businesses in the hope that their production would be transferred to larger and more efficient units. Socialist countries were from the beginning attracted to the idea of concentrat­ing production as a way to simplify the organisation and administra­tion of the economy, and to harness the advantages of economies of scale. In the course of time (in the smaller countries in the late 1950s and 1960s, in the Soviet Union later) the countries, as already mentioned, became obsessed with concentration, some viewing it as a substitute for a genuine reform.

In reality, the structure of production, which had evolved through many decades, was broken up by nationalisation and was not properly replaced. In a market economy, producers incessantly scrutinise existing or potential market demand and adjust their productive capacity to it. Therefore, under peaceful conditions, a newly developed demand will usually be satisfied rapidly. In the traditional system, the central planners determined what the needs and possibilities of the economy were, and enterprises produced in substance what the planners told them to produce. With the best will in the world, the planners could not have all the existing million and a half products in evidence. Their interest was focused on large-ticket items and what in their eyes were items of central importance. In addition, enterprise managers were primarily concerned with the fulfilment of plan targets. The leeway they had in determining the product mix and quality of products was used according to their interest. If market demand coincided with their interest, enterprise managers would satisfy it. If not, as has been shown, they would act contrary to market demand since their financial well-being, as well as that of their employees, did not depend on satisfying market demand.

The way that collective assets were operated also contributed to the failure of the system. It was expected that collective ownership would eliminate the alienation of workers and instil in them a feeling of co­ownership; this in turn would be translated into good care for the use of resources and an encouragement to do hard and quality work. Such expectations turned out to be an illusion. The communist elites made little provision for expectations to turn into reality. Nationalised enterprises were turned into state enterprises without workers being given a real voice in decision-making about the use of the means of production.

The CPs were reluctant to give workers a say in the utilisation of the enterprise assets. Their resistance to any real workers’ participation increased once the Yugoslavs started to introduce a self-management system which was anathema, mainly to the Soviet leaders. In the final analysis they saw self-management as a serious threat to the leading role of the Party.

For all the reasons mentioned workers did not feel themselves to be co-owners of state enterprises; to a great extent they viewed state ownership as property belonging to no one and treated it accordingly. They did not fight waste and theft; instead many of them participated in thefts.¹

Sweeping nationalisation was one of the contributing factors to shortages, low-quality goods and low productivity.

THE IMPACT OF THE ECONOMIC REFORMS

I have discussed economic reforms in Chapter 7. Here I will discuss their impact on the approach to ownership. But, before I start to discuss the topic, several paragraphs will be devoted to the changes in policies v⅛-d-v⅛ the private sector before the reforms started.

The first change in policy towards private ownership occurred in 1953 after Stalin’s death. The ambitious medium-term plans adopted by the three countries brought about great imbalances in the economy. Shortages of raw materials as well as of consumer goods emerged; the latter resulted not only from neglect of consumer goods industries, but also from the forced collectivisation of agriculture. The situation was compounded by the decline in the standard of living. In all the three countries dissatisfaction and tension were spreading. The authorities decided to act: they made changes in national plans, reduced investments and released more resources for consumption. What was also important was that they allowed collective farms to be dissolved. In Czechoslovakia, where only a small percentage of collective farms took advantage of it, the breakup of the farms was only a temporary phenomenon. Soon the authorities started to push collectivisation again. In Hungary the breakup of collective farms and the flight from them started in 1953 and was accelerated after the 1956 uprising.² In the beginning of the 1960s» collectivisation was resumed, though in a way which was more acceptable to the peasants. In Poland collectivisation proceeded much more slowly than in the other two countries: in 1955 it encompassed only 9.2 per cent of the agricultural production area, with 205000 members. In 1965 the number of members in collective farms was only 21 000. The predominant part of Polish agriculture remained private (Jezierski and Petz, 1988, pp. 213 and 302). In 1960, when collective farms in Czechoslovakia were active on 84.2 per cent of the cultivated area, the figure in Poland was 1.1 per cent of the total arable land (Brus, 1986, p. 80).

In 1956, after the Polish riots and the Hungarian uprising, small private ownership got a reprieve in the two countries mentioned. The Polish CC in October 1956, several months after the riots in Poznan which brought about a new leadership of the CP headed by W. Gomulka, decided to ease the rise of private small-scale production, as long as the supplies of materials were not at the expense of state enterprises and cooperatives. According to Aslund (1985, p. 55), the permission to expand private businesses had four objectives: to create new job opportunities, increase the standard of living (probably by satisfying demand), utilise free resources and develop backward regions. As a result of this policy, the small private sector, mainly retail trade, increased considerably. Later, some restrictions were imposed, but still the private non-agricultural sector survived.

In Hungary, too, the government tried by various measures, including tax relaxation, to encourage the expansion of the private sector. It also allowed some shops as well as catering outlets to be leased. The main purpose of this action was to reduce the political tension which the suppression of the uprising produced and also to alleviate shortages (Peto and Szakacs, 1985, pp. 317-18).

The reforms of the 1960s did not bring about a substantial change in attitude to private ownership. However, small private ownership was allowed to expand. This was also the case in Poland without a major economic reform. Even Czechoslovakia, where nationalisation and collectivisation were almost complete, allowed some room for private ownership. Yet in all the three countries collective ownership remained the foundation of the economic system. Few dared to challenge collective ownership because in doing so they challenged socialism. The majority of even the most radical economists did not take the position that the functioning of the market presupposes pluralisation of ownership, or more precisely private ownership. They believed, as has already been mentioned, that the market could be made workable if enterprises were given full autonomy.

The permitted expansion or resurgence of small businesses, mainly in services, was combined more with political considerations and the desire to cope with shortages than with the intended supplementation of planning by the market as a coordinating tool of economic activities. For example, the Czechoslovak Action Programme of the CP, which was adopted in April of 1968 and which was a programme of reforms, reads: ‘in the sphere of services small businesses have their justification... they should fill in the gap in the market’ (Rok..., 1969, p. 129).³

The situation changed in the 1980s, mainly in the second half, but only in Hungary and Poland. In Czechoslovakia, compared with the other two countries the changes can be characterised as marginal.

In Hungary the private sector in agriculture as well as in the non- agricultural sphere was slowly growing. In 1978 245000 people worked in the legal private non- agricultural sector; of them, 44 per cent were independent small-business people and 22 per cent performed business activities besides their full-time job. People working in the private sector had quite good earnings; they did not have to undergo so much competition as before the seizure of political power by the communists. Since in practice the issuance of business licences was limited, and many were afraid for various reasons to apply for one, those who had a licence were in a sense in a monopoly position (Gabor and Galasi, 1981).⁴

In Hungary in 1981 a considerable expansion of the non-agricultural private sector occurred as a result of new legislative measures. It should be made clear right away that these measures were not a challenge to state ownership, though they brought changes to what had been previously thought to be the place and the role of the state sector. The 1981 legislation created conditions for small cooperatives and private producers as well as for work teams within state enterprises. The small cooperatives, which could include 15 to 100 people, could work in various sectors other than agriculture. They differed from the well- known large non-agricultural cooperatives in several respects. In the large cooperatives the ownership question was pushed into the background: the cooperative members were viewed by the authorities as caretakers of the property rather than as owners. In the case of small cooperatives the members were the real owners. To become a member of a small cooperative it was necessary to pay a membership contribution amounting to at least two weeks* basic wage. In the decision-making all the members were to take part; representative decision-making, applied in large cooperatives, was not permissible in small ones (Falusne Szikra, 1986, pp. 178-80).

Private artisans could work in different areas. What was new was that the issuance of permits was simplified and that artisans were allowed to employ three non-family members and could perform jobs for state enterprises. The latter was a great concession and a sign that the authorities were moving in the direction of putting both the state and private sectors on a more equal footing. In the past the authorities had insisted that the two sectors should be strictly separated. They had some ideological as well as practical reasons for this. They were afraid, and rightly so, that the cooperation between the two sectors would open the door to various phenomena of corruption and theft.

Work teams were an entirely new institution. In brief, work teams were small self-managed units, comprising 2 to 30 workers and technicians, to whom enterprises contracted out work which was performed after regular work time. Initially, work teams consisted of the best and most respected blue- and white-collar workers. The contracted-out work was performed with enterprise machinery and equipment; originally no rent was paid for their use, later some rent was introduced. The work teams were allowed to bargain directly about the work to be performed and the price of the contract. Originally it was assumed that the work teams would perform different work after work time than in their regular work time. Wage regulation did not refer to the activities of the work teams, a circumstance which considerably reduced the opposition of many managers to their creation.

The rise of the work teams was motivated by labour shortages and maybe even more by the desire to counter the spreading discontent over the decline in real wages and to introduce a new element in wage differentiation. The much higher earnings made by work teams than it was possible for workers to achieve in overtime work for one hour of work benefited primarily the labour elite. And this was not accidental. The authorities hoped that by gaining the support of the elite they could influence the rest of the workers.

The work teams helped to solve some economic problems, such as coping with labour shortages and fulfilling delivery contracts, but at the same time they contributed to the worsening of labour discipline and tensions in enterprises. Many workers who wanted to, but could not, participate in the work teams were angered. Their anger was increased when they learned that work teams received higher earnings for the same work which was performed in normal work time (for more about work teams, see Adam, 1989a; Kovari and Sziracki, 1985; and Revesz, 1986).

In 1983 a new private business form came into being: economic labour cooperation (gazdasdgi munkak∂zδsseg). Members of this new form could continue working in the socialist sector and perform private activities after work time, like the work teams, with the difference that they had to perform their activities outside state enterprises. In addition, they were allowed to hire a limited number of employees and the participants in this new form were liable for any debts to the extent of all their assets (Falusne Szikra, 1986, pp. 182-3).

Needless to say, work team activities as well as activities in the private sector outside enterprises, which were performed by many as a second job, had a negative impact on health and family life.

The above-mentioned legislative changes created preconditions for a rapid development of the private sector. Of course, besides the legal second economy, a large illegal economy existed, primarily in house construction and apartment maintenance. According to some estimates the number of people engaged in such activities amounted to 275000. Most of the illegal activity was performed as part-time work. Part of the illegal activity was the work of the legal private sector; it resorted to such activity for two reasons, one being that the licence it had did not allow it to be engaged in the activities it desired, and the second being to avoid taxes (Falusne Szikra, 1986, pp. 214-15).

In Poland in the middle of the 1970s the private sector got new stimuli to expansion. Some of the measures were enacted before the aborted price increases in 1976, and some afterwards. The authorities increased their support for private agriculture. Specialised agricultural units were given various advantages in order to encourage increased production. What is perhaps no less important is that private farmers were put on the same footing as state employees for social security provisions, with certain qualifications. In order to get a pension they were obliged to sell a certain amount of output to the state procurement agencies (Mizsei, 1990, pp. 111-12; Lammich, 1978).

The government came up with several provisions aimed at encouraging the expansion of small private enterprises. It loosened the taxation screw and allowed artisans to employ, besides members of their own family, three people (one fully employed and two pensioners). Before, artisans had not been allowed to employ non­family members unless they received special permission. In addition, social security provisions for artisans were improved. Domestic trade organisations were allowed to lease trade units to private persons (Lammich, 1978; Aslund, 1985, pp. 106-8).

In 1976 the Polish government for the first time invited foreigners to invest in Poland. It took, however, several changes in the conditions for investment before the invitation started to attract foreigners (Mizsei, 1990).

The 1981 reform in Poland did not bring any changes to the role of state ownership; neither did Solidarity challenge it in its official statements before martial law was declared. Perhaps the reform proposal of NET (a grouping of Solidarity organisations in large enterprises) (1981) went furthest when it suggested allowing the expansion of the private sector. However, even this called for certain limitations (no specifics were mentioned), and once these limits were achieved, private enterprises should have been turned into mixed enterprises in order ‘to reduce incentives to luxury consumption’.

Yet the 1981 economic reform brought about favourable conditions for the expansion of the private sector. In 1982 the government decree (Reforma Gospodarcza, 1983, p. 59) allowed the sale of small businesses as well as service outlets to private persons. Those interested in such sales were extended low-interest credit in order to be able to pay for the purchase.⁵

Of course, parallel with the expansion of the legal private sector was a booming illegal private sector in Poland. Its expansion was fuelled by the growing shortages which were quite large in 1981 and 1982, by obstacles to entry into the private sector and by the expectation of huge profits on which taxes would not be paid (cf. Mizsei, 1990, pp. 174-5; Kaminski, 1991, p. 183). The black market with foreign currencies, which started to develop in the middle of the 1970s, took on huge proportions in the 1980s and increasingly undermined the zloty as a medium of exchange and store of value. The black market in currency was indirectly supported by government hard currency shops and made possible other illegal transactions, such as the smuggling of goods from abroad.⁶

Self-management

The expansion of the private sector did not bring about a change in the state sector and, moreover, it was not a challenge to the latter. The introduction of self-management in state enterprises in Poland in 1982 and in Hungary 1985 meant a change in the exercise of property rights, but not in ownership itself; state enterprises remained the property of the state. In Czechoslovakia, unlike the other two countries,⁷ self­management was introduced for the first time in the middle of 1968, but lasted only for a short time; with the ousting of Dubcek and the dismantlement of the economic reform, self-management was abol­ished. It was reintroduced with the reform of 1987.

The concept of self-management varied in its application in individual countries. In Czechoslovakia in 1968 the self-management bodies had very limited authority; rather they performed an advisory role. In the beginning of 1969 workers in many enterprises pushed through a self-management concept which gave workers a much greater role, but it was short-lived.

In Poland and Hungary in the 1980s the instituted self-management system meant a real change in management structures, where it was applied according to the spirit of the law. The legislation on self­management gave self-management bodies important decision-making rights. In substance there were two groups of decisions which were delegated to the new management bodies: one referred to the strategic policy of enterprises and the second to the appointment of top managers. The first group of decisions was already largely in the hands of enterprises in Hungary; the changes approved in 1984 by the CC lay in this group of decisions being expanded and formally transferred to the new self-management bodies, though not in its entirety. The self­management bodies in Hungary were given the right to approve the annual plan of their enterprises, make decisions about splitting their enterprises or merging with other units, about the founding of branches etc. (see CC decision, TSz, 1984, no.5). In Poland the self-management bodies received similar rights (see Reforma Gospodarcza, 1983, pp. 18-20). Since Poland did not go through such far-reaching reform as Hungary did in the 1960s, its enterprises did not enjoy the kind of autonomy the Hungarian enterprises did, and therefore in Poland the institution of self-management meant in substance a transfer of rights from the ministries to self-management bodies.

The second group of decisions was transferred directly from the ministries. It referred on the one hand to appointment of top managers and on the other to the evaluation of their performance. On the appointment of top managers, the solution was not the same in the two countries. In Hungary, the ministry (the founder) had in fact the right of veto in the case of appointment as well as dismissal of top managers.

In Poland, the appointment of top managers was in the hands of self­management bodies in less important enterprises only. The evaluation of the performance of top managers was left to self-management bodies in Hungary.

The far-reaching economic reforms of the 1960s in Hungary and Czechoslovakia meant a transfer of certain property rights from the authorities to enterprise managers. The introduction of self-manage­ment in Hungary and Poland in the 1980s was a further transfer of property rights; this time primarily to self-management, or top management where self-management bodies were not able or willing to use the rights which were given to them. The ownership of enterprises remained, of course, in the hands of the state. Managers or self-management bodies were entrusted with the use of resources in the hope of their more efficient use. F. Havasi (1984), the Economic Secretary of the Hungarian CC, wrote the following about the changes in 1984: ‘The purpose of the change is that, while maintaining the state character of ownership, the mode of disposal of property and the exercise of the employer rights should be made more efficient’.

Managers and self-management bodies were given not only rights to use resources more efficiently for the sake of a better performance, but also certain rights to the results (usufruct rights) of enterprise activities. But I do not think that this gave managers a title to future benefits from the resources used, so-called vested rights, as it is argued in the Economic Survey of Europe (1992, ρ. 202). Never was such a promise made. It was always understood that, once managers quit the enterprises which were entrusted to their management, they had no claim to any enterprise assets. There were suggestions that dividends should be extended from investment to employees of enterprises after they quit their jobs. This arrangement was supposed to aim primarily at older employees in order to increase their interest in investment. As far as I know, there was no attempt to turn this idea into reality.

Self-management was introduced in the hope that this would enhance the autonomy of enterprises and turn the old socialist promise of industrial democracy into reality and thus instil a feeling of co­ownership in employees. However, self-management did not greatly change the attitude of workers to state ownership. There were several reasons for this. In neither of the two countries was the self­management institution very active. According to some estimates employees in 15-30 per cent of enterprises took advantage of the rights given to them by the legislation. Most workers were not interested in participation, and many were discouraged by the fact that it was difficult for the self-management bodies to assert their rights in the face of resistance by the top management.⁸ In addition, the authorities in both countries were not eager to turn self-management into an effective institution. In Hungary the institution did not have much support among the leading economists; they believed in B. Ward’s conclusions (1958) about self-management with regard to unemployment and investments and were afraid that self-management would generate inflationary pressures. For them the idea of self-management did not have emotional connotations as was the case with many Polish economists. Nor was it an article of ideology, and therefore they were not willing to pay a price for industrial democracy. The increasing problems with self-management in Yugoslavia diminished the attrac­tiveness of the idea. When the fight for private ownership became the agenda of the day, self-management lost its appeal almost entirely, primarily in Hungary. In the transition to a market economy self­management was slowly liquidated in both countries. (For more about self-management see Adam, 1989 and 1993).

The Second Half of the 1980s

As already mentioned in Chapter 7, Poland and Hungary came up with new reform programmes in 1987 which promised changes in ownership relations, though not dramatic ones. The promises opened the door to discussion about state ownership, which had been more or less sacrosanct until that time.

The Polish Theses about the second stage of the reform (Supplement to Rzeczpospolita, 17 April 1987) promised to create legislative and economic conditions for the development of the small-scale private sector in retail trade, catering and services. It also promised to facilitate the rise of mixed enterprises, in which private persons and private business could take part, but no details were mentioned. But the Theses made it clear that state ownership was continuing to be the basis of the system.

The publication of the Theses caused quite a lot of resonance, some critical and some positive. It is interesting that there was no great criticism of the approach of the Theses to ownership. In its position paper regarding the Theses the Association of Polish Economists did not even mention the private sector (ZG, 1987, no. 19). The situation soon changed in Poland; the attempt to mitigate the existing market disequilibrium by price increases failed, as has already been mentioned in Chapter 8. Workers reacted to price increases by demands for higher wages, demands which they backed up by strikes and strike threats. Being politically in a weak position, the government retreated. The end result was that market disequilibrium became even worse. In addition, the price manoeuvre changed the power relations between the government and Solidarity. The latter, which had gone into a decline, became active again and its influence and prestige grew fast. The increasing feeling that communist rule was coming to an end made social scientists think about the transition to a market economy. In 1988, the first studies about privatisation appeared.⁹

Needless to say, the expansion of the private sector in Poland continued; on the one hand new businesses were established and on the other hand, the government continued renting and selling small-scale businesses. In the period 1980-7 employment in the non-agricultural private sector (included are only employees whose main employment was in that sector) grew by 77 per cent and amounted to 6.2 per cent of the total employment in the economy (ΛS, 1988, p. 390). However, the share of the private sector as a whole, including agriculture, in employment declined because of the considerable flight from agricul­ture, which was private in Poland. The growth of the illegal private sector was even faster. Kaminski (1991, p. 183) estimates that the share of the second economy in total personal incomes tripled between the 1970s and 1986 (from 5 per cent to 15 per cent).

In 1989 the government concluded that the only way out of the political crisis was a dialogue with its rival, Solidarity. In the ensuing round-table dialogue the two rivals agreed on a free pluralisation of ownership (ΓL, 7 April 1989).

The 1987 Hungarian reform programme adopted by the CC, and the government programme based on the CP programme (Nsz, 4 July and 19 September 1987, respectively), did not mean a breakthrough in privatisation. The CP stressed only that private activities were an integral part of the socialist economy and that there should be cooperation between small-scale and large enterprises. It indirectly stressed that collective ownership should play a decisive role in the economy.

Radical reformers went, of course, further than the government. The already mentioned study ‘Turning Point and Reform’ (1987) demanded the opening of the door to all forms of ownership. Soon Hungarian economists, perhaps with greater caution than their Polish colleagues, came up with suggestions on how to privatise the economy.¹⁰ In 1988 the government approved a new corporation law which gave managers, in cooperation with self-management bodies, the right to make enterprises fully autonomous and under certain conditions to privatise them (Stark, 1991).

As in Poland, the private sector in Hungary also continued to grow and with it the underground economy, primarily in construction. In the period 1980-7 employment in the private sector as the main employer grew by 59 per cent and in 1987 amounted to 5.2 per cent of the total economy (SE, 1986, p. 55). Of course, the number of people involved in the private sector was much higher. The same phenomenon existed in Poland.

In Czechoslovakia, the private sector was negligible and had no effect on the fate of socialism. In 1980 the share of employment in this sector in total employment was 0.003 per cent and increased to 0.005 per cent in 1986 and to 1.3 per cent in 1989 (in the Czech republic), the year of the velvet revolution (SR, /987, p. 191, and SR, 1993, p. 181).

PRIVATE OWNERSHIP AND THE COLLAPSE OF THE SOCIALIST SYSTEM

There is no doubt that the legalisation of the private sector did not undermine the socialist system. On the contrary, it helped to stabilise it; it aided in minimising or overcoming shortages in the economy which the state sector with its excessive concentration on producer goods could not handle. It mitigated the unsatisfied demand for services. It also gave satisfaction to a segment of the population which was always interested in entrepreneurship. In this sense it brought not only an improvement in the economy, but also stabilised the system politically. This is true about the 1960s and the 1970s.

This is not to say that allowing the private sector had only positive effects from the viewpoint of the regime. The expansion of the private sector could be seen as an admission on the part of the communist leaders that the private sector was indispensable for the good working of the economy and that the predictions about the superiority of collective ownership had not materialised, at least not to the extent promised. It goes without saying that the expansion of the private sector fuelled anti-socialist propaganda: it was argued that the communists were abandoning socialism and adopting capitalism. Even some Westerners who sympathised with socialism expressed concern as to whether the expansion of the private sector might not open the door to capitalism.

As has already been indicated, in the 1980s, particularly in the second half, the legal, and even more the illegal, private sector expanded rapidly in Poland and Hungary. This was at a time when in both countries, particularly in Poland, the economy found itself in a crisis. In addition, again mainly in Poland, the communist leaders were increasingly losing their grip on the country. The question can be asked whether the private sector in the changed conditions was still a stabilising factor or, on the contrary, contributed to the collapse of the socialist system. Due to the different economic and political conditions in the two countries the impact of the private sector was different to some extent.

In Hungary many believe that the expansion of the private sector was one of the factors which brought down the socialist system. This is also the view of I. Szelenyi (1990a), who in an interview maintained that ‘Over a period of several decades, a radical embourgeoisement process disintegrated the communist fabric, restructured the bureau­cratic system’s consciousness and life style and undermined its ability to govern’. According to him embourgeoisement, which was brought about by the sale of products produced on private plots on the market, was a no-less-important factor in bringing down the system than the economic reforms and their architects, the intelligentsia.¹¹ He also denies that Gorbachev’s reforms should be blamed or given credit for the collapse.

He also believes that the private sector was a stabilising factor in the 1960s and 1970s, and even maintains that it was able to compensate for government failings. However, in the 1980s it was no longer able to offset the increasing failings of the socialist system. There is some contradiction between his thoughts mentioned in the previous paragraph and those in this one in relation to the 1980s. If embourgeoisement was one of the factors, which brought down the system, how could it offset the government failings? If embourgeoise­ment was such a stabilising factor how could it bring down the socialist system? An interview is not a scientific piece, and a contradiction can easily creep in.

Some believe that the private sector should not be blamed for the collapse. A former member of the Hungarian CP politburo told me that the communist leadership did not view the private sector as a threat to the system and was determined to expand its activities.

In my opinion it is necessary to distinguish between the private sector in agriculture and that outside agriculture, when the role of the private sector in bringing down the socialist system is discussed. The Hungarian private sector in agriculture (meaning primarily activities of collective farmers on their private plots) was no threat to the system. In Hungary more than in other countries with collectivised agriculture, the private sector had easy access to the market (Waedekin, 1985, pp. 443-4) and did quite well. Probably collective farmers who were engaged in producing for the market did not like the regime, as Szelenyi argues. However, the same farmers were members of collective farms and as such the majority had no good reason to be in opposition to the regime. None of the socio-economic groups in Hungary fared as well as collective farmers. Most collective farms were engaged in activities outside agriculture which added income to that which they had from their main activity (which on the average was not much lower than in industry) and provided employment to many members during the off-season. In addition, farmers got credit with very favourable conditions for the construction of housing. The fact that most farmers are at present in favour of maintaining cooperatives is the best evidence that they did not fare poorly under the old system.

The Polish private sector (meaning primarily farmers who derived their earnings from working on their own land) was in a different situation. The agricultural reform of 1981 met many of the complaints of the private sector (among others it enabled better access to investment goods and purchase of land) (sec Cook, 1986, p. 66), but at the same time its financial situation worsened. The private sector was not spared the general decline in the economy and earnings. Compared to 1978 (equal to 100), when the real earnings of private farmers achieved their peak, they amounted in 1987 to only 73.5 per cent. (See RS_i 1988, p. 300.) Under such conditions one cannot expect that private farmers would be great supporters of the regime.

The non-agricultural private sector in Hungary was in a different position than the agricultural to some extent. In the 1960s and 1970s it did not have good reasons to oppose the regime, though it did not like the limitations imposed on it and the tax screw. As mentioned, the private sector had a monopoly position due to the barriers to entry. In the 1980s the private sector involved a majority of the population to different degrees.¹² However, only a small proportion of employees involved in the private sector had their main income from that sector. A majority, including many small employers, continued to be employed in the state sector and supplemented their income from compensation received for services to the private sector.

Of course, such an arrangement did not have a positive effect on the population’s attitude to the socialist system. This appeared to them to be evidence that the socialist system was no longer able to ensure a reasonable income. What was no less important was that two and sometimes three jobs meant a great claim on working time and human energy, which in many cases was an irreparable threat to health. In addition, it is also important to remember that unlike the West, where services provided by the underground economy are cheaper than those provided by the legal economy, in socialist countries services purchased from the private sector, whether legal or illegal, were much more expensive than those from the state sector. This was so because the state sector was not able to provide the services or could only provide them with great delay, and the quality of services provided was often poor. Services provided by the private sector were mostly not accessible to low-income groups, a situation which generated aversion to the sector by these groups.The private sector by its very existence strengthened the propaganda argument that the socialist system had exhausted itself and was irreformable.

In Poland, the situation was in essence similar to the one in Hungary with regard to employment in the non-agricultural private sector. This Polish sector played, however, a much more active role in the disintegration of the socialist system than in Hungary. It was bigger, and the illegal sector was much more powerful. The activities of the latter were a testimony to the government’s mismanagement of the economy and were a powerful factor in discrediting the system.

Thus in the 1980s the non-agricultural private sector in both countries was no longer neutral, unlike a large part of the private sector in the 1960s and 1970s. It saw the system as an obstacle to its expansion and joined the forces which brought down the system.

CONCLUDING REMARKS

The small countries did not manage to instil a feeling in workers of being co-owners of capital assets, which might have manifested itself in a commitment to responsibility for the performance of the economy. Perhaps the most important reason for this failure was that the communist leaders were not willing to involve workers in the decision­making process about the use of the means of production. They were apparently afraid that once workers were involved, they would exert pressure for the extension of the jurisdiction of enterprises, which might in the final analysis reduce the leading role of the Party. When the CPs finally agreed to the introduction of self-management, it was already too late to bring about a turnaround in the attitude of workers to state ownership.

Had the Soviet Union, after World War II, allowed at least small- scale private businesses to exist without impediment and had East European countries followed suit, socialist countries could have avoided many of the economic difficulties they experienced - shortages, the low quality of goods and a narrow product mix. The private sector would have competed with and complemented the state sector. Not only this, but the private sector would have expanded market relations with many of the associated advantages: it would have strengthened incentives and pushed for a more rational allocation of resources.

The non-agricultural private sector, if handled properly, might even have been a politically stabilising factor by its contribution to a better performance of the economy. In addition, it would have met the aspirations of people who desired to make a living as independent entrepreneurs. True, not all small entrepreuners would have been satisfied with the limitations on ownership, but there is no reason to think that they would have been as much of a danger to the system as they were in Poland and Hungary in the second half of the 1980s. There the private sector, mainly the illegal one, could play the role described because the economies of both countries, particularly in Poland, were in deep crisis in any case and, in addition, the socialist system was in the process of disintegration.

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