Economy Of Hungary Essay, Research Paper

During the two decades following World War II, Hungary was transformed from a predominantly agricultural land into an industrial-agricultural state. This transformation was carried out under a system of central planning patterned on that of the Soviet Union. Consumer desires were ignored, tight labor discipline was enforced, and living standards were depressed, so that the largest possible share of Hungary?s resources could be used to develop an industrial base. Investment in industry was encouraged by a tax and subsidy structure that overpriced consumer goods and underpriced the components of heavy industrial goods. The highly centralize panning process often led to inefficiencies, while strict discipline and low living standards led to poor labor performance and popular discontent.

After 1960 the rigid planning policies of the regime were somewhat liberalized. To increase efficiency, modern techniques were adopted to establish production targets, to determine prices, and to allocate resources; and the regime began changes brought about a rise in the standard of living but slowed the country?s economic growth rate. Nevertheless, by the middle of the 1960?s Hungary was one of the most industrialized states of Eastern Europe.

Moving onto production and investment, Hungary is quite detailed. Annual national income in Hungary, as in other centrally planned economies, is measured in terms of net material product (NMP), which assigns values to material goods and “productive” services. In Hungary the NMP includes the values of the goods and services provided by forestry, mining, manufacturing, construction, transport, communications, and trade, and it also includes turnover (sales) taxes. No values are attached to such “unproductive” economic activities as public administration defense, and moist private and professional services.

Hungary?s NMP in 1975 stood at 395.9 billion forints. The GNP as calculated by the World Bank was about 26$ billion, or 2,470$ per person. If the NMP were converted into dollars at the World Bank rate for the forint that year, it would equal $19.8 billion, or about $1,880 per person. This compares with an NMP per person of about $2,390 in Poland, $2,730 in Czechoslovakia, and $4,340 in East Germany in 1975.

Between 1950 and 1960 Hungary?s NMP increased at an average annual rate of 4.9 percent; during this period industrial production grew about 6.8 percent annually and agricultural production only about 1.6 percent. From 1960 to 1974 the NMP grew at an average yearly rate of 5.8 percent: the respective figures for industry and agriculture were 6.9 percent and 1.2 percent.

The share of Hungary?s NMP increased at an average annual rate of 4.9 percent; during this period industrial production grew about 6.8 percent annually and agricultural production only about 1.6 percent. From 1960 to 1974 the NMP grew at an average yearly rate of 5.8 percent; the respective figures for industry and agriculture were 6.9 percent and 1.2 percent.

The share of Hungary?s NMP contributed by industry and agriculture has changed markedly since World War II. In 1938, for example, agriculture contributed 54 percent of the national income, while industry contributed only 37 percent. By 1955 agriculture contributed 31 percent and industry 53 percent. By 1976 the respective percentages for agriculture and industry were 13 percent and 46 percent. About 97 percent of Hungary?s NMP is generated by the public sector of the economy, which includes both state-run and cooperative enterprises.

Communist Hungary has consistently allotted the largest share of investment to industry; in 1975, for example, industry (including construction) received 37.7 percent of the total investment in the socialist sector, while agriculture received only 17.7 percent. Investment in the maintenance and expansion of fixed assets like industrial plants and machinery amounted to 21.9 percent of total investments.

Budapest is the hub of Hungary?s transportation system, which in the mid-1970?s included about 1,050 miles (1,690 km) of navigable waterways, more than 18,000 miles (30,000 km) of roads, and about 8,500 miles (13,700 km) of railroads, about 10 percent of which are electrified. Budapest is also the seat of the Danube Commission, an eight-nation body that controls traffic on the Danube River, Budapest?s Ferihegy Airport handles both domestic and international flights. Malev is the national airline.

Transportation plays an important part in Hungary?s economic system. Hungary?s pattern of traffic has undergone a significant shift from an almost total reliance on rail transport to a mixed system of rail and road traffic, with trucks accounting for the bulk of short-haul freight movement. In the 1950?s railroads carried close to 80 percent of the total freight tonnage, and trucks moved only 13 percent. By 1976 only about 37 percent of all freight was moved by rail, and 56.5 percent was carried by truck. The railroads, however, continued to carry most long-distance freight. Water transport is particularly important for moving heavy materials, such as iron ore and coal. Except for the coldest part of winter, the Danube is navigable throughout Hungary and the Tisza as far as Tokaj.

A key item in Hungary?s economy, would have to be trade. Wholesale and international trade are state monopolies, and all but a small share of retail trade is conducted by state enterprises.

Before World War II Hungary traded primarily with Western nations, and the Soviet Union accounted for less than one percent of Hungarian trade. After the war, this pattern was reversed. In the decade after the Communists came to power, about 90 ,percent of Hungary?s foreign trade was with fellow members of COMECON. Exports included heavy machinery, ships, locomotives and transportation equipment, chemicals, textiles, oil and oil products, ores, and foodstuffs. Hungary?s main imports were heavy machinery, agricultural implements, coke, iron, cotton, wool, and timber. After 1958 Hungary expanded its trade with the West; but exports to Western countries have been only about half the value of imports, with a resulting serious balance of payments deficit in hard currency. Hungary?s exports to Western nations have consisted mainly of foodstuffs, wine, and other agricultural products.

In 1976 the Soviet Union alone accounted for more than one quarter of Hungary?s foreign trade – 27.5 percent of its imports and 30 percent of its exports. Hungary?s major imports from the Soviet Union are oil and oil products, natural gas, coal, coke, electrical power, and tractors and combines. Hungary supplies the Soviet Union with pharmaceuticals, mining machinery and equipment, motor vehicles, and electronic products. East Germany was Hungary?s second most important trading partner in 1976, accounting for 8.8 percent of imports and 9.1 percent of exports. West Germany, Hungary?s principal trading partner among the industrialized capitalist countries, ranked third, with 9.6 percent of the imports and 8 percent of the exports. Czechoslovakia and Poland followed in importance.

The total value of Hungary?s foreign trade in 1975 was $13.3 billion (converted at the rate of 1 forint=$0.117). Exports earned $6.1 billion and imports cost $7.2 billion. The chief export by value are food and love animals, machinery and transport equipment, chemicals and pharmaceuticals, buses, rolled steel, leather footwear, and clothing. The main imports are crude oil, machinery and transport equipment, chemicals, and fertilizers, iron and steel, aluminum, cars and trucks, and raw materials for the wood and textile industries.

The increasing importance of international trade in the Hungarian economy and the different composition of Eastern and Western trade have presented special problems to the economic planners. The variation in the composition of trades makes it difficult to determine which items Hungary should concentrate on producing. The artificial price structure also makes it difficult to know whether it is cheaper to produce an item at home or to import it and use the resources thus released to produce another item.

In trading with non-Communist countries, Hungary has imposed the requirement of “zero-balances,” under which the net result of commercial transactions may not have a negative effect on Hungary?s trade balance. But such rules may be modified for the sake of obtaining capital and technological, managerial, and marketing assistance from the West. Two Budapest agencies, HUNICOOP and INTERCOOPERATION, are now engaged exclusively in broadening Hungarian-Western trade. Licenses to import Western goods must be obtained from the Hungarian government, which from the late 1960?s provided them more readily than earlier. In the late 1960?s Hungary introduced a new protective tariff with different rates for trade with developing countries, trade with industrialized countries and granted Hungary most-favored-nation status, and trade with countries not granting such status.

Cost and Standard of Living are very important parts of every country, Hungary?s are important just like the rest. The highest salaries are earned by the “technical intelligentsia,” such as engineers and chief technicians, and the lowest by service employees and unskilled white-collar workers. In 1976 the average monthly income of an employee in the state-owned sector of the economy was about 3,200 forints. A man?s suit could be bought for 1,840 forints, a man?s shirt for 190 forints, a woman?s dress for 710 forints, and a pair of socks or stockings for 20 forints. Among durable goods, a man?s bicycle cost 1,120 forints, a washing machine 1,720 forints, and a refrigerator 4,870 forints. Working wives are common, and prosperous families are likely to have two or wage earners.

In the mid-1970?s the typical worker?s family spent 40 percent of its income on food, drinks, and tobacco; 15 percent on rent and home heating, utilities, and maintenance; 14 percent on clothing; 10 percent on household equipment and furnishings; 7 percent on transportation and communications; 5 percent on recreation and education; and 2.54 percent on health and physical culture. Spending on durable consumer goods became increasingly common in the 1960?s and 1970?s. As a result, from 1960 to 1976 the number of washing machines per thousand population rose from 45 to 235; the number of electric refrigerators, from 4 to 239; the number of automobiles, from 3 to 61; and the number of television sets, from 10 to 233.

The country, Hungary, in personal terms is not doing to bad as a look from the American student perspective. It may be true, however, that other countries are better off then Hungary, but it is also true that there are many countries that are worse off than Hungary. If the government notes that people are happy and are living in peace and harmony with the economy than they should let it be, although it may not be the most efficient. In conclusion only one quote would be appropriate for not changing the economic conditions of Hungary, “If it?s not broke, don?t fix it”.