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collectivization proceeded sporadically as former landholders showed a grand indifference to working their plots in the name of the state. Many fled the soil or were impressed by the state to work in factories. Food was in short supply, and the cities overcrowded. In 1961 the government could announce that practically all cultivable land belonged to the "public sector," but what it failed to announce was that the campaign of "peaceful persuasion" that brought this result left many with broken heads.

By the 1960's the government's commitment to a succession of multiyear plans had still produced little more than a subsistence economy. Farmers largely were sitting on their hands, while in industry matters were not much better. It was clear that the government had to do something to get the country moving. The answer came in January 1968 in the form of the New Economic Mechanism (NEM), an innovative scheme that provided for the injection into the system of certain thinly disguised and somewhat modified capitalistic features. They included a sort of supply and demand market, managerial and trade union responsibility for planning and production, worker incentive offers, and a profit reinvestment program. In effect, Kadar was conceding that his central economic planners had botched the operation and that local expertise and initiative were needed. The NEM, however, should not be regarded as a shift toward capitalism. Kadar was careful to insure the continued Socialist character of the economy.

As with other Kadar projects, the NEM did not represent a sudden plunge into the unknown. Rather, Budapest had carefully prepared this new departure over a 3-year period. It studied Yugoslav and Czechoslovak precedents and conducted controlled experiments. Only then did it proceed within the limits of the possible. At the start the regime decreed that the program could not result in economic dislocations or increased dependency on the West, nor could it involve any serious break with orthodox views on the socialist planned economy. Thus, the reform retained planning as the key overall guiding force and relied heavily on economic controls to manipulate the market forces inserted in the system.

Except for a few strategic target areas, however, enterprises were freed from centrally imposed output and quality norms. It was up to them to decide what and how much to produce given expected demands, price regulations, and constraints on imports. The rewards for profitability were higher salaries and wages for managers and workers. Moreover, profitable firms were given the means to finance plant expansion and modernization. Though mildly revolutionary in terms of standard Communist economics, the reform was not expected to produce startling results immediately. In fact, progress was slow at first, but at least economic shocks were held to a minimum. More important, the reform endowed the economy with a new rationale, proved agreeable to a public thirsting for a better life, boosted the reputation of the party for clear thinking, and, overall, helped supply the regime with a broader base of legitimacy.

By the advent of 1971 the NEM had begun to show signs of success. Industrial productivity rose nearly 10% in 1970, a marked improvement compared with previous years. Trade with the West increased significantly, and consumer goods were in far larger supply. But just when the regime was starting to congratulate itself, setbacks occurred and were severe enough to demonstrate that the NEM was no panacea. The warning sign came in duplicate: runaway investment totals and a record trade deficit. After considerable delay, during which the Soviets made unpleasant noises about the direction the Hungarian economy was taking, the regime took corrective measures. By so doing, it seemed to concede that a larger measure of central direction than envisioned under the NEM was necessary for economic equilibrium in Hungary.

In the larger view, Hungarian economists also have had to concede their inability to overcome either Mother Nature or human nature. Mineral resources are limited, leaving the country highly dependent on foreign sources—chiefly the Soviet Union and allies—for such basics as iron ore and energy-producing materials. A small population means both a chronic labor shortage and a continuing search for foreign markets to supplement the small domestic market. Coming late to the industrial scene, Hungary suffers a dire shortage of expert managers and skilled workers, and piracy of good administrators and artisans is common.

Under the NEM, some crafty types in important places have enriched themselves, in party by succumbing to the old national labor of accepting a little under-the-table money. Workers have complained about getting a smaller share of the profit pie than do plant managers. Party loyal bureau[crats]

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