Hungary since Communism

After many years, a new bridge was opened in 1995 in Budapest. Besides reports covering the opening, one of the domestic newspapers published a caricature. The drawing showed a happy gathering of people in tuxedos and evening gowns on the new bridge just about to open a bottle of champagne, while underneath bagmen are taking cover in the corners.

In order to appreciate the problems and difficulties facing Hungarian companies in this period of so-called transition it is necessary to have an understanding of the former system of economic management.

Following our presentation of the economic system which prevailed in Hungary under the communist regime, we now intend to explore some of the characteristic features of enterprises themselves. In so doing, we will pay particular attention to the conditions of workers and those who were responsible for directing the workforce as well as to the relationship between workers and their managers.

The decade between 1985 and 1995 can be deemed a special transition period in the history of Hungarian society and the economy. Those talking about the beginning of the ‘change of regime’ usually mean the happenings of the spring of 1990 or, more particularly, the first free and democratic elections that took place at that time. As a matter of fact, there were more changes happening on the surface of political life in this period than during the preceding two decades. That is, however, the surface only: the transformation process started much earlier in the deeper strata; without this the change of regime would not have happened the way it actually did.

The case of MOL covers a multiplicity of issues resulting from the government’s decision to terminate MOL’s monopoly position and to break up the enterprise into a number of privatized companies. The case of MOL is also significant because it represents the largest single privatization to date in Central and Eastern Europe.

The BERVA case study identifies a number of key issues which have manifested themselves in the process of transforming Hungarian enterprises. BERVA, a traditional engineering company, has had to come to terms with the loss of its traditional markets, particularly in the former Soviet Union, as well as the changes in the domestic and other markets it continues to serve. Additionally, BERVA has experienced a change in the relationships between its suppliers and customers, coupled to the increasing involvement of foreign companies as potential ‘partners’ and competitors.

The case study illustrates some of the issues facing a former foreign trade organization as a consequence of the loss of its monopoly position. Metrimpex has had to come to terms with its own autonomy in a context of new market relationships, including an upsurge in competition from new entrants to the industry.

This case study is illustrative of the way foreign direct investment, in this example acquisition, can help to transform an organization. Acquisition provided the company with access to the new owner’s resources, comprising knowledge of marketing and brands and new technology for production and management information systems (MISs). The former pre-eminence of production has given way to an emphasis on the marketing, selling and distribution of a streamlined product portfolio of international and domestic brands. In tune with general trends this overall process of change has resulted in a much slimmer organization. An interesting aspect of the case study concerns the influence of Hungarian consumer tastes on the company’s product lines. This is evident in the adaptation of products to local tastes and in the revival of sales of traditional products and lines.

The case study exemplifies a range of issues. The erosion of long-established relationships within the Hungarian pharmaceutical industry, coupled to a a substantial drop in state funding, has impelled the Institute for Drug Research (IDR) to rethink its traditional position and purpose. From being a predominantly research-oriented institute IDR has to become increasingly business-minded, seeking domestic and foreign customers willing to pay for its expertise.

The case study utilizes the experiences of two small high-tech companies to illustrate some of the issues facing similar companies in Hungary. These companies are the outcome of the gradual liberalization of the economy in the 1980s and are representative of changes in the economic system and the need for industry renewal.

Following our general overview of the evolution of the context within which companies and their managements operate and our presentation of the situation of a cross-section of companies, this chapter seeks to identify common themes which underline the evolution of companies in Hungary we have studied. Compared to the present, the period of socialism, as we have explained in earlier chapters, was betokened by a general uniformity and relative stasis in the organization of the economy and of enterprises. In view of the nature of the overall political system this is hardly surprising. The economy (and its constituent enterprises) had to conform, even if only approximately, to an overriding model of economic organization. As a consequence uniformity was a general characteristic of the former system of economic management. Even considering the divergence of reality in Hungary from the model, particularly from the late 1960s with the New Economic Mechanism and the expansion of the legal (and illegal) second economy in the 1970s and 1980s, on balance the Hungarian system had much in common with the socialist model of the economy. Consequently Hungarian companies, up to the end of the 1980s, were more similar to companies in other member countries of COMECON than to comparable companies in Western Europe or North America.