HUNGARIAN LESSONS FOR NORTH KOREA’S ECONOMIC TRANSITION
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The paper below aims at introducing the example of Hungary, a country that has started its transitionary period much before 1989, to readers in Korea, North and South alike. Needless to say, policy makers in the North can draw more lessons from it, as it is to show how an economy under the system of central planning and then an organic part of the socialist world managed to move towards an open market economy by introducing its new economic mechanism (NEM). At the same time, specialists in South Korea, working on reunification, can get some information what can be expected to happen in the North on the way leading there. The author points out at the beginning that he does not believe in copying other countries’ examples, but he thinks there are certain elements in various development paths which might be worth while considering. To put it in another way, it is no good to try to ‘invent’ something that has been tried by others already. As opposed to the cliches often referred to in technological development, i.e. latecomers have the advantage of copying or, to put it in a nicer way, making use of or incorporating the knowledge accumulated by others, in economic and social development this strategy or tactics might not be fully true. Here it is the early starters that enjoy the advan- tages even if they have to carry some extra burdens as well. In Hungary, to increase the low efficiency of the economy, the government ordered a change from above. The main goal was to replace the rigidity of centralized command and to delegate power, in fact the right and the courage to make decisions, to individual enterprises. The changes had to be done very slowly, carefully and diplomatically. To begin with, the paper summarizes the gist of these reforms, and then gives a detailed analysis of the changes which were introduced in the framework of the NEM. The decisions regarding the changes in the system had been preceded by research studies, detailed and comprehensive discussions regarding several aspects and phenomena of Hungarian economic development. These studies and discussions revealed some causes and deficiencies and raised a number of reasonable propositions for their elimination. Of all these efforts, some generally accepted conclusions have resulted, which are also given by the author. A special part of the paper deals with Janos Kornai’s, the world famous Hungarian economist, general evaluation of the reform, and reviews extensively his statements regarding the non-state sector as written by him almost two decades later. In Kornai’s view, the most spectacular trend of the Hungarian reform process was the growth of the private sector. The formal part of it employed mainly craftsmen, construction contractors, shopkeepers, and restaurant owners, who either worked alone or were assisted by their family members or a few hired employees. Kornai coined their activity the legalization of ‘small capitalism.’ In the next sub-chapter, the author gives his views on some of the most important dilemmas countries face on the road of transition. His answer to almost all of them is not an either-or type solution, rather a mixed one. This is not only to express his feelings that finding compromises, making decisions on a consensus basis are absolute musts in democratic politics (in the widest sense of the word), but also to reflect the experiences gathered so far by the countries which have already taken this path of development. The dilemmas he touches upon are autarky vs. globalism, similar vs. different sizes in economic groupings, shock therapy vs. gradualism, reforms from above vs. from below, and the role of the market vs. that of the state. The author finishes his paper by calling the attention of readers to some problematic sides of liberalization. He point out that the experience of Hungary shows that a consensus-based ‘censorship’, combined with self restrain, would have been very beneficial. In this regard, just as in respect of choosing a more environment friendly development path, the country could and should have avoided repeating the mistakes of the countries which preceded it by decades in economic and social development.
Abstract
The paper below aims at introducing the example of Hungary, a country that has started its transitionary period much before 1989, to readers in Korea, North and South alike. Needless to say, policy makers in the North can draw more lessons from it, as it is to show how an economy under the system of central planning and then an organic part of the socialist world managed to move towards an open market economy by introducing its new economic mechanism (NEM). At the same time, specialists in South Korea, working on reunification, can get some information what can be expected to happen in the North on the way leading there. The author points out at the beginning that he does not believe in copying other countries’ examples, but he thinks there are certain elements in various development paths which might be worth while considering. To put it in another way, it is no good to try to ‘invent’ something that has been tried by others already. As opposed to the cliches often referred to in technological development, i.e. latecomers have the advantage of copying or, to put it in a nicer way, making use of or incorporating the knowledge accumulated by others, in economic and social development this strategy or tactics might not be fully true. Here it is the early starters that enjoy the advan- tages even if they have to carry some extra burdens as well. In Hungary, to increase the low efficiency of the economy, the government ordered a change from above. The main goal was to replace the rigidity of centralized command and to delegate power, in fact the right and the courage to make decisions, to individual enterprises. The changes had to be done very slowly, carefully and diplomatically. To begin with, the paper summarizes the gist of these reforms, and then gives a detailed analysis of the changes which were introduced in the framework of the NEM. The decisions regarding the changes in the system had been preceded by research studies, detailed and comprehensive discussions regarding several aspects and phenomena of Hungarian economic development. These studies and discussions revealed some causes and deficiencies and raised a number of reasonable propositions for their elimination. Of all these efforts, some generally accepted conclusions have resulted, which are also given by the author. A special part of the paper deals with Janos Kornai’s, the world famous Hungarian economist, general evaluation of the reform, and reviews extensively his statements regarding the non-state sector as written by him almost two decades later. In Kornai’s view, the most spectacular trend of the Hungarian reform process was the growth of the private sector. The formal part of it employed mainly craftsmen, construction contractors, shopkeepers, and restaurant owners, who either worked alone or were assisted by their family members or a few hired employees. Kornai coined their activity the legalization of ‘small capitalism.’ In the next sub-chapter, the author gives his views on some of the most important dilemmas countries face on the road of transition. His answer to almost all of them is not an either-or type solution, rather a mixed one. This is not only to express his feelings that finding compromises, making decisions on a consensus basis are absolute musts in democratic politics (in the widest sense of the word), but also to reflect the experiences gathered so far by the countries which have already taken this path of development. The dilemmas he touches upon are autarky vs. globalism, similar vs. different sizes in economic groupings, shock therapy vs. gradualism, reforms from above vs. from below, and the role of the market vs. that of the state. The author finishes his paper by calling the attention of readers to some problematic sides of liberalization. He point out that the experience of Hungary shows that a consensus-based ‘censorship’, combined with self restrain, would have been very beneficial. In this regard, just as in respect of choosing a more environment friendly development path, the country could and should have avoided repeating the mistakes of the countries which preceded it by decades in economic and social development.