14.3. Hungary: Communism with a Dose of Market System

Politically speaking, Hungary has been a communist nation closely allied with the former Soviet Union and other Eastern European countries-East Germany (now part of a reunited Germany), Ro­mania, Poland, Czechoslovakia (now the Republics of Czech and Slovakia), and Bulgaria. But in many ways the Hungarian economy looks more like the democratic West than any of these countries. Its experiences may even provide a model for economic restructuring in Eastern Europe.

Property Ownership in Hungary. Although the largest industries are government-owned, as they were in the former Soviet Union and other commu­nist states, many business enterprises (employing as many as 200 workers) are privately owned. More­over, so many government workers hold second jobs in these privately owned businesses that current estimates indicate that about half the workforce share in this "second economy." One result of this unique arrangement is that the people of Hungary have lived better than others in Eastern Europe. The streets of Budapest are alive with private shops, restaurants, and people.

Resource Allocation in Hungary: The Market and the Plan. Of these two economies in Hungary, one is socialist. Government planning boards estab­lish quotas, allocate resources, and set prices for state-owned business firms. The other economy is built around thousands of privately owned firms in which individual entrepreneurs make decisions based on consumer demand and the entrepreneurs' desire to earn profits.

Recent Changes. Continued failures of the planned economy to satisfy consumer needs have led to increasing demands for even more change in the Hungarian system. In 1988 the long-time political leader, Janos Kadar, was replaced. This was fol­lowed by an increase in "privatization" (the substitu­tion of private for state-owned enterprises). In 1989 several American and other foreign corporations announced their intention to begin operations in Hungary. It also appeared that the Budapest stock exchange would have as many as 100 corporations represented by the year's end.

Meanwhile, recent political changes have resulted in:

• the first free election in over 40 years and the for­mation of a new parliament and multi-party sys­tem, which has replaced the Communist governing party and established a coalition government;

• a new constitution guaranteeing the kinds of polit­ical rights normally found in capitalist democra­cies; and

• a name change from The People's Republic of Hungary to The Republic of Hungary.

Hungary's success will depend on the ability of pri­vately owned enterprises to operate in international markets and the support it receives from Western economies.

14.4. Sweden: Democratic Socialism in a Capitalist Setting

Democracy is alive and well in Sweden. Free speech, a free press, and a freely elected representative gov­ernment are as much a part of Swedish politics as they are of U.S. politics. More than 90 percent of its industry is privately owned and operated. In other words, inj Sweden, decisions about the production and allocation of goods-the answers to the What, How, and Who questions-are made in the market­place.

In the United States, government participation in the economy is limited. Individuals and families essentially provide for their own health mainte­nance, infant and child care, college education, and retirement. But unlike the United States, the Swedish government plays a very active role. The government blends socialism with capitalism by allocating the resources for virtually all education and other human services.

For example, health care is provided to mothers even before their children are born. From that time forward, cradle-to-grave medical and dental care are provided at government expense.

Swedish government also provides public schooling, from nursery to university; retirement facilities; and pensions for the elderly and handicapped. As they are in the United States, insurance and other bene­fits are available for unemployed and disabled work­ers. However, Swedish welfare payments are signi­ficantly higher-approximately 90 percent of manu­facturing wages in Sweden compared to 40 percent in the United States.

Swedish public welfare services are not really free, of course. Swedes pay the world's highest tax rates for their benefits. For example, in 1990 when Sweden's per capita GDP was 79 percent that of the United States, taxes in Sweden amounted to $15,154 per capita compared to $6,358 in the U.S.

In 1989, Sweden's governing political party announced that taxes had reached the saturation point, and that steps would soon be taken to reverse the upward trend. One approach will be to reduce costs and increase efficiencies in the publicly operat­ed medical care, daycare, and education fields by introducing some form of "privatization." It remains to be seen whether a market-oriented approach to Sweden's social service sector is successful.

Just as there are differences in socialist economies, capitalist economies are also different. The world's two largest capitalist economies are the United States and Japan, but the Japanese system is based on a different set of values.