The Consequences of Stalinist Economic Policy in Hungary (1949-1953)

Abstract

By 1948, with the eradication of private property ownership and multi-party-system, the institutional background of the Soviet-type dictatorship was created by the Hungarian Workers Party (HWP). In economic terms, forced industrialisation became buzzword, whereas both agricultural and infrastructural development were neglected by the communist leadership. The forced collectivisation in the agriculture, accompanied by the postponement of necessary investments led to a permanent shortage of goods. Compulsory deliveries coupled with the application of the principle of quantity further aggravated the situation of the agrarian sector. As a result of aggressive campaign against the wealthy peasants and forced collectivisation, 300 000 people ceased to work in the agriculture and were employed by industry. Within the centrally planned economy, profitability, cost of production, marketability and quality of products were neglected. Only one principle was taken into account, which was the fulfilment or overfulfilment of the global production plan index and all other criteria were ignored by decision-makers. Foreign trade relations were embedded within the framework of the command economy. Foreign trade corporations were set up and world market prices became hermetically isolated from domestic prices. Within Comecon, the endeavour of the USSR was to reduce any dependency of the socialist bloc on world markets and to achieve self-sufficiency. The introduction of fixed prices in 1950 led to serious price distortions, whilst Hungary depended on increasing import of raw material, which was essential for the development of heavy industry. Therefore, the targets of foreign trade were not fulfilled during the period 1949-53. The irrational economic objectives of the first Five-Year Plan produced lasting damages in the national economy of Hungary.