Hungary is the latest socialist success story. Every few years there is another nominee - from the Soviet Union during the 1930s and again in the 1950s, to Cuba in the 1960s, to China and Yugoslavia in the 1970s. Today, Hungary is the socialist "Great White Hope" - and millions of leftists around the globe are watching it with bated breath.
In America, the leading liberal political magazine, the New Republic, asserted that the quality of life in Hungary was almost as high as it was in America ("The Hungarian Heresy," New Republic, 27 October 1986). American newspapers and magazines routinely refer to Hungary as a "market-oriented" economy providing a good life for its participants. China and Russia are borrowing heavily from the Hungarian model to reform their own economies, and the World Bank has chosen Hungary as its East-bloc favorite - and is lavishing subsidized credit on its government.
But, rather than a valuable example, Hungary represents only another case of the failure of political meddling with the economy. Real wages have fallen 5 percent since 1980, industrial efficiency in Hungary has declined, the country now has a higher debt per capita than Poland, and the citizenry's health is deteriorating - life expectancy has decreased sharply for males in recent years. Many Hungarian villages still do not have telephones, electricity, or reliable drinking water.
And perhaps most important and least recognized in the West, Hungary has doubled its debts since 1982 - from around $7 billion to over $14 billion, and shows no likelihood of servicing its debt loan any time between now and the end of the century.
Hungary could be much closer to defaulting on its loans than most Western bankers and admirers realize. And when Hungary does default, its Western credit will be stopped, the economy will plummet due to the lack of ability to import, and widespread social protests could occur.
In Hungary, there is socialism, and there is prosperity. But the socialist parts are not prospering and the prosperous parts are not socialist. And since the economy is over 90 percent socialist and cooperative, Hungary is a depressed, increasingly backward economy.
Hungary's experience is valuable for the rest of the world. How much can a small amount of capitalism do to remedy the defects of a large amount of socialism? Is a mixed economy a viable alternative for today's slowly sinking socialist monoliths?
Historical background
Hungary is a small country with a population of 10 million and has always been heavily dependent on foreign trade. For almost 40 years, Hungary's leaders and bureaucrats have tried to "plan" and control an economy whose survival and prosperity depend on rapidly adjusting to changing world markets.
Before World War II, Hungary had a highly developed pharmaceutical industry and was a world leader in some areas of agricultural machinery production, though its economy was primarily agricultural. When the communists took control of Hungary in 1949, they launched a crash industrial program based on the usual socialist goal of creating
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