From Socialism to Capitalism: Eight Essays

2 The Inner Contradictions of Reform Socialism

2 The Inner Contradictions of Reform Socialism* Introduction Let me begin my remarks by defining the concept of “reform socialism .” I ascribe it to the socialist regimes that differ from the Stalinist model of classical socialism in several important respects, made some steps toward liberalization in the political sphere, somewhat decentralized the control of their state-owned sector, and allowed somewhat larger scope for the private sector. These changes warrant the attribute “reform.” At the same time, these countries still maintained the fundamental attributes of a socialist system: the Communist party did not share power with any other political force, the state-owned sector still played a dominant role in the economy, and the main coordinator of economic activities was the centralized bureaucracy, even though coordination was effected with the aid of less rigid instruments . Yugoslavia qualified as a reform socialist system four decades ago and still belongs to that type of system. Reform socialism has been operating in China for a decade and a half and in the Soviet Union for eight or eight years. Disregarding the early efforts in 1953–5, Hungary became a reform socialist country in the 1960s. But now the breakneck changes 25 * [An earlier version of the study was presented at the Round-Table Conference on “Market Forces in Planned Economies” organized jointly by the International Economic Association and the USSR Academy of Sciences in Moscow, March 28–30, 1989. I would like to express my thanks to Mária Kovács, Carla Krüger, Shailendra Raj Mehta, and Judit Szabó for their devoted help in the research behind this study and in editing the final text of the publications.] of the last few months mean it is displaying the signs of a real change of system, principally in the political sphere.[1] The political structure is undergoing a transformation that will lead to the Communist party losing its monopoly of power. To that extent, the change is of a revolutionary nature. I would no longer place today’s Hungary among the “reform socialist” countries, but I would place yesterday’s Hungary among them, and that “yesterday” lasted two or three decades. Poland had hardly moved from classical, pre-reform socialism into the reform socialist group of systems before it was moving on again. As in Hungary, there is a profound change of system taking place. As this article was taking final shape, transformations had also begun in the GDR and Bulgaria. There is no way to predict whether the changes will cease at the stage termed reform socialism in this article (i.e., the undivided power of the Communist party and the dominance of the state sector will remain), or whether this stage will soon be superseded. The study deals exclusively with the “reform socialist system,” seeking to present some of its characteristics. Its aim is a positive analysis, not a normative position. It tries to decide, if a country is at this historical stage, what features will mark its property relations and coordination mechanisms . So it has nothing to say about (1) whether the country remains at this stage; or (2) if not, how it can emerge from this stage and what it should do during the change of system. I expressed my views on these matters in a recent work of mine (The Road to a Free Economy 1990). I will not repeat in this study the normative ideas and economic policy recommendations expressed there, but instead shed light on some matters to do with the background of experience. The starting point for the Hungarian change of system is provided by the economic relations inherited from reform socialism. These leave their mark on the state and private sectors and on the state and business apparatus. The recommendations for change must be based on reconsidering the features of the inheritance , and this piece is intended to make a contribution to that. The study does not discuss the specific events in one reform socialist country or another, but aims for a high degree of generalization. Attention is focused primarily on what the various reform socialist countries have in common. In that sense it is theoretical in nature. Nonetheless, readers should be cautious. The sample is very small: 26 S T U D Y 2 1 [To enable the reader to correctly understand the word “now” I have to emphasize that this study was written in 1988–9.] there are few countries...