THE HISTORICAL BACKGROUND

In this study I would like to place the current problems of the Hungarian economic policy in a wider historical and political economy perspective. For that purpose a brief outline of Hungarian development in the last three decades is needed.

The Hungarian economy's road from a centralized, planned economy to a market economy displays a number of features that distinguish it from other postsocialist countries, despite the underlying similarities. Four main characteristics can be emphasized, as follows.

(1) In economic policy priorities, much greater weight was placed in Hungary than elsewhere in the region on raising present-day material welfare and – in the subsequent period of mounting economic problems and stagnating or declining production – on curbing the fall in living standards. Conditions in Hungary had earlier been christened “goulash communism.” The policy for several years after the change of political system continued the previous one in this respect, and can aptly be called “goulash postcommunism.”

This new economic policy orientation had a golden age, between 1966 and 1975, without recession or stagnation and with consumption rising by an annual average of 5.3% (see Table 1). Yet it could not be continued forever, even though production at that time was still growing fast – faster than consumption. However, under Stalinist economic policy the gap between the growth rates of production and consumption would have been much higher.