University of Southern California Dissertations and Theses

Incomes policies in economic reform: A comparison of Hungary and Yugoslavia in the 1970s

(USC Thesis Other)

Incomes policies in economic reform: A comparison of Hungary and Yugoslavia in the 1970s

PDF

Download

Open document

Flip pages

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content INCOMES POLICIES IN ECONOMIC REFORM:
A COMPARISON OF HUNGARY AND YUGOSLAVIA
IN THE 1970s
by
Jaime Lemar Dominguez
A Thesis Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(Economics)
May 1988
Copyright 1988 Jaime Lemar Dominguez
UMI Number: EP44917
All rights reserved
INFORMATION TO ALL USERS
The quality of this reproduction is dependent upon the quality of the copy submitted.
In the unlikely event that the author did not send a complete manuscript
and there are missing pages, these will be noted. Also, if material had to be removed,
a note will indicate the deletion.
Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author.
Dissartation PuMisWng
UMI EP44917
Microform Edition © ProQuest LLC.
All rights reserved. This work is protected against
unauthorized copying under Title 17, United States Code
ProQuest LLC.
789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, Ml 48106 - 1346
UNIVERSITY OF SOUTHERN CALIFORNIA
THE GRADUATE SCHOOL
UNIVERSITY PARK
LOSANGEL.ES. CALIFORNIA 90 0 0 7
D67/
23/ f t - < 2 _ )
This thesis, 'written by
. J a._±m e _ JL em_ajr_ _ jD^om ±_n^ u j e _ z _
under the direction of hLs*..~Thesis Com m ittee,
and approved by a ll its members, has been p re
sented to and accepted by the D ean of The
G raduate School, in p a rtia l fu lfillm e n t of the
requirements fo r the degree of
Master of Arts
Dean
D a te Mar_ch___14y ____19_8 8
THESIS COMMITTEE
Chairman
DEDICATION
This paper is lovingly dedicated to
Sheryl Christine Guernsey:
My wife, my love, my editor.
ii
ACKNOWLEDGMENTS
I gratefully acknowledge the significant
suggestions of Professor Laura Tyson (UC Berkeley) and
Professor Ellen Comisso (UC San Diego). Their time
and assistance was much appreciated. Many thanks also
to Dr. Eva Imrik for assisting me in obtaining the
most recent Hungarian income data available, and for
her excellent translations.
« ■ •
111
TABLE OF CONTENTS
DEDICATION ii
ACKNOWLEDGMENTS iii
1. INTRODUCTION
1.1 Economic Reform in Hungary and 1
Yugoslavia
1.2 The Importance of the Market in 7
Economic Reform
1.3 The Significance of Incomes Policies 13
in Economic Reform
1.4 Thesis 16
2. LITERATURE REVIEW
2.1 Comparison of the Literature 24
2.2 Literature on Hungary 2 5
2.3 Literature on Yugoslavia 32
2.4 Summary and Conclusions 44
3. CONTEXT FOR COMPARISON
3.1 The Structure of Economic Reform 51
3.2 The Growth - Equity Tension 58
3.3 Incomes Policies of Reform: 64
A Context for Comparison
3.4 The Traditional Centralist System 69
iv
4. INCOMES POLICIES OF HUNGARY AND YUGOSLAVIA
4.1 Wage Policies of Hungary During 78
the 1970s
4.2 Earnings Determination in Hungary 85
Today
4.3 Wage Policies of Yugoslavia During 94
the 1970s
4.4 Earnings Determination in Yugoslavia 103
Today
5. EVALUATION AND CONCLUSION
5.1 Evaluation of Incomes Policies 113
5.2 Economic Reform and Incomes Policies: 121
Some Conclusions
6. BIBLIOGRAPHY 127
7. APPENDIX 134
LIST OF FIGURES AND TABLES
1. FIGURE #1 10
2. TABLE #1 92
3. TABLE #2 109
v
1. INTRODUCTION
1.1 Economic Reform in Hungary and Yugoslavia
The economic reform movement, which began in
Eastern Europe, has gathered increasing momentum in
the last decade. More Soviet bloc nations, including
the USSR, are conducting experimentation with reform
policies. Hungary in particular, which has been a
leader of economic reform, has received increasing
attention in the Soviet bloc, because of its
innovative and successful economic liberalization. 1
Outside the Council of Mutual Economic Assistance
(CMEA), Yugoslavia has continued to pursue its own
peculiar brand of economic reform under the banner of
"self-management”. And most recently, the People's
Republic of China has received the highest amount of
global attention and admiration for its "one country,
two systems" approach which manages both a centralist
system and a uniquely decentralized second-system as
well. In this apparent transition away from central
coordination, reformers in these long-standing
socialist economies are deciding to decentralize into
1
a market system of allocation on a regulated basis.
In this context, this paper explores the often
contrasting relationship between economic growth and
distributional equity in the light of the incomes
policies of two experienced reform countries.
The paper will focus upon the economies of
Hungary and Yugoslavia. These systems were chosen
primarily because both are solidly committed to the
implementation of regulated market systems. In
addition, both delegate a high degree of independence
to enterprise decision-making (when compared to other
socialist nations, particularly the Soviet Union);
both use indirect policy instruments to communicate
macro-level direction and distribution; both are
actively seeking methods to link worker productivity
with wage income as an incentive to growth; and both
perceive socialist equity as limiting the amount a
worker may earn. While these countries reject
egalitarianism, they do ascribe to equity and the
notion of "equal pay for equal work". Finallly, they
are both commited to the application of Marx's ideal
for socialism; "to each according to his work".
J One of the most interesting points of comparison
lies in their similar commitment to a market system,
while simultaneously implementing a plan. The
economic system of Hungary is the foremost economy of
the CMEA operating a regulated market under the
guidance of a centralized plan. The State continues
to draw up and monitor economic planning, which
determines macro production targets throughout, but
with reform the firms are allowed into the decision
making arena at various levels. Controlled autonomy
is delegated for micro-decisions in designated
enterprises. In sum, the market is administered in
certain sectors while more traditional methods of
control are maintained for others.
The Yugoslav economic system also utilizes a
regulated market system, but is attempting to
implement a "self-management"/decentralized planning
process to include macro decision-making as well.
Since the early seventies, Yugoslavia has enacted what
are called "social compacts" (SCs), which are
contracts involving government bodies covering broad
economic principles; and "self—management agreements"
(SMAs), which are contracts made among enterprises for
3
specific business arrangements and governed by SCs.
Both are negotiated forms of policy planning. Thus
far, their degree of success has been weak overall,
due in part to inexperience. However, the process
remains an ongoing project to introduce economic
direction and coordination to the system, where
workers themselves participate in both macro and micro
policy formulation. In the end, when these plans fail
the federal administration has retained the control
necessary to step in.
While there are a number of similarities,
Yugoslavia and Hungary share some significant
differences as well. Most of these differences form
around the contrasts between what are essentially a
centralized versus a decentralized structure. Hungary
encounters the problems of a producer-oriented
economy, such as excess reserves of unwanted goods; a
common occurence in Centrally Planned Economies (CPEs)
who attempt to predetermine demand and supply (Connor,
1975). In Hungary, slow productivity growth has
become a major concern, addressed partially through an
increased emphasis upon innovation and technology
transfer. Since "self-management" is unique to
Yugoslavia, some of its problems are also unique to
that economy. One of its chief areas of weakness is
the distortion of prices, due to the complex process
through which prices are formulated in SMAs. Also the
nature of worker relations in Yugoslavia allows for
frequent labor stoppages, witnessed most recently in
massive strikes. 2 Paradoxically, the Hungarian
government continues to delegate economic independence
to its firms and workers, such as the legalized
"second economy" (discussed later), while the Yugoslav
federal administration frequently acts much more
compulsorily than theoretically projected.
Economically, Yugoslavia has a larger
agricultural sector, and must also contend with a
larger private sector, relative to Hungary. In
comparing Eastern European economies, Moore (1977)
states that "Hungary's growth rate, based on an index
with net weights, is more nearly comparable to
Yugoslavia's, and is consistent with its initial stage
of development relative to Yugoslavia's." 3 In the
same volume of essays, Portes compares growth
performance during the seventies, based on average
annual NMP (Net Material Product) growth rates, and
finds that Yugoslavia ranks slightly ahead of Hungary.
4 In geography and growth, they are side by side
relative to other Eastern European countries.
Since both nations are small in area and limited
in resources, they are very trade dependent with the
West, which has certainly played a role in their
commitment to economic reform. Hungary's membership
in the CMEA certainly offered that country the
opportunity to retain a higher level of trade
stability. 5 Yugoslavia on the other hand has been
much more dependent upon market-based, Western
international exchange. These facts affected both
economies during the international recession of 1973.
That year and following catalyzed a commitment in both
to enter a phase of re-centralization and
reevaluation. Hungary's situation, already firmly
centralized and connected to the CMEA, supported its
ability to continue with fewer external shocks to the
reform structure. In contrast, Yugoslavia's greater
dependence on the West and subsequent market
vulnerability sealed its trend toward recentralization
and the introduction of a conspicuously absent
national planning mechanism.
1.2 The Importance of the Market in Economic Reform
The market is the breaking point from which
1
reform nations have differentiated from their past
(Csikos-Nagy, 1978). Claiming the example of Lenin's
New Economic Policy, they are now looking to the
market system to format the lower levels of economic
decision-making and to find room for future growth.
The reason for the break is due essentially to
the incompatability of the direct-control model with
the market system. 6 Having decided that allocating
economic decision-making power to the enterprise level
was the goal, decentralization became the process to
achieve it, and the market was chosen as the method.
Elliott (1985) cites Dahl and Lindblom as outlining
four possible coordination systems: (1) the market
system, (2) bureaucracy, (3) democracy, and (4)
bargaining. 7 A market system by definition enables
various producers and consumers to enter into an
exchange relationship among themselves, and at the
same time limits government and bureaucratic control
(Okun, 1975). Intervention by other agents who can
change levels of prices (regardless of demand
7
scarcities) and quantities exogenously disrupts the
system. In an activist direct-control system that is
centrally coordinated, where physical enterprise
| production is regularly determined in a government
planning office, a market cannot exist efficiently.
In that case, it is the government that is making the
decisions, preempting the market's processes.
After reform, in an indirect-control system,
enterprises are delegated micro economic decision
making and a market system begins to have room to
function. However, as experience has shown, if that
economy retains a central system of coordination (i.e.
a CPE, as briefly described above and more in-depth
below), it becomes very difficult for the Central
Planning Bureau (CPB) to restrain its power and
control to allow the market to work on its own. In
the context of this paper, this is the position in
which Hungary is categorized. Yugoslavia also
frequently exhibits such behaviour, but allows for a
broader range of enterprise participation by
implementing a more decentralized system of
coordination. The use of a regulated market
8
distinguishes both economies from a traditional
direct-control system.
j Figure #1 illustrates these points. Two major
I
issues confronting socialist reform economies are: (1)
method of control - in the implementation of micro
economic decisions - and (2) method of coordination -
in the plan formulation of macro economic decisions.
The basis of economic reform is the transfer of micro
decision-making control to the enterprise via the
market (regulated or otherwise). This is a given.
The next question here is whether decentralization of
macro direction will be implemented as well. Most
often, that is not the case. Yugoslavia is one of the
few socialist economies that is attempting to do so.
Assumptions and Definitions
The following are a few important assumptions
that this paper makes. It is assumed that, within the
economic agenda of any socialist nation, there exists
an ongoing active commitment to the equitability of
resources (including incomes) and a consistent policy
of redistribution to that end (Connor, 1977; Falus-
9
©CONTROL -
[MICRO ItfPtfrtENWloN]
© C o o r d in a tio n
[ M A C R O P L A N fORMUUTtow]
SOCIALIST
ECONOMIES
a. DIRECT
"CorAPnand cce>n***y
~'\>vcet»>cwfiy
b in d ir ec t
— m^rUef
a. CENTRAL
— Cenfotlly planed
— fcxjrewcrA^'j
h DECENTRAL
~a«e(f-iv\aA4<**ingwT'
//
Examples:
o — USSR.— Id.+ 2.4.
— -1 b * f* 2 a.
—' 'ffcg ^sU via = l b . f 2 .b.
— FK.C.-k* f2a./Ftr&+&**v>^
6cpOOimj
|l ^r*diV\Pina,l eo£ia,lift 4>ys4»oa |l i<**
I I------- economic re£t>Ctv\________ft
Szirka, 1980). Secondly, the renewed concern for
planned coordination in Yugoslavia is seen in this
paper as a reflection of that nation's intent to
strengthen the role of incomes policy (Wachtel, 1973;
Sire, 1979; Comisso, 1980; Tyson, 1980; Estrin, 1982;
Elliott and Scott, 1986). Third, in historical terms,
the economy of Yugoslavia is inherently more
inequitable than Hungary for a variety of reasons.
Much of the difference lies in the fact that Hungary
is a unified cultural block of an historic empire,
while Yugoslavia is an amalgamation of several
cultures, some of whom have endured long-term ethnic
tension. At the outset, then, it is understood that
Hungary has a more equitable distribution of income
than Yugoslavia (Michal, 1973; Chilosi, 1983;
Morrison, 1984). Lastly, it is assumed that in any
socialist project the government maintains final
control over all agents in the economy, even in the
decentralized sectors. In such a system, intervention
is always possible in order to maintain a "socially
necessary" balance between growth and equity agreed
upon by the leadership.
11
Some definitions are also needed here:
a. In analyzing the incomes policies of these two
countries, this paper will focus upon state sector
I
earnings (both blue and white collar), not including
managerial bonuses. By "earnings" we mean: wages,
premiums or bonuses, profit-shares, sick-pay, and any
other payments made by the enterprise. The addition
of enterprise welfare benefits (or payments) is called
"enterprise income"; the addition of the same from
government sources (i.e. transfers) is "income" or
"personal income", in general. Thus, "wages policy"
refers specifically to the government's course of
action regarding wages, similarly for "incomes policy"
repectively.
b. By "growth7, we mean the rate of increase in a
measure of production, such as gross national product
(GNP), or "gross material product" (GMP) as measured
in socialist countries. In policy terms, (though it
is nowhere clearly stated) it appears that in economic
reform, some of the benefits of economic growth are
routed toward the maintenance of "socially acceptable
living standards" of all workers, regardless of
performance, through redistribution. This is
12
understood as expressing a policy of maintaining the
growth of lower incomes independent of performance,
c. By "equity", we mean two things: (1) equity in
incomes, (i.e. minimizing the distribution-gap between
highest and lowest incomes; and (2) equity in
compensation, also known as "equal pay for equal
work". In reform policy terms, both are to be
maintained on a national scale.
1.3 The Significance of Incomes Policy to Economic
Reform
Income distribution is extremely important in
socialist economies, reflecting their ideological
commitment and political reputation, particularly
among their citizens. 8 Public opinion in these
countries have come to expect an equitable
distribution of resources. By its own definition of
justice in allocation its raison d'etre the socialist
state is bound to maintain an active policy of
spreading the wealth of the nation. Just the words "to
each ..." reflect the priority of equitability in
Marx's writings— the invocation of these words by
13
socialist states reflects their fundamental assumption
of this goal as well.
In practice, however, the U.S.S.R. did not
emphasize this perspective, at least until the death
of Stalin. Under the traditional centralist system
built by Stalin (1928 - 53), income was used as an
incentive for labor mobilization, in pursuit of what
is now called "extensive" development by reformers.
In extensive development, the goal was rapid
structural change through the command mobilization of
resources. Economic coordination was made in output
and production terms, and the role of personal income
was to direct labor and to control planned
consumption. Equity was defined by virtue of social
ownership and equalizing worker opportunity.
Differentials in earnings are used to entice workers
into planned areas of allocation.
The reform, then, introduces a subsequent phase
of "intensive" development, emphasizing economic
efficiency, wage incentives with equity, and an
overall improvement in living standards. Coordination
is predicated upon enterprise autonomy and handled
through the use of taxes. The role of personal income
14
places limitations upon income incentives primarily
for minimizing relative differences in income (from
highest to lowest), while at the same time allowing
firms to take part in the allocation of labor. Equity
is defined according to relative differences in
earnings (as already mentioned) by ensuring that
incomes stay within a certain "socially acceptable"
maximum and minimum, regardless of performance.
Within the acceptable limits, differentials in
earnings are to be used to reward performance, but
maintained in a consistent manner throughout the
economy (i.e. the minimization of interenterprise,
intersectoral, and interregional differentials).
One of the major goals of economic reform, in
relationship to the workplace, is to increase the
linkage of material incentives to induce greater
productivity. The implication is that graduated
incentives will incite overall increases in labor
productivity, which will then contribute toward
further economic growth. The complication is that
controls for equity often work contradictory to
incentives, as is often held by traditional centralist
(i.e. the U.S.S.R.). The reform strategy for incomes
15
policy is to find a balance between the two: to allow
income incentives to incite worker performance and
innovation, but to also maintain a certain "socially
acceptable" range of earnings. 9
Some questions may be asked here: how well do the
policies of these two countries distribute the
benefits of growth among skills? Are the income
differences between these skills increasing or
decreasing? If the differences are changing, how are
the various skill categories being affected and which
ones are able to maintain an increasing rate of real
incomes? 10 More specifically, this paper will focus
upon two questions:
(1) In Yugoslavia, how does the fact that workers
themselves set policy affect the way in which
wage differentials are regulated?
(2) How does Hungary's priority on central control
limit its ability to link income with
productivity?
16
1.4 Thesis
As the locus of economic decision-making is in
the process of decentralization, the government's
control of the economy has certainly lessened.
Indirect (economic) forms of control have become
standard governmental policy. Socialist economic
reform policy now uses such levers as progressive tax
structures and the regulation of enterprise accounts
to control income, as opposed to the imposition of
compulsory targets. While central forms of
coordination (or planning) may or may not have been
retained, the relative ability of firms to make
decisions differently than the government has been
strengthened, and with it a higher degree of
uncertainty in the economy has been introduced. Now,
the collective decisions that firms make will
significantly affect the overall performance of the
economy. This presents a new dilemma for socialist
economies in economic reform. Different strategies
for introducing growth to the economy have to be
created that will strike a balance with maintaining a
"socially acceptable" distribution of income.
17
Therefore, decentralization is introducing a more
intangible problem for guiding the economy.
The thesis of this paper is that the economic
reform movement has increased the complexity for
economic policy to mediate the tension between growth
and equity in socialist economies. Looking back, the
traditional centralist system of control was
introduced to "manually" transform an economy from its
previous system into a socialist one, giving resource
mobilization highest priority. Direct control
facilitated this process by supervising every phase of
socialist construction, but placed income growth
before income equity. Having established socialism in
a given country, reform now hopes to automate and
consolidate the economy, increasing the priority of
productive efficiency relative to resource allocation.
However, indirect control requires a pruned
administrative bureaucracy, delegating some decisions
to socialist enterprise, thereby leaving reformed
policy planners in a much more distant position from
which to balance growth with equity.
The balance is maintained in different ways,
depending upon the system of coordination and the
18
expectations of the worker populace. If an economy
decides to retain a central coordination format
(bureaucratic coordination) and the market system
falters, that government will continue to relate
vertically to its populace. As such, it will have an
established network to impose restrictions should it
decide immediate guidance is needed— in other words,
through the hierarchy. Conversely, an economy
implementing a decentral system of coordination
(bargaining or democracy), will be more vulnerable to
non-governmental pressures (i.e. enterprises and/or
the worker populace) and will therefore have to deal
more horizontally when problems with the market arise.
Such an administration will have to choose more
conciliatory and compromising methods to maintain its
ideological goals— in other words, through
negotiations. Ultimately, any socialist
administration will retain final say over the entire
economy.
The Hungarian economy through reform is
indirectly controlled, yet retains a central
coordination format. Subsequently, its ability to
restrict market aberration is strong. The people's
19
ideological orientation for equity expects
administrative restriction; therefore, when equity
concerns conflict with growth design, central policy
is able (and often pressured by the workers) to ensure
that equity is maintained. Though decentralization
has been expressed as a policy goal since 196S, the
Center still regulates every step of reform.
Yugoslavia is indirectly controlled as well, but
has chosen to implement a decentral coordination
mechanism. With its long history of regional
struggle, broad based participation and bargaining has
become an integral part of the overall system.
Workers themselves contribute in the decision-making
process. Its ability to restrict market fluctuation
is weak. However, due to its socialist perspective,
the people's ideological expectations for equity still
exists. Therefore, when equity conflicts with growth,
workers will utilize their "self-management" influence
as a vehicle for equalization.
The differences in the administration of the two
countries reflects their differing reasons for
choosing the path of reform. Yugoslavia was perhaps
the first country to begin reform in the fifties in
20
order to separate themselves from international-
central control under Stalin. Essentially, their
differentiation from traditional socialism was
political and under the banner of "Self-Management".
Hungary's choices were fewer at the time and was in
fact forced to remain within the CMEA with a mandate
to maintain control at all costs. In spite of this,
economic reform was successfully initiated in the late
sixties (after Stalin). Consequently, each system
holds a different set of assumptions, with equally
different emphases. Their primary point of comparison
is that they are both pursuing the economic reform of
socialism and as such face similar policy dilemmas in
a constant tension between growth and equity.
CHAPTER NOTES
1. Chazanov, Mathis, "Can learn from Hungary's
Experience, Soviet Says", LA Times; Sun.,
4/26/87, p.10
2. Chazanov, Mathis, "Workers Joke, but Yugoslavia
Isn't Funny", LA Times; Sat., 3/21/87, p.6
3. Moore (1977), East European Economies Post-
Helsinki, p. 501
21
4. Portes (1977), East European Economies Post-
Helsinki, p. 535
5. Granick (1976) illustrates this in the following
quote (p.307): "Some Hungarians claim that the
reform was responsible for the 1968-70 national
success in sharply increasng trade with non
socialist countries. However, a comparison of
1972 with 1967 foreign trade (using official
Hungarian price deflators) shows that Hungary
achieved a faster rate of growth of trade in
constant prices with socialist than with non
socialist countries." Marer (1985) also says
(p.293) that during the turn of the seventies
"approximately half of Hungary's foreign trade
flows continued to be with CMEA partners, all of
whom retained the traditional CPE mechanism."
See also Bornstein (1977).
6. Brown, Alan, and Martin Tardos, "The impact of
global stagflation on the Hungarian Economy",
Paper #45 presented at the Conference on the
Impact of International Economic Disturbances on
the Soviet Union and Eastern Europe; Washington
D.C., 9/24/78; p.5: "Along with other CMEA
countries, Hungary also accepted the need to turn
from an extensive to an intensive strategy of
economic development. To implement these
objectives, the new economic system decided to
use market instruments and to link domestic with
foreign markets. As a result, the decisionmaking
structure became much more decentralized; the
information structure was improved by a compre
hensive reform of the domestic prices and foreign
exchange rates; and the motive structure was
reorganized, tying incentives for earned income
to profitability rather than to gross output. To
maintain an equitable distribution of income, the
structure of earned income was modified more by
explicit social dividends than by implicit
grants."
7. Elliot (1985), p.21
8. See Conner, (1975)
22
9. Portes (1977b), p.4: "The task of a prices and
incomes policy is to match aggregate demand and
its structure to the planned supply of consumer
goods, with due regard to egalitarian objectives
and production incentives as well."
10. Kornai (1983), p.251: "If the income of some
people is rising more rapidly than that of
others, but everybody's income is rising anyway,
this is usually tolerated by society. But if the
income of people with low resources does not rise
or even declines, while that of others conspic
uously rises, the limit of tolerance of society
may suddenly sink lower. Therefore, the fate of
the reform depends much on whether a general rise
of living standards would resume."
23
2.0 LITERATURE REVIEW
2.1 Comparison of the Literature
Describing the economies of Hungary and
Yugoslavia takes on a wide variety of perspectives.
Very little economic literature has been written
directly comparing the two neighboring nations. 1 In
this paper, all information was gathered from
secondary sources, since this author knows neither of
the written languages. A few monographs included
analysis of both nations in a large sweep of several
economies. This provided some additional though
indirect comparative resources. The bulk of the
information gathered, however, comes from sources
writing directly about one or the other country,
leaving the task of comparison to this paper.
As an example of the differing views of these two
economies, Flakierski (1979) classified Hungary as " .
. . the only socialist country in which the experiment
of introducing a 'decentralized model with a regulated
market' has lasted for any length of time . . . " 2
On the other hand, in introducing the Sacks (1984)
24
article in his book on comparative economic systems,
Bornstein describes Yugoslavia as " . . . the world's
only case of a true socialist regulated market
economy", describing the country's recent attempt to
reintroduce planning as similar to the "...
'indicative' planning of the French type . . .."
Still another author considers Hungary to exemplify
the 'indicative' model of planning, in the sense that
enterprises are motivated to work with the plan
through self-interest (Granick, 1976). Certainly,
this does not reflect the actual similarity of these
two countries, but instead shows that enough
discrepancy exists over the general classification of
reform economies so as to allow these two to be
described using the same words. While the present
paper categorizes both as socialist mixed economies,
their similarities end there and their major
differences begin.
2.2 Literature on Hungary
The amount of information on Hungarian wage and
income distribution policy was scattered, yet readily
25
available. In particular, a good amount of Hungarian
economists have either written in English themselves
or translations of their works are available. As for
the Yugoslav literature, however, the majority of
resources are composed by Western authors (primarily
from Great Britain and the U.S.).
Among some of the major themes and issues
pursued, one of the most common topics among both
Hungarian and non-Hungarian authors is the long
standing centralist nature of the Hungarian
government. In spite of the fact that the government
is taking major strides in decentralizing economic
decision-making toward enterprises, the actual control
remains solidly in the hands of the center
(Flakierski, 1979; Granick, 1976). This was most
clearly seen during the seventies when the overall
reform movement in Hungary was set back by a period of
recentralization. While the years of this period
differ slightly among authors, they commonly begin in
1973 and end generally by 1980. The point is that
even though economic reform had formally begun in
1968, the intended policies and principles of the
movement had not been tried until nearly fifteen years
26
later. This is not to say that no progress toward
i reform was being achieved - increased flexibility by
the center, as well as new wage guidelines were
established - but the final responsibility for
economic decision-making remained with the government,
rather than with the enterprises as had been
originally planned (Marer, 1985; Galasi and Sziraczki,
1985; Tardos, 1976; Adam and Nosal, 1982).
It also seems clear in the literature that the
Hungarian government is aware of and must contend with
the need of the people to see a more equitable society
(Falus-Szirka, 1980; Kornai, 1983; Flakierski, 1979).
"3 Hungary in particular has established itself as a
socialist society centrally dedicated to the control
of wage differences. Hungarian public opinion resists
increased differentiation of the wage structure
(Granick, 1976; Bornstein, 1977; Falus-Szira, 1980;
Adam and Nosal, 1982). The strategy of the Central
government with regard to wages policy, then,
continues to be; (a) the increase of "absolute"
differentiation, meaning the minimization of income
overlap between skills (i.e. where the upper portion
of a lower income bracket overlaps with the lower
27
portion of a higher income bracket), and (b) to do so
without increasing the "relative" differences (i.e.
the difference between the lowest and the highest paid
workers) (Gado, 1976; Falus-Szirka, 1980). The former
policy appears to have been pursued very cautiously,
with primary impetus given to the latter. In fact,
the seventies witnessed a significant decrease in
overall wage differences for Hungary (Galasi and
Sziraczki, 1985; Falus-Szirka, 1980). 4
In the evolution of earnings dif
ferences for the period since the introduction
of NEM [the "New Economic Mechanism"— economic
reform program of 1968] it is possible to
observe two phases and the year 1973 can be
referred to as a water shed. That was the
year in which the government felt it important
to intervene directly in the evolution of wage
differences in order to speed up the turn
around toward a narrowing which had already
begun to show up earlier. It is worthwhile to
note that the government undertook this step
although it was contrary to the principles of
NEM. -5
Thus, beginning in 1973, the Hungarian government
decided to recentralize its overall economic policies,
fed in part by an effort to regain control challenged
by the onset of the world economic recession of the
early seventies. Largely, the move was a response to
28
the pressure of the people to halt increasing incomes
differences (Bornstein, 1977). This "retrenchment"
lasted through the end of the seventies, when after a
few years of restructure and reevaluation, a renewal
of economic reform took shape at the beginning of the
eighties (Marer, 1985; Galasi and Sziraczki, 1985).
One of the initial casualties of the reform,
caused by the dominant role of economic centralization
in Hungary, was wage differentiation. Skill
differentials were intended to be more pronounced
after the reform, in order to increase the incentive
toward labor performance. This was to be the
beginning of providing a stronger link between income
and productivity. However, according to the
literature, the resulting differentials that existed
in the first post-reform decade of seventies did not
correspond with intended policy (Adam and Nosal,
1982). In fact, Falus-Szirka (1980) notes a narrowing
of skill differentials;
The cause of the dwindling of skills
differentials and of the growth of job
unpleasantness complements is the great
discrepancy between the demand and supply of
labor, particularly the chronic shortage of
29
workers willing to do hard unpleasant work not
requiring particular skills. 6
The conclusion of those authors who address this topic
is that in order for economic reform to be successful
in the area of wage policy, an increase in skill
differentiation will need to be encouraged by the
government, with an emphasis upon qualitative
incentives for labor. They also underline that the
pursuit of such policies in Hungary will be fraught
with egalitarian barriers.
Finally, the last topic to be addressed here
deals with the central government's perspective on the
linkage of incentives and performance in the work
place. This is one of the main experiments of
economic reform in Hungary; it also hits particularly
at the heart of growth and equity concerns
(Flakierski, 1979). Tying income to individual
performance will certainly introduce differentiation,
while the restriction of income differences will
dampen the effect of incentives (Granick, 1976;
Flakierski, 1979). Through reform, the central
administration has made it clear, however, that
complete egalitarianism is not their goal. Some
differentiation is not only acceptable, but desired—
the type that occurs according to work performance.
At the same time, there will be upward limits to the
amount a worker can earn. This is expected to dampen
some extreme reaches of incentive, but is hoped will
not eliminate it, and satisfy a simultaneous objective
of worker incentive and overall equitability. This
policy is an example of how the constant tension
between the developmental concern for growth and the
socialist concern for equity manifests itself in
incomes policy. Identify the conflict is plain, but
understanding their relation remains unclear.
A direct "tradeoff" between the two is not
evident. Other factors cloud the issue, such as the
method chosen to compensate workers. In some cases,
generalizing rewards for the market performance of the
enterprise as a whole are advocated to emphasize
coopertivity. The problem is that a variety of
external factors would then greatly affect income per
worker beyond individual effort (i.e. the "free-rider"
problem), negating the idea of "equal pay for equal
work" (Granick, 1979). Piece-rate incentives can
avoid this problem by localizing incentives, but
31
perhaps at the cost of the cooperative environment.
In addition, other exogenous factors, such as the
existence of a "second economy" (the private
i
J moonlighting of state sector employees in Hungary),
can undermine this system. Once a particular
compensation/incentive mechanism is chosen, socialist
intolerance of extreme income differences will still
require upper limits to the amount a worker or group
of workers can legally earn. This ideological
constraint admittedly provides for the eventual
weakening of the linkage between income and
productivity (Falus-Szira, 1975; Granick, 1976;
Flakierski, 1979; Falus-Szirka, 1980; Kornai, 1980).
2.3 Literature on Yugoslavia
As a socialist country, Yugoslavia also has an
historical commitment to equality. One of the reasons
that worker self-management is pursued in this country
is based on the belief that a more democratic
structure in the enterprise will promote greater wage
equality (Wachtel, 1973). During the early years when
the economy was centrally controlled, the monitoring
32
of income equality was much more straightforward.
With the development of self-management and
decentralization in the sixties, however, the
government's ability to assert economic control was
i drastically decreased (Tyson, 1983). At that time,
significant strides were made to introduce a full
measure of the market mechanism. Concern over
increasing income differences led to a subsequent
recentralization phase.
For example, while Yugoslavia might
formally be regarded as market self-managed
from 1965 - 72, actual changes probably lagged
reforms in 1965, while pressure to equalise
incomes probably pre-dates the 1972 incomes
policy. 7
The movement toward implementing a "self-management1 1
planning process in the seventies reflects a movement
in the country to more actively control income
dispersion in a decentralized format (Sire, 1979).
While the overall structure of Yugoslavia is
formally decentralized, through the expression of
self-management, some authors contend that there
remains a clear underlying concern for centrality.
This became especially apparent in the national
33
movement to implement plannning and incomes policies.
Estrin (1982) says that because the new market system
of the sixties seemed to be exacerbating the economy's
problem's, especially in increasing income inequality,
••this led to a gradual reassertion of central control
during the early 70's, culminating in the reforms of
1973 and 1974". 8 However, because the economy is
formally decentralized, it is difficult to identify a
central power source. Sacks (1984) suggests that
because there is no official center of control, the
government is able to deny that one exists:
The increasing emphasis on economic
planning, which has been evident throughout
Yugoslav society since 1971, appears to
conflict with the principle of autonomy for
the divisions. Yet the Yugoslav's deny that
there is any conflict: as long as there is no
central office (either inside the firm or
outside) with authority to impose production
orders, each division is merely making its own
decisions in consultation with other economic
units. 9
Although there is no official Center from which
control is asserted in the Yugoslav economy, the
literature provides various possible suggestions.
Sire (1979) suggests that with the "Fundamental Act on
34
the Establishment and Distribution of Income (JP 68,
p.367)", the "social guidance of distribution" is
controlled by the Socio-Political Organizations
(SPOs). 10 In a critique to Tyson (1979), Michael
Conte suggests that, since 1974, the regional macro
agreements that BOALs (Basic Organization of
Associated Labor) now make constitute a centralization
utilized to counteract "the perceived anarchy of
(decentralized) market processes." Comisso (1979)
asserts that the imposition of "ad-hoc interventions"
by the federal administration, supported by the
people, approaches "'statist' overtones". Prasnikar
and Svejnar (1987) offer the presence of union
representatives in enterprise management as an example
of centralizing forces in the economy. And finally,
Elliott and Scott (1986), in highlighting the
recentralizing effect of the '74 constitution, observe
that that document enhanced the party's ability to
intervene at the enterprise and local government
level.
One of the recent lessons of the Yugoslav economy
appears to be that even a decentralized economic order
will require some form of supervisory guidance. It
35
is clear that any economic structure requires a
coordinating mechanism in order to function
efficiently. This does not mean that the
decentralized format need be compromised. The
express project of economic reform in Yugoslavia seeks
to operate coordination methods through the use of
negotiated economic policy, formulated by mutual
agreements. When these do not work, however, some
sort of coordination is necessary. Horvat (1976)
emphasizes the bottom-line:
Economic decentralization without
appropriate instruments of economic policy,
however, requires strong central political
power in order to make the system work at all.
'11
In order to minimize the need for government
intervention, a planning system was introduced through
a series of legislative enactments throughout the
seventies. The primary tools of coordination are
called "self-management agreements" (SMAs)? for
broader policy principle formulation where some level
of government is included, they are called "social
compacts" (SCs). Together these constitute the
36
proposal process of planning and coordination in the
Yugoslav economy. The system does not appear to be
fully operational, however. This "polycentric
planning" method is so decentralized and involves such
a wide range of actors, who are either unfamiliar with
political operations or appropriate economic
instruments, that for most parts of the country the
system is ineffective (Comisso, 1980; Sacks, 1984;
Pasic et al, 1982). What often occurs is that the
federal government eventually must step in to finalize
many of the agreements which have been unable to reach
a closing negotiation. Time lags, inter-enterprise
politics, lack of communication among enterprises, and
the resistance of some firms to participate have
contributed to the barriers that made the process
largely inoperative during the seventies. Some of the
problems appear to have centered around the
unfamiliarity of enterprises with the new system; a
system which by design places much responsibility for
economic foresight on the part of the many who are
clearly unqualified at this point. The federal
government steps in to alleviate the problem, but in
37
doing so, circumvents it by resorting to administra
tive intervention (Comisso, 1980).
Very few articles specifically attempted to
evaluate the effectiveness of this decentralized
planning format upon personal incomes; in other words,
to analyze the effectiveness of incomes policies from
SCs and SMAs. Stallaerts (1982) devotes an entire
article to the growth patterns of personal income in
Yugoslavia, wherein he discusses this topic and offers
a theory for how incomes grow over time. His
regression-studies find that, contrary to previous
Yugoslav studies (supporting the effectivenes of such
agreements on wage differential control), a change in
time periods reveals that ’ ’about half of the
[contractionary] effect could be ascribed to direct
government intervention”, rather than the use of any
agreements. Second, moving from the aggregate to the
branch level, to look at interindustry variations, he
observes that in regressing personal incomes of
industry branches on total industrial production (for
the period 1964 - 76, as a proxy for business
conditions), incomes policy agreements were also
38
unable to effectively compensate for business cycles
to maintain wage stability.
Next, in regressing personal incomes of various
industries on aggregate personal income by industry,
Stallaerts (1982) finds that wage behaviour again
appears to operate autonomously from the planning
process. Specifically, he found that food, electrical
power, and rubber industries operate monopolistically
(meaning that due to the high amount of autonomy their
wages showed relative to other industries,
monopolistic tendencies were observable). Lastly, the
author uses this observation regarding "monopolistic
branches" to formulate a thesis of how certain sectors
(industries such as electrical power, oil, and
building materials) in the Yugoslav economy act as
leaders in upper-bound wage dispersion. "Even when
inequality is high (bad business conditions), they go
on with augmenting their wages autonomously." 12 It
appears, then, that for its first few years at least,
the new planning system was ineffective in its
designed influence upon the economy. The time frame
of this study however, does not include the 1976 Law
on Associated Labor— one of the final legislative
documents establishing the full groundwork for the
present decentralized planning system.
Other authors support the idea that after higher
wage enterprises (or industries) increase their wages
up to a certain difference-margin relative to the
remaining enterprises, pressure rises for the latter
to increase their wages as well (Wachtel, 1973; Sire,
1979; Stallaerts, 1984). This theory describes the
costs resulting from the lack of wage control of the
decentralized planning process: (1) that high-wage
industries play a significant role in unwanted wage
dispersion, and (2) that over time, this leads to
overall wage-push inflation pressure in the economy.
The thesis is that workers in enterprises whose
incomes fall behind others are faced with the choice
of spending their enterprise income on investment
(potential enterprise growth) or wages. In a worker-
managed firm, they regularly choose personal income
over investment (Prasnikar & Svejnar, 1987).
Of course, not all enterprises could
pay the personal incomes the best enterprises
could, but the poorer enterprises tended to
forgo accumilation, or eroded capital, or
borrowed to maintain high incomes despite
losses. In Yugoslavia, those enterprises with
40
losses raised incomes as much as others or
more. The level of personal incomes was
related neither to productivity nor to the
efficiency with which social captial was used.
13
This begins to describe the actual operation of
j equity concerns in the Yugoslav economy. Formally,
SCs and SMAs are written by enterprises to define
economic arrangements acceptable to all, in areas such
as wage dispersion. Independent of these agreements,
certain higher-income enterprises disrupt or break
them by increasing their own incomes beyond the
agreement, contributing to unacceptable wage
dispersion. In response, workers of the remaining
enterprises (including low-income firms) push for
equalization, in spite of other more pressing economic
needs, within their enterprises. Thus, in this
scenario of a self-managed economy, workers exert
pressure to equalize wages. Planned designs for growth
(i.e. the maintenance of income relative to
performance) are often set aside for worker priorities
for income equity.
One of the most significant weaknesses that
Yugoslavia has had to contend with is its historically
41
inequitable distribution of resources. Regional
disparity has also had an obvious and immediate impact
upon the success of its distribution policies, as well
as its resulting dispersion of income in the economy.
Coming from the strong commitment to open market
processes that the federal government attempted in the
sixties, and a general acceptance of the resulting
market distribution, overall income dispersion was on
the rise by 1970 (Horvat, 1976). As noted earlier, it
was largely in response to this trend that the
seventies marked a reintroduction of economic
coordination. In that decade, the social/state sector
maintained a stable distribution of income overall, as
recorded by the World Bank:
Despite the low level of interregional
labor mobility and a high level of nominal
wage increases, which averaged 18% between
1965 and 1979, relative regional wages in the
social sector have scarcely moved at all and
the maximum spread in regional incomes
(between Kosovo and Slovenia) has never
exceeded the ratio of 79:121 recorded in 1979. 14
Concerning any discussion of inter-skill level
differences, those who addressed this topic appear to
assume Yugoslavia is a relatively egalitarian economy.
42
One observation was that minimal skill differentiation
in particular was partly responsible for existing
income equitablity (Estrin, 1981). Wachtel (1973)
writes that since the early sixties, interskill
differentials were decreasing (last date of observa
tion = 1966), and that this was a countervailing
factor against the lead cause of income dispersion:
interindustry differentiation. It is important to
consider that the perception of some authors is made
relative to western economies, explaining why they
judge Yugoslavia as "relatively egalitarian".
Prasnikar and Svejnar (1987) observe a high
correlation between income and skill level. But,
different than Wachtel (1973), they find that "while
skill differentials do not cause as wide disparities
as they do in Western European countries they
nevertheless account for much of the observed
dispersion in personal incomes in Yugoslavia." 15
Wachtel's neoclassical analysis appears to assume that
even interskill differentials are to be minimized,
while Prasnikar and Svejnar underline that such
differentiation is a goal of reform.
Thus, it seems that comparing Yugoslavia to
Western Europe leaves out important assumptions and
possibly distorts evaluating of wage policy effects
within the country. While it is true that Yugoslavia
is more egalitarian in distribution relative to these
economies, they do not assume the same ideological
objectives which guide their policy priorities. The
socialist nature of Yugoslavia requires that
appropriate comparisons be made relative to a similar
country of like ideology (Schrenk, 1981).
2.4 Summary and Conclusions
In summation, the literature underscores a few
important points of these two economies relevant to
this paper. First is the strong centralist nature of
the Hungarian economy— to the point of possibly
undermining the intent of its original reform goals.
One example of this arises when the following two
goals conflict: (1) narrowing overall differences in
income and (2) further increasing "absolute" income
differentials— the former will take place at the cost
of the latter (Adam and Nosal, 1982; Flakierski,
44
1979). Flakierski (1979) states the case most
succintly: "So long as the state is the owner of the
means of production, it can reverse any non
egalitarian tendencies." 16 The Hungarian government
is committed to a centrally planned economy (CPE),
even with economic reform and its decentralized goals.
Granick (1976) found that, even within the very
financial mechanisms designed to decentralize the
economy, the centralist bias remains:
The virtue of coordinating a socialist
economy through financial mechanisms rather
than by direct physical plans lies in the
freeing of central authorities from the need
for making decisions concerning each
production unit ... But the requirements
imposed by the constraints of Hungarian
society seem to have largely frustrated the
desired depersonalization of central controls.
If before 1968 Hungarian economy was operated
primarily by physical planning down to the
level of the individual enterprise, Hungarian
industry under the reform mechanisms has been
governed by financial regulators whose
provisions also are specific to the individual
enterprise. 17
Clearly, the impact of the centralist nature of
Hungary has been to give equity higher priority
relative to the growth designs of economic reform. As
stated in the above quote, it is important to note
45
that the pressure upon the government to maintain this
priority largely originates from Hunarian society
(read: the populace). Most analysts agree that
Hungary is one of the most equitable economies in the
world, even when compared to other centrally planned
economies in the Soviet Bloc. At the same time,
Hungary is one of the prime leaders of the economic
reform movement; however, the commitment to the former
is over and above the commitment to the latter.
Secondly, the literature emphasizes the basic
decentralized nature in which equity is pursued in the
Yugoslav economy. With roots in the early fifties
when "self-management" was only a ideal, the worker-
owned and operated enterprises in the economy are
observed to exert their power by benefiting themselves
over their firm. In spite of the fact that evidence
exists showing the underlying central connections
which attempt to coordinate the economy, Yugoslavia
officially remains a decentralized economy.
In this economy, the equity interests of
individual enterprises take priority over national
growth designs should the two come in conflict. The
best example of this bias is in the great difficulties
the government has faced in trying to institute "self-
managed" equitablity policies established through
enterprise agreements (Tyson, 1980; Sacks, 1984).
Part of the problem has had to do with unfamiliarity
with the procedures, but a significant part also deals
with the ability of any firm to make decisions that
will benefit themselves at the cost of the overall
plan of the nation (equitability of a nation is a
macro problem by definition). In this situation, what
appears to be exerting the greatest pressure towards
equitability is not the SMAs and SCs, but the myopic
interest of the workers in lower paid firms to keep up
with the workers in the higher paid ones, even at the
cost of individual enterprise efficiency (i.e.
borrowing to supplement incomes at a time of
enterprise troubles).
Lastly, the appropriate equitability policy
comparison for a socialist economy is another
socialist economy. The assumptions and goals of the
ideology are of such substantive difference as to make
it a crucial point. Some direct comparisons were made
in the literature. As already stated, Hungary has a
more equitable distribution of income than Yugoslavia
47
(Michal, 1973; Morrison, 1984). Related to this fact
is that Hungary also holds more governmental control
over the economy than does Yugoslavia (Tyson, 1983).
Though it might be difficult to compare their degree
of commitment to a market system, they both appear to
have continued to maintain an ongoing process of
economic reform, given their respective restrictions.
By implication, Yugoslavia is more decentralized than
Hungary, but this doesn't necessarily imply that
Yugoslavia is more "reformed" than Hungary. As
Elliott and Scott (1986) state, such assertions are
"misleading in that 'market socialism' per se may well
now be stronger in Hungary than in Yugoslavia . . .
what is truly distinctive about Yugoslavia is its
commitment, albeit imperfectly, to workers'
management." 18 This paper will not attempt to
determine which economic system is further along the
road to reform relative to the other. Instead it will
try to compare and contrast the different ways in
which both economies have dealt with similar
ideological goals, coming from fundamentally distinct
backgroundsperspectives, and constraints.
48
CHAPTER NOTES
1. In discussion with Professor Comisso, she
suggested that this is perhaps due to
the difficulty of understanding the
languages of both countries.
2. Flakierski, 1979, p.15
3. Falus-Szirka 1980, p.165: "The job of
differentiating wages in keeping with performance
is not popular anywhere, largely because of
social pressures making for levelling. A role is
played there by the socialist ideal of the social
and human equality of man, as well as by the
rapid approximation to each other of the needs of
various sectors of society . ."
4. It is important to note that both articles by
Falus-Szirka (1976 and 1980) include other
sectors in their analysis, beside the state
sector, and Galasi and Sziraczki (1985) do not.
In the 1975 article, she asserted that, of the
income differences that existed at that time, the
largest were supported by the private and "second
economy" sectors of the nation. In the '80
article, she suggests that a major reason for the
overall drop in wage differences had less to do
with national wage policy and more to do with new
financial support for the historically low
incomes of the agricultural sector and central
redistributive "levelling" (see also Flakierski,
1979; Adam and Nosal, 1982; and Granick, 1976).
She maintains that the extreme dispersion of the
economy still comes from the non-state sectors.
5. Adam and Nosal, 1982, p.185
6. Falus-Szirka, 1980, p.168
7. Estrin, 1979, p.177
8. Estrin, 1982, p.72
9. Sacks, 1984, p.165
49
10.
11.
12.
13 .
14 .
15.
16.
17.
18.
According to Prasnikar and Svejnar (1987) p. 16,
an SPO (not to be confused with a "Socio-
Political Assembly" or a "Socio-Political
Community", who form employment policy) is made
up of the trade unions and the League of
Communists (LCY). Its membership is comprised of
social representatives from each firm and is
intended to be the leading actor in seeing that
the firms comply with the principles of the
Social Compacts, particularly in the area of the
distribution of income. The SPO is one of the
three main institutions (#l=workers, #2=managers)
for establishing "self-management" policy, and
for the implementation of "self-management"
planning agreements.
Horvat, 1976, p.38-39
Stallaerts, 1982, p.315
Sire, 1979, p.130
World Bank Country Report, 1983, p.223
Prasnikar and Svejnar, 1987, p.62
Flakierski, 1979, p.31
Granick, 1976, p.269
Elliot and Scott, 1986, p.193
I
I
50
3.0 A CONTEXT FOR COMPARISON
3.l The Structure of Economic Reform
Countries undergoing reform are sometimes called
"mixed economies" because of their use of a variety of
socialist and capitalist methods. However, this term
is used to describe some Western countries as well,
such as the United States or Great Britain. As stated
earlier, to compare Hungary or Yugoslavia with them
might serve some purposes, but not for this study.
This paper focuses upon socialist-based mixed
economies (SBMEs), meaning that socialism is the
dominant politico-economic philosophy at work.
The term "socialist-based mixed economies" can be
applied to a number of different countries who are
quite different from one another. A couple of their
similarities would be the use of both an economic plan
and a market, and the use of differently owned sectors
within an economy: from private, to cooperative, to
state-owned. However, the degree to which both plan
and market are utilized, and the size and the amount
51
of influence each sector has in the economy greatly
differ across countries. This section suggests six
points of comparison for SBMEs. The characteristics
listed are general and broad, presented more for the
purpose of distinguishing economic reform systems than
for defining them.
I. Use of Market Processes
This characteristic is the starting point of
reform and common to any socialist economy
participating in such. This is what transforms a
traditional socialist system with direct control to a
reformed one with indirect control. Often labelled a
vestige of capitalism, it is the most controversial
ingredient in the economic mixture of reform. The
problem for most SBMEs is how to allow the market
enough freedom to function and still maintain control
through regulation and/or intervention.
Precisely how the market is utilized and the
degree to which it is allowed to function in the
economy varies significantly among these economies.
Policies that express the nation's position on this
issue are the regulation of prices, wages, and
52
interest rates. These policies often differ by
sector, region, industry, and sometimes by enterprise.
They are controlled by taxation and subsidy using
floors and ceilings. Occasionally, the government
might step in unexpectedly to halt or reduce
fluctuation in these areas. Such actions lie outside
the boundaries of reform and instead represent a
compromise of intended reform goals and policies.
II. Degree of Decentralization
This point looks at both the process and location
of decision-making, particularly regarding the
formulation of the plan. It is concerned with
identifying the agent (i.e. the party or the state)
that is primarily responsible for economic guidance
and direction, keeping in mind that the government
customarily maintains final authority throughout.
There are two general areas in which
decentralization is practiced: (1) micro economic
decisions, and (2) macro economic decisions. With the
introduction of the market system, micro decision
making is implicitly delegated to the enterprise
level; however, some specific enterprises or
53
industries might be withheld from this privilege.
Enterprise-level decentralization itself takes on two
main forms: (a) to managers, and (b) to workers'
councils. Very few SBMEs allow agents other than the
state or party to participate in macro economic
decision-making. Theoretically, there could be
varying levels of such empowerment (i.e. national,
regional, or local). How any other economic agent
beside the state would particpate in such decisions is
another question.
III. Ownership and Control of the Means of Production
1
This point is common to most standards of
economic comparison and is basic to the philosophy of
socialism. In the traditional socialist system,
ownership is owned by the workers in title, but
controlled by the state. In no economy has state
ownership "withered away" as yet, however many
socialist economies have not removed private ownership
either. In SBMEs, there is a variety of forms of
legal ownership.
Basic to any of these economies is the state
sector. Ordinarily, this is the largest sector— in
54
contribution to GMP— and typically controls most of
the nation's heavy industries. However, many
economies also have a public or cooperative sector in
commercial industry and agriculture; worker-owned and
managed enterprise would be included in this category.
Thirdly, private ownership exists in many SBMEs in
small to medium-sized enterprises, particularly in
agriculture.
IV. Degree of Enterprise Autonomy
This characteristic can be seen as the converse
of decentralization ("I." above), but a different
criterion is used here. The true test of "autonomy”
for one agent from another is the ability of the
former to make decisions different from the latter.
Though this study assumes that the state has the final
word, the amount of self-restraint that it exerts in
the operation of the economy is what is described
here.
It is not always clear when an enterprise is
acting in a way different than the state. However, it
can be assumed that the two are in conflict when the
state appears to enter into a situation unexpectedly
55
and contrary to stated policy. When such intervention
occurs, it conflicts with the guidelines of reform,
but it is common to every SBME. Specifically,
whenever the state exercises its right to immediate
and compulsory intervention, such actions represent a
diminution in the autonomy of enterprises. The more
frequent the occurence the less autonomy the
enterprise actually holds.
V. Use of Incentives
The motivation of workers in production is
another crucial issue of reform. As mentioned before,
in the traditional socialist economy, incentives (i.e.
income) are manipulated primarily for labor
allocation. In reform, the incentives policy focus is
upon the enhancement of labor productivity.
The two general types of incentives listed here
are (a) material, and (b) morale-oriented. Material
incentives commonly offer increasing compensation with
increasing work performance and skill. This is a
fundamental part of incomes policy in SBMEs. Carried
over from the traditional model, morale-based
incentives are generally expressed as either a
56
commitment to the socialist project, or as an
opportunity to share in the rights and
responsibilities of social ownership. Both are
utilized in SBMEs, but material incentives predominate
and are the focus of attention in this paper.
VI. Level of Development
Commonly, socialist reform economies are of
moderate development— somewhere between developing and
developed. They are typically nations that have
experienced some years of implementing the traditional
model of socialism and are changing from a production
to a productivity emphasis. However, this is not
always the case, since there are some SBMEs that are
still very much developing, relying much on a large
agricultural sector (as opposed to industrial).
The pivotal issue of reform has been espoused as
a transition in development— from quantitative
(extensive) to qualitative (intensive) efficiency.
This in itself assumes a certain accomplished level of
development. However, quite often this distinction
appears more for political justification than economic
classification. Some economies who are still largely
57
agricultural, without an industrial base, declare
themselves "mixed" (i.e. Nicaragua).
What appears to be most important in declaring
"reform" is not so much the acquired level of
development of a particular economy, as much as its
hunger for development (read innovation and
technology). For most, this hunger has become large
enough to tolerate the return of the market system,
more recently even within the "motherland" (the
U.S.S.R.). In addition, the reform seems to imply a
retrenchment from the former elevation of mass society
and its greater good, toward a renewal of the
individual, and one's personal livlihood (consumer
goods and convenience). Ideologically, the reform
project is revision; pragmatically, some form of
progress appears necessary for socialist economic
survival.
3.2 The Growth - Equity Tension
In economics, there exists an ongoing debate
about the goals of achieving both optimal growth and
an equitable distribution of income. Some of the
58
questions often asked in this forum are: can both be
achieved at the same time, or does the pursuit of one
exclude the achievement of the other? What type of
relationship do they have with each other, and how do
they interact? The debate intensifies when the
discussion turns to socialist economies, because it is
within socialist ideology that equitability becomes an
explicit goal (Okun, 1975? Connor, 1977; Chilosi,
1980).
The literature covering wage policy and income
distribution in Yugoslavia and Hungary is a case in
point. On this topic, there are a number of authors
who address the debate between growth and equity,
offering a variety of perspectives. Some see the
controversy in antithetical terms, where policies
toward one goal are made in a tradeoff relationship
with the other (Falus-Szirka, 1980; Michal, 1973).
Most who address the issue at least find some
"contradiction", "conflict", or compromise without
satisfaction (Neuberger, 1976? Kornai, 1980? Connor,
1977). Whatever possible solutions exist, they are
very complex and always temporary, making attempts at
59
' maintaining a sychronized policy on both a dynamic
I
process:
! Socialist income distribution is the
; product of a compromise between the
! "performance principle" and the necessity of
, some commitment to egalitarianism - and no
compromise satisfies everyone. 2
I
1 In focusing upon the incomes and distribution
i policy of socialist countries, the debate takes on
further significance. Wage systems in general hold
! extremely sensitive positions of political power whose
i changes greatly affect the popular view of government
efficiency. The expectations of the populace,
regarding both the growth and equity of income, are
1 primarily oriented by the history of personal income
! that the people have acquired for themselves.
I
! The goal of reform policy in growth terms for
wages, in general, is to use them as an incentive to
increase productivity in the work place. On the other
hand, the goal of the average worker as they perceive
"growth" can often mean the acquisition of increasing
amounts of personal income, at least to cover the cost
60
of living (Okun, 1975). An example of this can be
found in Yugoslavia;
Prasnikar7s (1983) empirical results from 150
WOALs suggest that the growth of personal
income is indeed the primary goal of workers.
In fact, 69% of the 1922 interviewed workers
noted that their personal income was lower
than that of equally qualified workers in
other WOALs and they argued that their own
personal income should therefore be higher.
This finding was especially pronounced among
workers with below average personal income,
semi-skilled and unskilled workers, and
workers from lesser-developed regions. It
appears that increased personal income is
their overriding objective and that greater
collective consumption (especially of the
intra-firm type) is a closely related goal .
. . . Interestingly enough, the growth of
personal income remains the single most
important goal even for the most senior
workers. 3
These differing goals complicate the objectives for
policy makers. Turning to "equity", the socialist
government's wage policy is probably similar to most
worker's goals: (a) to ensure that the principle of
"equal pay for equal work" is in force, and (b) that
others in differing levels of work don't have
exorbitantly increasing real incomes if the lower ones
can't cover the cost of living (Kornai, 1983).
61
The task for incomes policy, therefore, is
extremely delicate. First, it must satisfy economic
I
j goals of increased productivity in the work place.
1 Second, it must satisfy the income equity expectations
| of the work force. Third, in a dynamic planning
I
I
' basis, incomes policy must chart a path of balancing
I
j growth and equity in a consistent manner that does not
> imbalance the workings of the newly introduced market
i (Portes, 1977b). Ultimately, it is the presence of
I
j the market that heightens the growth-equity tension in
i
' socialist countries and makes its resolution so
variable relative to its centralist past. It is the
; inclusion of the market, however, that makes economic
reform both very powerful and very controversial.
i
i In the traditional CPE approach (established
j under Stalin), those in favor of increased
i
j centralization ("centralizers") focused primarily upon
, growth through rapid industrialization, using the plan
as the sole arbiter of resource allocation. The
market was cast aside for its anarchy and inequity.
This "extensive" development strategy eventually fell
: under increasing criticism: (a) for its emphasis upon
U.S.S.R. leadership, (b) since initially impressive
62
growth rates have become more difficult to maintain,
and (c) as the existing planning bureaucracy has
become increasingly cumbersome (Gregory and Stuart,
I 1986).
I Reformers are now returning to the market and its
i
| vast power to both find a new source of growth and to
j streamline the ongoing planning system. The Soviet
I leadership issue is handled uniquely by each reform
country, but overall, "intensive development"
addresses all three criticisms. The goal of in this
revitalized growth phase is to enable enterprises to
j make their own microeconomically efficient decisions
! through the market. Previously preoccupied with
1 "growth", centralist arguments within reform are now
i advocating "equity" as the primary concern,
| emphasizing that the market cannot be trusted to
j distribute resources on its own. By introducing the
!
. market, reformed socialist economies are finding that
they have "intensified" not only their development
strategy, but also the planner's job in guiding the
; economy, particularly with regard to incomes. 4
63
3.3 Incomes Policies of Reform: A Context for
Comparison
As stated earlier, the most crucial factor of
reform is the use of the market for allocation. This
is the largest step of reform, both ideologically and
practically. The market and an active central
administration coexist in mutual contradiction: the
market assigns its own distribution of resources,
which will oppose any apriori design the CPB might
have. By implication, reformers appear to be
advocating that central planning cannot coordinate an
economy efficiently enough for intensive development;
only the market can keep up with the complexities of
an advanced, modern economy. Continued development
implies only further complexity. Therefore, the basis
of reform is decentralization or enterprise autonomy.
By delegating some autonomy (micro decisions) to the
enterprise, they are hoping to cut away much of the
bureaucratic weight of the traditional system in order
to improve effectiveness and efficiency.
The main purpose of the reform was
to free the public firm from bureaucratic ties
and to increase autonomy. 5
64
Reformists in Eastern European countries appear
to have generally accepted an underlying philosophy,
which is often thought of as a "western" notion: the
contrasting relationship between growth and equity
(Flakierski, 1979); the major theme of this paper.
Contrary to the Soviet Union, these countries have
accepted the idea that equity, with respect to income,
refers to an economy-wide distribution in measurable
terms (i.e. higher versus lower incomes, between and
within skills). In that growth-oriented policies seek
to increase productivity incentives, these will come
into conflict with the above interpretation of equity-
-this is the basis of tension in incomes policy.
The following, then, is a list of objectives or
criteria toward the formation of wages and incomes
policy in an economic reform environment. This list
is not intended to be exhaustive by any means, but
merely offers to provide a framework for discussion.
A few assumptions are made: (1) enterprises are able
to make decisions upon worker compensation, though
perhaps limited within a range, (2) enterprises are
able to make decision regarding the level of
65
employment 6, and (3) workers are able to move freely
in choosing work (labor mobility).
j Features of Incomes Policy in Economic Reform
I
| 1. One of the basic tenets of reform incomes
i
! policies is the improved linking of earnings with
| worker performance (be it profits, value-added, or any
i
| other productivity measure).
I
j The basic principle of the reform is
; that of linking increases in wages and
1 salaries directly to productivity increases in
| each enterprise .... 7
!
j Factors that could change a worker's income for
! reasons other than performance are to be controlled as
much as possible. Subsequently, wages should be the
i
| primary source of earnings and the role of bonuses
| reduced (not including management). It is believed
i that incentives would be most effective if the worker
I
perceived that a "direct" relationship existed (Falus-
i
| Szirka, 1980).
I 2. While the linking of earnings to performance
provides a clearer incentive format for earnings, all
66
workers are guaranteed a minimal income standard
consistent with the growth of the economy. The goal
is to at least allow for cost-of-living raises. This
is based upon socialist ideology that minimal incomes
should enable workers to maintain a "socially
acceptable living standard" (Gabor and Galasi, 1981).
In supplement to this policy, any redistribution or
transfers should occur without adversely impacting the
income-performance link. A compromise is the use of
welfare benefits and services (non-earnings) to
support the incomes of lower paid laborers.
3. A third objective of reformist incomes policies
is parallel with the first: that in keeping with
increases of income with performance, advances in
skills should also meet with increases in average
income. Therefore, any differences in education,
training, or experience should be materially rewarded
as well. Together, these (#1 and #3) form the basis
for constructing a system of skill and performance
income-bands that outline "socially acceptable"
earnings differentiation.
4. The differentiation initiated by linking income
with performance and with skill requires ceilings and
67
floors to control and maintain income differences,
j For example, Hungarian reformers refer to two types of
j differentiation: (a) "absolute" differences in
j earnings (between skills and performance) to
distinguish and reinforce incentive levels, and (b)
"relative" differences (higher to lower incomes) which
should be maintained at the societal standard (Gado,
1976). At their extreme in the traditional
!
j centralist's perception, such policies were considered
| "levelling"— the administrative equilibrating of
incomes— but, this is not what is advocated here. The
idea is that, while income should reflect performance
and skill, in a socialist economy both the market and
incomes are regulated for final control (Falus-Szirka,
1980).
5. Lastly, in keeping with the socialist policy of
"equal pay for equal work", a priority is placed upon
the uniformity and consistency of these objectives
I
! throughout the economy. Maintaining the requirements
, and constraints on labor (and any other form of
j policy) in a generally consistent manner throughout
I
; the economy (as opposed to using different policies in
| different areas) clarifies and reduces the ambiguity
68
of income schedules. In addition, any changes in
policy should be minimal across time, so that workers
and enterprises are able to adjust their expectations.
This would be a significant departure from the Soviet
use of incentives in that it would imply a
minimization of same-skill income differences by
region, sector, and enterprise. Contrary to their
belief, such a move would not necessarily disrupt the
allocative ability of the administration (Portes,
1977b).
3.4 The Traditional Centralist System 8
The process of control and coordination of the
centralist economy before reform was based upon the
model of the Soviet Union. This is particularly true
for the economies of both Hungary and Yugoslavia. It
is important to understand the roots of these reform
economies in order to provide an historical
perspective. This section provides a background
survey of the traditional centralist model,
specifically highlighting incomes policies, and
concludes with a discussion of its criticisms.
69
Initially, Lenin introduced the use of a market
system during the New Economic Policy (NEP) of the
twenties, a program that was to become important to
reformers in the future. It was, however, Stalin's
command economy which eventually survived and securely
established the long-run path and policies of the
nation. This economy did away with all vestiges of
the market and any notion of its "economic laws." The
key to coordination became the central plan and the
administration of control was through the planned
production target. The system was altogether
hierarchical, from the Politburo of the Communist
Party of the Soviet Union (CPSU) and the Gosplan
j ministry, on down to the enterprise.
Today, the process of formulating the annual plan
is initiated by the CPSU, which sets the desired
macro-target rates of growth for the various sectors
of the economy. With these targets in mind, the
i Gosplan ministry puts together a rough draft plan
I requirements to fulfill them. This first-draft is
i
then sent to each of the other ministries, whose own
! planning departments then discuss with Gosplan over
I
j the various points of the plan affecting them. This
is the focal time of negotiation in the entire
process. A second-draft of the plan is then sent down
to the regional level, as well as to the enterprises
t
| in tentative input/output terms. From the enterprise,
j micro-level physical input needs for plan fulfillment
1 are sent back up the hierarchy to Gosplan for final
■ "balancing.” Once the plan is in implementation,
I
j Gosplan is then responsible for overall supervision.
The goal of Gosplan is to administratively issue the
demand requirements of the economy, and then to verify
the matching supply resources necessary to bring the
plan to completion.
Incomes policy in this system is primarily
concerned with the allocation of labor and the planned
j level of consumption. Admininstrative controls such
as wage fund targets (the wages bill), wage rates, and
overall income-skill matrices are fleshed out through
the planning process in the same way as any other
production factor. The balance to be found lies
between the amount of labor (supply) and its
j corresponding income/consumption value (demand) in the
j economy; this also determines the supply of money.
Essentially, wages and prices are set with the same
71
philosophy: to support the planned material macro
balance in the economy.
The cash plan derives from wages, the
essential elements of the credit plan derive
from the cash plan, and at the center of
monetary control is the balance of money
incomes and expenditures of the population.
Thus the actual control is over the flow of
incomes rather than the aggregate stock of
household money. 9
The incomes priorities of the Center focus upon
labor allocation. They are not interested in
earnings-difference contraction as a definition for
"equality", since that would reduce the allocative
power of differentials; in their philosophy, the
notion of "equal pay for equal work" inspires this
differential approach. In addition, however, earnings
are also administratively varied according to region,
industry, and enterprise. These three are
differentiated to add further dimensions to the
I
j planned direction of labor. Variations in this policy
I have occured such that, since the late sixties, the
degree of centralization and standardization (or
uniformity) has increased.
72
Earnings are composed of a base wage and a bonus.
Wages are paid by skill, education, working
conditions, and experience differences; the bonus is
paid according to plan fulfillment. Thus, material
incentives are widely used. The differentials are
centrally fixed by an indexing system. In each
industry, absolute base wages of the lowest paid
worker are set at the ministerial level. From these
base rates, a schedule for the industry is computed on
averages relative to the base wage. Changes in the
allocations priority of an industry are made by
changing the base rate.
Equality of earnings distribution is not a policy
goal. Objectives such as allocation, control, and
plan fulfillment are given higher precedence. In
other policy areas, such as prices and transfers, an
active concern for an equitable distribution of
resources does seem apparent; however, it is largely
absent within wages/incomes policy.
It is noteworthy that the most direct
method of equalizing the distribution of
income - the levelling of wage income - has
not been used on the grounds that this would
weaken the incentive system. 10
73
The problems that arise in the Soviet system
historically have had much to do with a conflict
between the existence of "economic laws" (considered
by some a leftover from capitalism) and Marx's labor
theory of value. The idea that the plan will be able
to manually determine a "balanced" allocation of
resources (demand and supply balance) has long been
fundamental. This is in spite of an economic history
of increasing bottlenecks, misallocation, and over
bureaucratization in an administration that continues
to grow and become increasingly complex. Planned
targets and output fulfillment may often contradict
what is locally efficient; nonetheless, the system is
built to maintain a "production standard" overall,
particularly in the area of earnings.
More concretely, there are a variety of weaker
areas which are of utmost concern to the Soviet
administration. A general list of some of the major
issues are as follows. First, the economic growth of
the country has been steadily declining since the late
fifties. The need is to find a source for economic
revitalization. Next, the capital to output ratio
(K/Y) has been steadily increasing, making it more
74
costly to fuel desired growth. Third, pressure from
the populace has increased over consumer goods and
services. Though an illegal second economy has
I
perhaps relieved some of this pressure, a substantive
response by the administration is still needed.
Lastly, the problem of excessive bureaucracy, which
has always been a stereotype of the nation, only
promises to increase further as the economy continues
to grow with time.
Within the Soviet Union, economic reform has been
debated, but not with much success. Factors such as
those listed above have prompted such a discussion.
Two schools of thought have existed: (1) to
decentralize micro decisions to region, industry, and
enterprise (similar to economic reform), and (2) to
"rationalize" the administrative system. The latter
proposal suggests that the economy reform its
decision-making to increase the role of economic
efficiency. Specifically, in the incomes policies of
the seventies, some of these changes were enacted to
increase the connections between income and production
quality. However, these only modified the existing
system, rather than establishing any fundamental
75
changes in structure. Overall, it appears that up
until the prospects of the Gorbachev "perestroika",
the latter school has gained the most favor.
Basically, the system has not changed thus far.
. . . the economic system that
operated in the Soviet Union today is much
like that which emerged in the 193 0s. In
fact, many observers observe (sic) that for
the time being at least, economic reform is
"dead" in the Soviet Union. 11
CHAPTER NOTES
1. Both Elliott, 1985 and Knight, 1983 use
characteristics similar to numbers "III.", "V.",
and "VI." for comparison of economic systems.
2. Connor, 1977, p.163
3. Prasnikar and Svejnar, 1987, p. 12-13
4. Neuberger and Duffy, 1976, p.285: "... the
fundamental dilemma of economic reform in
socialist countries countries [is] the
contradiction between greater efficiency through
increased use of economic incentives and the
desire to minimize class distinctions, at least
based upon economic criteria." Also Connor
(1977), p.165: "The tension between equality and
achievement set the lines of debate between the
two lines of socialist thought: ideological
egalitarianism and pragmatic reformism."
76
5.
6.
7.
8.
9.
10.
11.
Kornai, 1980,, p.147
On the importance of this assumption: "In a
decentralized system of management, enterprises
must have a certain economic autonomy, and this
autonomy is meaningless (or at least very
limited) without the right to make decisions
about employment." Adam, 1979, p.65
Flakierski, 1979, p.16
This section is based primarily upon Gregory and
Stuart, 1986, and Fortes, 1983.
Portes, 1983, p.157
Gregory and Stuart, 1986, p.165
Gregory and Stuart, 1986, p.293-4
!
77
4.0 INCOMES POLICIES IN ECONOMIC REFORM
4.1 Wage Policies of Hungary During the 1970s 1
The reformed system of wage regulation in Hungary
has become very complex, particularly since the
readjustment period of the seventies. A significant
part of this is due to the nation's "Living Standards
Policy" (LSP) which prescribes the social welfare of
the economy. The LSP itself reflects the growth and
equity tension within worker income goals: "... one
objective of the living standard policy is that even
the lowest incomes should make it possible to satisfy
minimum social needs appropriate to the given level of
development [i.e. income growth], and at the same time
that the highest incomes should not be allowed to
exceed a socially permissible level [i.e. income
equity]." 2
The economic reform movement in Hungary formally
began in 1968 in reaction to growing inefficiencies of
the command economy. Since then, three periods can be
distinguished to outline the major changes in economic
policy: (1) the initial reform, '68 - *12, (2) a
78
recentralization phase '73 - '78, and (3) a renewal
phase '79 - '84.
Economic Reform: 1968 - 72
The linking of wages to economic performance has
been a long-term goal of Hungarian incomes policy.
Until the 60's, gross output was used as the basic
indicator of productivity. Shortly before the reform,
however, profits began replacing output in this role.
Although Hungary has initiated one of the most
comprehensive systems of reform, it firmly remains a
centrally-planned economy (CPE) (Granick, 1976;
Revesz, 1984). Policy measures are exacted in the
regulation of mandatory enterprise funds, where the
Center imposes compulsory requirements in some sectors
and automatic rewards and penalties for performance in
others.
Growth figures for this first period were
remarkably high and stayed that way through the second
period (through 1978), contributing to the
significant increases in national income and living
standards of the time. One of the first effects of the
79
reform upon wage policy occured when severe labor
hoarding began shortly after 1968. With
decentralization, firms were now free to hire
employees, given only a limitation on wage averages.
What soon resulted was that firms learned to hire
large amounts of cheap labor in order to manually
balance their per-worker averages to sustain higher-
paid employees. This had an adverse affect upon wage
dispersion, since more and more low-paid workers were
being hired and the higher-level employees were being
paid more.
Other problems that arose were: (1) the
administration's inability to uniformly maintain wages
according to skill at a socially acceptable level; (2)
the realization of the unequal and arbitrary nature of
the distribution of profit shares; and (3) worker
reaction to the sharp rise in earnings differentials
that had come with the reform, which provoked the
change in policy for the next phase. Another source
of resistance and general opposition to the reforms,
however, was from the many large enterprises who were
formed by merger in the fifties and sixties for the
purpose of facilitating central control.
80
Recentralization: 1973 - 78
The introduction of "wage-bill" regulation in
1972 marks the beginning of the second period- Wage
bill control on firms limited the total sum of wages
that they could spend, thereby controlling the number
of employees. The level of wages remained stable
since firms had to compete for labor through wages.
The labor-hoarding phenomenon slowed significantly and
wage-bill began to replace wage-level regulation
altogether. It was soon realized that the use of one
or the other type of regulation could facilitate
policy control, so both methods were retained.
As the world inflationary economic crisis arose,
conservative portions of the government blamed
reformers for making the economy vulnerable, and most
of this period was burdened with significant pressures
to return to traditional centralization. Wages and
productivity began a gradual upward climb, due in part
to the implementation of wage-bill regulation, and
same-skill differences began to decrease.
The linking of wages to profit began to be
reconsidered by policy-makers around 1976, due to the
81
inability of the administration to control the
randomness of enterprise profit determination. Wages
(based on labor) were given an increasing role, while
bonuses (based on profit-shares) were decreased.
After some experimentation, the nation's Fifth Five-
year Plan institutionalized a comprehensive four
pronged system of wage regulation: (1) ’ ’relative"
(indirect or decentral) wage-level regulation, (2)
"relative" wage-bill regulation, (3) "absolute"
(direct or central) wage-level regulation, and (4)
"absolute" wage-bill regulation. "Relative"
regulation was decentralized, whereas "absolute" was
centrally-directed. Each one was designated for
different sectors of the economy, depending upon
central policy goals and constraints. All wages were
initially capped by a 6% "wage brake", meaning that
they could maintain an annual increase of that amount,
after which they were subject to a progressive tax
rate ranging between 150% to 800% (Belassa, 1981).
One of the major problems of this period began
with the policy-makers' mistaken perception that the
inflation would be short lived. They therefore decided
that temporary isolation would solve the problem.
82
Their subsequent policies worsened the overall impact,
and living standards began to decrease while the
nation's external debt climbed. By 1978, the
impressive growth enjoyed earlier in the decade was
lost.
Renewal: 1979 - 84
To let off some of the pressure caused by
declines in living standards and purchasing power,
the legalization of the so-called "second economy"
(moonlighting jobs of workers within the state sector)
became the most significant policy-move of this
period. Policy-makers expected the second economy to
balance the large gaps in labor-market equilibrium and
to further support the idea of increased income for
increased work. State sector workers were "allowed"
to use state-owned tools and machines to fulfill their
own contractual agreements with companies (sometimes
their owni) (Maresse, 1981) . In addition to the
second economy, there began a process of breaking down
some of the large firms to make them less cumbersome
and more efficient. The combination of these two
83
events introduced a greater number of actors into the
economy, thereby increasing competition.
Wage-bill remained the most widely used form of
regulation because of its positive incentive affects.
The introduction of the second economy, however, put
pressure on the administration to further increase the
wage brake which was now 9%. The brake was then
increased again to 12% at the beginning of 1982.
While the second economy allows the populace to
seek their own means of increasing their income, none
of it is under the control of the government. This
situation quickly became a major contributor to
earnings dispersion among state-employed workers. The
rationale of the government was that these people were
earning more because of their effort and willingness
to work, but it was clear that some were taking great
advantage of the opportunities. One of the most
widespread problems introduced by the second economy
was the general slackness of workers during their
normal working hours. Workers know that their income
gains would be greater when working later on their own
time (as much as two or three times). This has become
a large incentive for them to reserve their energy,
84
severely dampening any policy-incentive schemes in the
work-place. Finally, as the inflation effects of the
seventies continued to linger, real wages continued to
decline in the early eighties.
4.2 Earnings Determination in Hungary Today
The basis of income starts with "wages", which
are theoretically determined by qualifications and
working conditions. The government has established
national wage brackets for maximum and minimum levels,
according to skill and working conditions (Marer,
1985). Beyond this, actual wages are negotiated
annually in collective agreements between enterprise
management and trade unions.
Within the series of funds required for all
enterprises, there exists a "sharing fund" from which
payments to labor are derived. The sharing fund is
third in priority by government requirements. Its
purpose is to finance wages, bonuses, and year-end
rewards. A lower-priority welfare fund is maintained
by each enterprise as well to supplement income with
85
social services. The importance of the sharing fund
to earnings dispersion is underlined in Gado ('76):
Experience of the last years has shown
that considerable differences in sharing
funds, prevailing on a longer term, entail
problems similar to those involved by the
differentiation of wages, and in the final
analysis, they lead to the emergence of
disproportionate incomes. 3
In addition to earnings, funds are used to pay the
highly progressive taxes incurred should the
enterprises decide to pay their workers more than the
government brackets allow. All workers are guaranteed
occasional national wage increases, and an annual wage
increase is available tax-free, as long as it is less
than 12% of the previous year's earnings. At the end
of every year, allowances are made so that if a firm
didn't make enough to pay end-of-the-year rewards, and
did not also fall into debt, workers are still
guaranteed a minimum payment equal to six days' wages
(funded through tax breaks).
There are two basic types of sharing funds that
exist in industries: (1) "relative" wage regulation,
and (2) "absolute" wage regulation. In a relative
86
(indirect) wage industry, an economic indicator (i.e.
profit or value-added) is used to determine the extent
of wage increases. In an absolute (direct) wage
industry, the administration determines its preferred
extent of wage increases. The required financing of
both sharing funds is similar, however wage increases
in the latter are compulsorily determined by the
economic administration. The application of one type
of regulation depends upon the government's designs
for a particular industry. If the industry is
perceived as having the conditions necessary for
turning a profit, then it will fall under relative
wage regulation. If the industry is not seen as
profitable, but nonetheless important to the nation,
then it will be placed under absolute wage regulation.
None of the second economy is under any form of
regulation.
Four Methods of Wage Regulation:
(1) the Relative (decentral) Wage-Level Regulator
Both relative regulators are based on an economic
"indicator” that determines the amount of increase
87
that wages may take without taxation. In the average-
level method, the indicator is the following:
P ± W
L
where:
P = annual profits,
W = the annual wage fund,
L = employment (number of employees
calculated by wage regulation guidelines).
Calculated annually for each firm, this indicator will
yield the average increase allowable. It is rooted in
gross income per employee (1/L) emphasizing its
averaging criterion. For most firms, in general, the
regulator allows a .25% increase in the wage level for
every 1.0% increase in the indicator (Elek, 1974;
Gado, 1976; Adam, 1979).
This measure is used in such fields as chemistry,
light industry, some engineering, and some of the
trade industry; sectors where profit occurs more
regularly. The extensive utilization of this
indicator was fundamental to the problem of labor-
hoarding in the late sixties. Now it is used in areas
where the number of workers is unimportant to the
88
government, but where more control on wage differences
is desired (in tandem with income-level bracketing).
(2) the Relative (decentral) Wage-Bill Regulator
The indicator used in this method is based on a
measure of productivity something similar to value-
added. It controls the total amount of wages, but has
an additional control called a "wage brake" which
comes into effect if the increase in wages is greater
than 12% (based on a average wage computation). In
general, a 1.0% increase in the indicator for a
particular firm will translate into a .4% increase in
wages (Elek, 1974; Gado, 1976; Adam, 1979).
This regulator is used in fields where an
increase in enterprise output is directly related to
an increase in production and where control over the
number employed is important. Industries such as
construction, food, agriculture and forestry, some
engineering, as well as some transportation are
governed by this measure. It is known that this
method had an adverse affect upon wage dispersion,
which is why the "wage brake" (based on average
levels) is imposed as a "ceiling".
89
3) the Absolute (central) Wage-Level Regulator
Neither of the "absolute" methods uses any
indicator; all changes in the wage level for these
firms come from the administration. Firms may exceed
the levels set, however, similar to the "relative"
methods, they are subject to a highly progressive tax.
Coal, electricity, some food and transportation
industries, and public services in general, are
governed by this regulator. It is used in sectors of
the economy where the administration would like to
keep the employment level open. Unlike the relative
wage-level method (#1), the absolute measure allows
the government more influence over a desired wage
growth rate, since it controls the average wage-level
directly.
4) the Absolute (central) Wage-Bill Regulator
This measure is used in industries where control
(ordinarily a decrease) in employment is desired.
Areas such as research institutions, investment
planning and business organizations, as well as urban
and rail transportation fall under this system.
90
Throughout this four-tiered wage policy structure
there exists a "guaranteed wage rise" designed to
ensure that all industries are able to grant workers
some minimal increases in wages over time, while
maintaing a variably-controlled degree of autonomy.
In the relative wage regulating scheme, the government
is able to express its "wage preferences" decentrally
through brackets and taxation. Central wage
regulations enable direct control over wage
differentiation, wage growth by industry, and
employment by industry.
Average Earnings Data
The following is indexed average earnings data of
the Hungarian social (state) sector for nine skill
levels, in odd years from 1977 through 1985 (including
1984 and 1986). Definitions for each skill level
appear in the appendix at the end of the paper.
Included with each year's data is a simple fraction of
one skill-level index divided by the one previous to
highlight differences between skills.
91
Hungary - Average Earnings (Salaries)
and Between-Skill Differences
[indexed annually by lowest incomes]
Income X Diff Income X Diff Income • / . Diff Income X Diff
Skill Levels 1977 1977 1979 1979 1981 1981 1982 1982
Manager A 289.5 285.5 284.3 289.8
Manager 8 272.0 106.4 271.5 105.2 268.8 105.8 266.9 108.6
Manager C 232.1 117.2 226.7 119.8 221.8 121.2 220.3 121.2
Director A 221.9 104.6 218.6 103.7 213.3 104.0 212.8 103.5
Director B 170.2 130.4 168.3 129.9 166.7 128.0 167.3 127.2
Executive A 161.5 93.8 176.0 95.6 171.7 97.1 170.9 97.9
Executive B 136.8 132.7 132.9 132.4 130.3 131.8 128.8 131.7
Executive C 117.9 116.0 115.3 115.3 114.3 114.0 113.3 114.6
Executive Staff 100.0 117.9 100.0 115.3 100.0 114.3 100.0 113.3
SocSecAve 156.1 153.9 152.5 152.4
Hungary - Average Earnings (Salaries)
and Between-Skill Differences
[indexed annually by lowest incomes]
Income X Diff Income X Diff Income X Diff Income X Diff
Skill Levels 1983 1983 1984 1984 1985 1985 1986 1986
Manager A 304.8 306.7 315.1 332.3
Manager B 270.3 112.8 261.0 117.5 260.5 121.0 266.3 124.8
Manager C 221.8 121.9 216.1 120.8 214.8 121.3 217.7 122.3
Director A 213.2 104.0 209.4 103.2 203.4 105.6 205.9 105.7
Director B 168.9 126.2 164.6 127.2 163.2 124.6 164.4 125.2
Executive A 169.2 99.8 164.7 99.9 155.1 105.2 154.4 106.5
Executive B 128.8 131.4 127.1 129.6 127.0 122.1 126.4 122.2
Executive C 112.4 114.6 111.7 113.8 106.1 119.7 104.4 121.1
Executive Staff 100.0 112.4 100.0 111.7 100.0 106.1 100.0 104.4
SocSecAve 152. B 150.1 150.0 150.4
Source: Statisztikai Evkonyv 1982 & 1986; Kozponti Statistikai Hivatal; ps.58-9
92
The earnings data for Hungary in Table #1 reveals
some clear changes in income differentials from the
late 1970s to the mid 1980s. The social sector
average was on a small but steady decline over the
period; differences among higher skills increased,
while differences among the lower skills decreased;
and the skill-income overlap between "Director B" (DB)
and "Executive A" (EA) apparent in 1977 clearly began
decreasing thereafter and finally disappeared by 1985.
Among the individual skill differences, the
highest two (MA/MB and MB/MC) increased, particularly
during the eighties, while the lowest (EC/ES) steadily
declined throughout. The second lowest (EB/EC) was
steadily declining as well, however, a clear turnabout
is evident for the last two years of the data. What
apparently occured was that the "Executive B" (EB)
position roughly maintained its position (if not
slightly increased), while the "Executive C" (EC)
declined. The direct clearing away of the mid-level
income overlap (DB/EA) was accomplished by an
increasing DB average earnings versus the decreasing
EA average earnings.
93
Finally, the highest to lowest earnings
categories reflect a constant (if not decreasing)
difference position leading into the 1980s; however, a
sharp jump and subsequently increasing trend begins in
1983. In fact, 1986 (the last year of observation)
marks the largest high-low difference in the data.
4.3 Wage Policies of Yugoslavia during the 1970s 5
The system of wage regulation in Yugoslavia has
gone through many changes since the country's self-
management movement began in the late fifties. The
imprint of its centralized past leaves subtle remnants
throughout the economy in spite of many years of
reform. The titles have changed first, followed
slowly by administrative implementation.
One of the best examples of this behaviour is in
the itemization of wage payments or the '"dividend to
labor". They are not called "wages" since that
implies a labor market where workers sell their labor
like material goods; an ideological faux pas (in this
paper, for continuity the term "wages" will be used).
Historically, there was a difference between a "fixed"
94
and a "variable" wage. The "fixed wage" began with
the nationally guaranteed minimum wage and varied
according to each enterprise's own wage income
standard. The "variable" component was equivalent to a
bonus payment, based on the annual revenue of the
enterprise as a whole. While the labels for those
wage distinctions were eliminatied in 1961, they still
describe the income formation for workers in
Yugoslavia (Wachtel, 1973; Sacks, 1984).
The most significant reforms toward a regulated
market began in 1965 when central control was
effectively defused in favor of implementing "self
management" throughout the economy. Revisions to these
reforms began as early as 1968, to increase the link
between wages and "economic performance", which at
that time meant profitability. Initially, the
administration allowed the market to set its own
distribution of income. Later, they decided that such
a high degree of autonomy in the area of income
distribution was not going to work, and began
gradually reassuming that responsibility.
By the late sixties, inflation was on the rise,
fed significantly by growing wage-push forces. Later,
95
the battle between rising wages and rising prices
would intensify, beginning a decade-long problem of
real wage fluctuation in the seventies; this was
followed by a consistent real wage decline in the
eighties. Throughout its history, the
decentralized/regionalized nature of the country has
made it difficult to establish a unified and coherent
national economic policy; therefore, the following
historical outline of Yugoslav wage policies will be
sketched chronologically.
The Introduction of Self-Management Planning
Early on in 1970, inflation proved itself to be a
major economic problem. Centralist defenders in the
government blamed the reform for the vulnerable
position of the economy, calling for tighter "command"
control. In response, new administrative coordination
by region was introduced through the use of what were
called "Social Compacts" (SCs). These were agreements
outlining economic principles governing enterprises in
the negotiation of further sectoral agreements, called
"Self-Management Agreements" (SMAs). In 1971, an
96
important set of constitutional amendments established
the legal groundwork for this network of negotiations,
and began the movement to construct a decentralized
planning process for the economy. Three other federal
actions taken in the seventies support this movement
toward "recentralization": (1) the Fifth Five-Year
Plan of Yugoslavia ('71-'75), (2) the '74
Constitution, and (3) the Associated Labor Law of
1976.
Wage policies of the early seventies, already in
a state of transition, were largely frustrated by the
global inflation crisis. The trade dependence of the
economy upon Western Europe not only passed on
climbing inflation, but also cutoff migrant jobs which
were important to many workers of low-income regions
and to the economy as a whole. The Fifth Five-Year
National Plan underlined a renewed concern for
economic order, broader national direction, and
regional redistribution (through an instrument called
the "Fund for Regional Development"). For the Fund,
more developed regions (MDRs), were required to pay an
annual tax at slightly less than two percent. These
97
monies are then made available to Lesser Developed
Regions (LDRs) in the form of low-cost loans.
Compulsory methods to control income continued in
emergency situations. In some cases, the federal
government imposed absolute wage freezes and ceilings.
One of the first major wage freezes after the reform
was issued on the first quarter of 1971, just as the
efforts toward instituting a decentral coordination
mechanism were beginning. In the first six-months of
1973, a national wage freeze was imposed in service
sectors, affecting thirty percent of the social
sector. The first SMAs were concluded to establish
wage brackets for skill differentiation; these were to
be the new ’ •self-management" expression of incomes
policy (Schrenk, 1981). At the end of the same year,
certain enterprises that were found to be "illiquid"
or short of reserves were required to cutback on wages
to ninety percent of their 1972 average wage level;
this affected five to ten percent of the total labor
force.
While the Yugoslav federal administration issued
guidelines regarding the general level of wages and
guidelines for income distribution (through SCs), it
98
did not impose any specific requirements as to how
these were to be achieved. That was still left to the
firms for the most part, reflecting the national
government's fear of disrupting income effects upon
labor. In 1974, a new constitution was drawn
formalizing the developing decentralized-plan process
nationwide, representing an extention of self
management to macro policy (Schrenk, 1979). In
addition, the lowest unit of labor organization was
redefined beyond the firm to something called a "basic
organization of associated labor" (BOAL). The BOAL is
defined as any unit of labor that could produce an
item or service on its own. The benefits of this
distinction are to better focus the impact of income
incentives to the individual worker, and to assist
labor mobility since BOALs were designed to enter and
exit firms as they wished. The next year, an inter
republican agreement (SC) was struck to further
support the linkage of average wages to average
productivity. The agreement also outlined prinicples
for firms to follow in negotiating their own
agreements (SMAs) on income distribution, still
99
leaving out criteria on which to judge the fulfillment
of these principles.
Income incentives according to work performance
expanded over time. In 1975, wage ceilings were
abolished in industries where individual performance
could be monitored. On the other hand, the federal
administration began a campaign to reduce wage
differentials based upon non-performance criteria such
as: operating costs, market position, capital
intensity, rents, etc. (Pasic et al, 1982). The
federal government blamed these factors for the excess
wage inflation that was to become an increasing future
concern. That year, however, there was a short pause
in rises in the inflation rate.
The Associated Labor Law of 1976 was another
significant milestone to the development of a planning
process in Yugoslavia. It established that, through
SMAs, BOALs could determine the allocation ratio of
income versus investment (resolving a long-run debate
in Yugoslavia). As an incentive toward compromise, if
an agreement could not be reached by the end of the
fiscal year, workers were only to be paid the
guaranteed minimum wage. 6 In the same year, new
100
legislation placed a lagged control on cost-of-living
increases. Wage adjustments were no longer to be
based on future expected prices, but upon past prices
(six months prior). The role of SCs and SMAs
continued to increase as a way for the federal
administration to maintain its stated goal of indirect
influence over the direction of wages and the economy.
From 1973 through 1978, economic growth measured
by "social product" grew at an annual rate of six
percent (Pasic et al, 1982). Unfortunately, however,
the seventies introduced the economy to double-digit
inflation. Nominal income increases were growing
faster than productivity, further fueling persistent
wage-push pressures. In 1978, the administration
required all BOALs to enter into SMAs. The next year,
a compulsory wage freeze was passed. Specifically,
lower income groups appeared to be benefiting,
particularly in agriculture, but overall the real wage
gap between earnings and productivity was increasing.
101
Attempts Toward Stabilization
In the 1980 Economic Resolution, the federal
government introduced its first specific controls for
wage increases: in industry, wages could only be
increased at 5% less than the increase in total value
added; in the businesses, banks, and trade sectors the
target was 8%; and in the service sector, wages could
not increase greater than 16%. These changes were
implemented in response to wage inflation rises led by
high productivity/high revenue enterprises. Further
controls were introduced in the coming years. Lower-
income enterprises had been borrowing just to keep up
with the leaders. In 1981, the administration limited
wage increases to the rate of increases in total
enterprise income, and required that they be less than
increases in the rate of savings.
Inflation continued to rise. In spite of th fact
that nominal wages were growing, prices rose faster,
so real wages declined. The Seventh Five-Year Plan
placed a higher priority upon anti-inflationary
measures. Growth projections were deeply modified,
102
but still very optimistic. The first quarter of 1983
began with another wage freeze.
4.4 Earnings Determination in Yugoslavia Today
The federal government has consistently
maintained the ability to set a "guarateed minimum
wage". This is added to each enterprise's allowances
for skill ("present labor"), experience, seniority
("past labor"), education, responsibility,
physical/mental effort, and working conditions to
compute a given worker's basic wage. Each
enterprise's own annual profit has an effect upon the
amount that a worker is paid in the form of a bonus as
well. According to a poll taken by Prasnikar (1983),
the interest of a majority of workers is to base
income primarily upon present labor and less upon the
other factors list above (Prasnikar and Svejnar,
1987). In general, both the federal government and
the workers appear to be interested in minimizing non
performance income differentiation. Control of
differentials (income brackets) are set by Workers'
Councils in each enterprise, in harmony with BOAL
103
requirements, and taking into consideration relevant
SCs and SMAs.
Self-management decisions on internal
income distribution are thus decisions laid
down in the statutes of the BOAL, which
consequently contain detailed formalized
criteria. Judgmental factors are not
excluded, but their scope and their effect in
income payments is very limited and to the
degree possible also linked to formalized
criteria. 7
Perhaps the largest part of income that is
variable within earnings is the bonus portion.
Depending upon the BOAL, these bonuses are paid either
equally to all, or proportional to wages. Another
variable portion of income is the annual discretionary
surplus, which if there is any, comes at the end of
each year. The last portion of income is "collective
consumption" or welfare benefits of the enterprise.
This covers such basic needs such as housing,
education, and local social services. The collective
welfare component is seen as the primary location for
policy measures to attempt to equalize the overall
income position of workers as a whole:
104
Personal incomes are also calculated, in
accordance with the principle of solidarity,
in proportion to the increase in productivity
of the individual worker concerned, and of the
workers in other basic organizations with
which a worker's own basic organization is
associated; and the same principle of
solidarity applies to that part of resources
allocated to joint consumption, to provide
social assistance and other services of
particular concern to workers in lower income
brackets. 8
Workers are paid on a monthly basis according to
a point system. Income expectations are based on
proportions of BOAL income, rather than upon a fixed
amount (as in a "wage") (Schrenk, 1981). Points are
based primarily upon the conditions listed above
(skill, experience, etc.), with the bonus portion
distributed according to BOAL performance rather than
the enterprise as a whole.
a) enterprise determination of "payment per
point" (w):
Y / (Pxh) = w
b) personal income computation for the "i"th
worker:
(Pi x hi) x wi = Yi
where;
P = points per hour
h = total number of hours worked
w = payment per point
Y = net enterprise personal income 9
105
Monthly payments are advances on earnings (based on
actual Pi and hi and planned w), with adjustments made
quarterly, and final calculations made annually (with
actual Y) (Schrenk, 1981). At the end of the
financial year, each worker receives a pay-slip
itemizing the complete computation of their income,
including taxes paid by the enterprise. Any
corrections in final computations are made in the
following business year.
Each enterprise must maintain a series of
prioritized funds, according to the Associated Labor
Law of 1976. Essentially, there are four general
categories which enterprise funds must cover: (1)
obligations to federal, regional, and local
administrations? (2) obligations to other enterprises
and business organizations? (3) expenditures to
external social needs of the enterprise, such as
expenses for improving the working environment? and
(4) the net income of the various BOALs (Pasic et al,
1982). Thus, according to the self-management version
of worker compensation, income considerations are
addressed last on the list of obligations.
106
On the whole, the tax systems designed to feed
these funds change significantly by time and region,
so much so that it has had an adverse affect upon
income distribution; however, in focusing upon
national policies, this paper will not be able to
address this topic here:
The accounting bases for assessing the
various taxes and contributions vary. This
leads to complicated accounting techniques and
in practice it is the ease of revenue
collection that often determines the form of
the tax. The tax rates and contributions of
BOALs also vary considerably across republics,
industries, and sub-industries. Although this
does not appear to be a conscious policy, it
clearly has a considerable impact of producer
incentives and the division of income across
republics and industries. 10
In general, most taxes are collected according to
BOALs, such as the Fund for Redistribution mentioned
earlier. Although Yugoslavia suffers from high
unemployment, relative to other socialist economies,
labor is highly taxed as well, for reasons of
encouraging enterprises to economize on labor
(Comisso, 1979). Individual workers are liable for
the growth of their income, controlled by taxes, and
the benefits of which go to the unemployed. On
107
average, about thirty-two percent of a worker's income
is taken up by taxes at some level (Prasnikar and
Svejnar, 1987). The prevalence of labor taxation in
Yugoslavia has over-inflated its cost to enterprises,
forming a relative incentive for capital investment;
ironically, this occurs in regions where unemployment
is a significant problem. Theoretically, labor
mobility in the self-managed economy was to prevent
large differences in incomes; however, the excessive
burden of a variable tax system has introduced
unforseen barriers to this policy.
Average Personal Income Data
The following is average personal income index
data of the Yugoslav social sector for eight skill
levels, in even years from 1966 through 1981 (not
including the year 1980). A general definition for
the "professional qualifications" category appears in
an appendix at the end of the paper; definitions for
each skill level (as in Hungary) were not available.
Included alongside each year's data is a simple
108
Yugoslavia - Average Earnings (Salaries)
and Between-Skill Differences
[indexed annually by lowest incases!
Skill Levels
Income
1977
X Di-ff
1977
Income
1979
Z Di-ff
1979
Income
1981
Z Diff
1981
Income
1982
X Diff
1982
HigherProQual 270.2 246.2 292.9 274.4
HighProQual 201.4 134.2 198.3 138.3 211.4 138.6 200.2 137.1
SecondProQual 162.1 124.2 158.9 124.9 166.3 127.1 156.4 126.4
LowerProQual 126.1 128.6 125.2 126.9 128.0 130.0 122.4 129.4
HighSki1led 187.0 67.4 178.9 70.0 192.7 66.4 186.9 65.5
Skilled 136.8 136.7 131.1 136.5 137.6 140.0 134.8 138.6
Semi-Skilled 114.0 120.1 110.1 119.1 116.2 118.4 112.3 120.1
Unskilled 100.0 114.0 100.0 110.1 100.0 116.2 100.0 112.3
Yugoslavia - Average Earnings (Salaries)
and Between-Skill Differences
[indexed annually by lowest incomes!
Skill Levels
Income
1983
Z Diff Income X Diff Income X Diff Income
1983 1984 1984 1985 1985 1986
X Diff
1986
HigherProQual
269.2 254.7. 272.7 260.8
HighProQual 196.7 136.9 189.5 134.4 202.8 134.4 197.7 131.9
SecondPraQual 160.7 122.4 153.8 123.2 162.7 124.6 160.3 123.3
LowerProQual 127.7 125.9 120.8 127.3 125.4 129.8 122.9 130.4
HighSkilied 185.8 68.7 176.3 68.5 184.4 68.0 187.1 65.7
Skilled 141.1 131.6 132.0 133.6 139.6 132.3 146.2 128.0
Semi-Skilled 116.4 121.2 111.2 118.7 113.3 123.2 120.5 121.3
Unskilled 100.0 116.4 100.0 111.2 100.0 113.5 100.0 120.5
Source: Savezni Zavod Statistiku; Statisticki Godisnjak Jugoslav!je, ps.144-45
109
fraction of one skill-level index divided by the one
previous to highlight differences between skills.
Overall, the income differences in Table #2
appear to be nominally stable from 1966 - 1981.
However, there are a few less obvious features of the
data that are worth noting. First of all, there is a
clear overlap of average income levels between the
"Lower Professional Qualifications" (LPQ) and "Highly
Skilled" (HS) categories. Since these skill levels
traverse blue and white-collar categories, it could be
presumed that the LPQ type jobs are office/clerical
positions and other related jobs. If so, compensating
HS type jobs at a higher rate on average, relative to
LPQ, would possibly reflect the factory worker
priority of most socialist countries.
Secondly the index fluctuations of most skills
was normally around ten points, however, those of the
"Higher Professional Qualifications" (HPQ) often were
around twenty points and above. Again, without
specific definitions it is difficult to be sure, but
it would appear that a portion of regular compensation
for that particular skill varies greatly— perhaps
meaning that it represents changes in "managerial"
110
bonuses. It was this skill level that fluctuated the
most through the years observed, while the rest of the
skills remained fairly constant in relative terms.
Lastly, the overall difference between the
highest and lowest paid workers in the data shows a
notable trend over the total observed period. The
highpoint of difference occured in 1970, steadily
decreasing until the lowest overall difference in
1976, and then slightly increasing again through 1981,
though ending less than in 1967. Some of the clarity
in the trend of the data could be due to changes in
the method of data collection (among other things) in
1976.
CHAPTER NOTES
1. This section is based primarily upon Gado ('76),
Gabor and Galasi ('81), and Marer ('85).
2. Friss, 1978, p.73
3. Gado, 1976, p. 49
4. Gado, 1976, p.56
5. This section (4.3 and 4.4) is based primarily
upon OECD annual reports (1970-83), Schrenk
('81), and Prasnikar and Svejnar ('87).
Ill
6. The theoretical literature to date indicates that
the self-management firm seeks to maximize
average income/worker. They have postulated that
in such an economy, firms will have few
incentives to make allocations to investment and
will instead make higher contributions toward
income. This appears to be accurate for low-
income enterprises in Yugoslavia; however, the
pattern begins to change as we observe higher-
income enterprises, to be discussed later.
7. Schrenk, 1981, p.51
8. Pasic et al, 1982, p. 114
9. Schrenk, 1981, p.52
10. Prasnikar and Svejnar, 1987, p. 5
112
5.0 EVALUATION AND CONCLUSIONS
5.1 Evaluation of Incomes Policies
This section will compare each of the countries
actual incomes policies within the framework of policy
objectives listed in Chapter Three. The analysis is
by no means conclusive, but simply serves as a forum
for contrasting of policy implementation in each
economy.
Summary of Objectives:
(1) to link worker earnings to performance
(2) to ensure cost-of-living increases for lower
income workers (i.e. real earnings stability)
(3) to link worker earnings to level of quali
fication (i.e. skill differentiation)
(4) to limit income disparity according to
•'socially acceptable standards"; [numbers (1)
and (3)]
(5) to maintain uniformity and consistency in the
application of the above policies
113
HUNGARY
(1) The linkage between worker income and worker
performance has appeared to be a major goal for
implementation. Much of the reason why the reform has
been compromised, however, has to do with
administrative suppression of this policy for the sake
of equity. In the seventies, only 53% of social
sector industries work under the "wage-bill"
regulations (Belassa, 1981)— the policy designed to
accomplish this objective. Perhaps the renewal of the
reform in the eighties will reopen this policy. What
is needed is to allow this relationship to exist
according to market signals, rather than
administrative suppresion or inflation.
(2) Through the use of the "guaranteed minimum wage
rise", policies appear to have been set in motion to
assist real earnings stability. However, this rise
was only applied to enterprises who did not fall into
debt by the end of the year. If the firm went into
debt, all employees suffered. Information was not
complete enough to determine whether governmental
welfare distribution was sufficient to ensure the
114
society's minimal living standard for such enterprises
according to reform objectives.
(3) Skill differentiation in Hungary is controlled by
the Center through nationally imposed income brackets.
These brackets clarify the acceptable band within
which performance may be compensated. What appears
unclear, however, is how these income-bands
interrelate with the four-tiered wage regulations.
Central wage regulation is admittedly only a "partial
reform" at best, so it is clear that enterprises under
this system are very limited in their ability to vary
income with performance, unless the center allows. It
is primarily the "relative wage regulation" system
that allows the enterprise the freedom to choose
compensation according to skill or performance
criteria. Even this "freedom" is suspect, since it is
the Center that sets the "economic regulators" in
relative wage regulation (Marer, 1985). However, the
doubling (in percentage terms) of the "wage brake",
from 6% in 1976 to 12% in 1982, will have allowed some
increase in flexibility for enterprises.
From the data presented in Chapter Four, it is
very clear that the income differences between skills
115
were made more distinct over the time period. In
fact, the constant, gradual elimination of the skill-
income overlap between the two mid-level skills listed
suggests that this was a direct result of policy. It
appears then that the Hungarian CPB has sufficient
\
control to not only make policy corrections, but also
to carry them out in a steady, consistent manner.
(4) The ability to maintain equity through the
limitation of income and earnings is the nation's sure
strength among these objectives. The combination of
wage brakes, wage regulators, and overall central
control has provided the administration with numerous
methods to cap socially unacceptable earnings in the
social sector. The data surveyed earlier confirms
this. In addition, the Hungarian data also reflects
further toleration of income differences between the
highest to lowest skills, as they are presently
increasing, while the social sector average was
gradually decreasing.
The main area of contention, however, is the
ongoing presence of the second economy. Not only are
the incomes in this legalized "economy” not under the
control of policy, but they also have been proven to
116
subvert the incentive mechanisms that exist in the
social sector as well. This appears to be the largest
contradiction existing in Hungary, which is
effectively undermining the reform altogether. The
rationale for allowing the second economy to exist is
to provide workers with the opportunity to maintain
their living standards (such as in number two). This
is a real concern when many workers in the social
sector do not earn enough for their necessities
(Maresse, 1981). Unfortunately, what seems to have
occured is that, without administrative control, many
workers profit by this opportunity at the cost of
overall income equity.
(5) Regarding the uniformity with which incomes
policies are applied, the four-tiered system
immediately circumvents this objective. The presence
of central control should enable policy to be applied
universally, but has stopped short with four separate
systems. On the other hand, central control has been
able to maintain consistency overtime within the
social sector. Beyond consistency, however, the
administration still lacks a genuinely market-oriented
policy. As mentioned above, even the limited amount
117
of firms who are supposed to be enjoying some measure
of autonomy in this area are subjected to enough
controls as to undermine the reform project. The main
point of criticism in this area is still the lack of
regulation in the second economy.
YUGOSLAVIA
(1) The mention of the first objective in SCs and
SMAs has appeared somewhat, primarily in SCs, but
actual implementation is sparse. This could mean that
while the federal government would like to implement
such a policy, worker/manager acceptance is slight.
The introduction of BOALs has been effective in
localizing incentives, particularly since so many
enterprises were monolithic in size. The primary area
where this policy could have most effect is in the
improvement of the relationship between worker "point
tabulation” and performance. The main weakness in
this policy, however, is the tendency for worker-
managed enterprises to increase earnings faster than
the firm's productivity rate when they perceive that
relative disparity has reached a certain point.
118
(2) In support of cost-of-living raises, the federal
government has had a long-standing policy of imposing
a "guaranteed wage minimum". This has certainly been
in conflict with the notion of "responsibility" in
self-management ideology. Implementation problems
could have been expected, however, the literature
(OECD reports) made no mention of them. The federal
administration appears to frequently to step in to
impose freezes or ceilings, but not to support any
increases in income. Very little information was
found regarding welfare redistribution policies for
worker income except that redistribution is a goal.
(3) The differentiation of skills by income brackets
is set by the worker councils, who are to be led by
relevant SCs and SMAs. As was the main criticism of
these agreements in general, there exists a problem of
enforcement. Nothing was mentioned in the literature
regarding same-skill differentials across
enterprises/sectors/regions, but due to the nationally
disjointed nature of the planning mechanism it appears
certain that this objective is compromised.
The data from Chart #2 in Chapter Four show that
according to the economic statistics, the
119
administration of income levels has remained fairly
constant during the seventies. Between-skill
differences are probably less well-defined in this
economy due to the decentralized characteristics of
income determination. It is this process of
negotiation that required a longer period of
transition, not only of policy implementation, but of
actual policy determination. The income stability in
the economy during the seventies, therefore, can be
seen as a success in itself.
(4) Only the federal administration appears to be
actively concerned about the limitation of earnings
increases. Aside from uniformity, this is perhaps the
weakest part of incomes policy in Yugoslavia. Perhaps
due to the nature of self-management (administrative
decentralization), workers will consistently elect to
raise their own incomes regardless of the equity
balance effects it may produce. This would lead one
to believe that only a central administration would be
able to enforce such a rule; a fundamental point in
the definiton of equity in economic reform.
120
(5) By emphasizing the worker participation on a
broad level, self-management planning has further
decentralized reform. However, in the process, a
unified macro picture and policy is still lacking.
The regionally localized nature of SCs and SMAs
defines the inability for there to be a uniform income
policy implemented in the economy. Apparently, the
head policy goals are outlined in SCs and these are
negotiated at the regional level. This implies that a
self-management system for the establishment of
national policy is non-existent. The federal
administration instead must occasionally impose
national freezes from time to time to bring economic
order throughout. New methods for implementing
economy-wide standardization are needed in order to
improve the ' ’rational" element of incomes policy and
reduce regional disparity and ambiguity.
5.2 Economic Reform and Incomes Policies: Some
Conclusions
The concern for growth is the main point of
departure for economic reform— the major issue points
to the beginning of an "intensive" phase of
121
development. Socialist nations at this time appear to
be starved for growth, if only to keep up with their
years of "extensive" development, but more importantly
to counter a declining trend in their economies. The
primary barrier or restraint upon the reform process,
however, appears to be the ideological definition and
promise of "equity". Thus, parallel to the political
tension between the market (capitalist) and the plan
(socialist), in reform there exists an economic
tension between growth and equity.
It is interesting to find that it is the worker
populace that often leads the concern for equity, both
in Hungary and Yugoslavia. In Hungary, the expression
of worker opinion is perceived by the administration
in such a way, and of sufficient force, as to affect
the reform:
In Hungary, where reform went much
farther than in other countries, the chief
reason for the interruption of the momentum of
reform in 1972 appears to have been the
discontent of the urban blue-collar working
class over the implications of reform for
income differentials and job security. 1
122
As for Yugoslavia, worker voice (in opposition to
the increasing earnings differentials of the late
sixties) also played an important role in the
recentralization phase of that country around the same
time period (Estrin, 1979) . Similar to Hungary, there
was a widespread popular concern for equity.
More recently, these concerns are being expressed
through worker voice in the new system and overflowing
into wage inflation. Some authors cited in Chapter
Two describe the mounting wage-push mechanism as a
lower-income-enterprise pursuit of the increased wages
of higher-income firms. This is the theory. Given
the choice, workers allocate benefits amongst
themselves, versus the needs of their enterprise, and
without reference to the income level of fellow
workers in other enterprises.
The scale and nature of [income]
differentials suggest that, in economies where
incomes are an enterprise choice variable,
income inequality could become a serious
economic problem. 2
Part of the problem is that often lower-skilled
laborers do not perceive themselves as truly owning or
123
managing the enterprises in which they work. A
contradiction occurs between allowing workers to
change jobs and enabling them to participate in a firm
on such level as to perceive it as their own. It is
primarily workers at higher income levels who perceive
themselves as such. Workers at lower income levels
seeking a short-run payoff, therefore, use their
influence to allocate enterprise income toward
personal income, even against the long-run needs of
the firm.
In a self-management system, where incomes policy
formulation is to be decentralized, those who actually
have the power to control incomes policy also have the
most to gain by resisting attempts at broader levels
of equity. The system appears to be in need of
further development (or perhaps simply experience) if
it is to address not only equity concerns, but also
extremely strong wage-push pressures throughout the
economy.
Thus, contradictory to reform, both countries
have allowed or imposed policies to restrict growth
policy implementation for the sake of maintaining
equity. Yugoslavia's self-management system allows
124
lower-earning firms to increase their own incomes
decentrally, while the Hungarian state maintains
income levels centrally. Conversely, both countries
exhibit antithetical contradictions that have also
been contrary to reform. The self-managed economy
occasionally restricts increasing wages through the
use of ad-hoc freezes and ceilings, while the
Centrally Planned Economy allows the existence of an
uncontrolled second economy approximating a decentral
fashion.
Both economies can appear very confusing when
trying to differentiate between ideological policy-
goals and economic reality. During the seventies,
neither were able to find a compromise sufficient to
harmonize the two. In the eighties, they are each
beginning periods of renewal, while substantive
implementation seems only possible in the long-run.
The main barrier is the full implementation of certain
basic market principles such as: prices that reflect
scarcity (Neuberger and Duffy, 1976; Tyson, 1983),
property rights (Chilosi, 1980; Tyson, 1979), and
sufficient autonomy for enterprises to determine their
own level of employment (Adam, 1979). The process of
125
change thus far leads one to believe that ideological
interpretations of socialist ideals will remain firm,
and that market needs will only gain occasional
concessions.
CHAPTER NOTES
1. Bornstein, 1977, p.129
2. Estrin, 1981, p.192
126
BIBLIOGRAPHY
A. HUNGARY
Books:
1) Gabor, I. and P. Galasi, "The Labor Market in
Hungary since 1968", from Hare, Radice, and Swain
(eds.), Hungary: a Decade of Economic Reform.
George Allen and Unwin, London, 1981
2) Gado, Otto, The Economic Mechanism in Hungary:
How it Works in 1976. Leyden/Budapest, 1976
3) Granick, D., Enterprise Guidance in Eastern
Europe. Princeton Press, N.J., 1976
4) Hoch, Robert, Janos Kovacs, and Janos Timar,
"Standard of Living Policy and Long-Range
Planning of the Living Standard". Istvan Friss
(ed.), Economic Policy and Planning in Hungary;
Corvina Publ., Kiado, 1978
5) Marer, Paul, "Economic Reform in Hungary", in
Michael Bornstein (ed.), Comparative Economic
Systems, Irwin Publ., Homewood, IL; 1986
6) Maresse, Michael, "The Evolution of Wage
Regulation in Hungary",in Hare, Radice, and Swain
(eds.), Hungary: a Decade of Economic Reform.
Allen and Unwin, Boston; 1981
7) Revesz, Gabor,"Factors shaping the Relative
Wage", in Resesz, Kollo, and Sziraczki (eds.),
Wage Bargaining in Hungarian Firms. Vol II,
Budapest, Institute of Economics, 1984
8) Hungary; Economic Development and Reforms. World
Bank/Washington D.C., 1984
127
Articles:
1) Adam, Jan and Miloslav Nosal, "Earnings
Differentials and Household-Income Differentials
in Hungary - Policies and Practice", Journal of
Comparative Economics. Vol. 6, 1982
2) Balassa, Bela, "Reforming the New Economic
Mechanism in Hungary", Journal of Comparative
Economics. Vol.7/#3, Sept. 1983
3) Csikos-Nagy, B., "The Hungarian Economic Reform
after Ten Years", Soviet Studies, Vol. 30, 1978
4) Elek, Peter S., "The Impact of Revised Economic
Stimulators on the Direction of the Hungarian
Economy: Phase II of the Reform", EastEuropean
Quarterly. Vol. 13, 1974
5) Flakierski, Henryk, "Economic Reform and Income
Distribution in Hungary", Cambridge Journal of
Economics. Vol. 3, 1979
6) Falus-Szikra, Katalin, "Some Aspects of Material
Stimulation."Acta Oeconomika. Vol. 14/2-3, 1975
7) Falus-Szikra, Katalin, "Wage Differentials in
Hungary", ActaOeconomika. Vol. 25, 1980
8) Galasi, Peter and Gyorgy Sziraczki, "State
regulation, enterprise behaviour and the labor
market in Hungary, 1968 - 83", Cambridge Journal
of Economics. Vol. 9, 1985
9) Kornai, Janos, "The dilemmas of a socialist
economy: the Hungarian experience", Cambridge
Journal of Economics. Vol. 4, 1980
10) Kornai, Janos, "Comments on the Present State and
the Prospects of the Hungarian Economic Reform",
Journal of Comparative Economics. Vol.7/#3, Sept.
1983
11) Nyers, Rezso, "Interrelations between Policy and
the Economic Reform in Hungary, Journal of
Comparative Economics. Vol.7/#3, Sept. 1983
128
12) Portes, Richard, "Hungary: Economic Performance,
Policy, and Prospects", in East European
Economies Post Helsinki. JEC/GPO, 1977
13) Tardos, Marton, "Enterprise Independence and
Central Control", Acta Oeconomica Fall/#1, 1976
B. YUGOSLAVIA
Books:
1) Comisso, Ellen T., Worker's Control Under Plan
and Market. Yale Univ. Press, New Haven, 1979
2) Estrin, Saul, Self-Management: Economic Theory
and Yucroslav Practice. Cambridge Univ. Press, NY,
1983
3) Horvat, Branko, The Yugoslav Economic System.
Sharpe, Inc., Armonk, NY, 1976
4) Horvat, Branko, The Yugoslav Economic System: the
First Labor-Managed Economy in the Making,
International Arts and Sciences Press, White
Plains, NY, 1976
5) Ireland, Norman J. and Peter J. Law, The
Economics of Labor-Managed Enterprises. Croom
Helm, London, 1982
6) Pasic, Najdan; Stanislav Grozdanic, and Milorad
Radevic (eds.) , Workers Management in
Yugoslavia: Recent Developments and Trends,
International Labor Office, Geneva, 1982
7) Schrenk, Martin; Cyrus Ardalan, and Nawal A. El
Tatawy, Yugoslavia: Self-Management Socialism and
the Challenges of Development. John Hopkins
Press: Baltimore; 1979
8) Sire, Ljubo, The Yugoslav Economy Under Self-
Management . Macmillan, London, 1979
129
9) Tyson, Laura D7A., Yugoslavia7s Perfomance in
the Seventies. Institute of International
Studies, Berkeley, 1980
10) Wachtel, Howard M., Worker7s Management and
Worker7s Wages in Yugoslavia? the Theory and
Practice of Participatory Socialism. Cornell
Univ. Press, NY, 1973
11) Yugoslavia: Development with Decentra1ization.
World Bank, Johns Hopkins Univ. Press, Baltimore,
1975
12) Yugoslavia: Adjustment Policies and Deve1opment
Perspectives. World Bank, 1983
Articles:
1) Burkitt, Brian, "Wages, Investment, and Income
Distribution: Socialist Theory and Policy",
Economic Analysis and Workers7 Manage-ment. Vol.
16/3, 1982
2) Comisso, Ellen T., "Yugoslavia in the 19707s:
Self-Management and Bargaining", Journal of
Comparative Economics. Vol. 4, 1980
3) Elliott, John E. and Joanna Scott, "Marx,
Yugoslavia, and Self-Governing Socialism: A
Social and Political Economy Approach", Research
in Political Economy. Vol. 9, 1986
4) Estrin, Saul, "Income Dispersion in a Self-
Managed Economy", Economica. Vol. 48, 1981
5) Estrin, Saul, "The Effects of Self-Management on
Yugoslav Industrial Growth", Soviet Studies, Vol.
34, 1978
6) Estrin, Saul, "An Explanation of Earnings7
Variations in the Yugoslav Self-Managed Economy",
Economic Analysis and Workers7 Manage-ment. Vol.
19, 1979
130
7) Gregory, Mary B., "Regional Economic Development
in Yugoslavia", Soviet Studies, Vol. 25, 1973
8) Katz, Arnold, "Growth and Regional Variations in
Unemployment in Yugoslavia: 1965 - 80", Univ. of
Pittsburgh, PA, 1984
9) Lukic, Prvoslav, "The Subject of Self-Management
Compacts and Agreements", Socialist Thought and
Practice, Vol. 23/#9, 1983
10) Moore, John H., "Industrial Production in
Yugoslavia, 1952 - 75", in East European
Economies Post Helsinki, JEC/GPO, 1977
11) Prasnikar, Janez and Svejnar, Jan, "Economic
Behaviour in Yugoslav Enterprises", forthcoming
in Advances in the Economic Analysis of
Participatory and Labor-Managed Firms. Vol. 3,
1987
12) Schrenk, Martin, "Managerial Structures and
Practices in Manufacturing Enterprises: A
Yugoslav Case Study", World Bank Staff Working
Paper. #455; May 1985
13) Stallaerts, Robert, "The Coefficient of Variation
and the Growth Pattern of Personal Income in
Yugoslav Industry", Economic Analysis and
Workers' Management. Vol. 16/3, 1982
14) Stallaerts, Robert, "The Interindustry Wage
Structure of a Labor-Managed Economy: the
Yugoslav Case 1976 - 81", Economic Analysis and
Workers' Management. Vol. 18/2, 1984
15) Stojanovic, Nikola, "A Consistent Implementation
of the Principle of Distribution According to
Work Performed", Socialist Thought and Practice.
Vol. 26/3, 1986
16) Tyson, Laura D7 A., "Incentives, Income Sharing,
and Institutional Innovation in the Yugoslav
Self-Managed Firm", Journal of Comparative
Economics. Vol. 4, 1980
131
17) Tyson, Laura D'A., "A Permanent Income Hypothesis
for the Yugoslav Firm", Economica. Vol. 44/#176,
1977
18) Tyson, Laura D'A.; Sherman Robinson, and Lyla
Woods, "Conditionality and Adjustment in Hungary
and Yugoslavia", Working Paper #416, Division of
Agriculture and Natural Resources/UC, 6/86
C. BOTH COUNTRIES, EASTERN EUROPE, AND THE SOVIET
UNION
Books:
1) Adam, Jan, Wage Control and Inflation in the
Soviet Bloc Countries. Macmillan, London, 1979
2) Cave, Martin and Paul Hare, Alternative
Approaches to Economic Planning. St. Martin's
Press, NY, 1981
3) Conner, Walter, "Social Consequences of Economic
Reforms in Eastern Europe", in Zbigniew
Fallenbuchl (ed.), Economic Development in the
Soviet Union and Eastern Europe. Praeger, NY,
1975
4) Conner, Walter, "Socialism, Work, and Equity", in
Irving L. Horowitz (ed.), Equity. Income. and
Policy. Comparative Studies in Three Worlds of
Development. Praeger, NY 1977
5) Elliott, John E., Comparative Economic Systems.
Wadsworth Publ., Belmont, CA, 1985
6) Portes, Richard, "Central Planning and
Monetarism: Fellow Travelers?", from Padma Desai
(ed.), Marxism. Central Planning, and the Soviet
Economy. MIT Press, 1983
132
7) Gregory, Paul R. and Robert C. Stuart, Soviet
Economic Structure and Performance. Harper and
Row, 1986
8) Neuberger, Egon and William J. Duffy, Comparative
Economic Systems; A Decision-Making Approach,
Allyn and Bacon, Inc.; 1976
9) Wiles, Peter, Economic Institutions Compared.
Oxford? 1977
Articles:
1) Bornstein, Morris "Economic Reform in Eastern
Europe", in East European Economies Post
Helsinki. JEC/GPO, 1977
2) Chilosi, A., "Income Distribution Under Soviet-
Type Socialism: An Interpretive Framework",
Journal of Comparative Economics. Vol. 4, 1980
3) Dymski, Gary A. and John E. Elliott, "Capitalism
and the Democratic Economy", Unpublished paper,
USC/Department of Economics, May 1987
4) Marer, Paul, "Economic Performance, Strategy, and
Prospects in Eastern Europe", in East European
Economies Post Helsinki. JEC/GPO, 1977
5) Michal, Jan M., "Size-Distribution of Earnings
and Household Incomes in Small Socialist
Countries", Review of Income and Wealth. Vol.
19/4, 1973
6) Morrison, Christian, "Income Distribution in East
European and Western Countries", Journal of
Comparative Economics, Vol. 8, 1984
7) Portes, Richard, "The Control of Inflation:
Lessons from East European Experience",
Economica. Vol. 44/174, 1977b
133
APPENDIX
Hungary Data: Definitions of Nine Skill Levels
[from Statisztikai Evokonyv 1984; Kozponti
Statistikai Hivatal, ps.132-33]
Manager A General manager, manager, director
of plant and subsidiary, if the
enterprise unit has its own number
of size category; chairman of the
cooperative; general manager and
deputy general manager, chief
engineer of the company, chief
accountant; deputy chariman of the
cooperative, technical and
commercial directors of the
cooperative, chief accountant of
the cooperative if they are elected
by general assembly.
Manager B Technical, commercial,
transportation, economic director;
category I directors, their
nominated deputies, director of
departments.
Manager C Technical, commercial, transporta
tion, economic director; category
II directors, their nominated
deputies, director of independent
groups and their nominated
deputies; chief legal advisor,
heads of personnel deparment and
department of labor in the case of
a suitable organization even
without subordinated employees, as
well as directors of enterprises of
former category D and cooperatives
of former cooperatives of category
III—IV nominated before January
1st, 1977.
134
Director A
Director B
Executive A
Executive B
Executive C
Executive Staff
Production or transportation
director, category I-II upper
directors: director of plant,
directors of subsidiaries if the
plant has no independent size
category, plant directors or
employees in similar employments.
Production or transportation
director, category III-IV-V
directors: foremen and similar.
Technical, transportation, trade,
economic executives, technical-
economical advisors, category III-
IV executives having high school or
university degree or special
examination necessary for the job.
Technical, transportation, trade,
economic executives, category II
employees having technician's
diploma or maturity diploma
including specialization,
specialized worker's certificate,
or maturity diploma without job
specialization, but medium level
specialized examination necessary
for the job.
Technical, transportation, trade,
economic executives, category I
employees without specializations
necessary for stages II, III, IV.
Administrators, workshop
administrators, archivists,
typists, short-hand typists, book
keepers, accountants, cashiers and
employees in similar jobs.
135
Yugoslavia Data: Definitions of Eight Skill Levels
[from Savezni Zavod Statistiku 1981; Statisticki
Godisnjak Jugoslavije, ps.52-3]
The Statistical Yearbook of Yugoslavia does not
give individual definitions of its professional
skills. The following is the overall definition of
the entire category:
Under "level of professional qualifica
tion for performing specific works or work
tasks" is understood general and professional
knowledge, practical skills and other
qualities established by self-management
enactments of an organization, or community on
the basis of its industry, technology, organ
ization and division of labour, and which are
supposed to be possessed by a worker in order
to be able to perform certain works or
worktasks in an organization or community.
136

Linked assets

University of Southern California Dissertations and Theses

Conceptually similar

PDF

China: Recent political and economic developments

PDF

The size distriubition of Turkish manufacturing establishments across sectors and over time and its responsiveness to economic policy changes

PDF

Intensive growth vs. extensive growth and their historical implications

PDF

The economic case for the flat percentage rate income tax

PDF

The changing pattern of Japan-U.S. trade

PDF

A case study of underutilization of canal irrigation in Bihar, India

PDF

Countertrade: A theoretical and empirical investigation

PDF

Patronage, dependence and debt in peasant agriculture

PDF

Business cycles in the United States: A comparison of interwar and postwar experiences

PDF

Significance of transaction linkages in industrial location

PDF

Moving toward free trade in North America

PDF

Motives and models of credit card use

PDF

The Backstage Of Ethnic Conflict: The Material, Social, And Psychological Dynamics Of Political Ethnicity

PDF

State strategy and policy choice in economic development: A game theory approach

PDF

An economic analysis of taxable capacity and its determining factors with special reference to the United States

PDF

The origins of OPEC: An economic history

PDF

Price structure and price reform in China

PDF

The role of banking and finance in China's economic development

PDF

Exposition and critique of the Marxist theory of economic cycles

PDF

Economics of education

Asset Metadata

Creator Dominguez, Jaime Lemar (author)

Core Title Incomes policies in economic reform: A comparison of Hungary and Yugoslavia in the 1970s

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Elliott, John E. (committee chair), Kuran, Timur (committee member), Mitchell, Janet (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-464195

Unique identifier UC11265302

Identifier EP44917.pdf (filename),usctheses-c20-464195 (legacy record id)

Legacy Identifier EP44917.pdf

Dmrecord 464195

Document Type Thesis

Rights Dominguez, Jaime Lemar

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA