End of communism in Hungary

The New Economic Mechanism was the only set of economic reform in Eastern Europe enacted after the wave of 1950s and 60s revolutions that survived past 1968.[1] Despite this, it became the weakest point of Hungarian communism, and a pressure that contributed greatly to the transition to democracy. In 1968, the Central Committee of the Hungarian Socialist Workers Party launched the NEM to alleviate Hungary's economic issues and introduced decentralization and fixed prices to offset the flaws of a centrally-planned economy.[2] The NEM was multifaceted and multi-directional, a vigorous overhaul of the Hungarian economy. It sought to accomplish reforms in many sectors of its economy, attempting autonomous self-management of collective farms, the break-up of monopoly industries, and curtailing subsidies other than those used for exports. It also began linking prices to the world market via exchange rates, authorizing workers to produce independently in the state-owned plants after their regular hours, and substituting economic regulators for compulsory directives in the dominant state-owned sector. Finally, it legalized private artisanal, retail, and service activity.[3]

This created a complex and extremely trade-dependent national economy, which was thus vulnerable to general fluctuations in the world market, but also to changes in prices of Soviet-imported raw materials and energy resources. Hungary, being a resource-poor satellite of the USSR, was, for its politically-independent spirit, very dependent on Soviet imports. In 1972, shortly after the NEM's introduction, the regime began restricting and limiting application of the market mechanisms that were originally implemented. This made it clear that the huge industrial combines, which had more ideological than economic value, would continue to receive the same state protection as in the past, underlining a basic weakness in the system.

By the 1980s, Hungary began to suffer from inflation, which particularly hurt people on fixed incomes. Hungary ran a massive foreign debt, and poverty became widespread. Following the institutionalization of the NEM in the 1970s, price hikes became commonplace in Hungary. However, Kádár, the General Secretary of the Hungarian Socialist Workers’ Party, handled them with adeptness, banking on his continuing political credibility. Kádár had proven his ability to "manage" the Kremlin, and had even stayed in power during the transition from Khrushchev to Brezhnev, remaining one of the only stable political figures in Eastern Europe. Thus, he could explain the higher prices as a down payment to the NEM, and promise good times to come without losing public approval and social order.[4] However, soon enough the NEM "roused more widespread opposition, as many party members who had genuinely supported the strategy of reconciliation with the Soviet system could not make their peace" with the real effects of the economic system. By 1985, with political instability accompanying the economic instability, Kádár and the regime were forced to recognize the impending collapse of socialism in Hungary.

In 1988, socialist Hungary also started making it easier for its own citizens to travel to the west, which led to May 1989's removal of Hungary's barbed wire fence with Austria. This allowed East Germans, who were allowed only to travel to socialist countries, to go to Hungary and escape to West Germany through Austria, never again to return to East Germany. Putting foreign and communist relations at risk, Hungary's Foreign Minister declared in September that it would not stop the thousands of East Germans fleeing to Austria.[5] This reflected Hungary's general attitude towards the Soviet satellite setup: popular opinion was against communism, and Hungarians wanted independence.

With Gorbachev's new policy of not using military action in the satellite states, and of permitting general sovereignty within the confines of each individual country, obeying popular public opinion was necessary.[6] The imposition of order through military force was also out of the question. Imre Pozsgay told the MSZMP's general secretary that "a Hungarian soldier ordered to shoot on his own people would either shoot his commander or go home to his mother."[7]

Demonstration in front of Magyar Televízió headquarters, March 15, 1989

The Hungarian communist elite believed the economic crisis they faced could turn into social upheaval, which came on the backs of decreasing real wages, high inflation, and a mounting debt crisis. A survey from 1986 said that 61% of the Hungarian population described their position as hopeless or continually worsening. Since real wages continued to drop in the following years, there is little reason to believe that the attitudes towards the economic situation became more positive in 1989. Another survey from 1989 indicates that the Hungarians were fully aware of their relative decline. 80% of those surveyed thought Austrians had a higher standard of living, while only 13% believed that Hungarians were better off.[8]

Nevertheless, after 1968 formed an illegal group of thinkers and activists, the so-called Democratic Opposition [hu]) which loosely connected to the Budapest School. They were heavily observed and oppressed by the regime though later they played an important role during the changes.

Hungarian elites were in agreement that the country was undergoing a severe economic crisis which required radical reforms. However, they disagreed as to whether or not political democratization was a prerequisite for gaining public support for said reforms. Politically, the 1980s brought a wave of discontent and demands for reform. Unlike in 1956, there were many reformers from within as well as outside of the MSZMP, showing the political fragmentation of the Hungarian system. Radical reformers and many others demanded a multi-party system which was impossible to attain under a Soviet system. They did not want the Soviet system, but instead to claim the right to national self-determination. On the other hand, General Secretary Grosz was known for advocating "one-party pluralism." In December 1988, Prime Minister Miklós Németh expressed the attitude of many reformers by stating publicly that "the market economy is the only way to avoid a social catastrophe or a long, slow death." This fear that continued economic decline would lead to social upheaval is usually given as the main reason for the regime's decision to negotiate with the opposition, and a prime pressure that caused the fall of socialism in Hungary.

Proclamation of the Republic of Hungary