Hungary Table of Contents
Under capitalism the market guides most economic activity. In a traditional command economy, however, a central planning board sits atop a hierarchy of ministries, branches, and enterprises and attempts to direct almost all economic activity. The board develops a national economic plan after bargaining with ministries, enterprises, and others over production targets and resource allocations. The board then presents the plan to the country's highest political authorities for approval. The plan spells out, among other things, what goods will be produced, who will produce them, how much will be produced, and what materials and capital will be available. After the plan is approved, the planning board issues directives to ministries, enterprises, and other economic institutions. The directives, which have the force of law, contain production targets expressed in physical units for some items and in value terms for others. Although all plan targets are compulsory, enforcement is stricter on targets for higher-priority items such as military hardware and producer goods.
Under the NEM, which was instituted in 1968, the government abolished compulsory plan directives for most enterprises, but left its planning institutions intact. In the late 1980s, the plan was considered a framework rather than a law binding managers of enterprises, and plans often stated targets as ranges. The National Planning Authority developed long-, medium-, and short-term plans. Long-term plans reflected the leadership's overall economic objectives for national income, industrial and agricultural production, investment, and other areas. The government used short- and medium-term planning to guide the economy toward the long-term objectives.
In the planning process, the central government provided each enterprise with information about forthcoming plan objectives, and each enterprise in turn furnished the government with a copy of its plan. In developing short- and medium-term plans, the National Planning Authority first projected supply and demand using enterprise production plans. If supply and demand estimates failed to balance or if enterprise production plans did not comply with broader plan goals, the authorities could manipulate any of a number of economic regulators in order to induce the enterprises to revise their production plans. For example, the management of each state and collective farm had to prepare a five-year plan according to instructions from the Ministry of Agriculture and Food. The ministry then aggregated the plans of all the farms. If the sum of the plan targets indicated that the agricultural sector could not achieve national production goals, the central authorities manipulated prices, credits, subsidies, or other economic regulators to induce farm managers to alter their plans toward fulfilling those goals. The party and government supplemented these economic regulators with direct intervention to ensure plan fulfillment in such key areas as defense and energy production, extractive industries, construction of key infrastructure projects, and foreign trade.
Data as of September 1989