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Szalai Erzsebet

Chapter 3. The Issue of Interest Integration

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1In contrast to capitalist societies, where the particular societal interests are decisively confronted and integrated by the market, in the developed phase of ‘existing socialism’ this function was primarily performed by the status group in power and the technocracy, in other words, the state party and party state.


2The history of this system of interest integration began in the strict command economy prevailing at the time. In the traditional command economy, market bargaining—which is apt to reconcile partial interests horizontally and which presupposes (at least partial) public accountancy—is rejected, with the result that partial interests surface with elemental force in the course of plan bargaining, which becomes increasingly complex and involves a growing number of actors. The power conglomerate tried to control the economic units by increasing the number of hierarchical dependencies, but this was precisely the reason why it gradually lost its control over the economic processes. The growing number of dependencies, which meant a growing complexity of hierarchical relationships, in reality enhanced maneuvering ability of the economic units.

3A more general cause of the loss of dominance can be found in the specificities of the political mechanism. In the given political system, which offered no opportunity for the development of alternative life programs, the only possible way of achieving individual success was by adjusting to the power hierarchy. This atomized the society and prevented the emergence of different communities that could have exercised effective political control over the power conglomerate (Hankiss, 1983).

4The hierarchy of the power institutions may be considered as an administrative system designed for the suppression of partial interests. It did not exclude frequent acts of suppression carried out in the name of elevating some assumed or real partial interests—for instance those of the ‘working class’—to a political rank. But there could be no total suppression, and various partial interests actually tried to manifest and assert themselves in the garb of societal interests or political significance. As a result, the real articulation of society remained hidden from the power conglomerate, which increasingly damaged the ‘effectiveness’ of the measures taken by it. In the 1950s, this Stalinist-type social and economic establishment found itself in crisis and collapsed.


5The reform experiments of the 1960s arose from the demand for the stabilization of control over societal and economic processes and as a result of the related insights which led to the emergence of a new model, called indirect economic mechanism (Antal, 1985). The essence of this mechanism was its incongruity, resulting from the extremely uncertain economic position of individuals and the ownership entitlements of economic organizations.

6The indirect economic mechanism was part of the indirect socio-economic mechanism. Compared to the earlier period, in this system the constraints on individuals and economic organizations decreased, but the evolution of full autonomy was hindered by publicly declared or, to a large extent, informally asserted restrictions. While the role of horizontal contacts and the market grew and the second economy expanded, the relationship between individuals and economic organizations, on the one hand, and the various levels of the hierarchy, on the other, continued to be the most important. As a consequence of the primacy of hierarchical relations and the survival of dependency, atomized interest assertion remained the dominant path of achievement. The coalitions and interest alliances that occasionally emerged were transitory and easily upset; nor did they usually aim at institutionalization, but rather tried to achieve their objectives informally.

7The economic organizations still continued as quasi-enterprises, and the position of their managers was characterized by contradictions: meeting the requirements of the market often clashed with the expectations of the various units of the state party and party state (Bauer, 1975). Nor were the representatives of the state and party united: the functional governing organizations voiced mainly financial demands, while those of the branches demanded mainly natural produce (i.e. specific goods).

8The structure of the industry remained strongly centralized, and the large companies that held key positions as organic and indispensable elements of the economy were able to syphon off incomes for themselves from other areas of the economy through the central institutions (Szalai 1989b). The large companies created by the direct mechanism of management appeared as autonomous interest centers in the indirect mechanism of management. There was a mismatch between the decision-making system, which was characteristic of the indirect economic mechanism after the economic reforms, and the hierarchy of the central institutions and their links to the economic sphere. Behind the monolithic appearance of the power conglomerate, a constantly changing system of subordination, superordination, and coordination evolved. The regularly recurring conflicts and compromises between the institutions dealing with issues of branches, areas, and companies (primarily the branch ministries) during that period of constant change were also ‘real’ conflicts and compromises between branches, areas, and companies (or groups of companies). The top economic management and the functional institutions strongly influenced the course of those conflicts and compromises. In fact, they themselves created conflicts, but all the time they had to take into account the fact that the power relations of the other institutions in contact with them also reflected broader economic and power relations. Thus we are faced with a contradictory phenomenon: the interest conflicts of relatively autonomous economic and political subjects and their groups were expressed and solved through the channels of a system built mainly on subordination and superordination (Szalai, 1989b; Grossman, 1992).

9If we interpret the phrase “relatively autonomous economic and political subjects and their groups” more broadly, and if we include the “societal groups” and interest organizations that have a specific overlapping relationship with the branches, areas, and companies, then the features of the decision-making mechanism outlined above actually amount to the so-called system of interest inclusion. To quote Mihály Bihari (1985): “After 1956 we took significant steps towards democratizing the political system, interest representation, and the exercise of power. Today the party and state apparatus understands and incorporates more sensitively the movement of interests emerging in society… As a result, our current political system and decision-making mechanism are in a better position to take into account the interests and differences of opinion existing in society. However, on the whole, our political system today is not yet capable of institutionally and publicly including the differences of interest and opinion in the decisionmaking mechanism.” László Bruszt (1987) puts it in similar terms: “It was not possible to create separate mechanisms to institutionalize the interests and desires of the different social groups, but within the institutional system of governance itself irregular mechanisms of mediation from the bottom up have been emerging. The key word is ‘interest inclusion.’”

10The concept of interest inclusion simultaneously contained elements of an ex-ante consciousness and a sense of direct coercion. This meant that the individuals organized in the power conglomerate, on the one hand, recognized the general need to consider partial interests, while, on the other hand, they were forced to include those partial interests in their calculations of the conditions of asserting their own interests in particular concrete situations.

László Antal (1985) characterizes direct coercion as follows:
“It is also a fact that in the wake of these changes a mechanism is taking shape that requires less the limitation of partial interests (of individuals, groups, strata, and organizations) in order to assert central objectives; indeed, as an indispensable part of that mechanism, the participants in top-level decision-making may come to reckon with the reactions of subordinate organizations not participating in decision-making, and even with their silent—but extremely effective—resistance.”
Elemér Hankiss (1984) called this phenomenon latent pluralism. “Latent pluralism is not democratic participation in power but a pluralism of the possibilities of influencing power. Political science speaks about ‘influence’ when a social stratum or group which has no possibility of participating in decisions or controlling their implementation, is somehow able to assert its interests by exercising an influence on decisions. It can do so because it owns some resources or goods which are needed by the whole society or by the governing elite, and which cannot be mobilized by open violence or could be mobilized only at the cost of disproportionately heavy losses.”

11The operation of the mechanism of interest inclusion from the point of view of the interests of the power conglomerate—in other words, governability—may be called efficient if the operation of the power conglomerate in relation to the partial interests manifest in society can be shown to be dominated by ex-ante consciousness. This means that the state party and party state has been capable of recognizing and incorporating partial interests in response to relatively small direct pressure. On the other hand, partial interests of one kind or another could not be allowed to become totally dominant. Thus there had to be the possibility of counterbalancing any pressure groups in too strong positions by pushing some weaker groups into the foreground. Seen from the aspect of society and social justice, the effective operation of the mechanism of interest inclusion depended on the economic and political subjects or groups being granted equal opportunities for asserting their interests at the center of power. (At this point I do not wish to analyze in depth the extremely complicated relationship between governability and social justice. Nevertheless, it may be noted that there were issues in which the requirements of the two points of view strengthened, rather than excluded, each other. To take a concrete example: it was not desirable from either point of view that significant—potentially conflicting—societal groups should be able to call the attention of the power conglomerate to themselves at the cost of being seriously degraded. In other words, in analyzing the operation of the mechanism of interest inclusion we may assume right from the outset that in a variety of issues we may not end by identifying contradictions.)

12By the mid-1980s, the mechanism of interest inclusion found itself in open crisis, the reason being that, in terms of the features listed above, it had never really functioned efficiently. In fact, it was so far from operating efficiently that we may even ask whether the object of our investigation can truly be considered as a mechanism of interest inclusion. In what follows I wish to examine this question by analyzing those factors that made the efficient operation of the mechanism of interest inclusion impossible.

13As we have seen, the question is above all whether the power conglomerate was able to develop an idea of the actual political and economic articulation of the society that corresponded to the reality. László Bruszt (1987) points out that the political actors were primarily institutions and not societal groups. Elemér Hankiss (1984) says: “The existing set of institutions neither fits nor suits the system of social interests.” I myself have shown that in ‘existing socialism’ social groups existed only in name.

14Another reason for the difficulty of seeing the system clearly, as indicated by Mária Csanádi (1987), was the extremely complicated internal structure of the power conglomerate, “an incomprehensible basic web,” as she calls it. In my view, it lacked adequate lucidity, and agreements between its actors came about mostly through informal bargains, with every participant having a vested interest in maintaining this situation.

15The inadequate lucidity of the power conglomerate’s internal power relations in itself made it almost incapable of faithfully reflecting the real societal power relations. On the other hand, this deficiency constantly reproduced the uncertainty of power relations within the conglomerate. In Mária Csanádi’s words: “each actor (decision-maker) was followed as well as confronted by a phantom crowd: his popular base was as large as he could make others believe, or as large as he himself wanted to or was forced to believe… Therefore the bargaining position of the actors, whether similar or conflicting, was always uncertain, variable on each occasion and ‘momentary.’ It was momentary even if it seemed relatively stable: one had to struggle and to maintain or reestablish contacts continuously, which required constant watchfulness and adjustment.”

16The reflection of the real divisions within the societal interest relations was restricted by another factor—closely related to the previous one—i.e. the way the institutions of the power conglomerate directly sensed the interests and objectives of their economic and political subjects and the differences between these. In what follows I will approach only the economic organizations from this angle.

17The power conglomerate’s prime means of identifying the interests and objectives of economic organizations was the synthesis of individual bar-gains struck with them, which had several consequences. On the one hand, the economic organizations, which greatly depended on the institutions of the power conglomerate, tried to keep their reserves and opportunities secret, and to present their own interests as those of the branch or the ‘national economy’. On the other hand, they were encouraged to do so by the fact that the ambiguities of intraconglomerate power relations appeared to them as uncertainties and contradictions in norms and expectations; moreover, these norms were mostly informal ones, which made the sense of uncertainty and contradiction even greater. Thirdly, the economic organizations, instinctively or consciously sensing the instability of intra-conglomerate power relations, did not dare to attach themselves unequivocally, or to show their cards openly, to any of the conglomerate’s institutions. Fourthly, in the total image based on the synthesis of individual bargains, those economic organizations that found themselves in a bargaining position more frequently and were able to assert their interests more forcefully than others—the large firms—were overrepresented, without this becoming sufficiently recognizable. Last, but not the least, by the time an overall image had emerged on the basis of individual bargains, the original interests of the economic organizations could have been modified in the bargaining process in directions that could not have been precisely assessed in advance.

18If one studies the method of directly perceiving partial interests as exemplified by economic organizations, it becomes obvious that only the interests of ill-defined ‘phantom masses’—including large companies— could be mediated through the channels of the power conglomerate, while the apex of the conglomerate was able to preserve its image of society, based on its own internal logic, which did not clash with its excessively general, vague, and positive self-image.

19As the strength of ‘phantom masses’ is perceived through a synthesis of single bargains, the extremely difficult task of assessing and comparing them is usually carried out after the event. László Antal (1985) has called attention to the fact that in order to gain various favors, the economic organizations exercised pressure on the institutions of the power conglomerate in the same direction but independently of one another, with the result that in a large number of those cases the institutions did not register until later that an excessive distribution had taken place. This means that the power conglomerate lacked even the elementary ability either to recognize and take account of a given partial interest if the direct pressure was relatively small, or to control overly strong pressure groups by promoting less vigorous ones.

20A more concrete analysis of the operation of the power conglomerate reinforces my earlier statement that interest inclusion through the institutional channels of the power conglomerate was overwhelmingly coercive, selective, and guided by short-term interests. I may now add that as the recognition of the strength of the phantom masses usually occurred after the event, the forced interest inclusion did not necessary have to be a conscious one.

21Therefore, in my opinion, the mechanism of interest integration, in the developed phase of ‘existing socialism’, was not a mechanism which included interests, but basically a mechanism in which interests included themselves and in which the apex of the power conglomerate could occasionally relate to the various societal groups, but never to the totality of the system’s interests. In other words, the system could not be controlled from the bottom, and was incomprehensible from the top.

22The social and economic mechanism in which interests included themselves was extremely unstable due to the peculiarities of the indirect mechanism of economic management. The behavior and interrelationships of its actors were not regulated by any verifiable norms, so that there were no publicly demonstrable institutional safeguards of their integrity and stability. In close connection with this, the actual responsibility of the various actors for the negative socio-economic processes was shrouded in darkness, providing ample opportunities for the creation of scapegoats. The responsibility for various socio-economic problems was not borne, in proportion to their real role, by those who had caused them. Rather, in keeping with the interests of those who happened to be in a dominant position, the blame was laid on the ‘weakest link in the chain’—the individual least capable of interest assertion—who was then taken to task. (Hungarian examples were the abolition or merger of industrial branch ministries in the early 1980s and the closure of companies somewhat later [Szalai, 1989b].) The fear of becoming a scapegoat led to increasing efforts towards diluting and blurring responsibility, which made the process cumulative, and this self-reinforcing mechanism was further boosted by growing economic difficulties.


23The issue of interest integration was indirectly affected by an important feature of the economic mechanisms under ‘existing socialism’, called ‘quasi-autarchic’ and ‘quasi-developed’ by Ferenc Jánossy (1969). Essentially this meant that from the early 1950s the Soviet leadership, followed by the status groups in power in the different countries of the ‘empire’, enforced the implementation of an autarchic, self-contained economic policy, even in those small East European countries short of raw materials. The decisive motive was the development of heavy industries in each country, particularly with the rapid establishment of military industries in mind (cold war). Another important factor was the Soviet leadership’s intention to prevent the development of a separate ring of integration enjoying at least a relative degree of independence. It was in the power interest of the Soviet leadership that the countries of Eastern Europe should unilaterally depend on its shipments of raw materials, and that in shaping their economic structure they should be neither able nor forced to coordinate their developmental objectives in the spirit of some kind of deliberate division of labor. Consequently, from the 1950s, the economies of East European countries—while emulating the macrostructure of a big and developed economy rich in raw materials and therefore capable of self-sufficiency—became totally exposed to the world economy, at first primarily to the Soviet, then increasingly also to the Western. Thus their basic openness manifested itself as dependency. On the other hand, as the brief first phase of extensive industrialization gave way to the intensive phase, it became clear that an economic structure alien to the conditions of the countries involved could not ensure any efficient new production as the corollary of lasting growth. This is the essence as well as consequence of quasi-autarchy and quasi-development. (Iván Berend T. [2003] noted another important consequence of economic isolation, namely isolation from the processes of technical and technological innovation in the West and the adverse effect of this isolation on lasting and effective growth.) Yet another consequence was the overcentralized structure of big companies mentioned earlier, since the model for the giant firms of the period was supplied by the heavy industries.


24The socio-economic mechanism in which interests included themselves could operate relatively smoothly, based on relatively predictable behavioral rules and bargaining mechanisms, as long as the economy was in a state of relative expansion, above all in the phase of extensive economic development. This was a prerequisite for redirecting resources to the large companies in a dominant position, which were by and large less efficient than average, and to their ‘framework’, that is, the heavy industries, in such a way that those from whom resources were withdrawn were not shaken to their foundations, in other words, so that they had resources to take away. This system of redistribution, however, necessarily weakened the efficiency of economic operation (Bauer 1982; Szalai 1989b), and therefore after some time all could be satisfied only by overdistribution. This, in turn, could be financed only by growing external debt. (By 1987, the countries of the Soviet empire had accumulated a total convertible debt of USD 75 thousand million net, distributed as follows. Poland: USD 35.3 thousand million, Hungary: USD 15.8 thousand million, GDR: USD 10.5 thousand million, Romania: USD 4.8 thousand million, Bulgaria: USD 4.6 thousand million, Czechoslovakia: USD 4.0 thousand million [Salgó, 1989]. In 1989, the gross convertible debt was as follows. Soviet Union: USD 58.5 thousand million, Poland: USD 40.8 thousand million, Hungary: USD 19.2 thousand million, Bulgaria: USD 10.6 thousand million, Czechoslovakia: USD 7.9 thousand million, Romania: USD 0.6 thousand million [Lanigne, 1995].) In countries where the status group in power rejected such debts— most spectacularly in Romania—or tried to avert it with limited success, political repression grew of necessity: the general demand for the constant growth of living standards and the ‘underrepresented’ partial interests could be suppressed only by means of political dictatorship. The ‘methods’ of growing debt and political repression were simultaneously applied, for instance, in Poland after the suppression of the Solidarity movement. The problem of the Soviet Union, as the ‘center of the empire’ and a huge country rich in raw materials, was somewhat different, although the nature and operation of authority (overgrown and disintegrating power centers, the predominance of large companies, and inefficient redistribution) showed similarities to the above description. (I will return to this, and to the Yugoslav problem, later.)

25Thus expansion in this system inevitably led to the accumulation of external debt and sooner or later resulted in the breakdown of earlier power relations and behavioral norms.

26The spectacular beginning of this process can be dated to the late 1970s (in Hungary, it can be linked to the change of economic policy in 1978 [Szalai, 1989b]). In this period, the first, expansive phase of the socio-economic mechanism, in which interests included themselves based on relatively predictable behavioral rules and bargaining mechanisms, ended in crisis and the restrictive phase began. However, regarding the entire history of ‘existing socialism’, this was in fact the beginning of the total crisis of the system.

27Although certain elements of reform appeared, and there was even a vaguely worded demand for a comprehensive reform program, the power conglomerates responded to the dramatic recognition of overdistribution with individual and informal restrictive measures that corresponded to the logic of the economic system and were made possible by the constraints of the economic and political power relations. However, these measures further damaged the productivity of the economies. The crisis was not primarily indicated by a radical deterioration of certain quantitative parameters, but rather by the fact that this mode of managing tension did not mitigate but actually enhanced it.

Tamás Bauer (1982) describes this situation as follows:
“In the early 60s (in the countries of the Soviet bloc – E. Sz.), the slowdown was enough to restore the balance of foreign trade and to lessen internal tension. This time the debt of the small countries continued to grow until 1978–1979, while growth slowed down and tensions over the internal supply of raw materials and goods increased. Bulgaria, Czechoslovakia, and Hungary succeeded in halting growing debt only by new radical measures, such as stopping the growth of living standards, radical directives concerning prices and various restrictions on investments. The policy of price rises and restricted investments was also experienced in the Soviet Union; however, here the main symptom of crisis was not price rises, but, as in Romania, the worsening shortage of goods. In Poland, the political crisis of the summer of 1980 was triggered by growing deficiencies in supplies and a consolidation policy similar to that of Hungary and Bulgaria (improving the countries’ position in foreign trade by restricting domestic consumption and accumulation). Thus slowdown was not enough to reduce and mitigate tension; on the contrary, it was accompanied by growing tension in the entire group of countries. It is attributable to this fact that the planned targets for 1981–1985 promised the continuation of slowdown. (Italics mine, E. Sz.)

28Before continuing this train of thought, we must make a detour to distinguish between the concepts of structural crisis and crisis. The structural crisis of a system is primarily, albeit not exclusively, recognized by the ‘experts’ or the elite of society, who realize that the methods used earlier for dissolving tension have failed and medicines that were effective till now aggrieve rather than improve the patient’s condition. Crisis as such, on the other hand, is the nadir, recognized by society in general, where many other severe and acute social tensions and explosions occur. The patient is gravely ill with a high fever.

29The condition of the system as described so far indicates a structural crisis of the institutions and mechanisms of economic interest integration. With the exception of Poland, one cannot speak about a comprehensive social crisis or even its beginnings, as the conflicting interests in society were not articulated and did not collide in public. However, this meant a postponement of the crisis rather than a stability of social relations. As the conflicting social interests could not be articulated due to the lack of an open forum, the counterforces to the negative processes could come into being within society only with great difficulty or not at all, while dissatisfaction with the existing conditions remained diffuse and its direction largely unpredictable. The immune system of society, switched off long since, was unable to regenerate.

30In addition, further economic reforms were also removed from the agenda. To quote Tamás Bauer (1982): “politicians are aware that those earlier trends that cannot continue are rooted in the economic mechanism, which must therefore be changed. But, learning from the experiences of the 60s, they are also correctly aware of the limits of changes in economic management imposed by the requirement of keeping the political setup unchanged.”

31The exhaustion of possibilities hidden in the second economy also indicated a crisis. By the late 1970s and early 1980s, the further expansion of the second economy based on existing norms and strategies hit an objective barrier. According to contemporary surveys, time spent on second jobs could not be further increased, so that any new forms could at most have a restructuring effect. More and more, second jobs allowed only the maintenance of an already achieved standard, and not even that in some strata (Farkas–Pataki, 1984).

32In Hungary, the crisis of the system became obvious after the dramatic failure of the attempt to revitalize the economy in 1984–1985, when the country’s debt doubled in the next two years. Before that attempt, and after years of systematic economic restriction following the change of economic policy in 1978, the top party leadership, or status group in power, had increased its demands for a more dynamic economy (strongly motivated by reports on the dissatisfaction of the population with the deteriorating living standards). At the same time, the managers of economic units—primarily large companies—put increasing pressure on the state party and party state to restart expansion. The overdistribution that ensued from the mid-1980s—through the political and economic tensions generated by it in conjunction with other factors, to be described later—led first to the weakening of the (never very strong) forces that held the system together and then to the disintegration of the system itself.

33However, what is more important than the quantitative parameters of overdistribution is that by this time the system had exhausted its opportunities for change and adaptation. According to my researches, the status group in power had earlier responded to the appearance of the external barrier to growth by ‘rearranging’ its internal power relations, and thereby modifying the operation of the economic mechanism. During such periods, it was primarily the relationship between the state party and party state, on the one hand, and the big companies, on the other, that underwent radical changes. While the significant deterioration of the external balance in 1978 triggered the restriction of the expansionist objectives of the large company managers, the credit crisis of 1982 resulted in the opposite, repeatedly bringing the interests of large companies to the foreground, and even allowing them to dominate the state party and party state. This seesaw could not work during the post-1985 crisis. Rather, what could be seen was the strengthening of the trends of 1983–1985, that is, the further growth of the opportunities for large companies to realize their interests. In fact, this was an important sign of the exhaustion and closure of the opportunities for change within the status group in power and in the economic system (Szalai, 1989b, 1991).

34Thus the socio-economic system ‘integrated’ by the state party and party state—and the Soviet empire together with it—inevitably disintegrated. To put it briefly, the reason was that the power structure had no political legitimacy, and therefore its legitimacy in a sociological sense—while it lasted—could be ensured only by constantly increasing consumption by the population; however, consumer demands ‘encouraged’ in this way, after some time, breached the integrative mechanism, given the productivity of the system. (In 1989, in an analysis of societal processes in Hungary, I wrote: “At the time of the 1956 revolution, the old elite experienced the strength of the society, and was subsequently afraid of it for more than thirty years… This fear drove the country into debt.” [Szalai, 1989a].) On the other hand, the state party and party state, in order to improve its own operational ability, brought to life some puppets that subsequently started to function as autonomous interest centers, eating away the framework and possibilities of the system with their demands (large companies). Finally, in connection with all this, but put in more general terms, the ‘integrator’ lost its ability to suppress or merely to control and keep within limits the strong and discrete economic and power interests in the post-Stalinist period almost from the first sign of a loosening of the hard political dictatorship and the first mention of categories of goods (money, market, credit, etc.). In contrast to many social scientists today, I believe (and I have believed since the early 1970s) that no categories of goods can be applied, even for purposes of planning, without bringing to life the market mechanism in a society. (Later I will explain why it would not be desirable either.) In ‘existing socialism’ the market mechanism was present at least in its elements, but since it was either long denied or at least not recognized in its full significance by those ‘on top’ (and since the institutions of societal control were not functioning as a consequence of the ‘democracy deficit’), ultimately it found its way through uncontrolled and uncontrollable detours, breaking up the system itself together with its ‘official’ logic. I should add that an unrecognized and therefore uncontrollable market mechanism is very likely to break up any system.

© Central European University Press, 2005

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