In the ‘30s Hungary faced serious social obstacles to modernization. The diverging interests of the conservative elites, the weak middle classes and the obsolete structure of the labor force were the most important elements of these social obstacles. The down-to-earth utopia of the third way provided a combined solution to these problems: persuading the elites that they should fulfill their historical responsibilities, distribute land to landless peasants, educate them in the culture of entrepreneurship, support the emergence of a strong middle class and combine the advantages of both small and great estates.
The elites during the war and planned economy did not opt to recommend the third way ideology. Forced collectivization and anti-kulak campaigns served opposite aims: pushing the labor reserve from agriculture to industry; diminishing instead of strengthening the middle classes. The majority of people (even those who had formerly worked on their own account) became employees instead of becoming independent economic actors. But from the ‘60s onwards an alternative path was clear. Household plots and the sub-dividing of agricultural co-operatives offered an institutional framework for semi-autonomous economic activities. Dual labor market positions and the second economy spread while the contribution of the second economy to GDP grew significantly. The ambiguous development of a new middle class began. The majority of those who were involved in the second economy tried to produce marketable goods and services, but at the same time maintained their main jobs in state-run enterprises as employees.
Where did these new entrepreneurs come from after the system change? Was the second economy the major source of entrepreneurship? Ethnic background and party affiliation – previously thought to be important elements behind economic attitudes – proved to be insignificant in the explanation. The family background had some explanatory power – the education and occupation of the mother was more important than that of the father – but historical explanations for entrepreneurial inclination were less satisfactory than synchronous ones.
In explaining the recruitment of potential entrepreneurs, demographic status, education, occupational position and activity in the second economy all proved to be important.
At the dawn of the changes in the system, the proportion of potential entrepreneurs grew significantly, and at reaching two-fifths of the active population, it peaked.
In the synchronous models, beyond income, age, gender and activity in the second economy, having a skilled worker position (having professional and/or
white-collar status) proved to be important. Although the economic attitudes of the sexes became more balanced in the meantime, gender did not lose its explanatory power in this respect. The attitude of professionals changed negatively against a private economy. The marketization of culture had a negative impact on the acceptance of the entrepreneurial alternative among professionals, although this stratum was one of the most enthusiastic about market institutionalization and privatization a few years ago.
What is interesting here is that personal conditions and characteristics were found to be important elements behind entrepreneurial inclination. The second economy played a remarkable role but not the single most outstanding one. The second economy was the “other path”: it reflected and to some extent corrected the ill-functioning of the first economy, dominated by the state. The second economy could provide the combined advantages of small and great estates and in a certain way contributed to the development of a new middle class. Nevertheless, it was not a late realization of the third way. The third way was an alternative scheme for integrating economic processes.
But may a second economy be a dominant mechanism of economic integration at all? In short periods of social shocks and post-war shortages barter and black market were able to fulfill such a function. But in longer periods the second economy, as the name suggests, works as a complementary mechanism for integration. As one can judge from the data, the most important elements determining entrepreneurial inclination were “here and now” personal conditions and characteristics. These were clearly influenced by family background: the higher the educational and occupational status of the mother, the more the positive effect on the entrepreneurial spirit of their offspring. State socialism as a system had no particularly important effect on the entrepreneurial spirit. Ideological constraints were ineffective and party membership had only a slight negative impact on entrepreneurship, while former leadership experiences had a positive one. However, some “here and now” conditions (like education, occupation and experiences in the second economy) were also accumulated during the state socialist period. In a sense, the second economy itself was an institutional solution for state socialism, although it was not an integral part of it. It was tolerated in certain countries and periods – like in the Soviet Union during the NEP –, or even encouraged – like in Hungary and China during the reforms –, but it was forbidden and sanctioned in the majority of cases for long periods.
The second economy is an ambivalent institutional and habitual heritage and has side effects on the composition of the entrepreneurial middle class of post-socialism. On the one hand, those who were involved in the second economy
Where doentrepreneurs come from?
learned to take care of their careers and developed marketable skills. On the other hand, new entrepreneurs learned the rules of economic behavior in a shortage economy what had consequences both on the personal and on the broader institutional level as well. A large proportion of them remained interested in short term advantages, double occupational status and tax-avoidance.
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oTes1 This chapter is based on a paper presented at a conference in IUPERJ, Rio de Janeiro, in 1993
2 Source: Tárki A, Tdata-B90 http://www.tarki.hu/cgi-bin/katalogus