József Böröcz

Dual Dependency and the Informalization of External Linkages: the Hungarian Case

The purpose of this paper is to contribute to the conceptualization of some aspects of large-scale social change under and, eventually, away from, semiperipheral state socialism by theorizing about East-Central Europe's dependency and by examining certain elements of transformations of Hungary's external linkage structure during the post-war period. The main thrust of the argument is the following:

(a) the position of post-war state socialist East-Central Europe in the world economy is captured by the concept of dual dependency;

(b) the relative balance between imperial and market-based components of dual dependency distinguish the three periods of state socialism in East-Central Europe;

(c) changes in the structure of external linkages are fundamental elements of creating and maintaining various regimes of dependency;

(d) the contrast between the first and second economies and the formal-versus-informal-distinction are both useful for discerning various arrangements of external linkages in terms of their direction and intensity; and

(e) at present, Hungary's formal linkages are being re-focussed on (primarily West-Central European) core actors while its informal linkages map out a more even socio-geographical distribution including limited "horizontal" integration with other East-Central European societies.

The analysis of the transformations of East-Central Europe's external relations is necessary and timely because a clear conceptual image of the structure of dependencies is an indispensable tool for understanding the region's ongoing transition from state socialism. The post-state-socialist transformation of the societies of East-Central Europe is not taking place in a vacuum: legacies of external dependency place serious constraints on the alternative paths of development available for these societies. On the reverse, the intense interconnectedness of East- Central Europe with its external environment implies that these transformations will make a decisive impact on European integration, on East-West relations (perhaps to be redefined now as Russian-Western or Sino-Western relations) and on the structure of the world economy. Much of scholarship on East-Central European state socialism overlooks the problem of external dependencies altogether. Previous work on the external dependency of East-Central Europe, on the other hand, has been faulted for unduly ignoring or underestimating the importance of either the political or the economic component of external dependency, and/or for forcing theoretical models - developed in Western or Southern Europe or Latin America - on the history of East- Central Europe without much regard to the specificity of the region's experience.¹ The purpose of this paper is to propose a way in which the language of the dependency literature can be extended to address the post-World-War-II. experrience of state socialist East-Central Europe.

Attention to the Hungarian case is useful because, over the last forty-five years, that society has covered a very broad terrain of historical experience from the heritage of pre-state- socialist authoritarian-conservative politics through Stalinist political terror, the anti-Stalinist uprising of 1956 and its aftermath, to the forced compromises and lopsided economic and political reforms of the Kádár-period. By the time of the beginning of its exit from state socialism in 1989, Hungary was judged unanimously by Western observers as the East-Central European society most "prepared" for a "transition to democracy and market". Due to the degree to which Hungarian state socialism had distanced itself from the Stalinist pattern, the Hungarian case could serve as a basis for analytical comparison with other societies. In addition, the Hungarian case is fairly well documented: reasonably reliable statistical information as well as systematic social scientific work is available.

Dual dependency

Over the last forty-five years or so, the societies of East-Central Europe have found themselves under conditions of a unique system of external dependency. The emergence of this new system was a consequence of the military success of the Soviet Union in the territory of these states. At the end of World War II., the USSR was a state socialist entity - i.e., one wherein direct- personal private ownership of the means of production had been replaced by an etatistic- bureaucratic mode of control over the capital-labor relation. This form of property was established through the removal of property owners as a class, and the state's instantaneous penetration into the so vacated, "empty space" of private property relations.² The essence of the state socialist system of property relations has been that the state vacates, penetrates and, hence, partly preserves private property relations.

That state socialist entity was embedded within, and occupied a partly antinomian relationship with, a world economy based on the principle of legally protected direct-personal private ownership coordinated through a market mechanism.³ Consequently, the relationship between the post-war Soviet Union and the hegemonic core actors of the world economy of the time was characterized by a combination of fierce competition and antagonistic cooperation.⁴

The establishment of a state socialist form of rule in East-Central Europe - the transition from "socialism in one country" to "socialism in one bloc" - was an outcome of this post-war relationship. The system of dependencies to which the societies of the Soviet-controlled part of Europe came to be subjected, was a direct reflection of this ambiguous relationship. Ambiguity originated from the fact that the local imperial power represented a grandiose, albeit frustrated, attempt at the creation of a (politically integrated) state socialist world empire⁵ implanted within a world market.

The creation of a state socialist bloc radically re-drew the web of dependencies connecting these societies to the global system. This new web was conceptually more complex than that of the rest of the non-core. The mode of incorporation of East-Central Europe has involved, over the entire state socialist history of the region, a strong sense of "dual personality". Structurally speaking, the place of the East-Central European state socialist states can be conceptualized as a mixture of two constitutive elements: (1) a partially constructed, hence "imperfect", primarily political form of dependency on an imperial center - created by military means and maintained via imperial methods -; and, combined in intricate ways with this, (2) an essentially economic form of dependency on core actors - capital, states, etc.

This thesis can be extended: for all societies that have undergone a state socialist transformation after the founding of the Soviet Union, the parallel presence and continuous interplay of the political and economic aspects of external dependency on two distinct sets of actors have been the "differentia specifica" of their mode of incorporation in the world economy. To be noted is that what is unique here is not the combination of political and economic elements per se - that is obviously present in all other forms of external dependency - but the fact that those two constitutive elements are separated not only analytically but also empirically, as historical forms. East-Central Europe's experience suggests that political and economic components of dependency can be fixed on two distinct sets of actors as long as the two nuclei are locked into a partly antagonistic relationship with each other. As a result, East-Central Europe's experience with dependency differs in important qualitative respects from that of other semiperipheries.⁶ The following section of this paper will overview the three main periods of the history of East-Central European state socialism in terms of the transformation of dual dependency.

Periodization of Dual Dependency

It is possible to construct a descriptive periodization of the history of East-Central European state socialism on the basis of the relationship between the imperial-political and market-economic components of dual dependency.

The first period of state socialism - commonly called Stalinism - began, in East-Central Europe, with the effective takeover of national politics by the Communist parties during the late 1940s. The Stalinist form of dual dependency was characterized by the overwhelming dominance of the imperial-political component. The totalistic etatism of the Stalinist period created what Jan Gross (1988) calls the "spoiler state", i.e., a state whose power springs from its ability to assure that nothing gets done outside of its realm. The power of the local spoiler state was structured so as to function as a regent bureaucracy in the service of the cause of the imperial project. Semiperipheral Stalinism created a model of the externally-legitimated state, the local subsidiary of the imperial center, which this author has proposed elsewhere (Böröcz1992) to call, in order to facilitate a heuristic-comparative analysis of structures of external dependency across political- imperial blocs, the "comprador state".

During the period that followed Stalinism - called Kádárism -, the two components of dual dependency came into some kind of precious equilibrium.⁷ Once Hungary's anti-imperial revolution of 1956 had been extinguished, the imperial state's claims to direct "manual" controls receded substantially, all over the state socialist bloc. By the early 1960s, certain forms of direct core-dependency reappeared, especially through technological follow-up dependency on, and state borrowing from, core actors. This order represented a fairly sophisticated compromise whose stability can be understood as the outcome of a complementary arrangement. Relatively moderate yet undoubtedly extant political oppression suited well the lenders' demand for internal stability in the debtor country while infusions of hard currency worked to quiet the political climate inside the state socialist bloc.

With the onset of the third - declining - period of East-Central European state socialism in 1989, the balance of the two components shifted further towards economic dependency, benefitting core actors to the severe detriment of the imperial component. The post-state-socialist transition has had little to do with endogenous developments in the societies of East-Central Europe: it was set in motion and, to great extent, controlled by, such external dynamics as the internal collapse of the Soviet imperial state, the relative decline of U.S. economic hegemony in the world economy, and the re-structuration of the capital-state relationship in the European Community. The Kohlist period of state socialism has utilized state socialist control mechanisms - again, a combination of economic and political dependency on two different sets of actors - to demolish the imperial component and to restore "unadulterated", textbook-forms of core dependency in the region. Successful coordination of the dynamics of transformation in the two legs of external dependency has been the external precondition of assuring the peaceful character of the transition from state socialism. The rest of this paper will overview the structural transformations of the linkages which have connected the Hungarian society to the rest of the world. The description of the Hungarian case will be preceded by a word on some of the key concepts to be used.

Linkages, Formal/Informal Sectors, First/Second Economies

The word "linkage" is used in at least two, remotely related yet distinguishable ways in the discourse of dependency and, in general, of macro-comparative social science. Albert O. Hirschman's (1977) "generalized linkage approach" relies on a fairly restrictive conceptualization focussed on economic growth. For him, "linkage effects" stand for net excess investment generated by the introduction of a particular industry or branch in the economy.⁸ A much more widely used, and more relaxed, metaphorical usage considers linkages as relatively stable, institutionalized and patterned bundles of contacts and flows of people, commodities, money and information. It is the cross-border variant of the latter denotation - i.e., "external linkages" - that will be used here.⁹ The existence of external linkages so conceived is, formally speaking, an elementary structural condition of external dependency.

For the argument below, it is useful to map out two further pairs of conceptual opposition. In economic sociology, the contrast of formal versus informal sectors is used to distinguish economic activities according to whether or not, under conditions of regulated capitalism, they are performed under supervision, regulation and taxation by the state. On the other hand, the pair-concepts of the first economy versus the second economy were introduced by Hungarian economic sociologist István R. Gábor and, for the last ten years, they have been utilized widely as instruments to distinguish two important sectors of state socialist economies according to whether a particular income earning activity is performed within or outside the planned and/or state-owned-and-state-controlled - i.e., "first" - sector.¹⁰ The relationship of the two pairs of concepts above implies that any transformation of state socialism into state- regulated capitalism marks a large-scale structural transition from the "first-versus-second- economy" contrast to the "formal-versus-informal" contrast. Given the above conceptualization of Kohlism, the abolition of the project of state socialism and the restoration of "straight" semiperipheral dependency presents precisely that transition.¹¹

There is nothing inherent in the conceptual pairs of formal-versus-informal sectors and first-versus-second economies that forces their analysis within the confines of territorial states. Some of new American institutional economic sociology has in fact utilized the formal-informal opposition to capture the socio-economic specifics of cross-border contacts and flows. The rest of this paper will experiment with the use of both the "first-second" and "formal-informal" oppositions as conceptual tools in an analysis of institutionalized cross-border processes, i.e., external linkages. For this argument, formal external linkages refer to those stable cross-border contacts and flows that are recorded, regulated and taxed (that is, in this case, levied) by the state. Informal external linkages stand for contacts and flows across the borders of the capitalist states outside the realm of state supervision, regulation and duties. First-economy external linkages are those that occur within the confines of the "planned" (state-owned) sector of the state socialist economy, while second-economy external linkages are those that take place outside that realm under state socialism.

HUNGARY'S EXTERNAL LINKAGES

Stalinist Linkages

The essence of the Stalinist system of imperial power was state-ization of the means of production, implying the elimination of the formal-informal contrast as such through the obliteration of direct-personal property ownership, coupled with isolationism, that is, the subjection of all external linkages to the state's direct-totalistic control. (Isolationism is thus the extension of state-ization to the realm of external linkages.) Manipulation of external linkages was a central tenet, and a logical condition of the working of, the Stalinist version of state socialism.¹²

The state-ization of all cross-border contacts and flows indicated an imperial effort to re-orient the East-Central European states' linkage structure in a double sense: (a) to cut previous ties with the non-socialist part of the world economy and (b) to cut "horizontal" connections of the region's societies with each other by replacing them with imperial mediation. As a result, East-Central Europe was forcibly removed from its historical focus of dependency, i.e., West-Central Europe, especially Germany and Austria. Meanwhile, organically developed, symbiotic relationships within the region - already shaken by two world wars and the Great Depression - were also broken up as the region's economies came to be subjected to the Stalinist project. The essence of the effort was to focus the external linkage structure of the region's individual state socialist societies on a single imperial center.¹³ The Stalinist period's extreme isolationism implied the denouncement of all "second-economy" types of external linkages as illegal by default. Stalinism represented a gigantic effort whereby all cross-border contacts and flows were either state-ized or banned.

Linkages under Kádárism

The Kádár-period was marked by the large-scale transformation of Hungary's external linkage structure. The relaxation of the previous regime's rigid restrictions on cross-border contacts and flows came to be a fundamental component of the period's soft, "winking dictatorship". The Kádárist compromise, however, did not mean in any way an all-out give-away of linkage- restrictions as such. The new system of external linkages was worked out through conflict and gradual, often very hesitant and lopsided, "reforms" introduced over the entire period of Kádárism.

The transition from the Stalinist linkage system to Kádárism can be summarized, schematically, as a combination of following three main elements:

(1) the partial re-orientation of the state's own external linkages,

(2) a careful opening-up of the first economy towards the European core of the world market and for horizontal linkages with other East-Central European state socialist states, and

(3) a slow and gradual process of extending tacit political-economic concessions - as developed in the domestic second economy - to external linkages as well.

First, the state's own linkages were rearranged. Day-to-day imperial controls over running the local state were replaced by a more efficient, "strategic" regime of control. The occupational military force took a low-key approach and foreign political advisors retreated to broad policy issues and personnel policy. Meanwhile, the state re-established bi-lateral contacts and flows with the neighboring small subject states of the region. Finally, and very importantly, the early 1970's general atmosphere of Realpolitik and détente provided access for the Kádárist state to large sums of state credits mostly from private lenders: between 1970 and 1979, the Hungarian state's gross debt doubled at the speed of every three years, and reached the level of USD 17.7 billion by 1987 (Világgazdaság, 1989 quoting the National Bank of Hungary). In essence, core capital came to valorize Hungarian labor by lending to the socialist state during the Kádárist period.

The intercourse of the Hungarian first economy with formal sectors in the core produced a growing trade in investment goods as well as consumption items. Traditionally strong Hungarian products were re-introduced in West European markets and some actors of the Hungarian first economy were able to modernize themselves from such revenues. The Hungarian economy re- oriented itself towards trade with the non-state-socialist part of the world. The share of hard currency deals in Hungary's total foreign trade increased from its lowest point of 30% in imports and 29% in exports in 1960 to 38% and 39% in 1970, 50% and 57% in 1980 and 57% and 58% in 1988, respectively. (Computed from KSH 1965; 1970; 1975; 1980; 1989a) In 1990, the share of hard-currency transactions in Hungarian commerce climbed to 70% in both exports and imports, (Heti világgazdaság 1991) and reached the level of 100% on January 1, 1991, when non-convertible currency trade was officially abolished.

Cross-border labor migration also emerged, especially from Hungary to the German Democratic Republic and from Poland, Vietnam and Cuba to Hungary, under careful control and close supervision by the state and party organs of the participating countries. Hungarian workers were sent to East Germany with the aim of alleviating some of the structural tensions of the Hungarian industrial labor market and training Hungarian labor in the more advanced East German industry. The bilateral state agreement concerning this initiative was signed in May, 1967.¹⁴ These flows were based on two-year contracts and peaked in 1972 and 1973 with a total of 12 thousand Hungarians working abroad, (KSH 1975b; 1989) most of them in the German Democratic Republic (Hölczl and Szakács 1989). These numbers dropped to 4 thousand by 1981 (KSH 1989). State-contracted flows of Hungarian labor to East Germany stopped by the end of 1983. The total number of Hungarians having worked in the German Democratic Republic under the umbrella of this agreement is estimated at cca. 40,000.

The placement of Polish labor - especially miners and construction workers - in Hungary was agreed upon in foreign trade accords whereby Poland's mounting debt to Hungary would be decreased by the direct exportation of skilled labor from Poland to Hungarian companies. (Even the building of the Hungarian Ministry for Construction and Urban Development was renovated by Polish workers.) In 1985, the number of Polish guestworkers in Hungary reached the mark of 8000. By today, that figure has dropped to about 3000.

The Cuban and Vietnamese arrangements had been of similar character to the Hungarian- East German bilateral state agreement, combined with provisions for training and technology transfer. Between early 1985 and the end of 1987, altogether 3200 Cuban workers arrived in Hungary to work for four years, primarily in the textile industry. Vietnamese workers were also employed mainly in the textile industry.

Polish guestworkers were often better-paid than their Hungarian colleagues - in some cases, four times higher hourly wages were paid to Poles than to their Hungarian counterparts for performing the same tasks with the same intensity (Hölczl and Szakács 1989) - so that a series of shop-floor wage conflicts was bound to emerge, exacerbated by various cross-border trade union conflicts. The presence of the Polish trade union, Solidarity, complicated matters even further. Hölczl and Szakács (1989) present data from three companies that, in contrast to Poles, Cuban and Vietnamese trainees and labor were paid on par with, or less than, their Hungarian colleagues. Their working and living conditions have also been worse.

Labor flows from Hungary to core labor markets, unmediated by the state, were relatively insignificant due to the "short stay versus no return" character of Kádárist travel arrangements: in order to be able to spend an extended period of time abroad, Hungarian labor had to "defect", i.e., leave Hungary with a regular tourist exit visa and claim political asylum in the destination core country.¹⁵ The only notable exception from this rule was a Hungarian-West German intergovernmental agreement signed in the early 1980s. Under this provision, a maximum of 2500 Hungarian workers were allowed to work in West Germany. (This quota was raised to 5 thousand in 1990 and 10 thousand in 1991.) Essentially, this agreement has only allowed for work performed through subcontracting arrangements between a German and a Hungarian company: the worker remained employed and paid by the Hungarian firm. Direct employment in West Germany without the participation of a Hungarian company was excluded from this agreement and had been, until early 1990, technically illegal according to Hungarian law.

The combination of a limited freedom of leisure travel with the state's ban on entering into legal employment abroad precluded return to Hungary until a new citizenship had been obtained. That price was high enough to dissuade much of potential spontaneous labor emigration so that relatively few Hungarians have resorted to this solution, notwithstanding the availability of that option since the gradual easing of exit visa restrictions around the mid-1960s until about five years ago.

By the early 1980s, Hungary had become the state socialist country with the world's highest per capita foreign tourist presence, measured both in terms of arrivals and tourist nights. Hungary's tourism saturation surpassed the mean of non-state-socialist Europe.¹⁶ In 1988, the total number of foreign arrivals in Hungary reached ¹⁷.9 million or, about 1.7 arrivals per capita (KSH 1990).

The presence of a growing number of foreign visitors, especially those with hard currency - note that convertible currency revenues made up about two-thirds of all recorded tourism incomes in 1988 (KSH 1990) -, gave an important boost to the Hungarian second economy, particularly in the accommodation, food, medical and other related service sectors. Those Hungarian dentists, beauticians and hairdressers, for instance, who specialized in providing services to Austrian, West German or U.S. visitors invented a creative way to integrate the informal consumer sector of a core country with the state socialist second economy of semiperipheral Hungary. By the mid-seventies, well over half of the country's tourist accommodation capacity had been made up of private "rooms-to-let" located in housing units ordinarily used as noncommercial residences, often rented from the state at very subsidized rates. In 1989, the share of the non-state-owned, -planned or -run part of the tourist sector was estimated very conservatively at 68.5% of the total room capacity, with 48.9% of the total never registered, regulated or taxed. (Népszabadság 1991) About two-thirds of the country's tourism- related incomes are estimated to have been realized outside the state sector, never entering into the financial channels of the first economy (Népszabadság 1991). State-owned, large hotel and other tourism-related service companies - often joint ventures with multinationals or located at the end of such subcontracting chains - have had a near-monopoly position in the relatively small four- and five-star segment of the tourism market. Meanwhile, the lower segment of tourism services - enjoying incomparably greater solvent demand on part of West-Central European, East-Central European as well as Hungarian tourists - almost completely exited from the realm of the state's structures of ownership, planning, and control.17

On the reverse, the Hungarians' massive "shopping sprees" for consumer electronics and home appliances in Vienna, a result of relatively relaxed travel and customs regulations by the Hungarian authorities, channeled incomes in hard currency from the Hungarian second economy back into the formal and informal sectors of the Austrian economy. Without taking into account Hungary's second-economy types of external linkages related to incoming tourism, it would be impossible to explain the Hungarian travellers' purchasing power that found its outlet in the Viennese retail sector. This process accelerated and took near-unmanageable dimensions between early 1988 and late 1989.¹⁸

Results of a survey taken among the Hungarian visitors of Vienna during the peak of such flows indicate that nearly half of them did not stay overnight in Austria (this is an indirect sign of a focus on short shopping trips) and more than 50% marked "shopping" as the first purpose of their trip. (Boosted sales statistics in Vienna and elsewhere around Austria's Hungarian border substantiate this conclusion further.) Over half of the Hungarian respondents had visited Austria at least four times by the time of the survey. This is all the more remarkable as the mean gross income of Vienna's frequent Hungarian visitors from the Hungarian first economy was less than USD 160.00 monthly - approximately the equivalent of one-third of the Austrian minimum wage at the time. These data suggest the existence of a very sizeable group of Hungarians with an acute interest in the small-scale importation of consumer items from Austria through at least partly informal channels and access at least partly to hard-currency incomes from the Hungarian second economy. (After Böröcz 1989a) Much of Austro-Hungarian tourism between the late 1970s and the late 1980s had been based on close "vertical" external linkages between the Hungarian second economy and Austria.¹⁹

In a parallel development, the "horizontal" ties of Hungary's first and second economies to the first and second economies of the neighboring state socialist countries have also increased during the Kádárist period. Aside from bi-lateral trade between companies of the first economy, it was during this period that stable institutional arrangements of what has been sarcastically called in Hungary the "COMECON-markets", have emerged. Mainly Polish, Czechoslovakian and Hungarian citizens invented this trade institution - the petty smuggling of licit and, very rarely, illicit, commodities. This trade was based on three conditions: (1) the complementary character of some aspects of the region's economies, (2) country-by-country differences in the structure of subsidies on various groups of commodities resulting in substantial price inequalities, and (3) the rigid, inflexible nature of "official" CMEA-trade that was unable to account for market pressures resulting from the first two conditions.

By the end of the period, mainly Polish travellers - many of them guestworkers in Hungary and, thus, intimately familiar with arrangements in the domestic second economy as well as dynamics of market demand - established themselves as a firm segment of discount consumer supplies in Hungary's second economy in commodities ranging from children's shoes to small machine tools, from linenware to automobile parts, and from hard liquors to hard currency. On the reverse, Yugoslav citizens of Voivodina, Northern Croatia and Eastern Slovenia - along with Austrians from Burgenland - (that is, residents of the regions next to the Hungarian border) specialized in large-scale "private" food imports from Hungary. A similar form of regional cross-border integration emerged - under the umbrella of bilateral provisions called "small-border-traffic" - around the Hungarian-Slovakian and Hungarian-Romanian borders. By the late 1980s, the practitioners of these small-scale informal trade linkages were joined by residents of the Western Ukraine shopping for all moveable consumer items in Eastern Hungary. In a similar vein, the Lake Balaton area had become, by the mid-1970s, a relatively quiet meeting point for German families split by the "inner-German" border. Catering for such "family- reunification" holidays emerged as a distinct, stable and institutionalized branch of the second economy of the tourism services sector in Hungary.

Early during this period, the Hungarian Forint obtained the status of an overvalued, "quasi-hard" currency in the second economy of COMECON consumer trade, notwithstanding the Hungarian state's restrictions on the exportation of cash. As a result, it became the only state socialist currency to be quoted at the exchange counters of all major Viennese banks. This author's fieldwork interviews suggest that the Viennese banks' supplies of Hungarian cash had been brought in mainly by Polish travellers, and demand was based mainly on the Viennese lower-middle and working class seeking cheaper holiday opportunities in Hungary - over and beyond the comparative advantages arising from the two societies' income differential that was at five-to-ten times based on the official Hungarian exchange rates. This particular phenomenon indicates the emergence of a fairly complex system of integration between (1) the Austrian formal sector - in this example, the banks and the tourists -, (2) the Hungarian first and second economies - tourist and other service providers in Hungary -, and (3) East-Central European cross-border trade of the second economy type - mediated mainly by Polish travellers.

Kohlism and Hungary's External Linkages

The transformation of Hungary's external linkage structure was an important component of the political transition away from Kádárism. The ongoing metamorphosis of the country's linkage structure implies the following preliminary observations concerning the main components of that change:

(1) the "180-degrees" re-orientation of the state's own linkages by radically decreasing the weight of the Soviet component, by substantially reducing and, at the same time, qualitatively re-defining state-to-state relations with the region's other former subject countries and, most importantly, by insisting on the construction of strong ties with West European core states with an eventual full membership in the European Community as a pronounced objective;

(2) the self-removal of the Hungarian state from linkages between the Hungarian economy and foreign (core) capital; and

(3) the gradual replacement of the first-economy-versus-second-economy opposition with the contrast of formal-versus-informal sectors in external linkages, much to the pattern of other semiperipheries, made possible by the complete abandonment of restrictions on the movement of individuals by most states of the region.

The turn-around of the Hungarian state's own linkages has been occurring under conditions of an external double bind. The removal of the Soviet component of state-to-state linkages has taken place under control by the Soviet component. The decision to perform, and the particulars of, the withdrawal of the foreign troops took place entirely on the foreign occupier's terms. Visa obligation has been abolished for citizens of most European and North American core countries while the introduction of a visa system for Soviet and perhaps other East-Central European citizens is being seriously considered in Hungary.²⁰ The contraction of the Soviet- centered world empire has occurred under extremely peaceful, closely watched conditions in East-Central Europe's Soviet-occupied states so that the eventual formal termination of the Warsaw Pact took place, during the summer of 1991, almost without notice by the region's media. On the other hand, the post-state-socialist political transition has involved severe political violence in both countries of the area (Romania and Yugoslavia) which had had no imperial military presence on their soil at the beginning of the collapse of their party-state-based political institutional system. Of those two, the country that had been the more independent from Soviet controls - Yugoslavia - is experiencing the bloodier and less controllable transition from state socialism. It appears that the Soviet Army has played an important stabilizing role in the period of the post-state-socialist transition in East-Central Europe.

The behavior of the newly-sovereign Hungarian state, for its part, continues to be profoundly influenced by the state's external debt burden,²¹ manifested in strict IMF controls over the state budget as well as major economic policy issues and the fact that the Soviet Union, previously by far the largest export market of Hungarian goods, is practically insolvent while it continues to be the main supplier of such vital energy sources as oil and natural gas to Hungary. It is a sign of the intricate difficulty wherein the Hungarian government finds itself that the maintenance of Hungarian-Soviet trade and the preservation of the USSR as Hungary's stable, strong export market has come to be a main issue of negotiations between Hungary and West European and North American core actors. The energy situation is exacerbated by the fact that Hungary's only non-Soviet oil-import pipeline runs through war-torn Croatia.

As a result of Hungary's domestic capital shortage, legislation providing preferential tax conditions for foreign investors over domestic enterprise, and the Hungarian state's heavy debt burden, there has been a modest increase in foreign direct investment in Hungary's formal sector. Opinions on interpreting the size of that investment diverge: it can be claimed that foreign direct investment - an increase from USD 335.1 million to USD 890.5 million between May 1990 and May 1991 - (Heti világgazdaság, 1991) is in fact much lower than expected-feared by many. The main discernible tendencies of that transition are the following: (1) interest in real estate development predominates over industrial production; (2) investment with the purpose of penetrating the Hungarian and/or East-Central European market predominates over production for core markets; and (3) evidence of the re-emergence of some pre-war linkage patterns can also be detected: some of the companies and private investors that appear with serious intentions of investing in the Hungarian economy are ones that had had significant historical presence in the Hungarian economy. Sometimes what is purchased is the very same company that had belonged to today's "new" direct investor earlier, confiscated by the Stalinist state after World War II. What is common in processes of foreign direct investment in Hungary during the Kohlist period is that foreign capital valorizes Hungarian labor without having to be funneled through the Hungarian state. This leaves for the Hungarian state the task of securing legislative conditions for such enterprise, especially in guaranteeing repatriation of profits, labor peace and infrastructural background conditions.

Although there is nothing in Hungarian business legislation that explicitly forbids direct investment by enterprises from the region's other former bloc-economies - i.e., the emergence of horizontal linkages in this field -, the entire region's endemic capital shortage certainly works to prevent such new forms of regional integration from taking shape. (Political nationalism exacerbates this problem further.) In addition, under economic policy-pressures from foreign creditors, the National Bank of Hungary has recently terminated its practice of guaranteeing the direct exchange of the region's currencies in Hungary - with the Czecho-Slovak Crown being the last one to "fall". This forces East-Central European regional integration to take place with the mediation of one of the three most important hard currencies in this region, namely the Deutsche Mark, the Austrian Schilling or the U.S. Dollar, leaving informality as the only direct source of foreign exchange for travelling final consumers within the region. East-Central Europe's move to "hard-currency-based-external-accounting" has greatly contributed to the collapse of regional trade in the formal sector, given the serious shortage of hard currency all over East-Central Europe. Talks on alternative regional frameworks of economic union - to replace the defunct CMEA - are in an extremely preliminary phase. Political currents and endemic instability are making regional economic integration less than desirable for the political elites of the states that could potentially participate in it.

The emerging structure of informal external linkages seems to be taking a form that is somewhat different from formal processes. Informal linkages appear to involve not only vertical (core-to-semiperiphery) but horizontal (intra-regional) directions as well.

Undocumented labor migration concerns present-day Hungary in two ways: there has been an upsurge in the presence of undocumented Hungarian labor in Eastern Austria and, to a lesser degree, in the Central European countries of the European Community. At the same time, undocumented foreign labor, especially from Romania and the Western Ukraine, has appeared in Hungary's informal labor market. Several open-air marketplaces and public transportation hubs in Budapest have evolved into informal labor recruiting centers of sorts, and the use of undocumented labor is spreading in the urban construction business, in seasonal tourism services and in small-scale agriculture.

The process began in 1987 (Sík, Tarjányi and Závecz 1989; Sík 1991) with the unexpected inflows of Romanian citizens - mostly but not exclusively ethnic Magyars, with estimates of the total number of arrivals between 25 and 40 thousand or, the equivalent of .25% to .4% of Hungary's total population. Members of Romania's Magyar community claimed political asylum in Hungary on grounds of being prosecuted in their own country for their Magyar ethnicity. Most of them received some form of permit to stay. They were rather smoothly absorbed into the Hungarian society which provided them with a textbook example of an "advantaged" context of reception (Portes and Böröcz 1989, p. 620-5), similar to the immigration of East European Germans to the Federal Republic and that of Jews to Israel. Due to the limited convertibility of the Hungarian Forint and endemic shortages of consumer supplies in Romania, their cash remittances are of less importance: it is in direct commodity flows - regular gift packages of shortage items - that family- and kin-based transfers of subsidies have been taking place from Hungary to Romania (Sík et al. 1989, p. 25). The conceptual importance of the inflow of these immigrants - somewhat misleadingly called "refugees" in Hungary - was tremendous: it represented the first social linkage established by external "penetration" during declining Kádárism, that was based at least partly on the formal-informal contrast (over and beyond the "old" first-versus-second-economy distinction).

Very importantly, undocumented labor immigration to Hungary has continued after the fall of the Romanian dictator. This involves even more clearly informal-sector arrangements for additional Magyar arrivals from Romania, those non-Magyar citizens of Romania who had not yet received political asylum in a core country, new Magyar and other inflows from the Carpathian-Ukraine and elsewhere in East-Central Europe - including a few members of the Soviet military who refused to return home with the troop withdrawal -, and a handful of non- Europeans living in Hungary in various precarious immigration statuses ranging from overstayers of student visas to recent arrivals with unsettled claims for political asylum. Given the little recent history of immigration to Hungary, state immigration legislation and policies are indecisive in this regard, especially as far as criteria for granting refugee status to ethnic non- Magyars and legal procedures for obtaining labor permits are concerned. As a result, the new Hungarian political parties' discursive behavior oscillates between all-embracing and all- restrictive rhetoric positions.²² The situation is bound to become tenser with the intensification of labor conflicts in the Hungarian economy and with the impending liberalization of Soviet exit visa policies. An additional development is the replacement of Polish guestworkers with Ukrainians through new bi-lateral agreements and recent inflows of war refugees from Croatia.

Informal petty trade across state borders continues at full force. Ethnicity plays an important part in organizing the specifics of these cross-border linkages: Poles, Ukrainians, Gypsies, Serbs, Croats, Slovaks and Magyars with various passports specialize in different commodities and use different network structures in maintaining cross-border linkages. One possible explanation for the surprising stability of the Hungarian Forint vis-r-vis hard currencies today - with street rates no more than 5% above official bank exchange rates - is the excess supply of hard currency brought in by Yugoslav and Polish travellers based on those countries' "free-market liberal" economic stabilization projects, coupled with additional supplies from the management of the new joint ventures in Budapest who are paid in hard currency, and the depletion of Hungarian demand for hard currency due to decreases in mobilizeable incomes in Forints.

SUMMARY

As isolationism - the totalistic state-ization of external linkages - is a defining characteristic of Stalinism situated in the context of the capitalist world economy, any opening-up of external linkages represents a move away from that model, and particular configurations of external linkages are crucial, defining aspects of any existing arrangement of state socialism. In Hungary, the opening-up of external linkages began early during the Kádár-era. It became a focal point of conflict and an important component of the successive waves of lopsided, "winking" political compromises struck during the ensuing period. The Kádárist linkage structure was characterized by the re-establishment of linkages with the core states under the Kádárist state's control - i.e., the gradual self-removal of the imperial state from the Hungarian state's relations with the West- European core, especially core capital - and the tacit acceptance of a limited system of external linkages outside the planned sector as long as it did not involve direct utilization of labor by core capital through direct investment or labor emigration. Indirect utilization of labor was made possible through mediation by the Hungarian state which successfully inserted itself between core capital and Hungarian labor. The recent move away from state socialism involves the emergence of institutional arrangements aimed to restore direct ties between core capital and Hungarian labor through direct investment and labor migration unmediated by the state, coupled with an attempted 180-degree turnaround of formal linkages. Meanwhile, informal linkages operate on a more even geographical spread than their formal counterparts, involving intra- regional horizontal integration as well as vertical bonds.

The Hungarian society has never, not even during the "darkest" years of the Stalinist period, completely "exited" from the world system. What has changed is the particular conditions of external dependency under which that inclusion has taken place. One of the most important defining characteristics of the move from Stalinism to Kádárism was the re-emergence of external linkages as part of a large-scale series of political compromises between the Hungarian party-state and the Hungarian society. The essence of the Kádárist system of external linkages was the state's strategic focus on preventing the direct utilization of Hungarian labor by core capital by inserting itself in the process. This was much in conformity with the Kádárist state's domestic behavior which was also aimed to prevent capital formation by simultaneously blocking enterprise and tacitly encouraging the funneling of excess money incomes into conspicuous consumption rather than investment. It is this Kádárist compromise arrangement that is being decomposed during the Kohlist transition from state socialism.

The Hungarian case of the transition from state socialism indicates that localized strategies of resistance against the macro-structural process of more direct, unambiguous dependency on core capital, and search for horizontal alternatives, appear largely confined to the mercurial world of informality. A main question of Hungary's post-state-socialist future is whether the powerful informal sector that is emerging there will be of the "flexible specialization" kind - following the famous "positive case" scenario of the Italian region of Emilia Romagna - or the much gloomier "survival" type known from most of the rest of the world.

At the time of their inclusion in the Soviet empire, virtually all countries of East-Central Europe had been more advanced than their political colonizer from the East, and less developed than their neighbors to the West. The region's nearly two-generations-long exposure to political colonization did not transform the fundamental socioeconomic pattern of that equation. With the removal of the imperial component, East-Central Europe appears to be undergoing a process of readjustment to assume a status rather akin to its pre-state-socialist position on the European scene. To the extent that the eastern border of the European Community will soon coincide with what used to be the East-West divide of Europe, the relationship between the East-Central European countries and Western Europe may be increasingly similar to that between the European Common Market and Portugal, Spain and Greece after the abolition of their authoritarian-conservative dictatorships. This implies that the future of the formerly state- socialist countries of East-Central Europe depends on their ability to achieve full membership in the European Community - which would provide them unrestrained access to the world's single largest unified market as well as to some infrastructural development funds - and the degree to which they will be able to work out a viable form of regional integration of their own.

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NOTES

* Address all correspondence to József Böröcz, Department of Sociology, Rutgers University, 54 Joyce Kilmer Ave, Piscataway, NJ 08854-8045 USA. This paper was first published in English as József Böröcz: "Dual Dependency and the Informalization of External Linkages: The Case of Hungary." Research in Social Movements, Conflicts and Change, 1992, 14:189-209. It is reproduced here by kind permission by JAI Press, the publisher of the journal. Earlier versions of parts of this paper were presented at the Annual Meeting of the Hungarian Sociological Association, Budapest, June 24-28, 1991 and in the Program in Comparative and International Development Colloquium at The Johns Hopkins University. This research has been partly supported by the Österreichische Fremdenverkehrswerbung, the Atlantic Studies Program and the Program in Comparative International Development at The Johns Hopkins University, and the Hungarian Institute for Public Opinion Research. The author wishes to thank Endre Sík and Anja Osiander for comments on an earlier version and Ágnes Hárs for assistance in obtaining some of the data on labor flows.

¹Böröcz (1992) offers a more detailed review of previous work on East-Central European state socialist dependency.

²For more detail, see Casals (1980), Böröcz (1989b) and Böröcz (1992).

³It is the moment of the state's penetration into private property relations that positions the state socialist entity in partial antinomy with the world economy.

⁴Military cooperation subsided immediately after the Allied victory over the Axis powers, and antagonistic cooperation was soon established due to strategic nuclear parity.

⁵The term "world empire" refers to the Wallersteinian concept and denotes a politico- economic system wherein multiple states are integrated principally through the power of an over-arching supra-state. The East-Central European imperial arrangement implied the partial displacement of state sovereignty from the local to the imperial center.

⁶This explains much of the confusion of post-state-socialist political and economic ideologies marked, in Hungary's case, by a bifurcation between mythical nationalism versus utopian free-market liberalism, coupled with the absence of any "left-center" ideological block resembling a "social-democratic" welfare-state ideology.

⁷It could be argued that Romania represents an exception from this tendency by never effectively exiting from the Stalinist model of state socialism. Rather than inching towards softer compromises after the Hungarian revolution, the Romanian form of government became more and more rigid and, by the mid-sixties, the country saw the emergence of the harshest form of despotism.

⁸Precisely, Hirschman's definition reads: "I have defined the linkage effects of a given product line as investment-generating forces that are set in motion, through input-output relations, when productive facilities that supply inputs to that line or utilize its outputs are inadequate or nonexistent". (1977, p. 72)

⁹Space limitations forbid the explicit treatment of the important problem of the role of ideas, ideologies, values, information, preferences, tastes, and morality emerging from the contacts and flows to be addressed here.

¹⁰Its significance for political processes and class formation aside, the "first-versus-second- economy" distinction has extremely wide ramifications in terms of the flows of subsidies between various kinds of activities and actors in state socialist economies.

¹¹The implications of the problem of the transition from the first-second to the formal- informal conceptual opposition is, clearly, the most crucial issue of East-Central Europe's economic transition from state socialism. It cannot be explored here. The focus of this paper is on some of the basic implications of this change for external linkages.

¹²This point has been elaborated in Böröcz (1989b).

¹³The obvious failure, and rapid abandonment, of this project had much to do with the relative technological and economic underdevelopment of the imperial center in contrast to its political semi-colonies.

¹⁴Unless noted otherwise, information on state-contracted and -regulated labor flows was collected via interviews, conducted by Ágnes Hárs (Hungarian Labor Research Institute), with officials of the Hungarian Ministry of Labor (earlier, State Office for Wages and Labor).

¹⁵Diplomatic service, trade representatives and employees of a handful of Hungarian companies undertaking investment projects abroad, are exceptions from this rule.

¹⁶Böröcz (1990) reaches this conclusion on the basis of computations with data from Senior (1983).

¹⁷The only sizeable slice of the lower segment of tourism services that remained under the state-redistributive, "planned" arrangement was state-subsidized holiday resorts run, and often owned, by the trade unions under heavy control by the state.

¹⁸Hungarian buses and cars repeatedly clogged up traffic for hours on the roads between the Hungarian border and Vienna. On November 7, 1989 - a state holiday at the time in Hungary, commemorating the anniversary of the Russian Revolution -, the number of Hungarian Christmas shoppers in Vienna was estimated to exceed 1 million (or, 10% of the entire population of Hungary and over 50% of the population of Vienna). As a result, the Vienna City Council had to introduce special measures to handle the flows of Hungarian shoppers in and around the various shopping areas.

¹⁹It is an added irony of the situation that one of the most popular items imported this way from Vienna by Hungarians was a freezer box made in Yugoslavia and shipped to Vienna through Hungary. Notwithstanding the fact that the same product was also sold in Hungary - and that the Hungarian industry had also been manufacturing a freezer of similar or better quality -, it was calculated to be more advantageous to purchase the Yugoslavian-made one in Vienna and to haul it to Hungary on top of small, packed family cars through endless queues at the border customs checkpoints.

²⁰Czecho-Slovakia has recently joined the EC-countries, Austria and Poland in placing restrictions on the entry of Romanians. This leaves Hungary as the only country of the region where Romanian citizens can travel without an entry visa and/or proof of financial support.

²¹Currently, the country's gross debt is estimated at USD 20,258 million or, the equivalent of about 100% of the annual GDP (Werner 1991). Three-fourths of it is owed to private banks which precludes any political re-scheduling arrangement as seen recently in the case of Poland. This represents the highest per capita debt in Europe and the debt service ratio is over 50% of the country's revenues in hard currency (Werner 1991).

²²At the height of the flux of the political transition in 1989, there emerged the idea of establishing a small Chinatown in Budapest by allowing settlement for Hong Kong businessmen and their families who would be expected to settle some of the Hungarian state's debt in exchange.

[Eszmélet, 18-19. - March-June, 1993]

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