Postwar Context and Managerial Tasks (WWII to 1956)

By summer 1945, Poland had been doubly wrecked, first by the Nazis, then by the Soviets; Hungary’s largest city was a ruin; and western Czechoslovakia (the Sudetenland) was a site of massive, forced emigration. Keith Lowe pointed out that “in Budapest, 84 percent of the buildings were damaged, and 30 percent of them so badly that they were entirely uninhabitable.”^{Footnote 11} Prague was heavily damaged, but not destroyed. Infrastructures everywhere had been shattered—railways, bridges, telegraph/telephone systems, and electric power plants hammered to bits. Nearly everywhere, factories had been either flattened, emptied of machinery, or left standing, windowless, holding only worn-out or broken equipment. Retreating Germans had routinely dynamited what they could not load on trains and trucks; arriving Russians rapidly looted much of the remainder, filling railway cars with raw materials, machines, finished goods, and components for removal to the USSR, along with the trains themselves. For example, Poland lost ca. 10,000 miles of railway track and 85 percent of its rolling stock, along with agricultural depletions of 2.8 million horses (75 percent of 1939 stocks), 8.5 million cattle (60 percent) and 6.4 million pigs (80 percent).^{Footnote 12} In parallel, Central Europe experienced what Ivan Berend’s 1988 task force on Hungary’s recent history termed “a social landslide at the end of the war.”^{Footnote 13} The Holocaust, plus wartime military and civilian deaths and boundary changes, reduced Poland’s population by nearly a quarter, from 32 to 24 million. Equally dramatic, millions more migrated across borders, voluntarily or under duress. Most of East Prussia’s eight million Germans “escaped with the retreating Wehrmacht”; the rest were soon driven out, making way for two million Poles shifting from territories the USSR had absorbed and at least that many more from “overcrowded” central Poland. Expulsion of Czechoslovakia’s Sudeten Germans (2.2 million) and Hungary’s Saxons (200,000) completed a fierce round of ethnic cleansing, though the Czechs’ removal of 100,000 Hungarians “labeled as fascists” added notes of political reprisal to this grim composition.^{Footnote 14}

It is useful to recall that communist political control did not instantly arise with the Red Army’s arrival in Warsaw, Budapest, or Prague. In Poland, a London-based exile government vied for power with Soviet-backed communists returning from Moscow. The latter soon headed an uneasy “five-party coalition” that outlawed right-wing parties and held a (perhaps-rigged) national referendum on nationalizing heavy industry. The coalition vaporized after the communists swept the 1947 general elections, crushing the Polish Peasant Party and absorbing its membership a year later. Hungary and Czechoslovakia, by contrast, created “genuine democratic coalitions” in which communists initially were prominent, but not controlling. In Prague, President Eduard Beneš restored the prewar parliamentary regime, with communist Klement Gottwald serving as premier. Gottwald triggered a February 1948 crisis—after “communist forces” took control of the police, “non-communist members of the government resigned.” Under pressure from massive street demonstrations, Beneš approved a “People’s Front government,” completing a slow-motion coup that confirmed the Party’s ascent. By contrast, Hungary’s first postwar elections gave rural conservatives in the Smallholders Party 57 percent of the vote versus17 percent each for the Social Democrats and the Communists. CP head Mátyás Rákosi first crafted a leftist coalition, then weakened the Smallholders through rumors of conspiracies and relentless attacks on their leaders. In 1947, the Soviets lent a hand by “arresting and deporting” Smallholders Secretary General Béla Kovács, then provided local communists with “testimony” by Kovács denouncing Prime Minister Ferenc Nagy, forcing his resignation. This cleared the way for CP political dominance and mass nationalizations.^{Footnote 15}

Creating economic plans for the three nations was a more uniform process, drawing explicitly on Soviet practices, though the pace of industrial nationalizations, and especially of agricultural transformations, was quite uneven. Farm collectivization in Poland, for example, stalled by 1953 and was soon rolled back, creating a mixed sector of private holdings and cooperatives. More thoroughgoing state management of agriculture was achieved in Hungary and Czechoslovakia, with the former after 1961, and the latter after 1968, almost completely nationalizing farmland. State collectives and tractor stations in both countries had consistent problems mechanizing production, not least in keeping powered equipment running.^{Footnote 16} Multiyear and annual plans emerged from central administrative units, which set growth and output targets, amassed resources to be allocated to monopoly sectors (infrastructure and industrial construction, metalworking, mining), decreed work rules, wage rates, bonuses (“premiums”), and sanctions, and most crucially, devised literally thousands of indices to measure performance and outcomes at product, factory, and enterprise levels. “Fulfilling the plan,” meaning meeting or surpassing an index base (100 percent of the target), was everywhere the obligation of management, engineering, and labor. This was one key stimulus toward a communist version of “gaming the system.” At one Czech light bulb plant, planners scheduled production of “one million watts in bulbs” during 1951. Managers chose to meet the goal by making 10,000 100-watt bulbs, rather than a much larger number of 25-, 50- and 60-watt bulbs needed to reach the one million total. The result was a shortage of lower wattage bulbs and a surplus of 100s. At a spare parts and metal fasteners factory, whose planning target specified so-many tons of screws per year, managers, “in order to make things easier for themselves, design[ed] big screws which weighed a lot, but can scarcely be used when small ones are wanted.” The same sort of “norm cheating” was practiced at Budapest’s famed Ganz Electrical Works, where making “small screws, being unfavorable in terms of overall production norms, was entirely neglected.” There, the supervisor, suspended in 1954 “may go to jail.”^{Footnote 17} Such deviations would continue.

Three key levels of management emerged. The central planning cadres were elite clusters of economists, engineers, and Party functionaries who devised “economic management” nationally and in relation both to the USSR and to “friendly” socialist states. They worked toward three not-always-compatible goals: full employment, stable prices, and rapid growth (with rising productivity and living standards). In the first (Stalinist) postwar period, these elites were as gods, at least to those lower in the hierarchy; but when plan failures accumulated they could be and were dismissed (sometimes to labor camps) by disappointed political leaders. Slovak economist Radoslav Selucký credited persistent errors to “the inexperience of new people who fought doughtily for power but could not master the complex problems of running an advanced industrial society.”^{Footnote 18}

Still, state control of capitalist firms was not a novelty in Central Europe. Authoritarian regimes in Poland had created state monopolies starting in the 1920s, extending to full industrial planning in 1936. Both Hungary and Czechoslovakia had interwar, government-approved cartels and experienced comprehensive economic management during their wartime alliance with and occupation by Nazi Germany, including centralization of investment.^{Footnote 19} Hence, at war’s end, surviving state managers could be slotted into leading planning positions, in some cases after cleaning up politically embarrassing résumés.

Nationalizations at the firm level preceded amalgamations of enterprises, by sector, into state monopolies (e.g., food processing, railway supplies), supervised by ministries (e.g., Heavy Industry), and administered by directorate executives. Here the problem of “missing” and inexperienced managers soon became severe, as the newly merged enterprises commonly employed from 10,000 to 30,000 workers at multiple, scattered sites. Outside national railway systems, few Central European managers had ever faced so vast an array of coordination and control challenges.^{Footnote 20} Third, at the factory, mine, and retailing levels, veteran enterprise directors and capitalist owners continued managing, often returning from exile or prison camps to these jobs. Their resumption of authority was frequently a source of contention from “liberated” workers, who rejected restoration of prewar labor relations.^{Footnote 21} With the settling-in of Stalinist centralization, most holdover directors were dismissed as politically unreliable, replaced by Party activists whose credentials for management were slim. As a Czech sociologist later commented: During “the revolutionary change of 1945–48, whole staffs of capitalist enterprises in CSR were [dismissed]. The new workers replaced in many cases collaborators, in other cases special-interest groups of businessmen who had been sabotaging the process of socialization. However, they also replaced old experts. This process continued mostly along its negative lines even after 1948.”^{Footnote 22}

For example, in 1952 at Ostrava, Czechoslovakia’s metalworking plant, where 2,500 men fabricated mining equipment and spare parts, 55-year-old Frantisek Vrba served as general manager. Previously a manual laborer, he had no idea of how to run a big enterprise. The real managers were the heads of production engineering and the personnel department, the last of whom also directed the factory trade union branch. This became routine—a managerial triumvirate including a general director, a head engineer, and a union chief, at least one of whom represented the Party’s interests and used the personnel role to screen applicants and dismiss troublesome workers.^{Footnote 23} The more technically demanding the production tasks, the more significant to successful operations were staff engineers and technicians. Thus in chemicals, pharmaceuticals, machinery and ship building, electrical technologies, and power plants, head engineers (usually not general directors) could turn aside Party-selected job candidates as dangerously undertrained, even though they, like all top factory officials, had been appointed by ministries and could be dismissed at any time. At Budapest’s MAVAG Locomotive factory, each of the plant’s five divisions was headed by a “responsible” non-CP engineer, because the Party secretary could not provide “enough fairly qualified men for these positions.” The chief engineer, Adam Ferro, had worked at Ford in Budapest and had “an excellent technical background.” Similarly at Orion Radio in Budapest, “the whole responsibility lies on the shoulders of Chief Engineer Szelba,” as the figurehead general director was a relative of Party boss Ernő Gerő.^{Footnote 24}

At Ostrava’s metal goods complex, a 250-man security force and a disciplinary court punished slackers or saboteurs. For example, “In March 1952, one Joseph Skoupy, 20, was sentenced to two years imprisonment. The reason: six of 30 pieces made by him were rejected as imperfect,” the fact that he “had received the wrong material” having been ignored.^{Footnote 25} In the Stalinist years, managers too stumbled into such dreadful outcomes. Planners set high goals that simply proved impossible to achieve, especially in manufacturing and the building trades. In Budapest, when there supposedly was trouble with a 1949 USSR reparations delivery of equipment for “180 jamming stations,” Imre Geiger, CEO of the Standard Radio Factory, was arrested for sabotage, together with his chief engineer, Zoltan Rado. After a pro-forma trial, both were executed. As Selucký ruefully observed: “Where there was a shortage of genuine counter-revolutionaries, these had to be manufactured.”^{Footnote 26} Less brutally, after delays in completing the 1951 Brno airport and approach roads, Prague officials cashiered the project’s chief engineers. Firing managers became so common that a bitter joke circulated: “After the sacking of one unsuccessful works manager, a man expressed the opinion that an association could be formed of dismissed managers. A Party secretary replied: ‘This could hardly be done, as mass organizations are strictly forbidden in this country.’”^{Footnote 27}

In truth, “scarcely anybody in the respective government offices knows anything about the real situation of public works. They are flooded with [weekly] reports … which only increase the general chaos.” Construction managers constantly claimed “much higher working results than really achieved,” falsifications too infrequently discovered because ministries and state monopoly directorates had “very few expert technicians.”^{Footnote 28} Likewise at Poland’s Szprotawa metalworking plant, “the office is flooded with papers, documents, reports and statistics. Every head of section or department has so much responsibility and must take so many risks, that most of them after some time suffer from a nervous breakdown and would prefer any sort of manual labor.”^{Footnote 29} After a series of purges between 1949 and 1952 achieved political uniformity, the parlous credentials of replacement plant managers and directors could no longer be ignored. In the mid-1950s, two Slovak commentators scored “the low degree of qualification on the part of our economic workers … only 10% of those employed in management are experts with university education, about 18% have secondary education [only].” Nearly a decade later, a national survey found that “almost one third of the directors of Czechoslovak enterprises and plants … did not possess more than an elementary education.” Its authors concluded, “Many methods of [economic] administration have become established which are stiff and clumsy. … Routine and mechanical ways of dealing with problems … create additional ones, thereby unnecessarily complicating the solution of problems that are already grave enough.”^{Footnote 30}

Relations among central planners, executives in the merged state-owned enterprises (SOEs), and plant managers were at best cordial. As economist János Kornai explained, when reviewing Hungary’s textile, clothing, and shoemaking sectors in the mid-1950s: “The annual plans for enterprises carry no authority. … As soon as these plans are received, they are put away in a drawer.” Their only utility was political, as prods “for mobilizing the workers” toward reaching targets. Equally problematic, the ministries and SOE leaders charged with delivering raw materials routinely failed to do so; supplies were “halting, spasmodic,” in fair measure because, in textiles, 80 percent were imported. (Of course, planners did not have responsibility for concrete operational activities.) Shipping delays, currency exchange issues, and the delivery of materials not meeting specifications made a shambles of plant-level planning in fabrics, apparel, and footwear, as did weak coordination between export trading agencies and producers concerning the details of demand abroad.^{Footnote 31} As a result, managers widely sought to hoard raw materials, to even out production swings, or over-ordered them from suppliers, which unsurprisingly led to the latter’s arbitrary reduction of deliveries, necessary because clients routinely requested 150 or 200 percent of supply firms’ output capacity.

Worse, SOE bosses and economic ministries altered plan targets arbitrarily or sent out sheaves of “instructions”, demanding reports and compliance with adjustments. “In Hungary, in 1952, the then-current five-year plan was changed 472 times, and the yearly plan … 113 times.”^{Footnote 32} The Ujpest Leather Factory (near Budapest) received 102 “instructions” in the last four months of 1955, not counting plan modifications or ministry decrees, “each one of which contains further instructions.” Ministry “inspectors” were another plague, arriving without notice to check on plan progress, absenteeism, or materials inventories. At a Prague apparel factory, Director Karel Vasely “did his best to make the work easier” for its young women sewers, but when supplies arrived, after workers “lacked material for days,” the ministry pressed management “to catch up with the production plan regardless of how hard and how long [workers] had to be bent over the sewing machines.” Such irregularities and extended workdays lowered product quality, of course.^{Footnote 33}

Such events reveal the designed powerlessness of managers in factories, cooperatives, and department stores, enmeshed in a system featuring accountability without authority. As Selucký detailed:

Hence, formally, enterprise managers were structural ciphers, destined to carry out orders from the center in a system that “may function downward well enough, but [in which] there will be no feedback, no flow of information from below.”^{Footnote 35} Hence, “there is a tendency to hang back when it comes to appointments to the posts of chief engineer or director, not to mention the reluctance shown by plant managers when the question arises of ‘promoting’ them to some post in a ministry.”^{Footnote 36} Similarly, avoiding taking initiative toward, or even responsibility for, meeting plan targets, was not unusual. In 1952 the general manager of Chemoproject, at Bratislava, a locksmith with “no formal technical education,” regularly redirected construction projects authorized by Prague to other Slovak enterprises, so as to “escape final responsibility for them,” with the result that his own staff were idle, failed to meet norms, earned no bonuses, and were miserable. They complained to the Party leadership, which promised action, but apparently did nothing.^{Footnote 37}

Elsewhere, meeting targets was could be accomplished through ruses and manipulations, which provided opportunities for sometimes desperate creativity. One remarkable example, among many, must suffice here. In 1953, amid a severe shortage of iron and steel for reprocessing, Budapest’s Iron and Metal Scrap Collection Enterprise, Vapem, received orders to increase output. With the collusion of management, its employees began systematically to defraud their ministry:

The lack of coordination between reports to the Metals Ministry and reports by the Railway Directorate assured the scheme’s invisibility.

Given that central planning was an allocative system and that all three countries faced major rebuilding challenges, construction tasks dominated immediate postwar initiatives, especially in creating heavy industry capabilities through state “investments.” However, construction work sharply differed from making steel rails, machinery, or traction equipment—consider its project structure, constantly shifting work locations, unexpected obstacles, site-specific design changes, and mobile workforces. The vertical power relations governing production, transport, and distribution did not carry over, for construction proved to be regionally organized, locally networked, and essentially unmanageable from the center. Controlling budgets, workforces, and schedules was far harder than in factories, as was SOE or ministerial project oversight. For a sense of scale, during Poland’s Six-Year Plan (1949–1955), capital spending on public works, housing, industrial plants, and equipment “gobbled one quarter of all national income”; by contrast, construction in 1948 represented 4.2 percent of U.S. GDP.^{Footnote 39} More concretely, “every Pole gave up from one to two months’ earnings a year for capital investments, not counting tax deductions, compulsory state bond issues, and other devices” that also amassed funds for state projects. The result: by 1955 some 12,000 factories sprouted, “the foundations for an industrial economy were laid,” with annual steel output more than doubling to five million tons (1949–1956).^{Footnote 40} Still, the chaos this process unleashed provided a bracing and too-rarely-appreciated counterpoint to rational “planning.”

The key to appreciating how vexed construction sector performance was lies in the way “investment” was conceptualized and implemented.^{Footnote 41} In central planning, supply and distribution practices displaced market means for determining where and how much capital would be devoted to building, equipment, and repairs across the economies. In the first postwar period, planners designated an annual total for investment funds, ministries and SOE directorates determined where to distribute them, and enterprises devised specific projects to utilize their shares. General managers then contracted with state construction directorates to undertake the work, which the directorates farmed out to regional builders. Thus, as with much else, investment flows were top-down. Enterprises did not generate proposals to compete for funds, but did seek to increase their yearly allotments. Moreover, investment funds were “free money,” granted without interest, required to be spent over a project’s term, and loosely supervised. Bela Czikos-Nagy explained: “[B]y eliminating the private ownership of capital and land, these production factors will be available to society at no cost. According to this concept, the use of collective capital, land, mining products, and other natural resources is free. New investments, too, are granted without the obligation of repayment.”^{Footnote 42} Annually, state planners created a new funding pool; annually, thousands of new projects commenced. The positive side of this exercise was that reconstruction was rapid and construction employment soared, helping all three nations achieve full employment.^{Footnote 43} The problems, however, were many, including delays, fraud, waste, design errors, materials glitches, porous controls, poor quality results, and, most painful, long lists of unfinished and abandoned projects.^{Footnote 44}

As one Polish commentator explained:

Hence, the debacle in erecting the Gdansk Trade Bank, “which had to be rebuilt three times at the cost of three million złoty” (roughly $250,000 in 1951), is understandable. Construction planners failed to “provide for the entire administrative section and a whole wing had to be added.” Walls, as designed, were “too thin” for the weight they would bear. Fortunately, these adjustments and others were retroactively approved by “control commissions” sent to inspect the work in process, and no one went to prison.^{Footnote 46} Thus actually, “the range of discretion of managers was much greater than the legal provisions suggest[ed], since the planning procedures and controls were relatively new and imperfect and managers were forced to improvise when plans went awry.”^{Footnote 47} Of course, having to improvise meant taking risks, yet another reason for managers to shift responsibilities, avoid difficult projects, or seek covert workarounds.

A crucial shortcoming of first-phase construction planning routines was their failure adequately to anticipate systemwide demands, particularly for electricity. Hungary’s Agriculture Ministry commissioned scores of tractor stations in 1950–1951, but builders soon discovered that the stations “would not receive electricity for several years,” obstructing maintenance and repair. This slip triggered plan revisions; later stations were placed only where electricity was available, but often this was not where the tractors were needed. The reporter concluded: “A person outside of Hungary cannot possibly visualize the chaos existing in connection with [this] construction work, … originally planned to be completed in 3–4 years. As the years pass the plans were being constantly changed, and not a single station was, in fact, completed.”^{Footnote 48} Later writers agreed: “At present [1954] the hardest problem of the country is electric power. The use of electric light is restricted … but [this] does not help industry to any extent worth mentioning. Last winter a number of the factories worked at half their capacity owing to the shortage of electricity.”^{Footnote 49} Or, “When the ambitious plan for the industrialization of Hungary was undertaken, the planners seem to have overlooked the problem of electric power. This has been the greatest bottleneck.”^{Footnote 50} This was another source of anxiety for enterprise managers, as power outages made plan fulfillment even more elusive.

Czech economist Ota Šik, in a televised 1968 lecture, summarized the dilemmas of first phase construction directorates:

With floods of new projects budding every spring, construction managers walked away from half-complete jobs to start new ones; hence, “enormous resources of materials and human labor have been frozen.”^{Footnote 52} This opened the way for enterprise managers to improvise in getting the “finishing work” done, redirecting sums in construction budgets toward the informal or “second” economy. Enterprise workers were paid to hang doors or connect electrical outlets; quasi-legal outside contractors completed water piping and installed toilets. Comparable “arrangements” operated widely and quietly through the economy, as they were essential fixes for holes in the planning fabric.^{Footnote 53} Central European communism indeed was, as Selucký noted, “a system that worked, more or less”;^{Footnote 54} but it truly needed to work more effectively to sustain its jerry-built socialism. Thus, appropriately, a wave of reform initiatives emerged after Stalin’s death, with uneven effects across Poland, Hungary, and Czechoslovakia.

Interlude—The Mid-1950s Crunch

In 1956 Stalinism crumbled in Central Europe, following Nikita Khrushchev’s revelatory “secret” speech at the CPSU’s Twentieth Congress. Well, not exactly. Removing Stalin’s halo three years after his death hardly removed his adherents in multiple, increasingly troubled regimes. However, it did embolden disgruntled citizens to challenge state power in ways unthinkable in the first postwar decade. Preparing for their own 1956 party conference, Czechoslovak communists expressed publicly their “exasperation with the apparent incompetence and insensitivity of central planning bodies.” Planners demanded far too much paperwork, continually changed their guidance, and meddled in operations “at too detailed a level.” Moreover, their investment policies could not “prevent manufacturing industries being built up without any certainty that markets could be found.” The result was the Rozsypal reform, which economic managers drafted to partially decentralize the economy by placing more responsibility on enterprises to improve performance, all the while insisting on “inflexible prices” and retaining priorities for heavy industry, especially metalworking. By 1958, ministries had been reorganized and the grand ambitions of the early postwar era had been set aside, but “actually no essential change was made” in the planning mechanism.^{Footnote 56}

As for Poland, Bolesław Bierut, a former president, reliable Stalinist, and general secretary of the Polish CP, died suddenly in Moscow soon after “the speech.” Party hardliners at home tried to deflect a surge of anti-Russian and anti-government activism by blaming their nation’s difficulties on Jewish traitors and conspirators, but this fell flat. Instead, the regime fractured and de-Stalinizers maneuvered to release thousands of political prisoners jailed years earlier as pro-Nazi (chiefly one-time members of the non-communist resistance). By May 1956 the usually tame press published “blunt attacks on the dreadful waste and inefficiency of the Polish economy,” iconically its Żerań auto plant, where every car cost 50 percent more to produce than its selling price. A Poznań upheaval soon blew the lid off, as 16,000 men at the Stalin Metal Works struck in June, after Warsaw administrators’ dismissed their demands for wage hikes, the suspension of increased work norms, and refunds for improperly deducted taxes. Their spontaneous march to the city center turned nasty after a rumor circulated that their negotiators had been arrested. When part of the crowd besieged the headquarters of the despised secret police (Urząd Bezpieczeństwa; U.B.), officers inside responded first with fire hoses, then with bullets, provoking unholy mayhem. Warsaw soon ordered “special security troops” to restore order, which they and their tanks did, after more than fifty deaths, with hundreds wounded. Frightened Party leaders’ desperately blamed “imperialist agents” for the debacle, rather than acknowledge planning-induced poverty and official boneheadedness.

The Central Committee switched tactics in late summer. It restored former First Secretary Władysław Gomułka, once jailed for political heresies (1951–1954), to Party membership and then to his erstwhile post; but the summer turmoil had unsettled the Soviets. Before taking office, Gomułka had to deflate a possible invasion, something achieved in a perhaps-romanticized, all-night-long, face-to-face confrontation with Khrushchev, Anastas Mikoyan, Vyacheslav Molotov, and Marshal Ivan Konev (October 19–20, 1956). Before dawn, the parties agreed that Poland would cease overt anti-Soviet activities and in return would secure “internal independence” from Soviet intervention. The first evidence of this freedom came immediately; Gomułka declared that agricultural collectivization would not only be halted but indeed reversed. Within a year, 85 percent of Poland’s collective farms were “disbanded” (and the U.B. was “liquidated”). However, there was no broad economic reform—just a vague pledge of greater democratization. Although Poland nurtured accomplished socialist economists, work by Oskar Lange, Michał Kalecki, and Włodzimierz Brus had its chief policy influence elsewhere, not least in Hungary.^{Footnote 57}

As in Poland, Hungary’s 1956 uprising commenced with state security police (ÁVH) firing on a demonstration, but it had stemmed from many sources, including low wages, stagnant living standards, pervasive shortages, ideological rigidity, and an unresponsive “apparat.” That October, Ernő Gerő’s government collapsed, and spontaneously formed militias attacked Party and ÁVH facilities, welcoming police and soldiers to their ranks. Two weeks after backing away from a clash with Poland, the Soviets’ Marshal Konev invaded Hungary, displaced the rebels’ provisional government under Imre Nagy, and seated Party First Secretary János Kádár in the prime ministerial chair. With perhaps 10,000 dead, more than 25,000 imprisoned, 200,000 streaming into exile, and the army purged for disloyalty, the nation was shattered, as in 1944–1945. Overlooked in the international opprobrium leveled at the Kádár regime was its pledge to rework economic relations and improve everyday life, even as it thoroughly crushed political opposition. Thus, economic reforms, which fostered a relatively flourishing economy into the 1960s, followed the destruction of all initiatives for political change.

As Berend’s 1988 team concluded, Hungary’s planning policy changes reflected “criticism of earlier practices … which were reluctantly and hardly ever publicly called Stalinist.” They included “giving up industrialization at the expense of living standards and supplies, one of the most important factors in the storm of mass uproar against the regime.” This materialized in a roughly 18 percent wage increase (1957) and “a moderate but constant improvement of living standards” thereafter. A renewed emphasis on agriculture, including subsidizing cooperatives and collectives, rapidly expanded grain and meat output, with food shortages ending by the mid-1960s. On balance, though, “the post-1956 corrections in the system of command planning did not work.” Heavy industry investment did slow, and infrastructure spending remained “disproportionately and unjustifiably pushed to the background.” Road and rail transport, communications, and electric, water, and sewer facilities lagged badly. As well, the “frozen capital,” trapped in unfinished projects and useless, low-quality goods, accounted for 7 percent of “national revenues” in the mid-1960s, double the state’s military expenditures. This “planning and management system, maintained for a decade after 1957, [plus] the rejection of a genuine reform, and the complete lack of change in the economic institutional system,” assured “the continuity of the Stalinist economic model.”^{Footnote 58} A second major reform came in 1968.

So in the wake of the mid-1950ss crises, there was cosmetic reform in Czechoslovakia; resurgent national communism and agricultural revisionism in Poland; and a better-wages-and-consumer-satisfaction strategy in Hungary that, while augmenting food production and underfunding infrastructure, left the first era planning system in place. Still, now there were divergences among three nations whose business and planning systems had marched nearly in lockstep. In agriculture, for example, the Czechs would complete full collectivization, Poland reverted to a quasi-market supply network centered on co-ops, and Hungary sponsored a shadow collectivization that preserved family farms and private livestock ownership. Other trends toward individuation paralleled these (for example, differential dependence on materials and goods from the West); but in all three states, managerial competence became gradually more essential than political enthusiasm and connections.

By the sixties, products from a range of high-profile SOEs reached Europe-wide standards of quality, a substantial achievement given 1945’s fields of rubble. Deeper system deficiencies threatened such advances, however, notably structural “biases” toward overinvestment in familiar targets or against the risks of experimentation and the disruptions accompanying adopting new technologies. Central Europe’s awkward, uneven take-up of digital computing would be one consequence. As digitization gathered speed in the advanced capitalist world, gaps widened with the “actually existing” socialist republics and among them.^{Footnote 59} As well, commitments to full employment and labor-intensive operations, along with managerial incentives to enlarge workforces, had exhausted the employable populations. Hence, installing labor-saving technologies beckoned as the path to lower costs, higher productivity, and export effectiveness.^{Footnote 60} Managing communist businesses in the 1960s was no longer accompanied by fears of prison terms; but as enterprise challenges got tougher, finding a quiet niche where tried-and-true routines were not threatened proved harder and harder.

Stumbles and Successes in the 1960s

Given the above-noted divergences, this section will spotlight each of the three people’s republics in turn, starting with Czechoslovakia. Shortly after the 1968 invasion, Jaroslav Jirásek, director of Prague’s Engineering Research Institute, reflected critically on his nation’s economy:

In 1963 Czechoslovak national income actually dropped, so with the 1964 upturn came recognition that growth was not automatic under socialism and that substantial economic restructuring had to be considered. Two related issues beckoned: the necessity of “intensive” economic methods, underpinned by labor-saving technology (from turret lathes to adding machines), which would force layoffs and factory closures; and the overhang of obsolete equipment everywhere, which would demand massive inputs of replacement capital. On the first count, during 1964, planners announced shutdowns for 2,700 mostly small “production units,” due to gross inefficiency and persistent losses. Their 83,000 workers would relocate to new, technology-intensive plants. Two years later, more than half of these targets were still operating (with 50,000 workers), as the question of where to reassign the labor force could not be solved.^{Footnote 62} Not only had the new plants not been built but also the machinery problem had become acute.

Appropriate, advanced equipment could readily be obtained from West Germany or France, but only if paid for with scarce “hard money,” as the koruna (Kc, crown) was not a convertible currency. (Refusing convertibility was a strategy Soviet bloc states used to insulate their economies from importing capitalist-world inflation. Keeping prices stable also was a fetish for decades.) Sadly, a 1964 survey of Czechoslovak shoemaking showed that 40 percent of all machines “would need to be discarded by 1970, but authorities had no idea … how to replace them.” In textiles, 7,000 nineteenth-century looms were still running, whereas over 60 percent of food processing equipment was “worn out.” Because of frequent breakdowns in manufacturing facilities, “maintenance alone claims 300,000 of the not quite 1.9 million workers employed in industry.” Capital spending was heavily biased toward new construction, not machinery replacement, while machine repair was specifically excluded from investment expenditures.^{Footnote 63} Hence, in this stalemate, senior planners announced that the best prospect for technical upgrades lay in “substantial state loans from advanced Western countries,” an impossible task given domestic politics.^{Footnote 64}

So, what were Czechoslovak enterprise managers doing, facing such situations?^{Footnote 65} For the most part, they fought reforms that would add to their risks and responsibilities, such as undertaking market surveys and creating advertising or initiating independent import–export units, even as foreign sales became crucial. Concerning marketing, Josef Polacek noted that since 1938, “our advertising stagnated and held itself merely on the sideline of business activity. The attempts to kill it alternated with the ones to revive it.” Writing just before the Soviet invasion, he celebrated the “few veterans” and “new enthusiasts,” but castigated “the mass of uncrystallized, often groping officials and artists who have gotten into advertising through various twists of fate, often against their will.”^{Footnote 66} Meanwhile, managers plowed ahead with efforts to meet (or just barely exceed) plan quotas, whether or not their products were in demand. Indeed, a Polish visitor noted that though Czechoslovakia’s “national income” rose by 15 billion korunas in 1967, of this gain, some 11 or 12 billion “were accounted for by production which remained unsold (increase in stocks). … Foreign trade made no contribution to alleviation of the situation.” RFE researcher Harry Trend confirmed this, adding, “accumulated unsold inventories were valued at 200 billion crowns, a sum equivalent to the entire Czechoslovak national income in 1967!”^{Footnote 67} Construction operators continued to overbill, “lose track” of materials, and manipulate the system—by collaborating with clients to generate invoices “for work not done” plus materials and overhead, which helped ‘”fulfill” the planned output targets, or by selecting only jobs “involving high consumption of materials and a relatively small proportion of wages,” so as not to exceed wage budgets while rapidly reaching “total value” goals, thus protecting bonus payments.^{Footnote 68}

Not all was grind and grab, however. At Czechoslovakia’s biggest industrial firms, and in the related metalworking, machinery, and machine tool trades, managers took seriously reforms that increased their autonomy. Moreover, within one of the giants, a budding electronics unit innovated briskly, in part by cheerfully breaking administrative rules. Here, pace Jirásek, creation ran ahead of distribution. In this scrum, an industrial elite emerged, a set of firms and managers who stepped past indifference and risk aversion. This was not random. In light industry, extraction, and agriculture, long starved for capital allocations, plodding along was a standard management motif, and corruption was a routine means for coping. However, in large and technologically demanding enterprises, particularly in metalworking and electrical domains, managers benefited from “top-down financial support and extreme vertical integration, [which] facilitated close collaboration among researchers, engineers, designers, and machine builders and users.”^{Footnote 69} The result was world-class product lines, sustained innovation, and effective export ventures—insufficient to raise all boats, but not negligible either.

In 1967 a delegation of Hungarian engineers toured a dozen “heavy industry” plants in Czechoslovakia and reported their impressions in the technical journal Gépgyártás-Technológia (Mechanical Engineering Technology). At the Škoda Works in Plzeň (Pilsen), they found nineteen sprawling factories, connected by extensive bus routes, employing 60,000 workers in assembling locomotives, buses, trucks, automobiles, turbines, heavy machine tools, and “atomic reactor equipment.” Management had made significant “organizational changes” in the previous year. “The centralized main sales office was dispersed and now each production branch has its independent sales office. … Directors of independent units are authorized to contract sales and have their own budgets.” They needed only a general manager’s authorization to exceed limits, not the ministries’ assent.

By 1969, 57 percent of Škoda’s “economic management workers” had taken business or study trips to other socialist countries, 34 percent to capitalist countries. Only one worker was a woman.^{Footnote 71}

At Prague’s TOS-Hostivar machine tool plant, the Rozsypal reform was having worthwhile effects. The company had reorganized tool repairs “according to specialty,” with its team overhauling all the nation’s grinding machines, its production specialty, as other enterprises focused on rebuilding “lathes, milling and boring machines.” Here centralization and decentralization fused with entrepreneurial ventures, in a nationwide scheme for distributing tool rebuilding by machine type. At TOS:

Strojimport was the republic’s dedicated machine tool export agency, tasked not only with “the development of foreign markets” but also with sharpening effective operations at tool building plants. Its general manager, Luděk Kratochvíl, in a 1969 interview, stressed that the company needed “skilled experienced workers for assignment to posts as technical managers,” so as to improve the “technical services we extend … to customers.” Strojimport did face challenges on the production side, in 1968 having lost “orders totaling three million dollars … owing to [builders’] absence of flexibility and adaptability to the requirements of the foreign customers.” Kratochvil’s goal:

Strojimport managers were indeed ambitious. Within five years, after sponsoring “a party of 26 executives from leading UK engineering companies on a visit to four machine tool factories” in Czechoslovakia, and after copying Japanese examples from Mitsui, Mitsubishi, and Sumitomo, they mounted a London rollout exhibition of twenty tools worth an estimated £350,000, including fourteen models “not previously seen in the UK.” Peter Long, a British tool dealer, welcomed the Strojimport executives: “There are thousands of Czech standard lathes, mills, and drills operating in the UK, and the quality and value for money of their machines is renowned.”^{Footnote 74} Such management practices stood quite some distance from fiddling construction invoices or warehousing ugly cotton dresses.

Comparable capabilities were displayed by forklift manufacturer Desta, in northern Bohemia, slated for closure in 1960 by the Minister of Engineering Industry—that is, until the manager sent to dissolve it led an initially unauthorized turnaround. He “found a number of strengths and business opportunities in the firm with which he was able to develop a committed management team.” Together they undertook “vigorous design development and product upgrading” of the firm’s much-in-demand materials handling equipment. By the mid-1960s, the central government’s Institute for Management^{Footnote 75} required that CEOs and top managers, including Desta’s new boss, undergo six months of professional training. The course covered marketing, accounting, operations research, R&D management, personnel, “international business negotiations … time management and English. Like all the others, Desta’s new manager was then sent to the United States for a four-week study visit.” In 1970, Desta ranked second or third worldwide in the forklift industry, though its aggressive leader was “virtually expelled from the firm by ambitious lower managers” after the Warsaw Pact invasion.^{Footnote 76}

It remains unclear how much the re-Stalinization (“normalization”) of Czechoslovakia affected assertive enterprise managements like these, but the entrepreneurial semi-conductor developers at CKD, in Prague, would surely have had to keep their heads down. CKD was “the country’s second largest industrial concern, after Škoda,” building compressors, pumps, conveyors, electric and diesel motors, and even streetcars, with 48,000 workers and five research institutes.^{Footnote 77} Jaroslav Kolář, deputy manager of CKD’s electronics project, explained its origins in central planners’ 1963 repurposing of an older factory, “switch[ing] from the production of motorcycles to that of semi-conductors.” Electronics specialists had realized that “without mass production of semi-conductive high-voltage parts, progress is simply not possible in our engineering fields.” Hence, the CKD research team, which had been tracking the Western germanium-to-silicon transition, commenced prototyping semi-conductors by 1964 and manufacturing in 1965. Worker retraining was fundamental. Motorcycle “craftsmen and workers used to a production line had to become tool-makers, since each piece produced was in fact a prototype. Completely new production lines had to be built almost from scratch. This we did all by ourselves.”^{Footnote 78} By 1966 the semi-conductor unit was running without state subsidies while cutting wholesale prices by 15 percent a year.

The group took chances, echoing tactics pioneered by Andrew Carnegie and Henry Ford, but in a sharply different environment:

Responding to quickly changing demand was crucial. This necessitated achieving “flexibility, and pay[ing] more attention to merchandising, short-term market research, and long-term market estimates” and less attention to traditional sales planning. For Kolář, at base:

CKD semi-conductor managers inverted standard planning practice by designing and producing for applications that did not yet exist, for “future market capacities.” They could not do this by following the system’s rules. Kolář explained:

Steve Jobs could hardly have said it better.

CKD’s brashness in “disregarding” ministerial rules and controls was hardly general, but enterprise managers’ hostility to their overseers certainly was increasing. In 1969 the “normalizing” administrators introduced a system of ministry-enterprise agreements, “outlining the basic tasks and conditions [for] carrying out plan requirements.” After “negotiations with the general managers in industry, the construction sector, and commerce,” about seventy deals were finalized, but only after the general managers secured clauses promising “an increased commitment on the part of Party functionaries … to fulfill the[ir] obligations.” Previously, ministries had inserted “loopholes” in plan documents, “which made it possible for [them] to shirk their responsibilities with regard to supplies, deliveries by cooperating enterprises, and imports necessary for production.” This had to end. RFE’s Harry Trend summarized: “The distrust of ministries by enterprises has a long history: it is not the result of the short experience with ‘agreements’ since July 1969.”^{Footnote 82} Czechoslovak managers had begun contesting the terms on which their firms would operate, something novel and likely unsettling to directorates and central planners. How that tension played out in the 1970s is, however, beyond this article’s scope.

Poland, vastly more agricultural (over 85 percent of farmland was in private hands in both 1950 and 1980⁸³), encountered distinctive managerial (and political) obstacles in the 1960s, but its planning bungles, construction stumbles, and reorganization initiatives seem more acute than those elsewhere in the region. In 1962, for example, a Warsaw survey reported a massive managerial turnover.

Nothing comparable was reported in Czechoslovakia or Hungary. Most likely, many politically appointed managers had been exposed as ineffectual or incompetent. Still, it had been over a decade since capitalist-era managers had been replaced, so why this wave of dismissals only in 1961–1962? One major background condition had changed. As of 1958–1959, managers would not be evaluated chiefly on meeting plan targets. Instead, major weight would be placed on enterprise profitability, meaning as in the West, whether the value of outputs stood above the cost of inputs (and by how much). Polish managers had no experience with production costing;^{Footnote 85} meeting total value or tonnage targets had been sufficient. Moreover, three early 1960s miseries also exposed managers to criticism and dismissal: quality deficiencies, absenteeism, and worker turnover.

Late in 1961, the Polish newspaper Dziennik Polski (Polish Daily) identified low product quality as “our common nightmare.” Only half the goods manufactured under state price-control regulations met “the quality standard,” making exporting less effective than in Czechoslovakia. Indeed, some plants turned out 90 percent rejects, from foundry castings to women’s wear. Moreover, “foodstuffs, such as bread” were drawing a tide of complaints,^{Footnote 86} unsurprising as 40 percent of Poland’s flour failed to meet government standards. Of nearly 9,000 sausages inspectors tested, “53 percent showed deviations”; among those provided by farm co-ops, the failure rate was 68 percent. Poor-quality metalworking was especially unnerving, given other sectors’ reliance on components. A 1959 analysis acknowledged: “Many complaints with respect to the quality of metallurgical goods are received from the electrotechnical, motor, precision, railroad car, screw and cable construction industries, and the like.” In agriculture, simple tools “such as plows, horse-drawn rakes, threshers, mowers, and even the C451 tractors, produced for many years by ‘Ursus,’ are of poor quality.”^{Footnote 87} To improve profitability, reject levels had to fall and employees had to be both more productive and more careful.

This was unlikely. Industrial workers were often absent and quit rates were high, patterns Western commentators credited to the Gomulka regime’s commitment to full employment and its abandonment of reprisals. For example, in summer 1957, Radio Warsaw revealed a regular 25 percent absenteeism rate in a Wroclaw (Breslau) metal plant, 20 percent in Poznań’s Harvesting Machinery Factory, while the Party newspaper confirmed that daily no-shows in Łódź textile mills averaged 18 percent. In planting and harvest seasons, disappearances were usual on Fridays and Mondays among the “demi-proletariat,” factory workers maintaining a private farm where their families resided. Among city folks, wage competition from part-time work in “the quasi-legal private economic sector” reinforced skipping regular work for better-paid (and untaxed) home, appliance, and vehicle repairs, fueled by “mass pilferage of raw materials.”^{Footnote 88}

As for turnover, the situation was stark:

Personnel managers estimated the per-worker expense for replacing and retraining a “quit” at 3,000 złoty, totaling 1.8 billion złoty annually (at a minimum, as some persons quit more than once in a year). Beyond the expenses, departing workers left projects unfinished, had lower initial output at their new jobs, and often needed time to learn new skills when positions using their current capabilities were not available. (An element of workers’ logic in traveling the Warsaw “route” was that all four plants focused on vehicle or machinery assembly, so that interfirm skill transfers were not a big challenge for experienced line workers or for machinists.) One typical management practice that sent workers out the door was personnel managers canceling or reducing worker bonuses arbitrarily, in the name of “payroll thrift,” even though few proletarians could live on their base pay rates.^{Footnote 90} Unable to solve these and other workplace challenges, thousands of Polish managers lost their places in the early 1960s. From where would their replacements come?

As elsewhere, planners and directorates emphasized management training. In the immediate postwar, due to shortages of professionals, “a hasty training program was started, which included people who did not have even a primary education” but were reliable Party members. Before long, Party “‘Know-nothings’ constituted an overwhelming majority of directors, chief engineers and chief bookkeepers. … The severe economic crisis of the years 1954–56 was certainly attributable in part to incompetent management.” One result was the 1958 creation of Warsaw’s National Management Development Center, which followed a visit by International Labour Organization head David Morse. Industrial employment had soared from 1.2 million in 1946 to nearly three million, yet Polish universities had no adequate management programs (although their engineering curricula were sound), and the informal courses sponsored by institutes and firms proved highly erratic. With a $900,000 grant from the UN Special Fund, the Center sent forty-eight Polish “experts” to six-month management study courses in the West. Another 160 received training in management education by visiting Westerners, including computer basics and instructional techniques, the goal being to develop both professional managers and a Polish management faculty. Supplemented by $3 million in national funds, the Development Center had 1,700 graduates in 1962 and 1963, and 2,400 in 1964 and 1965, while also training instructors for regional units across the nation. As an RFE analyst noted: “The old apparatchiks are still well in the saddle, but the Party authorities are beginning to put professional education before Party membership.”^{Footnote 91}

Polish enterprises still faced more troubles than this growing cohort of trainees could address. OZOS, a massive vehicles tire plant erected near Olsztyn in northeast Poland, which was designed for annual output of two million units (56,000 tons), grandly opened on October 28, 1967. Nonetheless, the chief director acknowledged: “On that day we succeeded in manufacturing only several dozen tires. The actual technological start was delayed by almost three months.” The plant also missed its November–December plan target: “We were supposed to supply 40,000 tires, but we manufactured only 16,000, of which only-one third were fit for use.” Its 1968 output barely reached half of the goal and used just 30 percent of the plant’s production capacity.^{Footnote 92} What was the matter?

First, planners had mobilized the required 2,300 workers from regional small towns; but 40 percent turnover soon emerged, “because the work is done in three shifts, the workers’ families live far away, [and] there is a long waiting period to get an apartment [only 400 workers’ rooms had been built].” A Warsaw reporter asked a local garbage man earning 1,200 zlotys per month: Why would he not take up the plant’s offer of 1,400 zlotys to startup trainees? The reply: “Why for the return bottles that I collect daily I get on average 100 zloty. Well, there are no bottles at the tire factory.” An industrial locksmith had no interest in the new plant, either, due to rotations to night shifts. As well, “when you work on an assembly line, you have no time for a beer break or to smoke a cigarette in peace.” Second, OZOS mangers had been poorly prepared for their jobs—one had years of administrative experience, but in pharmacies; another had been a chemist in a carpet factory. Master craftsmen did better by “learning the tricks of the [tire] trade together with their subordinates.” Overall, though, OZOS could not meet its quotas because its managers were “not ready to start regular production,” and because, once it did start, they could not keep their workers on the job.^{Footnote 93}

Better results could be found in the chemical sector, following investments in and construction of a world-class nitrogen fertilizer plant at Puławy, in the east, using piped-in Soviet natural gas. “The area where the forest was sighing eight years ago is now covered with buildings, machines, and pipes of a total weight of 102,000 tons,” an engineer wrote in 1969. Work on a second facility had begun at mid-decade:

Top managers cut deals with ministries to “issue special regulations” to confirm the second plant’s “exceptional situation,” said Master Engineer Zbigniew Schimmelpfennig. Puławy I and II’s fertilizer output would increase farm yields by 4.5 million tons annually,^{Footnote 95} a result hard-driving engineers achieved by disregarding central ministry controls, as had their comrades at CKD semi-conductors.

If Polish planners sometimes mis-located plants or presented obstacles managers had to steer around, at other times their systems of rules, rewards, and sanctions proved simply perverse and interfirm-relations maddening. These frustrations all intersected at the BZUT heavy machinery factory in Bytom, Silesia. By the mid-1960s, BZUT had specialized in building “standard gear transmission assemblies,” whose prices had been fixed a decade earlier, although production refinements had reduced expenses. By 1965 the plant made “a 20 percent profit” on Model 301 gear sets “for sugar refineries,” and was introducing a larger, higher-power Model 302. Serious difficulties ensued:

This makes no sense in capitalist economic terms, certainly, but the planning paradox shines through when it is understood that BZUT’s plan goal was set in sales value terms, not as in earlier years in physical outputs (tons of machinery). Plan underperformance stemmed from selling better, more powerful, and cheaper gear sets that generated fewer zlotys. “He who produces more cheaply must produce a larger number of items … in order to attain the same total production value under the conditions of differently calculated prices.”^{Footnote 96} Perverse incentives abounded within such planning schemes.

Interfirm relations were more straightforwardly infuriating. BZUT regularly received materials only after delays and always “in amounts smaller than requested.”

In a particularly galling case, BZUT ordered twenty gear-set housings and twenty covers from a supplier, with a ninety-day delivery date for the first ten pairs, nine months for the rest. Instead the contractor shipped fifteen housings and five covers at the first deadline. BZUT could complete only five gear sets, as “10 idle housings burden its materials account.” Worse, BZUT “cannot refuse to take delivery … and must pay for it in full.”^{Footnote 97} Also aggravating were suppliers reaching their own goals by shifting work and costs. From another plant, the BZUT received shafts not forged to the required dimensions.

BZUT managers sought a shift of their production norms away from sales value, so that “undertaking the production of more modern items fetching lower prices … would cease to hit the plant” through plan underperformance, though this would not address perennial “supply difficulties.”^{Footnote 98} As a medium-sized firm (with fewer than 1,000 workers), BZUT did not have the clout to resolve either issue.

Managers at Poland’s industrial giants were also driven to distraction by comparable planning disincentives during the 1960s. Consider Poznań’s Cegielski, with 10,000–20,000 workers building marine and diesel engines, railway cars, and machine tools, and Warsaw’s Ursus, the giant tractor builder. Weight-based pricing for Cegielski’s tools reflected relative complexity: 26 zlotys (zl) per kilo for drill presses, twice that for turret lathes, and half as much again for automatic lathes. However, that ladder failed to reflect the differential labor inputs for the three. With these weight-prices, one hour’s labor realized 80 zl for automatics, 104 zl for turrets, and 132 zl for drills. Drills made profits. Automatics represented progress, but lower returns. Hence, automatics’ share in total output dropped, 1961–1963. As at BZUT, castings and forgings suppliers pulled their overweight tricks, but the effect was more complex, in that Cegielski built sixteen separate types of tools, in many variants, with batch sizes “never exceeding 200.” Managers either had to cover costs for trimming thousands of parts (typically 4 millimeters too thick) or pass them as acceptable if they were not elements of moving or cutting mechanisms. A related struggle unfolded at the smaller BFAT lathe plant in Bydgoszcz, where exports of automatic lathes brought in three times the plant’s average machine tool returns. This generated a battle between the “design office,” which kept pressing for “new improvements in the course of organization of new production,” whereas, “having only the plan indicators which stand for material incentives in front of its eyes, [plant] management tried to prevent this by all available means.”^{Footnote 99}

Ursus, which had constructed trucks and autos under a Fiat license in the interwar years, began developing a tractor line in 1939. After postwar rebuilding, tractors became its specialization, starting with the simplified C-45 (about 100,000, 1947–1956). Larger, more powerful models multiplied after 1956, their success enabling Ursus to “give up” its annual state budget supplement in 1965, as declining production costs “guarantee that the factory makes a profit.”^{Footnote 100} Ursus representatives regularly convened tractor-users’ conferences, at which complaints about shortcomings (e.g., cracking of cylinder blocks) joined suggestions for improvements (e.g., closed, glassed-in cabs). However, before the 200,000th Ursus rolled off the line in April 1968, the proliferation of designs had produced a nagging problem: shortages of spare parts. The parts problem had blown up in 1965, with national television news broadcasting that tractor repairs had stalled because of supply delays. The Ministry of Agriculture then aggravated the bottlenecks with “quite strange, incomprehensible” orders, for example routing some 600 tractors from Poznań to the repair center at Zdzary, which had expected twenty.^{Footnote 101}

The dilemma lay not just in weak planning for spares, nor in the suppliers’ “ugly habit of failing to discharge their obligations,” but fully as much in the sheer complexity of the parts universe. Ursus machines together counted some “34,000 items of spare parts,” proper inventories of which would weigh 100,000 tons, annually replenished by 300 parts-making firms to supply 4,000 clients, chiefly distributors and repair units. In autumn 1964, over 4,800 tractor parts were “reported to be in shortage”; something 12,000 interregional transfers only partly addressed. Ursus had neither the space nor sufficient underutilized tools to recentralize parts manufacture, which is why Poland’s Agricultural Equipment Sales Center had created a contracting network in the first place. Four years later, regional repair shop directors agreed that the famine persisted: “supply clerks … are constantly traveling over the entire country for spare parts.”^{Footnote 102}

In tandem, Ursus management recognized its practices were out of step with rising demands for efficiency, productivity, and profits. Thus, top management undertook a wholesale restructuring in a truly rare communist-era maneuver; in 1967, they brought in the British consulting firm Urwick, Orr, and Partners to install a management-by-objectives operating framework for those in its 750 “management positions.” In the prior set-up, divisions referenced “technology rather than products,” and “production managers did not have immediate control of materials or the allocation of tools.” A core challenge was to “introduce an equal distribution of competent personnel,” so that “there were not operational areas for which no one was responsible.” In a three-year process, Urwick, Orr partnered with an Ursus team, working from six “spacious” offices set aside in the administration building. During the redesign, “many departments were found to be unnecessary,” and others had to be created, especially in design and production.

The process was a “battle with the establishment,” especially with those threatened.

At the micro-level, fear was widespread.

Indeed, he was: “The introduction of the ZPC caused numerous personnel reassignments, which uncovered the incompetence of certain directors and revealed the competence of others.” Overall, though, the reshuffling was far less drastic than the staff had anticipated.^{Footnote 103}

By 1969 Ursus had formed its own team for continuing “the perfection of the plant organization.” Trained by Urwick, Orr consultants (the last of whom left in 1969), the local “organizers are Poles who are presently called ‘Englishmen’ by the working forces.” Word spread of this long-term restructuring effort, and directors from other large firms arranged to visit. “They come, observe, and shake their heads in disapproval.” Expecting a ready-to-install fix, “something that could be easily adopted,” they found instead a program that had to be “adjusted to concrete conditions and continuously perfected” through organizational analysis and extensive training.^{Footnote 104} Polish enterprise management may generally have become more effective than at the time of the early 1960s dismissals, but further improvement looked to be a tough slog.

Last, consider Hungary in the 1960s. Although a major proposal was advanced at the 1959 Party Congress “for improving the work of government and the direction of the economy,” the first fruit of initiatives toward reorganization arose with a 1963 wave of enterprise consolidations, ostensibly to increase efficiency by merging smaller firms. In some cases, this reversed decentralizations undertaken in the 1950s. The Manfred Weiss Steel Works, rebuilt on its Csepel Island footprint outside Budapest, was nationalized and renamed in 1950 after Party General Secretary Mátyás Rákosi. A few years later, the complex was separated into eighteen individual companies, including “the Steel Works, the Tube Factory, the Metalworks, the Motorcycle Factory,” all controlled by a “sectoral directorate.” The 1963 reorganization shrank the number of directorates, a layer of bureaucracy between the ministries and operating units, and reinvigorated an earlier drive to create giant, integrated, and efficient firms. This countermovement had commenced by 1960, but managerial resistance proved partially effective; five directorates survived, overseeing 50 percent of Hungary’s SOE workforce.^{Footnote 105}

Although there were reports of enterprise battles over securing raw materials at this time, the Kádár regime’s emphasis on improving standards of living reduced consumer goods shortages. Still, inventory accumulations (like those in Czechoslovakia) grew by 80 percent between 1958 and 1960, reaching 9.2 billion forints. Ivan Berend noted: “The process proved unstoppable … [a] burden on the country because of the way the economy was operating. This dead weight ranged from ill-cut and thus unsalable, children’s clothing to substandard machines, materials and goods other companies did not want.” As elsewhere, aged technologies delivered quality problems that only widespread upgrades could remedy. Central planners’ indices, “insensitive to technical development,” blocked replacements, as scrapping obsolete machines “would appear in company accounts as a deterioration in performance.” Innovation efforts at foundries and vehicle makers were obstructed as production managers routinely commandeered experimental facilities to achieve output targets. Moreover, the value of incomplete construction projects also continued to expand, reaching 13 billion forints by 1958, more than that year’s entire investment fund. István Friss reported to the Party’s Political Committee that up to 50 percent of radios, shoes, and fabrics were “declared unfit for export” in 1961. The performance deterioration arose because the added productivity new machinery contributed in their first year would not offset book losses from scrapping. Bonuses would thus vanish.^{Footnote 106}

Continuing contests over economic policy stalled substantive change until 1966–1967. Then a widely supported (and again, deeply resisted) administrative commitment emerged to design a New Economic Mechanism, installed as of January 1, 1968, devolving authority to enterprises, implementing guidelines-based planning, reducing the number of indices, and opening the way, very gradually, toward market-based solutions to endemic supply, coordination, and operations problems.^{Footnote 107} The Party’s Central Committee, headed by Reszö Nyers, created a twelve-member “economy advisory body” to examine openings for reform. Its July 1964 report called for a comprehensive review of management, investment, budgeting, technology, trade, and pricing practices, triggering a two-year investigation by eleven “working committees” involving Hungarian Academy of Sciences members and ministerial staffers, all overseen by a steering triad (Nyers and two senior colleagues). With the critical analysis completed by March 1965, the drafting and integration of proposals began, so that “various reform concepts” would be “confronted with each other.” This framework ignored individual attempts in the Soviet bloc to fix agriculture, revise investment policy, or enlarge wage pools. The whole system was to be rebuilt, a project the Central Committee endorsed in November 1965, noting that “the main shortcomings [of the economy] are strongly related to one another [and] cannot for the most part be eliminated other than by interrelated and comprehensive measures.” Party functionaries expressed sustained reservations; some 1,600 of them strenuously objected at the 1966 Political Academy, anticipating that the Party’s “leading role” would diminish. The redesign had as well to skirt very carefully around duplicating innovations created by the pariah Yugoslavs, whose deviations were unspeakable.^{Footnote 108}

As might be expected, managers initially were indifferent, if not hostile, to reforms. As István Garamvölgyi explained at the outset: “Although enterprises in general do want greater independence, in many cases they cling to the ‘guardianship’ of the ministry.” Getting ministry approval for enterprise undertakings had been reassuring; the implications of “independence” were shrouded in uncertainty. Thus, the 1963 consolidations provoked concerns about post-merger efficiency and communications, and the value of administrative restructuring through establishing an “organizing apparatus” within enterprises. A 1964 decree promoted “teaching the science of organization,” including updating courses for current “organizers.” By 1966, restructuring to foster more intensive operations yielded “significant economic results” at the Budapest Chemical Works and the Lenin Metalworks. Over 1,000 “organizers” (Westerners might consider them reengineering specialists) then occupied staff posts across Hungary, half in metallurgical and machinery industries, though how to locate them in enterprise structures was not clear. In a third of fifty plants surveyed, the reengineering crews reported to the general manager, in another third to technical managers (where the work “is distorted toward technology”), and the rest to accounting or operational department heads. Still, this swirling activity demanded “continuing education for managers”; indeed, “this has been the greatest achievement to date of our management schools.”^{Footnote 109}

Yes, “our management schools.” Westerners arriving in Central Europe in the early ’90s seemed to think they were bringing the gospel of management to the needy and unwashed; Easterners at times claimed that all business education there had been sheer indoctrination.^{Footnote 110} Neither explored regional histories, which could have been valuable. Hungary not only had multiple management training sites (in time linked with Polish and Czech developers); but it also had top-notch socialist economists and organizational designers. All were critically involved in preparing for the NEM’s introduction. The reformers first mobilized the Party’s resources to develop and present two- to four-week courses for “county, factory and cooperative party secretaries, council leaders and leaders of mass organizations.” In 1967, some 270,000 Party members encountered “the fundamental issues of the reform” in these sessions. Separately, “2,110 trade union officials and 250,000 other trade union officials and activists” learned of the project’s expected impacts on workplace relations, earnings, and opportunities. Campaigns to engage managers operated in parallel, through the Borsod School for Management Training, the Ministry of Metallurgy’s Dunaújváros Institute, “the Parad training courses of the Ministry of Communications,” and similar venues provided by the Ministry of Heavy Industry and SZOVOSZ (the National Cooperatives Federation). Four-week courses were mandatory for about 1,500 top managers, with “conventional passive methods such as lectures” replaced by active methods: consultations, debates, and role-playing. The curriculum included “the theory of management and organization,” methodological fundamentals, particularly mathematical applications, information systems, macro- and microeconomics, and industrial sociology/psychology. One goal was to overcome the “still widespread view that professional knowledge, ideological stability and certain personal traits are enough for management, and that special management knowledge is unnecessary.” In December 1966, representatives of Hungary’s Federation of Technical and Scientific Associations traveled to Warsaw to learn from Poland’s Training Center for Leadership Cadres, establishing a co-op exchange agreement. In 1967, they confirmed a similar relationship with Prague’s Leadership Science Committee.^{Footnote 111} So, did these efforts make a difference?

Not much, according to László Horváth, a veteran executive in Hungary’s rubber monopoly. Training courses for managers were essential, as “a knowledge of fundamental management theory must be acquired.” Still, “very little of the knowledge imparted at the ‘head-expanding’ sessions can be turned into ready cash.” In part, this derives from deep controversies within Western “management science” that “is yet very underdeveloped. … [L]ittle of it can be used in factory management without the risk of making great mistakes.” Nonetheless, Hungarian management practice was being upended.

Short courses could not deliver such transformations. Indeed, they offered no guidance on managers’ most serious problem: how to deal with workers’ anxieties about change, need for information, and reactivity to “bad news.” Managers “will have to assume greater risk in the hope of better results,” but errors that destroy workers’ bonuses will yield “a strong effort to increase the basic wage,” increasing fixed costs. As carefully as the NEM had been designed, it destabilized a system simultaneously seeking growth and stability.^{Footnote 112}

This was surely confirmed at Fuzfo’s Nitrokemia complex, Hungary’s largest chemical firm (6,700 workers, more than 300 products, from plastic intermediates to insecticides). Orientation toward meeting customer needs exposed weaknesses in the company’s “commercial apparatus.” Nitrokemia created its own export–import department, as urged, but could not solve the problem of collecting and tracking “the necessary information,” given the absence of marketing “experts.” Traditionally centralized, how could the firm allow greater unit independence without threatening “technical standards”? Equally, current administrators coordinating hundreds of products “have hardly any time left for preparing a long term business policy,” something once done at the ministry.

Nitrokemia executives also learned to their dismay that the technical directorate’s “packaging department,” charged with sales promotion, “often advertises items whose production cannot keep up with the demand.” Still, local innovation did take place. Given the firm’s fairly low wages, production managers devised an “ingenious” bonus system: the “ton wage.” With this, enterprise headquarters awarded each factory unit 200 forints bonus for every ton of product completed, which local directors dispensed to the relevant work teams as a productivity reward. At bottom, however, Nitrokemia’s executives largely resumed the ministry’s hierarchical role, just one level down; they had no intention of decentralizing decision making about product selection, investments, or market search. Control released from Budapest’s economic centers just congealed again in enterprise administration.^{Footnote 113}

Several final points will suggest managerial challenges at the decade’s end. Acknowledging the insufficiency of their preparatory short courses for managers, the state created an advanced Management Training Center in Budapest, with permanent faculty (thirty by the end of 1969) using detailed case studies to guide directors in applying management principles. As in the West, creating the case studies was laborious, involving 100 specialists.^{Footnote 114} As well, the space that opened for enterprise initiatives clearly was bounded, most intriguingly in terms of price making. Tasked to increase profits, the manager of Budapest’s United Chemical Works took a radical step—he announced reduced wholesale prices (by 13 percent on “two popular detergents”), so as to increase demand and sales, and eventually profits. Retailers went crazy, denouncing publicizing price cuts as “dishonest” and as undermining their “independence,” a liberty that plainly included absorbing the reduction without lowering shelf prices to consumers. Perhaps a little marketing can be a dangerous thing.^{Footnote 115}

This was surely the case when the Bábolná State Farm got up to speed and broke from agriculture into the service sector. Bábolná had heritage (its “nucleus was created by Emperor Joseph II in 1789” for horse breeding), resilience (shifting from horses to chickens and eggs in 1962), and ambition (becoming one of Europe’s largest poultry establishments by 1969, hatching twenty-two million chicks yearly). It also had a dreadful problem with rats. So did the city of Budapest. So, after having solved its own vermin issues, Bábolná made Budapest an offer it could not refuse. Early in 1971, the city announced an agreement with the State Farm, which would eradicate its two million rats, which annually damaged food supplies at a cost estimated at 100 million forints. The two-year program, which observers dubbed “Rattendaemmerung,” would earn Bábolná 182 million forints, if judged successful. If it failed, Bábolná would be paid nothing.^{Footnote 116}

As RFE analysts emphasized, “without the NEM and its flexible, pragmatic and unconventional patterns of economic thinking and action, the rat hunters of Bábolná could never have appeared in Budapest.” Bábolná took the risk of expending funds and labor without a guarantee, a step toward entrepreneurialism that threatened rival entrepreneurs, the city’s “private rat killers,” individuals earning bounties running 10,000–15,000 forints per month for terminating rats “with poison purchased in the West.” The city took the risk of becoming a laughing stock if the project proved a fiasco.^{Footnote 117} It did not. Bábolná thoroughly whacked the rats of Budapest, reducing the proportion of “infested premises” from 33 percent to 0.1 percent, over the years: (“over the years” because Bábolná secured a series of long-term city contracts, lasting at least until 2011, eventually handled through the company’s Pest Control Center^{Footnote 118}). Bábolná managers also used the NEM to create the company’s own foreign trade arm, exporting its products (particularly eggs) and those of other state farms and importing Western agricultural technology. With a hard-currency credit from the central bank, it bought a $350,000 chicken factory from the United States and $500,000 worth of corn harvesting machinery from Western Europe.^{Footnote 119} Such market maneuvers unsettled Kádár administration traditionalists. Thus, they rolled back much of the NEM in and after 1972, restoring centralization and “control,” even as the global environment was going out of control, with severe repercussions for Hungary and the rest of Central Europe.

Permit Reszö Nyers to have the last few words. Writing to English-speakers in 1969, he explained:

The struggle to “harmonize” plan and market would continue in Hungary until the socialist experiment’s end, but in Czechoslovakia and Poland, such goals were either crushed by conservatives and invaders or were overwhelmed by the vast muddle of contradictory policy formations. Nevertheless, by 1970, socialist managers in all three locales were no longer structural ciphers, even though their increasing responsibilities for creating efficiencies, upgrading technologies, generating marketing and longer-term plans, coordinating supply with product development, and securing capital investment funds remained rooted in the accountability without authority domain, though perhaps modified to: accountability without sufficient authority, skill, and resources. Little did they know that the 1970s would be severely testing and the 1980s a perfect nightmare.