Socialism and Prosperity?
By Gabriella Megyesi
Jul 12, 2004
 have been in Canada for just two weeks and already I feel at home. I feel at home not because of the landscape or climate. Nor do I have any family here. But public policy in Canada reminds me of growing up under a communist regime in Hungary during the 1970s.
I recently looked at The Fraser Institute's Economic Freedom Index, which measures the economic freedom of 122 countries (based on the ingredients of personal choice, protection of private property, and freedom of exchange). It revealed that Hungary has been doing quite well since its transition from a command economy to a market-driven economy. Its rating, after stagnating for a long time in the 1980s at 4.8 out of 10, suddenly jumped up to 7.4 in the 1990s due to massive deregulation, privatization, and a free market economic structure that made it possible to have wage incentives. I have seen these changes at work in Hungary's economy and witnessed the beneficial results.
A key reason for Hungary's success and growing prosperity and living standard (5% growth is expected this year) is that people can now own property. The private sector's contribution to GDP has jumped from 10 percent during socialism to 70 percent today due to privatization and massive investments. (Much of this investment comes from abroad, proving that without globalization, we wouldn't be anywhere.)
But Hungary was not always governed by a communist system. Hungary had built a free market system by the end of the nineteenth century. The communist regime, which took power in 1948, confiscated 90 percent of all private property by 1953. This established the communists' complete political and economic control.
When the socialists were in charge, we kept hearing nice promises that EVERYONE would get FREE (or cheap) and GOOD QUALITY goods and services. The only problem was that the three features never worked at the same time. If something was FREE and AVAILABLE FOR EVERYBODY, it was not good quality (e.g., health care, garbage collection, telephone lines, roads, public transport, media, education, etc.). Anyone who has driven an East European car, or worn clothing made in Eastern Europe knows what I am talking about. If something was FREE and GOOD QUALITY, it was not AVAILABLE FOR EVERYBODY. It was only available to those who had good links to the government, belonged to the party, or skipped sleep to be the first in the line the next day. However, even in the latter case, chances were high that those in line would find only empty shelves. You could get much better quality goods in the communist party's shops, not to mention the leaders' houses. Good connections also meant better quality cars, vacations, access to good quality health care and other services. If something was GOOD QUALITY and AVAILABLE FOR EVERYBODY then it wasn't free or cheap. Instead, you had to pay a high price or a bribe for it. Putting some cash into your doctor's pocket in an envelope, for example, was an accepted practice, which exists even today, since the majority of the health care provision is still in government hands.
Shortages and queues were ubiquitous, prevailing in every government sector. Hungarians had to wait up to 6 years for a car, up to 7 years for an apartment, and up to 12 years for a telephone.
On October 12, I read an article in the National Post about the long waiting lists for health care provided by the Canadian government. Medical specialists were particularly concerned; 67 percent of Canadian specialists surveyed said their ability to provide quality care has worsened since 1995, compared with 60 percent of specialists in the US, 49 percent in Britain, 42 percent in New Zealand, and 41 percent in Australia. Yet Medicare in Canada consumes more and more money.
Many people must be wondering why, if government pumps more and more money into health care, shortages and long waiting lists are not decreasing. The answer is that incentives to provide quality goods and services are missing in every walk of government-provided life.
I hear people in Canada complaining about the gap between rich and poor, pointing at the greed of the rich, and crying for fairer or more equal distribution of wealth. Well, examples abound under communism where people had more or less equally cheap housing, cheap vacations, cheap cars, cheap telephones, and even cheap refrigerators. (Maybe this is why Hungarian governance in the '70s was called "refrigerator socialism" or "Goulash communism.") People earned more or less the same, both women and men worked similar hours and for more or less similar wages. Of course there was no incentive for anyone to put their full effort into their work, since no one could earn higher wages by achieving more. People took it easy at work; they had two lunch breaks, five coffee breaks, and 10 cigarette breaks.
Absenteeism and "work-shirking" abounded. Guaranteed employment also resulted in the careless attitude so often seen in shops or in the bureaucracy where customers should have been served, or helped, or just treated as human beings. I remember government-owned shops all over Hungary and Eastern Europe that seemed to have more shop assistants than goods, and customers had no hope of being greeted with a smile. There was a saying: "We pretend to work; they pretend to pay us."
And Hungary is now indeed paying the price: a US $35 billion debt, which the socialist government accumulated.
Hungary's example should serve as a warning to everyone that prosperity depends on economic freedom. Like Canadians today, Hungarians during the 40 years of socialism were promised socialism and prosperity. Interestingly, though, the socialist parts did not prosper and the prosperous parts were not socialist!
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