One of the central questions in my inquiry is how individual gardeners’ best practices were preserved and further developed within the structure of a socialist cooperative. I also consider how the Árpád Cooperative used the economic reforms of 1968 to expand its market-share.
In my analysis of the successful transfer of knowledge and processes of adaptation, I devote particular attention to the human factor, taking into consideration both the changing relationship between the leadership and the membership of the cooperative and the formation of a class of managers who had had experiences in the West and had a more open-minded mentality. These factors offer a possible explanation as to why this agricultural community chose the organizational form of a cooperative at the time of the change of the political regime and was transformed into a public limited liability company only a decade later.

Keywords: Hungary, socialist cooperatives, horticulture, adaptation, bottom-up initiatives, agrarian lobby, market reforms, innovation

Árpád-Agrár Ltd. in Szentes is considered one of the national leaders in Hungary in the production of cocktail tomatoes and peppers as well as in the growing of seedlings. Vegetable cultivation is based on renewable energy and the utilization of thermal water and cutting-edge technology. For the purpose of protecting plants, the use of chemicals has been replaced with the use of organic materials.

Immediately after entering the company’s office in Szentes, one notices the certificates, awards, and diplomas from every decade of the enterprise’s existence decorating the walls. The earliest are from the 1960s, from the time of the Árpád Mezőgazdasági Termelőszövetkezet (Agricultural Producer Cooperative).1 The current company views the Cooperative as its predecessor both from the legal perspective and from the perspective of historical continuity. The commitment to this continuity is reflected in the way both the 50th and 60th anniversaries were celebrated.

In this paper, I focus on the socialist period of the company’s history. I begin with a discussion of how “socialist” the Árpád Cooperative really was. How did individual farmers dealing with intensive horticulture and production for the market fit into a socialist-type large-scale organization which at the time was essentially unknown in the world of Hungarian agriculture? I also consider how the Cooperative used the economic reforms of 1968 to expand its market. I make use in my analysis of the official documents of the Árpád Cooperative as well as the press and oral sources.2

Historical Background

The roots reach back to 1875, when Bulgarian gardeners moved to Hungary, or more specifically to the estate of the Count László Károlyi, where they founded a farm of roughly 15 hectares (ha).3 The Bulgarians made sure to settle alongside natural waterways. The major elements of the Bulgarian-type of gardening were the following: careful choice and arrangement of plants, protection against frost, use of hot-beds for seedlings, raised beds for growing, continuous irrigation, and soil treatment. Using these methods, the settlers and their descendants were able to get their vegetables to market before other producers, which led to significant profits.4

Most of the labor was handled manually. For periods of planting, hoeing, picking, and preparation for market, the Bulgarian gardeners hired seasonal laborers. More and more of these laborers learned these unique methods, and over time, vegetable growing in Szentes began to resemble Bulgarian horticulture more and more. Between the two World Wars, specialization became advanced. The production of green peppers and early cabbage varieties came to the fore, and the comparatively small gardens (1–1.5 ha) could produce significant incomes for various families. Before World War II, more than 700 families in Szentes produced vegetables for market distribution.5

In this region, the land reform of 1945 did not cause significant restructuring, as there were no large estates to divide.6 The situation of the local society remained much as it had been between the two World Wars. On the one hand, there was a group of small-plot, market-oriented gardeners, while on the other there was also the continued presence of a large group of landless agricultural laborers.

In the second half of 1948, the forced organization of cooperatives began, based on the Soviet model.7 In socialist agriculture, the place of individual farmers was taken by large-scale plants (sovkhozes, kolkhozes) which were based on collective production. As such, the planned economy, based on mandatory plan targets, was spread to agriculture. The compulsory delivery system and policy of price control ensured that the producer (the farmer) kept less and less of the profits made from the product. This was the antithesis of how the specialized gardeners of Szentes, who produced for the market, farmed. It is not surprising that they did not want to give up individual farming for a collective farming. The other significant section of local society, the landless agricultural laborers, took a different view. They saw the cooperatives as an employment opportunity and thus were the major social basis of the emerging world of socialist agriculture. The first cooperative in Szentes was founded in 1948, largely with the participation of prisoners of war returning from the Soviet Union, which is why it was named “Kalinin.”8

At the beginning of the process of forced collectivization, the leadership of the Hungarian Communist party9 was of the view that three to four years would be enough to force the Hungarian peasantry into socialist agriculture. Due to the resistance of the peasantry, neither the first (1949–53) nor the second (1955–56) collectivization campaigns reached the target goals.10 After the suppression of the 1956 revolution, in its efforts to consolidate its hold on power, the Kádár government abandoned compulsory deliveries and halted the second collectivization campaign. A large portion of the peasantry took advantage of the opportunity to leave the collective, and the number of cooperative members decreased from 343,000 to 119,000.11

While most of the peasantry was leaving the cooperatives at the turn of 1956–57, the gardeners of Szentes decided that they would form a genuine cooperative. On January 27, 1957, 68 gardeners in Szentes established a szakszövetkezet (a sort of cooperative).12 This form of cooperation was quite different from the Stalinist model that was being promoted.13 The new enterprise brought together its members mainly in the areas of sales and purchasing but allowed them to continue pursue their work in horticulture individually. The gardeners of Szentes quickly responded to the new situation, in which they were no longer obliged to make compulsory deliveries of their agricultural products. Thus, the market economy made a partial reappearance in one of the major branches of the Hungarian economy. The gardeners of Szentes hoped to profit directly from these widening market opportunities without having to rely on purchases by state bodies.

After three successful years, however, the members felt that the cooperative was enjoying less and less political support, especially after the third collectivization campaign was launched in early 1959. After lengthy debates, the best path forward seemed to be to transform the cooperative into an agricultural producer cooperative.14 The decision was made at the general meeting of January 27, 1960.15Although they could have joined another existing cooperative, as more than ten had been established in Szentes by this point, they decided to establish their own. This made it possible for them to choose their own leadership and keep control over several other essential issues. The investments of the post-1957 period were not lost, as they were transferred to the collective property of the new cooperative. 78 percent of the members of the earlier cooperative joined the Árpád Agricultural Cooperative.

What was behind the Socialist Facade?

When establishing the cooperative, one of the most important tasks was to prepare the charter laying out the ground rules, which were based on the Soviet kolkhoz legal form.16 For example, the members were obliged to manage their production tools and livestock in a collective form. Another mandatory element was collective labor in the form of brigades and smaller work groups. The cooperative members were given “work units” in exchange for their labor. The “work unit” served as a means of quantifying labor and the foundation of remuneration.17

During the first two collectivization campaigns in the 1950s the Hungarian cooperatives were given a model legal framework (charter) all the points of which were mandatory. On the eve of the third collectivization campaign, the Ministry of Agriculture published a model charter which functioned only as a guideline for basic rules, so it provided a degree of flexibility.18 For example, it recommended the Soviet “work unit” system as the most advanced form of remuneration, but this could be combined with alternative forms of payment. There was also some flexibility concerning household plots.19

The membership of the Árpád Cooperative in Szentes took advantage of this opportunity and enacted 14 modifications when writing its own charter.20 My interview subjects often repeated the words of the former cooperative president László Szabó: “When one can see he needs new clothes, it is best to go to the tailor and have some custom made rather than simply acquire one-size-fits-all, as whatever you get off the rack, it will either be too loose or too tight.”21 László Szabó himself was a successful and respected gardener, and he thus knew that this branch, which required exceptional attention and expertise, could not be transformed overnight into a completely foreign and unknown labor organization.

What did this mean in practice? The Árpád Cooperative organized mandatory labor brigades, but the members continued to work individually in their own gardens and conducted sales collectively. There was thus no labor supply issue for the cooperative, as members could bring in family members who were not members of the cooperative. The so-called family-farmed horticultural brigade was directed by a respected local gardener, Imre Kotymán. The form in which labor was organized was not the only thing which was adjusted to local farming traditions. Remuneration was also revised, integrating the logic of sharecropping, which created clear incentives.22

As part of the efforts to adjust to the main profile of horticulture, an unusual set of regulations was worked out for household plots. Members could choose to request a maximum of 0.5 ha of arable land per household plot. A fraction or complete area of this could be used for gardening, and in these cases, the household plot was calculated based not on area but instead on the number of hot-beds. It is also worth mentioning that the cooperative established a bare minimum number of labor units per household when measuring eligibility.23

In order for the cooperative to be able to adopt this outwardly socialist but inwardly (in terms of several of its elements) individual horticulture system, it had to have the approval of both the city and county party leadership. This was especially significant given that the cooperative president was not a member of the Communist party. The party secretary of Szentes, Sándor Labádi, had a key role. He was present at the cooperative’s general meetings and took a proactive part in the debates.24 With the knowledge he gleaned here, he was able to convince the higher authorities that these local initiatives were not concessions which would allow old-time peasant lifestyles to continue but rather were measures which would contribute to the transformation of the economy. Such local initiatives made continuity in labor-intensive vegetable production possible, and this served the interests of consumers in the cities.25

The reason this line of argument worked was that the same approach was being announced at the time at the national level of agricultural policy by the members of the agrarian lobby centered around Lajos Fehér (Ferenc Erdei, Imre Dimény, Ernő Csizmadia, etc.).26 They supported grassroots initiatives that improved the individual incentives of cooperative members and in turn ensured growth in production. Erdei’s research institute, the Research Institute of Agricultural Economics of the Hungarian Academy of Sciences (in Hungarian, Agrárgazdasági Kutató Intézet, or AKI), had been following and analyzing changes in the local practices of remuneration and work organization for years. Based on their studies, Fehér and his group convinced the political leadership to accept these local initiatives in spite of the fact that most of them deviated from the kolkhoz Model Charter. Thanks to the successful mediation between the party leadership and the peasantry, in the first half of the 1960s, more and more local initiatives were transferred from the category of “forbidden” to the category of “tolerated,” and this significantly widened the scope of action for cooperatives.27

In this atmosphere, after the initial difficulties of the transformation, the leaders of the Árpád Cooperative began to consider the idea of large-scale horticulture. Initially, this was tested only on a restricted area, because they had difficulty convincing twelve people to work on a trial basis for a year. However, the first year produced such impressive results that in the following year large-scale horticulture was implemented on a far bigger area. The expanding area provided ever more opportunities for the use of machinery. The seedling planting tractor and a modern irrigation system became cost-efficient when used on large territories.

As an effect of the improvements in production and higher earnings, large-scale horticulture became increasingly attractive over the course of the next several years. The 60-person brigade was formed into a well-integrated collective. The wisdom of the cooperative leadership is reflected in the fact that they did not try at the same time to eliminate the family-farmed horticultural brigade. In fact, they even offered support to expand it (more land, irrigation systems, etc.). This group also became more efficient and remained an independent labor organization unit within the cooperative. The two vegetable-producing units recorded their costs and production results separately (i.e. independently of each other), but they competed with each other in production and development. The minutes of the leadership meetings indicate a spirit of competition which motivated both units and led to increasingly impressive results.28 In 1964, the Árpád Cooperative began regularly to win prestigious national awards. These awards included prizes won at the National Agricultural Fair for products like peppers, kohlrabi, tomatoes, etc. as well as recognition given by the Ministry of Agriculture.29

The Period of Market Reforms

In the early years, when there was an actual disjuncture between legal norms and cooperative behavior, practices of “creative disobedience” played a key role. They led to visible results which made the Árpád Cooperative a unique phenomenon among Hungarian cooperatives.30 In the mid-1960s, the overwhelming majority of producer cooperatives struggled with start-up difficulties, shortages of equipment and labor, and unwillingness to work. The abovementioned grassroots initiatives facilitated the consolidation process of the cooperatives, but there were many villages and smaller communities where local leaders stuck with the Stalinist rules. In coping with the defiance of the provincial party-state, Lajos Fehér and his network tried to create a legal and administrative environment in which the authorization of local initiatives coming from below would be independent from the attitude of the local party-state apparatus. To this end, they initiated a comprehensive agricultural reform program. 31

As preparations for the general economic reforms progressed in Hungary and the contours of the New Economic Mechanism emerged, the arguments of the agrarian lobby received increasing attention and acceptance. The leadership of the Hungarian Socialist Workers’ Party sought a solution through a new system of economic management, one which combined planned and market economies. In an interview on precursors to the New Economic Mechanism, Economic Policy Secretary of the Central Committee Rezső Nyers indicated that the agricultural reform “had already addressed the questions of the economic mechanism from the agricultural perspective.”32 This is largely explained by the fact that, since the abolition of the compulsory delivery system in November 1956, a significant amount of experience with market incentives had been gathered. Among the many reform steps in agriculture, I will mention here only those that affected the functioning of cooperatives. The cancellation of machine-tractor stations in 1965, the write-off of debt, and an adjustment of the pricing system in 1966 all meant that the dismantling of the Stalinist system of socialist agriculture had begun.33

In the fall of 1967, Parliament accepted two laws which defined the economic and social relations of agricultural cooperatives for the next twenty years. 34 The new legislation incorporated the fruits of successful collaboration between the politicians and high-level administrators in the agrarian lobby and the agrarian economists. Law III on agricultural producer cooperatives aimed to resolve the duality which had arisen from the discrepancy between producer cooperative practice and the legal regulations in force. The abovementioned “tolerated” local practices, especially in the areas of remuneration, work organization, and household plot farming, were finally “legalized” in 1967.35

What did this significant shift mean for the life of the Árpád Cooperative in Szentes? Cooperative president László Szabó summarized this for the members as follows:

In the period of direct control, the state dictated the resources that the cooperatives would receive, specified how much they could produce and what they could produce, and stipulated who they could produce for and what price they could sell at. Whatever income remained was distributed to the members after public debts had been settled. Development was precisely dictated and had to be financed through credit, as the farms lacked their own funds at the time.

Indirect control caused an enormous change, given that within a regulatory framework, the collective’s leadership itself defined what it would produce, and at the time could choose for whom and for what price. Income covered costs, and members were given shares based not only on the proportion of their contributed labor: members could define their development from funds collected from their own income.36

For the cooperative, 1967 was truly the beginning of a new era. This was apparent in modifications made to its production system. Earlier, it had been forced to produce certain products in the name of “the expectations of the peoples’ economy” or “supply responsibility,” regardless of economic common-sense. Had these decisions been left to the cooperative membership or leadership, they would have been made differently. The Árpád Cooperative, which was based on horticulture, had become something of a “variety shop” by the 1960s. The expectation that all agricultural cooperatives produce meat and bread applied to them and to all other cooperatives.

In addition to horticulture, the other two main branches of the cooperative were cropping and husbandry. As of 1968, both could be rationalized in accordance with local conditions. A few plant types that were produced just for “the interest of the peoples’ economy” were phased out of the plant sector. And as pig breeding and shepherding were de-emphasized, the development of turkey and goose husbandry was brought to the fore.37 The guiding principles in the structuring of activities were profitability and increased efficiency. Taking advantages of opportunities in Law III of 1967, the Árpád Cooperative began expanding so-called supplementary activities falling outside its core agricultural activities (e.g., hiring out transportation and producing in-house animal compound feed). The most dynamically growing unit was the cooperative’s construction brigade. While earlier the execution of investments required waiting for state construction firms to schedule, from this point on, the farm provided its own construction crew.38 A 20-hectare greenhouse covered by polyethylene sheets was constructed between 1969 and 1971. In 1972 a 6.5-hectare glass greenhouse area was completed. (Today this is called the “old yard.”) The first modern turkey plant in the Árpád Cooperative was built between 1973 and 1976. In the last third of the 1970s, two large investment projects were carried out. One involved the construction of a 13.6-hectare glass greenhouse yard between 1977 and 1980 (the new yard), and the other was the creation of a new office center.39

Market reforms enabled the cooperative to manage the goods it produced, i.e., they gave the cooperative the opportunity to conduct sales. Corporate clients from this point on had a direct relationship with the cooperative, and the “tutelage” of local councils came to an end. Cooperatives could sell goods produced collectively or on household plots both to corporate purchasers and retailers, food industry companies, and foreign trade companies. This was called the multi-channel sales system. Furthermore, the cooperatives could open their own shops in which they could sell their goods.

In the new economic environment after 1967, the “creative disobedience” of the early years turned into a situation in which the cooperative was technically sticking to the new Cooperative Law but was pushing the regulations to their limits. Below, I will present examples which show why this was necessary.

The Human Factor

The Law III of 1967 created an entirely new situation for the cooperative membership by cancelling the “remainder-principle” income distribution system inherited from the Stalinist kolhoz. While earlier, the cooperatives had only been able to pay their members after they had met their obligations to the state, beginning in 1968, they could count payment for labor during the season as a production expense. Payment, as such, thus took priority over state budget receivables and the payout of material expenses. As a result, for the first time in their lives, cooperative members were paid a predetermined and guaranteed sum and, in proportion with the work performed, were regularly and continuously paid wages. The stabilization of incomes situation increased the attractiveness of the cooperative sector. While in the years of collectivization and even later migration from the agricultural sector was significant, by the late 1960s, the process had reversed and workers were beginning to return to agriculture.40

By the end of the decade, the increasing appeal of the Árpád Cooperative is shown in the fact the farm could hire people for a trial period. 41 After one or two years of employment, a decision was made on whether to offer a given employee membership. (The status of member had several advantages which were not available to employees.) The trial period thus served as a useful filter in the interests of creating a quality labor pool. For this reason, the fact that all cooperatives in the socialist period had employment duties throughout (meaning they were forced to employ all applicants) is worthy of attention.

In terms of the renewal of the labor pool, a new tendency emerged, whereby an increasing number of the children of cooperative members considered joining the cooperative. László Szabó proudly reported on this during one of the general meetings:

[T]he children of the cooperative members are knocking on the door. It is as if the ice has broken, as if they have tossed aside the old habit of the children of cooperative members becoming industrial workers only; they are coming and applying. We accept these young people as members, so that using the property their father gathered they may learn to farm. With the entry of young people, new needs will appear for culture, sports, kindergartens, but in the future we will spend on this from our income, which we earned together!42

Examining the social base of the cooperative, we see that scholarships were offered to those who continued their education in agricultural faculties on the condition that they work at the cooperative after graduating. Young married couples received support to build homes (interest-free loans), and later a separate financial fund was created for this purpose. This all helped ensure that experts with higher education would gladly settle in Szentes. In the 1970s, retiring members who had a past of individual gardening and experience were replaced by young people with degrees from universities and colleges.43

In the 1970s, several cooperatives in the country experienced changes in the post of president. Many of the “founding fathers” with peasant roots stepped away from the position of president at this time, as they felt they could not keep up with accelerating developments.44 László Szabó, who was born in 1910, was able to keep pace, and he surrounded himself with young experts. He was an outstanding team builder. This characteristic is reflected in the following anecdote: during his 25-year term (1960–1985), he was often asked what the secret to being a successful cooperative president was. His answer was, “the most important thing is to make sure that the branch managers do not provoke fights with one another!”

In the 1970s, with a well-trained pool of experts, the Árpád Cooperative entered a new period of growth. Their vegetable production took place in three different types of greenhouses:

• By the end of the decade, the area of its glass-covered greenhouses reached 27 hectares;

• An additional 48 hectares of greenhouses were covered with polyethylene sheets with their own heating systems; and

• 41 hectares without heating systems.45

At that point, the cooperative already had twelve thermal water wells. After the 1973 oil crisis, while energy costs soared, the value of local energy sources increased. These were used in several ways in local farming. Glass and foil greenhouses were heated using local energy sources, as was the turkey plant and, later, the grains drying facility.46

Cooperation in Research, Development, and Consulting

At the time of the New Economic Mechanism, the leadership of the Hungarian Socialist Workers’ Party recognized the necessity of opening to the West.47 Thanks to the agrarian lobby, large-scale agricultural farms played an intensive role in knowledge and technology transfers.48 Hungarian cooperatives adopted industrial-like closed production systems from capitalist countries. After livestock breeding and cropping systems had been transformed, in the mid-1970s, a large number of horticulture production systems also began to undergo change.49

In order to launch effective development within horticulture, three conditions had to be met. Experts familiar with the most up-to-date production procedures had to be available, people were needed who had production experience with new methods, and the sector had to be able to acquire necessary funds. The system organizer accepted responsibility for working out industrial-like technological solutions and continuously developing them. Furthermore, he was responsible for technically adapting the systems for adjoining member farms, in accordance with local conditions. Local expert consultation was also continuously provided. 50

One of the basic conditions for the dynamic development of horticulture production systems was cooperation among people involved in research, education, and consulting. Under the chairmanship of Professor László Koródi, the Department of Vegetable Production at the Horticultural University worked on plant breeding, the training of expert engineers, and the installment of a professional advisory system, which was an enormous boon to transitioning production systems. He worked particularly closely with the Árpád Cooperative.51

The technical development launched in the early 1970s caused deep-rooted changes in production, as the increased use of machinery and chemical materials led to the introduction of new breeds and new agro-procedures. After the end of World War II, the technology of greenhouse construction developed rapidly, especially in the cold countries of Western Europe. The Netherlands turned out to be the market leader. Although Hungarian cooperatives could import greenhouses mainly from East Germany, horticultural experts regularly took part in study tours in Netherlands.52

Cooperation in Sales

As noted above, according to the 1967 Law on cooperatives, the farms themselves chose how to sell their products. Furthermore, cooperatives selling vegetables and fruits were given a free hand in setting their sale prices. A reader today gets a sense of the significance of this by recalling that one of the most important characteristics of the planned economy was the system of centrally determined fixed prices. The New Economic Mechanism reformed this approach by introducing a three-pronged pricing system: prices set by the state were accompanied by prices that could fluctuate within a spectrum set by the authorities and also free market prices, which were determined solely by supply and demand.53

From January 1, 1968, fruit and vegetable prices were also included in the free price category. Numerous barriers to the actual emergence of market logic remained, however. One of the most important of these barriers was the fact that the storage and transport infrastructure remained in the hands of the Zöldért enterprises, which thus continued to purchase the dominant share of produce.54 Prices exercised a defining influence here too. Formally, Zöldért enterprises did not have a monopoly position, but they nevertheless dictated prices, and their profits depended on the price differential between consumer and producer prices, which could amount to a difference of two or three times. Thus, they could generate a significant income by doing nothing more than buying products and selling them to the enterprises with retail networks, such as Közért and Csemege. Their interest was in maintaining this price differential rather than in maximizing sales, and they were protected by their de facto monopoly. Such a system, in which their interests were separate from those of both producers and consumers, was especially harmful in the case of early season vegetables. At the end of the rather lengthy product chain, this system had negative consequences for both producer and consumer, albeit in different ways.

The conflict between the Árpád Cooperative in Szentes and the Zöldért company of Csongrád County would merit a separate paper. In an interview with me, Dr. Sándor Márton, the chief accountant of the cooperative, stated that as early as the 1960s he and other members of the cooperative leadership had advocated for the removal of this unnecessary and costly middleman. 55 As a result of the market reforms of 1968, the legal framework was established, and the leaders of the cooperative launched an effort to attain wholesaler rights. This required finding allies at the highest levels. Imre Dimény, Minister of Agriculture and Food, played a decisive role in this. 56

At the initiative of the Árpád Cooperative, the so-called Early Vegetable Production System was established in 1975. In addition to production, it dealt with several kinds of sales based on common interests. The Early Vegetable Production System of Szentes covered glass greenhouses, heated and unheated plastic foil greenhouses, and early outdoor/open-air production.

Initially, the initiative had two partners. Within five years, there were eight, and two years later, there were twenty. By this point, the Early Vegetable Production System covered three counties (Csongrád, Szolnok, and Bács-Kiskun). It is important to add that the system covered 20 farms and 3,500 household gardens and small-scale producers.57 The Árpád Cooperative played the role of gestor in the Early Vegetable Production System. It provided know-how and the production technology for certain varieties of sprouts to member farms. In order to be able to share the best technology, it established cooperation with the Horticultural University and the Consulting Service of the Vegetable Production Research Institute. The consultants of the Early Vegetable Production System offered assistance not only in the field of production technology adaptation, but also in compliance, with weekly visits to the member farms.58

The integration of production entailed cooperation among the members of the Early Vegetable Production System in the field of purchasing, given that in vegetable production, systems increasing volumes of seeds and consultancy had to be acquired, as did plant protection materials, machinery, and parts.

Regarding joint interests in sales, its essence lay in the fact that the member farms, unlike when dealing with Zöldért, did not calculate vegetables by the percentage of price gap but instead based on joint decisions defining the commercial costs per kilogram of product. They held that the greatest success in their first year was the sale of vegetables for 58 million forints at a cost of only 2.1 million Forint, which represented 3.6 percent of gross value: “those participating in the system had never conducted commerce this cost-efficiently.”59

By the mid-1980s, the Early Vegetable Production System had established contractual relationships with 46 companies and twelve private traders.60 Early Vegetable Production System trucks made weekly deliveries to Szombathely in the same manner as they did deliveries to the ÁFÉSZ chain of shops in Nyíregyháza. The outstanding quality of the vegetables is reflected in the fact that there were private commercial partners who were willing to travel as much as 330 km in their cars from Nagykanizsa to pick up produce.

It is also interesting to note how, in the communication networks of the time (when computers were not in use), it was possible to harmonize the production and sales processes of several primary products. Dr. Miklós Csikai, who directed the Early Vegetable Production System from 1983, summarized this in the following way in an interview:

The branch managers of the member farms met at least three to four times a year for a discussion, the goal of which was to develop the plan for the next year. These are then the circles of customers, which currently stand at several hundred small and large companies, economic units, and stores. In this way, the annual quantities of given products and given cooperatives develop, and the production system ensures them secure sales. Knowing this, the given cooperatives put together their final production plans, with attention paid to the household greenhouse producers with contracts. Everything counts: type, quality, quantity, and time of delivery handled by the production system, but in the meantime they are informed about demands.

The contracts lay all this out in precise detail. Based on them, work begins in the glass and plastic foil greenhouses. Later, throughout the year, they always know precisely how much produce to sell, in which week, and on which exact day.

Every Wednesday at 10:00am, the representatives of the member farms involved in common sales meet in my room and calculate the quantity of goods, with a daily breakdown, which are offered up for joint sale by the various cooperatives. This is very precise data, and that is necessary, as our sales division can only come to agreements with various buyers with this knowledge in hand.61

Before my reader forms a utopian notion of the functioning of the socialist vegetable market, let me note that the “state of war” with Zöldért lasted throughout the period. I offer a few examples of this conflictual relationship. The Early Vegetable Production System carried out significant exports. For example, they controlled 90 percent of all exported green peppers. Produce for export was transported in refrigerated wagons. They were stacked at the Zöldért side tracks by the System’s own workers, meaning the Zöldért employees never touched the produce. However, Zöldért charged a disproportionately high price per 100 kg. There were also constant conflicts in domestic commerce. A warehouse was rented from Zöldért for which the company charged ten times the normal rate. Ministerial mediation between the parties was in vain, and the conflict only began to subside at the end of the 1980s, when the Zöldért company of Csongrád county signed a cooperation agreement with the Early Vegetable Production System. The 1987 agreement laid out the following goal: “with an eye on common interests to create the conditions for fruit and vegetable production in the region, a unified distribution system, and at the same time a more efficient operation of the tools created for this purpose and in the hands of Zöldért.”62 Every word was justified and would have been appropriate earlier as well, but the agreement came too late. The agreement was quickly made redundant by the regime change. In the end, the Árpád farm bought Zöldért’s former facility.

After the Regime-Change

In Szentes, the year 1990 marked not only the change of regime but also a change in the post of president. Dr. János Lóczi, who had succeeded László Szabó in 1985, resigned from his post. The membership elected as president Dr. Miklós Csikai, the director of the Early Vegetable Production System. 63 His leader mentality and approach were of vital importance during the transition. As he explained in our interview, he spent most of 1992 sitting down with people to discuss the future of the cooperative. 64 Based on experience he had gained in the Netherlands, he was able to explain how cooperatives could have a legitimate role in the market economy. The players in horticulture could only reduce their vulnerability to powerful commercial chains and suppliers by working together. Although each member could have claimed property valued in the millions of Forints, in the end, only 27 of the 1,024 members indicated their intention to quit the collective.65 This number meant that an absolute majority of the members recognized that in the interests of the efficient use of accumulated property and employment for about a 1,000 people, they should remain together and continue to work together.

At the end of the 1990s, the Árpád farm underwent another organizational change. Given the agricultural policy climate of the time, those functioning as collectives had limited opportunities. In 1999, the Árpád cooperative, like many other cooperatives, decided that it would transform into a joint stock company.66 A mission statement from this time makes clear the importance of continuity in the value system:

Mission: Our tradition-respecting, capital-strong stock company, with its team of well-prepared experts, will satisfy and meet the expectations of consumers and their needs, serve its partners, stockholders, and employees with forward-thinking, market-sensitive planning, detailed quality work and outstanding products and services.

Vision: Árpád-Agrár Ltd. as a stock company which works in harmony with its environment, respects traditions, has widespread international business relations, and is known in Europe and across the country.

Producing branded products on an outstanding organic foundation, with up-to-date technology, at a world-class level, which meet the strictest food-security standards and consumer demands. From producing basic materials to the final product, with processes built on one another, and with the services we deliver to ensure the full satisfaction of customers and stable and high profits. Playing an integrating role in the region, the company provides a stable living for several thousand families. We serve as an example in our use of high-level horticultural technology which is environmentally friendly.

Responsible and risk-assessing management, highly trained employees, and the company’s retirees are all proud of the Árpád name, identify with its goals, and are satisfied individuals.67

Translated by Frank T. Zsigó

Archival Sources

Árpád-Agrár Zrt. Irattár [Archives of the Árpád-Agrár Ltd.] (ÁAI)

Szentes and its Region Fruit and Vegetable Production & Distribution Cooperative., 1957, 1959, 1960.

Árpád Agricultural Cooperative, 1960–1987.

Árpád Cooperative, 1992, 1999.

Árpád-Agrár Ltd., 2001.

Magyar Nemzeti Levéltár Országos Levéltára [National Archives of Hungary] (MNL OL) Budapest

M-KS-288. f. Documents of the Hungarian Socialist Workers’ Party, 1956–1989

Bibliography

Primary sources

Csongrád Megyei Hírlap [Csongrád County Newspaper], 1966, 1974, 1987.

Gazdasági Figyelő [Economic Observer], 1965, 1971.

Hajtatás, korai termesztés [Propagation, Early Cultivation], 1980.

Pártélet [Party Life], 1963.

Népszabadság [Free People], 1970, 1984.

Fóris, Imre ed. Mezőgazdasági termelőszövetkezeti törvény. Földjogi törvény [Law on collective farms: Law on land rights]. Budapest: Közgazdasági és Jogi Könyvkiadó, 1968.

Mezőgazdasági Statisztikai Zsebkönyv [Agricultural statistical pocketbook]. Budapest: KSH, 1971.

Interview with Miklós Csikai. March 12, 2019. (Author’s files.)

Interview with Imre Dimény. February 9, 2010. (Author’s files.)

Interview with Sándor Márton. August 23, 2019. (Author’s files.)

Secondary literature

Belényi, Gyula. “Az alföldi agrárvárosok mezőgazdasági népességének szerkezeti változásai az 1940-es években” [Structural changes of the agricultural population of the agricultural towns of the Great Plain in the 1940s]. Agrártörténeti Szemle 29, no. 1–2 (1987): 115–39.

Boross, Marietta. “Bolgár és bolgár rendszerű bolgár kertészetek Magyarországon 1870–1945” [Bulgarian and Bulgarian-type gardeners in Hungary, 1870–1945]. Ethnographia 84, no. 1–2 (1973): 29–52.

Bódi, Ferenc, and Ralitsa Savova. “A bolgárkertészek Magyarországon a 19. század végén és a 20. század első felében – környezeti és gazdaságantropológiai aspektusból” [Bulgarian-type gardeners in Hungary in the late nineteenth and first half of the twentieth century – from an environmental and economic anthropological point of view]. Magyar Tudomány 179, no. 3 (2018): 373–82.

Bóth, Ildikó ed. “A hagyomány kötelez!” A szentesi Árpád 60 éve, 1960–2020 [“Bound by Tradition!” 60 years of the Árpád Agricultural Company in Szentes, 1960–2020]. Budapest: Kossuth Kiadó, 2020.

Csikai, Miklós. “Kertészeti termelési rendszerek” [The horticultural production systems]. In A mezőgazdaság szolgálatában: Emlékkönyv Dimény Imre tiszteletére 90. születésnapja alkalmából [In the service of agriculture: Memorial book in honor of Imre Dimény on the occasion of his 90th birthday], edited by Judit Dimény, and Péter Szendrő, 105–16. Budapest–Gödöllő: SZIE, 2102.

Csikai, Miklós, Edit Takács, Pál Kruzslicz, László Kovács, and Zoltán Nagy, eds. Ötven év tükrében: Fotók – dokumentumok – adatok a Szentesi Árpád Agrár Zrt. 50 évéből [In the light of fifty years: Photos, documents, data from the 50 years of Szentesi Árpád Agrár Ltd.]. Szentes: Szentesi Árpád Agrár Zrt., 2010.

Davies, Robert William. The Soviet collective farm, 1929―1930. Cambridge, Mass.: Harvard University Press, 1980.

Erdei, Ferenc. “A Szentesi Árpád Tsz.” [The Árpád Producer Cooperative in Szentes]. Gazdálkodás, 11, no. 1 (1967): 41–43.

Ferber, Katalin, and Gábor Rejtő. Reform(év)fordulón [Reform anniversary]. Budapest: KJK, 1988.

Germuska, Pál. “Failed Eastern integration and a partly successful opening up to the West: the economic re-orientation of Hungary during the 1970s.” European Review of History: Revue européenne d’histoire 21, no. 2 (2014): 271–91.

Juhász, Pál. “Az agrárértelmiség szerepe és a mezőgazdasági szövetkezetek” [The role of the agricultural intelliegentsia and agricultural cooperatives]. Medvetánc 2–3, no. 4 (1982) and no. 1 (1983): 191–213.

Hann, Chris. Tázlár: a village in Hungary. Cambridge: Cambridge University Press, 1980.

Mód, László. “Bolgár kertészek Szentes környékén” [Bulgarian-type gardeners around Szentes]. In A bolgárkertészkedés hagyományai Szentesen és környékén [The traditions of the Bulgarian-type of gardening in and around Szentes], edited by Szabó János József, 27–35. Szentes: Móra Ferenc Múzeum, 2003.

Ö. Kovács, József. “The Forced Collectivization of Agriculture in Hungary, 1948–1961.” In The Collectivization of Agriculture in Communist Eastern Europe, edited by Constantin Iordachi, and Arnd Bauerkämper, 211–42. Budapest–New York: CEU Press, 2014.

Papp, István. Fehér Lajos. Egy népi kommunista politikus pályaképe [Lajos Fehér: A political biography of Lajos Fehér]. Budapest: Kronosz–ÁBTL, 2017.

Pető, Iván, and Sándor Szakács. A hazai gazdaság négy évtizedének története. 1945–1985 [The history of four decades of the domestic economy, 1945–1985]. Vol. 1. Budapest: KJK, 1985.

Schlett, András. Sziget a szárazföldön: A Bábolnai Állami Gazdaság története 1960 és 1990 között [An island on the continent: The history of the Bábolna State Farm between 1960 and 1990]. Budapest: Szent István Társulat, 2007.

Swain, Nigel. Collective Farms Which Work. Cambridge: Cambridge University Press, 1985.

Takács, Edit. “Adatok Szentes második világháború alatti gazdasági, társadalmi és politikai viszonyaihoz” [Data on the economic, social, and political conditions in Szentes during World War II]. In Tanulmányok Csongrád Megye Történetéből III [Studies on the history of Csongrád County], edited by József Farkas, 217–44. Szeged: Csongrád Megyei Levéltár, 1979.

Varga, Zsuzsanna. “Agricultural Economics and the Agrarian Lobby in Hungary under State Socialism.” East Central Europe 44, no. 2–3 (2017): 284–308.

Varga, Zsuzsanna. Az agrárlobbi tündöklése és bukása az államszocializmus időszakában [The rise and fall of the agrarian lobby under state socialism]. Budapest: Gondolat, 2013.

Varga, Zsuzsanna. The Hungarian Agricultural Miracle? Sovietization and Americanization in a Communist Country. Lanham: Lexington Books, 2021.

Varga, Zsuzsanna. “Three waves of collectivization in one country.” In Countryside and Communism in Eastern Europe: Perceptions, Attitudes, Propaganda, edited by Sorin Radu, and Cosmin Budeanca, 258–94. Berlin: LIT Verlag, 2016.

Keywords: Socialism, Hungary, technocracy, labor history, enterprises.

In December 1951, tensions concerning wages (quite typical of the Rákosi era) in the Ikarus Bodywork and Vehicle Factory on the outskirts of Budapest led to a riot. Barely a week earlier, the trade union secretary of Ikarus had spoken about the tension surrounding bonuses at the meeting of the Hungarian Workers’ Party (MDP) in the sixteenth district.1 As Christmas approached, the conflict became increasingly acute. According to the rules, December 27 would have been the payday at Ikarus. However, chief accountant Jenő Medvei had promised at a trade union event on December 19 that wages due would be paid on December 23, i.e. before the holiday. He allegedly misled the company’s executives by saying he had obtained permission from the Ministry of Metallurgy and Machinery to pay these wages. When the payments were already in progress, Medvei called the ministry to get permission to make the payments before Christmas. The ministry, however, rejected his request and even ordered the suspension of the payments that were already underway. The Ikarus leaders then suspended the payments, and they spent some time on the phone helplessly entreating various representatives of the higher bodies to help until, eventually, Minister of Metallurgy and Machinery Mihály Zsofinyec firmly informed them that they were forbidden from deviating in any way, with the disbursement of payments, from the official schedule.2 At 4:30 that afternoon, the workers, who were eagerly waiting to be paid, were told on the loudspeaker that payments of wages would only be made on December 27. Later, the company management was harshly criticized for not having the courage to stand in front of their employees in person and explain the party’s decision and stance. Financial director Medvei, however, allegedly did approach the angry workers in person and informed them of the instructions he had been given by the party. The crowd of about 500 people, including party members, wanted to beat general manager Szőcs, who fled to the party office. Szőcs was later criticized for having led the angry crowd to the party office.3 The angry mob broke into the corporate MDP office, smashed the equipment, and threw the documents and décor on the ground, but Szőcs was able to escape. The events were brought to an end with the arrival of the state security forces. The crowd was dispersed, and some 100 people were detained.4 By exploring the processes which led to the conflict described above, the present study examines the peculiarities of the formation of a socialist company which, as one of the flagbearers of Hungarian industry, provided buses for the Soviet Union and other Comecon countries for decades and, in some periods, also was a major source of exports from Hungary to countries in the third world.5

The secondary literature on the economics of the state socialist era has always considered large enterprises as important actors, and it was, according to this literature, the relations between these enterprises and the governing superiors (relations which were plagued by communication failures), the often dysfunctional interactions among these enterprises, and the internal conflicts at these enterprises which were responsible for the chaos of the planned economy.6 At the same time, its inefficiency from an economic point of view notwithstanding, the socialist enterprise was an important institution of social integration in state socialism because it linked its workers and employees to itself and to the system through other organizations tied to the enterprise (trade unions, sports clubs, etc.) and through social benefits, in addition to wages, and thus provided them with a specific socialist way of life.7 The more recent literature also emphasizes, in comparison with earlier research, that companies functioned as autonomous institutional actors in state socialist societies, maintaining transnational networks of contacts, often across the Iron Curtain, and that the development of these networks over time did not necessarily follow the same pattern as the development of political relations between East and West, but rather had a distinctive dynamics of its own.8 At the same time, the literature has only rarely dealt with the period of the emergence of the socialist enterprise, the processes that created the familiar features of the socialist enterprise, and the actors who shaped them in the period of nationalization. The present study examines the groups and forces that shaped the image of the enterprise at the turn of the 1940s and 1950s, and it considers the extent to which nationalization and the establishment of the party-state system represented a departure from the earlier path.

The Legacy of the War

“The Uhri siblings showed us that there is an America in Hungary too. They began as entrepreneurs with only small workshops, and we immediately made them into major industrialists.” So said, allegedly, the Deputy Minister of Defense on October 17, 1943. He was referring (or at least so the source in which the statement is found contends) to the tremendous growth which the company founded by the Uhri siblings had enjoyed because of the orders placed by the state for the military.9 The enterprise launched by the Uhri family, which had begun as a low-level undertaking, had grown by 1938 to a middle-level company which, however, still had less than 100 employees. Over the course of the next year, however, as a consequence of the orders placed by the state, the company grew to several times this size, from the perspectives of both production and the number of employees. The company, which in the early 1940s employed a few thousand people, made cable drum carts and superstructures for a wide variety of military vehicles (artillery carts, veterinary and horse disinfection carts, and, later, command vehicles and radio carts) and also pontoons for the army. It was declared a military plant, and the army became the most important source of orders for its products. Furthermore, as a consequence of this change in the status of the company, the important skilled workers were exempted from military service.

They received government loans. In 1942, the state lent 3.7 million pengős to the Uhri siblings for investment in vehicle manufacturing. They had to build a modern factory in Mátyásföld in order to be able to engage in modern large-scale production.10 The creation of a dramatically larger factory site necessitated, of course, a number of other changes. A doctor’s office, a kitchen, and a cafeteria were set up, or in other words, the kinds of social facilities associated with a large enterprise. The company was run by three siblings. Imre Uhri Jr. served as commercial director because he had connections to politics and the Ministry of Defense. Zsigmond Uhri saw to the tasks of technical director and was in charge of production. Matild Uhri (the wife of László Kelecsényi) headed the material procurement department, which may well have been a major task at a time of war.11

In 1938, the Uhri siblings also began to work in airplane manufacture. First, they made a gliding machine on the basis of designs by the Technical University Sport Flying Association. The glider was essentially a matter of small-scale industrial production. The Miklós Horthy National Aviation Fund then placed orders for repairs to school machines made by Bücker Flugzeugbau, a German manufacturer.12 The move into the aircraft industry was made possible by the fact that the production processes for bodywork for road vehicles were technologically similar to the production processes involved in making aircraft bodies. Working with the same machines and tools and similar materials, the skilled workers were able to use the training and experience they already had to perform the necessary tasks. Thus, in addition to the role it played in vehicle production, the factory was also able to take on the repair of aircraft and the production of sports aircraft in small series.

The next step was to establish a relationship with the Bücker Flugzeugbau manufacturer, as the Uhri siblings’ factory was doing repairs to planes produced by Bücker. The other factories in Hungary which were suitable for aircraft production were engaged in production within the framework of a joint program with the Germans, and thus there were no factories which would have been able to address the need to produce planes for training for the Hungarian military. The Ministry of Defense purchased the license for the Bücker 131 and then handed it over to Uhri siblings’ company.13 The Ministry of Defense then ordered 210 training planes from the company, and it provided significant loans for the investments needed to meet the order.14 The Uhri company thus became a kind of government enterprise. Similar enterprises had developed in Germany and overseas as a consequence of government investment programs to combat the world economic crisis, and naturally they continued to grow as a result of production for the war.15

The emergence of a system of contracts for the manufacture of aircraft, which was in the interests of both the Hungarian Ministry of Defense and the German company, involved the mobilization of significant sums of money and thus would not have been possible without persistent lobbying and background work. One of the accusations against Imre Uhri, who in 1945 and later was stigmatized as someone who had been a right-wing friend to the Germans during the war, involved the contacts which he had maintained with extreme right-wing personalities and military leaders, primarily people in the air force and military who were responsible for equipment orders, several of whom were members of the Arrow Cross, a far-right party in Hungary which for a time was even banned by Horthy. Some of these individuals, for instance a retired Deputy Minister of Defense, ended up on the company’s board of directors.16

As the investments were being made, several reports were received by the Ministry of Defense regarding the loans which had been made to the Uhri siblings. According to these reports, the monies which had been provided had been used in part to cover expenses for luxuries. In the course of the subsequent investigations, the Ministry of Defense committee of inquiry found that the original loan agreement according to which the Hungarian Army Treasury had entered the investment had been reached without actually stipulating clear plans for the construction of buildings, the manner of implementation, or the provision of the necessary equipment, though the Ministry itself had called for such plans. Since the very first financial plans had been reached, the credit line which was allegedly needed “had grown like an avalanche to 5, 8, 11, 14.7, 20, and 25 million, and now there is talk of 30–32 million.”17 During the investment, the Uhri siblings charged a number of things to the credit line which were not, strictly speaking, eligible. A total of 1,670,189 pengős were spent on costs which, according to the committee, should not have been charged to the credit line.18 In 1944, however, the Ministry of Defense transferred another quick loan to the company so that construction would not stop, and they even made a proposal to the Council of Ministers to raise the credit line.

The construction of a factory under the leadership the Uhri siblings but financed entirely by the Ministry of Defense bears a close resemblance to the later investments made by the socialist state according to the planned economy with only soft constraints on budgeting. As a consequence of this investment, in 1943 and early 1944, a 11,685 square-meter factory hall was built in Mátyásföld which at the time was one of the largest and most modern factories in all of Hungary.19

In the summer of 1944, factory councils were formed at the company, as indeed was the case at all factories. These councils were established by law in the spirit of the corporate ideas of the far-right government which came to power with the German occupation after March 19, 1944.20 Later, from 1945 onwards, these bodies were referred to as “Arrow Cross factory councils.” However, the actual political views and inclinations of the members of the councils may well have been very mixed (though people who had open left-wing sympathies, of course, would not have been admitted), and there may have been cases in which the elections reflected little more than the popularity of a given candidate among those who were entitled to vote. The factory councils, which had to listen to questions concerning personnel, focused primarily on welfare matters. For instance, they oversaw the distribution among workers and officials of materials which had been taken from shops which had classified as “Jewish.” From the perspective of the provision of goods and wares during a time of war, this was a manner of complementing the company’s forms of social welfare which had been developed earlier.

In the upheaval of the last months of the war, the Uhri factory could hardly escape the fate of most modern enterprises. As the Soviet army drew ever nearer, the government resolved to have all installations of any possible value moved. Some of the workers hid both materials and machines in the cellars of the Mátyásföld factory, in all likelihood with Zsigmond Uhri’s knowledge. At the beginning of December 1944, as it was essentially impossible to transport the machines which had not yet been moved, the Arrow Cross authorities (by this time, the Arrow Cross was in power) ordered that the machines simply be destroyed on site. Some of the middle-level leaders at the company were able to hide some of the motors, and they contended that they were unable to dismantle important parts because they did not have the necessary manpower. The willingness of factory employees to try to protect some of the company machines, materials, and tools was not so much an expression or consequence of principled stance against Nazism on their part as it was an indication of their attachment to the factory itself. For them, the factory was something of value, and it was important that it remain able to function.

In 1945, as the war finally drew to a close, a new era began for a company which was deeply indebted to the state, which was equipped with both the most modern machinery and production facilities, and which had an experienced workforce which was in part bound to the factory and which expected both a livelihood and social benefits from it.

After 1945: The Growing Party-influence, Exculpation Proceedings, Economic Dependency

After the war, in the absence of orders from the military, it no longer made sense to produce aircraft. A new motor vehicle market was emerging for the company, however, first and foremost in the repair of damaged vehicles. As military operations came to an end, the Soviet Army placed large orders for vehicle repairs from the company, which was allowed to keep some of the repaired trucks as a form of payment. The company exchanged some of these trucks for food for its employees.21 The situation after the war created other business opportunities. The company made railway wagons for the Hungarian delivery of reparations to the Soviet Union and pontoons for use as temporary bridges.

Following the siege of Budapest, factory committees were formed which replaced the factory councils which had been in 1944. Former Arrow Cross members were removed from these committees, but there was still some continuity in council/committee membership, as views among the workers and the officials at the company concerning who was worthy of esteem or exerted influence did not necessarily change.22 István Cséfalvay, who became a leading figure at the company in 1945 as a member of the Hungarian Communist Party, had also been a member of the factory council which had been formed in 1944.23 Members of the factory committee which initially had been created at the company belonged, for the most part, to the Communist Party. They then came out in opposition to the continued presence of the Uhri family in the company leadership. At a factory committee meeting in April 1945, they proclaimed that, “it is no longer possible to work together [with the Uhri siblings]. At the time of German and Hungarian fascist rule, they served the army, forcing production to the extreme.”24 Imre and Zsigmond Uhri were reported to the political law enforcement division of the police station with jurisdiction. The factory committee alleged that the work done by the two directors was worthless to the company and their presence at the factory was harmful.25

Imre Uhri made no attempt to defend himself against the contentions that were being made about him by the factory committee. Given his strong right-wing leanings, he simply left the country. First, however, in the presence of a notary he authorized his two siblings, Zsigmond and Matild, to dispose over his possessions, including any divestments.

As a result of the report, Zsigmond Uhri was interned.26 At the plant, however, a conflict broke out between the groups leaning either towards the Communist Party or the Social Democratic Party. As a result, changes were made to the membership of the factory committee, and steps were taken by the new members, most of whom belonged to the Social Democratic Party, to release Zsigmond.27 In their submissions to the police, the Ministry of the Interior, and the Ministry of Justice, they referred only to Imre Uhri as a “friend of the Germans” or “fascist.” They claimed that Zsigmond’s experience was essential to the continued work of the factory, which allegedly had virtually ground to a halt after his internment.28 Zsigmond himself appealed against his internment. His appeal and the steps taken by the factory committee were successful in the end, and the Ministry of the Interior reversed the decision of the Mátyásföld captaincy and released him. In August 1945, Zsigmond Uhri rejoined the management of the factory.29

Parallel with the case involving Zsigmond’s internment, the case concerning whether the acts he had committed during the war were justified was also underway. Similar procedures were introduced in all companies and public service workplaces in 1945. The “justification” processes offer glimpses into what the “Arrow Cross” or other political stances actually meant for workers and how workers were attached to the factory. Most of the employees at the Uhri companies, concerning whom no potentially accusatory observations were made, were automatically certified as “justified” by the committee, meaning that they were no considered under suspicion of having committed questionable acts during the war. Only a comparatively small number of cases were heard at length or with the possible involvement of witnesses. A woman who had worked as an official at the factory admitted during the procedure (and she was, from this point of view, a remarkable exception) that she also had received materials from the stocks taken from people who had been classified as Jewish, which the company, as a military plant, had received. The questionnaire used in the process had one question concerning whether the person involved had received or “purchased any of these clearance-materials.” Almost no one answered yes to this question, though as workers at the factory, they had indeed received these kinds of materials as part of the social benefits provided by their employer. The member of the Factory Council who had been responsible for distributing the food allowances was only censured. One of the complaints made by the Factory Committee against him was that, before Christmas 1944, he had not distributed food supplies in full. Obviously, from the perspective of the workers, who were represented by the committee, this had been an “anti-labor” act. The fact that he had been a member of the Factory Council had not, in and of itself, been a matter of particular interest. In the case of another person who had been a member of the Factory Council involved in the distribution of foodstuffs, mere membership on the Council again was not the grounds on which accusations were brought. Rather, he was rebuked for having favored, in this position, members of the Arrow Cross Party.30 In other words, the notion of having received in some way materials which had once been owned by people classified as Jews seen quite as natural, since almost everyone at the factory did indeed benefit from what was essentially the theft of these materials because they were used by the factory in its efforts to provide forms of social welfare. In the case of everyday industrial goods and foodstuffs, the benefits which were provided by the enterprise were considered natural regardless of where they had come from.31 If someone had gotten his or her hands on some item of value which had once belonged to Jewish neighbors who had been deported, however, this was judged very differently. There is an example of one such case in the “justification” procedures which were held at the Uhri companies.

The “justification” of Zsigmond Uhri took place in this context of procedures after his release from internment.32 During the certification process, it was clearly to his advantage that, in the eyes of his workers, he was not a parasite or abusive boss. Many of the skilled laborers at the factory were on close terms with him, and they sought him out to discuss their troubles. Zsigmond’s efforts to make sure that the factory remained operational fostered a sense of community between him and workers who were tied long-term to the plant. This may explain the position of the company’s social democratic group of workers, who expressed their support for him.33

In the course of the “justification” procedures, the concept of worker identity seems not to have been defined according to the logic of party politics. For them, the work that they did in the factory was not simply a matter of putting food on the table. It was also an essential part of their identities. Anything that threatened operations at the plant threatened not only their livelihoods but also their social understandings of themselves. For this reason, they may very well have opposed the relocation of machinery at the plan abroad, and in 1945, they expected the people with the capital, i.e. the Uhri siblings, to ensure the necessary funds for the relaunch of the factory if they wanted to remain in their leadership positions. Zsigmond Uhri had to provide the working capital necessary to run the company. According to a subsequent audit report which was issued when the company was taken over by the state, Uhri Zsigmond invested a total of 370,000 pengős in the company in 1945.34 The workers were interested in who was promoting the operation of the factory, to which their livelihoods and identities were tied, while the question of whether a given individual had been an “Arrow Cross” (either a member of the party or just someone with extreme rightwing views) was not considered, on its own, a problem.

Thus, by the second half of 1945, in cooperation with Factory Committee, the majority of which belonged to the Social Democratic party, Zsigmond Uhri regained control of the company. The injection of capital helped solve the problems cause by war damages and the need for working capital. In the period of soaring inflation which followed, it was not difficult to finance the company. There were plenty of orders. The period of stabilization which began in early August 1946, however, put the company in a difficult position. Financial stabilization meant a dramatic drop in loan offers.35 Orders also fell, and it was impossible to get credit. This situation became a trap for the company in part simply because the management was unable to reduce the number of employees in parallel with the downturn in business. Government decrees had been issued starting in 1945 which made it impossible to reduce the workforce, which had swollen during the war, by banning layoffs. With the introduction of the forint in the autumn of 1946, a decree was issued allowing companies to reduce the number of employees, but the Factory Committee vehemently opposed it.36 In the aim of reducing the number of people who would be dismissed most of the members of the committee were not guided simply by social concerns which ran contrary to economic considerations.37 The factory communist party group regularly attacked the committee, most of the members of which, as noted above, were Social Democrats, so these Social Democratic members of the committee could not afford to seem if they were not vigorous in their efforts to defend the “interests of the workers.”38 Thus, the layoffs which were implemented following the introduction of the forint remained minimal, which put an extreme burden on the company, because in addition to wages, the company’s welfare department also provided a number of in-kind services for employees (for instance, firewood, boots, and food).39

Zsigmond Uhri made efforts to improve the situation by looking for new credit opportunities and new investors. However, there was simply no capital market in Hungary at the time. Had there been, the company probably would have been able to find adequate financing, must as it had been able to remain profitable at a time of inflation caused in part by an abundance of cash. According to the recollections of János Vörös, the company’s Social Democratic Party Secretary, for a time, the Social Democratic Party bank provided loans for the company.40 In the absence of a financial institution willing to provide serious loans, however, Zsigmond Uhri began looking for an investor who was also professionally interested in the automotive industry and would therefore be willing to cooperate with the company. Under the circumstances at the time, however, this kind of investor could only be a state-owned company, as at the beginning of 1947 there were no longer any serious companies in the vehicle industry that were still in private hands. Due to the lack of working capital and the political situation, it was quite clear that were it to partner with a state enterprise, the company would effectively fall under state control.

Two of the options merited particular consideration, the Heavy Industry Center (Nehézipari Központ, or NIK), which included the largest companies already under state management, and the Hungarian National Car Factory (Országos Gépkocsi Üzem Rt., or MOGÜRT), a vehicle industry and trade company. At the time, MOGÜRT was a communist company controlled by the Ministry of Transport, which was headed by prominent communist Ernő Gerő. In the NIK, which belonged to the Ministry of Industry (which was led by Social Democrats), the Social Democratic Party had slightly stronger positions. By engaging in negotiations in both directions (i.e. with both NIK and MOGÜRT), Zsigmond Uhri became embroiled in the struggle for economic and political influence between the two parties or, more precisely, between the networks which were organized around these parties, and in doing so, he also created conflicts among the workers at his factory.41

According to Vörös, there was pressure from above to hand over the leadership of the Factory Committee to the communists, but this had not yet taken place in 1947, as the Social Democratic Party group was more than twice as big as the Communist party group.42 There were sever conflicts about the future of the company between the various groups of workforces. According to some complaints, some “communist” workers have had even proclaimed that the Social Democrats would have to go “if we become MOGÜRTs.”43

In August 1947, NIK finally took over the company, simply because the company could no longer pay its employees weekly wages. At the time, Béla Zerkovitz, the son of the operetta and pop-song composer of the same name, who was a bodywork design engineer, was placed in Mátyásföld without a specific position, but practically as a factory manager. The legal situation was settled on September 30, 1947, when, in the presence of a notary, Zsigmond Uhri and his sister, Mrs. Matild Uhri László Kelecsényi, granted a call option for their company to a NIK owned Company.44

In the first half of 1948, the series of conflicts which had begun at the company in 1945 between the Communist Party and Social Democratic Party organizations (and the groups of workers who had sympathies with one of these two camps) came to an end, at least on the surface. The two parties were unified (which effectively meant that the Social Democratic Party was swallowed by the Communist Party), and in the course of this process, some of the people who had belonged to the Social Democratic organization simply were not made part of the new party. Others, János Vörös, for instance, who had served as the Social Democratic Party Secretary at the factory simply left the company. As part of the process, the Factory Committee, which had exerted remarkable power, also lost its role under the new management.45

Technocrats and Party Power

The company fell into the hands of the state, or rather the MDP, which had slowly become the only party. Every organized, independent group which or actor who could have had any influence in the life of the company (which in the meantime had been merged with a smaller company and given the name Ikarus) disappeared. Some informal groups remained, however, and the conflicts among them were very important from the perspective of the development of the company. The network of technocratic engineers constitutes one such informal group, while the other was the group of skilled laborers. Each of the two circles had its own practical space for maneuver, and they were in conflict with the party, or more precisely, with the individuals delegated by the party to prominent positions at the head of the company.

As Philip Scranton has noted, citing many examples from Hungary and Czechoslovakia, in the early stages of state socialism, in contrast to the politically appointed company managers who had little weight among employees, the technical management of the factories in many ways had effective local control of the company.46 In fact, technocrats were an indispensable component of the functioning of state socialism, operating according to their own logic, distinct from the political-ideological and power-driven mode of the party, as the history of Ikarus reveals.

In the age of modernity, technocrats seek to establish their positions and legitimize their roles in making investments and economic and technical decisions on the basis of some competence founded on scientific explanations and rational implementation (for example, the standardized knowledge of engineers or the expertise of economists).47 Technocrats are not political utopians, nor could they be considered social engineers in the sense in which Popper, for example, defined these concepts. Utopian thinking first envisions a distant ideal society and only then begins to look for the means to achieve this society (often including violence). Social engineers are captivated by visions of utopias, and they feel themselves called upon to transform society.48 Technocrats, in contrast, base the legitimacy of their own work and endeavors on “technique” itself, i.e. the precise, scientific knowledge of how to do something. Their point of departure is expert planning and implementation founded on the empirical sciences, not a distinct political goal. They work from the presumption that social and economic problems can be addressed with the use of rational procedures based on precise understandings of the sciences. Thus, though they do indeed follow visions which derive from the mentality of their professional surroundings, they are not laboring in the pursuit of political utopias.49

In the state socialist regime, following the nationalization of industry, with the essential liquidation of the market economy, there was more and more space for the emergence of the technocratic ethos. This ethos could also be easily linked in the discourses to the language of the party state. For instance, in connection with Ikarus, the following contention was made: “Yet today, the designer has been given such a vast space to make his wildest dreams come true, a space he never could have counted on in the capitalist economy. […] Nothing is impossible for the engineer if he has the suitable materials in his hands.”50 Technical skill was often linked with socialism in the rhetoric: “Under socialism—the progressive social order—the sciences play a particularly big role. We must concede that this is entirely natural if we keep in mind that the task of the sciences is construction, the search for the new, the systematic summary of natural and social laws, and the use of correct conclusions in everyday life, or in other words, to work in the service of progress and development.”51

After the nationalization of the large enterprise sector, technicians with formal training were able to do far more than link their technocratic manner of speaking (i.e. a kind of discourse that emphasized the need for rational, technical knowledge) with the language of socialist state politics at the time. The owners of the enterprises had disappeared, and the centralized management bureaucracy was unable to perform ownership functions as effectively as the earlier owners had. This gave technocrats considerably more room for maneuver on the level of individual companies. Furthermore, the emerging layer of technocrats was significantly more institutionalized than it had been in the earlier period had been.

One element which was central to the restructuring of the technocratic field in 1948 was the formation of the Alliance of Technical and Natural Science Associations (Műszaki és Természettudományi Egyesületek Szövetség, or METESZ), which gave engineers a shared forum and thus brought them together as a group. In the first presidency of METESZ, university professors, state secretaries, and high-ranking ministry officials met with CEOs of large companies and Ernő Gerő, the politician who was overseeing the entire area. METESZ was an association which included several member organizations. Following the wave of nationalizations, ten scientific associations dealing with branches of industry were formed in 1948 and 1949, and the mining and metallurgy associations which had existed for a long time also joined.

As a member organization of METESZ, the Mechanical Engineering Scientific Association (Gépipari Tudományos Egyesület, or GTE) was responsible for the automotive industry. The founding leaders of the Association included communist engineers, politicians or ministerial leaders, technical manager (Dezső Winkler), who had started his career as an engineer in large-scale industry before the war, a university professor and a member of the older generation, and other mechanical engineers, who had worked as leaders and designers of large enterprises.52 The composition of the leadership of the association made it possible for it to reach groups of technical experts who originally had kept their distance from the Communist Party, and it also enabled the association to create opportunities for these individuals, within the frameworks of the system, for participation in professional public life.

Alongside the association, there was also a surprisingly expansive vehicle research base in Hungary at the time. In addition to the groups at large companies who dealt with such issues, there was also the so-called National Automobile Experimental Station (Országos Autómobilkísérleti Állomás), which functioned under the direction of the Ministry of Transport and Postal Services. More important was the Vehicle Development Institute (Járműfejlesztési Intézet, JÁFI), which was created to further the centralization of technical design in the automotive industry. It was put under the leadership of Dezső Winkler (who remained in this position until 1968). Winkler owed his reputation in the automotive industry to the fact that he oversaw the development of one of the few truly successful Hungarian military innovations in World War II, the Botond all-terrain vehicle. The institution he ran became a kind of hub for engineers who had worked in vehicle development for military purposes during the war, and who worked here for the socialist vehicle industry. Their careers offer examples of the trajectories of the professional lives of technocrats, for whom the year 1945, which was pivotal in so many other respects, did not constitute a break.

Technicians working in research institutes and the corresponding departments of large companies also did not form a homogeneous group in all respects. There were generational differences, for instance. But these difference notwithstanding, together they began to form a technocratic community which was essential for state socialism. This is why this community had comparatively remarkable influence, not to mention room for maneuver, even if the individuals in this community were still vulnerable to the whims of the dictatorship. This layer of technocrats, with its associations and professional journals, was institutionalized in the first years of state socialism and created a sphere where individuals could assert themselves on the basis of the professional considerations, even given the pressures to confirm politically. The role of technocrats has been highlighted in many studies, which have called emphasis to their role in the development of some large companies,53 but it is important to note that in this case it was not just the individual technocrats who shaped the development of the party-state economy, but an institutionalized technocratic network.

At the Ikarus company, by relying on their professional competences, the technocrats could even get into conflicts with the party and some of its representatives. Their place in the larger field of technocrats constituted a source of strength and even authority for them. Drawing on this, they were able and willing to enter into lengthy conflicts with the party’s economic policy leaders over issues concerning the construction of buses. In order to understand this, it is worth pausing for a moment to consider the technical and historical turning point in bus production that took place in the 1940s.

After the Second World War, the production of buses all over the world essentially separated once and for all from the production of trucks. Buses with self-supporting bodywork were considered pioneering experiments within the industry. The body was no longer fitted to the chassis (which included all the main units and was capable of propulsion). Rather, the light-metal body itself was designed so that the chassis, the engine and powertrain, and the steering gear could then be built into it.54 This shift in the industry was in part a consequence of a change to the production of airplanes that had taken place during the war, because the self-supporting bus bodywork was based essentially on an adaptation of the construction methods used to make aircraft fuselages. During the war, the Ikarus factory was used for the production of airplanes, and the industrial knowhow gained in this process was then familiar to the engineers at the plant.

As part of their naive vision for cost-effectiveness, however, the politicians responsible for decisions concerning economic policy wanted the engines and the chassis for the buses to be made using the same main parts that were used for lorries (and other vehicles). Therefore, the designers at the factory worked on plans for the buses that they were expected to provide. Nevertheless, Cséfalvay and Zerkovitz did not give up on the idea of using self-supporting bodywork, and they continued to work on designs for these vehicles, while of course also continuing to develop designs as requested by the policymakers. It was not until 1955, with the production of the Ikarus 55 model, that a self-supporting bus was actually made by the plant, and that could be regarded as a success.

Zerkovitz and his engineers achieved this success by coming into conflict not only with ministerial superiors, but also with the organ of the party which had oversight in area and the director of the company. Furthermore, in 1952, the ÁVH (the State Protection Authority) launched an investigation against Zerkovitz on charges of sabotage.

At the meetings of the district party committee, the “technical intelligentsia” working at Ikarus and Béla Zerkovitz himself, who, as a non-party member, never attended the meetings, were regularly criticized behind their backs. Szőcs, the company’s director, who was the fourth person to hold this position since the company had been nationalized, complained at a meeting of the district party committee that Zerkovitz had “already accustomed the workers to working with him, so they believe what he tells them.”55 In its report to the Budapest Party Committee, the XVI. District Party Committee reproached Szőcs for failing to discipline Zerkovitz adequately. “It was also a failure on the part of the director to show opportunistic conduct in removing the hostile elements that had infiltrated the technical management,” according to the committee.56

In the debate over the report of the XVI. District Party Committee, Szőcs accused the technical management of the company of having been responsible for the 1951 Christmas riot at Ikarus.57 The critical remarks concerning Ikarus eventually reached Ernő Gerő, the leader of the MDP who was responsible for economic policy, who went so far as to speak publicly about the “mistakes” which allegedly had been made at the company: “At Ikarus, when designing the bus type 30, which is now so enthusiastically advertised by our papers and I think not without reason, the norms [meaning the expectations according to which an individual’s workers performance was assessed and thus wages were determined] were set for the first series, and they did not take into account that, later, the tools, equipment, and working methods had improved significantly. Of course, this meant a loosening of the standards.”58

The ÁVH also launched an investigation against the technical management of Ikarus under the suspicion sabotage. Their concerns with regard to state defense were focused primarily on Béla Zerkovitz, who had been under continuous observation since 1952. They believed he had been making mistakes that impeded completion of the plans issued by the regime. They also suspected him of hindering the labor competition movement59 and the switch from hourly wages to piece rates, which was one of the most important tools used by the regime in its strivings to improve production.60

However, Zerkovitz was not arrested or even removed from his position as chief engineer until 1957. Relying on his professional competence, he was able to make use of the spaces in which the specialists and technocrats operated. He was able to remain largely independent in technical matters within Ikarus and also had room for maneuver to convey his ideas. According to the recollections of Paul Michelberger, who was his successor at Ikarus, “he was a very good-natured man. Non-party, religious.”61 He seems to have been one of the poles in field of automotive technology in the first half of the 1950s.62 Relying on the institutionalized technocratic field, Zerkovitz was able to overcome the opposition of diveres representatives of the party-power and use his design ideas in series production. Naturally, he was not the only person to work on the designs. A team of engineers led by Cséfalvay worked on the detailed designs of the buses. But Zerkovitz, who (it is worth remembering) was not a member of the party, was the person who regularly published on the subject, represented the idea as the chief engineer at the company, and organized the work process. The engineer and experts did not simply perform tasks directly related to implementation, and with regards to investment decisions and directions of development, they were not limited to a subordinate preparatory function. Rather, by using the technical and scientific forums which were available to them, they also played important roles in initiatives which had consequences with regard to content. They also devoted some of their energies to securing orders, which meant that they assumed entrepreneurial functions, probably because, according to their assessment, they could not rely on the economic management bodies of the party state or the cumbersome foreign trade apparatus to look for a “market” for their technically innovative products.63

The political leadership had an urgent need of technocrats to be able to run the economy of the country. Indeed, with the disappearance of the owners, the technocrats in many ways took over some of the entrepreneurial functions, because these functions had fallen on them and not on the company leadership which represented the party.64 As a clear example of the success of the efforts of the technocrats, beginning in 1953, a separate experimental plant was in operation in Mátyásföld where work was done on the scientific development of new constructions. A design team was also set up at the time.65 With this, the two dominant directions in technocratic professionalism in the automotive industry, technical design and the industrial design, were given institutional form in Ikarus.66

It is not entirely clear just how cost-effective the operations of the technocracy in the socialist economy were or how they were tied to budgeting. During the war, given the exigencies faced by the government and military, investments already functioned according to “soft budgetary constraints.” As the factory reports which were submitted every year to the authorities, Ikarus had needed to take advantage, from year to year, of these “soft” constraints. After nationalization, a larger injection of capital was made to address the remaining debts from the earlier period and the lack of working capital, though even after this it remained necessary, year in, year out, to make up for losses of working capital, while the volume of production was growing rapidly.67

The budget problems, of course, were noticed by the party state leadership, which took steps to address them. In principle, the fight against the creation of excess scrap materials was intended to improve cost-effectiveness, as was the thriftier use of materials and the minimalization of waste in the production process, but the most important measures in this campaign were the effort to keep norms under continuous control, the transition to a system of pay based on performance, the organization of labor competitions. The use of these kinds of tools and the adoption of these approaches, however, necessarily led to conflicts with labor.

Skilled Workers and Party Power

After the nationalizations, it became increasingly clear that the companies were unable to provide the kinds of benefits which workers had managed to acquire in the earlier period. Several benefits in kind which had been considered more rights than benefits were left out of the collective contract, and the number of overtime hours and the amount of overtime pay were both dramatically reduced. The collective contract for 1949 year again had an ominous “echo” among workers, mainly due, for instance, to the obligation to report “obsolescence” of norms as a consequence of improvements in production technology.68 In 1948, the average annual wage among workers was 10,366 forints. By 1949, it had dropped to 7,921 forints.69 And this process did not stop here. As a result of the projected process of “standardization of norms” for the upcoming year (1950), average wages dropped by a nominal 35.5 percent at Ikarus. However, according to a report prepared for the Budapest Party Committee, wages were expected to increase, because workers would see that the norm could be exceeded.70 “Standardization of norms,” which really meant wage cuts, was met with an array of forms of resistance. Accusations concerning “manipulation” of norms were also raised in party disciplinary cases.71 The institution of standardized norms and competition among labor threatened the practical control of workers over work processes. Workers perceived these efforts to exert control as a limitation on and interference with their autonomy in relation to work processes and also as an irrational step from the point of view of production.72 This obviously affected primarily those workers who had been at the company before it was nationalized, especially skilled workers, who were accustomed to their work being important and valued and therefore were also accustomed to enjoying a degree of autonomy. They were also used to having some institutionalized room for maneuver through their trade unions or, after 1945, through the factory committee, but with nationalization, they had also lost this.73 As a result, there was “a certain degree of abstention from work among the workers.”74 The prevailing mood at the plant seemed to suggest the potential for violence, and as was noted, measures taken to ensure calm were not entirely effective: “The raising the factory fences, pulling out the wires, and the erection of watchtowers with floodlights and telephones also did not have a positive influence.”75

As a consequence of these changes, workers at Ikarus showed little enthusiasm for the party-state system. On the basis of the minutes of the XVI. District Party Committee meetings, the MDP seems to have had very little actual influence over the workers at the factory. There were frequent complaints about political indifference among the workers, and a recurring topic of discussion at the party committee meetings was that the party organ at the Ikarus factory was falling apart. Very few people actually attended the meetings, it had no real contact with the workers, and it did little substantive work. Most the workers who were selected at the Ikarus Factory to attend the party school or the various instructional programs never played roles of any prominence or importance.76 The “village tour group” which was organized at the company (these groups were sent to rural communities for propaganda purposes) had to be disbanded because of problems with discipline.77 In 1950, there was also a “shameful” occurrence on May 1, when no one was available to carry the Ikarus placard at the parade, so the placard was simply left in the factory.78

The workers’ demands, which for the most part they only made felt in a diffuse way (felt as something of a prevailing mood), in general were not considered feasible by the party authorities. Furthermore, in the wake of the many conflicts, some party functionaries seem to have thought of the workers as enemies of their party, and probably with good reason at times.79 After the disturbances in December 1951, for instance, when the new party secretary of Ikarus tried at the meeting of the district party committee to represent some demand made by the Ikarus workers, this proposal was rejected. The district secretary of the MDP offered the following argument in opposition to the workers’ demand: “If we fall into the barge of workers, then next week they might demand that we let them do the work for the week in five days.”80 The conflict described in the introduction to this essay may have been smoldering precisely because of these kinds of tensions, though other concrete factors contributed to its eventual outbreak.

According to a factory assessment dated October 3, 1952, only slightly more than half of the manual laborers were employed on a piece rate basis. The rest were paid hourly wages, though the goal was to have as many employees as possible on piece rates, as this was supposed to motivate them to work more efficiently.81 According to a domestic affairs report on Zerkovitz’s performance at the time, he would allow the work to fall behind during normal working hours. He would then need employees to work overtime, for which they were naturally paid more, thus incurring additional costs for the factory.82 The district party committee was also of the opinion that there was too much unjustifiable overtime pay at Ikarus.83 It is quite possible that Zerkovitz used this strategy to alleviate tensions at the factory concerning wages, which also at least in part explains why he enjoyed the support of the skilled workers, as Szőcs noted in his complaint to the XVI. District Party Committee.

The most important problem, however, was that only half of the manufacturing work carried out was done in accordance with an appropriate operations plan.84 According to a long report of chief engineer Antal Hirmann, who was Zerkovitz’s successor, the plant did indeed produce the models in the series, which were manufactured in relatively small numbers, “under the oversight of several of the superb engineers at the plant […] and a relatively large number (considering the number of vehicles manufactured) of first-class skilled workers,” without the technical documentation that would have been necessary for standardized production. The production of the buses rested on an industrial work culture in which the bodywork mechanics were the key figures. At the plant, they were referred to as “emperors of sheet metal,” able to produce any type of bodywork panel with a small amount of mechanized labor.85 Clearly, they were people who did not consider the technical documentation, which specified precise standards, terribly important.86 This skilled workers solved the various problems that arose in the course of the production (which were caused, for instance, by the varying quality of the materials provided by the suppliers) simply in oral consultation with the engineers and on the basis of their own experience in the profession. In other words, when it came to the production of buses, the plant relied to a large extent on the experience and knowledge of its engineers, and first and foremost its skilled laborers, who performed the tasks they were assigned without precise documentation.87

Thus, the engineers who were struggling with the challenges of designing self-supporting vehicle bodies were able to work well with skilled workers who, given their experience, were able to provide individual, even creative solutions to the tasks and who, as long as their financial interests were taken into account, were ready to produce the number of models ordered. Through the maintenance of a work culture that seemed natural for a significant proportion of the skilled workers, a community of shared interests was formed between the technical leadership at Ikarus and the core of the skilled workforce. This community of shared interests came into conflict with the representatives of the party, who were opposed by both the skilled workers and the technicians.88

Conclusion

The story of these tensions at Ikarus offers an example of the ways in which what was in principle a “socialist company” actually functioned according to earlier practices and expectations and had very few new elements in the early stages. In this period of the history of the company, its path had essentially been decided by the earlier events. Nationalization only made dependence on the state an undeniable fact, but this dependence had become a practical reality during the war. As the new owner, the party could do little to shape the company, the profile and work culture of which (which made skilled workers indispensable) had been formed in the first half of the 1940s. Instead of the state party, which in theory had ownership rights, the technocrats were in fact in charge of determining the development of the company. Though they were compelled to adapt to the party-state, the technocrats constituted an independent component of the regime which was of a fundamentally different nature from the ideological-political logic, and they were able to prevail in conflicts with the political power. However, the power of the party in the factories was limited not only by the presence of technocrats in the early socialist enterprise. When the party took measures to implement changes, it ended up threatening the identity of the workers (which was strongly linked to the factory and which had a solidarity which was rooted in wartime experiences) and provoked violent conflict in which the technocrats, who had their own conflicts with the party authorities, acted as allies of the workers.

Archival Sources

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Budapest Főváros Levéltára [Budapest City Archives] (BFL) Budapest

XVII.1625 Budapest justification committee

XXXV.95.a. The Budapest Party Committee of the Hungarian Workers’ Party

XXXV.157.a. (Budapest) XVI. Distric Party Committee of the Hungarian Workers’ Party

Fővárosi Szabó Ervin Könyvtár [Metropolitan Ervin Szabó Library] (FSZEK)

Budapest Gyűjtemény

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Közlekedéstudományi Szemle [Transportation Science Review], 1953, 1954.

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Steiner, André. “Zur Anatomie der Wirtschaftskrisen.” In Aufstaende im Ostblock: Zur Krisengeschichte des realen Sozialismus, edited by Henrik Bispinck, Jürgen Danyel, Hans-Hermann Hertle, and Hermann Wentkler, 131–43. Berlin: Ch. Links Verlag, 2004.

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Keywords: Yugoslavia, Slovenia, communism, commutator economic reforms, socialist enterprise, joint ventures

Introduction

In this article, I examine foreign investments in Yugoslav companies during the communist period. Yugoslavia was among the first communist countries to allow foreign investments in the form of joint ventures in 1967. Later, it was followed by other communist countries. Yugoslavia attracted a larger volume of foreign investments than all other communist countries put together. It differed from the other Eastern Bloc countries because its economic and political system was decentralized, the state was better integrated into the global economy, its foreign economic relations were liberalized, and individual companies were responsible for their own success. This paved the way for foreign investments once they were allowed. The system of self-management was introduced with reforms in the early 1950s. It prospered thanks to a significant level of decentralized decision-making at the political and economic level. In the middle of the 1960s, it was decided that foreign investments in Yugoslav companies should be allowed, together with the integration into the international division of labor. The decision was strategic and pragmatic. In close cooperation with foreign partners, domestic companies would get access to modern technologies and management know-how, and they thus would be better able to penetrate Western markets. Also, foreign investments were cheaper than the importation of foreign capital through state borrowing. After that, the idea of attempting to attract foreign investment persisted in the Yugoslav territory until the dissolution of the state in 1991. Over the course of a period of twenty years, regulations would keep changing, becoming increasingly favorable to foreign investment, depending on the political circumstances.

The article is divided into six shorter sections. The first section summarizes the economic reforms and development periods during the existence of communist Yugoslavia. The second section analyses the distinctive characteristics of Yugoslav companies, which must be taken into consideration if one seeks to understand the positions of foreign investors. The third section traces the institutionalization of foreign investments. The fourth focuses on the regulation of foreign investments with emphasis on the essential aspects of regulation and changes over time. The fifth section examines the scope of foreign investments in view of the sectoral structure, regional distribution, and origins of foreign investors. A detailed case study of foreign investment follows in the sixth section, specifically the Western German Kautt & Bux company’s joint venture with Kolektor from Slovenia. The case study illustrates the pattern of investment in a Yugoslav company and of cohabitation between a foreign partner and a self-management company. This company’s experiences, however, were not typical of the practice of foreign investment into Yugoslav companies. Its long-term success makes it an exception, as most of the joint ventures were of a comparatively short duration and were of limited expansion and innovation. Kolektor, rather, offers a good example of what the Yugoslav authorities envisioned and hoped for when they decided to allow foreign investors to partner with domestic enterprises.

Economic Models

Economic development in Yugoslavia can be divided into four periods, each of which saw the emergence of a distinctive economic model. The first one lasted from 1947 to 1951. This period saw the rise of a centrally planned economy. In other words, it was the period in which administrative planning was implemented according to the Soviet example. The top priority was to develop heavy industry even if it meant neglecting other sectors, including sectors which had a direct impact on people’s living standards. In the second period, central administrative planning was abolished (1952–1965). The plan became a mere orientation concerning how the economy was supposed to develop. Furthermore, it became polycentric, as the individual republics attained the right to specify the priorities when it came to their economic development. In the context of the goals specified in such a manner, the companies would supposedly pursue their interests. Partial competition among companies was enabled. Companies were allowed to establish horizontal connections, i.e., communicate among themselves according to their business interests. Thus, hierarchic communication with the ministries in the framework of the centrally planned company activities was abolished. With reforms, decision-making was divided between the political and economic level. Companies became responsible for their own success, and their leaderships could make business decisions autonomously. The new economic model emphasized the development of the consumer goods industry and intensive rather than extensive development, i.e., productivity growth, business efficiency, and the liberalization of international trade. The third period (1965–1975) was called the period of “market socialism.” It saw the use of so-called indicative planning. Companies set their own business objectives in line with the national economic development plan. The focus of economic policy was on boosting consumer spending and income growth. The strengthening of the secondary and tertiary sectors, the integration of Yugoslavia into the international economic space, and the international division of labor were also emphasized. The intention was to strengthen the functioning of the market and the productivity and efficiency of the economy, to increase the level of general education, and to enhance the role of business research and development, either independently of or in connection with the academic sphere. The fourth and last period (1976–1991) was characterized by the consolidation of “workers’ self-management.” A turning point came when the society and the economy were reorganized according to the principles of the so-called “contractual economy,” which was supposed to strengthen the influence of workers (through self-management) in the management of economic entities. From the strategic point of view, the country changed its model and focused on the promotion of basic industries, energy, and raw materials. Attention was also paid to export growth, the reduction of the deficit in the balance of payments, efficient energy use, higher productivity, and closing the regional and economic gaps. The general decentralization of decision-making altered the nature of social planning. The planned goals became a synthesis of the planning by different actors, including companies, associations, and public authorities. Due to measures which were taken to further decentralization, which in turn diminished the power of the state authorities (especially the federal ones), the role of the renamed Communist Party became very important. With its cells in all of the social and economic units, the Communist Party, the League of Communists of Yugoslavia (LCY), became an informal integrating element of a fragmented society and economy.1

Yugoslav Companies

Foreign investments were also determined by the structure and concept of socialist enterprises in Yugoslavia, where there was a system of ownership that was unique in the Socialist Bloc. With the abandonment of the centrally planned economy and the introduction of “workers’ self-management,” the concept of state ownership and hierarchical management of socialist enterprises was abolished as well. In the context of the reforms, companies were becoming responsible for their own success. They were able to establish connections and engage in cooperative business endeavors according to their own interests and the demands of their activities. The transfer of responsibilities to companies took place in the context of the general decentralization of the state. At the same time, the transfer to lower units also meant a change in the ownership concept. The concept of state ownership was replaced by that of “social ownership.” According to this concept, the company was the property of society, i.e., of the entire population. Meanwhile, the workers were intended to run the company. The concept of social property was linked to the concept of “workers’ self-management.” This meant that company employees had the right to manage the company, determine its activities, production volumes, sales prices, marketing strategies, investments, and the use of profits.2

In Yugoslavia, a company could be set up by a municipality, a republic, the federation, another company, a bank, or even a group of citizens. New companies could also be created by merging or splitting up existing enterprises. The founder was obliged to provide the necessary capital. Companies were autonomous in determining their business policies. The power in the company hinged on the working community. With their employment in the company, all workers acquired the right to comanage the company. The working community would elect the highest management body in the company: the “workers’ council.” The workers’ council decided on all business strategies and implementation orientations. It also appointed the company’s management, board of directors, and the director. Board members were accountable to the workers’ council. The director was appointed by the workers’ council. The decision was formally based on the council’s public call for candidates, but the local party leadership initially made the choice. The period of tenure was four years, and there were no limitations on the number of terms. The director managed and administered the company on behalf of and by the authority of the workers’ council. In his work, he had to pursue the interests of the “working community,” to which he was ultimately accountable. The director had the right and obligation to participate in the workers’ council meetings, but he or she was not supposed to play a decisive role. The question of the realistic distribution of power, responsibility, and authority in Yugoslav companies was crucial for foreign investment decisions. Individual directors would successfully lead companies through the strength of their personalities and persuasive abilities. However, the real power of the workers’ councils also had to be taken into account.3

The notion of workers’ self-management was not merely a matter of abstract conceptual thinking or disingenuous rhetoric. It had to be taken seriously in case of every intention of foreign investment, and the investments had to be negotiated with the company itself or with its management. On the other hand, Yugoslav companies were obliged to secure the consent of the authorities and political bodies. Another important issue also arises in connection with the roles of political bodies: that of political intervention in companies. Foreign investors needed to consider this possibility as well. As the reforms weakened the influence of the central authorities in companies, the influence of the party authorities within the given republic and district survived. The LCY had cells in every social organization, including companies. The political line would thus control the company and supervise the decision-making mechanisms and company management. As party members, the directors had a twofold responsibility. On the one hand, they were accountable to the employees, i.e., to the “workers’ council,” but they were also accountable (as noted above) to the local party leadership.4 In practice, this meant that there were formal and informal levels of decision-making which were sometimes complementary and sometimes conflicting. Meanwhile, the LCY had a monopoly on personnel policy. Decentralization also implied a transfer of social power. Corporate self-responsibility also meant that the social power of company managements grew in strength. The control exerted through the local Communist Party authorities at the company and municipal level was intended precisely to regulate this power. This was necessary to ensure that companies would pursue the overall social objectives rather than just their own aims. However, in this manner, the companies’ “self-management” and self-responsibility for their own economic success was systemically denied. Company leaderships would struggle to balance their political and economic performances, with the former often taking precedence. This dilemma was identified at the time by domestic critics, who also questioned the concept of market socialism.5

The Decision to Accept and Encourage Foreign Investment

Yugoslavia was the first socialist country to allow foreign investment in its economy. Hungary, Poland, Romania, and Bulgaria followed later.6 Due to the nature of the system, the investments could only take the form of joint ventures. The 1960s were an important period in the economic history of Yugoslavia (and Slovenia). They bore witness to a significant attempt to change the economic and social landscape. Economic reforms were implemented to make the economy more efficient, increase business incomes, and make the economy more competitive in foreign markets. Naturally, everything was done within the framework of the communist ideology, which meant that change was desirable, but only to the point where it did not threaten the existing fundamental postulates of the communist political, social, and economic order. Thus, in the process of phasing out the centrally planned model, the state started to shift some of the responsibility for economic success to businesses and local communities. It only allowed the market to function, but only within limits set by the state, and it refused to give up the mechanisms with which it controlled the economy. The state also promoted the integration of companies into the international environment. In principle, it supported integration into the international trade flows and the international division of labor. The internal and external trade regimes were gradually liberalized, and some measures were even taken to attract foreign capital.7

Foreign investment was one of the major development issues in this process. At the time, after the country’s accession to the General Agreement on Trade and Tariffs (GATT), following the adoption of the Great Economic Reform (1965), the Yugoslav authorities wanted to integrate the country into the international division of labor. The 1965 reform was one of the most comprehensive and profound of the Yugoslav economic reforms. After these reforms were adopted, the concept of market socialism was consolidated. At the time, it was clear that integration into the international division of labor also meant opening up the country to foreign investment. For a short time, a view prevailed according to which it was socially cheaper to allow foreign capital to enter domestic companies than to build economic development solely on foreign loans.8 However, the price of capital was not the only factor. The expectation was that domestic companies would thereby gain swifter access to modern technologies and, by leaning on foreign partners, enter foreign markets.9 It was also expected that the “workers’ self-management” would become stronger, the general economy and individual enterprises would become more efficient and profitable, and the pace of industrialization would accelerate. Furthermore, the balance of payments was also supposed to improve, as foreign investment would boost exports of higher-value products and help the country address its capital shortage. The issue of unemployment was pressing. The decision was adopted in a context of very high levels of recognized unemployment and increasing economic emigration to Western European countries. It was hoped that foreign investments would allow the country to create jobs more quickly.10

Regulation of Foreign Investments

Foreign investment was regulated by specific legislation which was adopted in various stages. At the initial stage, acts which paved the way for joint ventures were adopted. In the subsequent stages, more detailed regulation of the relationships followed. The process started in 1967, when an act was adopted to tax the profits of foreign companies that invested in Yugoslav companies. A second act limited the foreign investor’s share. The domestic company had to hold the majority in the joint venture (at least 51 percent). Foreign investment was not allowed in banking, the insurance industry, domestic transport, trade, and public utility services. The domestic and foreign partner had to conclude a joint venture agreement, define the purpose of the agreement, and determine the mutual relations in terms of capital, management, cooperation, operations in domestic and foreign markets, and, of course, the division of profits.11 The domestic company had to obtain the informal consent of the republic’s authorities even to enter the initial negotiations. After the conclusion of the agreement, it had to be sent for approval and entry in a special register of such companies at the Federal Ministry of Economy in Belgrade. The foreign partner was guaranteed certain rights under the law: the right to retain ownership of its capital contribution and to sell it, the right to a proportionate share of the profits, the right to comanage the company, and the right to access all documentation. It was also very important that the foreign partner had the right to repatriate the majority of its share of the profits. In summary, foreign investors were allowed to manage the company and participate in it based on ownership (investment). Rights went hand in hand with duties. Thus, the foreign partner had to reinvest at least one fifth (20 percent) of the profits in the domestic company or invest them in a Yugoslav bank at the usual interest rate. The foreign partner also had to pay the required taxes: a profit tax of 35 percent, which was supposed to be a more favorable tax rate than in Western European countries, where most of the potential interest in investing in Yugoslav companies was expected to be found.12

The 1970s were a decade of contradictions. In 1971, although the requirement to reinvest part of profits was abolished, the foreign investor could repatriate only one-third of the income earned by exports after having paid the relevant taxes. The individual republics were allowed to set their own tax rates on foreign investments. In 1973, long-term investments and the joint and several liability of Yugoslav companies in joint ventures with foreign investors were regulated in more discouraging detail. In June 1976, conditions for foreign investments were tightened. Only foreign investment aimed at exports for foreign markets would be approved. Contracts needed to be more precise. The volume of exports and the currencies had to be specified for foreign investors to receive their profits. The rights of joint management bodies were also limited in the sense that they were not allowed to interfere with the “self-managing” structure of companies. The responsibility to determine business policy was transferred to work councils. This limited the foreign investor’s right to manage the company. These repeated changes limited growth in foreign investment.

The legislative changes of April 1978 were again more favorable to foreign investment, as special protections were granted to foreign investors. This time, the legislature put foreign investors on an equal footing with domestic companies in terms of the right to manage. The rights of the company’s joint management board were laid out in detail. In addition, foreign investment in banking was allowed, which was to be regulated by a special act. Foreign investment in the insurance industry, trade, and public utility services remained prohibited. A provision that allowed foreign investors to repatriate half of their export profits was important for them. The next step was taken in 1984, when ownership restrictions were lifted. Foreign investors could now also become majority owners. The last change dates to 1988, when a new foreign investment act completely freed up foreign investment. Prohibitions in the military industry, rail and air transport, telecommunications, the insurance industry, and media remained in place. The act put foreign investors on an equal footing with domestic companies in terms of tax reliefs and government incentives. The foreign investor acquired all management rights and the right to transfer all profits, and collective agreements would be concluded with the employees.13

Foreign Investments in Yugoslavia

The Yugoslav joint ventures policy attracted the attention of the international business, academic, and political public. The number of articles and expert analyses on the subject was considerable. This had an impact on the flow of capital into Yugoslavia. Yugoslavia succeeded in attracting investments from the most technologically and economically advanced countries. The data from 1980, compiled by the OECD, indicate that the volume of foreign investment was gradually increasing.14 Among the industrial sectors, metalworking, the chemical industry, and transport equipment manufacturing attracted the most investment. Despite the constantly changing regulatory measures concerning joint ventures, the political-ideological prejudices in the country, and the actual constraints of the political and economic system, the volume of foreign investment should be deemed only a limited success, since its total value remained a small share of capital in all sectors except metal production (see Table 1). The interest from foreign private Western companies was still considerable, especially those that had already established cooperation with Yugoslav companies. The Western companies’ motives for investing in Yugoslav companies varied and, above all, included the low price of labor and the tax advantages, which allowed for the acquisition of the Yugoslav market, sales through Yugoslav companies to other communist countries, and competitive exports to Western markets due to the low price of labor. As a rule, investments would be proposed by Yugoslav companies.15 The main motivation of foreign companies was, therefore, further growth, profitability, and export opportunities to third markets. Foreign companies that strived to understand the Yugoslav ideological-political reality were successful at investing. A survey of a sample of Western companies in Yugoslavia showed that investments in Yugoslav companies met their expectations. Foreign companies would follow several investment goals. The relatively lower return on investment was compensated for by the increase in exports to other communist countries and the conquest of the Yugoslav market.16

While foreign investors were evenly distributed, most came from countries that were also Yugoslavia’s largest foreign trade partners. The main players were companies from the contemporaneous European Economic Community. Unsurprisingly, Germany and Italy were in the first place (see Table 2). They were followed closely by companies from the United States of America, though only in terms of the number of contracts concluded. However, the United States was the top investor by far in terms of capital invested due to their heavy investment in the oil refining industry.

Table 2. Origin of foreign investors in Yugoslav enterprises, 1968–1980

Source: Artisien and Buckley, “Joint Ventures in Yugoslavia,” 115.

While foreign investments in Yugoslav companies were territorially dispersed throughout the country, they were also regionally concentrated. The idea of the Yugoslav economic development planning that foreign investment would contribute to the more rapid development of the underdeveloped republics was not realized. Most joint ventures were secured by companies from the developed regions of Slovenia, Croatia, and Serbia (see Table 3). As the legislation allowed it, a kind of “competition” emerged to attract joint ventures. The underdeveloped republics offered lower tax rates to attract a higher share of foreign investments. Montenegro, Vojvodina, and Kosovo set a tax rate of 10 percent. The Kosovo authorities offered an even more reduced rate of only 5 percent for investments in Kosovo’s underdeveloped municipalities. Serbia and Macedonia set tax rates of 15 percent and 14 percent, respectively. In Serbia, any foreign investor could benefit from a half tax rate if they invested in economically less developed areas. Slovenia and Bosnia and Herzegovina set their tax rates at 20 percent. Croatia taxed foreign investors more, at 35 percent. However, it also recognized reduced rates, for example, in the case of investments in tourism activities, the rate was only 5 percent for the first five years and 20 percent thereafter.17 However, through tax policy alone, the underdeveloped republics could not make up for the advantages of the developed republics, which offered a better educated and experienced workforce, better infrastructure, more efficient companies, and better integration into the international economic space.

Table 3. Regional distribution of foreign investments in Yugoslavia 1968–1980

Source: Prinčič, “Tuja naložbe,” 116.

In the individual republics, special bodies were established to attract foreign investments. In Slovenia, these bodies were a part of the Chamber of Commerce and the state administration. The Chamber of Commerce established a Foreign Capital Investment Commission to provide legal and economic information to domestic and foreign companies and to assist them in making foreign investments. The same role was performed by the Work Group on Foreign Investments of the Ministry of Economic Cooperation with Foreign Countries of the Socialist Republic of Slovenia.18 At the international level, a special organization called the International Investment Corporation for Yugoslavia (IICY) was established to provide support for interested foreign companies. The project idea was developed in the Yugoslav banking circles to facilitate and purposely promote foreign investments in Yugoslav companies. In November 1968, a group of Yugoslav bankers, in cooperation with the International Finance Corporation of the World Bank Group (IFC), initiated consultations about the new institution. The response among Western bankers was sufficient for a decision to set up an institution aimed at providing assistance for private enterprises regarding their cooperation with Yugoslav companies. It would help them find business partners and raise the necessary capital in the form of loans or venture capital. The primary objective was to bring modern production techniques and management know-how to Yugoslavia. The IICY became operational in December 1969. It was based in London, Europe’s largest financial center, but registered in Luxembourg for tax reasons. The founding capital in the amount of 12 million US dollars was contributed by 12 Yugoslav and 39 foreign banks, with the assistance of the International Finance Corporation. The founding banks described the new institution as a “pioneering type of investment company, through which private business will invest in joint industrial, agricultural and tourism and other services ventures in Yugoslavia.” The largest shareholders included Yugoslav banks and banks from Austria, Germany, Switzerland, France, Italy, and the Netherlands, i.e., from the countries with which Yugoslavia had already developed economic cooperation. However, financial institutions from the USA, UK, Sweden, Japan, and Kuwait were among the shareholders as well. In the early years, the IICY played an important role in attracting foreign capital to Yugoslavia. By 1973, it had participated in 22 percent of the total investments and provided capital support for these investments. It also invested in its own name, partly in the form of loans and partly in the form of risk capital. Its representatives ensured that investments were balanced regionally and by sector. As the Yugoslav banks and their international activities expanded, the IICY’s importance gradually diminished, as had been expected would happen when it was founded.19

“We Worked in Socialism, but We Need to Act and Think as if We Were in Capitalism.”20 The Case of the Joint Venture between Kolektor and Kaut & Bux

The Kolektor Company was established in 1963 as a state socialist enterprise for the production of commutators. From the outset, they tried to establish international cooperation in order to acquire modern technology. In 1968, when for the first time the joint ventures were allowed, Kolektor made an agreement with the West German Company Kautt & Bux, which at the time was the technological and market leader in the production of commutators. Kautt & Bux invested in Kolektor and became the owner of 49 percent of the company. The investment proved very profitable, as both partners benefited. The Slovene side got access to modern technology and expertise, and the German side got additional production facilities, skilled workers, and low-cost production, which increased its competitiveness on international markets. The German side also got the exclusive right to handle marketing. Kolektor was only allowed to sell products under its own brand in the communist part of Europe. The investments in development and technology were always very high, and both partners were obliged to make them. As a foreign partner, Kautt & Bux had to invest at least 20 percent of its profit in order to be allowed to export the rest of its profits. Both partners also made a commitment to decide jointly on reinvesting the profits and on additional investment above the legally set limit of 20 percent. Kautt & Bux regularly reinvested the generated profits. The repatriation of profits represented a mere 2 percent of the profit per year.

The main threat to cooperation with foreign partners was the system of management of Slovenian and Yugoslav enterprises. It was based on the ideology of socialist self-management, according to which all decisions on business processes were to be entrusted to the “workers council.” In Kolektor, they had to deal with this obligation on a daily basis. The company tried to be flexible. On the one hand, they insisted on contractual provisions, but on the other, they strove for balance with the Yugoslav provisions on self-management. Fortunately, Kautt & Bux was equally pragmatic. Two parallel “mind” structures were thus pragmatically established in Kolektor. They differed completely in their origin, backgrounds, and purposes. The “communist” and “capitalist” structures and methods of management intertwined in the company’s operations. The latter structure eventually prevailed. Jožica Velikajne, a long-standing associate of the company, described the split personality of the company: “Half of the time, we lived in socialism and the other half in capitalism.” But a pragmatic solution was found which was respected by both sides and which enabled long-lasting cooperation. With the entering of German investors, Kolektor began to undergo a process of deep economic, social, and cultural changes. Kolektor was partly excluded from the local environment. Kolektor’s management structure was different. It was led by two codirectors, one from Germany and one from Slovenia. Decisions could be made only with the agreement of both sides. Kolektor as a company was faced with an urgent need to adapt to western, namely German business standards and habits, well also dealing with the characteristics of the local communist environment.

Kautt & Bux assured itself control over management of the company and thus protected its interests, but this indirectly brought it into a “systemically built-in” conflict with the self-management system. This is why it was also ready to give certain concessions to the Slovene factory. In one of the provisions, Kolektor received an assurance that Kautt & Bux would guarantee each year a minimum volume of sales of Kolektor commutators on foreign markets. This was a great achievement for the factory, as it made a much-desired expansion possible. They could thus use the revenues from exports to finance the modernization and expansion of production capacities and the import of special tools and indispensable semi-finished parts. Both partners also made a commitment to decide jointly on reinvesting the profits and on additional investment above the legally set limit of 20 percent.

In line with the existing legislation, the contract laid down that the company would be managed by a joint management committee with a full mandate to run the company. Yet the self-management organization of the company had to remain intact. But once again, Kautt & Bux got a concession here. At its request, a provision was added to the contract according to which “the supreme self-management body,” i.e., the “workers’ council,” had to respect all contractual provisions and all decisions taken by the joint management committee. In this manner, the German partner assured itself in advance of the protection of its interests.

Another part of the process of establishing cooperation between the two companies and entering into a joint venture was a financial check-up of the company, which took place in November 1968. The German partner was interested in the structure and method of Yugoslav bookkeeping and accounting, including its everyday practices and categories. It wanted to check the credibility of the financial statements of the Kolektor company. It sent to Kolektor a group of three accounting and tax experts. Their report confirmed the credibility of the financial statements. They even concluded that the bookkeeping and accounting at Kolektor was very good and precise in every detail. The auditors, however, noted certain terminological differences stemming from the Yugoslav system and accounting standards. They recommended standardizing the terms or specifying clearer definitions of individual terms so that their meanings would not be lost in translation. They were extremely satisfied with the financial control exerted by the authorized state services, in particular the audit service of the central bank. They even found a good feature in the management structure of Yugoslav enterprises. They believed that the controlling authority of workers’ councils was a good solution, as such internal control largely prevented the possibility of personal profiteering. They eventually reminded the accounting service of the obligation to send quarterly financial statements to Stuttgart. Thus, the accounting service was subject to additional control. But it was very important that the representatives of Kautt & Bux trusted the accounting service and did not question the credibility of its reports.

Kolektor was one of the first cases of an investment by a Western European partner in a self-managed socialist company in Slovenia and even in Yugoslavia. There were, understandably, many ideological suspicions and idle fears, which were also reflected within the company. Any close connection with a foreign partner was met with great mistrust and concealed opposition, as is evident from the minutes of the meetings of the workers’ council. At its session of July 9, 1968, the council had on the agenda the approval of the contract with Kautt & Bux. After the director read the contract and provided an extensive interpretation of individual provisions, all the hidden fears, distrust, objections, and reservations came to the surface. He was also assisted by the president of the municipality, whose presence at the meeting gave the agreement wider political support and the backing of the local political environment. It was the president who stressed several times that the contract was not the type of contract which allowed the exploitation of workers, and thus he rejected in advance the suspicions that could be felt from the tone of the speakers. The fear stemmed largely from the difference in the levels of wages in Germany and Slovenia and the reservations regarding the real prices of supplied raw materials and semi-finished goods. In modern terms, this meant that some of them saw in the envisioned partnership the danger of the effect of transfer pricing which Kautt & Bux could turn to its advantage in terms of its profit levels. The other reservations concerned technology. Some members were quite impatient and objected to the gradual nature of the transfer of production. According to the plans at the time, they were first to produce commutators which required only minor adjustments to production and only later to switch to the production of more demanding types. After a lengthy discussion, they nevertheless reached a decision that Kolektor should sign the contract.

According to the contract, the Kolektor would invest all its available assets, and the foreign partner would invest cash, machinery, tools, the necessary know-how, experience, and goodwill. The investment ratio between the partners was at the upper limit what was allowed: Kautt & Bux could only obtain a 49 percent equity stake. Although the German partners wanted a majority stake, they had to accept this as the only possible option. But they insisted on a provision stating that, were Yugoslavia to adopt new legislation concerning foreign investment, Kolektor would agree to each of the two parties holding a 50 percent stake. The foreign partner also required additional assurances of the safety of its investment. They therefore negotiated the right to cosign any contract. Each contract had to be cosigned by a representative of Kautt & Bux’s management. The term “codirector” was used in the contract. When responding to the ideological accusations regarding this delicate issue of a “codirector,” Kolektor successfully explained to the authorities that the term itself was merely a “terminological concession.” They explicitly assured that it would not have any consequences for the management of the company, as all other management structures typical of a socially self-managed company would remain in place. These explanations notwithstanding, this provision constituted a significant change in the structures and methods of company management and business.

Both partners were pragmatic enough that the cooperative undertaking proved very successful. In the period beginning with the conclusion of the contract and ending in the early 1980s, production and exports grew at an average annual rate of 12 percent. By the mid-1970s, the volume of production surged around eightfold, and around half of all commutators produced were sold to foreign markets through Kautt & Bux. The share of production for the foreign partner was slowly rising, and Kautt & Bux constantly exceeded the purchase value of commutators set out in the contract. Kolektor became a supplier to numerous European companies, including Philips, Bosch, AEG, Siemens, Vorwerk, and Perles. Moreover, thanks to the new technology, the door to the Yugoslav market was also opened wide. Kolektor had an 85 percent market share of the domestic market.

Kolektor increased its production, technology, and market share rapidly. It also constantly invested in research and development, and it enjoyed successes with a few patents which enabled it to lower production costs substantially. Kolektor also improved the educational qualifications of its employees. At the end of 1980, Kolektor has already surpassed Kautt & Bux by volume of production and overall operation, market share, and profitability. Kolektor went from being a recipient of knowledge to an innovator, a company which generated its own knowledge and started to base its further growth on this knowledge.

Then, in 1988, the first agreement, which had been signed 20 years earlier, came to an end. After initial disagreement, a new contract was finally signed which was very similar to the first agreement from 1968. But there was one important difference. Kolektor would be allowed to sell in markets where its German partner did not have its own company for the production or sale of commutators or its own sales agents. Thus, a small window opened for Kolektor for independent marketing with its own brand.

The 1990s were the challenging years for Kolektor and Kautt & Bux. The transition period in Slovenia and the business troubles faced by Kautt & Bux created a new context. During the post-1989 transition, it was finally possible to transform the Kautt & Bux share in Kolektor into a pure capital investment. Kautt & Bux achieved a majority share, 51 percent, with the lease of the production line to Kolektor. It was stipulated that Kautt & Bux’s majority share should be reduced after Kolektor had paid off the production line. Kolektor did that in two years, so the share of Kautt & Bux decreased to 50.01 percent. Kautt & Bux at that time still held the exclusive sales and marketing rights for Kolektor’s products on Western markets. Kautt & Bux regularly used its majority share in Kolektor as collateral in different credit transactions. In the new contract, there was a provision which later became crucial. Kautt & Bux agreed that for any kind of decision, a three-quarters majority of shareholders was required. This was a concession given to Kolektor in order to protect the interests of the Slovenian side.

In the beginning of 1990s, Kautt & Bux was overburdened with debts, lagging behind Kolektor technologically, and losing its competitiveness, and its market share was in decline. In fact, its business performance was completely dependent on the profitability of Kolektor. Kautt & Bux was at the verge of insolvency. Due to the marketing rights which Kautt & Bux held, which meant that it had direct contacts with customers, Kolektor had an interest in helping Kautt & Bux ease its solvency problems. However, in 1994, the efforts to keep Kautt & Bux afloat proved futile. In fear for its future, Kolektor cancelled the agreement with Kautt & Bux, since Kautt & Bux was not in position to ensure the selling channels anymore. Within the customer’s network, Kolektor was already recognized as reliable, innovative, and excellent producer of commutators. Although Kolektor faced initial troubles, it successfully managed to establish direct ties with its customers and build partnerships with them.

Simultaneously with the decline of Kautt & Bux, another process was going on, specifically, the privatization of Kolektor, or to be more precise, the privatization of Kolektor’s 49.99 percent share, which was in state/social ownership. By the time of Kautt & Bux’s bankruptcy, privatization based on the concept of broad employee co-ownership had started. After a very complicated procedure, two newly stablished companies (FI and FMR), owned by 800 employees with a deciding role in management, privatized the Slovenian part of Kolektor.

After Kautt & Bux declared bankruptcy, there was an offer to the Slovenian side to take over the Kautt & Bux share in Kolektor. At the time, however, the Slovenian side simply did not have enough founds for such a takeover. Finally, Kautt & Bux was taken over by Kirkwood Industries, an American commutator manufacturer, in February 1994. In addition to Kautt & Bux’s total assets, Kirkwood also took over slightly more than a 50 percent share in Kolektor. Kirkwood entered the takeover procedure of Kautt & Bux, and Kolektor unprepared. Kirkwood’s management expected to gain total control of the company. However, they were soon faced with reality. They found out about the contractual provision concerning the need for the assent of a three-quarters majority of shareholders for the adoption and enforcement of decisions. The bankruptcy administrator in Germany had obviously withheld this important information from Kirkwood.

In the 1990s, when Kirkwood acquired a share in Kolektor, Kolektor became even stronger and more independent. By using modern technology, it substantially increased its production capacity. The volume of production surged by 47 percent in the second half of the 1990s, from 66 million to 107 million commutators. In the same period, the volume of sales was up by 40 percent. The company started to establish commercial branches and production facilities in different countries (Germany, USA, Brazil, Mexico, South Korea, China, and Bosnia). In the end, Kolektor even bought Kautt & Bux.

From the perspective of the day-to-day realities, the story was not so smooth. The Kirkwood era at Kolektor was marked by huge misunderstandings concerning the future of both companies, since they were also competitors on the most important markets. The Kautt & Bux and Kolektor management were on close and friendly terms. They trusted each other and were partners. In Kolektor’s relations with Kirkwood, there was no sign of that spirit. From the outset, Kirkwood tried to subordinate Kolektor and degrade it into being a plain production plant, without any other function. This was completely unacceptable for the Slovenian side. Kirkwood attempted to acquire additional shares in Kolektor, but it failed, and it also underestimated the mutual loyalty in the local environment. After this failure, Kirkwood lost interest in Kolektor and in the European market. They offered Kolektor’s owner the option to buy out Kirkwood’s share. Slovenian owners agreed. They finished the procedure in 2002. At the same time, Kolektor also purchased the German company Kautt & Bux from Kirkwood and thus completely dominated the European market.21

Conclusion

Yugoslavia was the first communist country to allow foreign investments in the form of joint ventures as early as the second half of the 1960s. The decision was made as part of the broad reform efforts of 1965. This was a period when the reformist wing of the LCY was dominant. The decision to allow foreign investments was part of the effort to modernize technology and management in the Yugoslav economy. The aim was to further Yugoslav integration into the global economy and the international division of labor and also to enable its competitive entry into the Western markets. Allegedly, the advantages for foreign enterprises of investing in Yugoslavia were the relatively lower investment costs due to cheaper labor and favorable tax rates, satisfactory infrastructure, proximity to the Western markets, a relatively extensive domestic market, and the possibility of exports to third markets, especially the Eastern Bloc countries. This was a pragmatic approach to making the domestic economy more efficient. However, the representatives of the reformist wing, even before they were removed from their positions at the beginning of the 1970s, had to take into account the political realities and the prevailing ideological orthodoxy. Therefore, the regulation of foreign investment was a compromise between pragmatism and the ideological constraints of the communist regime. For foreign investors, the security of their investments, shares and management of joint ventures, and repatriation of profits were vital considerations. There were no ideological prejudices regarding the security of investments. This interest was recognized by the authorities, but there were greater concerns about the co-management of companies and the repatriation of profits. As of the mid-1970s, ideological restraints were tentatively weakening, and the regulation of foreign investments was gradually removing the constraints imposed by the self-management political and economic system. In the late 1980s, Yugoslavia fully liberalized foreign investment. However, at that time, the country’s profound economic and political crisis drastically undermined the efforts to encourage foreign investments in the Yugoslav economy through liberalized regulation.

By 1980, Yugoslavia had managed to attract 200 joint ventures, which meant an average of around 15 foreign investments per year. These investments were rarely extensive, which attests to the caution of foreign investors when it came to joint ventures. 200 foreign investments were not much considering the size of the national economy, but they were a lot for a country with a communist system and regulatory restrictions. Research has shown that foreign investors had no problems with the Yugoslav self-managed corporate structure as long as the local or republic party leadership did not interfere. Investors received half of the management rights, even if they had a smaller share of the capital. Thus, both sides needed to seek consensus to make business decisions. A sort of an informal pattern emerged where the Yugoslav side had more say in setting the employee wages, determining the pricing policy on the domestic market, and focusing on integration into the local environment and relations with the local supplier network. Meanwhile, the foreign partner had a decisive say regarding the technology, the product range, the organization and quality of production, marketing, and sales on the Western markets. Together, they made decisions on recruitment, employee training, and marketing on the domestic market and in other communist countries. The experiences of foreign companies were mostly positive. The self-management of the Yugoslav companies was also not an obstacle. The qualities of the leading operational personnel of both partners were more crucial. The concerns of many investors regarding subordination to the workers’ council as the supreme governing body of Yugoslav companies were unfounded. As a survey among foreign investors revealed, the workers’ councils in joint ventures were more of an advisory body, while the decisions were made by the joint management board.22

The volume of foreign investments shows that the expectations of the Communist Party’s reform wing were justified and that foreign investment could be an important driving force for swifter economic development and the state’s integration into the international economic space.23 However, the restrictions put in place by the communist regime were severe. The ideological-political, social, and economic dilemmas related to foreign investments are evident from the case study presented here. The example of the Kolektor company shows that pragmatism was also needed by foreign investors and domestic companies in their daily business practices. The case of Kolektor also shows that foreign investment in a self-managed enterprise could be very successful when long-term objectives were given emphasis and there was minimal political interference, as was often the case in Slovenia.

As we have already pointed out, Kolektor was not a typical example, but the question remains as to how much of its long-term success was made possible by the investments made by its West German partner. The success of a company cannot simply be attributed to one or two factors. The answer lies in several arguments and their mutual interaction in a historical time and space. Each company is a specific, unique story. It takes place in a specific social context in combination with several favorable circumstances.

The presence of the foreign partner was no doubt a very important factor in Kolektor’s success. It put Kolektor in a specific position and prevented any foreign interference. As for internal relations, here the foreign investor had an important controlling function. Dependence on the foreign markets guaranteed by Kautt & Bux and the ensuing steady incomes were advantages that could not be ignored. The need to adhere to the Western economic standards through Kautt & Bux also had a positive impact on the performance standard of the employees and the leading managers. The foreign partner assured a high level of investment. First, the high investment stemmed from the entry of the foreign partner and the requirements of the Yugoslav legislation, but later, they became a necessity guaranteeing technological progress and growth in the market share. Both sides were aware of this. The level of investments in development (knowledge), technology, and production were constantly high. Kolektor’s success was founded on massive cost-competitive production in the constantly expanding electric motors market.

Another important element was the stability of management and teamwork. In the period between 1968 and 1994, there were only two Slovenian directors and one German director. This contributed to the necessary predictability of the management and its approach to the business. Long-term goals had priority over short-term goals. This was respected by the foreign partner. Kolektor was a company which from the outset had a clear strategic orientation and clearly defined, realistic, and measurable goals. The loyalty of employees to the company should also be mentioned. The level of employees’ identification with the company was high for a long time. The company tried to understand the employees and their families and help them meet their needs. This has been a constant feature of the company’s policy of social responsibility, regardless of which decade of Kolektor’s development we are looking at. Social responsibility was a key feature in the concept of Yugoslav enterprise, as other cases clearly show.24

Unlike most of the others joint ventures in Yugoslavia, the collaborative undertaking between Kolektor and Kautt & Bux was successful due to pragmatism of the partners, both the foreign and the domestic, and the pragmatism of local authorities, which was very important. Local party and administrative authorities respected the new reality at Kolektor, which was established after the entry of a foreign partner. Primarily, they were interested in economic performance, since Kolektor became an important employer and contributor to the development of the local community.

Bibliography

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Artisien, Patrick F. R. Joint Ventures in Yugoslav Industry. Aldershot: Gower, 1985.

Artisien, Patrick F. R., and Peter J. Buckley. “Joint Ventures in Yugoslavia: Opportunities and Constraints.” Journal of International Business Studies 16, no. 1 (1985): 111–35. doi: 10.1057/palgrave.jibs.8490445

Bićanić, Rudolf. Economic Policy in Socialist Yugoslavia. Cambridge: Cambridge University Press, 1973.

Bozescu, Petru. “Joint-Ventures in Eastern Europe.” The American Journal of Comparative Law 32, no. 3 (1984): 407–47. doi: 10.2307/840423

Bučar, France. Podjetje in družba [Enterprise and society]. Kranj: Moderna organizacija, 1972.

Chittle C. R. “Direct Foreign Investment in a Socialist Labor-Managed Economy: The Yugoslav Experience.” Weltwirtschaftliches Archiv 111, no. 4 (1975): 770–84.

Conner, James. “Joint Ventures in Yugoslavia.” The international Lawyer 10, no. 1 (1976): 45–53.

Conner, James. “Yugoslavia: Laws on Joint Ventures and the Transfer of Technology.” International Legal Materials 18, no. 1 (1979): 229–71.

Dyker, David, Yugoslavia – Socialism, Development and Debt. London: Routledge, 1990.

Flakierski, Henryk. The Economic System & Income Distribution in Yugoslavia. London: M.E. Sharpe Publisher, 1989.

Gnjatović, Dragana. Uloga inostranih sredstava u privrednom razvoju Jugoslavije [The role of foreign loans in economic development of Yugoslavia]. Belgrade: Ekonomski institut, 1985.

Investiranje stranog kapitala u jugoslovenska i talijanska poduzeća [Foreign investment in Yugoslavia and Italian enterprises]. Rijeka: Ekonomski fakultet Rijeka, 1970.

Lamers, E.A.A.M. Joint Ventures Between Yugoslav and Foreign Enterprises. Tilburg: Tilburg University Press, 1976.

Lazarević, Žarko. Kolektor: 50 years 1963–2013. Idrija: Kolektor, 2013.

Milutinovich, Jugoslav, Glen Boseman, and Danica Vrbanovich. “Investment in Yugoslavia: Western Opportunities and Difficulties.” Management International Review 15, no. 1 (1975): 51–60.

Patton, Donald, and Do Anh-Dung. “Joint Ventures in Yugoslavia.” Management International Review 18, no. 4 (1987): 51–63.

Prinčič, Jože. “Direktorski položaj v pogojih socialističnega gospodarstva 1945–1990” [Being director in socialist economy 1945–1990]. Prispevki za novejšo zgodovino 47, no. 1 (2007): 185–97.

Prinčič, Jože. “Tuje naložbe v slovenskem gospodarstvu v času druge Jugoslavije (1945–1991)” [Foreign investment in Slovene economy in Yugoslavia 1945–1991]. Prispevki za novejšo zgodovino 42, no. 1 (2002): 109–20.

Prinčič, Jože. V začaranem krogu [In bewitched circle]. Ljubljana: Cankarjeva založba, 1999.

Ramnath, Narayanswamy. “Yugoslavia: Self-Management or Mismanagement?” Economic and Political Weekly 23, no. 40 (1988): 2052–54.

Sukijanović, Miodrag, and Djura Vujačić. Industrial Cooperation and Joint Investment Ventures Between Yugoslav and Foreign Firms. Belgrade: Jugoslovenski institut za ekonomska istraživanja, 1968.

Woodward, Susan. Socialist Unemployment – The Political Economy of Yugoslavia. New Jersey: Princeton University Press, 1995.

Table 1. Foreign investments by economic sector, 1968–1980

Source: Artisien and Buckley, “Joint Ventures in Yugoslavia,” 116.

The paper focuses on cooperatives—seen as business enterprises—in the First Czechoslovak Republic (1918–1938) and the period of 12 years after the communist putsch (1948–1960). It compares the functions of cooperatives, the limits placed on their (semi-)independent business activities, and their chances to decide for themselves in the market economy and the centrally planned economy. Drawing on the methods of business history and economic history, the study seeks to answer the following questions: 1. Were the cooperatives in the First Czechoslovak Republic really fully independent companies running their business on a free market? 2. Were the cooperatives in the Stalinist and early post-Stalinist Czechoslovakia really subordinated subjects in a centrally planned economy? 3. Are there any real connections in the functioning of cooperatives in these two eras? In other words, is it possible that something of the independent cooperatives survived and that the traditional interpretations (according to which the two eras were completely different and even contradictory) can be seen in new and more accurate ways?

Keywords: Business history, centrally planned economy, cooperatives, Czechoslovakia, economic history, free market economy, 1918–1938, 1948–1960

Cooperatives were very important economic subjects both in interwar and postwar Czechoslovakia. Their origins go back to the second half of the nineteenth century. Cooperatives played important cultural and national roles in the modernization of society, but they were not major factors in economic development or growth in the less developed regions of East-Central European countries after the 1860s.1 In contrast, in Bohemia, Moravia, and Silesia cooperatives were key players in economic development and in the process of economic modernization. In the interwar period, the cooperative network was widespread both in cities and in smaller towns and rural settlements. The membership base reached several million, and cooperatives had enormous assets. Nobody really questioned the fact that cooperatives were an important component of the Czechoslovak economy.

After World War II, the economy of Czechoslovakia was of a mixed type. It was a strongly regulated market economy in which the state authorities interfered and which had a huge share of state-owned enterprises (especially the industrial ones). The cooperatives experienced a big revival in 1945–1948, successfully finding their position in the new era. The communist coup d’état in February 1948, however, created an entirely new situation. With the centrally planned economy on the rise, the roles of the cooperatives as businesses and enterprises were significantly reduced or absolutely eliminated. Nevertheless, even in 1948–1960, the cooperatives played important roles in the Czechoslovak economy and Czechoslovak society.

According to the traditional, “classic” interpretations of the history of cooperatives (which are only rarely found in the secondary literature, as almost no serious scholarly inquiries were done about cooperatives after 1989), the cooperatives were independent enterprises which functioned in a free market without any major state or political interferences during the First Czechoslovak Republic (1918–1938). On the other hand, the period of the centrally planned economy (since 1948) has been seen as an era of absolute state dominance over the economy, in which nothing remained of the autonomy of cooperatives, which are seen as having been absolutely subordinate instruments of state economic policy. 2 I am certainly not going to question the fundamental systemic difference between the two eras. However, in this paper, I am going to ask whether this general view is entirely correct or whether one sees traces of some similarities or even continuities between these two eras. In other words, is it possible that something of the traditional, allegedly independent cooperatives survived in the Stalinist period (1948–1953) or in the early post-Stalinist period (1953–1960) in Czechoslovakia?

The choice of the two periods under comparison is based on a standard periodization of Czech economic and social history.3 In 1918–1938, the First Czechoslovak Republic established a liberal-democratic regime (seen as liberal-democratic from the perspective of the conditions of the interwar period) with a free-market economy. The Second Republic (1938–1939), following the shock of the Munich Agreement, was a very different political and economic system. The starting point of the second period is the communist coup d’état in February 1948. Although the drastic changes in cooperative policy didn’t start immediately (the newly established regime obviously had to deal with other, more important problems), the putsch in February opened the way to these changes. The second period ended in 1960, when a new constitution was adopted. It stated that the process of “establishing and building socialism” had been successfully completed.4 From the economic point of view, this statement was at least partially true, because the vast majority of property was in the hands or under the direct control of the state, and the economy was centrally planned.5

To answer the questions I have posed in this paper, I use traditional approaches of business and economic history. I compare the cooperative laws and principles, their organizational structure, and the forms of state control, regulation, and interference. I also use official statistical sources to analyze the important role of cooperatives in the economy. While these data have been available and published before, they have never been used to analyze the cooperative part of the Czechoslovak economy in this way.6

Cooperatives in the Market Economy of the First Czechoslovak Republic

In the First Czechoslovak Republic, the cooperatives continued to grow, much as they had in the 1870s, 1880s, and 1890s (depending in part on cooperative types, as the rapid development of credit cooperatives, for instance, started about 10 or 20 years before the growth of others). The rapid prewar growth resulted in a complex network with almost 12,000 cooperatives of various types.7

There is broad consensus according to which the First Czechoslovak Republic met the following two criteria: it was a liberal-democratic political regime (at least in the context of Europe in the 1920s and 1930s)8 and the economy was based on the principles of free market capitalism.9 Thus, the new state was a sort of “playground” not only for cooperatives but also for many other types of businesses. In this playground, the cooperatives built up strong positions, as the data presented below illustrate (Table 1).

Table 1. Cooperatives in Czechoslovakia in 193710

* For Slovak cooperatives deposits instead of assets (which are not available11)

** In 1936

Sources: Statistická ročenka Republiky Československé 1948, XV, 159–60, 199; Statistisches Jahrbuch der ČSR 1938, vol. 5, 186–87; Zprávy Státního úřadu statistického 1937, vol. 18, 221–24, 1104–5, 1166–67; Zprávy Státního úřadu statistického 1940, vol. 21, 32, 261, 507.

As Table 1 shows, the cooperatives were very important for the Czechoslovak economy. There were 15,446 cooperatives which had more than 4.5 million members. However, the number seems to be much higher because of two factors: usually, only one family member was an owner of a share in a cooperative and many people were members of more than one cooperative (e.g. a farmer might be a member of a credit cooperative and an agricultural cooperative, or a worker might be a member of a housing cooperative and a consumer cooperative). Assuming that the average family had approximately five members and that every person was a member of two cooperatives, we can estimate the real number of all “customers” or “users” of cooperatives to approximately 11.5 million people, which was more than 80 percent of Czechoslovakia’s population (14,428,715).12 The assets controlled by cooperatives, which came to more than 35 billion crowns, were about 48.7 percent (!) of Czechoslovakia’s GDP in 1937.13

The legislation passed by the First Republic respected the business and operational independence of cooperatives. It was based on the cooperative law of 1873, which at the time it was passed was outstanding and which remained effective until 1954. The founding of cooperatives was quite simple. The statutes had to be made and the cooperative had to be registered. The cooperative had to report all changes in statutes and all new people on the board of directors, which was elected by the general assembly, where all members could participate (directly or indirectly through delegates), vote, and be elected. The principle of voting was interpreted differently. In some cases, each member had one vote (generally in consumer cooperatives), while in others, the number of votes depended on the individual’s number of shares (generally in other cooperatives). Issues of liability were different for members and for the leadership. Members had liability with all the property (cooperatives with unlimited liability) or with the sum, which was a multiple of the member’s cooperative share. The sum was defined by statutes, and it was at least the same as the share. That meant that a minimum member’s liability was the share plus the same sum. On the other hand, the board of directors always had liability with all their property.14

The cooperative law of 1873 did not regulate the business activities, property, or distribution of profits among members. These matters were subject to the decisions reached independently by each cooperative. In the subsequent decades, only one important regulation was added. The law of 1903 forced the cooperatives to submit to a financial examination every two years. The examination (called “revision”) was done by state inspectors or by the cooperative union (see below).15

From the point of view of the state, cooperatives were seen as useful businesses which helped raise the standard of living of members of the lower social classes. Therefore, the cooperatives were subject to different taxes. While other companies generally paid 8 percent income tax, cooperatives paid only 2 per thousand tax on authorized capital yearly, which was an immensely low or, rather, de facto negligible amount. However, this tax rate applied only to cooperatives that restricted their business activities to members only.16 In other words, the taxes were low if the cooperatives worked as self-help companies which provided services to their members. However, if they acted as open business enterprises and provided services for everybody, they had to pay the same taxes as regular trade companies.

This created a lot of space for clashes between cooperatives and other types of companies. As one would have anticipated, the cooperatives frequently violated this regulation and provided their services to non-members. Their business competitors often made complaints on this matter, and the Czechoslovak authorities then had to deal with these complaints. The cooperatives, however, offered a simple defense in response to these accusations. They contended that the non-members for whom they had provided services were related by familial ties to members of the cooperatives and that the rules thus had not been violated. If this argument did not work, they claimed the problem was merely a mistake which had been made by particular employees (or cooperative officials). The authorities usually accepted this defense and fined the employees, and the cooperatives then compensated the employees for the fines. Obviously, this did not solve the problem. However, it was almost impossible to prove that any particular case was the result of the deliberate action of a cooperative. Generally, the cooperatives had an advantage in such cases. Often, however, the cooperatives and other business companies had good relations and collaborated. For example, in the process of market syndicalization in the 1920s and 1930s, the cooperatives made deals with other businesses to divide the markets.17

The organizational structures of the cooperatives were very complicated and hardly transparent in the First Republic. As early as the 1890s, the cooperatives had founded central cooperative unions to represent and advance their interests. Various unions existed even before 1918, and their numbers increased in the interwar era. Four important factors divided the cooperative movement:

Some cooperatives were organized on a professional basis, e.g., the cooperative of Živnostenská banka’s (the biggest bank in Czechoslovakia) employees. Such cooperatives usually joined apolitical cooperative unions.

In the multinational state of Czechoslovakia, the national cleavage was important in most advocacy (pressure) groups, including labor unions, as well as in the cooperative movement. Czech, Slovak, German, Hungarian, Polish, and Ruthenian cooperatives therefore joined particular unions defined by the nationality (language) of their members.

Some cooperative unions consisted of only particular types of cooperatives. As a result, there were exclusive cooperative unions, e.g., for traders’ cooperatives.

Finally, the cooperative unions were often components of a bigger framework of pressure groups led by political parties. Every important political party organized one or more cooperative union. This was typical for Czech, Slovak, and German cooperatives. In contrast, smaller national groups in Czechoslovakia did not split their strength and organized their cooperatives almost exclusively on the national principle.

There was a total of 85 (!) cooperative unions in Czechoslovakia in 1935 as a result of this diversity.18 The most important were the party-oriented ones. Of the 16,832 cooperatives, 13,399 (approximately 80 percent) were members of only eight of the biggest party-oriented unions (of the Czech and German social-democratic, Czech national-socialist, and Czech and German agrarian parties).19 We can assume that other party-oriented unions had a very significant share of the other cooperatives as members.20

The influence the political parties exerted over cooperatives was therefore quite extensive. However, there is no hint in the archival sources or in the secondary literature so far indicating that the cooperatives were submitted to any significant influence by the political parties in an entrepreneurial way. Their business strategies remained independent.21 However, the political parties often appointed their officials to leadership positions of big cooperatives or cooperative unions (these officials had to be elected by general meetings, which was not a problem because of the connections between the cooperative/union and the party). Among the members of the union leadership bodies (boards of directors or control boards), we often find senators, members of parliament, or even ministers, as well as important individuals with considerable public influence. Moreover, sometimes even the lower posts in cooperatives and unions were given to people who were close to the party’s leadership (their relatives or friends).22 These people were “rewarded” by the party through “good jobs” in cooperatives (much as the party’s VIPs were “rewarded” by being given posts on the board of directors in companies or high official posts in public administration). Indeed, giving (and taking) such “sinecures” was believed to be “normal” practice (or at least usual practice) in the First Republic.

There was, however, one more way for political parties to influence and even directly use the cooperatives. The cooperatives sometimes provided organizational and even financial support for a party’s (or its satellite organizations’) events. Once again, the research on this topic began only a year ago, but some particular findings have already been made. For example, the consumer cooperative Včela (the biggest cooperative in interwar Czechoslovakia, running its business in Prague and Central Bohemia and, after 1929, under the direct influence of the Communist Party) provided the communist “mass” organizations (such as a labor union, a sports union, a youth union, etc.) with more than 700,000 crowns (approximately 0.5 percent of its yearly retail sales) in the single business year of 1931–1932 (i.e., in the middle of a deep economic crisis!).23 When the parties did not influence the cooperatives’ businesses directly, they were nonetheless able to hinder their profitability (and thus influence their business strategies) indirectly.

The free business activities of cooperatives were limited in one more way. The unions (most probably regardless of their political profile, i.e., the apolitical cooperatives included) were aware of the fact that the cooperative network was sometimes too dense and that cooperatives were fighting one another. The unions tried to regulate the cooperatives, forcing them either to merge or to respect one another’s areas. Thus, they created de facto cartels.24 While this was definitely useful for smaller and less effective cooperatives (which were then protected against competition), for the bigger and more effective cooperatives, it was a restriction. The syndicates were quite usual in Czechoslovakia in the 1930s.25 The cooperative market was no exception in this way. On the other hand, this was still more a regulation than it was a means of controlling the cooperatives, which remained fully independent enterprises in other ways.

Cooperatives in the Centrally Planned Economy of the Stalinist and the Post-Stalinist Czechoslovakia (1948–1960)

The communist coup d’état in February 1948 marked the beginning of the 41 years of communist dictatorship in Czechoslovakia. Drastic changes in the economy started almost immediately. The mixed economy of the Third Republic (1945–1948) was replaced with a centrally planned one after 1948. The period between 1948 and 1953 saw the introduction of the first five-year plan, during which the Czechoslovak economy was increasingly transforming into a Soviet model (with the closest match coming in 1953–1958, when the new planning system, inspired heavily by Soviets, was introduced, according to which the whole economy was seen as a single “super-company”).26 This meant the drastic restructuring of Czechoslovak economy and society. Heavy industry (especially machinery, including the arms industry) was highly prioritized, and the primary and tertiary sectors were suppressed or not addressed at all. The whole economy was “nationalized” or “socialized.” Owners were expropriated and were given no compensations (indeed, they were often criminalized). Society started to be seen from the point of view of hereditary class struggle.

In this new context, the “playground” for cooperatives in communist Cze­choslovakia in 1948–1960 had the following characteristics: 1. It was a totalitarian regime (although it got a little “softer” after 1953, especially regarding the intensity of terror as a practice used by the police state).27 2. The economy was of a Stalinist centrally-planned type. Despite the slight “liberalization” of the political regime after 1953, Stalinist central planning in the economy survived in its most rigid form until 1958.28 However, after the monetary reform and the subsequent riots and strikes in June 1953,29 the “New Course” in the economy was announced. The most violent practices were brought to a halt and emphasis shift to some extent from heavy industry to light industry (including consumer products). After 1955, with the start of the second five-year plan (1956–1960), the “New Course” was abandoned, and the new wave of heavy industry build-up began.30

Table 2. Cooperatives in Czechoslovakia in 1937 and 194631

Sources: Zprávy Státního úřadu statistického 1940, XXI, 507; Statistická ročenka Republiky Československé 1948, XV, 159–60; Smrčka, Vývoj družstevnictví, 211.

If we want to analyze the quantitative development of cooperatives in 1948–1960, it is worth pausing for a moment to consider their situation in the Third Republic (1945–1948). While the cooperatives were more or less suppressed and restricted during the period of Nazi occupation (1939–1945), in the Third Republic, they experienced a new revival. Their typology was very similar to the typology of the cooperatives in the prewar era. The most important figures in 1937 and 1946 are in Table 2. While the other cooperative types remained approximately at the same numbers, the number of credit cooperatives dropped substantially. Taking into account the drastic decline in the Czechoslovak population in 1939–1945 (ca 20 percent),32 the situation seems reversed: in the relative numbers, the strength of credit cooperatives was about the same, while the other types of cooperatives (as well as the whole cooperative movement) were significantly better off.

Inspired heavily by developments in the USSR in the 1930s and 1940s and sometimes under the strict influence of Soviet “advisors,”33 the roles of cooperatives had fundamentally changed during the few years after the communist putsch. Their traditional business, cultural, educational, and other roles were suppressed or even eliminated. The typology of cooperatives was reduced drastically. Credit cooperatives were “nationalized,” restricted in development and activities, and finally dissolved as part of the monetary reform of 1953. The broad variety of agricultural cooperatives was destroyed and only one type existed. The new collective farms (“United Agricultural Cooperative,” Jednotné zemědělské družstvo, JZD) focused on collective production and served as a crucial tool in the “collectivization” of businesses run by private farmers. Housing cooperatives survived, but they were submitted to strict state control, and any autonomous business activities were strictly forbidden. Consumer cooperatives seemed to grow, but this was an illusion created by the “socialization” of private traders and businesses. Their activities were fully controlled by the state. Production (workers) cooperatives were growing, due not only to the support of the state but also to the “socialization” of craftsmen. Sales and purchasing cooperatives were mostly dissolved, and those that remained were integrated into consumer or workers’ cooperatives. The same was the fate of the last group of “other” cooperatives.

As a result of these changes, generally, only four types of cooperatives existed in communist Czechoslovakia: collective farms, consumer, housing, and workers’ cooperatives. Based on the quantitative parameters only, the cooperative system seems to have remained relatively stable. The numbers of cooperatives and of their members in 1966 did not differ dramatically from the numbers in 1946 (Table 3).34 Moreover, if we take the dissolution of credit and traders’ cooperatives into account, the other types of cooperatives seemed to have been growing. However, this growth was mostly artificial and therefore illusory. Hundreds of thousands of people (or maybe millions) did not join the cooperatives voluntarily. They were more or less forced to join, either to avoid being persecuted or accused of a crime or to have a better chance of keeping the rest of their property. Some people were violently forced to join cooperatives during the “collectivization” of agriculture (the creation of collective farms) and “socialization” (a de facto expropriation) of small businesses.

However, recent research has revealed that a traditional paradigm according to which the cooperatives were helpless victims which were forced by the regime to participate in “socialization” of private property is not entirely accurate. At least in the case of consumer cooperatives, some of them were very active in this process, sometimes even more active than one would have expected.35 It is plausible that the situation in workers’ and housing cooperatives could have been similar. After all, the cooperatives were traditional competitors of private businesses, and as noted above, relations between the cooperative and private business ventures were often near to hostile. It is possible (and probable) that many members of cooperatives may have felt that the process of “nationalization” and the creation of a socialist society represented a “final” and well-deserved victory (the fact they were wrong and the cooperatives would not be able to function as independent businesses under the new regime is another matter).

Table 3. Cooperatives and their members in Czechoslovakia in 1946 and 1966

Sources: Jelínek, 20 let JZD, 50; Archiv Muzea družstevnictví, Družstevní asociace ČR, Statistická ročenka Ústřední Rady Družstev, 1970.

The cooperative legislation was based on two laws. The first was the law about collective farms (JZDs) from 1949, which separated the agricultural cooperatives from other types for four decades. The most important goals of the JZDs were to contribute to the fulfillment of the central economic plan and to unite the lands of individual farmers.36 The law about “people’s cooperatives” from 1954 annulled the law from 1873 and created a new basis for cooperative activities. The goals of the cooperatives were now primarily to help build socialism and raise the living standards of the members of the cooperatives and all “working people.” Their activities were put under the strict control of the state, including the obligatory division of profits (not primarily among members).37 These two laws clearly show the communist perception of the functions of the cooperatives: They were not seen as businesses, but as tools in central planning and a new social and economic policy.

The organizational structure of the cooperative movement was extremely simplified during World War II, and only a few cooperative unions remained in operation.38 After the communist coup d’état in February 1948, these unions were dissolved, and all cooperatives were subordinated to the Central Cooperative Union (Ústřední rada družstev, ÚRD).39 In the subsequent years, the consumer cooperatives were forced to abandon cities (and sell products only in smaller towns and rural areas), and their organizational structure after 1956 followed the administrative division of the country (districts or okresy). This is why, by 1966, there were only 105 huge cooperatives. Similarly, the traditional small workers’ cooperatives were forced to fuse into conglomerates (although not district-based). In contrast, the collective farms originally created were often too small and therefore in many cases not sustainable. Bigger collective farms were founded, either by founding new farms or by merging several cooperatives into one, but only after 1955.40 This meant that the organizational structure was artificial, without any trace of a free development. In other words, the structure was crafted by the state/regime in the hopes that the new cooperatives would be able to fulfill their new roles.

It took the new regime some time to consolidate after 1948. Once it had done this, it started to reorganize the economy into a centrally planned one (as mentioned above). The room for independent or autonomous business activities of cooperatives was quickly shrinking. After 1950, there was generally no room left at all. The cooperatives became state-controlled instruments of the centrally planned economy. They could not plan even the simplest activities on their own. Moreover, they became part of a system of political indoctrination. In 1948–1953, almost all decisions were made on the basis of the state ideology. The “old” leaders were removed, and the new ones were installed into the cooperatives. The most important qualification of these new leaders was not expertise. It was membership in or loyalty to the Communist Party.41 The productivity and profits of cooperatives suffered a drastic setback, and the situation only began to improve since the 1960s.

There were several reasons for the destruction of cooperatives as independent enterprises. First, central planning was supposed to work better than the market economy (this proved an illusion, of course). Second, independent businesses were elements of the capitalist world, which the communist regime claimed to have “defeated.” Third, profit and effectiveness (fundamental for traditional business strategies) were no longer important economic factors. Instead, production was crucial. There was, however, at least one more reason that is often overlooked in the secondary literature. The reason was the practical application of the communist ideology. The cooperatives (as well as all other companies) were submitted to central planning not only in their activities. Importantly, the plan also expected them to be only marginally profitable. The regime did not want highly profitable companies, since according to communist ideology, profits would only have created a new “bourgeoisie,” i.e., a new class enemy.

Even in rare cases when the old leadership of a cooperative could have kept its position or the new leadership consisted of experts, this leadership quickly found itself struggling with the bureaucratic system of central planning, which was dominated by ideology. Despite their expertise and arguments, the leaders lost the disputes and had to comply. The best they could have achieved was to delay some of the decisions that were extremely disadvantageous for the cooperative (and this was possible only if the leaders were important members of the Communist Party and therefore had a strong “political background”).42

On the other hand, it is plausible that cooperative leaders were trying to find some new “quasi-business” strategies, for instance cooperating with other companies, to get better (“softer,” i.e. based on lower figures) plans for the cooperative, etc. This “quasi-market behavior” was quite common in industry, and some of the cooperatives may have used these kinds of schemes too. However, the secondary literature has not yet turned up any sources buttressing this assumption. To summarize, the cooperatives in the first decade of the communist regime were no longer independent businesses. On the contrary, they were de facto instruments of the state-controlled, centrally planned economy. Basically, they were no longer cooperatives. They had the legal form of cooperatives and were called so, but they had almost nothing common with traditional cooperatives. To the extent that there were exceptions, these were little more than oversights or individual gaps in the system.

Conclusions

In 1948–1960, the “playground” for cooperatives in Czechoslovakia was extremely different than it had been in 1918–1938. In the First Czechoslovak Republic, cooperatives were independent businesses which freely chose their business strategies. They experienced continual growth and their economic power was enormous. Their organizational structure was independent of the state and was therefore complex and even chaotic (over 80 cooperative unions existed in the 1930s). In contrast, after the communist coup d’état in February 1948, the cooperatives were not only subjugated by the state but became state-controlled instruments in a drastic restructuring of the economy and society. They were submitted to the centrally planned economy, which left no room for independent business activities.

The general description given above is no doubt valid in broad strokes. However, when seen from a closer view, the situation of cooperatives looks a little more diverse. First, the cooperatives in the First Czechoslovak Republic were under the strong influence of political parties, which sometimes forced them to support their activities (which created costs for cooperatives). Second, the cooperative unions tried to restrain the cooperatives’ areas, thus forcing them to establish some sorts of cartels (or better, syndicates). While this offered some protection for the weaker and less profitable cooperatives, the successful ones were limited in their activities (they could nevertheless always leave the union). And third, it is possible that even in the Stalinist era of 1948–1953 there was some very limited room for cooperatives, in which they could develop some sort of “quasi-market” business strategies of an informal character. However, there is no doubt that this room was very small, and trying to function in these “gaps in the system” was very risky. Further research will perhaps reveal the extent and limits of these activities.

One conclusion is undeniable: though there were some restrictions on cooperatives in the First Republic and there was also some (limited) room for autonomous actions by cooperatives after 1948, the economic and political systems in which they functioned in these two periods were qualitatively different. The cooperatives after 1948 were no longer free businesses. They were “socialist enterprises,” or in other words, tools of centrally planned production, trade, and agriculture, which were organized and controlled by the totalitarian state.

Archival Sources

Archiv Muzea družstevnictví [Archive of the Cooperative Museum]

Družstevní asociace ČR [Cooperative Association of the Czech Republic]

Statistická ročenka Ústřední Rady Družstev, 1970 [Statistical yearbook of the Central Cooperative Union, 1970]

Moravský zemský archiv v Brně [Moravian regional archives]

H 288: Ústřední jednota českých hospodářských družstev úvěrních Brno [Central Union of Czech Credit Cooperatives in Brno]

Korespondence svazu z let 1936–1937 [Business correspondence of
the Union], n.d.

Státní oblastní archiv v Praze (SoaPraze) [State Regional Archives in Prague]

Krajský soud obchodní [Regional Business Law Court], podnikový rejstřík [Business Register]

Družstvo hospodářských lihovarů pro prodej lihu v Praze [Cooperative of distilleries for the sale of alcohol in Prague]

Protokol zápisu z valné hromady Družstva hospodářských lihovarů [General meeting minutes of the cooperative of distilleries], 22. 6. 1931.

Družstvo Včela Praha [Cooperative Včela Praha]

Protokoly zápisů valných hromad družstva Včela, [General meetings minutes of the Cooperative Včela], 1918–1938.

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