Thinking Point
	How did Hungary's existing economic structures in the 1980s help smooth the transition to capitalism in the 1990s?

David Stark: Well, here on my desk I have a can. I bought this can on the streets of Budapest, Hungary, shortly after the fall of the Berlin Wall, in October 1989. This can is smaller than a tuna can, and it's very light. If you click your fingernail on it, you would think that it's empty. But the big, bold lettering on the can, complete with a universal bar code, tells you that, in fact, the can is not empty at all. The translation of the label, from the Hungarian, is "The Last Breath of Communism."

If I were so inclined, I could take this can as a facile metaphor for the transition in Eastern Europe, representing the bold entrepreneur who cans and captures something to sell. In that view, the can holding the last breath of Communism represents the irresistible urge to trek and barter that is released by the fresh winds of the free market.

n't make that leap. I can't use this can as such a facile metaphor, because I actually know something about the conditions under which it was manufactured. It wasn't made in a garage by some start-up entrepreneur in Budapest in 1989. It was manufactured in the heart of a state-owned enterprise, a state-owned factory. And it was made not by the factory per se but by a team of people who were working there, using equipment from the factory in the off hours. Starting in 1982, groups of workers in Hungarian factories got the right to "lease" equipment from the factory and run it in the off hours.

It was a wonderful experiment for a sociologist to study. Factory workers would work from 6 a.m. to 2 p.m. in a bureaucratic, hierarchically organized environment with a pay scale set centrally. Then, with the same technology, with the same people, in the same place, producing the same or similar products, they would work in the off hours in this entirely different system in which they elected their representatives, set the pay scales themselves, and decided how to divide up the entrepreneurial fee. So they would say, "From six to two we work for them, from two to six"--or on weekends and off hours--"we work for ourselves."

Now, why does it matter? This breaks with the conventional toggle-switch theory of transition. Exhale Communism, inhale capitalism, as if it were happening in one breath or one moment. Public property one moment, private property the next. Communism one moment, democracy the next.

The actual production of the can shows that that's not true. These societies were not frozen in ice or cast in stone before the advent of capitalism. Important kinds of economic and political changes were taking place well before 1989. You don't simply have tyranny followed by freedom. These societies were already beginning to change in very important ways.

eation of an alternative public sphere with the emergence of Solidarity, the union led by Lech Walesa, in 1980. In Hungary, it was the second economy, an alternative way of organizing economic activity that began with activities such as baking bread, driving taxis, repairing automobiles and renovating homes, and it eventually migrated right into the heart of the socialist enterprise. These work partnerships had been in place in factories since 1982, employing workers such as those who produced this fanciful "last breath of Communism" joke.

Fathom: What market were these people producing for in 1982? What kinds of products were they making and where were they selling them?

Stark: In that particular experiment, most of what they produced, both the goods and the services, were subcontracted to their own firm. It was the relatively rare group that would actually produce and market products directly to consumers. In curious ways, it was also in the interest of the company to do this subcontracting, because it was a way to reward the very best workers in the factory who would have access to this extra hour's work. A factory manager needed this work to be done but may have had a limited wage bill, no overtime budget or other premium perks to award. These workers might say, "Well, you know, I could go out and drive a taxi and use that time in the off hours to earn money, so you don't benefit from it at all." So the enterprise directors say to the best workers, "We'll give you the possibility of working in this off-hours arrangement," and formalize activities that were already going on.

On one occasion in the mid-1980s, I asked one highly skilled machinist who worked in a large factory in Budapest, "What's the meaning of this partnership arrangement?" His direct, if enigmatic, answer: "I can't grow vegetables in a bathtub." What he meant was: "If I worked on a state farm, I would be able to have access to the means of production to produce vegetables or whatever on a household plot. But I'm an urban worker. I live in a small apartment. I can't grow vegetables in my bathtub." The VGMK, this enterprise partnership form in which he worked, functioned as the household plots of industry, allowing a select group of skilled urban workers to augment their income while experimenting with organizational innovation.

Fathom: It seems as if you're saying that in the pre-1989 economy there were these pockets of entrepreneurialism in the second economy, i.e., not state sector.

Stark: Right. Ninety percent of Hungary's fruit and vegetables were produced in a second economy, and 80 percent of all renovations inside homes.

Fathom: Was it legal or illegal, and why or why not?

n socialist societies was more complicated than that dichotomy. People during that period would talk about three zones of legality in the socialist society: the legal; the illegal; and the "alegal," or not illegal. The alegal is a zone that expands. For example, it's illegal, at some point, to use a garage for anything other than storing your car. Then people begin to use it to repair automobiles, so it moves from the illegal to the not illegal, the not yet legalized. And then the alegal moves to the legal, and this zone gets bigger and bigger until it comes right into the socialist factory.

Fathom: How did the two economies exist side by side, and to what extent was the second economy an extension of the state-sector economy?

Stark: The relationship was symbiotic and parasitic. On the one hand, the second economy improved, in some ways, the performance of the Hungarian economy. Productivity in the off hours was three times what it was in the regular hours. Now, these groups were self-selected, so drunkards and laggards and the like didn't get into it.

But they also organized the work much better and much more efficiently. So there was a real increase in performance. But, in some ways, it came at a price. If you worked in the off hours, there was nothing to keep you from doing some of that work during the regular hours, right? A lot of the setup work was going to be done during regular work hours. Or, if you had the opportunity to earn in the off hours three times more than you earned in the regular hours, you might hoard your labor, resting and taking it easy in the regular hours in order to put that effort into the off hours.

If you were managing a factory and you knew that a worker was driving a taxicab, running a tractor or painting houses in the afternoon, then you would actually have an interest in forming one of these partnerships inside the firm, because at least the extra hours of work could be captured by the firm. So, it was symbiotic in some ways; managers had an interest in promoting it. But it was also somewhat parasitic.

Fathom: To what extent did the second economy play a role in the events of 1989?

Stark: Overall, it had an effect on the popular imagination. It was a form of criticism of the socialist system, lived out on a daily basis, in which people could compare both economies side by side. I'll give you an example. On one of my very first trips to Budapest, I went to a colleague's house and his wife said to me, "I'm sorry, I don't have Maszek bread. I had to buy it from the state shop." Maszek, from Magan Szektor, literally means "private sector." She's apologizing that she doesn't have second-economy bread for me, which is, as everybody knows, of higher quality. At the most basic level, people chose certain kinds of commodities, simultaneously expressing a choice for one economic system over another.

It would also happen in other places. A factory might order a sophisticated machine tool, preferring one of these off-hour partnerships to fill the order rather than the factory in the regular hours. So you would get competition even within the firm. I think the second economy, especially in Hungary, was a very important move as a criticism of the Communist-socialist system. It was not a criticism that was being made by some cafi intellectuals; it was this palpable, real, existing alternative.

Fathom: If we flash forward to 1989 and 1990, political reform was in the air. The Communist powers are on their way out. Free elections are scheduled. What happens to this second economy?

Stark: I'm thinking very concretely about people that I studied from 1983 to 1989 who were in these partnerships. I know lots of people in different walks of life who were involved in these partnerships.

	Ready Reference
	communism socialism The Columbia Electronic Encyclopedia

One might imagine that the private, second-economy entrepreneurs outside the Communist economy would be the ones at the core of the new capitalist economy. I speak of those who started up their own business, were adventurous, venturesome and, in some ways, brave, because in the Communist period it maybe was illegal to do this. They had experience in a quasi market economy.

However, it turns out that the small, purely private producers did not grow to be the most important figures in the new capitalist economy. To be sure, they had some "business experience," but it was based on a distorted market economy in which word of mouth, trust and personal ties were extremely important in making your business. These habits don't immediately get converted into the best business practices in the new system and don't necessarily give you an advantage.

The major beneficiaries of the change have been the intrapreneurs--the people inside the large socialist enterprises who actually had access to lots of resources. They had some experience marketing, making contracts and keeping their own books, and they had access to the assets of the big state companies. So when those big state companies are split up and available to be "privatized," it is those people who already had experience privatizing the means of production who had a better chance in the new economy. The purely private mom-and-pop grocery stores still exist, but they are not the ones who grow up into the Hungarian versions of Safeway and A&P. The new capitalist enterprises are more likely to have been carved out of the assets of the old socialist factories.

In retrospect, the intrapreneurial work partnerships, such as those that made the can, can be seen as a spontaneous privatization that was going on under the old Communist regime: ownership didn't transfer to the partnership, but access to the tools, equipment, raw materials and the revenue stream that came from the partnership was privatized. These intrapreneurs are the people who now do extremely well and have benefited in the subsequent process of privatization that began in 1990.

Fathom: What, for you, is the most fascinating thing about studying these economic organizations and networks of activity? Why have you gravitated toward that sort of research?

Stark: If I had to answer that personally, I think the 1980s were even more interesting than the 1990s. You would be hard pressed to find a more exciting place to be than Poland in 1980 or Hungary in 1986. There was tremendous creativity going on at that time--all the more interesting because it was done within such serious constraints, legal restrictions on economic activity and severe limitations on public speech. Everybody from the top was telling you that you can't do anything, and you're saying, "No, I want to do a lot."

As an undergraduate, I went to a lecture by Robert Frost, and someone asked him, "Why do you so seldom write in unrhymed verse?" He said, "For the same reason I don't play tennis without a net." It's the challenge. In 1980s Hungary, you could see people coming up with these creative solutions, while the government was saying, "You can't have democratic assembly." Polish citizens used their churches for organizing exhibits of posters and photographs, so although there wasn't a free press, there was an underground press that produced wonderful things. People couldn't produce their plays publicly, but they produced them in their homes. These were sad and tragic circumstances in some ways, because people worked against incredible odds. But the feeling of creativity, courageousness and excitement in the 1980s was great.

The 1990s are also a challenge, because the big question is how to restructure an economy, how to take a broken-down, terrible, mismanaged infrastructure and turn it into a society that could compete in the world market and grow. Hungary now has a 4 to 5 percent growth rate; Poland is at a 5 to 6 percent growth rate; the Czech Republic is not so good, but is still doing OK. These were big challenges, and it has been exciting to watch how people have learned from the West and adopted institutions for new purposes. And it's also been exciting to see people coming up with novel solutions to social and economic problems. It's inspiring.