New laws promise to open up Hungary for business
Andras Toro and Dezo Futasz talk about revolution - one deeper than Mikhail Gorbachev's perestroika, more business-oriented than Poland's Solidarity movement, and one that promises to remake Hungary into a market-oriented economy. ``These are fundamental changes,'' says Mr. Toro in a matter-of-fact tone. ``They are not motivated by the caprice of a politician like Gorbachev. We started before perestroika. But it is true that those events strongly support our efforts.''
These two Hungarian visitors to Boston are businessmen, not politicians, so they don't exude revolutionary rhetoric. They talk about legal codes, taxes, information technology, publishing, and stock markets. They are an informative tag-team when it comes to their country's sea change.
Mr. Futasz is now the biggest independent publisher in Hungary. He began as the Hungarian head of Computerworld Informatika, a joint venture with International Data Group of Framingham, Mass. Like Patrick McGovern of International Data Group, Futasz has built a publishing empire in short order on the strength of technical publications.
He is chief of two computer magazines; four computer newsletters; a newsletter on joint ventures; a weekly paper on the nascent Hungarian stock and bond markets; and the Hungarian-language edition of Scientific American. His desktop publishing operation also produced the first almanac for Hungary since World War II.
Mr. Toro, a lawyer, was instrumental in pushing sweeping new business laws through the Hungarian parliament this fall. Of the 200 joint ventures that exist in Hungary at the moment, Toro has been involved in 44 of them.
Both men emphasize that they do not represent the Hungarian government. They are simply businessmen - Futasz visiting his American partner, Toro meeting with American lawyers to help them deal with clients wanting to set up shop in Hungary.
But they do have opinions. Forty years of central planning and socialism, says Toro, simply ``proved this doesn't work.'' The Hungarian economy got worse and worse. In one year, he points out, Erno Rubik, the Hungarian inventor of the Rubik's Cube puzzle, brought in more profit and hard currency than all of Hungarian heavy industry. Mr. Rubik is a millionaire. Hungarian heavy industry is a mess.
Economic growth fell from 6 percent a year between 1951 and 1975, to 2.9 percent between '76 and '80, to 1.6 percent between '81 and '87, to zero in the first half of this year. The nation's debt burden, which central bank chief Ferenc Bartha estimated last month at $13.4 billion, is the highest per capita in Eastern Europe. Interest payments on the loans amount to $1 billion a year - 4.5 percent of the nation's gross domestic product.
``It is clear,'' Futasz says, ``that this practice cannot be followed further.''
Hungarians from all walks of life - not just Karoly Grosz, the reform-oriented party leader - know that a more market-oriented economy is necessary, Toro says. And this does not mean simply borrowing more money or having government ministries hustle trade and joint ventures with foreigners. It means changing Hungary's laws so that they conform to international legal standards and thus encourage foreign investors to set up shop in Hungary the same way they would in West Germany, Switzerland, or Austria.
The new laws go into effect in January. Corporate profits will be transferable, tax breaks will be in place, red tape will be minimal. Hungarians will be free to establish limited-liability companies among themselves or with foreigners and to sell stock. Only the formalities will be scrutinized when a company is organized, not the ``business aims.''
The Budapest stock exchange will reopen in the new year with Citicorp specialists helping guide it. The University of Pittsburgh is even helping set up a business school outside Budapest.
Hungarian political leaders call this a ``socialist market economy.'' Toro, however, says that, all other things being virtually equal, Hungary will be open for business. Among the attractions: low-cost labor, high educational level, and a decent infrastructure (except, he notes, for the telephone system).
``It's not a paradise,'' Futasz says. ``There are risks. But there are opportunities as well.''
Hungary is ``middle Europe'' in terms of trade and access, Toro notes. It has an agreement with the European Community that will give it virtually the same favored trade status as Austria and Sweden by 1992, when the Community's ``single market'' program is in place. At the same time, its socialist connections could help businesses penetrate the Soviet Union and other Eastern European nations. Automatic access to the Soviet bloc is not guaranteed, but success in Hungary could help.
Futasz points out, for instance, that when International Data Group's Mr. McGovern approached the Soviets about a computer magazine joint venture, ``the Russians came over to Budapest to check it out. They saw that in a year and a half we were producing more than 10 publications and turning a profit. We were working with a computerized network. It was all very modern.
``They were curious about political interference, but we told them there was none - especially because we produce technical publications. Afterwards they signed a joint-venture agreement with IDG. What they saw in Hungary was the decisive factor.''