Discussion Papers 1987. No. 5.  
Development of the Regional Management of the Economy in East-Central Europe
CENTRE FOR REGIONAL STUDIES 
OF HUNGARIAN ACADEMY OF SCIENCES 
DISCUSSION PAPERS 
No. 5 
Development of the Regional 
Management of the Econamy 
in East-Central Europe 
by 
HORV4TH, Gyula 
Series editor: HRUBI, L6szlo 
Pecs 
1987 

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Discussion Papers 1987. No. 5. 
Development of the Regional Management of the Economy in East-Central Europe 
Contents  
Introduction 
3 
II. The changing function of regional 
management in the development of 
the socialism 
7 
III. Spatial frameworks of the society 
and the economy 
24 
IV. Some factors influencing the devel-
opment of regional economic manage-
ment in Hungary 
31 
Notes 
42 
References 
47 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
I. INTRODUCTION 
The factors hindering extensive economic development 
were of necessity generated in most European socialist 
countries by the initial advantages of an intensive indus-
trialization. The well-known challenges of the 1970s which 
marked a watershed in the economy, were met in the socialist 
countries by an accelerated intensification of the economy. 
The structural transformation of the economy played an im-
portant role in these changes course almost everywhere. It 
has gradually become self-evident, that the pattern and 
rate of future economic growth will be determined by the 
inner structural changes. Morbover, the spatial structure  
will become a major determining factor in the dynamics of 
the economy. Thus, the connection between economic growth 
and regional structure has been put into a new light, due 
to a slow-down in the economic processes. When the foun-
dations of socialism were laid the territorial location of 
the productive forces was a task, economic in nature, 
aimed at setting up the new economic structures, but nowa-
days, regional development is increasingly becoming a means 
of influencing economic growth. 
Besides the objective circumstances influencing eco-
nomic development, changing attitudes to tasks of regional 
advancement were also fostered by research findings rela-
ted to the spatial character of the socio-economic proces-
ses which made it more and more self-evident that there 
was a need for more conscious application of the spatial 
categories than before. 
A close look at the latest resolutions adopted by the 
tonorasses of communist and labour parties in the European 
socialist countries, or at the latest five-year-plans will 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 4 - 
lead us to conclude that the spatial distribution of eco-
nomic activities has been attributed a means function in ' 
social reproduction everywhere. Regional  development is 
obviously looked  upon as a factor that enhances afficien-
cy,_ Moreover, regional management structures  were to be 
perfected depending on the changes in central management 
and with a view. The changes envisaged were naturally dif-
ferentiated to improve regional economic management. 
The new requirements of regional policies are best 
expressed in a document called "The Main Tendencies in the 
Socio-Economic Development of the Soviet Union" adopted 
at the 26th Congress of the Soviet Communist Party which 
says: "There is a need for an improved territorial 
allo- 
cation of the productive forces. This would enable us 
to 
enhance social productivity... by means of the further spe-, 
cialization and proportionate development of the individual 
economic regions. Let us develop the co-operation between 
the different sectors of the same region, and put an end 
to the unnecessary parallel allocation of productive 
and 
non-productive infrastructure. Steps should be taken 
to 
break down the barriers set by the divided structure of 
central authority and efforts must be made to establish a 
better connection between regional and sectoral menaoarent... There 
should be a better co-ordination between the managerial 
activities of the central, sectoral and local authorities 
in order to make them more efficient in solving some of the 
key-issues of economic development." 1) 
 
There has been a whole range of statements, 
similar 
in content, even if put somewhat differently, 
published 
in the other socialist countries. Key-issues are all lin-
ked to the improvement of the spatial structure, regional 
planning and regional management of economy. The Hungarian 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 5 - 
Socialist Labour Party in his resolution outlined the task 
as follows: "Regional development should likewise be made 
2) 
more efficient."
Further reference to the need of enhancing regional 
economic autonomy can be found in the documents adapted at 
the 12th Congress of the Bulgarian Communist Party. 
It 
pointed out that "... research should probe more deeply 
into possible ways of achieving a steadier balance between 
centralization and decentralization. This would guarantee 
3) 
a further development of democracy."
While outlining the 
main course of development for the various branches of the 
economy, the document stresses that "The programmes worked 
out for the individual branches...should be co-ordinated 
with regional programmes, on the basis of a unified produc-
tive, technical and social infrastructure for all the sec-
tors and activities within a region. This, requires the re-
moval of obstacles set by the hierarchic and regional con-
ditions if we are to achieve maximal achievement in the na-
tional economy." 4) Finally, there is a clearly 
delineated 
programme in the document of the intended development, for 
the proper division of labour between the organs of cent-
ral and local administration: "(This novel view of the eco-
nomy - GY.H.) ...makes it imperative for us to clearly sep- 
arate the responsibilities of the central state 
authority 
from those of the community or local authorities. Govern-
mental authority should only be called upon to decide the 
basic issues of the accumulation of socially-needed consum-
ption funds. Everything else should be the concern of the 
community leaders. Therefore, the means should stay 
with 
the communities, which should be granted the authority and 
the possibilities to plan such economic, cultural and other 
activities that would increase their own social consumption 
funds. The time h i s come for factories and other enterprises 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
6 
to relinquish certain funds of their own, in favour 
of 
the communities, which would subsequently satisfy certain 
material and intellectual needs of the population. 
The 
more so, since the firms are parts of a well-defined ter- 
ritorial. entity, where their personnel live 
with interests 
and needs of their own." 5) 
 
A whole range of other party decisions could be cited, 
but these would only further support the idea that it is 
not only the inner structure of the economy and the links 
between a given economy and a given society that have  cure 
under new scrutiny in the socialist countries. Also there 
is a greater emphasis upon the balance between centraliz-
ation and decentralization in the economy, and The meas-
ures to be taken, i.e. the changes in institutional struc-
ture. 
The conscious integration of the regularities of re-
gional division of labour into the economic mechanisms and 
institutional system is a process stimulated not only by 
the changes in the structure and operation of the economy, 
but also_ bythe processes of democratization on the social 
and economic levels, and the steady development of 
the 
political systems. 
Consequently, the modernization of socialist economic 
management requires that attention should be given not 
only to the sectoral patterns, but also to the spatial  
arrangement and its peculiarities. This essentially Marx-
ist view of the problem should not only be applied in the 
transition period to a more intensive development. From 
the very beginnings of socialist-type planned economies, 
the integration of the unity between the sectoral and 
spatial relationships into the economy has always been a 
major concern, if not scientifically, but politically at 
any rate. Needless to say, striving towards unity could 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 7 - 
be no more than wishful thinking in most places at 
a 
time when the key-issue was the choice between a cen-
tralized or a federal structure of state, i.e. whether 
it would be best to extend structures "upwards" 
or 
"downwards". A direct sequel to this state of affairs 
was that the interactions between the sectoral and the 
regional points of view, and their interactive nature 
only came to be considered at the level of national e-
conomic planning. This seemed natural at the time, not 
only on account of the centralized economic management; 
the reconstruction and the subsequent transformation of 
the economies on a socialist basis, i.e. the process 
generally called the territorial allocation of the pro-
ductive forces, could only be achieved by means of cen-
tralized programmes. Moreover, the local and regional 
bodies were but small and not too independent subsys-
tems of a unified central state-power system. 
II.THE CHANGING FUNCTIONS OF REGIONAL 
MANAGEMENT IN THE DEVELOPMENT 
OF THE SOCIALISM 
A long period in the development of socialism was 
characterized by the dominance of sectoral management. 
There was a wide range of objective and subjective fac-
tors in the early history of the USSR, then, 
decades 
later, in the establishment of the people's democracies, 
that led to the kind of development which - with the 
exception of 
Yugoslavia - universally favoured cent- 
ralization as opposed to federalist, self-governing and 
decentralization to become the guiding principle. 
This 
can be accapted as natural under the given, objective 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 8 - 
circumstances, since — as it thas been mentioned earlier 
— it would have been , much more difficult under any other 
scheme to eliminate economic backwardness, transform the 
spatial structure of the economy and strengthen the posi-
tion of the working-classes as policy-makers. 
There is no denying that even in those early stages 
the central and local bodies of state authority were dec-
lared to be acting in unity. The principle of democratic 
centralism was meant to solve the contradiction between 
a unitary socialist state structure and local 
autonomy. 
However, in keeping with the policy lines laid down at 
the time, even scientists contended themselves with a 
formal approach to the concept of democratic centralism, 
which said, that the decision-making power lay with the 
central bodies, while the execution of these 
decisions 
was to be left to local authorities. Local bodies would 
then make sure that the general directives of the central 
bodies were carried out with the local peculiarities 
in 
m.nd. Although thi: interpretation did contain the essence 
of Lenin's view, it came to light more than once that the 
two poles of the concept were by no means equally repre-
sented, either in the range of possible 1,ction, or in the 
various forms of the structural c...- ,, Awork. Let us remem- 
ber that Lenin's standpoint 
was clear on this issue: "... 
democratic centralism demands freedom in its largest sense 
for all the regions and communities within the state, in 
6) 
shaping state, social or economic policies".
Research into the development of the socialist sys-
tems of economic management before the transition to an in 
tensive development reveals,that in two, relatively short 
periods, sectoral principles were either viewed as being 
of secondary importance, or, on the contrary, came to be 
ranked almost equally with the territorial considerations 
(early 1920s). 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 9 - 
The conclusions that can be drawn from the first 
stage could interest us on account of their clear, log-
ical theoretical makeup. The experiences of the second 
stage, the experiments in the USSR, Bulgaria and the 
GDR in the late 50's and early 60's are worth summering 
up not only because some of 
their specific answers 
to the questions posed would be suitable starting points 
for many development concepts today, but also because 
it is beneficial for us to keep its lessons permanently 
in mind 
if we are to achieve a further development in 
the global management system. 
Lenin's early work, written before the revolution, 
shows that his ideas on the organization of the 
state 
and the economy rest on two main pillars: economic and 
administrative regionalization, as determined by the 
territory-bound regularities in the economy, thus a-
chieving the unity of economic and administrative regi- 
onal division, 
and, on the other hand, the principle 
of democratic centralism which determines the functi- 
oning of the superstructure both in the state and 
in 
the economy. To put it differently, the idea is based 
on the dialectic relationship between a 
centralized 
state power and local autonomy. 
There were simultaneous changes within these two 
spheres, both being two main aspects of regional manage-
ment. Though they varied in intensity, subject to the 
immediate tasks of building up Soviet power, their ef-
fects mutually supported each other and contributed to 
the formation of the economic and state poWer structure 
of socialism. Yet, due to the nature of the Russian back-
ground which had brought about the revolution, the ini-
tial years of the Soviet state were characterized by . 
various, not infrequently contradictory principles and 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 
10 - 
methods. Conflicts mainly arose from the fact that both , 
autonomy and federalism were judged from different points 
of view by different people. Lenin strove to achieve a 
state structure based on a harmony between administrative 
and economic regionalization, while observing the prin-
ciple of democratic centralism. There was another trend 
also, which, under cover of federalism, would split the 
country into decentralized territorial entities according 
to narrow interests. These ideas were characteristic of 
anarchist and syndicalist thinking. The third important 
trend aimed to establish 
territorial confederations. 
Lenin's course was to fully ensure the functioning of 
the central state power, while staunchly supporting the 
principle of hierarchic organization of the territory. 
The harmony between the different types of manage-
ment was temporarily destroyed by the total war-economy 
and the vertical hierarchy of management. There was no 
adequate institutional network to co-ordinate territo-
rial division of labour, so the negative effects of these 
measures showed almost immediately. This explains why a 
whole range of measures came to be adopted as early as 
the 9th Congress of the Russian Communist (Bolshevik) 
Party, before NEP was introduced, all aimed at restoring 
the original model as devised by Lenin. This put 
in a 
somewhat simplified manner, was based on the idea that 
it was inconceivable to ensure the proper workings of 
trade and the monetary system without a structural frame 
that would institutionally guarantee the link between 
the central power of the state, local activities and self-
accounting. 
Lenin's later works,written when the New Economic 
Policy came to be implemented clearly indicate that Lenin 
envisaged a structural and functional equilibrium between 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
the sectoral and regional management systems in the long 
run. A direct sequel to this was the formation of the 
system of econanic conferences (ekonomicheskoye sovescha-
niye) that were relatively soon able to co-ordinate cen-
tral and local, vertical and horizontal economic proces-
ses and to meet both sectoral and regional interests. It 
is important to stress the fact that these typically de-
concentrated elements of the planned economy came to ex-
istence without the abolishment or even radical trans-
formation of the economic institutional network that had 
been functioning in a satisfactory manner. No allowances 
were made in the planned course followed by centralized 
economic management. According to Lenin's phrasing of 
the problem, "the increase in industrial activity and inde-
pendent accountancy would leave the central authorities 
in charge of planning the production schedule, of supply-
ing and financing, regulating and cohtr,olling the eco- 
nomy. Management in all its functions would be handed 
7) 
over to the local authorities."
Without going into details of the set-up, tasks and 
functioning of these conferences — a problem worthy of 
at'tention in the theory and practice of today's socialist, 
 
economic management —, it is worth remembering that these 
co-ordinating bodies could only perform formal activities 
in regulating the economy, given the lack of financial 
resources and material bases of their own. 
Another theoretical element of Lenin's concept 
of 
the spatial mechanism of the economic management came to 
be embodied in the measures taken to ensure the basic 
unity between administrative and economic regionalization. 
Even before the October Revolution Lenin had held 
firm views on how to apply Marx's regional 
division of 
labour theory to Russian conditions. It is 
at that time 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 12 - 
that his theory about the regionally organized economy 
began to take shape. In broad lines, Lenin was the first 
thinker to emphasize the fact that the organization of 
the economy on a regional basis is a spatial expression 
of the historical process of economic development. 
He 
was the first to stress 
the objective nature of regio- 
nal division of labour and of economic regions, and to 
draw attention upon the direct links between this divi-
sion and the overall division of labour within the so- 
ciety. He proved that the regions of different sizes 
and types are the results of the development, location 
and interrelationship s  between the economic phenomena 
generated by a historically-defined mode of production. 
He brought clear and complex proof of that fact that un-
der capitalism the economic regions are the result of 
the controversial unity of the forces and the relations 
of production. He used whole range of facts, to support 
his idea that capitalist development brings about unequal 
regional development. On the other hand, few global sec-
toral systems arise within the economic regions which 
become mutually interdependent. To define the individual 
economic regions Lenin took such criteria as differences 
in economic growth, the state of the material and tech-
nical stock, the level of_the economic links, the admin-
istrative territorial division and the ethnic compositi-
.8) 
on of the population
After 1917, the Leninist principles of economic re-
gionalization served as a theoretical basis for action. 
The criteria just mentioned were applied both in the 
GOELRO Plan, which was the first important document of 
the socialist planned economy, and in the actual process 
of the democratic transformation of public administration. 
It  should be  noted that economic regionalization was not 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 13 - 
simply a methodological task of dividing the territory, 
but it directly served the economy. 
This is further supported by I.G. Aleksandrov's, 
assessment of the importance of the activity referred to 
above. Prof. Aleksandrov, who 
was chairman of 
the 
Regionalization Subcommittee of the State Planning Corm 
mission, said: "The state has to be divided into 
ter- 
ritories with considerable economic autonomy. No economy 
will flourish unless it engages all the state resources 
into one commitment. This, however, is inconceivable in 
any highly centralized structure. There is real need for 
teeming life in the various regions, to make sure 
the 
local populace have enough influence and power. It 
is 
only in this way that local economic activities can go 
on undisturbed, without encumbering the central state 
bodies with tasks of local, rather than national impor-
9) 
tanct."
Aleksandrov's view was inspired by the new 
economic policy that ,expected to eliminate the weaknes-
ses inherent to vertical sectoral management, among oth-
ers by strengthening regional economic management. The 
economic regions were supposed to serve as geographic 
background to the creative energies of the population. 
This system would have served as a basis for a three-
level administration. After Lenin's death,however, the 
fairly coherent regional management theory of the early 
20's was gradually ousted and pushed towards the periph-
eries of state economic activity. That was the beginning 
of a nearly three-decade-period, when Lenin's model was 
not only brushed aside in its basic tenets, but the very 
theoretical heritage was at times negated in favour of 
strong centralization and the hegemony of a hierarchical 
sectoral management. This fact partly explains why the 
well-known institutional systems of economic power evol- 
.0 * 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 14 - 
• 
ved in the people's democracies of East-Central Europe. 
It also make it clear why the first territorial schemes 
were much too simplistic to our modern mind and why re-
gionalization could not be integrated within the overall 
economic policies. 
This initially simplistic view of the Leninist mo-
del subjectively provided no negligible economic, ide-
ological and political factors of power. 
Thus, before starting the development of the socia-
list regional economic Management on a new course, it is 
necessary to give ample thought to the pre-history of 
the socialist economy, i.e. the period when Lenin's the-
ory could become the starting point of regional economic 
management in its entirety. 
In 
another period of the socialist economic man- 
agement,  a 
 strongly centralized sectoral economy was su-
perseded by a powerful space-oriented pattern. Changing 
attitudes towards regional economic management emerged 
as part of an overall economic reform movement in the 
USSR, Bulgaria and the GDR. 
By the late fifties the sectoral management systems 
had proved to have initiated a whole range of negative 
phenomena in the economic development not only in the 
countries under consideration, but in all socialist states 
that had known economic recession. Part of these phenom- 
ena stemmed from over-centralized decision-making. 
By 
this time the structure of central management had become 
so differentiated, that the intricacies of sectoral man-
agement made the development of sectoral co-ordination 
and inter-plant co-operation virtually impossible. Rath-
er, the structure became the hotbed of sectoral chauv-
10) 
inism and of autarchic tendencies.  One further bone 
of contention was that the local and territorial manage- 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 15 - 
ment organs 
- which, besides local councils, included 
the local party organizations as well - could not 
co- 
ordinate their work with the central b6dies. This ina-
bility was mainly due to sprawling co-ordination tasks 
that could hardly' be coped with. To tell the whole truth, 
however, one has to remember that the economic policies 
of the period made no use of horizontal co-operation, 
which was not looked upon as being essential for econ-
omic management. 
The most complex phenomena of the discrepancies 
between a hierarchic sectoral management, seen as rela-
tions of production, and the stage reached in the devel-
opment of the forces of production, their negative in-
fluence upon regional development could be detected in 
the Soviet Union. 
 In this country, the sound basis of 
the socialist economy had been laid by the mid-fifties, 
extensive industrialization had significantly 
changed 
the regional location of the forces of production; 
it 
was here that one had to realize that if increasing am-
ountsof the national income are spent on improving the 
living-standards and the development of infrastructure 
then an increase in the productive capacity can only 
be achieved through a fuller use of the existing assets. 
The more so, since new capacities are slower in devel-
oping under the circumstances. 
These facts also prove that the functioning of the 
basic units of the economy cannot be directly and ration-
ally influenced by an intricate sectoral management. 
An important step towards reforming the economy was 
taken in the plenary session of the Central Committee of 
the Communist Party of the Soviet Union in July 1955. 
The basic flaw in the economy was found to be the cum-
bersome and inefficient, parallely-laden sectoral mana- 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 16 - 
gement of the industry. The range of ensuing measures 
can be sized up if one remembers that several minis-
tries were abolished within a year, while the staff of 
the enterprises under regional control increased from 
11) 
33 per cent in 1950 to 47  per cent. 
A thorough reform was announced in the plenary ses-
sion of the CC of the CP of the Soviet Union in February 
1957. From among possible alternatives the regional ar-
rangement was decided upon. In principle, the session 
indicated as starting point for the process to bring 
the management closer to production. Moreover, the legal 
power of the individual republics was to be increased, lo-
cal councils, party-organs and trade unions were to be 
assigned a more significant role. The citizens were to 
have a greater part in matters of economic management . 12 ) 
A direct sequel to the practical applicability of 
these ideas was to find new paths in territorial 
mana- 
gement. The territorial reform assigned a key-role to 
the economic-administrative regions. They were constit-
uted with a view to establishing the unity between ad-
ministrative units and the corresponding economic regions. 
The specialists of this period considered this to be a 
guarantee of good functioning. They brough up various 
arguments to support the adventages of this system over 
the former arrangement. They were convinced that the 
new administrative regions were economic entities as 
well. Though they were considerably smaller in size than 
the former economic regions, their specialized nature 
would be all the more obvious. A higher degree of spec-
ialization would lead to conditions fostering simpler 
ways of management. Thus autarchic tendencies and regi-
onal chauvinism would be easier to check. Another ar- 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 17 - 
gument in favour of .economic and admin'i'strative regions 
was a possible higher level of co-ordination of economic 
processes and the'activity basis of regional state and 
party organs. The unity between the political power and 
the economic sphere would considerably enlarge the scope 
of regional planning and the authority of regional eco-
nomic management. While there was greater scope for in-
fluencing those processes, new ways were opened up for 
local initiatives. 
But there was a much more thorough modification 
behind the formal changes in the regional background to 
13) 
the economic management system.  The structural guar-
antees for the wide-range state management reform brought 
in were the national economic councils set up within 
the new economic and administrative regions. These bod-
ies were under the control of republican government. A 
law determining their powers passed in 1957, 
stressed 
their individual republican subordination. The 
Soviet 
Government could only direct them via the. republican 
governments So in this case there was no traditional 
14) 
double subordination. Their links to the territorial 
councils were characterized as follows: on the one hand, 
they had to report on the activity of 
the enterprises 
under their control to the executive board of the local 
councils. on the other, they 
had to establish links of 
close co-operation with the councils in matters of wider-
scope development projects in the economy. 
The national economic councils were legally consid-
ered to be bodies of territorial management and profes-
sional guidance. We are  not  going into their organiza-
tional and decision-making powers here. However, some 
features of their controlling function, due to the spe- 

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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 18 - 
cialist guidance feature are decidedly worth analyzing 
in some detail. The inner structure of these 
councils 
reveals some principles that were decisively sector* 
determined. It  ∎,as through these directorates that the 
people's economic council directly controlled the 
en- 
terprises. Their powers extended over the whole activity 
of the enterprieses. They were responsible for material- 
supply, co-operation, and for the minutest details 
of 
industrial planning. They approved of rules of conduct 
and nominated plant directors. It is no wonder then that 
the critics of the system saw its major flaw in the fact 
that the double management channel, i.e. "enterprise -
council" actually comprised three stages. 
Another channel of the division of labour in eco-
nomic management was represented by the council system. 
While industrial and building organizations were subor-
dinated to the people's economic councils, agriculture 
and non-productive branches remained under local control. 
Initially the directive powers of the councils increased. 
In the early sixties, however, local industrial 
enter- 
prises slipped out of their control and were taken over 
by economic organizations. Thus, the bodies of state pow-
er, so far unitary, were split into councils of industri- 
al and agricultural concern respectively. Political 
in- 
stitutions were also reorganized on the basis of,produc-
tive functions. In agricultural districts the local party 
committees were replaced by production directorates 
in 
the agricultural cooperatives. 
These directorates had 
both administrative and party functions. 
The number of economic councils was reduced to 47 
in 1962. The three levels of the planning system (i.e. 
the economic region, the economic and administrative re-
gion, and the district)were replaced by four levels. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 19 - 
The upper levels'were represented by a large economic 
region, this being followed by the regions of people's 
economic councils, enlarged by now. One step lover there 
were the 137 autonomous republics, border counties and 
counties. At the lowest level there were the 2,724 dis-
tricts. 
Thus, during this stage of Soviet economic manage-
ment, the regional elements clearly outweighed sectoral 
management, depriving, in this way, the upper levels 
decision making of the possibility of an unitary concept 
and of unitary executive measures. Obviously, there could 
be no question of achieving an optimal sectoral develop-
ment in this way, since sectoral development was suppo-
sed to be nation-wide. Thus, investment flow among the 
various territories slowed down considerably. Territo-
rial interests came to the foreground in industrial de-
velopment, all the more so, since two thirds of indus-
trial investment were initiated an financed by the peo-
ple's economic councils. There was no nation-wide plan 
for industrial development or even for sectoral devel-
opment. The councils strove to achieve a many-sided de-
velopment of the industries on their respective ter-
ritories, an effort, however, that hindered specializa-
tion. Economic ties between the regions also loosened. 
Although excessive centralization in management could be 
abolished, within one economic region,however, depend-
ence of this or that authority brought about isolation 
of enterprises. In spite of formal broadening of the 
authority of local bodies, no signifiCantly befter re-
sults in production could be expected, since only the 
organizational pattern was modified, while, the admin-
istrative methods of regulating production within the 
enterprises remained predominant. 
Management problemes connected with organizational 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 20 - 
structure not only did not become fewer, but even mul-
tiplied. Specialists dealing with the spatial character 
of the economy convincingly and repeatedly proved that 
the territorial entities 
- contrary to the intentions 
of the reformers - were not economic regions. The first 
variant of the system of economic-administrative regions 
was unfavourable for long-range planning, 
while 
the 
second proved a failure in co-ordinating the intricate 
management problems of the individual regions. Less sta-
bility in territorial organization was one of the fac-
tors leading to a sharp differentiation in the economic 
capacity and production level of the various territorial 
units. The gap between the different 
regions widened. 
The process was further intensified by the fact that 
the regional-centred economic management had no influ- 
ence on regional planning. Regional plans began to lose 
their degree of complexity. The planning done by the e-
conomic councils could not be 
identified with regional 
planning, however temping the analogy might have ap- 
peared. The planning activity of the local councils did 
not go beyond the comparatively narrow level 
of 
local 
economy. Wider regional plans were only worked out 
at 
the level of the republics of the union. 
Efficiency was cut down by such unforeseen 
nega- 
tive effects, as ran counter to the basic tenets of 
e- 
conomic management. All this, in spite of the good 
re- 
sults coming from the abolition of sectoral isolation. 
This phenomenon undoubtedly played a part in the slow-
down of economic growth at the time of seven-year plan. 16) 
 
Some of the basic elements of the Soviet economic 
reform were made use of in the  GDR and Bulgaria. 
 The 
transformation of the economic institutions 
of 
each 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 21 - 
country 
shows a few particular features in addition to 
common trends. 
Important party and governmental decisions 
were 
taken towards reorganizing state management 
in the GDR 
in 1957 and in Bulgaria in 1959. The first 
steps 
were 
aimed at simplifying the processes of multi-level eco-
nomic management, to bring production and management 
closer to each other'. There was a significant cut in 
the number of ministries. 
Eight ministries 
were 
abol- 
ished in the GDR and 11 in Bulgaria. 
Local 
and terri- 
torial administration gained more 
legally 
guaranteed 
power in economic management. Instead of 
the former 
sector-centred directing bodies the supreme management 
boards became single bodies: the Industrial Committee 
in Bulgaria and the State Planning Committee in the GDR. 
Besides these similarities there were 
fundamental 
differences. In the GDR the territorial-administrative 
17)
organization was left unchanged
, while there was 
a 
thorough-going  reform  in Bulgaria. The former 
three- 
level administration was changed over to a 
two-level 
system. However, the economic potential of the first two-
level units was not too g,eat, so regional bodies could 
18) 
not manage the economy too efficiently. Another dif-
ference concerned the legal standing of the regional 
bodies of economic management. Although there was no 
regional economic authority independent of the local 
administration, in the GDR economic councils were set 
up to aid the executive committees of the county coun-
cils. These were subordinated to the State Planning 
Committee. In Bulgaria, regional management was per- 
formed by the county authorities and 
their 
sectoral 
management boards. The Bulgarian model included spe- 
cial features as to the 
power of the councils to in- 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 22 - 
fluencing enterprises which still remained centrally con-
' 
trolled. (It is worth mentioning her:e that the number 
of 
enterprises under regional control was highest 
in 
this 
country. About 90 per cent of industrial enterprises, es- 
pecielly in the building industry, were controlled 
by 
the local councils.) 
A charasteristic of the GDR was the fact that 
the 
enterprises controlled both by the economic councils and 
the planning authority were organized into nationwide 
unions set up on sectoral principles. There were several 
types of union founded according to the needs of industrial 
management and the structural pattern of individual areas. 
60 per cent of industrial production was controlled 
20) 
by 75 unions, directed centrally.  The management of co-
unty-level enterprises was likewise undertaken by middle-
level directing bodies. Most of these, however, worked on 
a regional rather than on a sectoral . basis. 
The reform attempts in these three countries in 
the 
fifties and sixties were aimed at a rational modificatior 
of the management hierarchy. There was an effort to inte-
grate the regional division of labour into the economic 
.system. There were quite a few sound economic elements in 
the models set up in the different countries. These expe-
riments also proved that any proposition that would simpll 
transfer the mostly operational powers of sectoral manage• 
ment to the regional units without differentiation was det-
rimental to economic growth. Most of these methods lacked 
adequate scientific foundation,given by the state of social 
sciences in that period. The desired harmony could not be 
the result of tendencies which were not conscientiously 
influenced. These experiments were also meant to put to 
the test several theories of territorial arrangeMent. The 
theoretical background and the methodology of economic de 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
'-- 23 - 
velopment were both enriched through these attempts. 
By the end of the sixties, the division of labour 
mainly came to be structural.along vertical lines, i.e. 
between vertical levels, yet their effects were to be 
felt in the horizontal-regional management as well. The 
transition to a decentralized indirect planned economy 
had its consequences in one of the most important in- 
stitutional network of regional management - in the 
council apparatus. The measure of changes and their 
depth was highly dependent upon the overall state of 
power equilibrium. 
In all the countries under consideration, 
either 
council legislation was modified, or the functioning of 
the local and regional bodies was set upon a new foun-
dation. The problem of local authorities was mainly 
linked to the extension of socialist democracy. Legis-
lation was primarily concerned with lower level admin-
21) 
istration, i.e. of the towns and villages.  A source 
of lasting contradiction, however, is that key positions 
in regional planning mainly remained wirh the regional 
administrative units. 
By the time all the adventages and disadventages 
could be weighed up against each other the territorial 
arrangement of production forces had changed consider-
ably. Thus resulted the situation referre'd to at 
the beginning of this study. Economic interest 
gradu- 
ally shifted from regional development to the 
spatial 
functioning of the economy. This shift was brought about 
by a levelling of the great differences in the stand-
ards of the different regions and by the bottleneck in 
resources necessary for the territorial relocation of 
the productive forces. This phenomenon brought with it 
the need to redefine the functions of the institutions 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 24 - 
responsible for regional economic development.' 
III. SPATIAL FRAMEWORKS OF THE SOCIETY AND 
THE ECONOMY 
As indicated earlier in this paper, 
the 
organiza- 
tional framework and the ways and means of a planned 
management of the economy are anchored in two large 
spheres of the social division of labour while observing 
the rules which govern the sectoral and regional divi-
sion of labour. While the formation and functioning of 
the sectoral structure - if a little simplified - 
basically depend on the diversification of 
production 
and the relative freedom of productive units, 
- 
thus 
reducing the task of defining the units of the economic 
processes to a statistical operation - 
the area of the 
spatial processes can be linked to both 
the economic 
regions and the territorial administrative units. 
The 
criteria of delimitation, the functioning and aims 
of 
the two systems are distinct. 
The system of economic regions was worked out in 
the years immediately following the formation of social-
ist states. More precisely starting from the Marxist-
Leninist theory, and making use of. Soviet methodology, 
geographic units were delimited in service of imple-
menting the socialist mode of production as soon as pos-
sible. It is true, that in some of these countries the 
objective functions of regionalization remained subsid-
-iary, due to other tasks deemed .more important for 
economic development. Not infrequently they served mere-
ly as "trial-grounds" for the socialist economic geog- 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 25 - 
raphy about lo be born. The drawbacks of the lack of a 
scientifically worked out system of regions were not 
immediately manifest, mainly on account of an extremely 
differentiated economic structure, as left over from 
the past in East-Central Europe. Thus, economically back-
ward regions could be discerned without resgarch of any 
22) 
kind. After a basis for socialist economies had been 
laid, when the most striking differences had been at-
tenuated by integrating the poorly developed areas into 
the system, a new development came to be envisaged in 
regional politics: to lessen the marked differences in 
the living standards, among different areas of a country. 
This effort of regional policy also brought the qualita-
tive aspects of development to the foreground. 
Although there are features in the development of 
the territorial structure of each country that are u-
nique, there are also common characteristics and iden-
tical trends due to the effects of economic laws and 
scientific progress. 
The first of these common features is a more pro-
portionate location of the productive forces, first of 
all in industrial development. The second cammn feature 
has something to do with the concentration of produc-
tion. As a result of multi-centric regional development, 
a hierarchic chain of settlements emerged around the 
centres. Thirdly, the territorial division of labour 
increased both between larger areas within a county 
and between the countries. (However, there were still 
great differences in the quantity and quality of co-
operation within the regions.) 
At the level of social action, an important part 
in the planned creation of well-proportioned territo-
rial structures came to be played by economic region- 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 26 - 
alization. It is mostly the intermediate level units that 
we have in mind. Regionalization was based on sound prin-
ciples and was aided by a methodological outlook that en-
able people to define'an area in the light of the econom-
ic tasks to be completed. The basic principles of region-
alization were adopted in each country, though consensus 
could not be reached with regard to the number and hier-
archic subordination of regions. Most experts defined e-
conomic regions as objective units. The most 
important 
characteristics were defined on the basis of the Soviet 
experience of several decades. They were complexity, spe-
cialization and manageability. 
The interpretation of these characteristics was,and 
still is, far from being clear-cut. It is especially the 
idea of complexity that has been misinterpreted. One of-
ten hears opinions, that an economic region should not 
be developed in complexity in countries of relatively 
small areas. Most of the socialist countries fall in this 
category. There is an unfortunate misunderstanding here. 
The representatives of classical Soviet regionalization 
(N.N. Kolosovskiy, A.E. Probst and others) did not in 
the least identify this criterion with sectoral complex-
ity or the autarchic development of the regions. Rather, 
they agreed in  envisaging  a method of planning, whereby 
the sectors of the structure would be developed in a 
planned and harmonious way. Further defined, these sec-
tors referred to the interrelationships between produc-
tion, distribution, consumption, population and natural 
environment. It follows that complex . ify must be regarded 
as a guiding principle that helps to perform the econo-
mic tasks of the district as well as to ensure that local 
needs are adequately met. The system of interrelation-
ships just mentioned cannot be narrowed down to technol- 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 27 - 
ogy. Complexity is a concept specific of economics. 
One further important theoretic development is the 
differentiated interpretation of the concepts of manage-
ability and management. It is clear that if an economic 
region is considered purely as a cognitive category, the 
last of the characteristics becomes negligeable. However, 
if the economic regions are viewed as  tH'e  "cellular struc-
ture" of the planned economy, and economic regions are 
supposed to correspond to the administrative division, 
manageability becomes an important criterion. In this 
study there is no room for a taxonomic summerizing of 
the manageability of complex territorial structures. In-
stead I merely wish to call attention to the basic me-
thodological differences between manageability and man-
agement. E. B. Alayev was right in linking the applica-
bility of the former to,,the existence of the objective 
prerequisites of the latter (i.e. suitable functional links, 
and corresponding structural framework). Management as 
a concept is only legitimate when clearly referring to 
the system of bodies regulating economic processes. 
Several theories have been advanced about the delim-
itation, formal and structural features of economic re-
gions during the past four decades. This was independent 
from a conscientious application of the basic principles. 
While initially, regionalization was homogeneous based 
on naturally formed areas, after the foundations of so-
cialist economy had been laid, structuring and inte- 
grating tendencies began to manifest themselves, not 
least under the influence of the theoretical and method-
ological developments in the disciplines concentrating 
23) 
on the spatial aspects of the economy. 
One of the general features of socialist 
economic 
regionalization is that delimiting the 
regions, as re- 
quired by economic integration, assigned an 
important 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 28 - 
role to the network of settlements around large cities. 
More especially, the economic and social influence of 
the large cities as gravity zones was emphasized. An ob-
vious advantage of the above method is that the devel-
opment process resulting from the interaction between 
centres and gravity zones can be analysed and forecast 
relatively more easily. Since in socialist economies the 
economic regions serve political, planning and develop-
ment aims, it is no chance occurence that these regions 
comprise entire regional-administrative units - partly 
in order to ensure the correct functioning of inter-
twining interests and of the information chain. 
Besides these general points, there are notable 
differences and particular features as to whether the 
aims and set-up of the economic  regiohs  have officially 
been declared and they function as real spatial units 
of planning and regulating the workings of the economy, 
or they are just trial-grounds for scientific fact-find-
ing. In this respect, the socialist countries can be 
divided in two groups: in one, regionalization has been 
officially ratified at some level by state- and party 
decision. This group includes four countries. In the 
Soviet Union, 18 economic regions were designated by a 
decision of the State Planning Committee in 1963. In 
Hungary the economic regions were established in their 
present form in 1971. In Poland, a governmental decision 
established the number of macroregions. In Bulgaria a 
party decision fixed the regional arrangement. 
The countries of the second group, comprisinn  C7echo-
slovakia,  the GDR and Rumania, have no officially en-
dorsed region system. It seems that — with the excep-
tion of Rumania — those countries fixed their regions 
in central decisions which showed a greater degree 
of 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 29 - 
territorial-administrative division. 
Some of the features of today's 
economic region 
systems are 
shown 'in  Table 1. 
 If 
we 
disregard the 
data referring 
to the 
Soviet Union, vie can 
see 
that 
the average area of economic 
regions 
is be- 
tween 
15.4 and 39.6 
thousand square kilometers 
and the averacie number of 
inhabitants varies be- 
tween 
1,500 and 4,300. 
Since 
in any country, 
differences between extreme values 
are 2.5 
to 
3 
fold, 
it 
can be 
seen that regions of relative- 
ly equal sizes 
have been aimed at. 
(An obvious 
exception to this 
is Czechoslovakia, where 
there 
is a fourfold difference in the number of inhabitants 
between the Czech and the Eastern Slovak regions.) 
The lowest 
scores 
referring 
to population 
size 
are 
relatively homogeneous, 
while 
there is a more 
significant 
spread 
in 
higher scores. 
The Hungar- 
ian central region is obviously first in line, 
followed by southern Poland and the southern e-
conomic region of the GDR. The peculiar patterns 
of industrial development in Czechoslovakia 
and 
Hungary explain why 
there are single 
regions 
in 
these 
two countries ..massively partaking of 
gross 
industrial 
production and manpower. 
From this 
point of view, the most highly 
developed 
areas 
are: 
the south-west 
in Bulgaria, the Czech part 
of Czechoslovakia, 
the 
south in Poland, the cen- 
tral 
part of Hungary, the southern region of the 
GDR (though 
the Central-Elba region 
is hardly 
less developed 
industrially), the 
central 
and 
southern parts of Rumania. 
Besides the economic regions, an important site of 

---

- 
▪ 
 
Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
-30- 
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---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 31 - 
economic activity is represented by the  territorial-ad- 
ministrative units.  When the socialist mode of 
produc- 
tion was still a new phenomenon, all planning systems 
strictly observed a three-level administrative machinery, 
as required by extreme centralization. The territorial 
division of the state, subject to considerations of po-
litical power, was characterized by relatively large ter- 
 itorial units controlled a•great number of local 
com- 
munities. This fact, together with the alloCation of 
financial means and a vertical network of a differenti-
ated sectoral management system ensured the hegemony of 
the central state power. The stabilization of power, the 
socialist transformation of agriculture, the changes 
in the functions 
of the council system and  the  acceler- 
ation of settkrrent integration led to changes in the ter- 
 itorial management patterns in more than one country. 
In some countries like the Soviet Union, Bulgaria 
and Rumania, there were several attempts at imple-
menting reforms. By the mid-70's, the forms of territo- 
 ial arrangement which best suited the individual coun-
tries were established. A few features of the territo- 
 ial division of each country are shown in  Table 2.  
IV. SOME FACTORS INFLUENCING THE DEVELOPMENT OF 
REGIONAL ECONOMIC MANAGEMENT IN HUNGARY 
As shown earlier in this paper, the regional 
man- 
agement of socialist counctries witnessed , .some important 
changes due to the development of the productive forces 
and to the changes 
the structure of society. The most 
important feature of regional management therefore 
is 
that its complexities can hardly be approached with the 

---

- 
▪ 
Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 32 - 
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---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 33 - 
traditional methods of research. This 
feature results 
from the effects of regional development trends and from 
the interaction between the vertical and horizontal di-
vision of labour. It is not only that of the data neces-
sary for delimiting the functions and understanding the 
workings of regional economic management are provided 
by various disciplines. The task is further complicated . 
by the fact that regional economic management may include 
several elements of economic sub-systems. Integration 
into a unitary system is governed by the spatial forces 
of economy and of society in the first place. While the 
functions of sectoraLrnanagement are relatively easy to 
discern since the relationships between the parts are 
called forth by hierarchic organizational patterns; in 
the case of regional management no homogeneous structure 
is available. Rather, they are situated, as it were, at 
the crossroads of various types of organization, with 
diverging tasks and functions. Thus, regional management 
cannot be equated with the tasks of regional adminis-
tration, though the management functions of the people's 
representation are most closely linked to the socio-e-
conomic structure of the respective areas. Regional man-
agement is a much more complex activity. We can come 
closer to understanding the real situation by stating 
that some of the regional economic management functions 
are taken over by regional-level popular representation 
performed through their specialized bodies, others by 
the regional party- and social organizations. Some can 
be linked to the space organizing activities of the en-
terprises. Last but not least, some of the tasks fall 
within the competence of central administration steer-
ing the course of regional economic development. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 34 - 
The methods of economic management are primarily 
conditioned by the development stage reached by the 
forces of production. Consideration will be given on-
ly to the factors conditioning regional economic man-
agement. Not only the main stages in their development 
will be touched upon, but those research tasks are also 
indicated which elucidate such areas of regional eco-
nomic management that have not been sufficiently un-
derstood. 
The most important factors determining the oper-
ation of regional management depend on the position 
CJ  centralized and decentralized features, their rel- 
ative importance and interactions within 
the 
general 
economic management. What is the meaning of decentral-
ization in a socialist-type economy? It would be dif-
ficult to set up a inversally valid model. The vari-
ous types can only be assessed correctly, if we con- 
sider the socio-economic relations of each 
country. 
No attempt will be made at any tentative 
solution. 
The characteristics of decentralized development are 
revealed on the basis of the Hungarian 
experience. 
Still, some of the conclusions might be 
valid 
for 
some other socialist countries as well. 
Before embarking upon this tasks, it might 
not 
be amiss to elucidate certain basic concepts related 
to the functions of decentralization. 
Economically, decentralization can be interpreted 
as an intricate network of actions aimed at increa-
sing the ratio and importance of economic decisions 
taken at the level of economic units and local man-
agement. Economic decentralization makes it possible 
to reach decisions closest to the sites of 
material 
interests, thus strengthening 
economic independent- 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 35 - 
mindedness while enlarging the scope of activity for 
regional manaaement boards. It also allows for a sub-
stantially improved management activity at higher lev-
els. 
Decentralization, seen from a geographical 
point 
of view, does not naturally emphasize the mechanism of 
decision-making. Stress is laid upon the regional dis- 
tribution of the forces of production. There 
is 
less 
territorial centralization. The new regional 
arrange- 
ment of the economy becomes the most important 
moti- 
vating factor, besides mobility in the economic appara-
tus. The mechanism of decision-making is also a key 
point of decentralization in management science. It 
includes some firmly guaranteed local authorities not 
controlled by central bodies. There is an intermediary 
type of institution - the deconcentrated bodies - rec- 
ognized in legal literature. These are controlled 
by 
the centre, though territorially they are 
deconcent- 
rated and have deconcentrated institutions and author-
ity. Upon closer scrutiny, there is much truth in the 
view that "... there are only slight organizational 
differences between decentralized and deconcentrated 
authorities... 
The borderline between decentraliza- 
tion and deconcentration 
is drawn by and within the 
organs of local and regional people's representation. "24) 
These conceptual definitions cover all such bodies 
and organizations as could be subjects and objects of 
decentralization. To put it differently, the function-
ing of the economy and social structure of a given 
unit is motivated by the interaction and rational di-
vision of labour between the centres. Hungarian expe-
riences show that the measure and intensity of decen-
tralizing tendencies manifest since the new economic 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 36 - 
management model was initiated, hide more or less sub-
stantial differencies. The scientific background, com-
plexity, social acceptance and ideological consequences 
of the changes vary considerably in the new institu-
tional system. Despite this fact, there is a well-dis-
cernible trend towards an unbroken line of decentral-
ization. 
The 1968 reform set off two decentralizing trends 
in company organization. The first trend was inherent 
in the inner structure of the reform. One of its main 
targets was to abolish the hierarchically organized 
sector-centered management and to implement a system 
whereby macroeconomical decision would be made on the 
economic management level, while individual tasks in 
the economy would be solved at company level. 
Thus 
there was a qualitative difference between the 
man- 
agement level and the executive level; company 
man- 
agement worked on a purely state -management 
level, 
while the individual enterprises retained their com-
pany management functions, with widely enlarged pos-
sibilities for decision-making. 
This type of economic decentralization - 
which 
may be termed decentralized regulation, inevitably gen-
erated factors that did not enhance the further devel-
opment of a reformed central administration. Rather, 
they widened the authority of sectoral management a-
gain. This first went alongside the initial regulation 
of market economy and was due to both objective causes 
and ideological uncertainty. The unchanged structural 
framework of trust, union and giant concern pattern 
was slow in meeting the challenge of the new economy. 
Thus by the mid-seventies hierarchic sectoral manage-
ment was beginning to regain lost ground. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 37 - 
In order to enhance decentralization it became nec- 
essary by the early aightLes to cut up giant 
concerns 
and establish new state-owned small firms. , Jen 
trusts 
and three concerns were divided into 137 independent 
firms by early 1982. Such a decentralizing - or rather 
deconcentrating - process may considerably stimulate ef- 
ficiency. We prefer the term "deconcentration" 
since 
it is essentially the management process that came 
to 
be modified. Our data prove that there is a negative 
correlation in Hungary between the amount of capital and 
profitability. The average profitability of a concern 
with a 30-50 million Forint turnover (20.5 per cent) is 
two to three times as much as that of firms with over 
25) 
700 million Forint turnover (6.9-9.9 per cent).  Ex-
perts seeking to implement reforms in the Hungarian e- 
conomic mechanism are unanimous in their belief 
that 
the structural framework should be reconsidered 
with 
a view to decentralization. There is general agreement 
in demanding the updating of central management to 
strengthen strategic positions. This demand motivated 
the creation of a unified industrial management system, 
whereby three ministries, each controlling a particular 
field of industry were merged in 1981. , 
A second trend of company decentralization iF con- 
nected with the rooional development of the forces 
of 
production. This, in a somewhat 
simplified sense, means 
industrial development in the provinces. 
Geographic de- 
centralization became an economic key-issue after 
the 
1956 counter-revolution. Its main aims were: error cor-
rection and attenuating some blatant differences in liv-
ing-standards. The important step-up of the sixties 
brought about considerable improvement in poorly-devel-
oped areas. As an example, there was an. 85 and 66 per 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 38 - 
cent increase respectively in the Great Hungarian Plain 
and southern Trandanubia as against a 35 per cent na-
tion-wide industrial increase. A lot of industrial plants 
were moved into thn nrnvinces from Budapest. The movement 
was almost exclusively controlled by the availability of 
free manpower. 
There was no co-ordination in the choice of 
sites 
until 1972. Competition for suitable sites made the 
clash of interests more acute. Economic efficiency was 
further hampered by the attitude of regional management 
that only wanted to improve living standards, while 
neglected the integration of new objectives 
into 
the 
immediate economic context. Thus not enough 
emphasis 
was laid on cooperation 
facilities, on the 
infrastruc- 
tural background, or transport distances. 
(There 
was 
no incentive in the economic management system for ex- 
ploiting the adventages of 
territorial 
integration. 
Such incentives are rare even in today's practice.) 
The territorial decentralization 
of 
industries 
undoubtedly brought results of great ,significance 
in 
the Hungarian economy. This process has a beneficial in- 
fluence upon the overall economic development 
of 
the 
different regions. It favoured regrouping manpower, 
it 
helped to maintain full 
employment, and 
facilitated 
social mobility. It also equalized 
incomes 
and 
in- 
creased the economic potential 
of small and 
middle- 
sized towns. In the regional development of industries, 
the potentials inherent to an efficient use of resources 
could not be fully activated. Provincial industrial de-
velopment mainly stayed within the decision-making pow-
ers of structurally concentrated companies. The new 
plants were given their 
tasks via a vertical 
division 
of labour. The minutest details continued 
to be 
con- 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 39 - 
trolled from the center. In this section of the economy 
the plan-oriented approach of the fifties lived on. The 
most recent measures grant independent legal status to 
provincial units. Initial experience shows that their 
fuller integration into the horizontal division of la-
bour has a beneficial effect on their efficiency. 
The territorial  decentralization  of the forces of 
production has left its marks upon the settlement net-
work as well. This trend contributed to the fact that 
the last two decades represented exclusively a period 
of urbanization. Most industrial sites were in non-ru-
ral settlements. Although there has been considerable 
increase in agricultural production, the population of 
the villages has further decreased. The situation of 
small villages of below 500 inhabitants has become es- 
pecially serious (their actual 
number is 831). Massi- 
ve concentration of administration, agricultural 
man- 
agement, education and health-care facilities came as 
a shock to villages with less than two or three 
thou- 
sand inhabitants. The difficulties were further 
piled 
up in that these villages obtained a very small part 
of the funds set aside for development. The cities were 
strengthened to a point where today there are five large 
towns, 13 mediumsize towns and over 100 towns, poten-
tially regulating the socio-economic life of their own 
gravity zones. The regional differences among social 
groups basically result from the different degrees of 
infrastructural development. A necessary condition to 
abolish the resulting social tension is to start a 
stronger decentralization - deconcentration process in 
settlement development. 
The economic boom of the sixties, i.e. after 
the 
counter-revolution of 1956, brought decentralization to 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 40 - 
the  structure of councils 
 also. In the five  years  pre-
ceding the new economic management system the work of 
the councils was substantially changed. The traditional 
organization framework was broadened to allow for a 
greater degree of initiative. Council planning and man-
agement were transformed so as to  make a  gradual trans-
ition to real county-level local self-government pos-
sible. 
The economic basis of county independence was to 
be assessed with respect to the threefold economic func-
tion of a county, i.e. achieving the goals set by the 
central  bodies,  directing council management and plan-
ning co-ordination. Economic management had to switch 
over from a formerly centralized budget administration 
in order to meet the new requirements of management. In-
deaendent financing in all the spheres of social activ-
ity was an extremist view, unfounded in the economic 
conditions of those years. Such a move would be hap-
hazard even in today's stage of development. An irrpor-
tant function of a socialist state is to provide cen-
tral support to the development of non-producing in-
frastructure. Territorial projects could only get un-
der way like this, i.e. by makino use of local resources; 
if one of the main targets of socialist regional de-
velopment were renounced of, namely to counter inequal-
ities in the standards set for different regions. (The 
uncertainty in the short transition period following 
the reform led to the phenomenon that the more devel-
oped counties mainly invested in public service devel-
opment, while the less advanced counties spent their 
funds almost entirely on creating new jobs.) 
Decentralization trends in the council system were 
summed up in the 1971 Council Act.The Act stipulated 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 41 - 
that the authority of 
local and county councils would 
be wider and different from what it had been before. The 
districts, for example no longer had authority in e-
conomic management. The over-centralized management has 
already been simplified by the elimination of double 
subordination. The Act stipulated checks and balances 
of economic, organizational nature, to ensure that the 
self-governing tendencies of the councils are consid-
erably strengthened. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 42 - 
NOTES 
1  Az SzKP XXVI.  kongresszusa.  p 289. (26th Congress of 
 
the Soviet Communist  Party) 
2  Az MSzMP XII. kongesszusanak iegyzOkou//e.  p. 475. 
(Minutes of the 12th Cnngress of the Hungarian 
So- 
cialist Workers' Party) 
3  A Bolq4r Kommunista P4rt XII. kongresszusa.  p.  20. 
(12th Congress of the Bulgarian Communist Party) 
4  Ibid.: p. 23. 
5  Ibid.: p. 35. 
6  LENIN Osszes MOvei,  vol. 36. p. 141. (The 
Complete 
works of Lenin) 
7  LENIN Osszes MOvei.  vol. 44. p. 477. (The 
Complete 
works of Lenin) 
8 See: 
"Capitalism in Russia".  LENIN Osszes 
MOvei, 
vol. 3. (The Complete works of Lenin) 
9  ALEKSANDROV, I.G. 1957.  pp. 71-72. Regionalization in 
the service of overall economic management is detail-
ed in the assignment agenda of the relevant sub-com-
mittee, stating the following tasks: 1. to elaborate 
the principles of economic regionalization; 2. to es-
tablish the actual regional and territorial division 
of Russia; 3. to co-ordinate local interests, in co-
operation with the local bodies; 4. to help local e-
conomic councils in elaborating the economic devel-
opment plans of the regions; 5. to clarify relation-
ships between local economic bodies and the central 
authority and to establish the scopes of authority; 
6. to clarify the organizational pattern of the lo-
cal economic bodies on the basis of their economic role. 
Ibid.: pp. 66-67. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 43 - 
10  The extreme divison of sectoral management is shown 
by the fact that in the mid-fifties, there were near-
ly a dozen industrial ministries even in the social- 
ist countries which had less economic 
potentials. 
Subordinated directorates were several dozens 
in 
number. 
11  BISAEV, M.A. - FYODOROVICH, M.M. 1961.  p. 28. 
12 See:  Direktivy po hozyaystvennym voprosam... 
 p. 635. 
13 Initially, the newly established economic management 
regions observed the borders of former territorial 
administrative units. At first 92 regions were planned 
for. Their actual number soon rose to 105, to be 
reduced to 47 shortly afterwards. 
14 The people's economic councils were considerably dif- 
ferent from the institutions of the twenties. There 
Was double subordination 
in most territorial econm- 
ic bodies. In their capacity of independent 
organi- 
zational units within the territorial Soviets 
they 
were also directed by the Supreme Council for the 
people's economy. Under these circumstances, several 
specialists demanded in the fifties, that they should 
in the long run be subordinated to the territorial 
councils. 
15 Coordination and planning councils were set up 
in 
the 17 economic regions in 1961, and abolished 
in 
February 1963. However, they were reorganized in the 
same year under the name of planning councils' 
in 
16 regions. Their authority came to be restricted to 
analysis and giving advice. These swift changes prove 
there were no scientifically documented views on re-
gional management. 
16 The seven-year plan adopted in 1959 stipulated a 62-65 
per cent increase in national income, 80 per cent in 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 44 - 
industrial production, and 70 per cent in 
agricul- 
ture. Actual figures were: 37 per cent, 51 per cent 
and 13 per cent. (Source:  STARK, A. 1980. 
 p. 159.) 
17 The territorial management structure of the GDR was 
modified in 1952. The heritage of former Germany -
the five Lands - was unsuited to a swift establish-
ment of the interior economic channels of the so-
cialist German state. The newly established 14 ter-
ritorial units were delimited on the basis of eco-
nomic regions mainly. An important role came to be 
assicned to the political considerations which were 
aimed at crushing the formerly strong self-govern-
ment in these units, in order to strengthen central 
power. 
18 The newly established counties had territories 
of 
2
3-5 thousand km
, and 200-300 thousand inhabitants. 
Half of the counties had 30-50 industrial 
enter- 
prises. One county typically yielded 2-5 per cent 
of the country's industrial production. (SABUNINA , 
V. 1959. 
 p. 138.) 
19 These production unions were basically 
different 
from the intermediary bodies set up when the GDR 
was born in that the member firms of the unions 
were avowed independence in management. 
20  MIKULSKIY, K. 1958.  p. 148. 
21 The models set up for state organization 
in this 
period are comprehensively dealt with in 
BIHARI 
0. 1968, 1969, 1983.  
22 Poland's example shows, that 56 per cent 
of 
the 
manpower concentrated in three, industrially .de-
veloped areas by the end of the forties. The north-
east only gave 'jobs to 3 per cent. In Czechoslovakia, 
the Slovak territories provided less then one fifth 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 45 - 
of the national income within the same period. 
68 
per cent of Rumania's production, and 55 per cent 
of the manpower were concentrated in two large re- 
gions in 1938. Meanwhile', the territories where 
40 
per cent of the population lived provide'd 
no more 
than per cent of industrial production. 
23 A sequel of applying different features 
of spatial 
structure was to have a varying number of hierarch-
ically higher regions. In this respect, the most uni-
tary picture comes from the GDR. Different authors 
identified 4 to 6 regions, more or less covering the 
historically-established Lands. There was greater 
spread of between 3 and 20 regions in the Bulgarian 
proposals: 7 in 1914 (Beshkov A„)., while in the 
early fifties Jordanov, T. proposed 5,  Marinov 
 Hr. 
3 and Penkov„ I. 20 economic regions. The geograph-
ical monography published in 1961 recognized 6 and 
the volume of studies published by the Bulgarian A-
cademy of Sciences mentions 3 economic regions. Now-
adays there are 8 territorial production complexes 
to facilitate placement of the forces of production. 
At the party conference in 1978 a proposal was made 
to establish 6 regions on the basis of sectoral and 
territorial concentration and specialization. 
In 
Hungary. various proposals have tried to solve 
the 
problem differently. The smallest number of regions can 
be found in  Kr .a.jkci Gy. 
 He established 4 regions 
based on large geographic units. Other studies, based 
on sectoral or regional development criteria mention 
6 to 10 units. Nowadays there are 6 regi,ins for the 
purposes of long-term economy planning. Problems 
were caused in all countries not only by the me-
thodological issues raised. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 46 - 
One further issue was how to coordinate the adTlinistra-
tive division of the country with its economic region-
alization. There is a need for further research here. 
Most specialists in economic geography favour the di-
alectic unity of the two division procedures, the re-
gional features of today's administrative units are 
interpreted differently in different countries. 
24  BIHARI, 0. 1983.  p. 144. 
25  KORNAI, J. 1982.  p. 15. 

---

Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
Pécs: Centre for Regional Studies, 1987. 51 p. Discussion Papers, No. 5.
- 47 - 
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BARTKE, I. (ed.) (1985): A teruletfejlesztesi poli-
tika Magyarorszegon (Regional Devele , pment Policy 
in Hungary). AkaCiemiai KiadO, Budapest. 
BARTKE, I. (1986): A teruleti irenyitasi rendszer 
korszerOsitese (Modernization of Regional Manage-
ment System). Tervgazdasegi  Forum. 2. pp. 39-42. 
BAUER, T. - SZAMUELY, L. (1979): Az ;par  4gazati 
renyitesenak szervezete az eurOpai KGST-orsza-
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Industrial Management in the European CMEA Coun-
tries: Some Lessons). KOzgazdasegi Szemle. 1. 
pp. 25-42. 
BIHARI, 0. (1968): A tanacsok fejlOdesejlek problemai 
a szocialista ellamokban (Development Problems 
of Councils in the Socialist Countries).  AlIam 
es Igazgates. 3. pp. 193-210. 
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cialist State Organization. Akademiaj KiadO, Bu-
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BIHARI, O. (1983); Korszeru tendenciek az államhata-
lom  gyakorlaseban (New Trends in State Execu-
tive Power). K6zgazdasegi es Jogi KonyvkiadO, 
Budapest. 
BIHARI, O. (1985): Socialist State Organization and 
the Territorial Division of Labour. In: SZOBOSZ-
LAI, GY. (ed.): Politics and Public Administra-
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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
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Horváth, Gyula: Development of the Regional Management of the Economy in East-Central Europe. 
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Discussion Papers 1987. No. 5. 
Development of the Regional Management of the Economy in East-Central Europe 
Pacers 
published in the Discussion Pacers series 
No.1 
OROSZ, Eva (1986): 
Critical Issues in the Devel- 
opment of Hungarian Public Health with Special 
Regard to Spatial Differences 
No.2 
ENYEDI, Gyorgy -  ZENTA1, Viola  (1986): Environ- 
mental Policy  in Hungary 
No.3 
HAJDO, Zolt6n  (1987):  Administrative 
Division 
and Administrative Geography in  Hungary 
SIKOS 
T., Tams (1987): Investigations 
Social Infrastructure in Rural Settlements of 
Borsod County 

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Discussion Papers 1987. No. 5. 
Development of the Regional Management of the Economy in East-Central Europe 
ISSN 0238-2008 
Kiadja a Magyar Tudaminyos Akadeimia Regiorlalis Kutatasok kozpontja 
FelelOs kiado: Enyedi , Gyorgy akad6mikus, f6igazgat6 
Sorozatszerkeszt6: Hrubi Laszlo 
TEMPORG Pecs 
4,9 A/5 iv terjedelemben 
Felelos vezeto:  or  K.611ai Sander 

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Discussion Papers 1987. No. 5. 
Development of the Regional Management of the Economy in East-Central Europe 
The  Discussion Pagers 
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