Discussion Papers 1988.
Spatial Organization and Regional Development
70
Gyorgyi BARTA
CYCLES OF CHANGES IN INDFSTRIAL ORGANIZATION
FROM THE 196o!, TO THE PRESENT.
REGIONAL ASPECTS OF ORGANIZATIONAL CHANGES
Introduction
Although an organization constitutes just the
form and framework of the contents, the politico-
economic leadership of Hungary still considered
economic organization a basic means to solve /at
least partly/ the economic /and political/ problems
and to achieve the objectives of its t/ansformation
after 1945. It cannot be denied that if an economic
organization does not comply with the level of eco-
nomic development or if the structure of economic
organization does not fit into the economic tasks,
the economic structure will probably not promote
economic development and realization of specific
objectives.
The economic development of Hungary and other
socialist countries has been accompanied by per-
sistant change in economic organization over the
past 40 years and the transformation of economic
organization is still an important concern today.
During the past four decades, different periods
of change in economic organization can be distin-
guished. In industrial organization, changes have
occurred since the 1960s; while in agriculture
and the tertiary sector processes of a similar
nature and intensity have also occurred, but some-
what later.

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
71
The three characteristic periods of the last 20 or
25 years were as follows:
- the early 1960s, which was an era of drastic
organizational amalgamations;
- the period from 1972 to 1977, when organiza-
tional acquisitions became dominant. Between
these two periods mentioned, the system of
the new economic mechanism was introduced
/1968/, which, for different reasons, either
slowed down or stopped the earlier tenden-
cies; but did not cause substantial changes
in the organizational system and so cannot
be regarded as an independent era;
-
the third period started in the late 1970s
and continues at present. In this period,
the /re/centralization efforts of previous
years are criticized strongly and official-
ly. Slight signs of decentralization can
already be noticed, but deep reform of in-
dustrial organization has not occurred.
In this paper, priority will be given to one aspect
of organizational changes, namely their regional
aspect. Enterprise organization has significance
for regional development and this can only be
understood when approached from the point of view
of the regional system rather than from a focus on
the enterprises themselves.
2. The period from the 1960s until the introduc-
tion of the system of the rew economic mecha-
nism
a/ Centralization of industrial organiza-
tion

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
72
In the early 1960s, the politico-economic
leadership of Hungary took up the question of the
introduction of a fundamental economic reform
with the aim of replacing, first of all, the man-
agement by directives /the so-called commanded
system/ with indirect management. In this new ECO+
nomic system, the market is given an increased im-
portance and the economy would be gradually managed
by a regulation system. Enterprises acting not mere-
ly as places of production would become independent
to a significant extent and the level of decision
making would be largely at the enterprise level
instead of the management organizations of indus-
try /i.e., board of directors of industry, minis-
tries, central and local party organizations/.
The politico-economic leadership made efforts to
make industrial organizations as simple as possible
fearing that it wculd be unable to control or in-
fluence activities of enterprises in the period
following the introduction of the reform. The mer-
ger of enterprises was stimulated and as a result
certain economic branches could be reduced to one
or just a small number of trusts or large enter-
prises /this was the case in the chemical indus-.
try producing cosmetics and household goodE,
vegetable oil production, and the sweets, rubber,
and lime and cement industries/.
Organizational changes typically were brought
about by external pressure and not the result of
enterprise managers decisions. This process was
launched as a campaign and mergers were often im-
plemented when it was not justified at all by the
interests of production /e.g., in light industry/.
In certain branches of industry /e.g., the engi-

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
77
production was largely performed by Budapest even
at that time; in 1961, some 1/3 of branch plants
of all industrial enterprises with headquarters in
the capital were in the countryside.
We can come to the conclusion that industri-
al organization of the counties constituted a much
closer regional unit at that time than in subse-
quent decades. This close regional unit, however,
did not refer to strong spatio-economic integra-
tion, because intra-county relationships amond in-
dustrial enterprises were at a very low level.
2. The second period of industrial organizational
changes between 1972 and 1977
a/ The new wave of centralization
The relatively quiet years of organizational
changes were followed by a new wave of centraliza-
tion from 1972. Nevertheless, the reasons for cen-
tralization and the nature of these processes dif-
fered greatly from those of previous decades. As a
result of the introduction of the new economic sys-
tem, market relations have strengthened, leading to
a crisis situation for the majority of large enter-
prises. While most small and medium-sized enter-.
prises and cooperatives could achieve favourable
economic results, large enterprises suffered great
losses and were unable to develop on their own.
/In 1972, enterprises employing over 3,000 workers
amounted to 8 % of all industrial enterprises in
which more than half of the industrial work force
was engaged/. The response made by the Central
Committee of HSWP was not surprising: in 1972,
50 of the largest industrial enterprises were
not obliged to apply the regulations of the new

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
78
economic system; moreover, a privileged situation
was created for them by state subsidies and loans.
The nature of centralization had changed.
While in the earlier years, mergers of enterprises
of the same size, branch of industry, and belonging
mostly to the same regjon were typical; in this
period, acquisitions were realized in such a way
that mainly large enterprises absorbed small and
medium-sized state /first of all council/x enter-
prises. Although this period was less characteris-
tic of a campaign, acquisitions were executed not
on the basis of efficiency /typically, none of the
participants of acquisitions were efficiently func-
tioning enterprises/. In this period, centraliza-
tion efforts were made not only by industrial man-
agement organizations but by large industrial enter-
prises as well.
There were manifold reasons for centraliza-
tion: on the one hand, strengthening central will,
improvement of management of industrial enter-
prises, and concentrated technological advance;
on the other hand, solution to shortages of
labour force, establishment of a group of indus..
trial enterprises of small and medium size pro..
ducing spare parts, components and providing in-
dustrial service, efforts made to avoid bankruptcy,
widening of cultivated land, and finally, solution
to the problems in high ranking officials in poll..
tical organization.
According to the ownership of enterprises, state
and cooperative industry can belong to 3 groups:
categories of ministry, councils, and cooperati-
ves.

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
82
Acquisitions were characteristic both of cooperative
industry and of state industry. Amalgamations and
acquisitions of cooperatives were forced almost
exclusively by management organizations of coopera-
tives /in several instances, against the rules and
the will of the members/. Amalgamations and acquisi-
tions among state and cooperative sectors were im-
plemented as an exception, and were more frequent
among enterprises belonging to ministry and coun-
cils. In this period, the ministry sector absorbed
a significant part of council industry. In many
cases, this process was stimulated by local coun-
cils, too /as a matter of fact, the support and
management of their own enterprises imposed a burden
for them/; but it coincided with the expansion ef-
forts of ministry enterprises.
In concequence of the acquisitions of small
and medium-sized enterprises, industrial enter-
prises producing spare parts and components as well
as providing industrial services either totally
disappeared or were significantly reduced in number.
More precisely, the above mentioned activities had
to be performed by large enterprises. This is the
main explaration for the continuing increase in
shortages of goods and services.
Another characteristic feature of organiza-
tional changes is the spread of multiplant enter-
prises in industry. This typical form of industri-
alization /i.e., opening up first of all new branch
plants instead of companies/, and later amalgama-
tions and acquisitions increased the number of
multiplant enterprises /Table 6/.

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
83
Table  6
Distribution  of  industrial  enter rises and
workers employed by them according  to  the
number  of their branch  plants
Number of branch
Distribution  of number  of /%/
plants /per enter-
enterprises
employees
prise/
1972
1982
1972
1982
1 -
3
33.6
31.1
23.9
22.0
4 - 10
38.7
39.3
39.7
36.5
11 -
27.7
29.6
36.4
41.5
Total
100.0
100.0
100.0
100.0
Source: Data on industrial  branch  plants.
Unpublished data of the Central Statis-
tical Office. 1972, 1982
Multiplant organization makes production more com-
plex and increases considerably production costs.
At the same time, multiplant enterprises can make
use of the advantages of the settlements of the
branch plants, e.g., the cheap and abundant labour
market, favourable plot prices, support of local
management for industrialization, etc. This form
of organization - wide-spread in developed capi-
talist countries, too - can justify the feasibility
of successful and efficient operation of multiplant
enterprises on the present level of technology.
In Hungary, multiplant enterprise organiza-
tion could be realized and provide a very cheap
solution to production expansion and  industrial
development, which was contradictory in many cases

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
84
to the level of general economic and technological
development. Because of the deficiency and over-
crouding of telecommunication and transport, the
operation of multiplant enterprises is frequent-
ly difficult and of low level efficiency. /Of
course, the problem could be solved by infrastruc-
tural development/.
We have mentiloamoi as a marginal case agricul-
tural cooperatives and state farms, which perform
auxiliary activities of an industrial nature.
Although agricultural industry does not belong to
the industrial sector in organizational terms, the
nature of this activity and many close connections
with the industrial sector cannot be disregarded.
At the very beginning, the performance of
auxiliary activities in agricultural cooperatives
reorganized in the 1960s, then in state farms aimed
at assuring permanent occupation and higher incomes
for cooperative members. Today, within 25 years, it
is evident that auxiliary activities are not a
transient phenomenon in agriculture, although the
objectives have changed considerably. First of all,
by creating new sources of income they can bring
profits when basic agricultural activities are fre-
quently non-profitable, or not so profitable. The
industrial activities performed by agricultural
cooperatives and state farms can in part serve as
a substitute for missing small and medium-sized
enterprise capacities, and can supplement the pro-
duction of strongly concentrated large industrial
enterprises. Also these activities can contribute
to satisfying local needs for industrial goods and
services to a greater extent. Generally, coopera-
tive industry can play an important role in settle..

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
85
ments that were left by other industrial organiza-
tions /e.g., less profitable, labour intensive
branches, etc./.
In my opinion, industrial activities per..
formed by agricultural cooperatives and state farms
are most significant in the prosperity of agricul-
tural enterprises rather than in their share in in-.
dustrial production. /Here will be presented a few
figures to justify the above mentioned facts./ In
1980, 92.4 % of state farms and  88 %  of agricul-
tural cooperatives performed industrial activities,
which provided 21.2 % of agricultural income. At
the same time, agricultural industry amounted to
4  or  5  %  of national industrial production.
Agricultural cooperative industry does not
mean competition for industry at all: its size is
modest despite its rapid development. In 1980, about
100,000 employees were engaged in 1,338 enterprises,
which represents ar erterprise size of 70-80 people;
in addition, its fixed assets are generally of low
level technology, experts are engaged in small num-
bers, etc. Strength and favourable results of  COOpm.
erative ard state farm industry can be explained
first of all by the fact that the profitability of
the industrial activities is well above not only
that of agriculture but also of state and coopera-
tive industry /in agricultural cooperatives, profit
per unit of income was higher by two times that of
similar indices for cooperative industry, and it
was higher by three times that in state industry/.
This is partly a result of the price system, tax
differences, and production costs /in agricultural
cooperatives, operating costs are lower/. Higher
wage earning possibilities also contribute to the

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
86
attractiveness of cooperative industry. During the
present economic circumstances, the future of coop-
erative industry seems to be quite sure though it
has to overcome more and more difficulties and it
cannot be regarded as an independent and own-ac-
count small undertaking operating under "clear"
market circumstances. Their development is subject
to the amount of surplus income to be allocated for
the development of other activities by cooperative
centres. The industrial activities of most coopera-
tives are closely connected to socialist industrial
enterprises in the form of wage work or cooperation.
As regards industrial enterprises, forms of new small
undertakings are generally more favourable in con-
trast to cooperative industry, so that cooperative
industry has to face new challenges in the 1980s.
c/ The regional structure of industrial
azanization in the 1970s
Very frequently, multiplant enterprises have
opened up branch plants in several settlements /Fi&,.
1: Regional distribution of multiplant enterprises
—
employing over 5,000 workers/. Industrial enterpris-
es show great concern in selecting settlements in
which to open up branch plants. In the 1960s and
1970s /in the period of the so-called mass indus-
trialization/, the distances between the branch
plant and parent company were influenced first of
all by the advantages of settlements /e.g., labour
force reserves/ and accessibility /distance +
transport characteristics/ rather than transport
costs, which were expressly low at that time. Other
aspects, such as thorough information on settlements
or personal connections, also influenced the selec-

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
8 8
tion process. That is why in most cases enterprises
having headquarters in county seats located branch
plants within the boundaries of their county. As an
exception, industrial enterprises having headquarters
in Budapest opened up branch plants even in the
most distant regions of the country /Fig. 2
Dis-
tribution of branch plants of enterprises /in the
countryside/ having headquarters in Budapest/.
In the 1970s and 1980s, the strategies of enter-
prises had to change. As a consequence of the fall
or stagnation of industrial production, new plants
could be opened more rarely; moreover, the locations
of plants in settlements were strictly examined
because of the increased transport costs. In many
cases, this was just the reason for closing,branch
plants laying at great distances; on the other hand,
new branch plants had to be opened at ever greater
distances from the parent companies as a result of
exhausting labour force reserves.
Multiplant enterprises having branch plants
in several settlements could establish sound produc-
tion connections contributing at the same time to
the strangthening of connections in settlements and
regions. As most multiplant or larger enterprises
locate in cities, these cities will become manage-
ment centres of industry.
Organizational centrali-
zation just strengthens their positions. The mana-
gement of industrial production of increasingly
extensive regions is performed by these centres
/Table 7/.
Out of management centres of industry, priority is
given to Budapest. Budapest has a diminishing share

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
91
in the industrial production of the country as a
result of selective industrial policy /industrial
development of the capital had to be restricted,
even a great number of industrial enterprises had
to move out during the last 20 or 25 years/ and
due to the exhausting labour force reserves of the
countryside. Still, the most dynamic elements of
industry remained in Budapest /e.g., headquarters
of enterprises coordinating management-organiza-
tional-development functions and where the most
important aspects the production process - those
determining the efficiency of an enterprise - are
executed/.
In 1982, 42 % of all branch plants of in-
dustry belonged to industry of the capital /and 43
% of the industrial work force/. So, a hypothesis
seems partly justified: namely, that the role of
Budapest is significantly larger in the industry
of the country than would follow from the share
of industrial employees /24.3 %/, share of indus-
trial fixed assets /22.3 %/, or participation in
industrial production /25.1 %/. Although the role
of industrialization or industrial organization in
other cities has strengthened during the last years,
their significance is still inferior to that of the
capital.
Other examinations revealed that within the
counties, it was the county seats that have
strengthened their positions in industrial organi-
zation similarly to Budapest /of course, to a les-
ser extent and not so intensively/ at the expense
of smaller, local centres. It was not typical,
however, for each and every county. In a few coun-
ties /e.g., in Vas, NogrAd, and Bacs-Kiskun Coun-

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
92
ties/, the importance of county seats and their
impacts on the industry of the county have dimin-
ished.
As a consequence of strengthening regional
centralization, the number of management centres
/or towns/ have decreased. Fewer and feWer. centres
perform the rote of industrial production manage-
ment over increasingly extended regions /Fig. 3/.
The dependence on distant centres became dominant
in the whole country; in a few counties, the
management of as many as almost half of the in-
dustrial branch plants is performed from distant
towns. In most counties, industrial dependence
became stronger and general, especially in the
1970s.
In the early 1980s, the share of locally
managed /here we mean local management within a
county, rather than within a settlement/ plants
kept decreasing in the majority of counties; the
independence of local economy or, more precisely,
of local industry continued to weaken even in ccun-
ties where the level of dependence had been high
until the 1980s.
Regional centralization, which has a connection
with enterprise centralization but the two are not
the same, also continued in the 1980s, while the
process of enterprise centralization modified and
declined somewhat. Counties can differ largely in
the size of dependence. Strong organizational
dependence developed around the most significant
industrial centres as well as in the industry of
later industrialized regions, After all, changes
in industrial organization altered the closed in-
dustrial structure of the counties and promoted

Barta, Györgyi: Cycles of changes in industrial organization from
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Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
94
regional and settlement connections but at the same
time made local cooperation more difficult rather
than helping it. Anyway, industrial branch plants
have much stronger links with distant centres than
with the industry of the place they are settled in;
cooperation partners for branches are generally
fixed by the parent companies.
4. a/ Changes in the 1980s
Because economic difficulties deepened /one
may call it an economic crisis/, the political
leadership of Hungary was obliged once more to
entertain the idea of economic reform. Afterwards,
the transformation of industrial organization was
launched. In 1982, the ministries of industrial
branches were fused into the newly established
ministry for industrial affairs. This decision
at preventing ministries from participating
in operative management /which erabled companies
to increase their independence/.
A new campaign has started to decentralize
large industrial organizations, but this time the
campaign was not significant. A few trusts /first
of all in food industry/ were abolished; certain
branch plants of larger enterprises became inde—
penden!=. The whole process was urged /even dic—
tated/ from "outside". While eanlier acquisitions
coincided partly with the interests and efforts
of enterprises, under the present economic circum—
stances enterprises are not interested in reducing
the number of plants or diminishing their size
should they incur great losses. In addition, these
decentralization measures gave rise to more criti—
cal responses than would be justified by the size
or the significance of decentralization.

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Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
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Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
9 8
Significant structural changes of state and
cooperative industry did rot take place in the
early 1980s despite decentralization efforts. The
number of small companies continued to decrease
/the reasons for this are not clear; it can be
explained partly by entering the next size catego-
ry or by amalgamations and abolishments/; at the
same time, an opposite process was formed in cases
of medium-sized companies /being a new phenomenor/;
ard, finally, the Lumber and share of employees of
large enterprises /having over 5,000 workers/ have
hardly changed in national indpstry /Table 10/.
Table 10
Distribution  Of_EaLEEpriSeS  and workers
employed by them in socialist industry
based on the size of enterprises /%/
CategorieE per
Distribution of
numbers of workers
enterprises
employees
1972
1982
1972
1982
-
500
61.6
5 4. 5
13,2
12.7
500  -  1,000
1 6.4
17.o
11.9
11.9
1,001  -  3,000
13.9
20.6
24. 7
31.9
3,001 - 5,000
4.9
4.2
18.5
14.0
5,001 -10,000
2.2
2.6
15,6
15.0
10,001 -
1,0
1,1
16.5
14.5
100.0
100.0
100.0
100.0
Source: Unpublished data .on industrial branch
plants collected by the Central Statis-
tical Office

Barta, Györgyi: Cycles of changes in industrial organization from the 1960s to the present.
Regional aspects of organizational changes. Ed. Orosz Éva, Pécs: Centre for Regional Studies,
Discussion Papers 1988. Spatial Organization and Regional Development 70-101. p.
99
More recently, changes have not had great impacts
on the regional structure of industrial enterprises.
Decentralization of large enterprises resulted in
independent branch plants, factories, and parts of
factories that had operated also in cities until
then /so, the functior of industrial management
of cities has hardly changed/.
New forms of vertures were largely charac-
teristic of the industry of the capital. As regards
the countryside, the politico-economic leadership
viewed them with suspicion and had prejudices, which
slowed down or prevented in numerous cases the
spread of small ventures in the provinces. It was
thus again the industry of the capital city that
became richer by this new, dynamic element of in-
dustrial organization.
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