Peculiarities and Limits of the Second Economy in Socialism (The Hungarian Case)

Abstract

The second economy in socialism is neither identical to the small capitalist sector nor the shadow economy of the Western countries. This paper’s aim is to present a picture of some constraints that form the second economy’s character and determine its possible development. The crucial problem is the relationship between the state and the second economy. The state expects the second economy to play an auxiliary role and this explains the restrictive character of the state’s regulations. While the state stimulates the growth of the second economy’s natural output it tends to eliminate the negative unintended side effects going together with the growth itself. But the two objectives can hardly be reconciled with each other and this results in a particular type of growth where increasing illegitimacy, capital income formation and stagnant productivity go hand in hand.

During the last decade social scientists have become interested in the so-called second economy of socialist countries. However, in spite of the growing number of publications on the subject we do not seem to have made significant progress in interpreting the characteristics of this sector, especially its relationship to the state and the first economy.

This short paper aims to present some system-specific peculiarities of the second economy in socialism in order to improve our under-standing of this little known area. ^l)