Subsidising the Academician

Alec Nove

  • Urban Inequalities under State Socialism by I. Szelenyi
    Oxford, 158 pp, £15.00, October 1983, ISBN 0 19 877175 4

This is a well-documented, thought-provoking monograph, much of it written when the author was still in Hungary, but reinforced by a fascinating introduction which makes the whole argument accessible to ‘bourgeois’ readers. Among the book’s many merits is its dry ironic humour. Szelenyi now lives in America, but, unlike some other émigrés, he has not swung from one extreme to the other. He does not believe that market forces left to themselves are likely to solve the housing problem, or that state-planning as such is wrong. This makes his critical analysis of how such problems are handled in Eastern Europe all the more effective. While his detailed research was based on the situation in two Hungarian provincial cities, and in Budapest, he has satisfied himself that the same tendencies exist in the Soviet Union and in other countries which he calls ‘state socialist’, though with important local variations.

His basic point is as follows. Whereas ‘under capitalism the market creates the basic inequalities and the administrative allocation of welfare modifies and moderates them slightly, under socialism the major inequalities are created by administrative allocation, and the market can be used to reduce inequalities.’ Szelenyi concerns himself primarily with housing, but intends his generalisation to apply much more widely. His argument runs directly counter to the typical gut-reactions of Western left-wing intellectuals, who tend to see the market as generating the major inequalities and who therefore react negatively to the extension of the role of market forces in Eastern Europe. In the USSR an important source of privilege is access to special shops in which goods ordinary citizens can seldom buy are available at the low official prices. Such a price policy is sometimes justified by reference to social fairness: high prices appear to be advantageous for the rich and influential, whereas low prices (at which supply and demand do not balance) appear to benefit the poor. Too often, however, the rich and influential get more than their share, and get it cheaply by the back door. Administered privilege becomes less important, the perks associated with high rank less vital, if all citizens have access to goods and services at realistic (i.e. higher) prices. Trotsky once remarked that those who distribute goods ‘never forget themselves’, and he saw in the prevalence of the queue an essential explanation of the power of ‘the bureaucracy’. This is a partial insight, but a valid one as far as it goes. Those responsible for administered allocation do tend to allocate privileges to themselves, while those who stand patiently in line have little alternative to taking what they are given. A strengthening of the market mechanism in Eastern Europe has the effect of diminishing the privileges of rank, while increasing the influence of ordinary people over the goods and services supplied to them.

Housing, it must be said, is in a special category, in that – as Szelenyi himself stresses – slums can be created and reproduced by market forces, and there is a vital role for public authority in the provision of housing for the less well-off. In the specific institutional and political circumstances of Eastern Europe, however, the effect of housing policy has been to reinforce existing inequalities. Szelenyi learnt this through his own field-work. Before he began his research, he believed that the net effects of public housing provision in Hungary were consistent with the egalitarian ideology of the regime – that workers would be the principal beneficiaries. When he fed the data into the computer, he was astonished to find that the reverse was the case.

To explain why and how this occurred, Szelenyi begins by analysing housing policy and the types of housing that exist. Chronic housing shortage was the result of rapid urbanisation combined with prolonged neglect of housing in virtually all of Eastern Europe. This neglect he explains by the priority of heavy industry and its dominant claim on scarce building materials, and by the fact that housing provision was very largely withdrawn from the market and allocated administratively at very low rents which did not even cover maintenance costs. The low-rent policy made housing a financial burden for the public authorities, while simultaneously allowing demand for housing to become virtually independent of the earnings of the citizens. Everyone naturally wanted more. Although in the past twenty years there has been a notable speed-up in housing construction, the backlog is still being felt.

There are three categories of urban housing ownership: state, co-operative and private. State housing varies in quality and age: old, formerly private, apartment blocks include some excellent pre-war flats as well as some illequipped and decaying properties. There are also some new apartments built to fairly high standards. All of these are let at very low rents. Co-operative housing construction is in various ways subsidised by the state, but the owners of co-operative flats acquire a saleable asset. Then there are private houses, some of which are built with the help of a grant from state institutions. These houses vary greatly in quality and they, too, can be bought and sold. Finally, some people rent rooms from tenants or owners. In this way, a state-owned administered sector and a market sector co-exist. The essential difference between East and West is not that the state sector is far larger in Eastern Europe but that it includes the major part of the best urban housing. Szelenyi does not oversimplify a complex picture: some state housing is of bad quality and some private villas are highly desirable properties – but the reverse is more often the case. A substantial statistical analysis is needed to disentangle all this, and just such an analysis is provided.

It turns out that a disproportionately large number of high bureaucrats, intellectuals, technicians enjoy both the heavily subsidised ‘first-class state housing’ and the partially-subsidised co-operative flats. The proportion of each social category benefiting from such housing declines as one goes down the social scale. Most semi-skilled and unskilled workers in the sample live in (or have to build) private family houses, or rent rooms; these tend to have relatively primitive facilities, often lack bathrooms or even running water and benefit from no subsidy. The higher you are on the social and income scale, the more likely you are to benefit from superior subsidised housing. The statistics also show that you are a more likely recipient of improvement grants, no doubt for the familiar reason that the more educated are better able to use the various rules and regulations for their own benefit. In some instances socially-segregated housing areas have grown up, not unlike the ones we have in the West, as well as decaying inner-city areas of sub-standard older housing.

Szelenyi duly notes that, in any society of unequal rewards and status, housing is bound to be unequal. If the inequality can find only limited expression through the market, it will do so through the allocation system that replaces the market. The system as it actually operates has the effect of increasing rather than reducing real income differentials. Szelenyi insists that this is not due to corrupt or illegal practices. It is simply that if an academician or a chief engineer comes to a city, his standing and influence are such that he is much more likely to be able to obtain a good low-rent state-owned apartment than an ordinary worker would be. When a senior Hungarian statistician did in fact obtain such an apartment, and Szelenyi suggested that this was due to rank-based privilege, the statistician retorted that his Austrian equivalent in Vienna had a much better apartment. So he had-but he paid a high market price for it, while his Hungarian confrère received a subsidy. This is a point worth underlining. Nowhere does Szelenyi suggest that housing provision in the East is more unequal than it is in the West. Quite obviously the opposite is true. It is the role of public authorities, and of market forces, in creating or reproducing inequalities that he is discussing.

Szelenyi’s solution would be a mixture of market and allocation, with much higher – i.e. genuinely economic – rents for high-quality apartments, and more construction of cheaper housing for the less well-off, together with a much more permissive attitude towards small family houses. At present, ‘organised private building on any scale is forbidden, and state builders decline to build family houses or allow them on state land,’ so the many ordinary workers who do build private houses do so by primitive methods on private ground. He expects such suggestions to be opposed on ideological grounds, and also because planners and architects do not like to design the cheaper kinds of mass housing and, like others nearer home, prefer multi-storey flats to small houses, yet he insists that the net effect of his proposal would be a more equitable form of allocation, and some redistribution in favour of the less well-off.