HUNGARIAN HEAVY INDUSTRY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83-00415R003300080008-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: March 19, 2012
• Sequence Number: 8
• Publication Date: December 30, 1949
• Content Type: REPORT

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1N#ELIQWX 2 ! 4
CLASSIFI9110N
CENTRAL INTELLIGENCE AGENCY REPORT'
INFOIRMATIO
REPORT CD NO..
COUNTRY Hungary
DATE DISTR.
30 -Dec. 1949
SUBJECT Hungarian Heavy Industry
NO. OF PAGES
8
PLACE
ACQUIRED
DATE OF I
NO. OF ENCLS:.
(USTED E zLOW)
SUPPLW.MENT TO
REPORT NO.
T311G DOCUEIUYYT COuTAIB:] EWFOU:IATION APFaCTINOTDB BA'I~ DCLAL DGPIINIIS
OP TBR UNITED OTAT69 CITNIN rum UWADINO OF T311t 04011 ACT U*
D. II. O.. D/ ADD $2. AS APSE$OFD. ITS TBAIBI4196ION OS TI2 DHVBIATIOD
CP ITS CONTHDTO IN ADT MANNED TO AN UNAUTOOHITBD PI:3SOIi IS P20-
R10IT2D DV CAW, RBPRODUCTIOr3 OP Tots FOOLS is FBOOIS ED.
only half the requi ements? It was necossa r to vl~lnn a reorg.nization and
ternative but to r a e tt?o^e plants state prorerty. The %TI"i u as created to
take care of t'iis s"_tuation which Sins also broutht about by the following
contributing factoro. Five large conpanies, which previously had been com. -
petin with each of#=er, were. unable to attain the desired outrut until
their production ha(' been coordinated under a unified rarstar'e: ent. There
was a need of reor, vnization. The production program was primarily deter-
nined by the requir rents of 'Soviet reparations. and by reconstruction work,
and the insta?latios an_? the rroduction rotontial of the -plants tau:Ld greet
THIS IS UNEVALUATED INFORMATION
The General Sit'n
National: za.tion of ' 'Tungarian Industry began in 1946 with the coal nines and
the heavy industry.i Then, in the sprint; of 1941", nearly all industry was
nationalized under ! ,he law ? rich provided for the nationalization of all
entorn rises =rith r?we than 100 er-ployee and of the Most vital industries
enrloyinn less than 100 workars. As a result of this, six of the largest
plants producing a-iok t of the iron and steel and cost of the machinery and ships
were placed under the Heavy Industry Center (UIK). The nowt important recon-
struction work (coryunications) and the reparations to be aid to the USSR and
to Yugoslavia were rI,o be taken. care of by these plants wzich, due to war darsages
and to the inflatio. rrivate carital was unable ?t in+,n nrrs.:11)etj.on ro.r;a.(iiv
or to bring to a hi;h rate of rroduction. The state. thus had to intervene o
The state, or rather the governnent, which was already half Comrnuni st, had
no inclination to h?,lp private capital with loans, so that there seas no al-
redistribution of -szrk a?-,.ono; the various giants. .
this was realized during the fir-t half of 19,
50X1-HUM
2. The ,success of heavyy incuc);ry was the pride of the Hungarian gove4nnento Its
production attained pre-czar levels and in sore fields even exceeded it. But
this was brought atout by treat oncrifices . Hungarian econony ,->a s urdened
by the large budgetary allocations which were set aside for heavy industry,
to the detrir-.ent of'. other branches of national econor r., Theo anounts bene-
fited nriiarily the recipients of reparations - with Via `'ovi of Union in the
fore. During the first year, no -great change in the or7 ara3.ca.tion of plants
took place. Each plant retained itn ^ILa .aFgonont an.-7 ,adnini.stration, stn' only
listrihution of the 1 v-York anon' the c'.iff-rent rlanto and the raw rater i Lls
allocations .-sere that jo') of 11-ho _ TI`C. :even the for-par ropre nentative body of
_ CLASSIFICATION S%CR "
STATE P pV 4 NsFw : mss PISTRIDUTIO V ~~1
~E.f 7Y f a{t Ff3i ?)[aja rT
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C};ANTRAL INTELLIGENCE AGENCY
MAVAG personnel is 23,000 at the present. The most important production
figures for 1941 were as follows:
Pig iron
Raw steel
Cost iron
Cast steel
Forging:
Sheet iron
Railroad engines
Agricultural machines
Metal constructions
12,000 tons
18,000 n
2,000
800
2,000
9,000
60
1,000
500
per month
" tq
tt tt tt
n tt tt
" n tt
per month
per Month
tons per month
Manfred Weiss Plant at Ceopel near Budapest
Forging and rolling mills, forging and stamping shops, drawn steel tube
shops, metal goals, bicycles, motors, tools, sewing machines, agricultural
machinery. Before the war, the plant also manufactured ammunition and air-
craft. During the war,, the plant also built several huidred lint tanks,
cross-country vesicles and trucks. In 194/ a the plant as seriously damaged
by bombing and suffered from other war damage and from dismantling by the
'Russian troops.. It was rebuilt through large investments and at the same
time enlarged. he first Hungarian aluminum plant was also associated with
this enterprises, but since its capacity was low, the new aluminum plants are
more important. The plant employs 21,000 persons at present. Its most
important produce ion figures as of the end of 1947 Twere:
Rat steel
12,000 tons per month
Cant iron
21000
I
tt
n
Ca?tt steel
200
""
5
tt
Fo-,dings and stampings
19500
"
tt
ro
Drawn products
g,000
"
n
at
Ag~?icultural products
1,500
(sic) per month
Tools
200
tt
t:
ca n
Bicycles
5,000
Bicycle motors
700
"
et
rt n
Setring machines
1,000
3)
Rimamurany Ozd Steel Mills (RIMA) at Ozd (Northern Hungary)
Forging and rolling mills, foundries, forging and stamping shops, with 14,000 e>m-
p3.oye6s at present. The plant was slightly damaged by the retreating
Germans, but the damage was quickly repaired. Production figures as of the
end of 1947:
Pip;- iron
19,000 tons per -month
Ray= steel
25,000 " tt
n
Cart iron
800 n
"
Cart steel
400 "
it
Fox?gings and stampings
350
Sheet iron
17,000 "
at
4)
Ganz & Co., Electromechanic Products, Railroad Cars, and Shipyard at Budapest
Consists of three plants: the machine plant, the railroad car, and electrical
equipment plant at Budapest, and the shipyard at Ujpest aiear Budapest. The
!iachine factory builds Diesel engines and 'eneraator gas engines, gears, smelt-
ing and roiling eq".u.ipment, turbines, pumps, reduction motors, brick moulders,
threshing machines, railroad cars, and self-propelled railroad cars. The
electrical egiaipm)nt Plant manufactures generators, dynamos, electric motors,
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SECRET
CENTRAL INTELLIGENCE AGENCY
-4-
transformers, circuit breakers, and electric meters. The shipyard builds
barges (500 to 1000 tons), river boats, boats for the Danube shipping
(1200 tons) dredges, metal structures, bridges, boilers, pulleys, foundry
equipment, and steam hammers. During the war, the plant also made several
hundred light tanks., shells, and anti-aircraft instruments. The shipyard
has built 4 ships of 2500 and 4000 tons. In 1944, the plant machinery was
aliitly damaged by bombing and the electrical equipment plant was parti-
ally destroyed during the siege of Budapest. Most of the damage has been
repaired, and the plant has 10,000 employees at present. Production
figures as of the and of 1947 were:
Motors
50 per month
Dnnrious machinery
200
"
Railroad cars
300
ALses
4
Eliectric motors and
generators
500
n "
Ts.?ansformers
200
n n
Electric motors
2,000
n "
Ships
20
year
B&'idges
6,000
Cast Iron
19400
tons per month
Crest steel
Forginpa
400
Hungarian Railroad Car Factory, GyBr (RABA).
Construction of railroad cars, bridges, motors for self-propelled railroad
cars, trucks, and buses. In 1944, the plant was badly damaged by bombing
and most of it had to be rebuilt. At present it employs about 5,000 ,iorklers.
Productions figures as of the end of 19473
5)
RP4lroad cars 200 per month
Ti xcks and buses 50 "
Ttal structures 3,000 " year
Cost steel 350 tons per month
Forgirigs 300 "
5O
The heavy industry plants not associated with the NIX are the Lang factory,
the Hungarian Steel Mills, and the Hofherr-Schrunz Works; the last two em-
ploy 2000 workers each. Lang produces Diesel engines and generator gas
motors, steam turbines, steam engines, boilers,. equipment for chemical
plants, and metal constructions. The Hungarian Steel Mills make mostly
steel forgings and stampings and steel alloys. Hofherr-Schranz produces
agricultural machinery and tractors, but, in comparison to the NIK plants,
its production is. very small. After the organization of the Hungarian
industry, the aluuntnum industry was made part of the chemical industry.
Hungarian > ixite reserves, assuming a production of 1 million tons per
year, will last 200 or 300 years. At present, not even half of that amount
is being exploited, because the domestic aluminum plants are not capable of
treating that much are. Prior to the occupation of Hungary, most of the
bauxite went to Germany. It is planned now to increase the exports to the
USSR as soon as sufficient Danube shipping facilities are available. During
the war, a plant for treating. bauxite was constructed on the Danube between
Eaztergom and Komarom, with an annual production capacity of 60,000 tons of
aluminum. This plant was not completed during the war and was also damaged
by bombings, but it was put Into operation during 1948. The plant at Magarovar
has a capacity of a`1rost 10,000 tons. There are also aluminum plants at
Csepel, Ajka, and Szekeefehevar, all'of them in the mining and industrial
SECRET
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CENTRAL INTELLIGENCE AGENCY
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region between the Danube and Lake Balaton. Present production seems to be
around 60,000 tons per year. It was planned to increase production through
the use of cheap eltsctrio poeaer to be obtained from Yugoslavia. Agreements
had been concluded frith Yugoslavia ,for the construction of 1 droelectric
plants which would transmit power to Hungary, but these agreements are sus-
pended at the present,
TheFlnaneial. Situaty on._$ru ~ R
Outside of the natic:nalized steel mills (MAVAG), the former plants of Lang,
Ganz and Hungarian Steel Mills., belonged.to the interests of the Hungarian
Credit Bank, RIM atd RABA belonged to the Hungarian Commerce Bank, and the
Mt4 plant was in the hands of the Weiss family, although, during the war, bank
capital also acquir -d an interest in it. The banks also furnished the neces-
sary credits for the plants, while NAVAG was maintained by the State. Most
of the plants operated at considerable loss.: in the period between the two
wars, and MAVAG, especially, was a heavy burden on the State treasury. The
situation began to Improve in 1936, and by the outbreak of the war, most of
the plants more showing a profit; heavy industry obtained its maximum profits
during the war. After the collapse, the companies found themselves in an
extremely bad situation. Although production had already started in 1943, war
damages, lack. of raw materials, and lack of work. discipline permitted only a
low level of production. In the same year, inflation occurred which caused
the companies to lode their operating capital. However, the greatest losses
were caused by reparations which, for the most part, had to to borne by heavy
industry. The USSR computed the reparations in terms of 1939 prices, and de-
liveries at the prevailing price. In that manner, the plants were reimbursed
by the Reparations Office, in charge of regulating the deliveries for the State
treasury, only for one-half or one-third of their production costs. The State
granted credits to the aornpanies until it took them over in. 1946. At that
time, they were indebted almost. to the full value of their assets. After
nationalization, the: losses continued to increase, mostly for the following
reasons:
a. Plant eapaeitieer were only partially utilized.
b. Production costa increased, because of the increasing bureaucracy and the
growth of the administration.
R3MA 50 "
M.W. 10 "
Ge;nz 5 "
I ;BA - 3 "
c. The output of the workers was only 70 or 80% of the pre-war level.
d. Because of the high cost of living, wages had to be increased (on an average
of 15 percent after the stabilization), while the prices of the main products
of the heavy incustry.remained the same.
e. The plants which had previously produced expensive machinery and exported
it at mod prioc:s mostly to the West and overseas, had lost their export
markets and had to turn to cheap mass-produced goods for the East.
At the and of 194.6,. the Reparations Office owed 103 million forint (the official
rate of exhange, $i - 15 forint, the actual rate, 1 - 20 to 22 forint) to the
RIK plants alone for their deliveries, and in 191+7, it could pay off only half
its debts. The Froc'+.uction deficit of the NIK plants for 1947 was:
I. VAG 17 million
(profit)
89 million
In the program of tYe 1947 Three-Year Plan, 86 million were used for invest-
ments, and another 150 million have been earmarked for this purpose during 1948.
SM~3zF-T
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CENTRAL INTELLIGENCE AGENCY
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According to the NIF management, the value of the production at the beginning
of 1947 reached 67 million per-month, with 65,000 workers employed, while by
March 1948 production had reached a monthly value of 168 million, with a per-
sonnel of 72,000. On the other hand, the 1948 prices are higher than those of
the past year, so that the real value of increased production is less than the
figures indicate. The deficit was overcome, and at the one. of 1948, production
was to reach 200 million per month. Thus production should be high enough to
cover the investments planned under the Three--Year Plan for the NIK plants.
According to the above data, the pre-war production of 1938 has already been
exceeded by 2 peroetit, but, in reality, this ~s not the case, since the figures
were based on the official rate while the real value is approximately 20 percent
less. It should alto be noted that the plants worked at full speed only during
the war, most of them with three shifts, and that the production figures ex-
ceeded those of 19% by 60 to 100 percent. Such production fiP;ures could not
be obtained at present even with the plants working at maximum capacity;
first of all because: of the lower individual output, secondly, because less
expensive products cre being made. The production goal set for the heavy in-
dustry in the Three-Year Plan may be realized in 2f years.
50X1-HUM
9, Before the war, heavy industry supplied the domestic market and also ex-
ported goods having an annual value of 60 to 80 million ngS (15 to 18 million
dollars)
These exports brought in large sums of
sound foreign currer:cy. Items exported were mostly machinery, railroad engines,
motors, finished metal and electrical products. During the first years of the
Soviet occupation, the only supplies to the domestic consumers went to public
enterprises, primarily for'rebuilding communications. A large part, approxi-
mately 25 percent of the reparations to be furnished, had to be supplied by
heavy industry, so that some plants had to work almost exclusively on repara-
tions contracts. At a result, exports tent down nearly to zero. Since 1947,
heavy industry has ieaumed exporting, but mostly only to the Soviet Union and
Yugoslavia, countries which, in order to have reparations deliveries continued,
have ordered the necessary products (mostly only railroad equipment and elec-
trical apparatus) ov the basis of reciprocal trade agreements. Because of
Hungary's need for v tai materials from the West and also for Western currencies,
the government is therefore insisting on the resumption of former trade relations
with the lest. Contracts for the shipment of motors, bicycles, and sewing
machines are about to be concluded with South American countries
The value of the exports should be about
150 to 200 million forint -8 to 10 million dollars) per year.
50X1-HUM
Raw Material Suroliv_
10. The most Important iaw materials required by Hungarian heavy industry were
sulr?lied before the war, by neighboring countries, but its greatest supplier,
Gerrany, no longer tixists. Coal comes mostly from domestic mines, but coke
must be imported. After the war, coke was imported from Poland for it chile, but
deliveries were halted in 194.7 and the Soviet Union has promised to supply it.
Iron ore came mostly from Czechoslovakia, crude iron came from Germany and from
Rumania. At present, domestic production is being increased to the utmost, but
it cannot cover more than a part of the demand. Under the trade agreement with
Yugoslavia, that country, as well as Russia, will surply iron and manganese.
There is difficulty in getting supplies of copper, electric insulating material,
apparatus, instruments, measuring equipment, etc. which used to be imported from
the West
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CENTRAL INTELLIGENCE AGE"TCY
tools. Because of political events in Yugoslavia, export and also import of
raw materials have suffered severely. In accordance t,rith the decision of the
Cominform, Hungary has joined the baycott against Yugoslavia and has halted
deliveries. However,, since Yugoslavia was ahead in her deliveries of raw
materials, and thus. has large credits in the trade balance with Hungary, it
is to be expected that she, too, will halt all deliveries.
Personnel Questions
11. The heaviest losses of heavy industry, for which there, is no compensation,
are the losses of key personnel. Not only the active managers of the plants,
but also the qualified technicians have left. The best-km wn ones fled to
the ?Jest before the Soviet occupation, the others one or two years later,
after they had come to the conclusion that, althout they held a privileged
position under the Communist regime, their position was untenable. Many also
became victims of the purge. The strength of the Hungarian heavy industry
lay in the ability of its specialists, since the plants, as compared to world
industry, were neither very large nor very well equipped, but quite obsolete.
Nevertheless,-the exceptional ability of the engineers was always sufficient
to keep the factories on a very high level by their technical perfection.
These men are now lacking, and therefore progress is impeded. At first, the
members of the "anci n regime" were left at their posts by the new oovemment.
These were the men t$ro would go along with any regime and who became convinced
Communists where they had been convinced capitalists before. But sooner or
later, one after the other, they were disr^issed to make room for a Party mem-
ber. Furthermore, once the plant was running again, the Communist government
had no further use for their ability. The Plant Councils and the Trade Unions
gained pore and more Influence. They should have concerned 'themselves equally
with the production program and the administration of business, but they limited
them selves to personnel questions and cone. trated on the renoval of their
hated superiors. However, the new Communist substitutes, who were charged
with enforcing to the letter the prescribed quotas, were worse bosses than
the men they had rep: .aced, and against them the workers were powerless. The
level of individual output has also gone doom greatly, and there are many more
not-qualified workers than before, and fewer specialists, since the prime ob-
jec ive is no longer the manufacture of precision machinery but mass production.
The wages correspond to 50 percent of the pre-war wages, but their actual value
is mach less; on the other hand, greater and greater output is demanded. Pro-
duction contests, backed by a great publicity, exhaust the workers. On the
whole, the morale of the workers and, even more so, of the specialists, of the
white-collar workers and of the engineers, is very low.
F-0181=128 or 2M12-MOJA
12n As already stated, the plants are utilized almost to their full capacity, and
in some cases even overworked; but despite this, because of low individual
output and production of lower-grade goods, production dose not reach the high
level previously attained. There can be no doubt that the rational redistribu-
tion and strict deliwitation of production between plants and between the vari-
ous production operations, the unified management of an enterprise employing
80,000. people, the exchange of technical experience, the suppression of compe-
tition, etc., are means which stimulate production and whose advantages are un-
mistakable. Thus, for instance, the production of ore in the Ozd mim)s has been
increased by 10 percent in one year and the coke consumption of the blast fur-
naces at Ozd and Diosgy8r has been decreased by 7 to 9 percent. Furthermore,
the proper distribution of work to the different plants and the proper utili-
zation of waste products have done much to increase production and reduce over-
head. But at present, the possibilities are nearly exhausted. From the point
of view of quality, production can hardly be improved; now plants would have to
be built and the raw material supply developed. Mass production is also limited.
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I.
CENTRAL INTELLIGENCE AGENCY
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As far as quality and technical perfection are concerned, no great irnprove-
mont has been evident and therm can be none, since there is a lack aC quali-
fied personnel. Hungarian heavy industry is not geared to moo-production;
it is quite similar to the Swiss macbanical industry. Primarily, it should
have the place that it used to occupy in the world market due to its high
technical standards. But when compared to the gigantic industry of the Soviet
Union, it can never play more than a secondary role as a supplier of mass
produced goods for the Eastern countries.
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