Fowl Play
Hungary opened up its economy, but when the chickens came home to roost, Doromby's goose was cooked.
Endre and Andrea Doromby are criminals, and they are proud of it. The husband and wife clearly relish the familiar sound of the Magyar words, repeating gazdasági buntény as they explain what it means to have committed "economic crimes" in their Hungarian homeland. It means they found themselves in very hot political water, even though they broke no laws.
What the Dorombys did was accept their government's reformist pronouncements at face value and, in the manner prescribed by the regime, launch a business that succeeded. But when their activities and statements supporting free-enterprise principles earned them the enmity of the Communist establishment, they found themselves increasingly harassed by the state—to the point, in fact, where their business could no longer function and the Dorombys were obliged to abandon their company and seek political asylum in the West.
Hungary is famous for its "liberal" economic policies and for a tolerance of private enterprise and consumerism considered unique in the Soviet bloc. Just scan the headlines: "Tinkering with Orthodoxy: Hungarian Reforms Are Risky Challenge to System" (Los Angeles Times); "Hungary: Free Enterprise Eases the Control of Collectivism" (Christian Science Monitor); "Hungary Plans Major Moves Toward Free-Market Economy" (Washington Post); "It's Now Okay with the Party to Acquire Riches in Hungary" (Washington Post); "Hungary's Passion: Keeping Up with the Laszlos" (New York Times).
Professors, naturally, do it at greater length (as a bumper sticker might read). Last fall, on the thirtieth anniversary of the short-lived Hungarian Revolution, The New Republic published an expansive tribute to Janos Kadar, the Communist boss who has ruled Hungary since 1956, when Soviet tanks crushed a popular revolt against Stalinism. The author was William McCord, professor of sociology at the City University of New York. While noting the continuing presence of "a vigilant secret police" and "pervasive" inequities in this people's republic, McCord is nevertheless quite bullish on "bourgeois communism as a way of life": "In economist Clark Kerr's measure of a country's physical welfare—a sensitive combination of literacy, infant mortality, and life expectancy—Hungary scores 91…not far behind the United States, at 94."
The reason is the far-sighted economic policies the regime has developed: "Hungary's leaders have initiated the 'New Economic Mechanism,' which abandons most of the classic tenets of a command economy and grants a high degree of autonomy to individual enterprises. Since the mid-'60s the reforms have prompted a boom in private entrepreneurs."
The Dorombys have a different story to tell.
In 1979, at age 37, Endre Doromby had for five years been a supervising engineer responsible for much of the construction of the Budapest subway system. He had earlier taught industrial management and organization at the Polytechnical University and was a former chief of the technical department of the Society for the Dissemination of Scientific Knowledge, a kind of Hungarian counterpart to the Rand Corporation. He knows what makes both things and people work.
That year, Doromby decided to launch a poultry-producing GMK (for gazdasági munkaköz össég, or "private entrepreneurial undertaking"). He had never even seen a chicken coop, but it seemed a low technology business that he could automate and manage more or less by himself. Which is how he had to operate, because it would have been illegal to hire anyone to work for him.
With friends and family providing the labor, he built a 30-by-100-foot chicken house in an abandoned sand quarry outside Budapest and bought some feed and 7,000 broiler chickens. The first year, working alone, he grew two flocks, or 14,000 broilers, and grossed the equivalent of $15,340.
Through careful observation and great ingenuity, he soon made numerous innovations and improvements in his expanding facility. Cleanliness, proper temperature and ventilation in the house, sufficient elbow room afforded the birds, the quality of the feed and water and the timing of its provision—these all affect the rate at which chickens grow. Maximizing growth rates over time is the way to succeed in this business. Which Doromby quickly did. In 1981, with one, unofficial coworker, he began producing his own feed. That year he grossed $298,000 and made a profit equivalent to $58,000.
In 1982, the Hungarian government legalized small-scale private entrepreneurial undertakings. Those who could figure out how to make and sell something could have at it—and were permitted for the first time to employ others. Endre Doromby immediately hired 14 people.
Next, Doromby created traveling stores out of three "articulated" buses (the long ones that bend in the middle for turning on city streets). They would park with fresh broilers along selected routes that people followed home from work. "I know where the busy subway stations are," says Endre, "because I supervised their construction."
By 1984, Doromby had hired the maximum 40 employees allowed by law. ("Small-scale businesses are supposed to stay that way," explains Andrea.) Yet he had managed to create an almost wholly integrated operation: from feed production, through poultry growing and butchering, to innovative direct marketing to Budapest consumers. As the American trade magazine Broiler Industry would note in 1985: "It seems incredible that a person like Doromby, with no prior knowledge of the industry, could have absorbed so many details of vertical production and of the distribution and marketing functions as well. And all of this in just about four years."
Andrea Hosso met Endre in January 1984, when he hired her as his foreign-trade executive. Hungary is a country of just ten and a half million people, and Doromby had decided to explore larger markets. He needed someone to deal with the various functionaries who wield the rubber stamps and dole out the permits required to do business across borders—as well as a person who could locate additional financing and international opportunities.
Andrea quickly identified interested parties in Austria and Liechtenstein and began negotiating for the necessary licenses and financing. She also arranged for Pepi, as the company was now called, to participate in international trade shows.
Meanwhile, the business soared. By October of 1984, Pepi had grossed more than $10 million. The depreciated capital assets of the company alone were worth about $1.3 million if Doromby wanted to sell. And maybe he should have.
For it was at about this time that his competition, so to speak, decided that they had had enough. The commissars in charge of state-run poultry farms were not worried about market shares or losing money or anything so mercantile as all that. Worse. They were embarrassed in front of their friends in the government.
Doromby had achieved a certain amount of acclaim for his accomplishments. The distinctive Pepi rolling stores patrolled Budapest's streets, and their plump broiler chickens were preferred. Hungarian newspapers raved about the fact that Pepi was eight to ten times as productive as the "showcase" state-run poultry farm, Babolna. Harry Reasoner had even interviewed him for "60 Minutes." Endre Doromby had quickly become the very personification of Hungary's dynamic capitalism, proof positive that the "New Economic Mechanism" worked.
How did his government show its appreciation?
Early in the summer of 1984, Endre was summoned by the deputy prime minister, Josef Marjai, who asked him to prepare a critique of the state-run operations. Marjai wanted a written report on what they were doing wrong and how they could improve their efficiency. Citizen Doromby, in what he now considers his "million dollar mistake," obliged.
"My stupid husband," says Andrea with a smile and a sigh. "He did what he was asked and prepared a very frank report."
Doromby drafted a paper based on his own experience with vertical integration and what he knew about the state-run farms he had seen or done business with. He suggested numerous improvements (so extensive, he still insists today, that the massive subsidies required for the state farms and cooperatives could be eliminated).
The report went to Mr. Marjai in July. In August it became clear to Endre that he was in trouble. The Ministry of Agriculture and the federal bank, for the first time, were giving him a hard time about credit.
Doromby soon realized that his report to the deputy prime minister, identifying which state farms were most poorly run and what ought to be done with them, had been passed on to the Ministry of Agriculture. From there it had been circulated to the farm managers themselves, with instructions simply to do what he advised. The farm managers, unsurprisingly, were embarrassed and angry that he had described their incompetence in such informed detail. Doromby, after all, had only been in the business five years.
A long and painful story may be summarized thus: when Robert Bugert, chairman of Babolna, the principal state poultry farm, got his letter from the ministry, he apparently complained to his card-playing buddy, one Janos Kadar, first secretary of the Communist Party and maximum leader of this people's republic. Somehow the state bank (the only legal source of credit in Hungary) and the Ministry of Agriculture were advised of the consequent dissatisfaction at higher levels.
In September, Doromby was notified that the co-signer for a loan from the state bank was backing out. (In capitalist-mad Hungary, a private company can only borrow from the state bank, the sole legal source of credit, if a state-run enterprise co-signs for the loan.) Pepi needed a $1.4-million loan for operating capital. Because of a 91 percent tax on profits from private business, Doromby was obliged continually to reinvest his proceeds in constant, almost geometric expansion. When a second tentative co-signer also backed out in October, Doromby realized, pardon the expression, that his goose was cooked.
Andrea Doromby interrupts Endre's narrative to explain, as she searches for the English meaning of gazdasági buntény. "'…economic criminal'—I do not know if this phrase exists in America. It means owing money you cannot pay, because you are prohibited by law from liquidating your only assets."
Pepi did have 11,600 tons of wheat in storage that had been purchased for $850,000 in August. Doromby would have liquidated some of this for operating capital and consolidated his operation, except for another bit of fine print in Hungary's "New Economic Mechanism": private businesses are not allowed to sell grain or other raw materials to state organizations, and there was no private mill that could use it. Pepi was also owed tens of millions of forints (hundreds of thousands of dollars) by various state-owned enterprises that had begun using the processed feed Doromby had developed—but a private company has no effective leverage to compel payment. So, even though he had several million dollars' worth of assets, and inventory he was willing to sell, Doromby was technically insolvent.
It happened that Doromby received the bad news by phone, while attending an international exposition in Holland. Foreign-trade executive Andrea Hosso had arranged for him to show off to fascinated Western poultry producers the inventions and innovations that were making him so unpopular with officialdom at home. It occurred to him then, in the midst of the admirers at Utrecht, that he might be able to raise capital outside Hungary through the sale of patent rights to some of his poultry equipment and grain-quality devices.
So in November, Endre and Andrea set off on an adventure that took them to Scandinavia, Canada, and eventually the United States. They remained in regular contact with their managers back in Budapest, growing increasingly frantic about the financial stranglehold the bureaucracy was applying to Pepi—all because Doromby's entrepreneurial reforms had riled the chicken commissars. They did not originally intend to stay abroad in the West, but while they traveled, notes Andrea, "the situation ripened."
In February 1985, while in the New York area, they learned by phone that Pepi and all its assets had been seized by the Hungarian government and that the police (McCord's "vigilant" peace officers) had started questioning relatives. Andrea and Endre got married and applied for asylum in the United States. It was quickly granted.
Today, the Dorombys live in Vienna, Virginia. They have visited poultry farms in 13 states, including those run by giants of the American industry. Endre worked for a time as a consultant to one of them. The Dorombys think they can do better. So, while Andrea pursues an MBA and Endre works at odd jobs and improves his English, together they are developing a comprehensive business plan for launching a wholly modernized broiler operation in the United States.
"Europeans are more inventive," says Endre with confidence, "because in Central Europe, where we are much less resource-rich than here in the United States, one has to be clever just to survive." The lessons of economy and mechanical innovation learned in Hungary, insist the Dorombys, could lead to tremendous cost savings in American poultry production.
Skeptics may think that Americans surely must have already developed every worthwhile improvement and cost-cutting technique relevant to poultry production. After all, chicken is fast replacing the almighty hamburger as the staple centerpiece of the American meal. These doubting Thomases may want to consider that it was a Hungarian emigre who forever changed the all-American institution of football.
Pete Gogolak arrived in this country as a teen-ager when his family fled Budapest after the suppression of the 1956 uprising. After setting Ivy League records at Cornell, Gogolak went on to become the leading place-kicker in the AFL and later set the pace in the NFL. Because it yields such great accuracy and distance, Gogolak's once-revolutionary "soccer-style" kicking technique is now the standard in the game.
As for the more recent Hungarian emigres, the Dorombys have set up a consulting firm called Agriplex, Inc. They are looking for investors who will enable them to test the limits of the American free enterprise system.
They have a great deal of confidence in their new country. "What can be achieved with democracy," says Endre, "can be achieved here. Despite its faults, the U.S. is absolutely the peak of democracy."
He is not as effusive about Americans who admire Hungary as an example of liberal socialism. "Someone who is born here in the U.S. just has no idea how dictatorship works. An example is the way the press here can be so full of praise for Hungary's 'free-market economy' because journalists are taken on guided tours of selected sites. That kind of reporting only helps the Kadar government and does not reflect the reality of life for the Hungarian people."
Thomas O. Melia is associate director of the AFL-CIO's Free Trade Union Institute.