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level of real wages in 1973. While direct East-West comparisons are complicated by different procedures in labor remunerations, methods of wage determination and size of Government contributions, the Hungarian figures are quite clearly well below average real wages in most OECD countries. Moreover, in contrast to LDCs, the small CPEs have benefited from favorable pricing by the Soviet Union for energy supplies, which reflected closely neither the movements of world prices nor the rapidly rising production costs (Tretyakova and Heinemeier, 1986).

However, the competitive edge was also probably lost to most developing countries where average wages tend to be lower.6/ Whatever advantages in terms of lower unit labor costs, they have been offset by very poor labor productivity. A detailed comparative study of productivity by Bergson (1987) showed that output per worker in socialist countries, as exemplified by the USSR, Hungary, Poland (and Yugoslavia), fell short systematically of those in developed market economies such as the US, the UK, Italy or Spain. In addition, while some of these differences could be explained by differences in capital and land-labor ratios, he attributed labor productivity (i.e. output per man) differences to differences in efficiency. These findings imply, ceteris paribus, higher production costs in the CPEs in comparison to developed market economies. The literature has so far identified only very few sectoral exceptions in this pattern. A relatively favorable productivity growth has taken place in Eastern Europe and the Soviet Union throughout the 1970s in the chemical and petrochemical industries (Rajana, 1975), a finding confirmed later by Desai (1985).

The result of all these trends, which were brought about primarily by wrong choices of technology, poor incentives, infrastructural bottlenecks and manpower shortages, was a level of production costs that was typically significantly above the optimum and "the best-practices abroad".7/ Interesting, albeit limited evidence of unfavorable trends in production costs has been obtained from cost functions estimated for Soviet iron and steel industry, arguably the "showcase" of the Soviet technological achievements (see, for example, Amann, Cooper and Davies, 1976). ZumBrunnen and Osleeb (1986) estimated that significant cost savings could be obtained from changes in production technology, consolidation of the industry and other forms of restructuring. Moreover, since we also know that during the period for which we shall carry out our analysis (1982-84) production costs were mo3t likely rising in all countries (see e.g. Stepanek, 1988), we do not have any strong reason to believe that the CPEs commanded any significant cost advantage in the world markets for manufactures. On the contrary, the opposite was quite likely the case.

- 6/ Due to the methodological differences in wage determination in the CPEs, the Hungarian figures are of particular interest since distortions in product and factor prices are most likely least severe in comparison to other CPEs. The figures given in the text were reported in Ne2szabadsag and quoted by Washington Post, January 4, 1989.

- 7/ For a review of the factors explaining the disappointing productivity performance in the USSR, see AER (1986).