Perhaps the most significant aspect of the economic reform and the leadership's most striking break with Marxist-Leninist ideology has been the expansion of the private sector. The government decided to allow the emergence of private enterprise because it believed that private entrepreneurs would increase competition in some areas, fill demand for goods and services that state-owned enterprises had been unable or unwilling to meet, and create work for people who would lose their jobs as unprofitable enterprises reorganized to become more efficient. Changes in the Domestic Trade Law in 1986 opened new areas to private entrepreneurs, especially in services. A year later, the government allowed private businesses in a number of categories to employ twenty to thirty workers. A law passed in 1988 allowed the establishment of limited partnerships, which could include an unlimited number of partners and employees and operate in all fields except finance. However, private businesses continued to suffer from restricted access to capital from state-owned banks and thus had to depend on private and extralegal loans that did not carry full legal protection.

Small family-operated businesses remained the rule in the private sector, and in 1987 only about 300 private businesses employed more than six people. Most entrepreneurs ran their businesses as a part-time activity in order to supplement their earnings from a job in the state sector that provided social benefits. In addition to the household plots, private farms, economic work cooperatives, and independent contract work associations, private business people were operating 28,965 retail shops, restaurants, and other businesses in 1986, more than twice the total in 1980. In addition to private restaurants and stores, which accounted for about 7 percent of domestic trade in 1985, entrepreneurs had established computer-software companies, construction firms, service businesses, and a theater. Individuals could also contract to operate state- or cooperative-owned retail stores or restaurants and retain all profits over the contract cost. In 1986 contractors operated about 12 percent of Hungary's shops and 41 percent of its food-service establishments.

Data as of September 1989