AbstractTen pilot interviews were undertaken in the Autumn of 1989 in a sample of Hungarian mechanical engineering plants, to examine the process of innovation diffusion in a socialist economy as opposed to that of a free-market. The new liberalisation in the eastern-bloc has brought improvements but managers in Hungary face greater difficulties than their western counterparts in terms of supply of raw materials, effectiveness of labour and reliability of machinery. Despite being rather risky, it might be necessary for the reform process to be accelerated in the next year or two to convince managers that it is worth staying to operate in the new, market-orientated economic environment.