Yesterday a long article, almost an academic treatise, appeared in Népszabadság as an insert. It caused quite a stir, not just because of what was said but because of who said it. The author was János Kornai, perhaps the most respected and best known Hungarian economist internationally. The lengthy piece, as is Kornai's wont, is precisely organized under eight numbered points and a summary. The title is "Taking Stock." Originally I wanted to give an English-language summary of the article, but meanwhile I discovered that most likely both Kornai and Népszabadság found the article so important that they also published it in English. The English version is most likely Kornai's own because between 1986 and 2002 he taught at Harvard University where in 1992 he was named the Allie S. Freed Professor of Economics. Although Kornai will celebrate his eighty-third birthday in a few days, he is still active. After he returned to Hungary he became a Permanent Fellow of Collegium Budapest, Institute for Advanced Study. He is also a Distinguished Research Professor at Central European University, the creation of George Soros.
One of the interesting things about Kornai is that he never had any formal training in economics. It seems from his biography that he studied philosophy at the University of Budapest but only for two years. As a young man who just went through the trauma of the holocaust in which several of his relatives, including his father, died, he became a flaming young communist journalist working for the party's paper Szabad Nép. However, Kornai was an intelligent fellow who soon enough was fired for his lack of communist convictions. That was in 1955. Although he received all sorts of invitations from abroad from 1958 on, he was denied a passport until 1963. Kornai might be the best known Hungarian economist, but until his return to Hungary in 2002 he was never allowed to teach. He worked as a research fellow at the Hungarian Academy of Science's Institute of Economics. In 1976 he became a corresponding member and in 1982 a full member of the Hungarian Academy of Sciences. I highly recommend Kornai's autobiography, A gondolat erejével: Rendhagyó önéletrajz (Budapest, 2005), which became available in English two years later (By Force of Thought).
Perhaps Kornai's most influential work is a book published in 1980 entitled Economics of Shortage in which he argued that the chronic shortages were not the results of planners' errors but rather of systemic flaws. Since then he has published numerous critical books on the economics of the socialist system and later on the economies of the post-socialist countries: The Socialist System: The Political Economy of Communism, The Road to a Free Economy, Highway and Byways, Struggle and Hope, and Welfare in Transition.
I had the privilege of meeting János Kornai when I was a graduate student at Yale University where he gave a lecture. After I showed him around the campus he expressed his desire to go through his lecture notes again. I invited him to the little house on Long Island Sound that I shared with three fellow students. Kornai is a stickler for details and he wanted to be sure that all he had to say was said in perfect English. I was supposed to be the "dictionary." But there was a bit of a problem. At that time he was working on general equilibrium theory with a very particular vocabulary. I was unfamiliar not only with the Hungarian terms but I also knew next to nothing about the subject. In either language. Thus I was no help to him whatsoever. He gave an excellent lecture anyway.
So, let's see what János Kornai has to say about the whirlwind events of the last eight months. "Let us take a take deep breath, and let us reconsider what has actually happened." What follows is not pretty.
(1) First and foremost, "in the period between 1989-1990 and the summer of 2010 Hungary was a democracy. It is not one any longer–its political formation today is autocracy." After these introductory sentences he analyzes point by point on what basis he makes this claim.
(2) "The new media regulations, i.e., the re-organization of the media authority and the media law, produces a level of centralization in the world of public media and political communication comparable only to the propaganda machine of communist dictatorships."
(3) "Fidesz has gained power in a legal and valid way…. But we must continue the sentence: if the law in force is in their way, they change the law."
(4) Kornai is convinced that capitalism will not be destroyed by the Orbán government because, on the one hand, it is a "robust and tough system" and, on the other, the Orbán regime is "linked to [capitalism] by multiple ties, it enjoys the support of some big-business oligarchs and many small-business entrepreneurs." However, it often intervenes in the economy. "They keep throwing sand into its machinery." According to Kornai, "the economic policies of the past eight months have decreased the efficiency, weakened the strength, and spoiled the development chances of Hungarian capitalism."
(5) "The building of the capitalist system has its foundation in private property…. [but] What has recently happened to private pensions funds seriously compromises the trust in the government's respect for private property."
(6) The economic critique is the longest and it would need a detailed description for which we have no space here. But it is clear that Kornai doesn't have a very high opinion of the economics of György Matolcsy. According to him "no coherent economic policy is decipherable from the announcements of leading politicians or the 2011 state budget, either. Practical regulations are not introduced after thorough professional debates, a careful consideration of short- and long-term effects, or a comparison of alternative solutions. A sadly low level of professionalism has been spreading in the creation of the economic policy. Without a coherent plan to be analyzed in a consistent and intellectually rigorous way, I am confined to raise a few questions left vague, and to refute a few misleading statements."
(7) Here Kornai discusses the redistribution of wealth. Fidesz promised that there would be no austerity program. "But this is only a game with words, cleverly using the conceptual vagueness of the term 'restriction.' Let us make it simple: the previous decisions and already announced plans of the government actually cause concrete losses in the present and future real consumption for a part of the people, and will decrease the value of their wealth and savings and increase their debt." According to him there will be many more losers than winners under this new system of taxation.
(8) Kornai's last topic is "trust." Not the voters' trust in the government but "how much business life trusts the state," and he thinks that "In the long run the weakening trust of the business life will slow down growth."
It is worth quoting the most important parts of the Summary: "What has been happening in the political sphere is easy to summarize. Several important basic institutions of the democracy have been ruined; Hungary has become an autocracy. The Hungarian political regime is threatening to become similar to Putin's rule. The direction of the changes is unambiguous: the changes are … profound enough to be irreversible (or more optimistically, almost irreversible) and guarantee (or more optimistically, almost guarantee) the long-lasting rule of the group having grasped the power."
The economic policies of the regime are more difficult to describe: "What has been going on in the economic sphere is not so easy to characterize in a summary form, because it is full of contradicting actions, regulations impossible to follow, tendencies impossible to continue. New rules do not follow a clear tendency. We can hope that capitalism is a strong enough system to survive even a bad economic policy. It is true, but the price to be paid for its weaknesses is rather high."
Kornai's last sentence: "We have every reason to worry about the future of this country."