János Kornai’s stock taking of Hungarian politics and economics

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."

 

 

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Julie
Guest

Sobering stuff, and well argued. He should submit the piece to one of the big English-language dailies so it gets more exposure.

John G
Guest
Well, that neatly sums up the current reality in Hungary, both economical and political! A deep breath is needed after having read this entry. The article coupled with VelemenyVezer’s entry today on the activities or rather lack of any real political opposition validates the last sentence in Prof. Kornai’s summary. I doubt there is anything positive anyone can add to Prof. Kornai’s article, so I was wondering if for a short period at least we examined the MSZP under Mesterhazi and the LMP with the same magnifying glass we are doing with the Fidesz government. If we are to accept Vv’s verdict there would not be much to talk about except in the negative. However in the truest sense of “loyal opposition” for a change it would be interesting to note what the largest opposition party is offering as a counter measure to the Fidesz-KNDP government’s ideas. Nothing. So why not? How can opposition voters coalesce around a nonexistent core. It is not enough to criticize, a valid alternative must also be provided for the voters to be able to make a choice. If there isn’t any, and there isn’t any at the moment, then why are we surprised the… Read more »
Minusio
Guest

I had known for a while who Kornai is, and I am very grateful that I could read his article in English. After I read that it was probably his own translation I am also happy not to criticise it, although his brilliant assessment would have deserved an equally brilliant translation, what it clearly isn’t by far. In fact, Eva’s circumspect summary smoothens the bumpy – and long – ride a lot.
There is another, personal reason why I appreciate Kornai’s view: For a long time I felt quite alone with my dire predictions. But finally there is someone who agrees with me. 🙂
I hope he keeps his powder dry until the new constitution is on the table and the EU presidency has ended, let’s say until the end of July, when I expect the next cruelties to begin. It would be interesting to read a sequel to “Taking Stock” then.
Now I wish this article the widest possible dissemination, especially among the half-way serious European conservative media.

Eva S. Balogh
Guest

Minusio: “After I read that it was probably his own translation I am also happy not to criticise it, although his brilliant assessment would have deserved an equally brilliant translation”
I suspect that it was his. Yes, the translation could have been better. There were some really strange choices of words that were not used properly: “restrictions” for example for austerity. In my own version I changed that. “Distribution” wasn’t quite clear either. I guess it was translation of “elosztás” but in English it just doesn’t sound right.

Paul
Guest

Thank you, Éva, for yet another interesting post. Without your blog, I suspect that most of the English speakers on here would never have heard of this article.
And if anyone is in any doubt about reading it, please give it a go. It’s not as long as you might expect from some of the comments above, and the ‘translation’ is actually pretty good. It is obviously written by someone who thinks in Hungarian, but it is still easily readable.
No doubt it will be dismissed by Fidesz as Communist (or capitalist!) propaganda, but it actually gives an accuarate and balanced summary of what’s happened in Hungary since April 2010. The author is also careful to support the statements he makes with definitions and examples.

rabid_misled_kormos
Guest
I am not an economist, but I have read Mr. Kornai’s essay with interest in both languages. I had to force myself not to lose attention. We cannot change the past, so Mr. Kornai chose not to deal with it. It would have been fruitless anyway. My problem is that I never learned about the exact state of sovereign debt of Hungary coupled by the enormous debt of municipal governments witch the Gyurcsany/Bajnai Governments left behind. Naturally the party taking over the reign claimed that it is/was a disaster. The new opposition did not really deny it, didn’t they? Put it in very simple terms: Money=Power=Politics No money = No real power = Politics are still being played It was impossible for the MSZP to win this past election, but let’s play with the thought what would have happened if them would have had won the election with 2/3 of the seats in Parliament. Where would they get the money from to run the Country? How would they address the most important social issues like: education, health care, social care, pension reform, public transportation, etc? Would they not do anything to cement their rule for long time? Mr. Kornai paints… Read more »
m
Guest

O.V will fail, because with his retro-regime he will not be able to sustain the present rocket-economy. I wonder, why Kornai wouldn’t say this.

Karl Pfeifer
Guest

I remember when I met in the early 80ies members of the democratic opposition like Zoltán Zsille, Kornai was an absolute cult figure. And several of them told me, you must read his book so you understand our economic system.
The former liberal MP Matyas Eörsi
has published a short analysis of the situation which can be useful
http://www.cepa.org/ced/view.aspx?record_id=281

Bálint
Guest

John G.
Hear Hear.

Joseph Simon
Guest

Hungary an autocracy? The term implies a government by a single person possessing unlimited power. Autocrats depend for their rule on the hereditary nobility, the military, the priesthood. Orbán has a two-thirds parliamentary majority until the Hungarian people decide otherwise. Putinism? The term would imply a state controlled by governmental security and intelligence agencies, including the Police and the Military, personally loyal to Putin. Again, this is not the case in Hungary. Just for comparison, consider the powers of the American President. He can order the military to attack a country ten thousand kilometers away, without formally consulting the legislature. And look at the global consequences of such a decision. He can appoint judges to the Supreme Court for life, sharing his personal ideology. Is he an autocrat?
Orbán wants some radical changes in the country. He can do that with the majority behind him, but within the limits of democracy.

Vidra
Guest

Orbán has already shown that, if the “limits of democracy” as set out in the Hungarian constitution don’t suit him, he’ll simply shift the limits.
There’s no point in sticking labels on Orbán, as it just allows his acolytes to avoid having to justify his dangerous poliocies and utterances.
Try this label, if you must have one: “it’s the economy, stupid”.

Odin's Lost Eye
Guest
John G you write ** “However in the truest sense of “loyal opposition” for a change it would be interesting to note what the largest opposition party is offering as a counter measure to the Fidesz-KNDP government’s ideas. Nothing. So why not?” ** Why not indeed? This blog and its contributors propose a series of alternative models for a new form of political party (s). My problems with this are:- 1. We write in a foreign language and as one of the contributors Mr Alias 3T (I think and if I am wrong apologies) wrote quoting the words and attitudes of his Hungarian relatives “They are Foreigners so what do they know!”. I would like to refer the reader back to the article “Some historical perspectives on freedom of speech’ 2. That the ‘New Opposition’ has to decide what sort of party it will be and having made that decision cast that decision in ‘Tablets of Bronze’ (or stone) and stick to it. They will make certain that there is ‘clear blue water between them and Fidezs, not just another ‘me too but more so’ outfit like Jobbik. 3. The leadership of the ‘New Opposition’ will have to ensure that… Read more »
Member

Joseph, you say that Orban and his government is either “this or that”. Of course true democracy is nothing as you describe it either as it should be a consensus. Yes, Orban was elected but he translates this to unlimited power. He changes every and any law that is in his way, without consulting the very people who he supposed to work for. Comparing Hungary to the USA is just childish. Claiming that he can do whatever he wants because 2/3 of of the voters who were eligible to vote and did go to vote elected him means that 2/3 of Hungary is behind all of his doing is fallacy.

komp kalauz
Guest

“Orbán wants some radical changes in the country. He can do that with the majority behind him, but within the limits of democracy.
Posted by: Joseph Simon | January 08, 2011 at 07:41 AM”
One thing he does not want is, to reduce the violence in Hungarian politics.

Kevin Moore
Guest
Let me quote a very well-put comment from The Guardian that needs nothing to be added: “Orban is simply working with the parliament the people gave him in the elections (both in the parliamentary and 6 months later in the municipal). This work includs appointing people to different positions in the parliamentary bureaucracy by majority votes in the parliament (including the Media Council). This is how democracy works: People send parliamentarians into the parliament and they decide about policies and appointments by majority vote. Should the current government rig the votes in order to give greater influence to the opposition parties who the electorate wanted to punish, and so to go against the will of the people of the country? How is that democratic? Since the opposition parties lost their democratic influence, they turn to the international media and feed them with information (just as you do) that is highly partisan and ideologically skewed, in order to exert undemocratic influence on the freely elected government of a sovereign country. This is the real conspiracy and power-hunger in this whole picture. By doing so, they undermine democracy, which should not come as a surprise since they were the ones practicing oppressive… Read more »
Kevin Moore
Guest

Here is another one:
“Ever since Hungary turned its back on the IMF, curious things happen.
First, the country is forced to reduce its deficit from roughly 6.5% to below 3% knowing that 6.5 could be considered as EU average, while there are countries that have way bigger hole in the budget.
Second, after the government plugs the holes by any means but to recall the tax cuts, some “highly respected” credit rating agencies downgrade the country to the brink of junk despite having low deficit, positive current account balance, growing industrial production and most importantly positive outlook due to lower taxes and competitive currency.
Now comes this – even if the accusations are true, what is this compared to what is in Italy, where Berlusconi controls state media and own by far the biggest media group in the country? Did you any of the Eurocrats -especially from the tiny policeman of the EU, Luxembourg- moaning about it?
What comes next is anybody’s guess, but I bet it will be the “far-right” panel.
Why this happens is another story, but anyone can guess…”
Just to show you that there are other voices out there that are vastly different (and, in fact, those are the vast majority).

Eva S. Balogh
Guest

Kevin Moore: “First, the country is forced to reduce its deficit from roughly 6.5% to below 3% knowing that 6.5 could be considered as EU average, while there are countries that have way bigger hole in the budget.”
The reason for this is that Hungary has been unable to keep its deficit under the EU demand for about six years, if not longer. The other countries got into trouble only as a result of the crisis. Each country has a certain number of years to fix the problem. Hungary because of past sins has less time. Kevin, it is kind of necessary to know the facts without which one may come up with the wrong conclusions.

Joseph Simon
Guest

Kevin Moore: It is refreshing to hear some sound reasoning on this Blog, instead of mere pathological reactions. Yes, Kornai is right, we should be vigilant as to what is going on in our native land, just as democratically minded persons should be vigilant everywhere in all circumstances and all the time.

Guest

@Kevin:
Why did you have to write this:
-especially from the tiny policeman of the EU, Luxembourg-
Even if Luxemburg is tiny – when they are right, they are right …
And economically they are almost as big as Hungary.
So you show yourself to be not more than a troll. I refrain from using stronger words …
PS: The funny thing about this: A similar wording was used on pol.hu by one of the racist loonies there. Quote:
Luxemburg is a tiny province of half a million people that the Germans and the French find useful. It has no history, language or anything of its own. To call it a country is a joke.

Peter Koroly
Guest

Kevin Moore,
yes what Europe needs, if we believe you, is a lesson from V.O. and Fidesz. Orbán has called the German chancellor a “poor person” and alleged, that the 2nd spokesman of the German government is voicing his privat opinion and not that of his boss.
Another amusing story. Hir TV has accused London Economist of having manipulated a picture of the belovend and wise Fidesz leader. Economist published evidence that Hir TV has not told the truth and about their unethical and unprofessional behaviour, only Hir TV does not publish this answer. And believe it or not Orban & Martonyi tell amazed Europeans that they cannot now what is in this law, because it has not been published before in English. They must take European governments for morons. The proposal is on the Website of parliament since November 22. And every European embassy in Budapest has translators.
Orbán & Co make of Hungary the laughing stock of Europe.

Eva S. Balogh
Guest

Kevin Moore: “Let me quote a very well-put comment from The Guardian that needs nothing to be added”
This is a commenter who was called by the others “the spokesman of the Media Authority.” So, let’s keep that in mind. Moreover, the comment makes no sense. The socialist-liberal government between 1994 and 1998 had more than 2/3 majority and yet it didn’t try to dismantle democracy in Hungary.

Minusio
Guest
@ Joseph Simon: It is not enough to look up ‘autocracy’ in some encyclopedia and conclude that Orbán is not an autocrat. Modern political sciences (Juan Linz, for example) place “hybrid regimes” and “defective democracies” somewhere between democracies and autocracies. In order to understand this, you should focus on what constitutes a modern democracy. It is much more than the ‘will of the people’ because that could easily turn into “mob rule” (ochlocracy). As not only Kornai reminded us, a real democracy is an intelligent and fragile system of checks and balances, the separation of powers, a free press, politically cultured citizens – and – above all – the possibility to change the government at regular intervals without resorting to violence. In addition, it is characterised by public and parliamentary debates, specialised commissions to negotiate compromises, in short, a democracy has long and elaborate procedures (tradional or prescribed by law) to reach consensus. You will also find, that democratic governments feel obliged to render account and prove the rule of law at every step. As it is, almost all of this is missing today. Hungary is, in fact, a defective democracy at best. That it is legally possible for a… Read more »
Guest

@Kevin:
From that comment you quoted:
“Since the opposition parties lost their democratic influence … they were the ones practicing oppressive dictatorship in Hungary for more than four decades.
So which ones of the opposition parties: SZDSZ (which are practically dead), LMP, Jobbik and MSZP ruled for 40 years ? – or how should one understand that comment ?
To me that comment seems lunatic …

Pete H.
Guest

Kevin Moore: “Let me quote a very well-put comment from The Guardian that needs nothing to be added”
That “well-put” comment reflects a rather sophomoric understanding of democratic systems. Altough electoral representation is a prerequisite for any democracy it is not an assurance that the system will be democratic. Strong democracies require a system of checks and balances on the elected members of the government. Among them are an independent and unfettered judiciary and other independent organizations to oversee the government.

Leo
Guest
The Dutch daily NRC-Handelsblad asked prof. Gerard Schuijt, emeritus professor of media law at the university of Leiden, his opinion on the Hungarian media law (7 Jan 2011). Schuijt suggests the Hungarian law is not in accordance with former rulings of the European Court of Human Rights. The wording of the law is so vague as to allow extremely restrictive interpretations. Just think of what might be outlawed in the interest of ´public morals´ or ´human dignity´. Restrictions on the media are allowed in Europe, but should be clearly defined. Schuijt also doubts whether the extensive limitations on the right to protect information sources will be acceptable in Staatsburg. Some parts of the law are, in Schuijt´s opinion, ´extremely dangerous´. The same newpaper reported earlier this week on Orbán´s press conference. He clearly made a bad impression. Asked whether it was not a mistake to pack the media council with Fidesz supporters, Orbán answered: `That may be your opinion, we see it differently`. An impressive argument, isn´t it?. Another newsfragment dating from last week. The Financieele Dagblad (bit like Financial Times) quoted a banker from RABO-bank who said that for the time being he would advise against (further) investments in… Read more »
Kirsten
Guest

@Éva: “restriction” is (perhaps unfortunately) a customary concept in economics but “austerity” is certainly easier understood.

rabid_misled_kormos
Guest
@Ms. Balogh Re: “The socialist-liberal government between 1994 and 1998 had more than 2/3 majority and yet it didn’t try to dismantle democracy in Hungary.” I wonder if you tried to answer my earlier question. I must admit, I did not give a flying hoot about Hungary during above mentioned time slot. In my book there was not a real change in politics in my old Country. Apart from infrequent visits to cemeteries, I did not plan anything in Hungary. As some folks say today, there was only a “gangster change”. Why would Horn change anything? The system was perfect for them. The party retained all the wealth they amassed from 1948, they were doing the privatizing, and they were selling anything to interested “capitalists”, who wanted only the Hungarian market. This was the time when Horn implemented free airplane ride (which lasted only for a short while) and free public transportation for seniors. No wonder he and his party got voted in. While the privileged “smart business people” (yes, one of them Gyurcsany himself with the help of Apro clan and network) got extremely rich and politically powerful, things have gone so bad; Bokros Lajos had to come up… Read more »
An
Guest

@rabid_misled_kormos: And how does the Orban government is fixing this? For example by this wonderful tax law: the low-earners will lose an annual 12,500 Ft on it, while people making between 220,000 and 250 ,000 monthly will loose an annual 50, 000-55,000. You have to make above 290,000 per month to benefit from it.
http://www.adonet.hu/hirek/gazdasag/szja_valtozasok_hatasa_a_berekre101123
What an excellent way to fight poverty!
Not to mention they idiotic economic policies that already cost the country a bunch.

Member

@rabid_misled_kormos: ” While the privileged “smart business people” (yes, one of them Gyurcsany himself with the help of Apro clan and network) got extremely rich and politically powerful, ..”
Would you be kind enough to also inform those on this forum who do not know about the Gant Rock Quarry (1996) http://www.gantko.hu/?nyelv=1 and about Aniko Levai’s (who just happens to be Orban’s wife) winery. Thank You!

Eva S. Balogh
Guest

someone quoting kormos: “@rabid_misled_kormos: ” While the privileged “smart business people” (yes, one of them Gyurcsany himself with the help of Apro clan and network)”
Let’s set things straight. Apró died in 1993. Gyurcsany met Dobrev in 1994. They got married in 1996. The house that Piroska Apró and Klára Dobrev bought from the local government was fixed up by Gyurcsány. He had the money and not Mrs. Apró and her daughter.

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