It was just a little over a year ago that I summarized an important article by János Kornai, the best known Hungarian economist, on the first ten months of the Orbán government. It was entitled “Taking Stock.” In it Kornai talked about the political and economic consequences of Viktor Orbán’s revolution in the voting booths. Kornai was one of the first people to call Orbán’s regime an autocracy.
Now Kornai is focusing on the centralization tendencies of the current Hungarian government. More than fifty years ago Kornai began his career as an economist with a dissertation–later published as a book–on the over-centralization of the economy during the Rákosi regime. He never thought that he would have to return to this topic. But as he looks around he sees a very rapid, almost maniacal centralization that has taken place in the last twenty months.
Kornai brings up thirty-three examples. Some are more important than others but the tendency is clear. This centralization is brought about by the mistaken notion that the vertical model of organization is superior to the horizontal one. It is faster, more efficient, and therefore less expensive.
The vertical model looks like a pyramid at the apex of which stands the Supreme Boss under whom there are, let’s say, ten Bosses, and finally rows and rows of Deputy Bosses until we reach the bottom of the pyramid where there are people who only receive orders.
Of course these models are simplified extreme cases. No vertical model is always as clearly defined and no horizontal model is that egalitarian.
The state apparatus resembles, though not in such a pure form, the vertical model. The financial markets and nonprofit organizations more closely resemble the horizontal model.
At this point Kornai compares the two models. First, he examines the effectiveness of the two models. Critics of decentralization argue that the horizontal model is wasteful. There are many organizations side by side which in their activities often overlap. Supporters of the vertical model argue that their model is superior because one can save money on administrative costs. However, Kornai points out that the alleged savings of the vertical model don’t always materialize because decisions are often made ad hoc and without consultation with experts.
When it comes to competitiveness, it is clear that centralization limits competitiveness. Admittedly, competition is expensive. One must advertise, one must convince the buyer about the worth of the product. But competition is the body and soul of innovation. Competition is also necessary in the intellectual sphere, in education, in science, and in the arts. Here Kornai tells the story of Paul A. Samuelson who wanted very badly to stay at Harvard after receiving his Ph.D. but didn’t get a job there. So, he went to MIT and convinced them to start a department of economics. They decided to hire him. Today the two institutions have a healthy competition in the field of economics.
Kornai moves on to “adaptation and selection.” Centralizers think that within the walls of their office they can plan perfect outcomes. Decentralization has a huge advantage over centralization by moving along with the flow of real life. Google and Apple did not come into being by some central decision. They just happened. The arrogant Supreme Boss believes that he is infallible. But making decisions from the top will necessarily end up being no more than experiments that need further adjustments. All that with great speed.
Kornai also takes a look at a key ingredient of decision making: information. For a centralized model to work perfectly one would be need to be able to foresee all future contingencies. But life is full of uncertainties and inaccurate information. The inaccurate information is not always accidental. It can be deliberate. For example, it might be in the interest of the subordinate to deny existing problems and misinform his superior. Or, the other way around, to create nonexistent problems. The Boss cannot correct wrong decisions because his subordinates are afraid to tell him he made a mistake. By contrast, in the horizontal model “the person who receives the information is the same person who uses this information and therefore it is in his interest to get accurate information.”
Centralization works against diversity. The beauty of life is variegation. Not all students should be taught the same thing. And although it might be cheaper to produce fabric in a single color, people like to dress in clothes of many colors.
Finally, the vertical model can be politically dangerous because of who is on top. Is a well-meaning dictator at the apex of the pyramid? Even if he is well meaning, is he someone who often makes mistakes? Or, what if he is not so well meaning? What if he has too many faults, is dictatorial, can’t stand criticism, is stubborn, and doesn’t adapt easily? Perhaps this is the biggest problem with the centralized model. The more efficient the system the more it can become the instrument of dictatorial power.
Central planning interferes with self-determination and personal autonomy. Kornai brings up the case of higher education where the present government is defining the limits of tuition free enrollment. On what moral grounds can the state decide what youngsters should study? What happens to the sovereignty of individuals and families?
And finally, the more centralized a society the more the state must take over the care of every citizen. “Centralization is the twin of paternalism.” If this is true, the Orbán government is working against its own stated goals because it is fighting paternalism and is preaching self-help but at the same time is promoting centralization. The two goals are incompatible.
To be continued