Tag Archives: capitalism


This study originally appeared in Acta Oeconomica, vol. 66 (4)

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The term paradigm was introduced to the philosophy of science by Thomas Kuhn – he used this term to denote the specific approach applied by a school of research to examine its subject matter. Researchers using the same paradigm seek answers to similar questions, and employ similar methods and concepts. In an article published in 2000, the author of this essay introduced the term system paradigm, which focuses on the systems functioning in a society. This study develops the theoretical considerations outlined in that earlier article on the basis of experience on post-socialist transition. The first part compares the socialist and capitalist systems, describing their main characteristics, and concludes that the capitalist system has become established in former socialist countries, except for North Korea and Cuba. The second part analyzes varieties of capitalism within a typology which classifies prevailing forms of politics and government. Three markedly different types are identified: democracy, autocracy, and dictatorship. Huntington wrote about the “third wave” of democratization. This study concludes the third wave has dried up: for the 47 post-socialist countries, only a tenth of the population live in democracy, while autocracy or dictatorship prevails in all other countries in this group. The third part of this essay applies the conceptual and analytical apparatus to Hungary, where capitalism exists, and autocracy is the prevailing politico-governmental form – here we can find important characteristics common to other capitalist countries or other autocracies. This finding is compatible with the observation that there are some, less fundamental, characteristics unique to Hungary, or “Hungarica”, which differ from the characteristics of all other countries.1


What prompted this study? What type of readers am I addressing? My prime motivation in my academic life has been to discover what kind of society we live in, what its characteristics may be. As any researcher does, I have taken a conceptual apparatus and methodology as a point from which to view my subject matter. Still, as most researchers, I have rarely chosen the method itself, the outlook or approach driving my research, as the subject of a separate paper. The primary aim of my article “The System Paradigm” (Kornai 2000) was to summarize my principles in the theory of science. Seventeen years have passed since and I have been much influenced by new experiences: the changes that have occurred in China, the consolidation of the Putin regime, and most strongly of all, the events in Hungary under the political group headed by Viktor Orbán, the prime minister since the election in 2010. It is high time to review the conceptual framework, along with some other matters underlying comparative systems theory.

This study is intended above all for past and future readers studying my works, whether many or few. Apart from them, I target researchers into comparative economics, comparative political science and comparative sociology, and historians of the present-day period; researchers working at universities, research institutes, international bodies, financial institutions, and think tanks, or more specifically, those who professionally analyze the changes occurring in the post-socialist region.

One aim is to sum up, more thoroughly than my first study of the system paradigm did, some elements of my conceptual and analytical apparatus. I do not offer a survey of the literature on the problem. Were I to do so I would need to deal proportionately with views, concepts and methodological principles I agree with, and those I consider incorrect. I am not setting out to do that, I am simply setting out to describe my own paradigm. I mention others’ works only if I wish to stress my agreement with them, or the fact of adopting something from theirs into my own thinking – or if I dispute their statements. In that sense the study is not balanced or impersonal, and cannot be so.2

Although these aims have motivated me, I hope the study will go beyond my message concerning the theory of science, and as a side-product assist the reader in understanding some major phenomena of our time. For example, Huntington spoke of democracy’s “third wave” (Huntington 1991). Where has it gone? Is  it moving on or has it retreated? Or what place does Viktor Orbán’s Hungary hold in comparative systems theory? Is it a specific Hungarian model, a “Hungaricum,” or does it have close or distant relatives?3



The word “system” in everyday language and in many sciences occurs in several different senses, from the universe to living organisms, man-made machinery to various human communities, existing, directly observable systems to notional, intellectual ones. In all cases this term conveys the meaning that several lesser parts form a coherent whole. These parts interact. They are not separate items thrown together, for there are comprehensible relations among them organizing them into a structure. The first part of the study uses the term “system” with two meanings. I compare the socialist and the capitalist systems. On occasions I add an attribute, calling them the two great systems,4 but the attribute contains no value judgement: I am not bowing before the greatness of either.

A distinct, specific system may emerge in a country over a shorter or longer period, as far as a distinct combination of forms of political power, dominant ideology, ownership relations, and coordination of social activities are concerned. In this sense it has become customary to refer even colloquially to the Putin system or Orbán system. The use of the word system here has an important clarifying force: it points to the mutual effects of various elements in the public state of affairs, operation of the country, and structure of the machinery of power.

I use the capitalism versus socialism pair of concepts purely in a descriptive, positive sense. I am not referring to an imaginary socialism – not to conditions that socialists or communists think should pertain under a socialist system – but to existing socialism (to fall back on an old communist party jargon).  Likewise, I am not examining an imaginary capitalism – not what uncritical devotees of capitalism think should be present – but existing capitalism, as it is.

I obviously did not invent the two terms. Historians of ideas report that both expressions antedate Marx, “capitalism” appearing in Louis Blanc and Pierre-Joseph Proudhon, and “socialism” in the works of Henri de Saint-Simon. However, they became widespread through Marx’s main work Capital (Marx 1867/1990, 1885/1992, 1894/1992), and not simply among Marxists, believers in socialism and antagonists of capitalism. They are used by several moderate or radical opponents of socialism as well, such as Ludwig von Mises and Joseph Schumpeter (Mises 1922/1981; Schumpeter 1942/2010). These days they are heard constantly from politicians and the media, and have been taken up in everyday speech, as well.

However, it must be said that many people avoid this pair of concepts. With “capitalism” there are several reasons. Former reform communists were ashamed to find formations of capitalism appearing out of their efforts. German economic politicians after the Second World War, sensing anti-capitalist feelings among broad swathes of voters, thought it wise to give the long-standing system a new name: “social market economy.”5 Nor are conservative populists fond of calling their institutional creation capitalism, as they wish to be seen as anti-profit, anti-bank anti-capitalists.

There are several considerations behind the avoidance of the term “socialist” as well. Marxists reserve the word “communist” for the Marxian vision, where people share goods according to their needs. Existing socialism was seen as a transitional state that would last only until communism appeared.6 Meanwhile many Westerners, including politicians, scholars and journalists, referred consistently to the Soviet Union and other countries controlled by communist parties as “communist countries,” and do so to this day. The same people would reserve the term “socialist” for the welfare states created by social democratic parties.

It is vital in the theory of science to distinguish sharply between the content of a concept and the name it bears. Many terms in the social sciences and the political sphere have a political slant – associations redolent of value judgement and Weltanschauung. In this respect, it is impossible to reach a consensus on  terms.

My experience, especially in the academic world, is that people cling more tightly to their vocabularies than to the views they express with the words included in those vocabularies. Their compulsive insistence is upon a vocabulary which have been hammered into their heads, or to use a more elegant term, which has become imprinted in their minds by the reading matter and lectures that have affected them most. If that is how it was put by Marx, Max Weber or Polányi (or whoever made the biggest impression on them), it cannot be put otherwise. Or it may happen that the favored term is one they invented themselves and wish to establish as their own terminological innovation.

I abandoned long ago my efforts to end the conceptual confusions. I acknowledged that an absence of conceptual consensus often leads to a dialogue of the deaf. This applies not only to the capitalism versus socialism pair of concepts, but to many other expressions, on which this study touches later (e. g., democracy versus dictatorship). I am attempting only to ensure that readers of my works will understand clearly what one expression or another means in my vocabulary.

Types and their characteristics

The capitalist system and the socialist system represent two types of socio-political formation in the recent past and in the present.

The creation of a typology is among the major steps in scientific examination. It has played a big part in developing many disciplines (e.g., biology, genetics, medicine, linguistics, cognitive sciences, anthropology or psychology).7 A type  is a theoretical construct. Actual, individual historical constructs such as Hitler’s Germany or Churchill’s UK differ from each other in important respects. Nonetheless, I describe, within my own conceptual apparatus, both of them as capitalist countries. Similarly different in their essential characteristics were Stalin’s Soviet Union, Kádár’s Hungary and Ceauşescu’s Romania. Still, I call all three socialist countries. To distinguish the types within a typology calls for describing their characteristics, which may differ sharply.8 Here the task is to find the characteristics which, on the one hand, distinguish the two types, the capitalist and socialist systems; and on the other hand, they show what is common to the many individual phenomena occurring in each country belonging to the same type in a given period.

Although a type is a theoretical construct existing only in researchers’ minds, it is based on the observation of reality and underlines important common features of past and present structures. Given the specific realizations of the “great system” that vary between countries and periods, the type is created to embody their common characteristics in a theoretical generalization.9 So the usable, operable typology is based on observation of the historical reality. Social science distills it from experience.

In the rest of this study I employ the pairs capitalist system/capitalism and socialist system/socialism as synonymous.10

In creating types, the method here is to pick out the various characteristics in which each type differs markedly from the others. The aim is not profuse description. On the contrary, it is to grasp the relatively few, highly characteristic, conspicuous features. The best would be to list as few as possible – simply those necessary and sufficient for differentiation.11 I do not claim that the number of such characteristics should be exactly nine; I would be open to altering Table 1 if there were convincing arguments for doing so.

It is essential to list among the characteristics only those that are system-specific. The comparative table should by no means include phenomena which are found frequently in both great systems, important and influential though they may be to the operation of certain institutions or the lives of citizens. For example, repression cannot appear as a system characteristic because it does not appear exclusively under the socialist system. Ruthless examples have occurred and continue to occur under the capitalist system as well: in Hitler’s Germany,  in Hungary under the Horthy and the Nazi Arrow-Cross regime, Franco’s Spain, and many Latin American military dictatorships. Under both systems it may happen that incompetent people gain leading positions. In both, the major economic indicators fluctuate strongly. However great the effects of these phenomena, they are not system-specific.

I do not want to give an impression of exactitude. In describing the characteristics, I have to allow myself to use umbrella terms such as “state ownership” and “private ownership,” although I know that both categories can take many different legal forms.12 There appear repeatedly in the table words like “dominant” and “largely”, without mention of a quantitative value for them. If it is 70 per cent, then it is dominant but if it is 69 per cent, it is not? I content myself with not describing the system in terms of quantification but in a qualitative fashion, and relying on the intuition of those using the conceptual apparatus, in the hope that they will likewise sense the meaning of these inadequately precise words. My professional conscience is quieted by knowing that many scientific typologies do the same. Taking that into account, caution must be shown in using such typologies: there are some analytical tasks to which they are fitted and some to which they are not.

Another reason I tend to use expressions like “dominant” and “largely” is because I know that there can appear in a given type of country phenomena that differ from, or are even contrary to, the dominant phenomenon. For example, while the Soviet or Polish economy was tormented by the shortage economy there were still unsold goods in the stores and warehouses. In the western world with its typical surplus economy, there are long queues of consumers waiting for tickets to a new and exciting film.

Is there not a discrepancy of size in comparing capitalism, which has been around for centuries and will probably continue to exist for several more, with socialism, which existed historically for only a few decades and then collapsed? Is my reason for bringing the latter up not that I was a citizen under the socialist system for much of my life? I firmly answer both questions in the negative. Now, 25 years after the collapse, I am convinced that such a comparison has great explanatory power. History, at a price of suffering for millions of people, set up a laboratory experiment by bringing into being a system markedly different from capitalism. Comparing them yields a better understanding of what capitalism is. Such randomly generated experiments also teach a lot in other branches of science. Examining the victim of an accident marked an important step in neurology. Part of the patient’s brain was damaged and researchers knew precisely which part, and from that they could deduce what functions that part of the brain played.

What is to be understood by a hierarchy of characteristics? How do primary and secondary characteristics differ?13 In my line of thought, primary characteristics determine the system as a whole, including secondary characteristics. The joint presence of the primary characteristics is a necessary and sufficient condition for the appearance of the secondary ones. It could also be said that primary characteristics form the minimum conditions for the existence of the capitalist or the socialist system. A sensible first stage when beginning to study a country is to concentrate on these primary characteristics. The results of doing so will then have predictive force. However, the primary characteristics do not generate all the secondary ones in a deterministic way. The effect is stochastic. There is a very good chance of finding the secondary characteristics in a country examined if the primary characteristics have already been identified.

This relationship is shown in Figure 1. The figure shows mutual effects: the primary and secondary characteristics have mutual influences on each other. The thick arrow denotes that the primary characteristics are the decisive ones, and the thin arrow in the opposite direction that the reactive influence is less strong.

The expression “decisive,” as I have noted already, shows a tendency, not full determination. Many people whose forebears have suffered from heart disease will inherit that susceptibility. But whether the disease actually emerges depends to a large extent on the patients’ way of life – if they drink alcohol, smoke, fail to take exercise, or find themselves in stressful situations, they are more likely to suffer acute heart disease than if they live moderate, cautious lives, do sports and live calmly. All socialist systems are inclined to develop a shortage economy, but the intensity of shortage was very strong in the 1980s in the Soviet Union, Poland and Romania, but less so in East Germany (Kornai 1980a, 2014c).

Within the two blocs shown in Figure 1 there are also interactions among the characteristics. To simplify the explanation, these are ignored in the figure and in this textual commentary on it.

Classifying the post-socialist region’s countries by the typology of capitalist versus socialist systems

Let us apply the conceptual apparatus introduced above to the countries which qualified as socialist countries in 1987 (Kornai 1992). Altogether 47 countries belong here; let us call the area they occupied the post-socialist region.14 The word “region” is not applied in a geographical sense, as this is not a group of adjacent countries; most are in Europe and Asia, but some in Africa and Latin America also belong here.15

Rule under the socialist system is marked in black.16 The whole region would be black if the map showed the situation in 1987. Now the only spot of black on the world map is the territory of one country, North Korea – a tiny dot on the map of the world. Countries in transition from socialism to capitalism are marked in dark grey. Again, this applies to only one country, Cuba, making a single spot of dark grey at a global scale. Most of the region is colored light grey: these are the countries where the capitalist system operates.17

A sizable part of the region has a diagonally striped pattern. This denotes uncertainty: I am uncertain whether these countries should be marked black, light grey or dark grey.

The sources for placing the countries in these categories are considered again in the comments on another world map (Figure 3). There I will shed light on the relation between the two world maps and the background materials accessible on my website.18

There is a broad if not full consensus among experts as to when the change of system occurred in the countries affected. This expression, often used in political jargon and everyday speech, gains considerable content in the conceptual and analytical framework already discussed. With a few exceptions, the countries in the group qualifying as socialist in 1987 all have undergone a transition from socialism to capitalism.

Static representation and the transformations

 Figure 2 presents a still image, as if a snapshot were taken of the world and a specific group of countries within it. The shot shows a static state of the present, but if a motion picture camera were to be used instead, it would show the dynamics of the changes of system as well.

The map conveys the presence of the two systems at a point in history when both are operating according to the characteristics apparent in Table 1.19 It does not depict the creation phase of the system. I draw attention to this primarily in connection with Characteristic 1. The initiatory role in the genesis of the socialist system is played by the political sphere; the communist party makes very rapid moves in historical terms to impose state ownership and centralized bureaucratic coordination on society. By comparison, the transitions in most countries from pre-capitalist forms to the capitalist system were very slow. Initially, the political authorities only tolerated and took advantage of the services and resources of the bourgeoisie. The relation of the political forces to capitalism changed gradually until they had become active defenders of private ownership, market coordination and enforcer of private contract. Different again was the role of the political sphere in the route back after 1989–1990 from socialism towards capitalism, in which the processes of transformation were instigated and headed by the pro-capitalist political forces.

Only one country in Figure 2 is marked in dark grey, to show that it is in transition from socialism to capitalism. As mentioned before, the one country I put here when writing this study in 2016 was Cuba. Though a member of the Castro family remains at the pinnacle of power, this is no longer the Cuba of Fidel Castro. Cautiously, the country has begun to display the characteristics of capitalism.

To continue the earlier comparison, of using a motion picture camera instead of taking a still image, many more countries would appear as dark grey in the squares representing the 1990s and 2000s. The speed of change and the pace of the transformation of certain characteristics varied from country to country.

Historians and historical recollections like to focus on a particular calendar date for the beginning or end of a historical period. The October Revolution in 1917 Tsarist Russia is often understood to have been started by the blank shot from the Aurora cruiser signalling the attack on the Winter Palace in St. Petersburg. In fact, most period changes are more blurred in time.

Figure 2 shows the world-historical defeat of socialism through the lens of my conceptual apparatus. Three decades earlier, the socialist system prevailed over 34.7 per cent of the world’s population and 30.7 per cent of its area (Kornai 1992). Nowadays, when the socialist system persists only in North Korea, the proportions have shrunk to 0.3 per cent of the population and 0.1 per cent of the area.20

The explanatory power of a capitalist-versus-socialist typology

When examining a complex historico-social phenomenon, it is rare to find a convincing single-factor explanation to account for its appearance and/or long-term duration. Complex phenomena are complex indeed and call for a multi-factor explanation.

Both under capitalism and socialism appear several important complex phenomena, explained by several factors; one of them is the system. I emphasize the word one because not for a moment do I claim that a full explanation of a certain complex phenomenon can be gained by simply pinpointing the great system in which it appears. But there can often be found within a larger ensemble of explanatory factors some that are system-specific. Indeed, one or two may turn out to be the most important elements of explanation. Here are two examples.

One is the speed and quality attributes of technical progress, which is affected by several factors, e. g., the country’s level of economic development, the state of its education system, and the size of its state support for research. Alongside these, the system-specific effects are notably important. It can be shown how large numbers of revolutionary innovations have appeared under capitalism, which deeply affect production and people’s lives, whereas the socialist system could produce just one outside the arms industry (Kornai 2014c, pp. 3–24). Promising inventions that appeared in a socialist country could find no innovator able to spread it on a mass scale; this function would be usurped by a capitalist innovator instead. One well-known example is Ernő Rubik’s invention, Rubik’s Cube. In then-socialist Hungary, Rubik had no luck touting his creation round the industrial leaders. Rubik’s Cube began its worldwide conquest when its manufacture and mass marketing were taken over by capitalist firms abroad. Even the distribution process for this first pioneering innovation was immeasurably swifter under capitalist conditions than under the socialist system.

The other example is the labor-market situation. Search processes take place under all systems: employees seek employers that meet their needs and vice versa. The search process is accompanied by ubiquitous frictions: everywhere there are temporarily unfilled jobs and ready workers unable to find jobs. This  is a complex matter explainable by many concurrent factors. One example is the flexibility of knowledge generated by the education system. Does it facilitate quick adjustment to the rapidly changing demand for labor? Other factors include legal constraints on dismissing employees, the effectiveness of labor recruitment agencies, and so on. But some basic explanatory factors are system-specific. What are the general labor-market proportions of supply to demand? Does it tend towards excess supply (capitalism) or excess demand (socialism in its mature, relatively developed stage)? That determines to what extent employees are at the mercy   of employers. An employee is under constant threat of dismissal and unemployment, they feel more defenseless than those who find jobs easily. Here we have arrived at deep-rooted system-specific effects, namely the relative power of employers and employees (Kornai 1980, 2014b).

The two examples enhance in a further way the argument for the explanatory power of the capitalism-versus-socialism typology. The nine system-specific factors listed in Table 1 were compiled with a positive approach. They do not reflect the author’s desires or choices of values. These are the characteristics of countries considered socialist or capitalist, an observable group from which the list of characteristics in Table 1 can be “distilled.” Those who acknowledge this as a positive description, and shift to the normative approach, can append to them their views on the capitalism-versus-socialism pair, based on their own system of values. For my part, I do not reach any summary moral conclusion. By my system of values, dynamism and rapid technical advance form a great virtue in capitalism, but I see the risks and drawbacks of such development. For one, I see the vulnerability of the workforce as a repugnant characteristic of capitalism. As for the socialist system, it did not just have repulsive characteristics. Many of them were attractive: upward social mobility for the poor, some reduction in social distances, and employee security stemming from the labor shortage. The typology described above offers methodological assistance to evaluating the great systems. Value judgments should be based upon considering the whole set of characteristics for the system in question.

It is not unlike the marking system in education. Let us assume that the individual marks reflect each student’s attainments. Then it is up to the teachers, the parents, the classmates or the personnel department of a future workplace, to decide what configuration of the marks to take as a basis for forming an opinion of each student: the simple average of the marks, or the mark in some successful subject taken by the evaluator to be the most important. I will return to this question later, but before discussing the value judgments about the great systems, let me present the typology I use for the alternative forms of politics and government.


1Let me express my gratitude here first of all to my wife, Zsuzsa Dániel, who encouraged me to write this study despite all hardships; she was the first reader of several earlier drafts, supporting my progress with several thoughtful suggestions. I also owe my thanks to all the people who read the manuscript and supported me with their recommendations, helped me to collect data and explore the literature. I would like to emphasize Ádám Kerényi’s role, who helped me most with his initiatives and exceptional working capacity. It would be really hard to compare the invaluable support from the other contributors, therefore I simply list their names: Dóra Andrics, Réka Branyiczki, Rita Fancsovits, Péter Gedeon, Péter Mihályi, Quang A. Nguyen, Ildikó Pető, Andrea Reményi, Eszter Rékasi, Miklós Rosta, András Simonovits, Ádám Szajkó, Zoltán Sz. Bíró, Judit Ványai and Chenggang Xu. I am grateful to Brian McLean, my friend and permanent translator for many decades, for the faithful and well readable translation. I would also like to thank Corvinus University of Budapest for providing me the conditions of undisturbed work and “By Force of Thought” Foundation for its contribution to research funding.

2With most subjects it is thought immodest for authors to quote their own works repeatedly and thus to crowd the bibliography, but many such references are inevitable if the subject is an author’s own work. This study is aimed primarily at those who have read my works, whom I am trying to assist in the “maintenance” of their ideas evoked by those works.

3The term “Hungaricum” was used originally to mark goods which are produced in Hungary  and became worldwide known as “Tokaji aszú”, a desert wine called ‘The King of Wines’ already in the Middle Ages, or “barackpálinka”, a brandy made from apricot.

4What I call a great system is related, but not identical, to the Marxist “mode of production” or the neo-Marxist concept of “social formation.” I stand aloof from the simplified, primitive theory that political economy lecturers of the socialist period would drum into seminar students, citing in a deterministic, ostensibly “progressive” order of primitive communism, slave-owning society, feudalism, capitalism, and finally, victorious socialism or its full-fledged version, communism.

5 Nowadays, when the use of the term “varieties of capitalism” is widespread, we could say:    they wanted to create a variety of capitalism with strong welfare-state characteristics. This intention was inherent in the term “social market economy”, dissociating the capitalism of Northern and Western Europe from its Anglo-American counterpart.

6While the socialist system existed, no country in the bloc ever termed itself communist. That is why I entitled my work The Socialist System, not the “Communist”, which many would have recognized more easily. It can be disputed whether the decision was apt, but it left no room for misunderstanding, as I wrote down clearly what I meant by “socialist system” (Kornai 1992).

7Of special interest are the typologies of modern psychology and the cognitive sciences. Studying these could be very useful to comparative system theory in the social sciences.

8There are several synonyms for the word “characteristic” in this context: trait, feature or attribute, for example.

9In my phraseology, I employ the unqualified word “type.” It has the same meaning as what   Max Weber calls an “ideal type” (Weber 1922/2007). Yet I avoid Weber’s term, since I find that the attribute “ideal” has a distractingly normative ring. However, Weber too used the expression “ideal type” to denote an abstract theoretical mapping of existing systems.

10The second term in each pair (capitalism and socialism, respectively) denotes, for many authors, a system of ideas rather than a formation that exists or has existed. It should be clear from the context that I am discussing the latter: “capitalism” denotes the capitalist system as it exists or has existed, “socialism” likewise.

11Table 1 contains many expressions I have taken over from my earlier works, where I discussed their meanings in detail. They include coordination mechanism, market and bureaucratic coordination, shortage economy, surplus economy, labor shortage, labor surplus, revolutionary innovation, soft and hard budget constraints. For space reasons I cannot go into these again here.

12 The category of state ownership includes both central- and local-government ownership. This needs mentioning as the Hungarian vernacular often inaccurately confines state ownership to central-government ownership. If a school, say, or a hospital passes from local-government into central-government hands, this is labelled “nationalization”, while it means only that the execution/implementation of the state’s ownership rights has been centralized, important though that change may be as well.

13Basic and fundamental are commonly used synonyms for “primary” in this context.

14Like many authors, I apply the epithet “post-socialist” to the countries that were under the control of the communist party in 1989–90. Here again there appears a conceptual mix-up: many politicians and political analysts apply the labels “post-socialist” or “post-communist”, usually with a pejorative ring, to parties that emerged from the former ruling communist party after the change of system, taking over many officials of the previous party and most of its assets. This they do regardless of what changes have occurred in the leadership or membership or in its ideology.

15 A list of the post-socialist countries appears on my website as Tables 1 and 2 in Background Material 1.

16Background Material 2, appearing on my website shows the two world maps, Figure 2 and 3, not in black-and-white but in various colors. The colors might help in recognizing the distribution of various types in the region.

17Empirical support for the classifications would be much clearer if there were reliable statistics on the developments in ownership relations and the spread of the market mechanism. Unfortunately, the data available are only partial and sporadic. All countries prepare statistics on production and added value, broken down by industries, geographical regions, occupations, or output produced, but nowhere do national statistical offices calculate or publish regularly any breakdown of output data by form of ownership, or the proportion of total production sold at administratively set prices. It is surprising to find that only non-state institutions in a handful of countries concern themselves with ownership relations and the radical transformation of coordination mechanisms, although these were among the basic requirements for the change of system. Prestigeous international organizations regularly publish comparative figures on production, foreign trade, or financial affairs, but – in my view – they pay insufficient attention to the transformation of ownership relations and the relative weights of bureaucratic and market coordination.

18See Background Material 2 and 3 on my website.

19Cuba is an exception. It has been qualified here as a country at a transitional stage.

20See Background Material 4 on my website.

February 22, 2017

Vulnerable Democracies — An interview with János Kornai

János Kornai, professor emeritus at Harvard and Corvinus, is the foremost economist in Hungary today. Several of his books have been translated into English, including a book that made him a maverick in the tightly centralized planned economy of the 1950s titled Overcentralization in Economic Administration (Oxford University Press, 1959). He is also the author of Anti-Equilibrium (Amsterdam: North Holland, 1971; 2d ed., 1975 in English); Rush versus Harmonic Growth (Amsterdam: North Holland, 1972); Growth, Shortage and Efficiency (Oxford: Basil Blackwell and Los Angeles: University of California Press, 1982); Road to a Free Economy. Shifting from a Socialist System: The Example of Hungary (New York: W. W. Norton, 1990); Vision and Reality, Market and State: New Studies on the Socialist Economy and Society (New York: Routledge, 1990); The Socialist System. The Political Economy of Communism (Princeton: Princeton University Press and Oxford: Oxford University Press, 1992);  and By Force of Thought. Irregular Memoirs of an Intellectual Journey (Cambridge-London, The MIT Press, 2007), his autobiography. Professor Kornai has been awarded honorary doctorates from dozens of prestigious universities.

The online version of the interview that follows appeared in two installments in HVG on December 28 and 29. The first bears the title “Immovable powers, autocracies and their Hungarian variation.” The title of the second is “There is no way Viktor Orbán’s government can be removed peacefully.”

This interview, conducted by Zoltán Farkas, originally appeared in the print edition of Heti Világgazdaság, vol. 2016/41 (October 13), pp. 10-13. In the online version only Zoltán Farkas’s questions and János Kornai’s answers are presented. The Hungarian original also includes a map and a summary of the central ideas. The latter are not presented here as both are available in the longer paper “The System Paradigm Revisited” in Acta Oeconomica vol. 4, (2016). The interview was translated by Dóra Kalotai and Christopher Ryan. Zoltán Farkas and János Kornai are indebted to them for their careful translation.

Hungarian Spectrum has had the privilege of publishing a number of János Kornai’s shorter works in English, either in full or in summary form. For example, his essay on “Centralization and the Capitalist Market Economy,” “Threatening Dangers,” “Hungary’s U-turn,” and “Breaking Promises, The Hungarian Experience.” I’m grateful to Professor Kornai for permission to publish this interview.

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Source: HVG / Photo by István Fazekas

It was six years ago when you first wrote that many important basic institutions of democracy in Hungary had been dismantled, and Hungary had become an autocracy. Now, in a study recently published in Közgazdasági Szemle, you have already summarized the characteristics of autocracies. Has your previous premonition been proved correct?

I feel I have been proved completely correct. Usually, a researcher is filled with pride when he is among the first to recognize a tendency. My pride, however, is overshadowed by bitterness, because the fact that my predictions have come true makes me depressed and bitter.

But Hungary is not unique in this sense. You write that barely one-tenth of the population of the 47 post-socialist countries live in democracies and fifteen percent in autocracies, while the vast majority live in dictatorships. It’s almost as if democracy was the exception. Were we chasing illusions at the time when the regimes changed?

If we start from the knowledge that we possessed at the time of the regime change, based on the experience of democratization carried out in other countries, our hopes for a more successful development – compared to what actually happened – were not just an illusion. It is worth taking a look at the two largest countries, China and Russia. In the latter the elements of democracy were beginning to emerge, free elections were held, and under the leadership of Yegor Gaidar a liberally inclined government was formed. But it did not last long. Anti-democratic elements came to the fore, led by Vladimir Putin, who established his own autocratic system. Repression grew heavier and heavier. China is another story. Perhaps for a while it was not only an illusion that it was, even if slowly, making progress towards democracy. The example of Taiwan is well-known: a tough dictatorial system gradually turning into a democracy. But in China events did not take this turn. How a regime defines itself is always revealing; according to the Chinese regime, theirs is “a socialist market economy with Chinese characteristics.” In my interpretation, on the other hand, China’s system is a capitalist one, even if the ruling party calls itself communist. And politically they have a dictatorship: a one-party system, without elections, with terror. Among countries that changed their regime, democracy has stabilized in very few places as well as it has in the Baltic states. Since 2010,  many fundamental institutions of democracy have been demolished in Hungary, and an autocratic regime has come out on top. Poland has taken the first steps in the same direction, but that particular match has not yet been played out. The abandonment of democracy is a threat in the other post-socialist countries of Central and South-eastern Europe as well.

Which are the characteristic features of autocracy, the marks that set it apart?

Before anything else, I have to say that there is no consensus on the interpretation of democracy, autocracy or dictatorship among political scientists, politicians and people working in the media. There is complete conceptual chaos; I can’t even begin to hope things can be put in order here. Thus I shall undertake a more modest task: I would like to supply my readers with a sort of explanatory glossary of what I mean by these expressions. The main distinguishing characteristic of autocracy can be linked to Joseph Schumpeter, one of the most significant thinkers of the 20th century. Many authors, among them Samuel Huntington, follow his lead in viewing democracy as a procedure: a course of actions in which the government can be removed in a civilized way: legally, without bloodshed. This is in contrast with non-democracies, in which the change does not take place in a civilized fashion, nor does it usually happen without blood being shed. For instance, the tyrant is assassinated, or his regime is overthrown by a palace revolution. An example of the latter case was when the First Secretary of the Soviet Communist Party, Nikita Khrushchev was removed from power by his opponents within the Party. In other places the change of regime happens in the wake of a military coup or when a revolution by the masses threatens. If the government cannot be removed or is, to use an everyday phrase, cemented in place, there is autocracy. Schumpeter and others following him, myself included, restrict the name democracy to that politico-governmental form, and only that form, which guarantees that the government can be voted out of office. This is the minimum requirement. The other point is that in an autocracy the ruling group dismantles those checks and balances which would offer a realistic chance of forcing the government to correct its mistaken measures between two elections, and of changing the government at elections.

Fareed Zakaria defined as ‘illiberal democracies’ those systems in which the government came to power via legal elections, and has maintained the outward forms of democracy, but has systematically dismantled the checks and balances. You maintain that there are no illiberal democracies. Why?

When he first wrote about the topic Zakaria did not concentrate on the possibility of voting out the government, but rather on how the majority voted during the election, and on how the winners would uphold certain democratic structures later on, but dismantle others. When the Hungarian prime minister introduced the concept of illiberal democracy into public discourse at Tusnádfürdő, Zakaria, disagreeing with Orbán’s interpretation, refined the explanation of the notion. Personally, I consider this concept a dead end: illiberal democracy is like an atheist pope: the adjectival structure itself is contradictory. In my view all democracies are liberal. I lost my taste for concepts of democracy with an adjective when the communist dictatorship referred to itself as a ‘people’s democracy’, clearly distinguishing itself from the so-called ‘bourgeois’ democracies. But let us return to the significance of checks and balances. Let’s consider the case of President Nixon in the United States, who felt inclined to ‘consolidate’ his position, and had his political rivals bugged, but after being exposed was unable to get his Republican party colleagues, the attorney general or the chairman of the House Judiciary Committee to stop the proceedings against him. The representatives were not bound to a ‘party line’: they wanted to find out the truth – the checks and balances functioned. These are necessary in a democracy. Just like a free press, in which the voice of the opposition is at least as powerful as that of the government. At the same time, it is also true that democracy is vulnerable because the enemies of democracy can also make use of fundamental rights – the freedom of the press, the rights of assembly and association. Those who have built an autocratic order have learned from this. They do not allow themselves the luxury of being voted out at an election where there is the real possibility of a variety of outcomes.

But if this is so, why is it not a dictatorship?

Dictatorships and autocracies do share some common features. One is that in every important issue; indeed, often even in less significant matters, it is the leader who makes decisions. But there are also significant differences. A dictatorship abolishes the multi-party system by law as well. The opposition is not weak; it is non-existent. It is driven underground. In contrast, opposition forces are allowed to function in an autocracy. Autocracies also make use of intimidation, but they do not go as far as extracting confessions by torture or executing large numbers of people. Many people have good reason to be afraid in autocracies as well because they may be thrown out of their jobs or become victims of character assassination; maybe they will be arrested on trumped up charges. But anybody who believes that there is only a difference of degree between autocracy and dictatorship has not yet lived under a dictatorship. Having said this, autocracies do have a tendency to turn into dictatorships. Maybe modern Turkey will illustrate this, almost before our very eyes. We shall see whether they reach the stage of complete, total dictatorship.

You did not list nationalism as one of the characteristics of autocracy. In Hungary, however, one has the impression that they go hand in hand.

I tried to mention only those characteristics of autocracy that appear exclusively in this political-governmental structure; that is, the features which differentiate it from democracy and dictatorship. An obvious counter-example would be corruption, which can be observed in all three types. Innumerable cases of corruption crop up in certain democracies, while there are puritan dictatorships in which money cannot buy everything. Unfortunately, nationalism is another anomalous phenomenon: democracy does not make us immune to it. One of the most tragic examples of this is the period of World War I, when a wave of nationalism swept through both sides; through both of the coalitions that were to go to war against each other. It was a nationalist thirst for revenge that was at work in the politicians of Western European democracies when they imposed humiliating and impossible peace terms on Germany. In this context, to take a great leap through history, the Trump phenomenon is worth mentioning. One of the great parties of the United States nominates the extreme nationalist Trump for the presidency. Even if he does not win the elections, the political camp that supports him will remain strong, and because the United States is a democracy, they will make their voices heard. Recently, a strong wave of nationalism has been felt in Great Britain as well.

What is your impression of Hungarian nationalism?

I am really worried about it getting stronger, not for myself, but for the future of the country. Because I do not deny that in Hungary autocracy and nationalism go hand in hand. An autocrat is indeed able to turn the wave of nationalism to his own advantage; Trump is doing the same. The main element of his rhetoric is xenophobia, especially against Latin Americans. He adds that the gates are too wide open also to immigrants from overseas, and rejects President Obama’s suggestion that ten thousand Syrian refugees should be allowed to the country. By the way, communist dictatorships that advocated internationalist theories were nationalistic as well. Non-Russian minorities were oppressed in the Soviet Union, and the same can be said of non-Chinese ethnic groups and speakers in China. Nationalism exists in both dictatorships and democracies, not only in autocracies.

In this conceptual framework why do you define Viktor Orbán’s system as an autocracy?

Because it bears in itself all the important characteristics of autocracy, both its primary and its secondary features. This period started with the leader announcing that he intended to establish a system which would last for at least ten or twenty years. He declared that he wanted to cement himself in place. Since the day he came to power, he and his party have been continuously dismantling the system of checks and balances. Not like in a revolution, when they take over every powerful position at the same time, but step by step. Every week, something has happened. One of the first things they did was to reduce the Constitutional Court’s sphere of authority and pack the Court with people connected to Fidesz. Then came the new media law, which created almost endless opportunities for government propaganda. They also took over a significant part of the private media. The bureaucratic dismantling of checks and balances is combined with the use of market methods. The process culminated in the changing of the law on elections.

You write that the interplay of anti-market and anti-democratic elements has formed Orbán Viktor’s system into a coherent one; the mechanism of the state does not work according to the rules of the capitalist market economy. So how does it work?

Even in democracies it is taken for granted that the market cannot be left entirely to its own devices: there is not a single economist with any common sense who would oppose some regulation here and there when there is a real reason for it. In cases of monopoly, state regulation is clearly necessary. Even then, mistakes can be made. For example, the authorities may set prices too high or too low because they don’t understand the situation or are incompetent. Too high, and whoever is running the monopoly will make a handsome profit; too low, and they will make a loss. It is possible for regulation to be done badly as a result of incompetence, but it can also happen if other people’s interests, for example. cronies’, are prioritized. A business can be ruined through regulation so that a friend or client can buy it up cheaply. The tendency towards regulation that is not compatible with the functioning of the market is one of the characteristics of an autocracy. The Hungarian government exercises far more regulatory power than would be reasonable. There are numerous possible underlying motives for their unnecessary, excessive and – not infrequently – distinctly damaging interventions. On the one hand, the central authorities wish to extend their power across as many activities as possible. The knowledge that “I control everything: nothing can happen without me” is a very powerful motivation. An equally strong motive is the need to court political popularity, to make populist promises.

What are the results when autocracy works this way?

It is a mistake to believe that there are so many things wrong with the economy, that because of the numerous incompetent and biased interventions it functions so erratically, that it is bound to collapse in the end. This may happen, but it is by no means bound to happen. A state that gets along badly with the market does not push the economy over the edge into catastrophe; it just makes it harder for it to fulfill its potential. It will not be innovative enough, not competitive enough; it will lose the best experts. This will become obvious only in the long run. The trams still run, only more rarely, the teachers complain, but teaching doesn’t stop, health care is beset by dire problems, but they still try to look after patients in hospitals. It is not that the economy is unable to function, only that it fails to achieve as much as it could. As a result, it falls behind its rivals, behind those countries where the state and the market work together in greater harmony, where people involved in the economy discuss what they have to do, where they listen to people before passing laws that affect them. In the past, I had many arguments with people who claimed that the Soviet economy did not work. The truth is that it did not collapse until the very end: it functioned, however badly and inefficiently, in spite of all the well-known, serious inadequacies and problems. It fell further and further behind its historic rival, the capitalist West. The question arises: does the state play a lesser role in a democracy than in an autocracy? At any rate, it would never occur to anybody in the U.S. or the Scandinavian welfare states that education should be brought under the control of a single center, as has happened in the Hungarian autocracy.

Every day we hear Fidesz trotting out some of the well-known catchwords of socialism. They promise full employment, they consider state ownership superior; they utter anti- profit slogans. Are they leading the country back to socialism? Is that what they want to restore? Even in a different form?

I do not see any danger of this. At the time of the regime change, people used to say “You can make an omelet out of an egg, but an omelet will never turn back into an egg.” Whatever happened is irreversible. Autocrats coexist happily with capitalism. Indeed, it is the only system they can really coexist with because they make use of the opportunities offered by capitalism to maintain their own authority. Looking at it from the other side, some capitalists are attracted to stable and authoritarian governments. Many western or multinational companies that have set up shop in China would not like the situation there to change. It is just the same in Hungary. Anybody who enjoys special advantages in public procurements and certain tenders, in the opening times of shops or the purchase of raw materials, who can count in bailouts if they get into financial difficulties, they are having a good time. In autocracies, given the private economy, a wide circle of clients can be built up from the supporters of the system who receive financial support. They can pay for these favors if and when the time comes. Far from wishing to bring socialism back, this regime gets on very well indeed with capitalism.

Has this system reached a point where the government can no longer be voted out of power?

Only the historians of the future will be able to answer that question. If it turns out that the government can be removed peacefully, in a civilized way, in the voting booth, then I have been wrong. I’m not making any predictions. What I can say is this: in Hungary, the regime has done and will continue to do everything possible to make itself irremovable. I hope you will not misunderstand me: the last thing I want to do with my analyses is to discourage those who are prepared to fight to change the situation. People for whom the values of democracy are important: individual autonomy, freedom of speech, freedom of the media and press, constitutionalism, legality, rule of law–they should not make their behavior dependent on the likelihood of change. They should not lie low during these years, but they should act, in their own ways, using the methods of their choice.

December 29, 2016

Mária Vásárhelyi: “Self-appraisal”–The failure of the regime change

Now that for almost two weeks political life in Hungary has pretty well come to a standstill, I have time to read some analyses of topics of current interest. That’s why I decided to summarize the article of János Széky on the parallels and dissimilarities between the Polish and the Hungarian regimes the other day. Another article that appeared in the December 18 issue of Élet és Irodalom that piqued my interest was Mária Vásárhelyi’s probing look at Hungarian society’s seeming indifference to the destruction of democratic institutions by Viktor Orbán’s government. The article bears the title “Szembenézés–önmagunkkal,” which perhaps can best be rendered as “Self-Appraisal.” She is seeking answers for the failure of the 1989 regime change and assesses the role of intellectuals in the years that led to 2010 and after.

Hungarian society displays deep and widespread despondency in the face of changes introduced by Viktor Orbán’s government. Many people know that these changes, both in the short and in the long run, are injurious to the country. Yet they seem unable to take a stand against them, most likely because they no longer have any hope for a better life. Some people talk about the Hungarian psyche, which is inclined toward melancholy and pessimism; others bring up national tradition as an obstacle to an energetic response in the face of adversity. What Hungarian intellectuals don’t want to realize is that the democratic accomplishments they view as great achievements of the regime change are not considered as such by the public. “However painful it is, we must face the fact that for the majority the regime change is not a success story but a failure.” Achievements are dwarfed by losses. The values inherent in democracy and personal freedom cannot be measured against the shock of lost security and existential perspectives.

Vásárhelyi, a sociologist who already during the Kádár period was part of a team that conducted opinion polls, recalls that in the 1980s the great majority of the people considered a secure job, material advance, and free and widely available healthcare more important than such moral values as freedom, democracy, equal opportunity, and justice. The Kádár regime, with the help of foreign loans, ensured these material benefits. Exchanging these material pluses for abstract moral values was not what these people expected. But this is what more or less happened between 1989 and 2015. Between 1990 and 1994 one million people lost their jobs, Hungary’s industrial production decreased by 40% and its agricultural production by 30%. Hungarians never fully recovered from the shock of those years. Moreover, since 2010 the situation has grown worse.

During the four years of the second Orbán government the gap between rich and poor grew enormously. Consumer spending today barely reaches the 1988 level. In 1987 51% of the people reported that they had no serious financial problems, another 44% were able to make ends meet, and only 5% didn’t have enough money to make it through the month. Today one-third of households struggle to put food on the table and the remaining two-thirds barely manage. In the Kádár regime two-thirds of families could afford a summer vacation, today only one-third can. The middle class, instead of expanding, is shrinking.

I'm remaining a democrat and I am staying in Hungary

Mária Vásárhelyi: I’m remaining a democrat and I’m staying in Hungary

Not surprisingly, 80% of people with leftist leanings and 42% of Fidesz voters think that Hungary’s situation was better under socialism than it is now. Among the East European countries, Hungarians feel the most dejected and disappointed, which can partly be explained by the relative well-being of the population during the second half of the Kádár era. Another reason for the greater disappointment in Hungary might stem from Hungarian wariness of capitalism and private ownership of large businesses and factories. Already in 1990 half of the population opposed privatization, but today almost two-thirds are against private property on a large scale. Not only do Orbán’s nationalization efforts meet no resistance, they are most likely welcomed.

The situation is no better when people are asked their opinion of political institutions. At the beginning of the 1990s trust in the new institutions was quite high: on a scale of 0 to 100 the average was around 65 and none was under 50. Today not a single democratic institution reaches 50. Two-thirds of the people have no trust whatsoever in parliament and in politicians. Only 25% have any trust in politicians, parliament, government, or the opposition. Only 20% of them think that politicians want the best for the country and for the people. They don’t trust the media and the financial institutions. They have even lost faith in the judiciary, the police, the churches, and the scientific institutions. More than half of the population believe that the leaders of the country don’t care about their fate. Two-thirds are convinced that one cannot succeed by being honest. Almost 75% think that the laws serve only the interests of those in power and that they have nothing to do with justice.

“Thus it is not at all surprising that not only the democratic institutions but democracy itself has lost its importance.” According to a 2009 poll, three people out of four agree with the statement that the change of regime caused more harm than good to the country. Only every fifth person is convinced that regime change will bear fruit in the long run.

It was on this general disappointment with capitalism and democracy that Viktor Orbán built his electoral strategy in 2010 and managed to acquire a two-thirds majority in parliament. In Vásárhelyi’s opinion

It was not the right-wing values, the restoration of the Horthy regime, not even the anti-communist slogans that attracted the majority of the voters to Orbán but the violent anti-regime rhetoric studded with overwrought nationalism. He convinced his voters that he would redress the injustices and the wrongs of the regime change. … It was the promise of a new change of regime, the restoration of the state’s dominance in the economy, the compensation for losses suffered, calling to account those who illegally benefited from the privatization of public property that the people voted for when they cast their votes for Fidesz.

And because for the majority of people the democratic institutions held no great attraction the systematic  destruction of these institutions didn’t meet with any resistance. The rule of law, freedom, equal opportunity were popular points of reference in the first few years [after 1990], but when the promises of the regime change didn’t materialize they lost their appeal. What followed was mass impoverishment, closing of channels of social mobility, dramatic differences between rich and poor, segregation, the narrowing of opportunities in the small villages, and the hopelessness of breaking out from disadvantageous positions, all of which started well before 2010.

Therefore, I consider those ideas that look for a solution to the crisis of Hungarian democracy in the revival of the traditions of the regime change and the reconstruction of the democratic institutions mistaken. Those political and cultural values that the non-right-wing elite considers important clearly don’t speak to the majority of Hungarians…. They don’t even attract those who are victims of all that has happened since 2010 and who are greatly disappointed in the Orbán regime. These people are actually in the majority. According to the 2014 European Values Survey, almost half of the population believe that the country is moving in the wrong direction. Only 25% of the electorate are satisfied. Twice as many people look toward the future with trepidation than with hope. The former group are those who will have to get rid of Orbán’s autocratic regime, but it is obvious that they can only be inspired by a more attractive alternative than the elite democracy that developed after 1989.

Is there an alternative to the fundamentals of the democratic changes or the introduction of a market economy, which were the promise of 1989-1990? I don’t believe there is. What has to be changed are not the fundamentals but their implementation, so that a growing prosperity will be shared by all the people of Hungary, not just the upper crust with political connections, which is the strategy of the Orbán government. Any other economic policy is doomed to failure.

János Kornai: Threatening dangers

The Peterson Institute for International Relations (USA) and the School of Public Policy at the Central European University (Hungary) held a conference on “Transition in Perspective: 25 Years after the Fall of Communism” in Budapest on May 6 and 7, 2014. Among the attendees were Leszek Balcerowicz, Václav Klaus, Anatoly Chubais, and many other well-known economic policymakers and academic economists of the post-socialist transition period. This is the text of János Kornai’s keynote address.


I would really like to give a cheerful and optimistic talk. I was optimistic when I was working on my book The Road to a Free Economy in 1989.  I undertook comprehensive evaluations of the post-socialist transformation later, on various occasions, and although all the essays pointed out the problems, they always ended on a note of optimism. Even today, there are several developments that may give grounds for satisfaction: in many countries in Central-Eastern Europe and in the Baltic regions dictatorship has been replaced by democracy, the command economy by the market economy, socialism by capitalism. My sentiments, however, are overcast by two depressing developments.

David Levine: Business & financial figures, economists /New York Review of Books

David Levine: Business & financial figures, economists /New York Review of Books

I am Hungarian – my mind can barely stop processing the uninterrupted flow of gloomy news for a second.  Hungary was moving forward on the path of democratic development for 20 years. People were tormented by various troubles, however, it was to be hoped that sooner or later we would manage to overcome these too. But the situation changed for the worse in 2010, when the political forces leading the country performed a U-turn. Instead of the strengthening of democracy we saw the abolition or drastic restriction of numerous fundamental institutions of democracy. Instead of private property being reinforced, the security of private property came under attack. Instead of continuing decentralization, the tendency to centralize was revived.

What has taken place here in four years and what will, in all likelihood, continue for the next four is a unique phenomenon: Hungary is the first – and so far the only – one  among the countries that chose the democratic path in 1989 – 90 which made a U-turn. This one example, however, is enough to prove that such a change can happen. The path on which we started in 1989 is not necessarily a one-way road; the changes, of historical significance, are not irreversible. Quite the contrary – and this is one of the terrible aspects of the Hungarian state of affairs -, the situation after the U-turn may become irreversible for a very long time. Democracy, especially in countries where it has not yet taken deep root, might be unable to defend itself. It may be overpowered if it is attacked unscrupulously and with Machiavellian determination.

The other shadow over our celebration is cast by the Ukrainian situation. Nobody can tell for sure what the months to come will bring. But one thing has already happened, and this is the de facto annexation of the Crimean peninsula. One of the fundamental principles of the Accords signed in Helsinki in 1975 was the sanctity of the status quo: the state borders valid at that time were not to be changed for any reason whatsoever. The Crimean peninsula became part of Ukraine twenty years before the Helsinki Accords. One of the basic principles of the Accords was overthrown in March 2014, and the world took note of this and responded only by wagging a disapproving finger and introducing mild reprisals. Like the Hungarian changes, this constitutes a powerful precedent, according to which it is possible to change a lawful border using military force on some pretext or another, and for this purpose the most obvious excuse is ethnic.

All the things I wish to say tonight I will discuss in the light of these two precedent-forming events.


Let us imagine the map of the world and let us look at the Eastern half. We shall use three colors. Let’s cover the new democracies with green, the color of hope. I call them the post-communist democracies. Although many of their features are identical with those of traditional Western democracies, their political cultures still bear the marks of the communist past.

East of this stretches a very wide zone, which I would cover with pale red: this is the zone of post-communist autocracies. Their prototype is Russia. After 1989 the transition towards a market economy was launched there as well. At the very beginning a democratic constitutional structure appeared : parliamentary elections among competing parties, debates between a government relying on its parliamentary majority and the opposition. The rule of democracy, however, proved to be a very brief episode. Following a few stormy years Putin seized power and a new political structure emerged. This has restored certain aspects of the communist system, especially the great power of the state, but it also differs from that in some significant ways. The number one leader (whatever his official legal status might be) is invested with an enormous amount of power and rules over a strictly centralized hierarchical state and political apparatus, but he does not possess the absolute monopoly over power of a real dictator. There are opposition parties, parliamentary elections do take place, although it is true that the opposition is very weak and doomed to lose the elections from the start. There are newspapers, radio and television stations and internet portals that are independent of the ruling group – their voice, however, is weak. This type of autocracy is halfway between the full-fledged Western-type democracy and a totalitarian dictatorship. What mainly distinguishes it from the latter is the fact that, although the regime is very repressive, it does not use the most brutal means: the arrest and confinement in cruel concentration camps or physical liquidation en masse of the representatives of alternative political movements. The other great difference from the communist system is that the autocratic political regime is connected to an economy in which private ownership is dominant. The ruling political powers hold important positions in the economy, both in the still significant state-owned and the very broad private sectors.  The larger part of the economy works according to the behavioral regularities of capitalism

Of the 15 successor states of the former Soviet Union, three Baltic countries have become relatively stable post-communist democracies. I would place Belarus and the Central-Asian republics together with Russia in the post-communist autocracy category. Now, 25 years after 1989, it can be stated that the situation in the post-communist autocratic countries is basically unchanged; there is absolutely no sign of the iron hand relaxing its grip.

Ukraine’s position is uncertain, and has actually now become especially problematic; over the past 25 years it has sometimes displayed the signs of post-communist democracy; at other times those of post-communist autocracy.

Let us go back to our map. To the east and south of the region of autocracies we can see China and Vietnam. These embody a third type, which I shall call post-communist dictatorship. Let us cover this region with a deep red color. The economy resembles, in many respects the Putin-type regime. Although the state sector has remained very significant, the larger part of economic resources are now in private ownership. Here too the political and economic worlds are closely intertwined. The significant difference lies in the fact that in China and Vietnam the ruling political parties have never for a moment given up their own power monopolies. The Chinese and Vietnamese communist leaders did a thorough analysis of the Gorbachev era. The series of events which started with glasnost and ended with the disintegration of the country, the loss of super-power status and the liquidation of political monopoly have been haunting them like horror dreams. Anything but that! The Chinese and Vietnamese leaders have made an unshakeable decision never to open the floodgates of free political movements.

The Chinese and Vietnamese governing parties are only ‘communist’ parties in name: nowadays they have absolutely nothing to do with the Marxist-Leninist program which intended to abolish capitalism. Lenin would classify these political formations as bourgeois. The Chinese and Vietnamese ruling parties accept capitalism in practice, they cooperate with it and profit from it.The case of China and Vietnam clearly demonstrate that capitalism is compatible with dictatorship. It is true that there is no democracy without capitalism, but this statement cannot be reversed. Capitalism can exist and function for a very long time without democracy. In spite of the hopes of many Western analysts, there are no signs of any tendency for the heavy-handed regimes to loosen their grasp.

I will not go on to discuss the situation of certain small countries: North Korea, Cuba and Venezuela. Instead, I will refer back briefly to the introduction of my lecture. In 2010 Hungary changed color: it turned from green into pale red. It is not a post-communist democracy anymore, but a post-communist autocracy. As I have said, this is a first and so-far unique event. But here I ask the participants of this conference: is there no danger that other countries which are still in the green zone will make a similar U-turn?


Historical developments show, that the problem of state borders and the relationships between ethnic groups within the borders is one of the most important issues of the post-socialist transformation; it is no less important than the form of political government and the radical transformation of property relations.

The Soviet Union disintegrated into 15 successor states. Czechoslovakia was divided into two. These two changes took place peacefully. The disintegration of Yugoslavia, on the other hand, was followed by bloody wars. Not long after the declaration of independence a war broke out between two successor states of the Soviet Union, Azerbaijan and Armenia. Fighting is now virtually continuous in the southern regions of today’s Russia. And now here we are in the middle of Ukrainian internal strife and the Ukrainian-Russian conflict.

We have divided the post-communist region into three zones on the basis of the defining features of their political structure. What the countries in all three zones share, however, is the existence of ethnic conflict. The intensity of conflicts varies. Relatively speaking, the ‘mildest’ form is nationalist rhetoric: blustering about the superiority of the majority ethnic group, vilifying ethnic minorities, or rabble-rousing against neighboring peoples. A graver situation is when nationalist, racist arrogance is manifested in deeds as well. It can happen in discrimination affecting schooling and the distribution of work places, or in the limitation of the free use and official acknowledgement of a minority language. Unfortunately, the most criminal forms of nationalism also take place. Although infrequently, violent behavior driven by racist motives occurs, such as the desecration of Jewish cemeteries and synagogues, and even Roma murders.

There is not a single country in the post-communist region which is immune to the epidemic of nationalism. There are degrees, of course: at one end of the scale we find the quietly thrown anti-Semitic or anti-Roma terms of abuse in ‘gentlemanly’ style. Next degree: hateful, cruel words. Next, more frightening degree: beating of members of the minority, threatening parades of uniformed commandos. And at the other end of the scale: murder. Who knows where the incitement to nationalism will lead?


In all three zones and every country of the post-communist region significant economic problems make themselves felt. Naturally, the constellation of difficulties, the relative gravity of the different issues varies from country to country. However, there are certain problems which are fairly general.

Post-communist transition has its winners and losers. Large numbers of people lost their jobs, unemployment became chronic. In many countries the inequality of income and wealth distribution escalated. Millions live in abject poverty, while others who have suddenly lined their own pockets enjoy their wealth in front of them. This explains why so many people think of capitalism with annoyance or hate. Few of them expect help from the extreme Left: the chances of a communist restoration are negligible. The number of those, on the other hand, who turn to the extreme Right, is significant. The ears of the disappointed, the losers and the needy quickly pick up the message of the populist demagoguery against profit, banks, and multinational companies.

The atmosphere of dissatisfaction is susceptible to the slogans of nationalism. “Life would be better if we lived again in an empire as large as it was during the tsar’s time” – they say in Russia. “If only we could get back those resource-rich parts of the country that we were stolen from us at Trianon in 1920!” – they say in Hungary.

So, what we have is a mass below, receptive to nationalism and slogans of “law and order”. And we have political parties and movements above which sense the opportunities provided by the angry mood of the masses. A vicious, self-inciting cycle evolves from disappointment in democracy, the attempts at anti-democratic governance, nationalism, and economic dissatisfaction. There are government intentions and mass sentiments at work which mutually reinforce each other.

The holders of power in Russia are anxiously observing how the growth of production is slowing down, how it has almost reached stagnation. This is when attention must be diverted from the problems of the economy towards ‘great national issues’ such as the plight of fellow-Russians living on the other side of the Western borders. Nationalism gives birth to an expansion drive. And this is no longer a domestic issue, but a tendency whose effect crosses national borders and threatens peace.

I have mentioned Russia because the looming monster of Russian expansion has appeared in our immediate vicinity. But we must also speak of China. The idea of nationalism is growing stronger there too. The rate of growth has fallen spectacularly. The inequality of income is extreme. There is a great deal of audible dissatisfaction about the fact that the rise in the living standards is far behind the growth of production.  Here too, nationalism proves to be the best way of diverting attention. Local protests are crushed not by eliminating economic problems, but by police measures. The people in charge are iron-fisted fighters for ‘order’.

Although in my imaginary map post-communist autocracies and post-communist dictatorships were given two different colors, in terms of nationalism, the tendency towards expansion and the heavy-handed restriction of democratic rights they share many features. These create a strong kinship between them, bonds which are strong enough even after the shared beliefs in Marxist-Leninist ideology disappeared. Most likely this political kinship also plays a part in the fact that so often the international political actions of the countries in the pale red and deep red zones correspond.  At important sessions of the United Nations they vote the same way, they support or turn down the same interventions. They have no joint center, but it is as if they were marching to the same drum on crucial issues. The axis of repressive powers opposing Western democracies is in the making – if I may borrow the expression “Axis” from the vocabulary of the period preceding the Second World War, when it was the name of the Alliance between Germany, Italy and Japan.


I am no Cassandra: I am not blessed or cursed with the ability to foresee the future. All I can say is that present-day events recall historical memories in me.

Hungarian current events remind me of the end of the Weimar Republic. There is great economic dissatisfaction. Millions of patriotic Germans feel humiliated by the terms of peace. More and more join the Nazi side. In the meantime, the anti-Hitler forces are at each others’ throats. In the 1933 multi-party election, which are conducted lawfully, Hitler’s party emerges victorious, but without a parliamentary majority. And then the moderate right-wing Centrum party is ready to enter a governing coalition with the Nazis … I shall stop this story here.

Thinking about the Ukrainian events Hitler’s first conquests come to my mind: the occupation of the Saarland, then the annexation of Austria. The aggression is based on ethnic reasoning: the territories in question are inhabited by Germans. Then comes the Munich agreement; Chamberlain’s joyful announcement: we have saved the peace at the price of Czechoslovak territories inhabited by Sudeten Germans being annexed to the German empire. Soon comes the dismemberment of Czechoslovakia. Then the plan to conquer Danzig, referring to ethnic reasoning… Here I shall leave this story too.

Who knows how the history-writers of the distant future will view the conference on Ukraine recently held in Geneva. Was it merely an insignificant diplomatic event? Or did it give birth to a new, albeit minor, Munich agreement, encouraging further aggression?

It was George Kennan who in 1946 pronounced the principle of containment. It is time to declare this principle again. Now it is not the spreading of communist principles, the Stalinist expansion, but the spread of nationalist principles, the expansion of post-communist autocracies and dictatorships, that need to be contained.

It is not for me to work out the methods by which the new principle of containment could be applied in practice. I can say this in the plural: we academic researchers are not fit for this task. I regret, but I cannot present the present company with a plan of action.

Let me finish here. I am just not able to end my lecture with words of reassurance. My intention was to alarm you, to unsettle you, to arouse in you the sense of threatening dangers.

János Kornai and Marxism

A few days ago I promised to write something about a short essay by János Kornai, the famous Hungarian economist, on his encounter with Marxism. The essay, entitled “Marx egy kelet-európai értelmiségi szemével” (Marx through the eyes of an Eastern European intellectual), appeared in a volume of Kornai’s collected essays, Gondolatok a kapitalizmusról: Négy tanulmány (Thoughts on capitalism: Four essays) (Budapest, Akadémia, 2012).

Kornai in this essay describes his road to Marxism and his discovery of some of the fundamental flaws of the Marxist system. He had just turned eighteen in 1945 and was open to the ideas of the Hungarian Communist Party (MKP) after going through  a war, losing his father in Auschwitz and his older brother somewhere in the Soviet Union where he served in a labor battalion. He was attracted to the party that was most resolutely opposed to the Horthy regime and all that it entailed.  So he began his study of the works of Karl Marx in the original German because at that time no Hungarian translation was available.

János Kornai / www.kornai-janos.hu

János Kornai / www.kornai-janos.hu

He began with Das Kapital and was struck by the sharp logic and the precise formulations of his ideas. These attributes appealed to Kornai because he himself is “a maniac for order and precise thinking.” Moreover, eventually he began to surmise that Marxism had universal application. It was just as applicable to the evaluation of a theatrical production as it was to economic problems. Here Kornai steps back a little and observes that “young people desire some kind of universal explanation for all worldly phenomena.” In addition, Marxism appealed to him emotionally because of the German philosopher’s passionate commitment to the oppressed and the dispossessed.

But then came the disillusionment. This process occurred not on an intellectual plane but on moral grounds. It happened when he met an old communist who has been arrested and tortured. His faith in the system was shaken. He had encountered critical voices against Marxism earlier but refused to take them seriously. Once his faith in the moral superiority of the system started to waver, however, he began noticing things that he didn’t want to see before. Problems with the practical application of  socialism. In vain did he look for answers in Marx’s works. It was not that Marx gave wrong answers to these questions, like wastefulness, low quality products, the constant scarcity of goods. The real problem was that it never occurred to him to pose any of these questions in the first place.

Once Kornai’s faith was shaken he began studying Marx more critically and found that there are some really fundamental precepts of Marxism that have proven to be dead wrong in the years since Marx wrote the Communist Manifesto. One of these was Marx’s insistence that as a result of the capitalist mode of production the lives of workers will become more and more wretched. It was enough to look around in well-developed capitalist countries to see that this Marxist prediction was wrong. Exactly the opposite was true: the living standards of the proletariat were steadily improving. Without going step by step through his mental processes, the final result was that even before the 1956 Revolution Kornai had become a critic of the socialist system.

So, eventually he had to pose the question to what extent Marx was responsible for what was going on in the Soviet Union of Lenin, Stalin, Khrushchev, and Brezhnev, in the China of Mao Zedong, and in other socialist countries. What is the relation between the theoretical ideas of Marx and the historical reality of the socialist system? Here I will quote Kornai verbatim: “I will try to answer concisely: the socialist system realized Marx’s plan.”

Kornai is aware that some people might counter that this judgment goes too far. But in Marx’s opinion a market economy doesn’t work. The market is anarchy and chaos. In its place a planned economy must be introduced. Moreover, private property must be abolished and it must be replaced by commonly held ownership. Both of these very basic Marxist doctrines became a reality in the socialist countries. When Lenin, Stalin, Khrushchev, and others invoked Marx’s name and work to defend their policies, they were correct. They had every reason to appeal to him. They were the ones who realized Marx’s dreams.

Kornai also finds Marx “guilty” of rejecting “empty, formal bourgeois constitutionalism, the parliamentary system, and democracy.” He didn’t seem to realize that once a market economy and individual initiatives are gone the system must be directed from above and that very fact results in the repressive apparatus of the state or the ruling party. So, Marx is responsible for what happened in the Soviet Union and in other socialist countries, but it is “intellectual responsibility.”

Finally, Kornai briefly analyzes what we still can learn from Marx. After the collapse of the socialist system the belief spread in intellectual circles that Marxism was dead. But in the last few years, especially since the 2008 financial crisis, the opposite has been true. Marx is in vogue again. “Prophets” have arrived who predict that capitalism is dead, a view Kornai doesn’t share. Yes, capitalism right now is going through a deep crisis but it is alive and will most likely live for a very long time.

Nonetheless, Kornai believes there are some valuable Marxist teachings that are still applicable. One of these is the overextended expansion of credit and production that far surpasses demand. Marx talked about these problems in the first and third volumes of Das Kapital and called attention to the grave consequences of these phenomena. Today we see the results of the irresponsible granting of credit all too clearly. As for the balance between supply and demand, Marx was especially interested in imbalances in the labor market. Today the imbalance in the labor market poses serious problems in the developed world. Marx was one of the pioneers in discovering this danger.

In addition, Kornai also looks upon Marx as the first person who tried the develop something Kornai calls a “system paradigm” (rendszerparadigma). He was an economist, a sociologist, a political scientist, and a historian who tried to combine all these disciplines. Today we call this an interdisciplinary way of looking at the world which attempts a comprehensive understanding of society as a whole.

Kornai ends his brief essay by saying that he is not a Marxist but neither is he a Keynesian. He doesn’t belong to any school or -isms. He considers himself to be an eclectic economist who was influenced by Joseph A. Schumpeter, John Maynard Keynes, Friedrich Hayek, and Marx “who in this list is always mentioned in the first place.”