Janos Kornai Research Articles

Planning and truth: the Bulgarian 1963 reform and the problem of profitability

ABSTRACT The conventional account of socialist planning proposes that annual plans were sets of imperative requirements that kept the economic actors from planning for themselves and doomed them to inefficiency. This article claims that planning was an intricate mechanism of negotiations between economic, political and social actors, mediated and regulated, but never actually subdued by the communist party based on an analysis of the Bulgarian 1963 reforms, largely neglected by the historians. Furthermore, the conventional account claims that the 1960’s economic reforms intended to repair the socialist economies by supplementing planning with market elements, such as profit and credit, yet the reforms were compromised by the political elite. This article claims that, on the contrary, the reforms intended to repair the socialist economic system by inscribing mechanisms of horizontal bargaining in its very core, irreducible to the vertical bargaining described by Janos Kornai.

Optimal mechanism in governmental project screening: A theory of Kornai's soft budget constraint

Soft budget constraint refers to the phenomenon that money losing inefficient projects keep on getting subsidies and operating. It was first phrased and analyzed by the late Hungarian economist Janos Kornai when he studied former socialist economies and by now, economists generally have agreed that soft budget constraint also exists extensively in market economies. As an important area of research in government and economics, existing explanations of soft budget have focused on the government's lack of commitment to terminate inefficient investment projects. In this paper, we propose a new theory in which soft budget constraint is an optimal governmental mechanism to induce greater effort in project selection. The idea is that if a manager (banker) selects a bad project, he has to keep on subsidizing it and lose more. Anticipating this, soft budget constraint makes the manager work hard to avoid choosing bad projects. Our theory sheds light on research in government and economics from the perspective of mechanism design.

ЯНОШ КОРНАЇ ТА ЙОГО ПАМ'ЯТНА ТВОРЧІСТЬ

Янош Корнаї – найвидатніший економіст соціалістичних і постсоціалістичних країн за останні 50 років. Він був всесвітньо відомим ученим, який залишив по собі величезну спадщину праць, опублікованих більш як 20 мовами. Його теорія системної нерівноваги в централізовано плановій економіці, концепція жорстких і м'яких бюджетних обмежень та економічного дефіциту мали революційне значення для наукового тлумачення процесів виробництва, розподілу і нагромадження капіталу в державних соціалістичних економіках. Особливо вагомим був його внесок у політичну економію соціалізму, курс якої він викладав у Гарвардському університеті. При аналізі соціалістичної системи Корнаї, по суті, задовольнявся описовим підходом, тоді як у працях, опублікованих після 1989 р., він акцентував увагу на нормативній економіці, пропонуючи напрями структурної реформи, інституційного будівництва і економічної політики в перехідному постсоціалістичному періоді. Велике значення має його остання книга, в якій порівнюється нерівновага, що характеризується дефіцитами при соціалізмі, з нерівновагою, характерною для надлишків при капіталізмі.Проаналізовано еволюцію теоретичної думки цього видатного економіста та її вплив на реальні економічні процеси. Надано полемічних коментарів щодо інтерпретації економічних і соціальних процесів, які відбуваються в Китаї.

Janos Kornai and his memorable work

ABSTRACT Janos Kornai was the most outstanding economist from the socialist and post-socialist region in the last 50 years. He was a world-renowned scholar who left behind an immense legacy of works published in over 20 languages. His theory of systemic disequilibrium in a centrally planned economy, the concept of hard and soft budget constraints, and economic shortage were of revolutionary importance to the scientific interpretation of the processes of production, distribution and capital accumulation in state socialist economies. Also of note is the author’s work on political economy of socialism, which he taught at the Harvard University. When analysing the socialist system, Kornai essentially contented himself with a descriptive approach, whereas in works published after 1989 he focused his attention on normative economics, suggesting directions of structural reform, institution-building, and economic policy in post-socialist transition. Also of great importance is Kornai’s last book comparing the disequilibrium characterised by shortage in socialism with the disequilibrium typical of the surplus in capitalism. This article analyses the evolution of this outstanding economist’s theoretical thought and its impact on real economic processes.

Introduction: a special issue in honoring Janos Kornai

Janos Kornai is one of the leading economists of the twentieth century. Unfortunately, his interdisciplinary, systemic approach and the Austro-Hungarian convergence on the socialist calculation debate are not explored sufficiently by public choice scholars or by political scientists and economists more generally. The essays published herein try to fill the gaps. In doing so, we start by asking: what is the specific contribution of the eminent economist Janos Kornai to our discipline? The contributions demonstrate that no unique answer to that question is possible. However, despite the diversity of responses, they all converge on one point: Kornai contributes to our understanding of the consequences of an allegedly ‘omnipresent’ state.

Commissioned editorial commentary: exchange between Janos Kornai and Amartya Sen on Karl Marx

Commissioned editorial commentary: exchange between Janos Kornai and Amartya Sen on Karl Marx

Hungary's U-turn in Kornai's system paradigm perspective: a case for national authoritarian capitalism

In an article published in 2016, Janos Kornai proposes to add a third form of governance between democracy and dictatorship to his binary model of system paradigm. It is an autocratic capitalist system, marked by the dilution of the principle of the separation of powers in favor of a strongman and an institutionalized clientelism. This paper proposes to analyze Kornai’s third modality of economic and political organization in the context of national authoritarian capitalism (NACa), a variety of capitalism with more or less severe forms of authoritarian social control and mobilization of a nationalist culture. The main characteristics of NACa, of which Victor Orban's Hungary is a significant example, are outlined and the question of the stability of that form of government is raised.

Management tools in the context of NBIC convergence

In view of the potential global human factors threats, NBIC convergence in manufacturing systems requires new, sustainable approaches to HR management. The proposed methodology is based on the systems paradigm of Janos Kornai, which is used in the framework of BigData technologies, artificial intelligence, and blockchain. The problem of control, optimization and evolution of the human factor in NBIC-production cyber-physical systems is solved by means of the developed human-oriented concept of HR-resources management, the development of which occurs in a spiral, involving exit from the system to form new meanings and concepts. Each turn of the spiral is a self-organizing system. For the current stage of development, a cyber-physical system of interaction “Man” - “Machine” is proposed, based on global and double iterative connections, parallel analysis, scenario forecasting, machine learning, cognitive component and collective decision making. The developed human-oriented concept of HR-resources management allows you to control, optimize and develop human production activities, ensure iterative self-development and self-improvement of the system, guarantee the stability and safety of the system, maximize the percentage of return on human resources and reduce the level of opportunistic human behavior.

Ekonomia niedoboru na nieludzkiej ziemi. O wspomnieniach polskich zesłańców z lat czterdziestych XX wieku do Kazachstanu

Artykuł omawia problemy szczególnego typu wymiany ekonomicznej, które pojawiły się w sowieckim Kazachstanie lat czterdziestych dwudziestego wieku – ukazuje różne aspekty tej wymiany, jej podstawy i wartości, jej jednostki i obiegi. Problematyka ta ukazana zostaje w swym wycinku, na przykładzie wspomnień Polaków przymusowo deportowanych do Kazachstanu w latach 1939–1941. Wprowadzenie ustroju totalitarnego – w jego wyjątkowej, brutalnej, stalinowskiej postaci – na terenach zamieszkiwanych przez nomadycznych Kazachów, których wymieszano z falami przymusowych przesiedleńców, wywołało bezprecedensową dysfunkcję życia społecznego, której ofiarą padli wszyscy uczestnicy wymiany ekonomicznej, w tym zesłani tam Polacy. By opisać tę sytuację, korzystam z dwóch dopełniających się konstrukcji teoretycznych: rozważań Janosa Kornaia (ekonomia niedoboru), a także Pierre’a Bourdieu (kapitały kulturowy). Tekst podejmuje rozważania nad pozapieniężnymi i niemonetarnymi środkami płatniczymi na „nieludzkiej ziemi”.

János Kornai, the Austrians, and the political and economic analysis of socialism

What is the relationship between central planning, pervasive shortages, and soft budget constraints under socialism? In this paper, we address this question by exploring the evolution of Janos Kornai’s work on the operation of real-world socialism. In doing so, our goal is to reframe Kornai’s contributions to the political economy of socialism by focusing on the epistemic conditions under non-market decision making. From this perspective, we argue that the dysfunction facing socialist economies is not one based fundamentally on a misalignment of incentives in enforcing hard budget constraints and eliminating shortages. Rather, soft budget constraints are a consequence of competition between firms in a non-profit setting, utilized as a means to monetize the control over state-owned resources through the creation of pervasive shortages.

János Kornai, the Austrians, and the Political and Economic Analysis of Socialism

What is the relationship between central planning, pervasive shortages, and soft budget constraints under socialism? In this paper, we address this question by exploring the evolution of Janos Kornai’s work on the operation of real-world socialism. In doing so, our goal is to reframe Kornai’s contributions to the political economy of socialism by focusing on the epistemic conditions under non-market decision making. From this perspective, we argue that the dysfunction facing socialist economies is not one of based fundamentally on a misalignment of incentives in enforcing hard budget constraints and eliminating shortages. Rather, soft budget constraints are a consequence of competition between firms in a non-profit setting, utilized as a means to monetize the control over state-owned resources through the creation of pervasive shortages.

The Soft Budget Constraint at 40: Alternative Perspectives on Its Origins

The soft budget constraint (SBC) is over 40 years old and may seem too well known by now to need elucidation. In this paper, I discuss its origin and its causes. The concept of the soft budget constraint was coined by Janos Kornai, but the origin of the phenomenon that the term captures deserves discussion. Here, I ask why the SBC phenomenon came into being. Kornai considers it a manifestation of paternalism toward SOEs by superior bodies that refuse to let them go under due to symbiotic solidarity with their subordinates. I contend that there are stronger reasons, reasons that inhere in the very core of the bureaucratic allocation system—the method of material balances—that cannot allow enterprises to die just because they generate losses.

Marx after Kornai

Janos Kornai chose to become an economist after reading Karl Marx’s Das Kapital. Kornai’s relation with Marx is not merely political, but also professional. Kornai “broke with Marxism” in 1956, but his relationship with Marx’s thoughts were not severed then. Kornai’s post-1956 works can be examined in the light of Marx’s ideas, dealing particularly with equity, freedom and the relation between theory and practice. Some of Marx’s own theses can be enriched interestingly by taking note of Kornai’s later writings.

ECONOMIC MOTIVES OF COOPERATION OF CMEA COUNTRIES IN RAW MATERIAL PRODUCTION (1950s - 1980s)

On the basis of archival materials of the Russian State Geological Property and Economics, the article analyzes the economic incentives for cooperation between the countries of the Council for Mutual Economic Assistance in the extraction of mineral resources. The course of the discussion on the possibility of standardizing the mutual investments of the socialist countries was reconstructed. Investment mechanisms are considered in the logic of the functioning of planned systems based on the Janos Kornai model. It was revealed that one of the key conditions for the successful implementation of projects was the possibility of increasing the inflow of hard currency for all parties involved. The individual nature of most of the implemented projects predetermined the failure of attempts to standardize this form of cooperation within the framework of the CMEA regulatory framework. Given the prevalence of bilateral relations over multilateral forms of cooperation of socialist countries, attempts to institutionalize individual forms within the CMEA framework only recorded the current situation.

Janos Kornai: a non-mainstream pathway from economic planning to disequilibrium economics

This paper first positions Janos Kornai in the controversies about the feasibility of socialist planning (Lange, Hayek). Kornai has leant in favor of Hayek???s thesis contending that, without an actual market price system for conveying information to those who can beneficially use it, a socialist economy is impracticable. The paradox is that Kornai worked at the Computer Centre of the Hungarian Academy of Sciences in relation with the Planning Institute of the National Planning Office and conceived an algorithm for decentralized two-level planning, i.e., the best improvement ever brought into Lange???s model of market socialism. This is due to Kornai being also involved in actual dysfunctions of central planning in Hungary (shortages) that he eventually theorized with disequilibrium modelling in his Economics of shortage. However, the latter departs from standard disequilibrium economics (Barro???Grossman) which has been joined by most former planometricians (such as Malinvaud for instance). Eventually Kornai adopted a more institutional approach for his recommendations as regards post-communist transformation into a market economy with a Hayekian flavor, in particular his support to an organic development of a privately-owned sector within a gradualist process instead of mainstream-supported overnight privatisation. His recent analysis of capitalism as a surplus economy shows the continuity of his non-mainstream view of disequilibrium over five decades. All this makes Kornai an original front-running researcher and breaking-through analyst, though somewhat paradoxical, and a quasi-heterodox economist, one foot in and one foot out of the mainstream.

Kornai goes to Kenya

Janos Kornai developed soft budget constraint logic to explain the socialist world’s dysfunctional economies. We extend his logic to explain dysfunctional land reform in the developing world. International development organizations such as the World Bank provide support for land privatization to developing-country governments, softening their budget constraints. Softer budget constraints encourage developing-country governments to pursue land privatization even when its social value is negative. Kenya’s land reform program illustrates the soft budget constraint syndrome.

Kornai’s Overcentralization and naïve empiricism

This paper addresses Janos Kornai’s early work on the socialist economy as summarized in his first book, Overcentralization in Economic Administration. In this context, I discuss the parallel research of the 1950s by American scholars, such as Joseph Berliner, David Granick, Gregory Grossman and Eugene Zaleski, who used similar methods and arrived at similar conclusions. Kornai found little evidence of comprehensive planning. Instead, he determined that the planning system consisted of quarterly gross output orders that could readily be manipulated by managers and had to be fulfilled at any price. Kornai’s Overcentralization already contained the seeds of Kornai’s later key findings of the dysfunctionalities of socialist planning; namely, soft budget constraints and the shortage economy. Kornai’s most important finding was largely overlooked throughout the socialist world—that the planned economy could not be reformed by partial measures.

Socialism and Kornai’s revolutionary perspective

In this paper, I argue that the principal message of Janos Kornai’s work was to underscore that the dysfunctional properties of socialism are endemic and systemic, and cannot be “reformed”. In a sense, Kornai’s role was similar to the French Encyclopedists in preparing the ground for France’s 1789 revolution. Kornai’s intellectual contribution was to formulate a revolutionary discourse emphasizing the sterility of half-measure, cosmetic changes, and reform packages. His conclusion was based on two foundations: (1) the unity or what Kornai calls the ‘coherence’ of socialism as a system, and (2) rejection of market socialism as hopelessly confused. Accordingly, reforms would introduce inconsistencies at best, without solving socialism’s chronic problems. Moreover, the inconsistences of the half-measures would erode socialist systems, inevitably leading to revolution. This paper will examine Kornai’s two tenets of revolutionary discourse and his final conclusion in light of Hungarian economic reforms that started on January 1, 1968.

The economy of excess versus doctrine of quality

A review article devoted to the book of Andrzej Blikle – Doktryna jakości. Rzecz o skutecznym zarządzaniu. As pointed out by the Author, the book is a case of a work rare on the Polish publishing market, written by an outstanding scientist, who successfully runs a business activity. The combination of practical experience with theoretical knowledge gave a result that may be satisfying both for practitioners as well as theorists, and also those who want to get to know the ins and outs of an effective and efficient business management. The Author of the review believes that it is an important voice for shaping an inclusive socio-economic system, which constitutes a value in itself. Although the book is mainly concerned with business management, its message has a much wider dimension and is concerned with real measures of wealth, money and people’s lives. The book was awarded The SGH Collegium of Business Administration Award “For the best scientific work in the field of business administration in the years 2014-2015”.

Soft Budget Constraints and State Capitalism

Why are inefficient state-owned enterprises (SOEs) failing to be privatised? This paper takes the concept of the soft budget constraint (introduced by Janos Kornai) and applies it to state capitalism – that is, where the state owns major production assets but doesn’t interfere in price setting directly. It finds that bureaucrats supervising the failing enterprises prefer to keep them afloat and gamble on their resurrection; in contrast, privatisation would involve acknowledging the bureaucrats’ and SOEs’ failures. This preferential treatment of SOEs creates a competitive advantage against private firms and explains why, in state capitalism, privatisation may result in lower rather than higher productivity and therefore remain unpopular. This paper has been prepared for the special issue of Acta Oeconomica in honour of Janos Kornai.