CEU DI-Corvinus-Harvard Symposium: János Kornai’s Holistic Political Economy

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Rationale and Objectives

János Kornai (1928-2021), a towering figure in political economy, lived through the horrors and triumphs of the long 20th century, which inspired his deeply held belief in the causes of freedom and human rights, as well as the system aspiring to ensure these – the combination of liberal democracy and market economy. His interdisciplinary approach to social sciences, the system paradigm, have influenced economists, political scientists, and sociologists alike.

CEU Democracy Institute, Corvinus University of Budapest, and Harvard University – three institutions, which had developed strong intellectual and emotional bonds with Kornai – jointly organize the symposium, which aims to revisit some of the highlights of his oeuvre to find methodological guidance to address complex, real-world problems of our turbulent times and to continue Kornai’s intellectual legacy.

The conference aims to lay the foundation of a future János Kornai Research Institute by bringing together various generations of scholars, who have been influenced by his work. The organizers are looking forward to welcoming established and young scholars as well as encouraging an open, pluralist, and diverse atmosphere at the conference.

Students in Europe can apply for bursaries to defry travel/lodging costs — use the same OpenReview.net page as for abstract submission.

The symposium will be held in Budapest on May 15-16 2023 (hybrid format).

Short abstracts (200 words max) are to be submitted at OpenReview.net by April 15 2023, with full papers due some time TBD after the meeting.

These will be fully refereed, with selected/revised papers to appear in a special issue of Acta Oeconomica. Submitters please indicate in the “Keywords” line of the submission form which of the four section themes fit best their contribution, and the “tl;dr” section (students only) to apply for financial support.

Click here to REGISTER!

Organizers: 

LOCATION:

Schedule

May 15 Monday morning 9:00-12:30 Corvinus University (Area chair: Péter Mihályi) 

9:00-9:05 Előd Takáts: Introduction 

9:05-9:30 KEYNOTE Chenggang Xu: The totalitarian turn in China and its future prospects 

At the end of his life, Kornai was profoundly concerned and felt a sense of personal guilt for the totalitarian turn in China. Until the latest set of bad economic news, China seems to have contradicted Kornai’s insight that Socialism cannot be reformed. Is there a third way? Were the libraries of literature claiming and substantiating the inefficiency of state intervention in the economy misguided? Can an increasingly totalitarian state sustain technological innovation in the long run? What are the prospects for the continued rise of China? Are we witnessing the emergence of Cold War 2.0? 

9:30-9:50 Péter Mihályi: The role of dichotomous structures in the thought system of János Kornai 

The most significant and probably the most lasting concept of János Kornai’s oeuvre is the shortage economy theory as it was presented in Anti-equilibrium more than fifty years ago – the anti-mainstream proposition according to which modern economies are never in equilibrium. On the markets of goods and services, the aggregate demand is either significantly higher or significantly lower than the aggregate supply. This assessment of the situation and the underlying theory were met with sharp criticism from the beginning. Many people – firstly Czechoslovak and Polish authors – dismissed Kornai’s ideas by saying that there really is no dichotomy (duality). In the modern age, there are only well-functioning (meaning: normal) market economies and poorly functioning market economies. The so-called socialist economies were in fact mismanaged market economies, where ultimately there was only one problem: the state manipulated the price system. 

After the regime change in 1989/90, shortages disappeared everywhere, unexpectedly quickly. But it was also an unexpected development that the institutions of liberal democracy have not develop in a number of countries and/or collapsed after a short period. Regarding Hungary, Kornai issued an emergency signal at the turn of 2010/2011. He was the first who said the Orbán regime turned the country into an autocracy in barely a year. The second part of the present study examines whether Kornai’s dichotomous view that there are only two political systems – democracies and autocracies – is adequate for the entire range of post-socialist countries. The author’s answer to this question is negative. 

9:50-10:10 Bálint Madlovics: The Relational Economy (1): From Kornai’s System Paradigm to a Structured Approach to Post-Communist Economies 

In “The System Paradigm Revisited,” János Kornai argued for the conceptual distinction of “autocracy” from “democracy” and “dictatorship” to have an ideal type for the analysis of the specificities of post-communist political systems. This presentation follows up on that idea in two ways: it presents how Kornai’s conceptual triad may be doubled into a six-regime typology, using the category of informal patronalism; and it argues – parallel to Kornai’s conceptualization of autocracy – for the conceptual distinction of “relational economy” from “market economy” and “planned economy” to have an ideal type for the analysis of the specificities of post-communist economic systems. The presentation offers an overview of the dominant types of coordination mechanism (as Kornai calls them) in the three ideal types of economy: regulated market coordination, where the state defines normative boundaries for free competition; bureaucratic-resource redistribution, where the state defines ownership structure and production structure; and relational-market redistribution, where the state defines the ownership structure with secondary effects on the production structure. 

10:10-10:30 Bálint Magyar: The Relational Economy (2): Corruption, Predation, and Proxies in Post-Communist Economies 

Describing the socialist system, Kornai identified “bureaucratic coordination” as a dominant mechanism that places the economy on a qualitatively different foundation from market economies. In a similar manner, the nominally capitalist regimes of post-communist countries can also be understood only if we identify their own qualitatively different coordination mechanism. This presentation focuses on this mechanism, termed “relational market-redistribution” that constitutes a relational economy. First, instead of buyers and sellers in a market transaction, we can observe predators and prey in the process of centrally-led corporate raiding (“reiderstvo”). Second, instead of capitalists whose de jure and de facto property rights coincide, we can observe oligarchs and front men whose de jure property is de facto under the control of their superior patron in the informal patronal network. Third, instead of using direct indicators to assess economic structure in terms of private and public ownership, “indirect indicators” or proxies are needed to analyze the situations of power & ownership (vlast & sobstvennost). The case of Hungary after 2010 will serve as an example for an economy that functions on the basis of neither (private) entrepreneurial considerations nor (public) state incentives but the interests and dynamics of an informal patronal network that controls and uses in a targeted, discretional manner the instruments of public authority. 

10:30-10:50 Miklós Losoncz: The global conditions of China’s economic development: how does globalisation affect China and China globalisation? 

In the past few years, not only China’s economic development has undergone significant changes but due to the recent non-economic shocks such as the Covid-19 pandemic and Russia’s war against Ukraine, its global external environment as well. The primary objective of this paper is to identify the future trends in globalisation and their impact on the prospects for China’s economy and the room for manoeuvring of its economic policy. The driving principle is to what extent the external economic environment support or restrains avoiding the middle-income trap in China. The analysis comprises issues and areas such as the softening of the rules-based world order, security and trade policy, sanctions, export and import controls, trade in goods and services, capital flows including foreign direct investments, commodity prices, etc. Since China is not only a rule-taker but simultaneously a rule-maker, the secondary objective is to identify China’s probable impact on globalisation. The nature of the paper is impact analysis based on quantitative and qualitative methods. The conclusions are future-oriented. It is assumed that there is a research gap in the systematic mapping of the external economic environment on China’s development from the point of view of the middle-income trap. 

10:50-11:10 Coffee Break

11:10-11:30 Alice Trinkle: Reinventing Socialism. Kornai, Wu Jinglian, and the global socialist reformers’ network 

János Kornai was an influential voice of the liberal script from Budapest to Beijing. Kornai and his disciples within the socialist world envisioned a systemic transformation in their respective home countries and developed a holistic political economy for the (post)socialist world. In my PhD project on Chinese-Eastern European exchanges on (economic) reforms, I show that Kornai was only one among many reform minded economists advancing such an agenda. They established a network of reformers in the socialist world. I argue that whilst Hungarians experienced a systemic transformation, Chinese debates around reform socialism were suppressed with Tiananmen in 1989; leading to the development of a new type of socialist system in China. Hence, I proof that rather than being a post-1989 import from the West to the (post-)socialist world, liberal ideas existed and were exchanged from Eastern Europe to East Asia long before 1989. This led to a transnational debate on how to implement market principles in communist countries. On the symposium, I plan to introduce my PhD project with a substantial focus on the academic friendship between Kornai and Wu Jinglian, one of the most influential advisors of Chinese market led reforms pre- and post-1989. The focus of my presentation will be the post 1989 influence of both Kornai and Wu, which will also form a subchapter of my PhD’s 5th chapter. Opposite to many of his reform-minded disciples, Wu remained influential post 1989, as he had reduced his reform advice to purely economic matters. Kornai, on the other hand, had travelled regularly to China from the mid-1980s to act as an academic advisor on market-oriented economic reforms. Later in his life, he came to regret his advice, as shown by his “Frankenstein” article in 2019. However, as I will show Kornai was one among many Eastern European reformers exchanging with Chinese partners on marketisation in socialist contexts, being drawn to China by historical processes. 

11:30-11:50 András Tóth: The Strange Case of Distorted Soft-Budget Capitalism and the Sweet-Sour Position of China in the World Economy 

Kornai developed the concept of soft-budget constraints (SBC) to understand socialism. Kornai in 2014 argued that SBC is a syndrome (SBCS) and inherent disease also in capitalism affecting also central government. SBCS also a social relation with effect of power and subordination. Kornai argued that SBCS shall be one of the most important future research topics. The presentation will extend the concept of SBCS to the area functioning of the international monetary system (IMS). It was created a distorted IMS centered on USD in 1944. Building on insights of Wicksell, Schumpeter and Rueff the paper argues that USD based IFS is sour-sweet system, as it allowed: (i) entrepreneurial boom, military building to win the cold war, and the expansion of welfare state, and (ii) extraordinary SBC to US government, and distorted power relations among states, which involves exploitation. The rise of China was to a certain extent consequence of the distorted IFS as it allowed a heavily distorted balance of trade favoring re-industrialization of China and de-industrialization of US. This inbuilt distorted relationship was also a sour-sweet relationship, offering advantages and disadvantages for both countries for decades. The shifting geopolitical balance of power between these two nations, however, has led to major political crisis and threatening to split the world economy into warring camps. The paper argues that IMS needs a re-thinking to reduce SBCS and to restore a more balanced relationship among nations. 

11:50-12:10 Dániel Pop: An exploration on the autocratic political systems stabilization under the Recovery and Resilience Facility (RRF) of the Next Generation EU (NGEU) program 

In this paper, following Darvas’s (2022) approach, we investigate the extent to which newly developed autocratic political systems in the EU benefit from the fiscal stabilisation effect of the stronger redistributive function of the Recovery and Resilience Facility (RRF) of the Next Generation EU (NGEU) program. Kornai (2016) defined autocracies as political systems in which “the government cannot be removed through peaceful and civilised procedure”. NGEU program stands out in formulating common objectives at the level of the European common economic area, the fiscal scale of the program, as well as the conditionality mechanisms associated with accessing available fiscal resources. To assess the possible effects of the conditionality system of the new NGEU mechanism design of Eu level fiscal redistribution, we study government stability and reforms in failed democracies of the Eastern European part of the European Union. We conclude that the lack of political conditionality in the NGEU program, and its RRF component, can be associated with an unintended effect of reinforcing autocratic political messaging on the sustained attempts of external agenda-setting attempts to weaken locally successful democratic regimes. Furthermore, through the fiscally stabilising effect of the NGEU’s RRF, autocratic political systems benefit by furthering the demand for autocracy as an overall political system across focus countries. Thus, we find evidence in line with the results of Armingeon et al. (2022), who argued that the optimism on the policy innovation of the NGEU program is misplaced as the NGEU-based RRF is primarily an ex-ante intervention based on pre-crises economic conditions and the economic effects of crises. 

12:10-12:30 Gregorz Kołodko: Contemporary social and political mega-crisis and the goals of economics 

Contemporary economic thought does not deal suitably with the tasks it faces. Neither does it provide a satisfactory explanation of the socio-economic reality, nor does it propose effective methods of solving the mounting problems, especially at the macroeconomic level, in the national economy, and in the mega-economic level, in the world economy. The beyond-GDP reality requires a beyond-GDP economic theory on which a triple balanced – economically, socially and ecologically – beyond-GDP development strategy must be based. It is necessary to formulate anew the goal of economic activity, which cannot be a simple maximization of profit and a quantitative increase in production. The short-term interests of private capital should be subordinated to the long-term public interests, which is to be fostered by appropriate reinstitutionalization of the market economy. The economics has to be more oriented towards addressing the future challenges, and not mainly be inspired by conclusions drawn from observations of past events, which is often of little use in economic policy and development strategy. The new pragmatism is needed. 

12:30 – 14:00 Lunchbreak in Building E Hall

May 15 Monday afternoon 14:00-17:30 Corvinus University (Area chair: Attila Chikán) 

14:00-14:05 Előd Takáts: Introduction 

14:05-14:30 KEYNOTE Eric Maskin: Theory of socialism and capitalism 

Kornai’s main contribution to political economy is the holistic analysis of the socialist system. Later in his life he applied his conceptual apparatus to analyze capitalism contrasting the two systems as shortage economy vs. surplus economy. How can we capture the variety of 21st century capitalisms in a holistic manner? How does Kornai’s analysis relate to other schools of thought about socialism and capitalism? And, finally, are the terms and mechanisms of both (ideal) types such as soft and hard budget constraint helpful for making sense of the contemporary crises of global capitalism: the crisis of human reproduction and its reliance of unpaid female care work; the crisis of environment and depletion of nature’s (currently weaponized) resources; and the stresses and strains of global finance. 

14:30-14:50 Ádám Kaiser, Peter Leeson: Irrational Rationality: Kornai’s Existential Choice 

Kornai’s decision to break with Communist Party and “adopt the model of rational choice” as his “main conceptual framework” was, according to him, inspired in part by his readings of Sartre and other existential philosophers on the centrality of human choice. We provide a synoptic view of how the concept of choice in rational choice theory aligns with salient themes in existential thought. That view illustrates how the rules for generating rational choice explanations remain meaningful independent of the Neo-Kantian foundations with which they’re often associated. Kornai’s example highlights the ecumenical potential for rational choice theory in the social scientific community. 

14:50-15:10 Mehrdad Vahabi: Kornai and the System Paradigm: Theory and Implication for the Socialist System 

From his PhD thesis on Overcentralization (1956) until his latest works on Political Economy of Communism (1992) and Dynamism, Rivalry, and the Surplus Economy (2013), Kornai explores socialism and capitalism as two variants of ‘grand systems’. Systemic approach is Kornai’s method of analysis. However, systemic approach is not understood the same way in his long academic career. In Kornai’s theoretical framework during the seventies, general equilibrium theory was considered as a ‘system theory’ since it could permit to compare economic systems in a politically neutral approach. However, he later opposed general equilibrium theory to systemic approach because of its political neutrality and argued that systemic approach should include political-ideological factor as the first fundamental institution. His analysis of grand economic systems evolved from political neutrality to political centrality. My talk will be focused on Kornai’s evolution with regard to systemic analysis of socialism and capitalism. 

15:10-15:30 Zsófia Hajnal: „Celestial” Snapshots: Moral Economic Revisitations of János Kornai’s The Socialist System 

Significant parts of the work of the great economist and economic visionary János Kornai function as a magnifying glass in economic theory, philosophy and history. Kornai has examined economic systems and system-mixes with substantial detail, for then being able to focus his audiences’ attention on the most relevant and critical aspects of them. One of Kornai’s masterpieces, The Socialist System – a book that has recently passed its thirty-year publishing anniversary milestone – is such a political economic lens on communism. I am attempting a concise conversion of this magnifying glass – to apply a Galileian metaphor – into an economic telescope. In other words, I am adding another economic lens – that of moral economics – to the Kornaian viewpoints. In a short analysis going through various dimensions of The Socialist System, I am coupling Kornai’s thoughts with moral economic ideas, both from the classical and the contemporary moral economy streams. The goal with this exercise of respectfully refreshing a toolkit and style of economic analysis is to then gaze into, and partially describe a potential multitude, or spectra of economic systems, which may manifest in econodiversity. 

15:30-15:50 Peter Boettke, Rosolino A Candela: 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 János 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 frms in a non-proft setting, utilized as a means to monetize the control over state-owned resources through the creation of pervasive shortages. 

15:50-16:10 Coffee Break  

16:10-16:30 Béla Greskovits: Kornai and Polanyi: Tracing an Intellectual Kinship 

Grounded in a close reading of János Kornai’s and Karl Polanyi’s signature studies, the paper demonstratres that despite the different spatial and time frames of their work, their conceptual frameworks share important similarities. It is argued that such intellectual kinship is rooted in these authors’ holistic research agenda, which tries to grasp the logic of socioeconomic systemic „whole” prior to and as a condition of understanding individual behavior. Methodological holism, the argument goes, helps to explain other shared features of Kornai’s and Polanyi’s research programs. These include, respectively: a) their primary interest in clear or (Weberian ideal) types of the market system and classical socialism versus the different (even secondary) analytic status of unstable „mixed economies” within both the capitalist and socialist type; b) the interdisciplinary orientation of their work; and c) indeed, their essentially political theories of capitalism and socialism. Their holism, however, might be responsible for shared blind spots, too. For example, the focus on the logically coherent clear types might lead to downplaying the superior contribution of volatile hybrids, such as welfare capitalism or market socialism, to the quality of human life. 

16:30-16:50 Zsolt Gilányi: A contribution to the debate on the systemic properties of monetary production economies from a Kornaian perspective 

Different economic systems have different systemic properties. The systemic property of the sign of the aggregated product market excess supply defines three categories: economies of shortage, product market equilibrium systems, and product market excess supply systems. In both A hiány (1979, The Shortage) and The Socialist system, Kornai (1992) showed that socialist production plans, postulated with the aim of realizing input-output plans, imply economies of shortage. Mainstream economics showed that in market economies, business plans postulated with the aim of realizing profits imply the property of product market equilibrium systems. In the Anti-equilibrium Kornai (1971) argued that the profit maximization rule has more drawbacks than advantages for economic theorizing. Recent advances in heterodox economics suggest that the real problem is not the maximization rule, but the profit aim itself. The business plans postulated with the aim of realizing strictly positive net retained earnings exclude the property of the product market equilibrium systems; these business plans imply the property of product market excess supply systems. We show that the property of the product market excess supply system manifests itself in both the realization problem and the nominal growth imperative, while these phenomena are absent in product market equilibrium systems. 

16:50-17:10 Zsolt Ződi: Internet platform as a new coordination mechanism – rethinking Kornai’s theory 

Though Kornai’s theory of coordination mechanisms is perhaps not the most well-known part of his oeuvre, it plays a key role in “The Socialist System” and Kornai devoted an entire chapter to it. In my presentation, I try to think Kornai’s theory further and supplement his main types with a new one, “algorithmic coordination”. I argue that Internet platforms, which Julie Cohen calls “the core organizational logic of the informational economy”, and Stark and Pais “distinctive organizational form”, can be placed among Kornai’s coordination mechanisms. In my presentation, on the one hand, I will highlight the literary background of the coordination mechanism and the platform as a specific coordination mechanism, and on the other hand, I will briefly analyse how this new coordination mechanism affects the functioning of the others – how does it replace, complement, or simulate their operation, and what kind of social, and regulatory consequences these interactions can have. 

17:10-17:30 Wladimir Andreff: From decentralised planning to disequilibrium economics: Janos Kornai’s dilemmas 

Janos Kornai’s economic analysis was extremely rich because he was inspired by various intellectual trains of thought from Marx to neo-classical economics with some pathways through Hayek, post-Keynesians and institutionalist economists. Thus, Kornai could not avoid meeting some dilemmas that I would pick up a few. (1) The planner’s dilemma; (2) The shortage dilemma; (3) The short-side rule dilemma. In conclusion, I will discuss the “systemic dilemma”. 

May 16 Tuesday morning 9:00-12:10 CEU Democracy Institute (Area chair: Mihály Laki) 

9:00-9:05 László Bruszt: Introduction 

9:05-9:30 KEYNOTE Gerard Roland: Empires, Nation States and Democracies 

We analyze different political regimes (empires, nation states and democracies) in a number of institutional and economic dimensions: tendency towards geographical expansionism or fragmentation, cultural heterogeneity, focus of public spending and a number of other variables. We use this setup to analyze the coexistence and interactions between empires, nation states and democracies. While these interactions are source of instability, we argue that modern economic development tends to doom empires that were once the dominant form of political regime in history. 

9:30-9:50 Karen Eggleston: Kornai’s Behavioral and Institutional Insights about the Role of the State: Theory and Application to the Health Sector in China, India, and the US 

Providing citizens with effective and resilient health services, and other services such as education, often entails government financing and private provision or other forms of public–private collaboration. Governance arrangements must confront a range of ethical challenges, including assuring social solidarity while promoting individual sovereignty and choice (Kornai and Eggleston 2001). Drawing on Kornai’s insights regarding the behavioral and institutional mechanisms underpinning such pervasive phenomena as the soft budget constraint and limited innovation under public ownership, this paper explores the theory of the “proper scope of government” (Hart, Shleifer, and Vishny 1997) in the health sector compared to education, when the continuum of publicly-funded services includes those with large ex ante relationship-specific investments as well as services with substantial scope for ex post aggrievement and quality shading (Hart and Moore 2008, Hart 2009). We summarize a range of stylized facts consistent with the theory (Eggleston 2023), focusing on the three most populace economies – China, India, and the US – and discuss the enduring legacy of Kornai’s intellectual contributions for understanding local public goods “islands of shortage” within market-based economies. 

9:50-10:10 András Simonovits: Unexpected Inflation and Public Pensions: Hungary, 2010–2023

János Kornai was always the defender of reasonable public economic policies, including appropriate monetary and fiscal policy on the one hand and fairness on the other hand. Though he had written very little about pensions, he would have criticized the current Hungarian pension policy for its autocratic and populist features. In the present lecture I will `follow’ him and criticize the Hungarian government (including the Hungarian National Bank) for creating the highest inflation in the EU and sticking to pension policies which are inappropriate in such an environment. We shall confine our attention to the impact of unexpected inflation on public pensions in Hungary, between 2010 and 2023. 

Public pensions are indexed to prices or wages; therefore, the impact of inflation on the real value of benefits can often be neglected. At high and accelerating inflation like prevailing in current Hungary, however, this is not the case. (i) To keep the intra-year variation of the benefits’ real value, annual raises should be replaced by quarterly or even monthly raises. (ii) With fast inflation of basic necessities, proportional indexation should be supplemented for the beneficiaries of the lowest benefits. (iii) With accelerating inflation, the real value of initial benefits should be preserved against delayed retirement. (iv) To make the progressivity of the initial benefits independent of inflation, the progressivity bending points should be indexed. 

10:10-10:30 Edina Berlinger, Katalin Dobránszky-Bartus: Modern pillories: Overdue debts of the poor 

We model the consequences of the soft budget constraint in the case of non-performing retail borrowers and derive the feasibility conditions for private and public debt relief programs. Our main result is that lenders have no interest to offer payment reductions if nonperforming borrowers are few, have small debts, and are difficult to reach – precisely the characteristics of the poor. In this situation, poor debtors serve better as deterrents, similarly if we put them into a pillory. We calibrate the model parameters to survey data on poor households struggling with overdue debts in small villages in a disadvantaged rural region in Hungary. We find that in normal economic circumstances, private debt relief programs are not feasible. State intervention can be justified by positive externalities and moral considerations. 

10:30-10:50 Eszter Kazinczy: Kornai’s ‘Main Line of Causality’: The Case of Communist Albania and SFR Yugoslavia, with a Special Focus on their Banking Sectors 

Based on the structure of János Kornai’s ‘main line of causality’, two unique country cases are compared within the former European communist bloc: Albania and the Socialist Federal Republic of Yugoslavia. The research provides a qualitative comparative analysis with an overview of the two countries’ development between World War II and the fall of the communist regimes. Special attention is paid to the period following the 1970s as the underlying reforms had been implemented in Yugoslavia by then, leading to fundamentally different communist prototypes. Regarding differences, the analysis also gives an insight into the structure of the two respective banking systems. Kornai’s ‘main line of causality’ provides the framework for the current research, supplemented by the respective literature. The analysis concludes that despite the fact that all blocks of the causality line differed in the two systems, similar challenges had to be addressed during the transition period. Furthermore, Albania and the successor states of Yugoslavia reflected a range of common characteristics, which implies the relevance of path dependence. 

10:50-11:10 Coffee Break

11:10-11:30 Ádám Kerényi: Kornai’s concept “soft budget constraint syndrome” revisited from the war finance angle 

János Kornai coined the term soft budget constraint syndrome (SBCS) 50 years ago during the era of cold war. He borrowed the expression “budget constraint” from the terminology of microeconomics, the expression “syndrome” from medicine. According to the theory the budget constraints could be “harder” with the capitalist or “softer” with the socialist system. There is a need to distinguish SBC-event (single bailouts of single troubles) and SBC-Syndrome. Kornai when revisited his system paradigm, he also compared the hardness and softness of autocracy and dictatorship. I claim that Russia was a dictatorship prior the invasion on Ukraine. My arguments will focus on the war finance from the SBCS angle. I will also analyze the expectations of the sanctions. I will coin the term Too “army to fail”, when not the financial sector but the defense industry could count on rescues. My main contribution would be to emphasize the importance of the values. The ultimate danger is that due to the SBCS in the war finance the reckless spending becomes the new normal, which might replace monetary and fiscal responsibility. 

11:30-11:50 Éva Krenyácz, Éva Révész: Healthcare managerial roles in a centralized system: does “freedom of managerial choice” exist? 

After a long period of decentralisation efforts, a potential new paradigm of (re)centralisation emerged in the healthcare sector, and the role of the central government had begun to strengthen in several countries (Saltman, 2008). Centralisation of the hospital sector started in Hungary in 2010: ownership of hospitals has been transferred from local governments to the state level, a new central supervising agency has been set up, and in 2020 Ministry of Interior took over the role of the maintainer and owner of the Hungarian hospitals and the “quasi-military organization” further centralized the minimal remaining organizational, micro-level autonomies. 

The paper examines what management functions are left in the hands of hospital managers and how (not) they can use them by analysing the relationship between the tools of management and control in centralized healthcare hospitals. RQ: How do the strengthening of centralization and the reduction of autonomy affect organizational decision-making in the case of hospitals? The document analysis and managerial interviews were made at two selected times (in 2014-2015, after the first powerful centralization process, and in 2022-2023, during the pandemic crisis which was used to push reforms affecting physicians through the system). As a result of the research, we present how the instructions are transformed into top-down and over-regulated solutions (e.g., in the case of the lack of professionals (doctors, nurses), the authority assigns the human resources to a given territory, instead of using motivation mechanisms or local help.) The local-level solutions are relegated to the background and the politics believes in the administrative, centralized data request, and manual control. 

May 16 Tuesday afternoon 14:00-17:10 CEU Democracy Institute (Area chair: László Csaba) 

14:00-14:05 László Csaba: Introduction 

14:05-14:30 KEYNOTE Bruno Dallago: The return of Economic Systems — János Kornai’s contribution to the analysis of economic systems

The grand and complex systemic perspective that János Kornai masterfully contributed to develop went in the background of the profession with the end of the socialist system. Kornai profoundly contributed to place the economic system to the center of economic analysis. His multidisciplinary system paradigm approach is fundamental for understanding and analyzing the variety of economic solutions and its consequences. Kornai’s approach is scientifically based and provides a fruitful opportunity to further develop and apply it to the most fundamental economic issues, such as explaining the different performance and strength of different economies. Although analyzing single institutions is important, a more complete and coordinated approach is irreplaceable. The inclusion of a multidisciplinary perspective allows to account for the real behavior of economic and social actors. It can also explain the resilience of economic systems and of economies in spite of their apparent inefficiency when compared to the standard „best practices” of economics. In this perspective, comparative economic systems can give economics a deeper explanation of how different economies work and evolve, thus overcoming the limits of the neo-liberal approach in explaining the working of the different economies.

14:30-14:50 Dóra Győrffy: Forced vs. harmonious growth in building a European battery industry 

The European Union set the target date of 2035 to stop selling internal combustion engine (ICE) cars. Given the competition from the US and China the EU envisions substantial amount of state aid for this purpose. The setting of quantitative targets as economic policy goal eerily resembles the planning processes during the Communist regime. Does it work better this time? The paper answers the question through using the theory of János Kornai on forced vs. harmonious growth, which was published in 1972 providing an early elaboration of the conditions of sustainability. It argues that the excessive focus on a single target brings substantial disharmony into the economy and ultimately provides worse long-term outcomes than following more moderate objectives on a wider set of indicators. 

The second part of the paper applies the theory to the state-led project of building a European electric vehicle (EV) battery industry. It contrasts the illiberal industrial policy of Hungary with the network-based approach by Sweden. It calls attention to the dangers of homogenous treatment by the European Union of the two models for producing EV batteries, and elaborates on a set of institutional preconditions, which can prevent the forced misallocation of resources in this sector. 

14:50-15:10 Zsolt Havran: When Kornai plays football – How did the soft budget constraint appear in sport and why the public development of Hungarian football is special? 

The aim of the research is to demonstrate the applicability of the soft budget constraint (SBC) (Kornai, 1986) in the field of professional sport and to show why the Hungarian system of sport subsidies is unique. In European professional football, sporting performance is mostly prioritized over financial performance (Frick, 2007). This feature of professional football gives rise to special financial challenges for football clubs. In connection with these challenges, several sport economists (Andreff, 2015; Storm & Nielsen, 2012) have applied the SBC theory (Storm, Nielsen & Havran, 2022). We will first present a comparison of football in nine Central and Eastern European countries by collecting sport and business related data (Havran & András, 2022), and then describe the support system (direct and indirect state subsidies) in Hungary, where the government has created the financial conditions for football’s development. However, this financial development has taken place independently of the market and almost exclusively with public funding. This in turn has created an abundance of money in Hungarian football without the need for performance. Public funding of professional football is not achieving its economic policy objective – social welfare is not improving. On the contrary, it causes significant damage and represents a heavy fiscal cost. 

15:10-15:30 Attila Gáspár: Print it yourself! – Grassroots efforts against misinformation 

Can increasing access to independent information sources pierce the authoritarian information space? In this paper we ask this question by looking at the case of Hungary. We study the electoral impact of a grass-roots movement (Nyomtass te is, or “Print It Yourself” in English) that distributes printed newsletters to small towns and villages in rural Hungary. These newsletters compile politically relevant news stories from independent media outlets that were mostly hushed up by the mainstream pro-government media ecosystem. We use one data set on settlement level distribution data and another on geo-referenced delivery routes to show that the newsletter had a small but considerable positive effect on opposition support and turnout during the Hungarian national election of 2022. In our preferred specification a fully canvassed precinct was expected to have +2.2 percentage points of opposition vote share compared to one where the newsletter was not distributed at all (within-settlement). The coefficients on newsletter distribution in some specifications are an order of magnitude smaller than the coefficients on opposition campaign efforts, suggesting that the (lack of) on-the-ground visibility of opposition politicians was probably a larger factor in shaping the election result (a resounding win for Fidesz), than the public’s access to news stories. 

15:30-15:50 Csaba Fazekas: Potential Appendix to János Kornai’s ‘revisited system paradigm’ 

János Kornai published an interesting and important paper in 1999 about the ‘system paradigm’, and another in 2016 about the ‘system paradigm revisited’. In the last one he made a theoretical approach for differences between democracies, autocracies and dictatorships; made a typology for the most important elements for characterization of different political systems. 

In the second half of the 2010’s a debate has started among political analysists, public intellectuals and journalists, how we can characterize the new political system of Hungary led by Viktor Orbán. We can read detailed analyses about ‘hybrid regime’, ‘limited democracy’, ‘illiberal democracy’, ‘plebiscite leader democracy’ etc. In my presentation I should like to deal with the question of different political systems in general, and – on the experiences of the debates about the current Hungarian system – I should like to think forward Kornai’s model. Kornai pointed out ten elements for characterization (the questions of removable governments, opposition parties in parliaments, elections, civil society, freedom of press etc.) – I should like to differentiate ten new potential elements, especially form the side of the political ideas, historical backgrounds and other viewpoints. 

15:50-16:10 Coffee Break

16:10-16:30 István Ábel, Katalin Mérő: Endogenous money, bank regulation and the soft budget constraint (SBC) 

Most of the money in circulation is created by commercial bank lending. The state also creates money by printing cash, but this represents only a small fraction of the money in circulation. A key observation of endogenous money theory is that banks create deposits (money) by lending. They apparently face soft budget constrain in responding to demand for credit. Nevertheless, there are several limiting factors, which are able to make the banks’ money creation somewhat constrained, i.e. make their budget constrain hard. Such factors include bank regulations (the capital and liquidity requirements) and the need to preserve bank profitability. Previous literature on SBC in banking see the government bailouts, central banks LoLR policies, or the poorly informed depositors who over-finance banks, as reasons for SBC for banks. Taking endogenous money theory as a starting point, we use a different approach. We analyze whether the tools that aimed to keep the bank’s budget constrain hard are appropriate for this task or not. Our analysis, as well as lessons from several recent bank crisis episodes suggests, that under current banking regulation the SBC is an inherent feature of banking. 

16:30-16:50 Attila Gáspár, Győző Gyöngyössi, Balázs Reizer: Patronized Agents: Workfare and Clientilism in Hungary

Conditional government transfers to citizens distributed at the local level can turn elected, independent local elites into clientelistic vote brokers of the party controlling national government. We present this idea in a simple model and test its predictions using a large workfare program in Hungary. We show suggestive evidence that workfare is more prevalent in places where the ruling party (Fidesz) needs more votes ex ante, and quantify the total electoral impact of the workfare program during the 2014-2019 national and local election cycles using difference-in-differences and instrumental variables strategies. Our model gives a testable prediction to discern clientelism (exchange of political support for alienable private benefits) from electoral politics as usual. In the first case political support is conditional on the threat of losing the private benefit, in the latter it is not. RDD evidence confirms the presence of clientelism in the Hungarian workfare program: public work only increases the vote share of the party in national government when the government can credibly threaten local elites (independent mayors) with taking away their benefits. 

16:50-17:10 Maria Arapovics, Sandor Striker: A Typological Approach of the Econo-Cultural Role of the State in Present Day Capitalisms 

The grand and complex systemic perspective that János Kornai masterfully contributed to develop went in the background of the profession with the end of the socialist system. Kornai profoundly contributed to The main point of the paper is concept, that there no ’capitalism’ in its pure, idealistic and general form for the last one hundred years. but rather a variety of capitalist states quite differentiated by their cultural-historical heritage. Even in our thoroughly globalized era the actual realities of local capitalisms provide significantly different operational conditions to institutions operating for the public and to civil organizations operated by the public in the spheres of culture, education and health. The role of the states and their relationship to their respective economic resources, production as well as to their self created cultural memory, according to the authors can by approached and assessed in a typological approach. This typology applies a tetrahedron-model metod, which is identifies various types of socio-economic systems. The paper proposes that one can understand and analyze present days capitalisms closer to actual life experiences through this typological approach.

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