The Hungarian economist, after whom we have to rethink Marx

Corvinus University of Budapest holds an online event on 7th June to introduce the prestigious scientific journal Public Choice’s special issue on the work of János Kornai. We talked to the editor of the special issue, Mehrdad Vahabi.

 

“For me, this task was an honor,” says Mehrdad Vahabi, a professor at the University of Sorbonne Paris Nord, at the beginning of our conversation, answering the question of why he undertook to edit the special issue. “I undertook this enterprise with one guiding idea: the studies should really be about Kornai’s work, not about academics presenting their own research in the name of Kornai. That has been fulfilled.”

The idea for the special edition popped out of the minds of Professor Peter T. Leeson in his paper “We’re all Austrians now: János Kornai and the Austrian School of economics” (2008), a well-known public choice scholar at George Mason University and an editor of Public Choice journal. The idea has been thoroughly discussed and decided by the editor in chief, Professor William F. Shughart.

Fifteen studies, fifteen perspectives

“Everyone in economics knows that Kornai is extremely important, not surprisingly, such a prestigious journal publishes a special edition about him. In addition, János Kornai has conducted research on the impact of an omnipotent state on the economic performance, which is one of the most important areas of research in Public Choice. This issue is still one of the major of economic development, to examine it, it is worth going back to Kornai’s work”, Vahabi explains why the special edition is now actual.

The special edition published 15 studies, which can be divided into two sections. The first summarizes the work of the economist, and the second section explores in two areas (soft budget constraint and political economy) through studies of how Kornai’s theories can be applied to the present questions. Among these outstanding contributions, one is particularly focusing on the relationship between Kornai and Marx: this is the work of Amartya Sen, a Nobel Prize-winning Indian economist who concludes that Kornai should not have interrupted his research regarding Marx’s works in the 1950s.

Later, Kornai reacted to Sen’s thoughts, from which Vahabi said “a very exciting exchange and debate of two dominant scholars” unfolded. The debate is rich and reflects the fact that both eminent economists look at the issue from two completely different perspectives. “I think Sen knows how much economics would need to synthesize Marx’s visions with Kornai’s observations. However, he never lived in a Marxist state and did not feel the 1956 revolution on his own skin, and Kornai did.”

The introductory study provides a comprehensive picture of Kornai’s work, written by Mehrdad Vahabi to the greatest satisfaction of the world-famous Hungarian economist. “János told me that so far a total of three or four studies have actually been able to summarize what he has been trying to talk about all his life. This is one of them”.

Soft budget, permanent imbalance


Vahabi first encountered Kornai’s work in 1980 entitled “The Economics of Shortage”. Before that, he had read many studies on how socialism should work, but Kornai’s work was completely different. In addition to a strong institutional analysis, he introduced innovative concepts such as the soft budget constraint, a concept used to date and fully integrated into the dictionary of universal economics researchers, Vahabi said even a formal strand of it has been developed by the Nobel laureate Eric Maskin and has been mobilized to explain the 2008 financial crisis by another Nobel Laureate Jean Tirole

Vahabi considers it at least as important to systematically study the systems of the Eastern bloc, the thorough elaboration of which will be the task of present and future researchers. According to Kornai, normality is not an optimal economic situation, for him normality is decided by the specific chronic disequilibrium of an economic system. The normal state of capitalism is overproduction and a soviet type economy is shortage.

The third, also significant, mentions his work analysing the practice of the socialist economy. According to Vahabi, if anyone sees the socialist system as an alternative to capitalism in the future, it is worth studying Kornai’s work, as he does not approach the issue from an ideological point of view, but has analysed the system established in practice.

  
Dr. Frankenstein’s experiment: China

One of the most internationally known moments of Kornai’s career was the 1985 Bashan Conference, when political leaders in transition China invited him and several other renowned economists to sail the Yangtze River for advice on the country’s economic strategy. It has since been treated as a fact that Kornai’s thoughts there determined the country’s subsequent economic policy decisions and helped put China on a growth trajectory that has now become not only a country with a strong economy, but rather a geopolitical power. Seeing the leap in development and the autocratic operation and decisions of political leadership, in 2019 Kornai published the “Frankenstein Article,” in which he blames himself for helping to create modern-day China with his knowledge.

According to Vahabi, the question is not whether an academic can be held accountable for the outcome of complex political and economic processes, but rather it is worth looking behind Kornai’s revelation and understanding the message behind it. According to Vahabi, democracy is of paramount importance to Kornai, but with the advancement of systems like China and Russia, all this is in jeopardy, so he felt the need to speak out against the process. Vahabi adds that today we are not talking about a unique case at all, to see a precedent for autocratic regimes in many parts of the world.

It is no coincidence that in his closing speech at the 90th birthday conference at Corvinus University in Budapest, Kornai drew the attention of those present to examining not only the pace of economic growth in China, but also the fundamental ethical issues that are key to the operation of a superpower of this size.

Will he ever receive a Nobel Prize?

“One of the great injustice of our profession is that Kornai did not receive the Nobel Prize despite his unparalleled work,” says Vahabi, although he said he would have had a real chance to do so in the 1990s, when the regime change took place in the Eastern Bloc socialist countries and his works received a great deal of attention.

According to Mehrdad Vahabi, even without the award, János Kornai should be considered one of the most eminent economists of the 20th century: “His openness is simply unparalleled. He is able to observe and analyse factors without being bound by preconceptions or doctrines. He sees situations as they really are, and that is very rare.”