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 examined economic systems and system-mixes with substantial details, 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 which recently passed its 30-year publishing anniversary – is such a political economy 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.
Kornai challenged not only the dominant economic views of the socialist system, but also those of market economies. The former brought him fame, and the latter remained, so to speak, his scientific testament. He studied the systemic properties of different economic systems through the analytical grid of the sign of aggregate excess supply, which defined three categories: shortage economies, equilibrium economies and surplus economies. In this paper, we show that business plans postulated with the aim of realizing strictly positive net retained profits in nominal terms exclude equilibrium economies; these business plans imply a surplus economy. This definition of the business plan makes it possible to combine seemingly disparate results from different parts of the economic literature. An economy in which business plans are the rule and no economic agent can run a permanent negative budget is a surplus economy, which manifests itself in the phenomena of both growth imperative and realization problem. In short, all these phenomena are the manifestations of the same essence: the working of the business plans.
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.
A key observation of the endogenous money theory is that banks create deposits (money) by lending. This means that banks apparently face soft budget constraint in responding to demand for credit. However, there are several limiting factors, which can make the banks' money creation somewhat constrained, and can thus harden their budget constraint. Such factors include the need to preserve banks' profitability and the bank regulations (the capital and liquidity requirements). Previous literature on soft budget constraint (SBC) in banking mentioned government bailouts, central banks lender-of-last-resort policies, or the poorly informed depositors who over-finance banks, as reasons for the SBC for banks. Taking the 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 purpose. Our analysis, as well as lessons from several recent bank crisis episodes suggest, that under current banking regulation SBC is an inherent feature of banking.
This paper discusses the contributions of János Kornai to the “language reform” of socialism and post-socialism, meaning the creation of new conceptual frameworks to replace the mainstream interpretation of the system with a more realistic, critical description. We show that, in the three waves of language reform under the Kádár regime – economics, sociology, and law – Kornai was a trailblazer by introducing concepts like “soft budget constraint,” “plan bargaining,” and “shortage,” which became key concepts for reform economists and dissident intellectuals in Eastern Europe. We discuss Kornai's work on post-socialism as well, particularly his paper “The System Paradigm Revisited,” and point out its merits and shortcomings in the description of the regimes of the region. Presenting our offer for a new language reform, based on Kornai, we underline the importance of proper words for understanding “actually existing post-socialism,” and the task of political economists to revise the current mainstream and analyse the phenomena of post-communist “relational economies.”
The objective of this study is to identify how globalisation influences China and how China affects globalisation in the context of János Kornai's Frankenstein metaphor. Kornai (2019) felt moral responsibility for unwillingly contributing with his advice in the 1980s to the birth of a modern version of Frankenstein, the Monster which his creators could not control. A crucial guiding principle of this paper is how the US and the advanced democratic economies can respond to Kornai's dilemma and reconcile the diverging requirements of economic interests with national security priorities. There is a research gap in the systematic mapping of the external economic environment on China's development. The primary conclusion of this paper is that China is less dependent on the rest of the world than the world on China. As the de-risking concept suggests, trade restrictions and domestic industrial policy measures focused on a narrow range of strategic sectors should be combined with unlimited trade and cooperation in the remaining non-strategic sectors. This study's conceptual and methodological framework can be used to analyse the relationship between advanced democratic economies and autocratic regimes in Kornai's Frankenstein dilemma.
János Kornai has achieved a wide-scope multifaceted theoretical analysis moving from Marx to Walras-Lange, then to post-Keynesian disequilibrium economics, and eventually, to Hayek and economic institutionalism. Such a travel is not without meeting dilemmas that Kornai has had to struggle with and opt to resolve them in some way. Such process is illustrated first with a planner's dilemma. On the one hand, Kornai has elaborated on – together with Tamás Lipták – a mathematically ‘super’ solution to finding the optimal plan through a two-level planning procedure. But once implemented the latter has appeared to be too slow, and Kornai has rejected Lange's ideas for Hayek's criticism against central planning. A second dilemma is about how to analyse a centrally-planned shortage (excess demand) economy in which those industries privileged in the planners' pecking order priorities were producing an excess supply of (useless) goods. Kornai did not find a solution in the current disequilibrium economics but, instead, in a ‘lax’ communist bureaucracy generating a soft budget constraint. The third dilemma is that Kornai's views about disequilibria have not converged with the Post-Keynesian disequilibrium models. The latter were unable to conceive a simultaneous excess demand and excess supply in a same market, due to their so-called shorter-side rule. Instead, Kornai has found a solution that fits with theorising the observed micro (or even infra-micro) disequilibria in a Debreu's book, some years after having published a hard criticism of neo-classical microeconomics. A final question is raised: is Kornai's theory a decisive contribution to the analysis of comparative economic systems – that no one denies – or has he added some value to a more general theory of economic disequilibrium?
Based on the structure of János Kornai's ‘main line of causality’, two unique country cases are compared within the former European socialist bloc: Albania and the Socialist Federal Republic of Yugoslavia. The research provides a comparative analysis with an overview of the two countries' development between World War II and the fall of the socialist 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 socialist prototypes. Regarding the 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.
We model the consequences of the soft budget constraint in the context of retail borrowers. While János Kornai formulated the term of “soft budget constraint” mainly for organizations (firms, banks, municipalities, NGOs, etc.), we show that it can be applied to individual borrowers as well. We derive the feasibility conditions for private and public debt relief programs in a utilitarian framework and find that lenders have no interest in offering payment reductions if non-performing 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.