1 Introduction

The most significant and probably the most lasting element of the oeuvre of János Kornai, who died in 2021 at the age of 94, is the shortage economy theory presented in Anti-equilibrium (1971) – the anti-mainstream assertion according to which modern economies are never in equilibrium.¹ On the markets of goods and services, the aggregate demand is always either significantly higher or significantly lower than the aggregate supply.² There are two possible states of the economy: either a surplus economy³ or a shortage economy. In what follows, this feature is called dichotomy.

Kornai's perception and his new paradigm were met with sharp criticism from the beginning. The critics – firstly Czechoslovak and Polish authors, such as the Vaclav Klaus – Dusan Triska duo, or Stanislav Gomulka and Leszek Balcerowicz – dismissed Kornai's thoughts by saying that there is no duality. In the modern age, there are only well-functioning (meaning: normal) market economies and poorly functioning market economies. According to this criticism, the so-called socialist economies⁴ are in fact distorted and fuzzified market economies, where ultimately there is only one problem: the state manipulates the price system. There is nothing interesting to see in and/or investigate a poorly functioning market economy, move on. It is possible to know the source of the problems and how to remedy them.⁵ This issue is examined in the first part of this study.

After the regime change in 1989/90, the well-known symptoms of the shortage economy unexpectedly quickly disappeared everywhere from Albania to Vietnam. But it was also an unexpected development that the institutions of liberal democracy did not develop in several countries and/or collapsed after a short period. Yet for many, after the collapse of the Soviet-type communist systems around 1990, it seemed that history was over (Fukuyama 1989), and on the international scene, capitalism and liberal democracy no longer had alternatives that could be taken seriously, that is, one that represents significant political and economic power. Even the leaders of countries that can be said to be dictatorships or even despotic systems to objective outside observers call their own system “democracy”. Even the reforms of the People's Republic of China were (more or less) included in this picture. And what seemed to be the strongest argument: after all, in China, Deng Xiaoping's reforms, whose beginnings are usually dated to 1978, produced spectacular results for three decades.⁶

Regarding Hungary, Kornai issued warning signals at the turn of 2010/2011: the Orbán regime successfully transformed the liberal democracy that had been functioning well for two decades into an autocracy in barely a year. The second part of this study investigates whether Kornai's dichotomous view, that there are only two political systems – democracies and autocracies – is acceptable for the entire range of post-socialist countries and/or the countries of the world in general. The author of this study's, a disciple of Kornai does not support the view of his master in this regard.

2 Anti-Equilibrium knows two types of equilibrium

As we can read about Anti- Equilibrium, (hereinafter: AE) in Kornai's memoirs, this book is “not just one item on my publication list. This was the most ambitious enterprise of my entire research carrier” (Kornai 2007: 197). Still, looking back today, the book did not achieve the international impact that the author and many enthusiastic Hungarian and foreign readers had hoped for.

It is true that AE is on the shelves of every large university library, and after its publication, many reviews, critiques and jubilating articles appeared in leading journals, and it is still regularly referenced today.⁷ But the mainstream of our science still considers the criticized model creation framework, the general equilibrium theory marked by the works of Walras (1874), Arrow – Debreu (1954), and Debreu (1959) as its professional mother tongue. The hoped-for paradigm shift did not occur. In 2023, the neoclassical vision is still being taught at the world's best economics universities and in Hungary as well that the actors of the economy always behave rationally, and perfect competition prevails in atomized markets, the demand and supply processes result in equilibrium in all markets (Pareto-optimum).

Kornai actually claimed much more than that. That economies organized on the basis of Marxist-Leninist principles and values are a necessary part of the shortage economy, and that in the absence of adequate individual incentives, these economies generally perform worse in the long-term than the capitalist market economies in terms of technical progress and productivity. Summarized in a telegraphic style, Kornai's most important insight about the socialist economy was that it cannot and should not be interpreted as some kind of poorly functioning, fuzzed-up market economy. Both the socialist systems and the market economies had system-specific advantages and disadvantages (Mihályi 2017a). Thus, for example, all socialist economies were shortage economies, but since there was also a shortage of labour, unemployment essentially did not exist. This is a good thing! In the socialist systems, as already mentioned, financial incentives were weak, but the differences in income and wealth were correspondingly small. As Kornai himself put it with a witty analogy, you can't choose between the two systems like in the supermarket: we only put what we like in the basket. The political structure, ownership relations and the coordination mechanisms that interweave the economy in a thousand ways essentially determine everything. If these three main characteristics are present, they determine the other, less obvious, but equally important features of the system.

In contrast to his colleagues in the West, Kornai's primary, all-determining life experience was the existing world of socialism, the lack of goods and services, slow technical progress, etc. For decades, all his writings were about this. Summarising the experiences of the so-called “normal” market economies, the neoclassical theory places the concept of balance interpreted as optimum at the centre of the analysis, and claims that all existing economic systems can be described with the set of concepts developed over the decades. Looking at the world of existing socialism, Kornai had three objections.

1. (i)If the economy – by definition – must reach equilibrium after an adjustment process, then all markets of the socialist economy are also in equilibrium. This contradicted the daily experience of millions. Socialism was characterized by a lack of goods. What is the neoclassical answer to this? The socialist economy is not an independent conceptual entity. There is, therefore, no need for a new theory, new categories. Everything can be implanted into the existing conceptual framework. Logically, there is nothing wrong with this, you can still use the categories. Except, as Kornai said on one occasion – perhaps in a private company, or in a lecture? – on this basis it can also be said that “Summer” is nothing more than a strongly changed “Winter”. But this is merely a play with the words, which forces us to use more and more silly concepts.⁸
2. (ii)The market of the capitalist economy also is not in equilibrium with respect to all goods, and it is never in a situation that can be called the social optimum with down to earth realism. In particular, the definition of the term “normal rate of unemployment” caused and still causes a recurring theoretical dilemma. Marx already noticed this, Keynes became world famous because of this, and finally – we can add in 2023 – the sword of Damocles of unemployment is still hovering over the heads of the macroeconomists of the United States and Western Europe.
3. (iii)If the differences between the socialist and the market-type economy are purely of quantitative nature and/or only their not very important sub-characteristics differ, then a sellers' market can be turned into a buyers' market, so socialism can be reformed. But history showed that reforms did not bring critical results neither in Hungary nor elsewhere. Despite of all reform attempts, all Soviet-type socialist economies remained shortage economies. For a significant number of specialists working in the field of comparative economics, it became clear that the fundamental features of the Soviet-type socialist systems cannot be reformed.⁹

Where should we classify China? From 2014 until his death, Kornai devoted a lot of attention and several papers to the changes taking place in China, for completely understandable reasons, which we cannot enumerate here for lack of space. In the past, it seemed likely that China's unique development path would lead the People's Republic of China (CPP) also to the path of a capitalist market economy – as Fukuyama predicted in 1989. However, since Xi Jinping came to power in 2012, doubts about such expectations have multiplied. How can the multitude of facts, at least in terms of conceptual categorization, be reconciled, which on the one hand imply that China has already passed the “point of no return”, i.e., it is no longer a socialist economy, with the facts that point in the opposite direction, namely that China – despite all the reform measures – remained a communist system (Mihályi 2017b).

In his study published in 2016, Kornai considered it necessary to supplement the three main characteristics of the classical socialist system with six secondary characteristics (see Table 1). Encouraged by this, the author of the present study – and his co-author Iván Szelényi – included 8 more characteristics in the analysis. Based on the together 18 characteristics, we took the courage to go beyond Kornai's last writings about China in terms of the strength of our formulation, and to state that in the summer of 2023, China can be considered a communist economy rather than a market economy (Szelényi – Mihályi 2021a). Out of the 18 aspects, in only three cases can we say that the Chinese economy is to some extent characterized by some characteristic of the socialist and capitalist models (Table 2).

Table 2.

Representation of the six-element model in 16 dimensions (Scale: 1–5 indicating the intensity and/or the likelihood of the existence of the given issue)

3 How many types of government systems should be distinguished?

When evaluating the turnaround after the elections that took place in the spring of 2010, in his first articles, Kornai (2011, 2015) – as these articles focused on Hungarian conditions – stated that Hungary had turned from a democracy to an autocracy. In other words, Kornai once again used a dichotomous conceptual pair. However, in his later writings and statements, in which he tried to provide a comparative analysis valid for the entire world, Kornai switched to a model that defined three types of political-government forms. First is democracy, second is autocracy and finally dictatorship. In my opinion, this expansion is still narrow.

I would like to point out that the adjectives “liberal” and “democratic” do not have the same content. There were and are liberal systems of governments that are not democratic, and democracies that are not liberal. It is futile to say that countries both A and B are liberal democracies, but country B is of “lower quality”, or conversely, to say that countries C and D are both dictatorships, but country D is “not so bad”. Looking at all the countries of the world, we think it is appropriate to distinguish at least six types of government systems. In our latest articles – Szelényi – Mihályi (2021b) – we distinguished six types of political forms of rule.

1. 1.Meritocratic liberal democracies admired/envied by many. This can be said of Sweden, England, Australia and most member states of the European Union.
2. 2.Conservative democracies. In the United States, UK or Japan, which can be called liberal democracies in many dimensions, the written or tradition-based constitution is on the one hand a guarantee for social stability, but on the other hand it hinders the exercise of power by the government that wins the democratic election. See the almost unchangeable, nearly 250-year-old constitution, or the functioning of the Supreme Court in America, the role of the House of Lords in England, the social inequalities affecting women in Japan, etc.
3. 3.Illiberal democracies. There are not many such countries, because it is not a stable form of government. Among the post-communist countries, this definition fits Serbia, Poland and, of course, Orbán's Hungary as well. If democracy is, where there are universal suffrage and regular elections, then the post-2010 Hungary is a democracy. However, if we also take into account that – according to reports of many impartial foreign observers:

   • during the past three elections (2014, 2018 and 2022) the electoral conditions had been tilted in favour of Prime Minister Viktor Orbán's government,

   • the system of constitutional checks and balances works only to a limited extent, and

   • competition in the economy is deliberately distorted by the government (for example by giving specific interest groups broad channels for rent-seeking¹⁰),

then we consider the name illiberal democracy perfectly appropriate. This term, as it is well-known was introduced by Fareed Zakaria (1997) and which Orbán, in his famous 2014 speech in Tusnádfürdő,¹¹ openly accepted.¹²

1. 4.There are many autocratic (authoritarian) regimes, which do not even pretend democracies at all, or only in some solemn declarations, where those in power cheat in the elections and persecute their political opponents (although the elections still have a certain stake). Today, Vladimir Putin operates such a regime in Russia, Recep Erdoğan in Turkey, Narendra Modi in India or the hereditary rulers of the Gulf Arab countries. This includes quite a few huge countries with a population of more than 100 million (Indonesia, Pakistan, Nigeria, Ethiopia, Philippines, Egypt).
2. 5.Obviously, there are ideologically based dictatorships, e.g., China, Iran and Saudi Arabia, where a single group (party, junta, family) exercises all power in an absolute manner, without being limited by any law or institution.
3. 6.And what is the worst case: in many countries, for decades and generations of political leaders, all power is concentrated in the hands of despots with superstitious, uneducated and pathological behaviour. This is the case in North Korea, Belarus, Turkmenistan, Azerbaijan, Myanmar and many less important African countries such as, Rwanda or Togo.

If we think thoroughly, we can be surprised to find that there are relatively few illiberal democracies operating these days. There are several reasons for this.

1. This partly depends on the definition: there is no undisputed dividing line between illiberal democracies and autocracies. For example, in the already mentioned 1997 article, Zakaria classified Pakistan and the Philippines as illiberal countries, which perhaps even then would have been more correct to call autocracies.

2. It is not easy to permanently tilt liberal democracies in an illiberal direction. This is what Donald Trump learned the hard way as President of the United States. He won the first election but lost the second.

3. The decline of illiberalism is also explained by the fact that it is relatively easy to return to liberal democracy from this form of government. This happened – for example – in Slovakia after Vladimír Mečiar's 8-year rule.

4. There are several examples of illiberal politics turning into an autocratic system. When Erdoğan first came to power in 2003 as a result of the regular elections, he appeared to be some kind of conservative, democracy-affirming politician. With the support of Greece, he announced his claim to join the EU. Later, despite this, the Erdoğan regime openly embraced autocratic forms from 2014 and gave up his country's wish to join the family of European democracies (EU).

Eastern European examples are also important. Almost everywhere we see politicians like Viktor Orbán, inherently talented, but determined to do anything for their personal goals, while unscrupulously taking huge risks. But this is not enough to win elections. A “lucky” confluence of many circumstances is also necessary. Illiberalism did not gain ground in Bulgaria, Croatia or Romania either, while the political forces that won the election and gained political power for four years did make several attempts to transform the system in this direction. In the 2021 presidential election of the Czech Republic, there was also a real danger that Andrej Babiš, heavily infected by illiberal ideas, would come to power again. But that's not what happened. In the second round of the election, Petr Pavel, the openly anti-populist, liberal democratic candidate won by a convincing margin. The Polish situation is still very close to the illiberal world of Fidesz (it has a dispute with the EU about it!), but since 2022 it has pursued a sharply different policy regarding Russia and the invasion of Ukraine.

In practice, it is thus proven again and again that illiberal democracy is necessarily a fragile construct. Once it is accepted that the interests of society are seen better by the “enlightened” state than by individuals driven by their own interests, then in the eyes of many voters, it is difficult to legitimize the entire institutional system of democracy (“Why are there so many disputes and bickering?”). Therefore, in such systems there is always the danger that illiberal democracy will transform into autocracy or dictatorship due to the voters' indifference (Szelényi – Mihályi 2020a, b). Let us underscore, however, that illiberal democracy is also a vulnerable construct, because it is often enough to obtain a relative majority of the mandates (in some cases only 30–40 per cent), and in such cases victory or defeat may depend on merely 2–3 parliamentary seats. The case of Hungary is different. After 13 years of illiberal rule, a reversal, another U-turn, is less likely.

Of course, I am aware that there are no conceptually perfectly fitting, unassailable classification systems, even if we form not 6 but 10 or 12 groups. Borrowing Goethe's Faust eternal phrase: “All theory, dear friend, is grey, but the golden tree of actual life springs ever green”.