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Irregular Memoirs of an Intellectual Journey: questions about the state of economics

An interview with János Kornai
János Kornai et Bernard Chavance

Notes de l’auteur

Further bio- and bibliographical information, may be found on János Kornai’s website :

Texte intégral

1János Kornai is Professor Emeritus at Harvard University, and honorary professor emeritus of Corvinus University of Budapest. Born in 1928, a marxist journalist in the early 1950s, he was marginalized after the hungarian revolution of 1956, and could resume a career as a researcher in the early 1960s, while being banned from teaching. After a neoclassical period where he became known in the West, he developed a critical analysis of that theory in Anti-Equilibrium (1971). He concentrated on the analysis of the socialist economy, culminating in Economics of shortage (1980), which was influential East and West, and a second masterwork, The socialist system (1992). In 1986 he became professor at Harvard University, sharing his time with the research in Budapest. He retired in Harvard in 2002, and was Permanent Fellow at the Collegium Budapest 2002-2011. After the transformation of socialist systems in 1989, his work was focused on systemic change in the post-socialist world, with books as The Road to a Free Economy (1990), Highway and Byways (1995), Struggle and Hope (1997), Welfare, Choice, and Solidarity in Transition (with Karen Eggleston, 2001), From Socialism to Capitalism (2008). His book on capitalism, Dynamism, Rivalry, and the Surplus Economy has come out in December 2013. His autobiography By Force of Thought: Irregular Memoirs of an Intellectual Journey (2006a), a remarkable book that received wide acclaim is forthcoming in French, À la force de la pensée, Autobiographie irrégulière, L’Harmattan, 2014. This interview refers in particular to questions discussed in his memoirs.

1. The system paradigm

  • 1 Kornai (2000).

2RR: Your œuvre is a great contribution to what you have named the “system paradigm”.1 How would you define the different aspects of this paradigm? Why is it important? Why does it seem a marginalized area today, after having played a significant role in economic thought in the previous 150 years?

3János Kornai: The most important aspect is underlined by the name itself: those taking this approach are more interested in a large, complex organism, a body with a complicated structure, i. e. in a whole system rather than its parts. How do the parts affect each other? How do they give rise to a system of physical and information flows between the various links and components? Such are the questions to which those thinking in terms of the system paradigm seek answers.
It may assist in understanding the term if I mention a few of those whose outlook I would associate with the expression system paradigm: Adam Smith, Marx, Mises, Hayek, Schumpeter and Károly Polányi. The list includes great names in the history of ideas whose political approaches and systems of values nonetheless differed sharply, but their analyses share the extremely important characteristic: their concern was not for partial problems, but for the “great systems,” the general, overall theory of socialism and capitalism, the state and the market.
I am not advancing the system paradigm as a substitute for partial analyses ‒ there is clearly a need for careful study of a thousand and one “little” questions. But it is no less clear that a thousand and one varied pieces of mosaic do not as such amount to an overall picture. That requires a synthetic approach, a “vision” that can reveal the whole in the many parts. (I adopt the term vision in this sense from Schumpeter.)
I share the impression that research undertaken in the spirit of the system paradigm has become marginalized. There are several factors behind that, of which I would like to pick out just one: the prevalent climate in the profession of antipathy, even full-blown contempt towards the study of “grand issues”. One reputed American economist described, in a private conversation, his own research ambitions like this: “Let everyone rather add one brick to the building, because that at least is a tangible contribution, rather than struggle to produce the drawings for a giant, complex edifice.” There is a widespread view that researchers should only pose to themselves questions to which they are capable of providing accurate, grounded, definitive answers, that it is not worth putting questions to which no strictly demonstrable response can be made, exciting and important though they may be. But the oppressively difficult questions about the great systems are left hanging in the air around us. It would be a shame if everyone should back away from them and no one attempt to bring scientific tools and intuition together to bear on them and at least attempt to approach intelligent answers to them.
I consider it an advance of great importance that many economists are successfully devising mathematical models for the purpose of theoretical analysis and managing to employ econometric methods to support their assertions. I regret that there are some whom success renders presumptuous, so that they belittle those who think on questions that are not truly susceptible to examination by the means they employ.

2. Mainstream and the demand for pluralism

4RR: You often define your own position as being half inside and half outside the mainstream of economics. We observe today in this world of economics an accelerated tendency toward a “normalization” of the field, that seems ultimately undisturbed by important failures or misdirections. It is characterized by an exclusive reference to formalization and quantification, a relation to contemporary or historical reality which is increasingly distant, a divorce from other social sciences (that may take the form of economic imperialism), a scarcity of philosophical or ethical foundations, a uniformity in reductionist publication criteria, an assessment of the quality of research often limited to citation indicators. As a reaction against the strong reductionist and monopolistic tendencies of mainstream economics, there is a demand for pluralism raised by various currents of heterodox thought. What do you think of the situation in this respect?

5János Kornai: Here you have condensed into one five or six questions, each of which calls for a detailed answer.
You phrased your question subtly when you spoke of “monopolist tendencies”. Luckily no ideological monopoly in a strict sense can apply in the democratic world. I lived under a communist dictatorship for decades and was able to view close up what it means for one ideology to hold a monopoly and have its exclusive position imposed by political power and its organizations of force. Mainstream economics does not hold a monopoly in that sense. Advocates of other schools of thought may publish legally: they have their journals, their books appear, and no few of them teach in universities. Having begun in the vocabulary of market structure, we could continue by saying this is an oligopolistic one that we saw before us, in which the market for ideas and knowledge is dominated strongly by a single school, leaving its competitors little scope by comparison.
This is certainly not a question of ideological monopoly being imposed by political power or its organizations of force, but of dominance brought by a variety of indirect mechanisms. Senior mainstream economists choose young people with similar views to their own to recruit
into and promote in the academic world; theirs are the articles accepted and published in the leading journals, which has a strong effect on their academic careers. However, all these comments must be qualified: mainstreamers are primarily (not exclusively) appointed and their works are primarily published. Remaining outside the circle is not impossible, but those who do so face many more obstacles.
I have various objections to the statements, methodology, and also to the underlying philosophy of science in mainstream economics, which will be mentioned later in our conversation. Here at the beginning of our dialogue I would like to make a few comments not about theoretical issues or methods, but rather about the attitude and mentality of the people who generate the theories and apply the methods.
No intellectual school has, or could have in its possession a faultless, full explanation of the phenomena. This obliges all conscientious exponents of science to be modest and humble persons. What if another researcher or member of another school is right after all? What if that person has seen and understood things I did not recognize? Many exponents of mainstream economics are inclined to be over-confident and self-satisfied. Pluralism, diversity and competition are needed in politics, in the economy, and in the sphere of ideas as well. Whether it is a matter of art or philosophy or scientific research in a strict sense, pluralism, competition among approaches, paradigms and schools, is essential to progress. It would be desirable for leading figures in the mainstream themselves to give support to pluralism. I know from my own fortunate experience that a few of the greatest of them ‒ Arrow, Koopmans, Samuelson, and Solow ‒ were capable of that generosity, and encouraged me and others to critique their ideas. It tends rather to be the gr
ay middle-ranking figures who shrink from the rivalry of the schools.
A good example of the harm caused by mediocre apostles of mainstream economics is provided by the experience of Eastern Europe. Although there were a few adherents of Western mainstream economics in the communist part of the world before 1989-1990, the influence of this school grew with stormy speed after the great political shift, when the state-secured monopoly position of the official Marxist-Leninist ideology suddenly collapsed. Unfortunately, beside economists eager to learn what serious contemporary economics means, also zealots appeared; professors, researchers and economic policy-makers “more popish than the Pope”, as the Hungarian saying goes; more dogmatic, more doctrinaire than many of their Western colleagues. Papers were published claiming that there is no need to invent any new ideas, concepts or analytical tools for the study of systems which are different from a regular, traditional market economy, for example for the understanding of classical and reform socialism, post-socialist transformation, emerging markets and so on. They suggested: just take over the old and well-known instruments of textbook mainstream economics, and you have all the tools of understanding all phenomena, old and new, wherever and whenever they appear. This attitude generated intellectual laziness, mechanic imitation of ready-made patterns of thinking at a time when there was especially strong need for the renewal of economic thought, for novelty and for originality.
I would also like to react to another part of the question, on the relation between economics and the other social sciences. On the one hand, most economists make insufficient use of the “neighboring” disciplines, above all the findings and methodologies of sociology, political science and history. This isolation can be discerned, for instance, in the distribution of citations. On the other (and the question has already alluded to this), there are “imperialist” aspirations to be seen in economics: a curiously aggressive expansion and imposition of its outlook and methodology on the other social sciences. Of course such “imperialism” calls for two parties: conquerors and those, who subject themselves to conquest. There are more and more frequently found editors and referees at journals of political science or sociology who have wholly taken over from the economists the theory and conceptual apparatus of rational
choice and try to impose it on their colleagues. But total domination also requires there to be several who are prepared to go in for servile accommodation despite their inner judgments and reluctance. For example, they stick to a model, clever or clumsy, or some professional or unprofessional econometric calculation, onto an examination in which these theoretic tools have a weak explanatory force.

  • 2 Kornai (2006a, p. 192).

6RR: In your autobiography, while recalling the fundamental criticisms you raised against neoclassical theory as early as 1971 (in Anti-Equilibrium), and while adding new critical ideas, you write in referring to the terms of Lakatos, “It is not a degenerating scientific program but one that remains viable”2. I would suggest that it actually resembles a Lakatosian degenerative scientific program, its hard core having been shaken for long and the development of auxiliary hypotheses having taken the lead, without extending the explanatory power of the program – but that its hegemony has not been challenged yet by any emerging progressive scientific program. In this sense it remains “viable”, but not “progressive”. Would you agree with this distinction?

7János Kornai: I would not like to make a one-sided evaluation of the intellectual state of our profession. Although I look critically on mainstream economics, I would not call it rigid, “convulsed,” or immobile. It embraces some new and interesting ideas that appear on the intellectual horizon, or I could say it “canonizes” and places them in the compulsory syllabus. That happened, for instance, with the concept of information and the studies closely related to it. It also adopted from psychology and integrated the phenomenon of expectations.
I do not accept any dichotomous, “tick-one-of-two-boxes” assessment whereby a scientific program either develops or degenerates. That is too strong a statement, insufficiently modulated. There are intermediate and mixed states. The development of mainstream economics did not degenerate in the sense that the political economy of Marxism did within the Soviet bloc, when it became under the name “Marxism-Leninism” the official ideology of the communist dictatorship. Mainstream economics develops, but not fast enough. It is partially open, but could be far more so. It has many forces impeding it, born of intellectual laziness, a tendency to repeat itself, and aversion to new ideas. Finally it is a prisoner of its special model of decision-theory, its model of rational choice, taking it as a universal explanation.
Since the mainstream does indeed accept some essential new ideas, it becomes very hard to draw a dividing line between “orthodox” and “unorthodox” economic ideas. The divide moves. Yesterday (let us say when I was writing Anti-Equilibrium) it was still an idea outside the mainstream to emphasize conflicts between actors. Today, when every other academic economists makes use of game-theory models, it is almost trivial to do so.
Everyone plots the divide differently. One exceptionally important criterion in my view is to establish what is the decision-theory micro-foundation that the researcher accepts. Is the starting point that an individual has consistent preference ordering, maximizes the utility function, and reaches an optimal decision? If so (with some exceptions) he or she belongs to the mainstream school. If there is no insistence on this assumption, then the individual probably (but not certainly) breaks off from the mainstream in full or in part.
There are strict schoolmasters to impose the discipline of the mainstream school. Whatever you say, they insist, whether the subject, for example, is fluctuation of the macro-economy or the interaction of inflation and unemployment, it is compulsory to state what your micro-foundation is. And it can only be accepted as a micro-foundation if you can deduce how optimizing decision-makers following their self-interest bring into being precisely the state that we experience on a macro level. If, they conclude, you cannot produce such a micro-foundation, your line of argument is ad hoc and cannot be considered as true economics.
Yet several skeptical questions can be rightfully raised. What happens if the decision-maker is not consistently rational? What if he or she acts against his own long-term interests in favor of short-term gain? Or what if his or her preferences suddenly alter in a fit of panic? What if a radically different decision-making situation arises, in which there are no established preferences and the decision-maker must improvise? Here I am outlining decision-making situations in which the standard decision-making model does not work.
The schoolmaster’s stern look and raised eyebrows, this arbitrary erection of theoretical bounds, this superficial sneer at the ad hoc, scares many away from voluntarily impartial research and dissemination of original ideas. Luckily it does not scare away all.
There is a great need in this field for the intellectual pluralism that we discussed earlier. It is not possible to erect against the axiom-promoted preference ordering, this non-general, special theory, any great rival that would be fuller or more truly universal. The immeasurable multiplicity of human behavior and human relations make it impossible to devise a universal decision-making model. Various models emphasize various traits of behavior and draw conclusions from them while neglecting important characteristics. That is as it should be. For my part it is also quite in order for a scholar to describe various macro processes and undertake meritorious analytical work on them without raising the question of what motivates the individual participants.

3. Ideas, interests, institutions

8RR: You stress the power of ideas – reflected in the title of your autobiography, By the Force of Thought; when you discuss the obstacles raised in front of non-conventional ideas in economics you say that “a new theory can oust an old one only if economists are convinced that it is more viable.” The relative role of interests and ideas in history is controversial. Weber wrote “Not ideas, but material and ideal interests, directly govern men’s conduct. Yet very frequently the ‘world images’ that have been created by ‘ideas’ have, like switch-men, determined the tracks along which action has been pushed by the dynamic of interest.” Keynes maintained that “the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.” In our field of economics, the interaction between interests and ideas cannot be neglected, when we take into account the relations between mainstream theory and its institutional embeddedness (in the organization of universities, forms of competition between economists and schools of thought, modes of appointment of academics, the organizational forms of the profession), on one hand, and the weight of evolving interests in the economic system proper – as exemplified by the role of finance in the recent decades – on the other hand.

9János Kornai: Let us distinguish two questions. One is what motivates real actors in the economy. The other is what motivates researchers and professors describing and analyzing the economy.
Taking the first, I consider it one-sided to state that people are motivated mainly by their interests. This is already problematic because each person possesses a variety of often conflicting “economic interests”. Momentary interests, short-term interests, long-term interests? One person may fill several functions: employee at a firm, employer of a domestic employee, owner of stocks bought from savings or possible financial “speculation”. One person may take part at once in the white, the gray, and the black economy. Shall we measure success in money, acquired power, prestige or reputation? Shall we abide strictly by my self-interest or look at that of the immediate or wider family? So we have trouble with the definition of “interests”.
Now let us bring in the role of ideas. This remark of Bertolt Brecht is often quoted: “Erst kommt das Fressen, dann kommt die Moral.” (First comes the grub, then the morality.) Not with everyone, not always! The words you quote from Keynes point to a wise knowledge of people. It is clear to every psychologist, historian, and writer that it is absurd to belittle the power of ideas. Were Marx and Engels driven to act by their own economic interests? I am reluctant to list all the examples. To me it is self-evident that people are motivated by concurrent interests, sometimes one reinforcing the other, sometimes opposing it, so that one or other prevails. The millions of combinations that make up this complex combined effect may vary in time amid the multiplicity of individual behavior in individual lives.
The same can be said of that specific group of people academic economists. Of course most are not saints, but very glad to hold certain academic positions, and this too links them with the “establishment”. It is not rare for a still closer tie to appear. It may influence an economist’s thinking, for better or for worse, if a professorial chair is combined with a directorship or an advisory position in a large corporation or even ownership of a firm. Nonetheless, any sociologist of science who sought to trace the debates among schools of economists back to such factors would be doing a poor job. Even in Anti-Equilibrium I was disputing the official position of historians of theory teaching under the communist system, who branded the general equilibrium theory as “bourgeois”. To put it more generally, I do not consider it as justified to see in mainstream economists the propagandists or defenders of capitalism and in heterodox economists its critics or radical enemies. There is no such simple equivalence between an economist’s philosophy of science and his or her political stance.
Economists, historians of theory, and sociologists need to study jointly what effect the economic interests and the ideas have on the development of the thinking, allegiances and schools among those practicing economics. This is an exciting empirical task which must be undertaken impartially, free of simplistic formulae and preconceptions.

10RR: The system paradigm has strong links with institutional thinking in economic theory. This is manifest in your masterwork, The Socialist System – I would just for instance stress your approach of various coordination mechanisms. The system change or “transition” has been a factor in the delayed institutional turn of mainstream economics, which had ambivalent consequences. On the one hand, the notion that “institutions matter” has been incorporated in the established perspective; it even became quite fashionable for a while. On the other hand a strong reductionist view developed about the search for separate “good institutions” as efficient solutions (the one best way) to great coordination or development problems in capitalist economies. In looking for high “quality” institutions countless econometric “comparative” studies completely miss the historical interdependence (affinity, or complementarity) of institutions in given national settings, their systemic context dependence. Would you agree that the gained legitimacy of an institutional approach in economics, to which you have contributed for so long, appears as a mixed blessing?

11János Kornai: I sense that the tools offered by the institutionalist school and by my own work were useful to those seeking to examine objectively the breakup of socialism, transition to capitalism, and development of the new system, and to provide a positive description and analysis of them. It was somewhat ironic to find a famous professor from the West, who at home lectured on mainstream mathematical models and dismissed institutionalists with aristocratic scorn as an inferior caste, not even putting in his suitcase the set of tools he would use at home. While here and talking to national leaders and ordinary citizens in countries he visited, he realized that the occurrences needed to be viewed in a different way: political, economic, and cultural institutions played a decisive role; sober account had to be taken of the real forces behind people’s actions, the multiplicity of motives, the “heterogeneity” of behavior so casually overlooked in the theoretical model. There was a personal reward for me, for example, in finding colleagues who knew little of my work begin to apply the “soft budget constraint” system of concepts. There hardly appeared in the West a report on the East European transformations that did not use this expression and draw many related economic policy conclusions from it.
That brings us to the other side of these questions: how should economists behave when asked for guidance on what to do? Maximization of social welfare is a fairly pale and wan “optimum criterion,” from which no practical economic policy conclusions can be drawn by deductive means. Economists are deceiving themselves when they reassure themselves and the public, which may or may not be attending to them, that they are capable of making value-free recommendations in the guise of an “expert” or “technocrat”. There are no value-free conclusions in normative analysis of the world. What is good, or best of all, according to one set of values, is insufficiently good or even harmful according to another. This, incidentally, is sensed by successful politicians, consciously or instinctively: they accept as advisers only those who advise to their liking.

4. Thinking about Keynes

12RR: You refer to a great – but somewhat paradoxical – foursome, Marx, Schumpeter, Keynes and Hayek, as having influenced your thought. My feeling is that Marx, Schumpeter and Hayek are manifest inspirations in your work, but that Keynes’ place is quite specific. You share with him the structural link between capitalism and unemployment, to which you contrast the structural link between socialism and shortage; this opposition is central in Economics of Shortage. But the strongest parallel seems to be in the assessment of capitalism itself, as the less bad of conceivable systems but assuredly not an optimal order; your approach of “contradictions and dilemmas” also appears akin to Keynes’ view of unavoidable tensions between values (as efficiency and morality) leading to a search for acceptable compromises, as against the unrealistic view that “all goods go together” (to quote Hirschman) or against the concept of optimality in welfare economics.

  • 3 Those who served two terms as prime minister or finance minister have been counted twice.
  • 4 Hungary adopted the epithet denoting a republican form of state on three occasions. The first Hunga (...)

13János Kornai: Thank you for drawing readers’ attention to that list of four great names. All four certainly have had a deep and lasting influence on my world outlook and thinking. You ask specifically about the inspiration from Keynes. I quite agree with all you say about that. Let me add a few observations.
As you mention,
Economics of Shortage treated the shortage characteristic of socialism and the unemployment characteristic of capital as a pair of opposites. One review of the book called the system picture I presented a “mirror image” of the Keynesian economy, just as we see a reverse image of ourselves in the mirror.
Shortly Oxford University Press will publish a new book of mine,
Dynamism, Rivalry, and the Surplus Economy, where I discuss in detail how the Keynesian theory of unemployment ties in with my own ideas on the markets for labor and for products and services. Keynes and many other macroeconomists focused on the cyclical fluctuations of surplus supply and surplus demand. Understandably so. I, in line with my lifelong interest, am concerned primarily with the permanent traits of the “great systems”. To my mind shortage is a permanent system-specific attribute of socialism, and the opposite, surplus, large unutilized production and service capacities and large inventories, is a permanent system-specific feature of capitalism.
Allow me to diverge here for a moment. When you mentioned Keynes’ theoretical ideas in your question, it recalled in my mind a relevant difference between Keynes’ acceptance of a practical role in economic policy making and my activity. I attempted to make that comparison in my autobiography as
well. Keynes not only put in words his theories, but put much energy into persuading the economists’ profession, political decision-makers, and the general public of his views. I admire Keynes, marvel at his indefatigability, flexibility, and sense of diplomacy. My career was a different one, as I was born under different circumstances and my nature is different as well. Keynes would lunch with prime ministers or finance ministers and convince them of what they had to do. Keynes, an alumnus of the best schools, a Cambridge scholar, a seminal member of the Bloomsbury Group, was at home in the realm of high English politics. I moved as an embarrassed outsider in Hungarian political circles and still do.
Keynes was born in a lucky country. Though he had issues at any time with politicians, fellow diners, or partners in conversation, they shared in their thinking a basis of political values, above all an unconditional respect for democracy. How different was the position of a Central European economist like me in that respect as well! Since I started my research career in 1955, I have lived under 19 prime ministers and 24 finance ministers.
3 For decades the world view of executive politicians was diametrically opposed to my own. That at least changed radically in 1989‒1990. For the following two decades in which the third republic lasted, the politicians and I, as an academic economist, stood on the same side of the barricade, both believing in democracy, the rule of law, and the capitalist market economy.4 This might have led to a closer relationship, but to tell the truth, little of the potential was realized. Most of the politicians empowered to decide were not curious about my opinion, because they suspected it would go against their intentions. Luckily they did not invite me to lunch either, but if they had, I would have evaded it. There were one or two high-ranking politicians with whom I sympathized for a time, as persons or with their activity or at least part of their program, but they too rarely asked for my opinion, and far more rarely, only exceptionally accepted my recommendations on some matter or other. Let me add that I lack the fervor of an apostle and that feeling of commitment which might whisper to me, “I’m quite sure I know what should be done ‒ I cannot rest until I’ve convinced the decision-makers that my proposals are right!” Nor did I go out of my way to meet politicians. Now as I look back on my life there are times when I regret the way my career turned out, but times also when I look back contented. Here again is a personal example of what I said at the general theoretical level about the theory of preference ordering. I am not consistent in the retrospective judgment of my own behavior. That is because my preference ordering in the same decision space is significantly different on a day when I am in good mood and look back proudly to my past behavior from the ordering when I am in a bad mood and regret my earlier actions.

5. Democracy, growth, and conflicting assessments

14RR: In your hierarchy of values democracy and freedom have a higher score than different aspects of economic “performance”. In your comparative historical and theoretical assessment of capitalist and socialist system families, the political dimension may appear more important than the strictly economic one. Similarly, in your theory of the main line of systemic causality, you define the first “block” of system architecture as a political and ideological block (the attitude of the ruling elite toward private ownership and market coordination), for both capitalism and socialism. You give a great weight to polity both in normative and in theoretical positive terms; would you agree with this understanding of your work as an original political economy approach?

15János Kornai: The expression “political economy” is used in several senses. Back in the dawn of our discipline, in the time of Adam Smith, Malthus, and Marx, it covered all that was later called economics, say since the time of Marshall. Nowadays various schools vie for the right to call themselves (and usually only themselves) the true exponents of political economy. That is how many Marxist economists see themselves and fellow thinkers, but a similar exclusiveness is claimed by the group of researchers examining public choice.
I myself used the expression “political economy” in the subtitle of my comprehensive work on the socialist system so as to stress the strong connection between political structure and forms of economic operation. To that extent I hark back to the terminology of the classical, pre-Marshall period.
Beyond clarification of the concept, your question takes two interesting directions. One is the historical origin of the “great systems” and causal analysis of their development. I do indeed affirm that the socialist system born in the Tsarist Russian empire in 1917 came into being as a result of revolutionary change in the political sphere. The Bolshevik Party gained power, secured sole political authority and began a radical transformation of society and the economy. The political turn was followed, not preceded by the economic transformation. The deepest explanation for the recent great changes of system must be sought in the political sphere ‒ that idea certainly runs through numerous works of mine.
I have been commenting above on the positive approach to describing and explaining history. Let us set this firmly apart from the normative question of how to judge the inherent attributes of a specific “great system” or coordination mechanism. Many economists see it as self-evident that social “welfare” has the greatest value. Certainly they try to express this more accurately, in more sophisticated terms: we must strive for a continual increase in welfare. Responsible exponents of “welfare economics” are perfectly aware that exclusive effort to raise production and material welfare rapidly can widen inequalities of distribution. There is a tradeoff relation between growth and equity. Authors discuss a great many configurations of these mutually opposing values.
My ethical views differ from that approach in an essential way. Let me use here the conceptual system of the theory of preference ordering. My order of preference among ultimate values is lexicographic in character. Of primary value are democracy and the values closely tied to it, such as respect for fundamental human rights. Abandoning those cannot be compensated for with material goods, faster growth, or great welfare. There is no tradeoff whereby it would be “worth” sacrificing a slice of democracy for an imposing rise in GDP.
Lexicographic ordering of preferences in this context amounts to the following concept. To my mind the principal criterion for assessing the situation is whether there rules a democratic political regime and whether it respects human rights. If that requirement is met (or approximately met), then and only then can we start to weigh the secondary, tertiary etc. criteria. And if the assessment has reached that point, it becomes possible to consider tradeoffs among the secondary, tertiary, etc. criteria.

  • 5 Kornai (2006b).

16RR: In an assessment of the experience of postsocialist transformation5 that unfortunately remains quite unique in the profession, you use two scales of valuation. In a long term perspective you see it positively, as it worked in the direction of the great tendencies of western civilization, capitalism and democracy; in a shorter term perspective, you give a very mixed judgment: “I keep two accounts and not one, and do not merge them. On one account, I gladly acknowledge a great success at the level of world history: a system was created superior to the former one, without bloodshed, with incredible speed. On the other account, I have the list of good and bad experience in everyday life; much joy and much pain. I consider it both sensible and defensible to say that what has happened in this region can be simultaneously considered a success in terms of its global historical significance, and a failure in many important aspects because it caused pain, bitterness and disappointment for so many people.” Benefits and costs cannot simply be added to give an ultimate, unique and static assessment. Here again the centrality of contradictions and dilemmas leads you to an original stance compared to the way economists conventionally evaluate changes in general.

17János Kornai: This question ties in closely with a problem that we have touched on several times in this conversation: the theory of utility and preference ordering. My objections to the decision-making/behavioral model used by the economics profession are based on observations of my own and others. It is not true that other successes, honors, or pleasures can compensate us for one big defeat, humiliation or suffering. There is no indifference curve that we can place over the various packages of “joyful experiences” and “harmful experiences,” and hey presto! induce in people a sense of equivalent utility. Only those confined behind a lecturer’s platform, blinded by their own obsessions, and oblivious of the nature of human beings could believe that. It would not be credited for a moment by any good novelist or reader conversant in literature. Any psychologist of our time, of whatever school of thought, would read with dismay of how economists model the experience of human happiness and unhappiness.
An individual’s thoughts and feelings are replete with contradictions. I would often like some event to ensue and also wish to some extent that it should not occur. Odi et amo, as Catullus put it. We at once love and hate someone or some idea. Or there are two very strong efforts at war within us, so that one now prevails, then the other: the country’s interests versus the family’s; a search for adventure versus one for peace and quiet life; political activity versus political passivity and concentration on professional tasks ‒ I could continue to list the contradictions and dilemmas for a long time. Finally something develops ‒ either a compromise between the opposing goals, efforts, or feelings, or a tip to one side or the other. There may exist individuals whose souls never brook such contradictions, but they are certainly not a predominantly frequent type of person.
My line of thinking questions the fundamental tenets of mainstream economics. The article of mine that you mention is based on this argument: a great historical event may indeed be at once good and bad, at once an advance and a source of new suffering. People may at once (or consecutively with varying intensity) experience the joyful and painful consequences of the events. It is a sterile exercise to “add these up,” putting a plus sign by the advantageous effects and a minus by the disadvantageous ones so as to arrive at a total. By comparison with that it is already a methodological advance (and here discerning readers may notice a tinge of irony) if we keep instead of many accounts for the different categories of good and bad events, at least two accounts, one of favorable and one of unfavorable experiences.
Let me remind readers that I also cover the problem of evaluating good and bad deeds, virtuous and vicious events, in my autobiography, in another context but on similar grounds of principle. I do not believe that the wrongs done by a person in one stage of his or her life can be righted by useful service to humanity in another stage. We need at least two accounts here. In one the wrongs indelibly remain, but we must of course strive to gather as many and as effective a body of good deeds in the other account.

6. Polity and the economy

18RR: In your memoirs, you explain your prolonged interest in China (where a translation of Economics of Shortage had very big success). The experience in that country has, for instance, strongly vindicated your initial approach of stressing the bottom-up emergence of new firms and the private sector, as compared to fast privatization of the existing state sector. On the other hand, it has not followed the path you describe in The Socialist System, where reform weakens the coherence of the classical system and leads to instability and crisis – that was a characteristic of central and eastern European trajectories, before systemic change occurred. Reduced coherence and instability have been observed, but eventually gradual reforms have brought about systemic change – with an exceptional growth record and reduction of poverty levels. Do you see in the path followed by China in the last three decades a need to complement or modify the main scheme presented in The Socialist System?

19János Kornai: Before answering the question, I would like to mention that my autobiography, soon available to French readers, already appeared twice in China. It first came out in Hong Kong in 2009, in a translation into traditional characters. This probably did not reach many readers, as works in traditional characters can only be read by the highly educated. Furthermore, Hong Kong is still a partly closed zone, from which books only find their way to the billion-and-a-half inhabitants of People’s China with difficulty. Even so, the response was strong. The main television channels dealt with it; a conference of academic economists was held to discuss it. One speaker there recommended that readers seeking an acquaintance with my work should begin with the autobiography, as it provided the key to understanding the other works, which had been written in various historical periods under varying restrictions on freedom of speech. I found particularly interesting the comments on the book and on my career made on the Internet by “dissident” and free-thinking Chinese. These are intellectually akin to me. Many began as I did, as believing communists, then at some point in their lives became disillusioned with earlier events, and became sharp critics of Marxist‒Leninist‒Stalinist‒Maoist theories, so that each in his or her own way struggled for democracy and a market economy.
The second time the book appeared in Shanghai in a new translation in simplified characters. This is appearing in the bookstores of mainland China, in a script that the general public can read. The book came out quite recently, in August, 2013. I am awaiting the reactions with excitement.
I often consider the matter you now raised. China is a unique hybrid formation made up of elements alien to each other and difficult to mix. There exist side by side and mingled with each other a party-state dictatorship, a broad state sector almost dragging down the economy with its weight, and a lively, vibrant private sector. Earlier I would emphasize how great frictions occur in this symbiosis of disparate elements. But as the experiences built up, it became ever clearer that they could not only coexist somehow, but generate spectacular growth. If I have the energy, I will rethink my earlier arguments on this and publish my conclusions. If my strength runs out, the younger generation will complete the task. I await this above all from the Chinese whom I taught at Harvard University, who now hold high academic positions in China. Perhaps the studies re-examining the earlier theories in the light of historical experience, including my ideas, have already been prepared.
Though I hold a considered revision justified and necessary, let me add that historical time is measured in China in different units. The smallest is not a month or even a year, more like a decade. Certainly this hybrid socio-economic form has coexisted with rapid growth; in fact it may have been just this curious mix that impelled its hair-raising speed. Yet it seems the pace is slowing. Chinese friends of mine point out that the internal conflicts in the system are tending to worsen. As the economy and per capita production grow, so does demand for a proportionate increase in consumption. Ever fewer will tolerate the way price and wage controls, and suppression of movements promoting wage demands hold back the rise in real wages. Yet very low wage costs were one secret behind the lightning increase in Chinese exports. It is impossible to sustain forever such macroeconomic proportions, i. e. the state in which roughly half the value added was invested and only half remained for consumption.
The tensions are rising not only in the economy but in the political field as well. It is difficult or almost impossible to introduce the most up-to-date production methods, make computers by the million, allow Internet access by the hundred million, and in the meantime stifle people’s words and restrict their freedom of expression. Where now are the times when Stalin could almost hermetically seal the Soviet borders and destructive foreign information be kept at bay by barbed-wire fences and minefields? Who knows when the tense situation in China will explode? Perhaps after all there is truth in the idea that in the long term (measuring “long” in several decades) the one-party system, the state-party dictatorship and centralization cannot be sustained alongside the decentralized market economy propelled by free enterprise, introducing and constantly renewing its modern technology.
My observations on the prospects for actual historical development, complemented by consideration of the chances of likely tendencies remained so far in the sphere of positive analysis. But let us not back off from the tough dilemmas of the normative approach! Even if no dramatic slackening of growth occur, let us face the question: how many percentage points of additional growth is it worth sacrificing for human rights, freedom of expression and assembly, and the right to choose between political alternatives? We discussed my view just now: in my system of values, democracy and the assertion of fundamental human rights have prime position. If they are lacking, no rate of growth can compensate. I listen with antipathy to Western business people and academic researchers who speak joyfully of China’s economic achievements and then add as a sideline, “Yes, well, the communist party still has undivided political power there.” Then they go on to soothe themselves by adding that democracy is a kind of Western luxury, right for well-to-do Americans and Europeans. For look how the Chinese rejoice that they have enough food at last and a proper roof over their heads. They do not care what kind of political regime is in power.
Well, we will see. Appetite comes with eating. As the material and cultural level of the population rises, as people taste a little freedom, the demand for democratic institutions will grow.

  • 6 American edition, Kornai (1990a); French edition, Kornai (1990b).

20RR: In your memoirs you insist on your sustained decision not to participate in politics after 1956, for professional, ethical and personal reasons, and to remain essentially a scholar, a man of science. You have deliberately avoided the position of an appointed adviser, both in the late socialist period in Hungary, and in the postsocialist process. You have nevertheless voiced your recommendations in important circumstances, as with your Passionate Pamphlet in the Cause of Economic Transformation, first published in November 19896, or during the transformation process. In the recent past, you have taken strong public positions against the policies of Orbán’s government in Hungary, not only concerning economic policy but also institutional reforms and political issues of democracy. How serious in your eyes have the recent trends in your country been?

  • 7 Kornai (1959).

21János Kornai: I already more or less answered the first half of this question when I spoke with respect for Keynes’ role in public life but dissociated myself from it. I have indeed, since the change of system, expressed my views several times on what I feel should be done in politics and the economy. I put great effort into this when I set about drawing up detailed recommendations entirely on my own initiative, without being requested to do so. I did this in the case you mention, when I wrote my Passionate Pamphlet in 1989. This was the first work to appear in printed book form that put forward a comprehensive transformation program for Hungary.
A decade later I wrote books on how to reform the health sector in Eastern Europe. The first version I wrote alone, and then for the second version I joined forces with Karen Eggleston, an excellent health-care economist, a former student of mine. The varieties of capitalism with strong state redistribution and political forces that build up a paternalist welfare state, inevitably generate certain symptoms similar to phenomena well-known in a socialist shortage economy. The state undertakes at the taxpayers’ expense to fund the bulk of the health-care costs. But that creates a kind of “socialist” island in the sea of the capitalist market economy, with all the known accompaniments: queuing, long waiting times, and a bureaucratic relationship between health providers and the patients left at the mercy of the providers. When I began to study the health sector in post-socialist Eastern Europe, and also in Sweden or the U.K., it did not take very sharp eyes to see that I was on familiar ground. A researcher who has specialized in the shortage economy feels at home in the milieu of free health-care services.
To return to your question on interventions in day-to-day economic policy matters, I undertook in both cases, with a comprehensive transformation program and on the subject of reform of health care, to put my recommendations and advice down on paper. But then I stopped. I did not “lobby” on behalf of my proposals or seek out ministers or their representatives to convince them I was right. Instead I hurried back into my study. I could hardly wait to get on with the next research project and then again draw new conclusions only in the printed word. It would seem that this habit of mine is incurable.
I am deeply concerned at the changes that have occurred in this country since the Orbán government came to power in 2010. Hardly a couple of months after that political turn of events, I spoke out in a lengthy study entitled “Taking stock,” (2011) which appeared in a daily paper, pointing to the grave dangers undermining democracy, above all the methodical removal of the system of checks and balances. A year later I published a second such study entitled “Centralization and the Capitalist Market Economy” (2012). This I intended as a second warning signal. It is a bitter experience to see how phenomena about which I wrote more than half a century ago, in my 1956 book Overcentralization7, have arisen again. The changes that occurred over several decades within the political frames of the socialist system, and still more those that occurred beyond those frames, after the great turn of 1989-1990, all pointed in one direction: from dictatorship toward the creation and fulfillment of democracy, from centralization toward decentralization, from command-based control toward market contracts, from bureaucracy and paternalism toward individual autonomy and self-sufficiency. It is embittering to see that the Orbán government has done a U-turn instead of continuing in that direction. It has turned back and turned the country back toward autocracy, nationalization, restriction and harassment of private ownership, centralization, and paternalism. Like many members of the Hungarian intelligentsia, I feel an obligation to raise my voice in protest. Each does so with the means at his or her disposal. Mine is the spoken and printed word, fair appraisal of the situation, and alarms at the great dangers I see ahead.

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References to the works of János Kornai

Kornai J. (1959), Overcentralization in Economic Administration, Oxford, Oxford University Press.

Kornai J. (1971), Anti-Equilibrium, Amsterdam, North‑Holland.

Kornai J. (1980), Economics of shortage, Amsterdam, North‑Holland (Socialisme et économie de la pénurie, Paris, Economica, 1984).

Kornai J. (1990a), The Road to a Free Economy. Shifting from a Socialist System: The Example of Hungary, New York, W. W. Norton (edition in Hungarian, Passionate Pamphlet in the Cause of Economic Transformation, 1989; Du socialisme au capitalisme. L’exemple de la Hongrie, Paris, Gallimard, 1990b).

Kornai J. (1992), The Socialist System. The Political Economy of Communism, Princeton NJ-Oxford, Princeton University Press-Oxford University Press (Le système socialiste. L’économie politique du communisme, Grenoble, Presses universitaires de Grenoble, 1996).

Kornai J. (1995), Highway and Byways. Studies on Socialist Reform and Postsocialist Transition, Cambridge MA, MIT Press.

Kornai J. (1997), Struggle and Hope. Essays on Stabilization and Reform in a Post-Socialist Economy, Cheltenham UK, Edward Elgar.

Kornai J. (2000), “The System Paradigm”, in W. Scheckle et al. (eds.), Paradigms of Social Change: Modernization, Development, Transformation, Evolution, Frankfurt/New York, Campus Verlag (« Le paradigme systémique », in J. Kornai, La transformation économique postsocialiste, B. Chavance et M. Vahabi (eds.), Paris, Éditions de la Maison des sciences de l’homme, 2001).

Kornai J. (2001), Welfare, Choice, and Solidarity in Transition (with Karen Eggleston, 2001), Cambridge, Cambridge University Press.

Kornai J. (2006a), By Force of Thought: Irregular Memoirs of an Intellectual Journey, Cambridge MA - London, The MIT Press (À la force de la pensée : Autobiographie irrégulière, trad. du hongrois par J. et P. Karinthy, L’Harmattan, Coll. « Pays de l’Est », 2014, à paraître).

Kornai J. (2006b), “The Great Transformation of Central Eastern Europe. Success and Disappointment”, Economics of Transition, 14 (2).

Kornai J. (2008), From Socialism to Capitalism, Budapest, Central European University Press.

Kornai J. (2011), “Taking stock”, Népszabadság, Budapest, January 7; also published in American Interest, January 6.

Kornai J. (2012), “Centralization and the capitalist market economy”, Népszabadság online, Budapest, February 1, published in English, Economics of transition, 20(4).

Kornai J. (2013), Dynamism, Rivalry, and the Surplus Economy, Oxford, Oxford University Press.

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1 Kornai (2000).

2 Kornai (2006a, p. 192).

3 Those who served two terms as prime minister or finance minister have been counted twice.

4 Hungary adopted the epithet denoting a republican form of state on three occasions. The first Hungarian republic lasted from 1918 to 1919 and the second from 1946 to 1949. The third was declared in 1989. The new Basic Law” (2012) promulgated by the Orbán government deleted the word Republic from the countrys name and thereby de jure brought the third republic to an end. The process had begun de facto somewhat earlier, with suppression of the republican ideal, destruction of institutions of democracy, and replacement of them by institutional erection of autocracy in its place.

5 Kornai (2006b).

6 American edition, Kornai (1990a); French edition, Kornai (1990b).

7 Kornai (1959).

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János Kornai et Bernard Chavance, « Irregular Memoirs of an Intellectual Journey: questions about the state of economics », Revue de la régulation [En ligne], 14 | 2e semestre / Autumn 2013, mis en ligne le 12 décembre 2013, consulté le 24 avril 2017. URL :

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