János Kornai 1928 – 2021, Economist

October 20, 2021

János Kornai, the foremost academic economist of 20th century Central Europe, died in Budapest at the age of 94. His death was announced by his family.

János Kornai was a member of the Hungarian Academy of Sciences, emeritus professor of Harvard University and Corvinus University, a honorable member of the Swedish, and other academies.

János Kornai was the son of a prominent business attorney killed by the Nazis. From 1947 till 1955, at the beginning of his career, Kornai worked at the Communist Party daily, Szabad Nép. In 1955 he joined the Institute of Economics of the Hungarian Academy of Sciences.

Gradually, Kornai became a worldwide intellectual leader in research concerning the socialist economies’ actual functioning. Kornai’s best-known books include Overcentralization in Economic Administration; Anti-Equilibrium; Rush versus Harmonic Growth; Economics of Shortage; The Road to a Free Economy, and The Socialist System, The Political Economy of Communism. These books were translated into many languages.

From 1986 he was a professor at Harvard University. He also had visiting positions at leading American and West European universities, including Central European University, where he received the Open Society Prize in 2018

Kornai has been somewhat skeptical of those parts of the mainstream thought built on deductive principles. His book titled Anti-Equilibrium, nicely documents his skepticism. Kenneth Arrow considered Anti-Equilibrium as an alternative approach to general equilibrium theory in his Nobel lecture. Olivier Blanchard once mentioned that this book “was one of the books we all read” and “became part of the common knowledge.” 

Kornai seems to start always from an inductive side, analyzing the reality of socialist economies. He based his work on empirical and intuitive observations, which he developed into theories. His approach contrasted the deductive principles of the mainstream economic theory. The mainstream approach made it difficult to understand the socialist economy’s actual workings as it built on the institutional framework of Western societies. Indeed, here Kornai stepped in with his new vision.

In his book on Overcentralization, Kornai provided evidence of severe efficiency problems in highly centralized command economies with the domination of public ownership and the priority of quantity planning indicators.  A famous paper followed, written together with Tamás Lipták published in 1965 in Econometrica, concerning economic planning with quantity indicators.

Gradually, Kornai abandoned the research on planning methods as he understood that the socialist economy’s problems are more profound than central planning problems. He began to realize that different reform proposals for improving socialist economies cannot change the excess demand derived from the non-strict financial checks of socialist enterprises.

In 1980 he published Economics of Shortage, which brought worldwide fame to him. He apprehended that at some markets, shortages prevailed while over-supply characterized some other markets.  For Kornai, shortages in the socialist economy are systematic. Shortages do not appear randomly, and even if prices were in equilibrium, shortages would emerge due to the socialist economies’ institutional characteristics. 

Attila Chikán once wrote about the important political message of the Economics of Shortage: “Had Kornai explicitly stated the increase in economic effectiveness required for survival was unattainable without basic changes in property relations (i.e., prevalent private ownership), the book would have never appeared (or at most at samizdat with a concomitant radical reduction in effect).” Chikán makes a compelling argument that phenomena analyzed by Kornai’s Economics of Shortage had a character of law and were “necessarily overruling any efforts by economic policymakers.” In socialist reality, the state seemed an overwhelming power that seemingly could do anything. Kornai’s thoughts helped build a specific skeptical view toward the socialist state’s ability to change economic subjects’ behavior by will. 

As shown by Paul Gewirtz, Kornai had a crucial influence on the beginning of the Chinese economic reforms.

Kornai was an original thinker who analyzed real-world problems faced by socialist societies. During this process, he was able to shed light on different concepts; some of them, as the soft-budget constraint, became later part of the general knowledge in economic theory.  

After 1989 Kornai focused on issues of the transition of socialist countries into a market economy. In 1990, he wrote a book entitled The Road to a Free Economy, supporting the privatization process with advice toward a gradual path of privatization. In 1992, Kornai published The Socialist System, where he argued that the centralized political control of the communist party leads to state ownership, control of the property and influences the allocation of resources. Once the communist regime’s total power collapses, the centralized economic system also weakens and finally is replaced by private property arrangements. 

Kornai played an essential role in efforts to weaken and finally destroy the socialist economic and political order. His work was vital for economists, intellectuals, and the general public as he provided quality critical arguments toward the everyday reality of the socialist order and even more toward its impossibility for reform and rejuvenation. Kornai was able to do it without explicitly calling for the abandoning of the socialist order.

One of the most important new initiatives of Kornai after 1989 was the active participation in the foundation of Collegium Budapest. This first institute for advanced study in post-communist Central Europe was initiated by the Wissenschaftskolleg in Berlin and supported by a coalition of European states and private foundations, from 2002 also by the Central European University. Kornai organized several Focus Groups there to examine post-communist transition and the problem of “honesty and trust” in economics, after having retired from his professorship at Harvard this became his principal workplace as Permanent Fellow, until it was closed down in 2011 when Fidesz came to power in Hungary. During this period, he also served for two years as University Professor at CEU.

After 2010, while being associated as emeritus professor to Corvinus University, he became one of the earliest and most clear-sighted critiques of the emerging new authoritarianism of the Orbán government. Until the end of his life he remained a prime intellectual authority for the academic, intellectual, political and public life of Hungary. We deeply mourn his loss.

Obituary by Julius Horvath, Professor in the Department of Economics and Business and Gabor Klaniczay, University Professor in the Department of Medieval Studies