Hungarian economist János Kornai, who died at the age of 93, was instrumental in explaining the structural failure of the planned economies of the countries of the communist bloc of Eastern Europe in the 1970s and 1980s. administration finally collapsed, he pleaded for a gradual transition to a market economy.

His book Economics of Shortage (1980) provided a systematic analysis of how the managed economy worked in practice. Kornai identified chronic shortages as its main feature, arguing that it was not the result of mistakes by planners or lazy and obstructive workers, but rather systemic flaws. The shortages were due to the fact that loss-making state enterprises would never be closed. They had easy access to government grants and survived despite persistent losses.

Kornai’s key idea was “soft budget constraint”. In Western market economies, most businesses have to balance their income and expenses – a difficult budget constraint. But in planned economies, the soft constraint ensured that companies accumulated material and financial resources to ensure they could meet planned production targets, knowing that they would be bailed out in the event of a deficit anyway. The overall situation has resulted in chronic shortages, waste of resources and general inefficiency.

Later economists applied the idea of ​​soft budget constraint beyond managed economies, including whenever an economic unit is deemed too large to fail. This creates bailout expectations and influences the behavior of leaders accordingly, such as in big banks and professional football clubs.

In 1986, Kornai left Hungary for a professorship at Harvard University. This allowed him to write more openly, and his critique of communism as a political and economic system was sharpened in publications such as The socialist system: the political economy of communism (1992).

When the communist regimes of Eastern Europe collapsed in 1989, he wrote a short book, The Road to a Free Economy (1990), outlining a clear program for a transition to a market economy. He argued that it should be done gradually, not through the shock therapy of mass privatization. Many difficulties could have been avoided if the post-socialist reformers had paid more attention to his advice.

Born in Budapest, János came from a wealthy Hungarian Jewish family, the son of Aranka (née Schanz) and Pal Kornhauser, a lawyer who advised German companies in Hungary. He lost his father and a brother in the Holocaust and himself barely survived the German occupation of Budapest. In 1945, he changed his last name to Kornai.

After the war, he studied philosophy for two years at the Pázmány Péter University in Budapest. He became a strong supporter of Communism and worked for several years for a Communist newspaper until he lost his illusions with the system and entered academia. Kornai acquired his knowledge of economics on his own and went on to obtain a candidate’s degree in the field – CSc, equivalent to a doctorate elsewhere – from the Hungarian Academy of Sciences. His thesis, Excessive centralization in economic administration, which was replete with facts about the flaws of the planned economy, received a lot of attention when – following Hungarian practice – he gave a public defense of it to an audience during the short-lived uprising against the Stalinist system in 1956. The thesis was published in book form the following year, and in English by OUP in 1959.

As an eloquent and visible supporter of the Hungarian revolution, Kornai suffered from the repression that followed; he was jailed, expelled from academia, denied a passport, and had to hold obscure jobs in industry ministries for the next decade. When the repression eased from the late 1960s, he was able to write and publish. During the last two decades of the Communist regime, he articulated a highly critical understanding of the planning system under the wary eye of the Communist Party. Thanks to intelligent self-censorship, he was able to keep the secret police at bay without compromising his main ideas, and he even influenced attempts to reform the economic system.

Kind, humble and courageous man and mentor to many, Kornai did not receive the Nobel Prize in economics, but certainly deserved it. This may be due in part to his critique of general equilibrium theory, the gem of mainstream economic theory, in his book Anti-Equilibrium (1971).

Unlike most of the profession, his approach to understanding economics was inductive, building theories from observations of real economic problems, rather than deductive, applying the general assumptions of traditional economics, which he did not consider appropriate in a socialist context. Kornai introduced a new way of understanding this reality based on practical economic issues such as information asymmetry – one side in a deal knowing more than the other – about negotiation and the conventions and routines that one found in a socialist managed economy.

In 2002, he left Harvard University and returned to Hungary, becoming Professor Emeritus at Harvard and Corvinus University in Budapest. He was one of Hungary’s earliest and most vocal critics of Victor Orbán’s regime, and continued to write influential articles on transition and reform into his 1990s.

He had advised the Chinese government at the start of its economic reform in the 1980s, but has become a staunch critic of the autocratic regime of Xi Jinping. He regretted his role which he saw as contributing to the creation of a Frankenstein monster. Influenced by the direct experience of Nazism and Communism, his views were fundamentally shaped by his belief in the primacy of freedom, human rights and democracy above economic growth and well-being. equipment.

Her marriage in 1952 to Teréz Laky ended in divorce. In 1971, he married Zsuzsa Dániel. She died before him and he is survived by their daughter, Judit, their sons, Gábor and András, and seven grandchildren.