We look back at the life and work of Hungarian economist Janos Kornai, who died last month
Forty years earlier, Mr Kornai lay on the roof of a Jesuit monastery in Budapest, hiding from a fascist raid down below, even as Soviet forces dropped bombs from above. The skyline had a “hellish beauty”, he wrote. As a Jewish Hungarian who had lost his father and a brother to the Holocaust, he welcomed the Soviets as liberators. He did not even mind when they stole his watch.
Some socialist reformers thought that widespread state ownership was compatible with market forces and price signals. But Mr Kornai recognised that getting prices right, even if it were possible, would not be enough. Under capitalism, a firm cannot defy prices for long without going bust. Under socialism, things were different. State-owned firms knew they could always appeal to higher authorities to bail them out.
On the China cruise, Mr Kornai convinced his audience of the need to harden the budget constraints of the country’s firms. One of his fellow passengers is now China’s banking regulator. But the imposition of financial discipline remains a work in progress. The rise in defaults, even of state-owned firms, in recent years is evidence of some harder financial lines. But it comes only after years of gluttonous investment.
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