János Kornai was born as János Kornhauser in Budapest in 1928 to a Jewish family. He lost close relatives in the Holocaust. Seeing the Soviets as liberators, he became a fierce supporter of communism in Hungary in the aftermath of the Second World War, working enthusiastically for the communist party newspaper. However, the Hungarian uprising of 1956 and its brutal suppression made him become critical of the communist system. Kornai turned to academia for good, defending his doctoral dissertation on the excess centralisation of management in the Hungarian planned economy that very same year. With its critical stance on systemic flaws of the Hungarian planned economy, his dissertation led to his dismissal from the economics institute at the Hungarian Academy of Sciences; only in the 1960s was he allowed to return.

Political winds had changed in the meantime. Hungary had become one of the most liberal countries in the Eastern Bloc, implementing from 1968 onwards the New Economic Mechanism, a market-oriented economic reform policy known commonly as ‘Goulash Communism’. Kornai’s PhD thesis in the meantime had set the tone for academic works to come. In the following decades, he would work on systemic shortcomings in socialist economies and the impact of economic reform attempts in his key publications Anti-Equilibrium (1971) and Economics of Shortage (1980). These books made him a particularly interesting partner for Chinese reformers in the 1980s, when China accelerated economic reforms and moved from a planned to a more market-driven economy, seeking to learn from the examples of other reforming socialist economies.

Navigating between worlds

Kornai was an academic navigating between worlds. Commentators described him as half a mainstream economist, half not. Although labelled as ‘neoliberal’ by some, he never associated himself with a certain strand of thought, and he named Karl Marx, Friedrich von Hayek, Joseph Schumpeter, and John Maynard Keynes as influence on his own work. Kornai saw himself as criticising the economics profession from within, fiercely rejecting comparisons between theoretical models and the real economy. Not only was he wandering at the edge of mainstream economics, he also wandered between socialist and ‘Western’ academic worlds before 1989.

In the 1980s, he was appointed as a professor at Harvard University, leading him to work and live half of the time in the US and half of the time in Budapest until his retirement in 2002 (Kornai, 2008). Kornai was thus a representative of a general trend: academic thought in the socialist world integrated into global thought networks bridging the East–West divide of the Cold War. With his path-breaking work, Kornai would influence discourses in the West, the East, and the Far East.

Kornai & China

Kornai first became an academic advising on China’s ‘reform and opening up policies’ in the 1980s. Seeking inspiration abroad, Chinese economists, reformers, and intellectuals travelled the globe and invited foreign economists and reform politicians to China in order to exchange ideas on how to reform a socialist economy. After the devastating years of the Cultural Revolution, the Chinese Communist Party was aiming to achieve a ‘modernisation’ of the economy and an increase of the general populations’ living standard.

Chinese reformers developed an especially strong interest in Eastern European thought on economic reforms. In 1985, Kornai visited China for the first time, attending the so-called Bashan conference on a boat on the Yangtse River. His ideas were picked up by influential Chinese reform intellectuals such as Wu Jinglian, who argued for reforms along the lines of Hungary’s reform experience and Kornai’s arguments. In the 1970s, Kornai had developed a key concept in economic research on socialist systems, the ‘Soft Budget Constraint’. It describes how in a planned economy, firms do not fear losses or bankruptcy, as their capital and resource supply are provided constantly by the state rather than the constraining force of capital markets; a concept that is used in economics books on the Chinese economy until today (Naughton, 2006). With its Chinese translation, Economics of Shortage became a bestseller in the People’s Republic in the second half of the 1980s.

Frankenstein or one among many?

Throughout the decade, reform economists within China debated over which reform path China should follow: gradual reform or instant economic liberalisation. Kornai’s work was seen as an important reference in these debates. However, as the German economist Isabella Weber argued in her recent bookHow China escaped Shock Therapy (2021), Kornai was just one among several Eastern European researchers consulted by Chinese reform intellectuals that debated over whether China should follow a gradual or a shock therapy reform path. For example, a young generation of Chinese economists was equally interested in Eastern European economic systems in the second half of the 1980s, and they used their research in Eastern Europe to argue against instant price liberalisation. Eventually, the young reformers and their Eastern European reference points won the day.

As Weber has argued, Chinese reformers made up their own minds and eventually developed a gradual model for economic reform, inspired by various sources. Even though the author of a recently published article in Hungarian argues that Chinese reformers sought to emulate the East Asian development model of countries like South Korea or Taiwan, championing national enterprises with the help of the state, one should not overlook the influential role of Eastern European reform thought on Chinese economic reform. Furthermore, as Julian Gewirtz pointed out in his 2017 book Unlikely Partners, Kornai did not fully disclose his critical opinion on socialist systems in general when being in China, restricting his advice to purely economic questions. Most probably, Kornai’s advice and publications were inspirational, but he was just one among many economic advisors within and without China influential in the economic reform process.

Nonetheless, Kornai considered himself to be morally responsible for what the Chinese government had become: a repressive regime with hegemonic ambitions worldwide. In 2019, he published a widely discussed piece in the Financial Times, with translations into Chinese, Vietnamese, Spanish, among other languages. By contributing to Communist party-led reform in China, he had, in his own words ‘helped to free millions from the clandestine economy’, with the unintended consequence that China now ‘aspire[s] to the position […] of the world’s leading power’. Although he saw Chinese politicians in power as the ones ultimately responsible, he blamed himself for not being aware of the unintended consequences of his advice, emphasising that having lived through the Hungarian Revolution of 1956, he should have known that communist leaders were ‘capable of anything’. Yet he probably overestimated his personal influence.

Natural Partners

The Eastern Europeans were ‘natural partners’ in Chinese reform undertakings in the 1980s due to systemic proximity. Chinese economists developed a fundamental interest in the region and its reform attempts after the Cultural Revolution ended in 1976, leading to multiple academic delegations and research trips to and from Hungary and Yugoslavia (among other Eastern European countries), run and attended by many different academics and politicians, such as the Hungarian Rezső Nyers and the Chinese Su Shaozhi, the mind behind the concept of primary stage socialism in China.

The question of what to learn from other socialist countries that had already introduced market principles into formerly planned economic systems was discussed in Chinese academia throughout the late 1970s and 1980s, long before Kornai visited China. In these exchange processes, various reform streams within the socialist context were consulted, such as market socialists, market liberals, and practitioners of socialist reforms. Chinese ‘Kornai fever’ after the Chinese publication of Economics of Shortage and the fame it brought Kornai may explain his late remorse. However, being one among many Eastern European advisors active in China, one can conclude that historical processes drew Kornai into the reform process, thereby diminishing his personal responsibility for outcomes of the Chinese reform process.

Not only do individuals make history, they are themselves shaped by historical processes – much like Kornai was through his experiences of living in socialist Hungary. Kornai’s professional life sheds light on a general trend apparent since the late 1970s: an increasing global integration of academic disciplines within the socialist world, including economics, and a vivid Chinese interest in different streams of economic thought from Eastern Europe, especially on the question of how to implement market principles in a socialist setting. In these exchange processes, Kornai belonged to a group of liberal (economic) thinkers exchanging market-oriented economic thought between Eastern Europe and China.

Literature         

Gewirtz, Julian 2017: Unlikely Partners. Chinese Reformers, Western Economists, and the Making of Global China. Cambridge: Harvard University Press.

Kornai, János 1971: Anti-equilibrium. Amsterdam: Northern-Holland Publ. Co.

Kornai, János 2008: By Force of Thought. Irregular Memoirs of an Intellectual Journey. Cambridge: MIT Press.

Kornai, János 1980: Economics of shortage. Amsterdam: Northern-Holland Publ. Co.

Naughton, Barry J. 2006: The Chinese Economy. Transitions and Growth. Cambridge: MIT Press.

Weber, Isabella 2021: How China Escaped Shock Therapy. The Market Reform Debate. New York City: Routledge.

Wemheuer, Felix 2020 (Ed.): Jahrbuch für Historische Kommunismusforschung. Machterhalt durch Wirtschaftsreformen. Chinas Einfluss auf die sozialistische Welt. Berlin: Metropol Verlag Berlin.

Alice Trinkle is a project doctoral researcher in the Junior Research Group ‘Peripheral Liberalism’. She is a global historian with a focus on both China and Hungary. In her PhD project, she analyses transnational exchanges on marketisation in a socialist context between Chinese and Eastern European reformers during China’s ‘reform and opening up’ period (1970s–1990s). Before joining SCRIPTS, Alice studied History, Chinese Studies, German Language and Literature, and educational science at SOAS University of London, UIBE Beijing, and Potsdam University.