Professional and ethical dilemmas of economists (In memoriam J (cid:1) anos Kornai, 1928 – 2021)

J (cid:1) anos Kornai, the most distinguished Hungarian economist passed away on 18 October 2021. This short essay, written by a long-time disciple of Kornai tries to prioritize his scienti ﬁ c achievements spreading over six decades. The conclusion is that Kornai ’ s most important contribution to the principles of economics was already presented in his 1971 book, entitled Anti-equilibrium, and without this book his most respected later works and his other original concepts, like the soft budget constraint or the shortage economy, cannot be understood.

For at least two decades in October of every year, I hoped that a life-long friend of my parents and my supporting mentor since adolescence, J anos Kornai would receive the Nobel Prize in Economics.This autumn, another year passed and, once again, not him, but others were crowned by the Swedish Academy.Alas, we all know that he cannot receive the prize in the future eitherhaving passed away on 18 October 2021, after an enviably long, beautiful life and a 69 year long academic career.Nevertheless, even without the Nobel award, J anos was the most important Hungarian economist of all time, widely known in his home country and worldwide.His books were translated into 20 languagesincluding Sinhalese.After a long illness, he passed away at home, surrounded by his beloved family.He was 93 years old.

THE FOUR MOST IMPORTANT SCIENTIFIC CONTRIBUTIONS OF KORNAI
A few days after the final closure of his life's work, it is perhaps premature to take stock, and thereby, highlight Professor Kornai's most important achievements among so many. 3Nevertheless, putting aside all personal and national sympathies, I am confident that with his accomplished academic legacy, J anos would have deserved the highest international award for at least four impressive, intrinsically linked findings.First, it is beyond any doubt that his 644-page magnum opus -Kornai (1992)gave the most adequate and convincing explanatory narrative of the worldwide communist system.
Second, the construction of the soft budget constraint (SBC) concept from 1975 onwards was an equally impressive academic achievement.The term SBC has become so widespread in the economic literature that with a little bit of exaggeration we can compare it to the importance of the concept of black hole or DNA in the vocabulary of physicists or biologists, respectively.Kornai has borrowed the term SBC from medicine, implying the bundle of visible problematic symptoms of a disease which otherwise in a healthy organism are not present.According to this definition, under "normal" circumstance the actors of the economythe firms, the households and the various institutions of the public sectoroperate with a hard budget constraint, which means that these actors cannot spend more than their revenues are and the size of this revenue depends on the prevailing market prices which they cannot unilaterally influence.If these agents wish to spend beyond this limit, they can borrow money, but all loans must be paid back at the contractual date with a pre-agreed interest.Kornai's remarkable insight was that SBC is present to a greater or lesser extent in all economies.The softer the fiscal constraint, the more an economy can be said to be close to the ideal-typical socialist economy.There are glaring shortages of all resources in the market and a weak capacity for innovation.And vice versa: the harder is the budget constraint, the more the economy shows the characteristics of the capitalist market economies: cyclical unemployment,4 large income and wealth disparities (Kornai 1980(Kornai , 2014a(Kornai , 2018)).
Third, J anos Kornai introduced his supermarket metaphor5 in 1979 to challenge the theory of the third way, as an optimal hybrid between capitalist and communist rules.But, the socioeconomic systems, he argued, cannot be constructed from randomly or scientifically selected pieces, similar to customers in a supermarket, who are free to put into their shopping trolley whatever they find on the shelves.Systems, like socialism6 or capitalism, are not made of separate building blocks fixed together with screws or mortar.Their interrelatedness is like a genetic program of 3 In a 2017 public lecture, the transcript of which is available in Hungarian only (Kornai 2019a), J anos made a self-critical remark about his very extensive and colourful research palette.If your life-long research is focused on a single subject, you have a better chance to become your own idea-promoter by writing about the same issues many-many times, he stated.By contrast, he continued, if you jump from one research subject to next frequently (as he did), your chances to make an impact on your peers is much smaller.After all, as he bitterly noted, commercial marketing was also based on frequent repetitions.procreation.All newborn cats are similar to each other, whether small or big.In the same way, all socialist (or capitalist) systems likewise are somewhat similar to each other.In several later works for example in Kornai (1990) -, he formulated the same idea as the "affinity thesis" according to which the bureaucratic model of coordination has a natural affinity for (strong linkage to) stateowned property, while market coordination has a natural affinity for private property.By contrast, the linkage between market coordination and state property is weak, meaning that one cannot use the market as a neutral instrument to promote state ownership.
The fourth major achievement in Kornai's ouvre was, in fact, the most important in his own assessment.As can be read in his memoirs, "Anti-Equilibrium is not merely an item on my list of publications.It was the most ambitious enterprise of my career as a researcher" (2006, p. 197).Let us start our brief investigation with a question.Is economics conceivable without the concept of equilibrium?In the 1983 Okun Lectures, three years before his untimely death, Nicholas Kaldor (1972), the Hungarian-born British economist, a friend of J anos Kornai gave an affirmative answer to this question: yes, economics is better off without equilibrium (Kaldor 1985, p. 5).In reality, more than a decade earlier, by choosing an even more provocative book-title, Anti-Equilibrium (AE for short), had already given the same answer.In real life, economic actorshouseholds, firms or national economiesare never in a position, which can be meaningfully called "equilibrium".They always act under the binding constraints.Capitalist economies are inherently demand-constrained, while the socialist regimes are always resource-constrained (Mih alyi 2017b).
Beyond Kaldor, Kornai (1971) was not alone with his critique of the General Equilibrium Theory (GET).A thorough analysis7 of the Nobel Prize Lectures of all economists showed that 8 laureates -Hayek, Simon, Solow, Havelmo, Coase, North, Sen, and Kahnemanemphatically stated in their addresses that the neoclassical theory was wrong, in whole or in part, on either empirical or theoretical grounds.All of them said that the equilibrium theory could not be true.
Beyond all this, it is also noteworthy that AE was well ahead of its time in emphasising that: (i) economics should draw from biology, rather than physics, as its methodological underpinning; (ii) evolutionary logic requires a different type of decision-making in simple, routine matters, as opposed to large and important decisions; (iii) the most important production processes are non-linear, with increasing returns to scale being the rule, rather than the exception in modern capitalist economies andin conclusionthat there is no such thing as general equilibrium.In modern societies, goods and services are either in shortage (Socialism) or in a state of oversupply (Capitalism).It is either a buyers' market or sellers' market.8 With the benefit of hindsight, however, it is clear that Kornai's 1971 book did not have such a deep international impact that the author and his many enthusiastic readers at home and abroad had hoped for.Why? AE was written in four years, between 1967 and 1971, with the semifinished product (an essay-length study) and the final product being available in English at about the same time as the Hungarian version.Kornai spent decades at American universities, has been a member of numerous international academic fora, his former students are now professors at major universities around the world.So, it cannot be said that language barriers or geographical isolation were the obstacles to his breakthrough.It is still regularly cited today, but the mainstream of our science relies on GET, the one created by Walras (1874), Samuelson (1948), Arrow -Debreu (1954) and Debreu (1959) as their professional mother tongue.
In other words, the paradigm shift Kornai hoped for and called for has not taken place.In 2021, the neoclassical vision is still be taught at the world's best economics universities and in Hungary, as well.
That economic agents always behave rationally, and that, since there is perfect competition in atomized markets, supply and demand processes lead to equilibrium in all markets.In 440 pages, AE explains and demonstrates that these are grossly contradictory assumptions and that the conclusions are therefore untenable.Yet, to this day, traditional economics seems to have been able to extend its own boundaries to accommodate diametrically opposed theories at the margins (e.g., imperfect competition, bounded rationality, etc.).GET has changed in many ways since 1971, but this change is not attributed to the AE by the new generation of economists.Simply because they have hardly heard about the book, if at all.

THE ASSESSMENT OF THE RECENT U-TURN IN CHINA
In 1985 Kornai spent four weeks in China.In many ways, this seemed to be the highest point of his career as a reform economist and policy adviser.The reforms initiated by Deng Xiaoping in 1978 were already well under way in the world's most populous country, and the positive results of the changes were already visible. 9From his 19 books, 15 were translated into Chinese.Thus, many indications suggested that China was able to make a rapid and peaceful transition from a socialist economic model to a market economy model, partly on the basis of Kornai's ideas and advice.Kornai also had reason to be proud of the fact and draw optimistic conclusions from it, that his former Harvard PhD students had been elevated into influential positions in Chinese economic policy.Up until 2018, Kornai's numerous writings and statements were, if not entirely uncritical,10 but essentially supportive of the Chinese reform process.
Therefore, it came as a surprise when, in February 2018, at a conference devoted to his 90 th birthday, J anos stated publicly in his own conference closing speech that China made a U-turn.11Under the dictatorial leadership of President Xi Jinping the country had essentially restored the dominant institutions of the communist political and economic establishment.Perhaps it is even better to say that the subsequent Chinese leaders after Deng had never completely dismantled them.Following the conference, Kornai expressed his views in an op-ed article of the Financial Times (Kornai 2019b) and in other articles, including a 2019 paper in Acta Oeconomica.With this insight Kornai was months or even two years, 9 It has been seldomly stated in comparative studies that the reforms linked to political leadership of Deng had predated by a large time margin the so-called post-communist reforms in Eastern Europe and the Soviet Union, starting in 1989 and 1990, respectively.ahead of the world.Seven months later, George Soros (2020) alarmed the European Union.He published an op-ed (under the telling title "Europe Must Recognize China for What It Is") containing words very similar to those written by Kornai: "Neither the European public nor European political and business leaders fully understand the threat presented by Xi Jinping's China." 12  After the East European and Russian regime change in 1990, Kornai and most Western commentators expected that as market integration and private property expanded, China eventually would also turn into a liberal democracy.Prior to the worldwide fall of communism, Kornai offered three primary criteria for determining whether a country was socialist or capitalist.In a later, 2016 Acta Oeconomica paper he amended this first three criteria by adding six secondary ones.On this basis, his conclusion was that under President Xi's rule while capitalist elements remained strong, in the final analysis, the country was on its way back to where it was before 1978. 13Present-day China, under the leadership of Xi Jinping, is returning to the communist, dictatorial practices.The regime retains and even extends governmental interference into markets and private property.In the light of Kornai's supermarket metaphor, presented above, such a system may become unsustainable.Whether it is untenable already in the short-run remains to be seen.Only history can tell, but Kornai's theory predicts internal failure andin view of the size of the Chinaand external conflicts.ppppp As I sadly stated at the beginning of this memorial article, the Prize Committee of the Royal Swedish Academy of Sciences did not award J anos Kornai with the Nobel Prize andaccording to the rulesthis prize cannot be donated post humus.According to the hearsays of the profession, Kornai had been nominated more than one times, but on all occasions other distinguished economists were chosen by the majority of Prize Committee.Whether this is true or not, we cannot know.The deliberations of the Swedish Academy are confidential for 50 years.The first prize was given in 1969, thus the materials of the first few years are already available for researchers.Our children and grandchildren will certainly know at some point more about this important story.
P eter MIH ALYI Editor-in-Chief Acta Oeconomica 12 In the spirit of Kornai's assessment of the recent Chinese developments, Acta Oeconomica published 8 outstanding papers to China in its 2020 Special Issue, under the title "2020 -The Year of China" (Vol.70.).

Table 1 .
J anos Kornai's scientific papers, essays, book reviews, obituaries and interviews published by Acta Oeconomica in 52 yearsreal academic career started in Budapest, at the Institute of Economics of the Hungarian Academy of Sciences in 1955.He rose to the top by 1986 at the age of 58, when he received an occasional professorial appointment at Harvard University, followed in 1991 by the Allie S. Freed Professorship, a permanent appointment he held until 2002.He retired of his own wish from Harvard as Professor Emeritus in 2002.From the 1980s onwards, he spent half of the academic year in the Hungarian capital and the other half at Harvard in Boston, roughly equally divided.This enabled him to work as a founding fellow of the Collegium Budapest Institute for Advanced Study from 1912 to 2011.J anos was elected a member of the Hungarian Academy of Sciences in 1976.He received the title of Honorary Professor Emeritus at the Corvinus University of Budapest in 2011, the duties of which he fulfilled almost until his last months of life.A succinct summary of his publications is presented in Table2.

Table 2 .
The complete summary list of J anosKornai's academic publications, 1952Kornai's academic publications,  -2021 Notes: If the original publication was in Hungarian, the translations into foreign languages were not counted separately.The periodisation underscores the importance of the regime change in 1989.Source: Compiled with the assistance of Ad am Ker enyi, one of the young disciples of Professor Kornai, using (predominantly) J anos Kornai's homepage, http://kornai-janos.hu/full%20publist.html,as of 30 September, 2021.See also Ker enyi (2013).