KORNAI, JANOS

(b. 1928), economist.

Janos Kornai was educated in Budapest and became professor of economics in the Institute of Economics of the Hungarian Academy of Sciences in 1967 and at Harvard University in 1986.

In Overcentralization in Economic Administration (1957) Kornai was one of the first in the Soviet bloc to show the defects of central planning and argue for more decentralization and use of financial and market methods in guiding the socialist economy. His Mathematical Planning of Structural Decisions (1967; second edition 1975) developed the idea of two-level planning.

Kornai attempted to apply organizational and information theory, as well as management science, to analyze the advanced socialist economy in his Anti-Equilibrium (1971). He employed non-equilibrium concepts to replace the Walrasian market-clearing of standard neoclassical theory. Along these lines, his Economics of Shortage (2 vols., 1980) pictured an economy, like Hungary's or Soviet Russia's, with chronic excess demand and limited price flexibility. Supply would be allocated to meet excess demand by nonprice, quantitative methods. Tautness would show up as queues for consumer goods, indicating inefficiency and underutilization of resources.

During this period, Kornai developed his famous concept of the "soft budget constraint." Socialized enterprises were not required to cover costs, as ad hoc subsidies and credits would invariably be made available by state institutions so that the firm would not have to close. Loss-making enterprises were a cause of excess demand in the economy.

Following the democratic revolution in Hungary, Kornai argued for fiscal restraint, particularly in the payment of pensions, so that Hungary could invest more for growth.

See also: economic growth, soviet

Martin C. Spechler