"The Socialist System" - János Kornai

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'The Socialist System' presents itself as a daunting read: a 600 page, somewhat dry analysis of the detailed workings of the socialist (ie post-capitalist) system in all its aspects. Kornai was trained as a philosopher, becoming an economist and then a journalist in socialist Hungary, in the period after the second world war.

His book identifies three phases of socialism: the 'heroic' period of the revolutionary-transitional system (think 'War Communism'), the classical system of totalitarian bureaucratic control (prototypically Stalinism) and the reform period (NEP; the Gorbachev reforms). The historical order is usually (but not always) as written - with occasional reversions.

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It is commonplace to review the political horrors of socialism: the great famines of the thirties in Russia and the Gulag, the 'Great Leap Forward' in China. But underlying such political episodes of class struggle and bureaucratic consolidation are deeper issues, those associated with the consequences of bureaucratic coordination of the economy.

Bureaucratic coordination just doesn't work that well. Kornai is forensic in considering how the dictates of forced growth (due to the regime's often-justified sense of their encirclement by more advanced and hostile capitalist states) generates aggressive, top-down 'tight plans' incapable of fulfillment even in principle.

It's simply impossible to centrally-plan a modern economy with any degree of success. All layers of the bureaucracy see it in their interests to organise outputs against static, inflexible and ignorant plan-objectives, regardless of the real needs they plainly see around them. Indeed they will be rewarded for plan-fulfillment and punished for failure.

Hoarding, shortages, poor quality goods and lack of motivation are endemic. The system works, after a fashion, but once the extensive phase of development has been achieved progress slows and the centrally-planned economy falls further behind advanced capitalist countries.

Kornai is especially good on the organic and protean nature of the bureaucracy. Industrial societies are just too interdependent: they must be coordinated. In the absence of market (price) mechanisms, top-down bureaucratic coordination is the only alternative and its daily failures lead to further bureaucratic growth. Anything which is not being centrally controlled is potentially dangerous to the achievement of the plan.

Eventually, though, something must be done. Reforms are called for. Wherever market mechanisms are introduced - in agriculture or in small business - productivity soars. Yet the market is anathema to the plan: the two organising principles cannot cohere. In one place capitalism is allowed to advance and the communist party's monopoly of power begins to falter; in another place the party strikes back and property rights begin to to look shaky causing investment collapse.

The masses are conflicted. On the one hand they welcome the lessening of repression, the chances for higher incomes in the private sector and the greater availability of higher-quality goods. On the other hand, their innate and indoctrinated sense of egalitarianism is offended by capitalism's inequities and meritocratic qualities let alone the elements of price-gouging and rip-offs attendant upon the reemergence of private property and market relations.

Nowhere does the Trotskyist model of a socialised economy under the democratic control of workers' councils get a look-in. Somehow, there's a disconnect between the operation of the economy as a whole and the specific interests of individual workers and their families. The principal-agent problem at all scales is just too overarching, too ubiquitous.

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For a while, China has seemed a counter-example to Kornai's thesis. We are told that the Chinese Communist Party leadership has studied and learned from the collapse of the Soviet Union. It may be too early to say but the story on China in 2018, as growth continues to slow, suggests that Kornai's prognosis will again be proven correct.

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If this book, rich in details and experience were made into a TV series, could it transform the illusions of western leftists who still believe a planned economy could be made to work? I was studying Kornai's book while also reading Vasily Grossman's 'Life and Fate' and it was extraordinary how Kornai's general principles were exactly replicated in the experiences of Grossman's characters.

Yet I have no illusions. The myth of the benevolent centrally-planned economy is probably written in our genes: every generation has to painfully learn better, hopefully through works such as this.

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Let us return to the intriguing question of China. Andrew Batson writes:

"I put János Kornai’s The Socialist System: The Political Economy of Communism on my best books list for last year, but I’ve been slow in writing something longer about it. It’s taken some time for me to think through how to understand China in the context of his arguments.

Kornai’s book is brilliant in its diagnoses of the internal conflicts and problems of “market socialism” or “reform socialism”, in which market mechanisms are permitted but the Communist Party maintains political primacy and a large public sector. This is a still a pretty accurate definition of China’s system. There were so many moments while reading when I wanted to shout out loud in recognition: “Yes! That’s exactly how it is!”

Yet the book finally concludes that market socialism is an inherently unstable and unsustainable system that cannot last. Essentially Kornai argues that the combination of a weakened version of state intervention and the half-hearted embrace of market competition enjoys the vices of both systems and the virtues of neither.

A government that no longer truly believes in socialism cannot enforce its plans, while market forces are allowed to operate only inconsistently, so that they amplify rather than alleviate distortions. The inevitable accumulation of economic problems means that the public and officials get fed up with the system and eventually decide to jettison it entirely."

Batson then continues to the key question: So what did Kornai miss?