János Kornai on centralization and decentralization. Part II

Yesterday I dealt with János Kornai's ideas on centralization and decentralization. I stopped about halfway through the essay, the place where Kornai on the basis of eight criteria discussed the theoretical pros and cons of centralization versus decentralization. 

Today we continue with the specifics of the centralization that is taking place in Viktor Orbán's Hungary. This "unbridled" centralization is an instrument for "the more complete seizure of power and once that has taken place to hold onto this power for as long as possible."

What are the requirements for building an effective power pyramid?

First, the goal is to create the shortest possible chain of command.

Second, Every Boss, every Deputy Boss and every Deputy-Deputy Boss must be the Supreme Boss's own trusted man. That aim by itself is good enough reason to reorganize every existing institution and office. The change of personnel must take place down to the lowest levels of the pyramid.

Third, the main criterion for appointment must be unquestioning loyalty to the apex of the structure. Knowledge and expertise are useful, but they are secondary in appointment decisions.

Fourth, dependence must be strong on both the upper and the lower levels. Orders must be executed without the slightest hesitation. Often the order from above is not even necessary: the subordinates know the party line.

Fifth, the Boss doesn't have to discuss matters thoroughly with his employees. Similar to the army, the perfect example of vertical coordination, only information coming from above has any weight. No suggestion is expected or even tolerated from below. The system is especially intolerant of any kind of criticism.

Sixth, in order for this vertical coordination to work well, it is important to insist on discipline. Lack of discipline must be punished. Those who are disobedient must be removed from responsible positions.

The vertical coordination not only punishes and threatens. It also rewards. For loyal service ample monetary compensation can be expected. But perhaps even more important, the Bosses, the Deputy Bosses, and the Deputy-Deputy Bosses are themselves the recipients of power. They must be obedient upward, but they can give orders to the subordinates. Once these people receive power they don't want to part with it. Thus, the Supreme Boss at the apex of the pyramid is not alone. His interests are shared with great, middling, and little mighty ones.

The lives of people on the various levels of the VO pyramid (as Kornai calls Orbán's regime) is not that difficult. They don't have to think too hard. They don't have to spend time on complicated issues. They simply follow the orders of the party and the government. If something goes wrong, they don't have to take responsibility. After all, they only followed orders.

A hierarchical vertical power structure never works absolutely smoothly, and if there are problems the answer is further centralization. If that is not sufficient to iron out the difficulties, then comes punishment. In the socialist system it was deemed "sabotage" if the prescribed plan couldn't be fulfilled. The instrument of the Orbán regime is "breach of fiduciary responsibility." Up to now the Hungarian judicial system has been independent enough not to stage show trials. "However, there is no guarantee that the use of repressive instruments will stop at this point." There are more and more insinuations and false accusations and there is more and more pressure on the judiciary.

Kornai's description of centralized vertical coordination is well known to those who have studied the socialist political and economic system. In the Soviet Union and in Eastern Europe that system could function for decades because the same system was in place across the entire area. Moreover, private property for all practical purposes didn't exist. The situation today is different. How can the centralized system of Viktor Orbán exist without a socialist system surrounding it? How can it exist alongside a capitalist market economy?

The horizontal system of the market and the vertical structure of the state live side by side throughout the developed world although their cohabitation is not always easy. What the Orbán government has been doing in the last twenty months, however, is almost certain to lead to an antagonistic relationship. The Orbán government's decisions are capricious. It can easily happen that in any given law there are pro-socialist and pro-capitalist elements. The final product, Kornai argues, is incoherent, combining the least attractive features of socialism and capitalism.

Finally, Kornai lists the pro- and anti-capitalist verbiage of Viktor Orbán. If Orbán had stayed with words it wouldn't be so bad but unfortunately there have been decisions that are unacceptable. Perhaps the most egregious was the confiscation of private savings. Nationalization also seems to be on the agenda. It's enough to think of the state's purchase of MOL stock and 75% of Rába. Just today the Hungarian postal service received the last available frequency to set up a company providing cell phone service.

Moreover, the Orbán regime doesn't even honor the most fundamental feature of capitalism, the sanctity of private contracts. The government can also regulate what can be sold at gas stations, how many pharmacies can operate in any given town and where they are located. Recently the sale of tobacco products became a state monopoly with the government regulating the number of state-run tobacco shops. The government determines whether someone can build and open a supermarket. And the Orbán government makes a distinction between firms and firms. Hungarian owned firms, especially if their owners are in good standing with Fidesz, are favored and foreign companies are discriminated against. And we all know what happened to the Hungarian banking sector. The result is a lack of credit and thus a lack of economic growth.

Although Kornai claims that his example of an American football game is not really appropriate, the Orbán government's methods bear some resemblance to those of a defensive squad. There is a fighting squad on one side (the government) that is ready to trample down everybody on the other side. The other side is Hungarian capitalism which on the surface is at a disadvantage. It doesn't have a unified party, it doesn't have a politburo, and it doesn't have a general staff. But it has another kind of power: the market, made up of tens of millions of participants. This market has a special language. It is enough for it to withdraw and do nothing. If the market with its invisible hand refuses to purchase government bonds or its representatives refuse to open new factories, the centralized vertical state is stymied. It might have political power but it is powerless in the face of a market boycott.

Kornai concludes that the Orbán regime managed to grab power by centralization and the expansion of the state, but that autocratic rule, unbridled centralization, and state domination run wild are incompatible with the healthy workings of a modern capitalist market economy. By going along this road, the current Hungarian government will be incapable of putting the currently stagnating economy on the path of sustainable growth.

Comments

[Ron]

Eva: The other side is Hungarian capitalism which on the surface is at a disadvantage. It doesn't have a unified party, it doesn't have a politburo, and it doesn't have a general staff.

VO is working on it. Today on Caboodle.hu regarding the Chamber of Commerce

http://www.realdeal.hu/20120131/the-chamber-of-horrors-that-is-hungarys-new-chamber-of-commerce-law/

The thing is that the mandatory fee companies had to pay to the Chamber was abolished during VO's previous government. By re-introducing it, he wants to control the market as well.

As far as I know the Chamber had no value added to the market in the past.

[Kassandra]

Nice Photo, the photo seems to be relevant.

[I love Hungary]

Eva, the comparison to a "perfectly vertical" organisation is NOT an Army. At least not a victorious Army.

As Napoleon demonstrated, the failure to delegate and to install credible checks on one's own power/ strategy can ONLY lead to eventual failure on the battle field.

Sure there is a chain of command- there must be one in order to ensure functionality.

But I think it would be really an interesting study to delve into how "horizontal" an actual Army is- especially when it is fighting a real fight.

You'd be surprised, I'd reckon, because it is actually the information flow coming from the "trenches" that is far more valuable than that coming from a "Leader", when armies are actually enagaged in fighting.

I hope I'm not being pedantic, but I think the differenece is important.

Authority, in and of itself is not only "not bad"---- rather it is neccessary, if an organisation is to accomplish anything.

Democracies elect people to wield authority.

What is bad in Orban's organisation is Orban.

I think it's important to call it like it is..... and comparing Orban's dictatorship to Army really dilutes your argument.

Frankly, I wish Orban had half the management skills, intelligence and respect for democracy as an average US Army Lieutenant.

By the time those boys make General, they are all about delegation and surrounding themselves with talent.

Bad comparison.

[GW]

One of the greatest deficits of a strongly vertical system is that there is no check to insure that good (i.e. accurate) information travels upward. It creates one-way dependency relationships all the way dow, with every subordinate competing with their piers for favor and advantaged only for telling their superior whatever he or she would like to hear.

[Kingfisher]

I think it is a mistake to try to detect ideological motivations in how Orbán operates. If you make a very simple assumption: that Fidesz are gangsters and operate accordingly, everything that happens in Hungary suddenly makes perfect sense! I see that Közgép has won 200 billion forints of contracts and yet the company's ownership is secret. Pintér's ex-company (ex- on paper) is expanding rapidly. Other empires with roots in the government are expanding at alarming speed. So rather than look to experts at Chicago university to understand what is happening in Hungary, look to Al Capone.

Remember that HVG cover, anyone, from the last time Fidesz were in power? Yup, depicted as Chicago gangsters.

[Ron]

Watching Kalman Olga interviewing Mesterhazy Attila. Repeat of yesterday.

Apparently, a MALEV flight from Brussels to Budapest was delayed, as they had to wait for VO. People were pissed off. Attila mentioned that the management of VO's time is not done properly. I am not surprised.

http://atv.hu/cikk/video-20120131_mesterhazy_attila

[Eva S. Balogh]

Ron: "Apparently, a MALEV flight from Brussels to Budapest was delayed, as they had to wait for VO."

Who never showed up. Meanwhile Malev is on the verge of bankruptcy. Orbán did delay commercial flights before. During his first term.

Kálmán's talk with Giró-Szász is also worth watching. Incredible.

[Paul (the original one!)]

I am surorised every day that Malév is still flying!

What on earth are they using to pay staff and buy fuel? This airline has been losing money hand over fist for so long, how can it possibly still be operating?

[An]

@Kingfisher: Spot on. I have long been thinking they operate like the maffia. Shady business deals, extortion, intimidation...maybe that explains why nobody is turning against OV from within Fidesz.

[Kingfisher]

@An, Fidesz is not a party in any accepted sense of the word. It is a private members club, inhabited by probably less than 20 people. Everyone else is effectively hired for whatever role is required - Orbán picked all his election candidates by hand. There is not yet a dictatorship in Hungary. But there most definitely is in Fidesz. I'm very pessimistic about any internal opposition unseating Orbán because there is really no one "in" Fidesz to begin with.

[An]

@kingfisher: Conflicts, major differences in views arise even among 20 people, especially under pressure...the reason why I think these won't escalate into a split or a crisis, is that the members of this "private club" may have so much dirt on each other, that anybody who even plays with the idea of digressing stands a lot to loose.

[Mutt Damon]

@Eva "Kálmán's talk with Giró-Szász is also worth watching. Incredible."

Apart from the blatant lie, that the government consulted with association of the judges it went like this:

Kalman: ".... please tell me one reason why the judges have to retire at 62? ..."
Giro-Szasz: "Blha, blah ...."

Kalman: ".... please tell me one reason why the judges have to retire at 62? ..."
Giro-Szasz: "Blha, blah ...."

Kalman: ".... please tell me one reason why the judges have to retire at 62? ..."
Giro-Szasz: "Blha, blah ...."

Kalman: ".... please tell me one reason why the judges have to retire at 62? ..."
Giro-Szasz: "Blha, blah ...."

Kalman: ".... please tell me one reason why the judges have to retire at 62? ..."
Giro-Szasz: "Blha, blah ...."

[CharlieH]

London Calling!

VO's quasi-market economy in his quasi capitalist structure – which is neither a free market nor free capitalism has important ramifications for the people of Hungary.

The 'allocation' of pharmacies and other retailing entities interferes with the free-market economy which may not be obvious to the voters of Hungary – a Hungary still with a very recent collective memory of communism and a nation not familiar with the limitations of a free market – nor how finely balanced a successful economy is. Or how easily and quickly it can be knocked off course.

At the heart of capitalism is “the sanctity of the 'contract'”. As a supposed lawyer one wonders which discipline VO specialises in? It certainly isn't in contract law – or commercial law. I mentioned earlier my experience with a second-hand car dealer trying to renegotiate a deal already made.

VO has breached contract law in allowing home owners to rewrite their mortgage agreements with the banks (even when those contracts specified, often in the last paragraph closest in proximity to their signatures, that the signatories were signing that they were aware of the currency risk involved). The retrospective taxes on external companies is a breach of International contract law. He has breached contract law with the pensions grab. He has arguably breached 'contract' law in the signing of the Lisbon treaty. This is his biggest breach to date.

The sheer chutzpah of the mayor of Hodmezovasarhely thinking he can renegotiate the terms of the municipal currency loans with Erste bank shows how this lack of integrity and elastic contract law has permeated through the whole of Hungarian society. 'Orbanistic opportunism' or Orban's elastic contract law is all-pervasive. (Would the Mayor have offered a rebate to the bank if the currency had moved in his favour?)

It is a source of wonderment to me that so many foreign companies have chosen to stay and produce in Hungary – but I am sure that if the tide turns significantly they will quickly up-sticks without the slightest compunction. No loyalty required – with a leader so steeped in dishonour and perfidy.

'My word is my bond' has no resonance with OV and he behaves like a second-hand car dealing spiv.

Regards Charlie

[enuff]

Ron : "a MALEV flight from Brussels to Budapest was delayed, as they had to wait for VO."

A normal person would have the decency to insist that the plane not wait especially since the mistake is on his side.

I wonder how many times Malev had to delay their plane to wait for these incompetent politicians?

all those wasted time (=money) !

[enuff]

Charlie: "VO has breached contract law in allowing home owners to rewrite their mortgage agreements with the banks "

Exactly! I remember telling my husband "but the gov. can't interfere in private contracts" . However, it seems I was the crazy one to think that way because reaction from public was "let's grab this offer fast!"

How on earth they are going to gain foreign investments and credit after this? just simply absurd.

[Mutt Damon]

"I wonder how many times Malev had to delay their plane"

It reminds me on the movie "Witness" (again). When comrade Pelican was assigned by the party to be the director of the newly built public pool. He arrives on the opening day and sees a huge crowd waiting outside. Some shady guys in trench coats are at the door. They whisper into Pelican's ear: "THEY ARE SWIMMING INSIDE" ...

If you have not seen the movie (it's mandatory for those who comment here), comrade Bastion was swimming inside (communist leader). Then Pelican went "Right, of course they are swimming! That's what the pool is for!" and lets the crowd in ... then he got thrown into prison again.

[wolfi]

Mutt, "Witness" became my favourite film, even before I could understand too much ...

Last Xmas I got in on DVD with English subtitles - together with Üvegtigris 1 2 and 3 (also with subtitles). What a wonderful present!

[enuff]

Mutt
thanks for recommendation. I shall check out "witness" soon, if I can find with English sub.

Am quite interested in Hungarian films, but Hungarian husband (!) not really a fan. So far,have only watched "Valami Amerika", "Kontroll" and "1956"

[CharlieH]

London Calling!

enuff

The 'Witness' (A Tanu) torrent:

A Tanu (Witness)(1969)[H.264][AAC][mp4][HU][ENSub])

can be found on Pirate Bay(*) with English subtitles and downloaded on Vuze(*) - and viewed on BSPlayer(*) although I am not sure of the ethics of doing so.

If you are a technophobe you just have to Google the words that are suffixed with (*) and mix and match until you get a result - or ask a geek!

Just in the way I often get Hungarian place names by hitting the keyboard randomly by running my fingers over the keyboard and omitting any vowels! - (a minimum of 15 letters of course!)

My partner insists that this is an insult to the Hungarian language and says it works more effectively for English words! Whoops!

Regards Charlie

[enuff]

Charlie,
the film has been saved *geek alert-haha* . thanks for your tip anyway :)

By the way, my top HU songs is Back II Black's "Tevagyazakitalegjobban " .. don't ask me to pronounce it though. Same goes with the city name "H.......vasarhely" (only the short name for me) :D

[Paul]

As difficult as long Hungarian place names are for us Brits, at least you can stumble your way through them a 'word' at a time. And, with a little confidence and practice, you can even have a passable stab at pronouncing them correctly. After a 10 day stay near Balaton, I was actually able to pronounce Székesfehérvár almost fluently!

But pity the poor foreigner trying to pronounce some British town/city names! And I'm not even including the Welsh ones (even Odin's favourite - Llanfairpwllgwyngyllgogerychwyrndrobwllllantysiliogogogoch!).

The problem with British place names is you never know if they are going to be pronounced as spelt. And there's no secret rule or formula for this, us Brits are just as puzzled when we come across one of these for the first time.

I vividly remember the time, many years ago, when I had to stop and ask directions to Leominster (in Herefordshire). I've been caught out by this particular type of name before, so I knew it wasn't going to be 'leo-minster', that would be too easy. So I reasoned it was probably something like 'lear-minster', and tried this pronunciation on a local.

Who was utterly baffled! It turned out that it's actually pronounced 'lempster' - and worse still, I was actually already familiar with this as a name of a town, I simply hadn't connected it with Leominster!

Near where I used to live is a village called Teston. A nice straightforward sounding name, you might think, easily tackled even by foreigners. But, again, I wasn't fooled and decided it was probably pronounced 'Teeston'. Almost, but not quite - the locals actually call in Tee'son'. And I can assure you that 'Teston' and 'Teeson' sound just as different to a British ear as they do to a Hungarian.

And, just up the road, there's a foreigner's nightmare of names along the A227. First there's Wrotham, pronounced 'rootum', and then Meopham, pronounced 'mepum' (and, incidentally, said to be 'the longest village in Britain', as it stretches for several miles along the A227).

But the prize goes to a village in-between them, and just off the 227 - Trottiscliffe. This village is on the slope of the North Downs, perched just above a fairly precipitous drop, so it clearly should be pronounced 'trotis-clif' ('cliffe' being an old spelling of 'cliff'). But is it hell! The actual pronunciation is 'trossley'. In fact the pronunciation is so unlike the spelling, that on some maps and signs it is now being spelt 'Trossley'.

After all that, when we moved close to a place called Boughton Monchelsea, and I was determined never to attempt its pronunciation until I had heard its name spoken by several locals. But it turns out to pronounced 'boughton-mon-chelsea' - exactly as it's spelt!

Even for us, British place names are a minefield.

And I haven't even mentioned Plaistow in East London (pronounced 'plarstow', but mispronounced even on the on-board announcements on Underground trains until a few years ago), let alone some of the names you find in Essex (my favourite being Matching Tye - but, alas, there is no Matching Handkerchief).

[Eva S. Balogh]

Paul: "The problem with British place names is you never know if they are going to be pronounced as spelt."

Last names ditto. National Public Radio's news wants to have listener input. "Send us an a-mail and tell us how you pronounce your name." When I told that to Hungarians they didn't want to believe it.

[enuff]

Paul,
Here's what the expats in HU had to say :-

"when you can correctly pronounce the Magyar "Ny" and "Gy" sounds... Nyiregyhaza... and Hogy Vagy Gyula..."

"I live in GárdoNY, and work in AdoNY. After almost 6 years, I still don't tell people where I live or work."

"How about the girls in Nagyenyéd utca, who never managed to tell cab drivers where they wanted to go?"

[CharlieH]

London Calling!

Eva!...Yes too true!

Cholmondely - pronounced 'Chummly'
Farnham-Waugh - pronounced 'Fanshaw'
St John - pronounced 'Sinjon'

I often see the 'Hungarian Blank Look' when I have used such a word.

And my partner gets the 'English Blank Look' when she hears me trying to pronounce Hungarian place names.

"Hungarian is simple", she says - "You just have to pronounce every letter" - "EVERY LETTER! - That's the rule!"

But to an Englishmen you patently don't pronounce every letter!

Confused from Upper Norwood, South London!

Regards Charlie

[I love Hungary]

@ Paul, some people live in Bugyi.