Has Capitalism Defeated Socialism Yet?—Kornai's Turnaround on Liberalism, and the Evaporation of Myths about Eastern Europe

Abstract

The Hungarian economist Janos Kornai has warned the West of the possibility of a reversal of liberalization in Eastern Europe. He advocates a new policy of containment aimed at countries such as Russia and China. This prompts us to investigate the truth concerning the transition in Eastern Europe. After 1990 the West recalculated economic data from the former Soviet Union and Eastern Europe (FSUEE thereafter) before 1990, for creating an illusion that “shock therapy” had made progress in FSUEE. However, the Eastern Europeans including the Hungarians, who were enthusiastic for liberalization from socialism, soon discovered that joining the European Union (EU) was damaging the interests of the majority of people in Eastern Europe, while Western Europeans also came increasingly to oppose the financial burdens imposed by EU enlargement and immigration inflows. The short-sighted transition strategy carried out in Eastern Europe and the preoccupation with geopolitical interests have in fact exacerbated the EU's economic crisis, triggering a civil war in Ukraine and causing Russia to become disillusioned with the West. Kornai's theory of soft-budget constraints as well as his anti-Keynesian policies during the transition recession, is responsible for the economic downturn triggered by rapid liberalization in Eastern Europe. The reversal of the liberalization trend in Eastern Europe and the change in the mass psychology of Eastern Europeans towards the West together constitute an important rebuff to utopian capitalist thinking in China. Has capitalism defeated socialism, as Western propaganda claims? The success of China's autonomous open-door policy and the failure of Eastern Europe's unilateral opening indicate that the collapse of the FSUEE occurred mainly for political rather than economic reasons.

Keywords:

• Eastern Europe
• transition
• containment
• real per capita GDP

Acknowledgements

This article is an adapted version of an article published on August 11, 2014 in the Chinese web version of the Financial Times and entitled “From Liberalism to Neo-Conservatism: Comments on Kornai's ‘Threatening Dangers.’” This article is translated into English by Dr. Peng Chengyi from the Institute of World Economics and Politics, Chinese Academy of Social Sciences.

Notes on Contributor

Chen Ping (This is a Chinese name which always puts the family name Chen ahead of the given name Ping) is a senior fellow of the Center for New Political Economy at Fudan University in Shanghai, and retired professor of the National School of Development at Peking University. His research area focuses on macroeconomics, finance, and economics of restructuring. His representative works include Civilizational Bifurcation, Economic Chaos, and the Evolution of Economic Dynamics (in Chinese; Beijing: Peking University Press, 2004), and Economic Complexity and Equilibrium Illusion: Essays on Market Instability and Macro Vitality (London: Routledge, 2010).

Notes

¹See United Nations Statistics: National Accounts Main Aggregates Database. http://unstats.un.org/unsd/snaama/selbasicFast.asp.

²For World Bank rankings of the high-income economies, see, http://en.wikipedia.org/wiki/World_Bank_high-income_economy.

³For the history of OECD members joining the organization, see, http://www.oecd.org/about/membersandpartners/list-oecd-member-countries.htm.

⁴The statistics published in 1987 are the actual statistics for 1985; the statistics for other years follow a similar pattern.

⁵The statistics published in 1992 are the actual statistics for 1990; the statistics for other years follow a similar pattern.

⁶In 2010 the Fidesz party (Hungarian Civic Alliance) came to power with Viktor Mihály Orbán as its chairman. Orbán since then has been prime minister of Hungary.