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.