Acta Oeconomica 47. (1995)
1995 / 1-2. szám - Kornai J.: Lasting Growth as the Top Priority: Macroeconomic Tension and Goverment Economic Policy in Hungary
Acta Oeconomica, Vol. 47 (1-2), pp. 1-38 (1995) LASTING GROWTH AS THE TOP PRIORITY: MACROECONOMIC TENSIONS AND GOVERNMENT ECONOMIC POLICY IN HUNGARY* J. KORNAI This study looks at the problems of five macroeconomic tensions: inflation, unemployment, the budget deficit, the balance-of-payments deficit, and the decline in production. Although it is quite lengthy, it still does not offer a full picture, since it does not address a number of important issues (among others, the question of monetary policy). Analyzing these five macroeconomic tensions provides a chance for me to comment on the government’s economic policy. Wherever an economist goes these days, whether in private company or to a professional discussion, the question is levelled: does he or she agree with the government’s “economic policy package”? I cannot reply to this question with a categorical yes or no. Readers will come to realize during the detailed analysis where I consider the announced economic policy correct, and where I have reservations, concerns or objections. Inflation, unemployment and wages There is a well-known close connection between the rate of inflation and the extent of unemployment. Assuming other factors (including inflationary expectations) to be constant, inflation can be slowed at the cost of increasing unemployment, and conversely there are means of reducing unemployment associated with an acceleration of inflation as a side effect. Unfortunately our economy has both these significant indicators stuck in a bad position. Inflation has slowed since its peak of 38.6 percent annual rate in June 1991, but become stuck in the 17-25 percent band of moderate inflation. (See Table 1) The unemployment rate rose steadily from 1990 until February 1993. Although it has fallen slightly since then, it still stood at 11 percent in June 1994. (See Table 2) * I ‘This study has been published in the Hungarian daily newspaper Népszabadság, somewhat abbreviated because of the lack of space. Népszabadság, which has the largest circulation in Hungary, declares itself a “socialist newspaper” , but does publish regularly articles by non-sociabst authors, and opponents of the Socialist Party as well. My study is an appraisal of the economic program of the new Hungarian government lead by the Hungarian Socialist Party. The editorial introduction to the series had the following title: * 1 Kornai s Critique of the Government . Since the study had been written for a daily newspaper, it does not contain acknowledgments, references, precise description of sources and a more detailed statistical support of the observations. I intend to publish the results of my ongoing research on Hungarian transformation in professional journals, which of course, will give the detailed references and sources. I am grateful to András Malatinszky and Brian McLean for the translation, and to Mária Kovács for her assistance in the editorial work. Akadémiai Kiadó, Budapest