Acta Oeconomica 47. (1995)
1995 / 1-2. szám - Kornai J.: Lasting Growth as the Top Priority: Macroeconomic Tension and Goverment Economic Policy in Hungary
4 J. KORNAI: LASTING GROWTH AS THE TOP PRIORITY It must be said categorically that the key to the situation lies in the trend in wages, where two separate questions—the issue of nominal and real wages— need to be distinguished. (Unfortunately, these have been confused both in official statements and in the debates ensuing from them.) Taking nominal wages first, let us imagine an ideal case in which all sides concerned agree there will be no price and wage increases at all for six months from a set point in time, say January 1. Let us assume in this mental experiment that ther^ is no deljayed effecj, from earjlier price/ and wage ^measures ajnd the oth^r economic factors remain the same. In that case, if everybody trusted each other, believing all the other actors in the economy would keep their sides of the bargain and keeping theirs themselves, inflation would duly halt without any fall in real wages or real consumption. But a word of caution: the most critical item in this mental experiment is not the existence of zero change, the freeze in wages and prices, but the credibility of the sides taking part in the bargain. If one group or another tries to take advantage of the good faith of the rest, the agreement will collapse, and everything will start all over again. I do not believe any such far-reaching agreement could be reached in the present situation. But the closer we get to such a point of agreement, the more we will manage to slow down inflation. Unfortunately, under Hungarian conditions, the problem of nominal wages ties up with another phenomenon: the fact that real wages and ultimately real consumption are higher than it is justified from an economic point of view. I realize this remark may elicit resistance or even outrage in many people’s minds: how dare anyone, in a Hungary racked by poverty, call real wages and real consumption “too high”? Nonetheless, I must put up with the outcry and stick by my statement. Consider the following simple, fundamentally important economic relation. GDP can be used for two main purposes: consumption or investment. (Exports and imports ultimately syferve to ra^se consumption and ilnvestment ias well.)! In Hungarjy the share of investment, and that of fixed capital formation as part of it, has shrunk. It is much smaller than in countries that have enjoyed fast and persistent growth. (The statement is backed by the international comparison in Figure 1.) While the share of investment in rapidly developing Asian countries is persistently high, it steadily falls in Hungary. Unless we want to rely solely on foreign resources (I will return to the problems of this later), the ratio of investment to consumption must be altered in favor of investment and to the detriment of consumption. The government’s economic policy-makers are certainly aware of all this. I respect the courage with which they have approached the question of wages and put a significant part of the problem to the public. But I am afraid they inevitably have to go further than that. This is not simply a case of earnings running away in the short term and needing short-term, one-off corrective measures. It must be stated plainly that the growth of the economy is being jeopardized by the proportions of investment and consumption which have applied for so long and become deeply Acta Otconomica 47, 1995