The eminent Hungarian economist Janos Kornai successfully characterized
the Soviet-type, centrally planned socialist economy as The Shortage Economy (2 Vols, 1980). Whether money prices were stable, rising
or falling, those economies were characterized by large-scale, endemic excess
demand at prices below the market-clearing level, with associated re-trading (whenever
feasible) at higher black market prices.
Kornai
attributed shortages primarily to soft budget constraints, i.e. the ability of
state enterprises to replenish their liquid resources through budget subsidies
or credit (by banks or suppliers) whenever money prices were raised in order to
reduce shortages. However, soft budgets can explain open inflation but are
neither necessary nor sufficient to explain repressed inflation, which requires
simply administered prices consistently lower than market-clearing: socialist planners could not eliminate inflation, so they simply pretended they had, and repressed it.
But Kornai is certainly right in emphasizing
the negative implications of shortages: labour over-full employment was associated
with consumers’ frustration at their inability to secure goods and services at
official prices, and with production inefficiencies, and vanified any attempt to
establish forms of market socialism.
In
his latest book, Dynamism, Rivalry and the
Surplus Economy (OUP
2013), Janos Kornai
characterizes capitalism on the contrary as the economy of surplus, of excess
supply and labour unemployment – not cyclical a’ la Keynes but endemic.
The novel aspect of this characterization
is its positive assessment as an environment favourable to dynamism, entrepreneurship
and technical progress, innovation and structural change, while central
planning, together with the failure to allow experimentation, reward the
successful inventor and innovator, and to make available resources outside a rigid
central plan, was ultimately responsible for systemic stagnation. Both systems
have merits and drawbacks that Kornai regards as inseparable and genetically
implanted in the two systems. His personal preference goes to the surplus economy, although he
recognizes the evil of unemployment associated with it.
Kornai
supports these provocative propositions with a mass of data on technical
inventions and their diffusion in the two systems. Nevertheless, some reservations are in order.
First,
the contribution of the state to technical progress is under-estimated by the acknowledged
exclusion of military and space expenditure and generally the non-profit
sector, without which we would not have had most IT progress including
Internet. Conversely, the negative implications of capitalist protection of
intellectual property have been overlooked.
Second,
is shortage a necessary feature of socialism, i.e. is China a shortage economy?
Finally,
the glorification of the surplus economy seems to have been somewhat mis-timed, considering both the large-scale costs
of the “transformation recession” (Kornai’s label) of transition economies in the
1990s, and the persistence and severity of the current global crisis that began
in 2007 and is still rampaging. Austerity has raised the surplus features of
capitalism far beyond what may be regarded as necessary to enhance entrepreneurship
and technical dynamism.
(A session on Kornai' s latest book will be held at WINIR - World Interdisciplinary Network for Institutional Research - Conference on “Institutions that change the World”, Greenwich, London, 11-14 September 2014).
Posts
