János Kornai, the Austrians, and the Political and Economic Analysis of Socialism

Peter Boettke, Rosolino A Candela

Keywords: János kornai · Political economy · Socialism

TL;DR: The dysfunction facing socialist economies is reframed in terms of a "hard knowledge constraint" from which a misalignment of incentives in enforcing hard budget constraints is a consequence.

Abstract: What is the relationship between central planning, pervasive shortages, and soft budget constraints under socialism? In this paper, we address this question by exploring the evolution of János Kornai’s work on the operation of real-world socialism. In doing so, our goal is to reframe Kornai’s contributions to the political economy of socialism by focusing on the epistemic conditions under non-market decision making. From this perspective, we argue that the dysfunction facing socialist economies is not one based fundamentally on a misalignment of incentives in enforcing hard budget constraints and eliminating shortages. Rather, soft budget constraints are a consequence of competition between frms in a non-proft setting, utilized as a means to monetize the control over state-owned resources through the creation of pervasive shortages.