János Kornai

Understanding the Soft Budget Constraint

We propose a clarification of the notion of a soft budget constraint, a concept widely used in the analysis of socialist, transitional, and market economies. Our interpretation is broad enough to embrace most existing approaches to soft budget constraint phenomena and provides a classification of their causes and consequences. In light of this interpretation, we then review the theoretical literature on the subject and compare it with those on other dynamic commitment problems in economics.

The Great Transformation of Central Eastern Europe: Success and Disappointment

The study examines the changes of the Central Eastern European region first in the context of world history. It confirms by comparative historical analyses that the transformation was indeed unique. This has been the only total transformation that took place peacefully, without violence, and at the same time astonishingly fast, in the main direction of the economic and the political changes of Western civilization. From that perspective it is an exceptional success story. However, from the perspective of everyday life, the result is different. Deep economic troubles are experienced by a considerable portion of the population. The perception of losses is intensified by various cognitive problems. Based on the experience of todays generation, evaluating the change as an unequivocal success would be unwarranted. Both approaches are justified: it would be wrong to blend the two and to weigh them by the same scale. Copyright (c) The European Bank for Reconstruction and Development, 2006.

The great transformation of Central Eastern Europe

The study examines the changes of the Central Eastern European region first in the context of world history. It confirms by comparative historical analyses that the transformation was indeed unique. This has been the only total transformation that took place peacefully, without violence, and at the same time astonishingly fast, in the main direction of the economic and the political changes of Western civilization. From that perspective it is an exceptional success story. However, from the perspective of everyday life, the result is different. Deep economic troubles are experienced by a considerable portion of the population. The perception of losses is intensified by various cognitive problems. Based on the experience of todays generation, evaluating the change as an unequivocal success would be unwarranted. Both approaches are justified: it would be wrong to blend the two and to weigh them by the same scale. Copyright (c) The European Bank for Reconstruction and Development, 2006.

Hardening the budget constraint: The experience of the post-socialist countries

Abstract The study surveys the typical manifestations of the softness of the budget constraint, such as state subsidies, soft taxation, non-performing loans, the accumulation of trade arrears between firms, and the build-up of wage arrears in the various post-socialist countries. It was widely maintained at the outset of the post-socialist transition that the ‘Holy Trinity’ of liberalization, privatization and stabilization would suffice to produce an efficient market economy. Since then, it has become clear that hardening the budget constraint needs to be given equal priority with these. Unless this occurs, the effects of privatization will fall short of expectations, as they have in Russia.

Paternalism, buyers' and sellers' market☆

This paper contributes to the study of non-Walrasian states of the economy and provides a common framework for analysis of excess supply and unemployment in Western economies along with excess demand and chronic shortage in their Eastern counterparts. In particular, the paper formalizes the paternalistic relationship between the state and the firm and examines the comparative implications of state subsidies to firms subject to stochastic economic events. The analysis covers planned, market, and ‘mixed’ economies and links to some established approaches to disequilibrium phenomena.

The Principles of Privatization in Eastern Europe

SummaryThe paper surveys the choice criteria in selecting the mode of privatization. The main aspects are: 1. the sociological aspect with a longer time horizon, and in particular the objective to create a large class of business people; 2. economic aspects, and in particular the objective to increase efficiency and improve management; 3. political aspects and, 4. distributional-ethical aspects, including considerations of restitution and compensation for the loss of confiscated property. The paper discusses the role of the state and the evolutionary character of the privatization process, and analyzes various property forms. The significance of the evolution of personal owners gets special emphasis. Further subjects of the discussion are employee ownership, various forms of institutional ownership, give-away schemes of privatization and property rights of foreigners. Finally, the author explains his position concerning the speed of privatization.

Individual freedom and reform of the socialist economy

There is a vast and constantly growing literature on the reform of socialist economies. Worldwide interest has increased rapidly now that the two giants, first China and more recently the Soviet Union, have followed the two pioneering, smaller countries Yugoslavia and Hungary in taking the first steps along the road of reform. Most analyses of the reform process adopt a narrow economic or technological point of view, and concern themselves solely with issues such as efficiency, growth, material welfare, and adjustment to the world market. This paper discusses something quite different. The questions it raises are prompted by moral and political philosophy, and they revolve around the issue of individual freedom. The basic question is: what is the relationship between the reform of a socialist system and the liberty of the individual? The topics chosen reflect a value judgement. I am not presenting a normative theory here; most of the paper in fact, will offer positive, descriptive observations. Nevertheless, let me state my credo right at the beginning. I have a deep regard for individual liberty, and for the right to self fulfillment and the right to choose one’s own way of life. In my value system, individual liberty is one of the fundamental, primary goods.’ I regard the

The Normal State of the Market in a Shortage Economy: A Queue Model

The subject of this study is an economy characterized by chronic shortage and queuing. The paper elaborates a very simple model for a single good, primarily intended as an illustration of an analytical framework for studies of shortage phenomena. Our main concern is to describe a market which is away from Walrasian equilibrium, and nevertheless in a stationary state, permanently restoring its basic properties. Central concepts in our analysis are such non-financial costs of shortage as queuing time, postponement of purchase and forced substitution.

Gomulka on the soft budget constraint: A reply

ConclusionThe preceding two sections of this note cover the main points at issue. There are some other, lesser matters, but these need not detain us here. To repeat: I have found Dr Gomulkas comments constructive and stimulating. They will, I am sure, be helpful both in my future research and in future expositions of my ideas.

Ten years after ‘the road to a free economy’: the author's self-evaluation

Ten years have passed since the publication of my book The Road to a Free Economy: Shifting from a Socialist System-the Example of Hungary. It was the first book to offer comprehensive proposals for the postsocialist transition. This article assesses the book as I see it 10 years later.