From Socialism to Capitalism
Kornai's own summary of what the transition did and cost.
Summary
Kornai collected eight essays written after 1989 on the transition from socialism to capitalism, drawing on the analytical framework he had built studying the socialist system itself.
The essays cover several distinct questions. On the nature of the change, he argues that what occurred was a systemic transformation rather than a policy reform, involving the simultaneous change of political structure, property relations and coordination mechanisms, which had no historical precedent and no theory to guide it.
On speed and sequencing, he distinguishes between processes that can and should be done fast, including price liberalisation and macroeconomic stabilisation, and processes that cannot be accelerated, including the growth of a private sector and the building of legal and financial institutions. He is critical of both the shock therapy position and the gradualist one for treating the question as a single choice.
On privatisation, he argues that creating genuine private owners with real incentives matters more than the speed of transferring state assets, and he is critical of voucher schemes that produced dispersed ownership with no effective control. He favours what he called the organic development of a private sector through new entry alongside the sale of state assets to owners who would actually manage them.
On the soft budget constraint, he examines its persistence after the transition, arguing that state enterprises, banks and even private firms continued to expect rescue and that hardening the constraint was the essential and most difficult reform.
He also writes on the welfare state, arguing against both the maintenance of unaffordable socialist entitlements and their wholesale removal.
The essays are analytical rather than polemical and Kornai's authority on the subject is unmatched. They are academic in style and assume the reader knows the transition's history.
Key takeaways 7
- The post-1989 change was a systemic transformation of politics, property and coordination simultaneously, with no historical precedent.
- Price liberalisation and macroeconomic stabilisation can and should be done fast while institution building cannot be accelerated.
- Treating speed as a single choice between shock therapy and gradualism misstates the question, since different processes have different natural speeds.
- Creating owners with real incentives and real control matters more than the speed of transferring state assets.
- Voucher privatisation produced dispersed ownership with no effective control, which failed to create genuine owners.
- The soft budget constraint persisted after the transition, with enterprises and banks continuing to expect rescue.
- Hardening the budget constraint was the essential reform and the most politically difficult one.
Who should read it
Analysts of institutional transition who want the assessment from the economist whose framework defined how the socialist system was understood.
Similar books 6
Chosen by shared topics, the entries that hold them, and the people who recommended both.
An economist's path from young communist in Hungary to analyst of socialism.
A theory of socialist economies, where chronic shortage is the normal state.
How socialist economies really worked: soft budgets, shortage and party power.
Economic history that explains the industrial base the Czechs privatised.
How Poland achieved Europe's fastest sustained growth after 1989.
The critique of the transition's distributional cost.
Where it sits in the reference 2
Topics