From Socialism to Capitalism

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.