Thread by @DanielaGabor

oh look @IsabellaMWeber carbon shock therapy must be around the corner,

we're reviving Janos Kornai's soft budget constraint in its crude 'markets efficient, state bad' version

ft.com/content/9d842b…

Kornai's soft budget constraint is wonderfully intuitive:

inefficiencies&shortages baked into centrally planned economies as state-owned companies dont face discipline of market but pressures and incentives to go above plan and race for resources.

but it relies on capitalist vs state-owned company dichotomy:

one driven by profit, constrained by demand & disciplined by market competition into efficiency.
other is quantity-driven, constrained by ability of managers to deal w shortages via bargaining w planners/other firms

three problems with reviving Kornai's soft budget constraint.

1. Historical amnesia: soft budget constraint far more contested in literature than current celebrations would suggest

2. Galbraith-Burawoy problem: neither capitalist nor state-owned companies behave as the soft budget constraint (and that FT piece) assumes they do.

Galbraith (1967) New Industrial State - large-scale technology-intensive capitalist industry fundamentally depends on firms' ability to circumvent market via vertical integration of production chains, market power (monopoly/monopsony), long term contracts to fix prices

(Galbraith would have appreciated how the capitalist impulse to plan against demand fluctuations eventually led to the derisking state)

for Galbraith, industrial capitalist reality was very close to planned industry reality - block out market signals.

Burawoy also question fiction of market efficiency in capitalist industry - but from another angle.

like Galbraith, Burawoy and Lukacs (1992) blamed Sovietologist economists for juxtaposing ‘empirical reality of one society with the ideal type of another’, empirical reality of centrally planned industry with ‘fiction’ of atomistic competition in perfect capitalist markets

Burawoy, an industrial sociologist, instead went to work in a Hungarian state-owned company, after working in US industrial firm.

His conclusion: Kornai's soft budget constraint more apt for capitalist firm than planned one.

he found a Hungarian firm under continuous pressure to innovate, reorganize production and introduce modern machinery in response to supply uncertainties

Workers, rather than planners, led that process.

In contrast, the capitalist firm he worked in, a division of a multinational corporation, did not go beyond the plans set for it by headquarters, had poorly planned production and wasted more than the socialist firm.

Burawoy and Lukacs' warning about waste in capitalism gives us problem 3: climate crisis

should we really talk market efficiency, in final days of #COP26?

let's be clear: the market incentives we had in place before COVID19 have given us the climate crisis

it's about time we stopped fetishising the market (she thinks to herself, yet again)

or, if we are in the game of crude Kornai interpretations, let me state that capitalist enterprise is suffering from systemic problem of soft carbon budget constraint.

that is, after all, the point of those promoting carbon prices as signalling device #COP26

And read this for a more nuanced of Kornai

https://twitter.com/PiroskaDora/status/1458700344490438657?t=uwegoLH-a17I8NJeomZGvg&s=19