Chapter 9: The soft constraint syndrome
Creative Destruction Revisited
One requirement for smooth operation of a market economy is financial discipline. This means enforcing four simple rules: (i) Let buyers abide by their sales agreements and pay for their purchases. (ii) Let debtors observe their credit agreements and pay their debts. (iii) Let taxpayers pay their taxes. (iv) Let firms cover costs out of revenues. In a consolidated market economy, there is a legal obligation to comply with the first three rules. Compliance with the fourth is imposed by the nature of an economy based on private property. Persistent losses lead sooner or later to ruin and an exit from commercial life (Kornai, 1998, p. 533). János Kornai wrote these lines in the course of developing his theory of the soft budget constraint syndrome, potentially one of the most fruitful theories in the field of economic policy. In the context of this book’s argument, Kornai’s theory of the soft budget constraint syndrome is a natural complement to Williamson’s theory of organizational control loss. As we will explain below in greater detail, it is this pair of theories that offers a powerful explanation for the puzzles that we seek to solve in this book. But before we can return to these puzzles, we must first introduce this second leg in our central argument – that is, Kornai’s theory of the soft budget constraint syndrome.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.