Soft budget constraints and state capitalism

Sergei Guriev

doi:10.1556/032.2018.68.s.9

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Acta Oeconomica

Volume/Issue:: Volume 68: Issue s1

Soft budget constraints and state capitalism

Author:

Sergei Guriev

Sergei Guriev Chief Economist at the European Bank for Reconstruction and Development (EBRD), Professor of Economics at the Institut d’études politiques de Paris (Sciences Po) and Research Fellow at the Centre for Economic Policy Research (CEPR). The views presented here are those of the author and not necessarily of the EBRD

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Pages:: 115–124

Online Publication Date:: Jan 2018

Publication Date:: 01 Jan 2018

Article Category:: Journal Article

DOI:: https://doi.org/10.1556/032.2018.68.s.9

Keywords:: soft budget constraints; state capitalism; János Kornai; P12; P31; P51

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I consider the application of János Kornai’s soft budget constraint (SBC) concept to the state capitalist economy. I argue that interaction of SBC with agency problems within the government bureaucracy helps explaining a major feature of state capitalism – failure to privatize underperforming state-owned enterprises (SOEs). Bureaucrats supervising the failing SOEs prefer to keep them afloat and gamble for resurrection; in contrast, privatization would involve recognizing the loss, which would result in acknowledging the bureaucrat’s failure that is disincentivized by the state. This endogenously emerging preferential treatment of state-owned firms creates a competitive advantage against private firms; this explains why in state capitalism privatization may result in lower rather than higher productivity and therefore remain unpopular.

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Acta Oeconomica Periodical of the Hungarian Academy of Sciences

Print ISSN:: 0001-6373

Online ISSN:: 1588-2659

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Péter Benczúr, Joint Joint Research Center, European Commission
Dóra Benedek, International Monetary Fund
Balázs Égert, OECD
Dániel Prinz, World Bank
Rok Spruk, University of Ljubljana, School of Economics and Business, Slovenia

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Anders Åslund, Georgetown University and Advisory Council of CASE, USA
István Benczes, Corvinus University of Budapest, Hungary
Agnieszka Chłoń-Domińczak, SGH Warsaw School of Economics, Poland
Fabrizio Coricelli, University of Siena, Italy
László Csaba, Corvinus University of Budapest, Hungary and Central European University, Austria
Beáta Farkas, Faculty of Economics and Business Administration, University of Szeged, Hungary
Péter Halmai, Budapest University of Technology and Economics, and National University of Public Service, Hungary
Martin Kahanec, Central European University, Austria
Michael Landesmann, The Vienna Institute for International Economic Studies (WIIW), Austria
Péter Mihályi, Corvinus University of Budapest, Hungary
Debora Revoltella, European Investment Bank

Corvinus University of Budapest
Department of Economics
Fővám tér 8 Budapest, H-1093, Hungary
E-mail: judit.kalman@uni-corvinus.hu

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Acta Oeconomica
Language	English
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