Janos Kornai’s Intellectual Legacy: Looking into System Paradigm and Soft Budget Constraints

This paper explores Kornai’s intellectual legacy by focusing on two major concepts that were constantly present in his works, namely system paradigm and soft budget constraints (SBC). These two concepts provided the underlying tenets of Kornai’s original contribution to an important subfield of economic science during the cold war, known as “comparative economic systems”. The concept of SBC had a much stronger impact on the profession in the West. However, for the Chinese, Russian, and virtually all Eastern European readers of Kornai, his principal message was that the dysfunctional properties of socialism were endemic, systemic, and that it could not be reformed. Ultimately, Kornai’s revolutionary perspective was inspired by the systems paradigm which, along with CBL, reflects his theoretical legacy in both East and West. In this paper, I will argue that while Kornai’s conceptualization of the system paradigm started with institutional (notably political) neutrality and ended with institutional (notably political) centrality, his formulation of soft budget constraints followed an opposite path. Theorizing SBC, he began with institutional centrality and terminated with institutional neutrality. I will conclude the paper by suggesting a solution to the puzzle of Kornai’s intellectual legacy moving in two opposite directions regarding his two major theoretical contributions.