The Socialist System: The Political Economy of Communism.

Janos Kornai's most recent book, The Socialist System, the Political Economy of Communism, is an extensive survey and summary of the Socialist system and attempts at reform as well as a synthesis of his previous writings. It adds an analysis of the political sphere to the more familiar economic analysis of socialist systems The main focus is on those characteristics of the pre-reform, or classical, socialist systems that were similar in most socialist countries. Country-specific details are provided in the footnotes. There is an extensive bibliography with an additional reading list on transition. His stated aim is to reach a broad variety of readers, including those in ex-socialist countries, and non-specialists. He succeeds in making the book accessible. It is quite readable, but also quite long. Although the book is appropriate for undergraduate comparative economic and political-economy courses, I think students would need a fair amount of guidance to pick out the most important points.

Kornai views the causal links in the socialist system as a series of blocks of which higher blocks cause lower ones [Chapter 15]. The monopoly of power by the Communist party is first, followed by the dominance of state ownership. These then cause bureaucratic control which in turn leads to the system specific characteristics of plan bargaining, quantity drive, and soft budget constraints, and then forced growth, shortage and others. He makes the point that most of the first round of reforms (1968 in Hungary or 1985/6 in the Soviet Union, for example) dealt only with lower level relationships. Even the most comprehensive only got as far up the causal chain as changes in the bureaucracy. Without changes in the power structure and state ownership, these reforms not only could not cure the problems inherent in the system but broke down the coherence of the system and were therefore bound to fail.

The socialist economy is compared to a market system throughout the book. There appears to be a tendency to compare actual socialism with the theory of markets, or at least with the part of a market economy that is closest to perfect competition: small businesses. There is little mention of the extent of government regulation or of large firms with large bureaucracies and not quite hard budget constraints in most capitalist economies.

The book is divided into two parts. The first part, Chapters 3-15, is an extensive study of the classical socialist system. A list of the chapter titles gives an idea of the breadth of the book: Power, Ideology, Property, Coordination Mechanisms, Planning and Direct Bureaucratic Control, Money and Price, Investment and Growth, Employment and Wages, Shortage and Inflation, Consumption and Distribution, and External Economic Relations. The second part, Chapters 16-23, deals with both previous partial attempts at reform and the more recent major changes. There are chapters on the "perfecting" of the system without major changes, political liberalization, self-management, market socialism as well as on issues of reform: the private sector, price reform and macro tensions. He concludes with some thoughts on the future of these economies given the legacy-of communism. The main political conclusion is that the classical socialist system was a coherent, viable system. Partial reform causes it to loose its coherence and therefore fails. A middle way between socialism and capitalism does not exist, either an economy reverts to classical socialism or moves toward a market economy.