Transition From Market Socialism To Neo-liberalism

Kornai's transition economics is discussed in this article. The article includes three parts:The main content of the first part is that Janos Kornai's theories and market socialism mode are introduced. After he made a full analysis of abuse of the classical socialistic economy, he puts forward market socialism model, economics of shortage and soft budget constraint. He thought that that economic system and mechanism should be reformed. And then he put forward a famous of economic reform mode of market socialism, that is to say market is operating under macro-control. It is a combination between planned economy and market mechanism.In the second part it is discussed that Janos Kornai rethinks profoundly some critical theories and realistic problems in economy transition. After the great transformation in Central Eastern Europe and the Soviet Union's disorganization, market socialism theory and practice was on the way to fail. Janos Kornai changed from market socialism to neo-liberalism. He rethought profoundly some problems in economy transition and concluded that centralized-control restricts the form of principal-agent model which is a specific kind of contract between the state-center and the manager of a state-owned firm, market economy could not succeed in state-owned ownership and soft budget constraint is unable to form truly market mechanism, the freedom of entry and quit of the market is governed by bureaucratic decisions, at last he rethought the practical questions of transition about China and Eastern Europe.Kornai's economics thought is estimated in the third part and the inspiration, which it gave to our country marketization reform, is summarized. His contributions are theories on shortage economics, soft budget constraint, and the mode of market socialism and transition economics. However the shortcomings of Kornai's economics thought are that his economic theory appears quite weakly in exploring the most in-depth reason of socialistic economic system, and that he does not study fully enterprise organization and market mechanism. We cannot agree with his opinion that transition is a transform from socialism to capitalism, of the combination between socialism and market economy and the compatibility with State-owned ownership and socialism. Finally some inspirations to construct Chinese-characterized market economy system are concluded from Janos Kornai's economics thought, for instance, inspirations on market-oriented reform, ownership reform, and regulation and constraint mechanism during economic operating.