Cycles and Stagnation in Socialist Economies

Throughout central and Eastern Europe, the future of the socialist economic system is being called sharply into question. This book represents an extension and consolidation of the programme of work begun by Janos Kornai in Growth, Shortage and Efficiency and examines the causes of the macroeconomic problems embedded in centrally planned economies which now face their reformers. Andras Simonovits asks three key questions: Why and how did investment activity fluctuate in the sixties? Why did the growth rate decelerate in the seventies? What was the reason for the stagnation of the eighties? The author constructs a series of analytic mathematical models of cycles and slowdown to explore these questions. The first part of the book is devoted to the investment cycles of the east European socialist economies and the negative effect of long completion times and high net import ratios. Part II models the slowdown and stagnation of the post-1973 period and in particular changes in the efficiency of investment and the terms of trade. The results point to the failure of the socialist economies to adapt quickly enough to falling investment effectiveness and rising debt.