The Strange Case of Distorted Soft-Budget Capitalism and the Sweet-Sour Position of China in the World Economy

Andras Toth

Keywords: soft-budget constraints, capitalism, international monetary system, China, USA

TL;DR: The presentation will extend the concept of Soft-Budget Constraints Syndrome to the understanding of sweet-sour functioning of international monetary system

Abstract:

Kornai developed the concept of soft-budget constraints (SBC) to understand socialism. Kornai in 2014 argued that SBC is a syndrome (SBCS) and inherent disease also in capitalism affecting also central government. SBCS also a social relation with effect of power and subordination. Kornai argued that SBCS shall be one of the most important future research topics.
The presentation will extend the concept of SBCS to the area functioning of the international monetary system (IMS).
It was created a distorted IMS centered on USD in 1944. Building on insights of Wicksell, Schumpeter and Rueff the paper argues that USD based IFS is sour-sweet system, as it allowed:
• entrepreneurial boom, military building to win the cold war, and the expansion of welfare state,
• extraordinary SBC to US government, and distorted power relations among states, which involves exploitation.
The rise of China was to a certain extent consequence of the distorted IFS as it allowed a heavily distorted balance of trade favoring re-industrialization of China and de-industrialization of US. This inbuilt distorted relationship was also a sour-sweet relationship, offering advantages and disadvantages for both countries for decades. The shifting geopolitical balance of power between these two nations, however, has led to major political crisis and threatening to split the world economy into warring camps.
The paper argues that IMS needs a re-thinking to reduce SBCS and to restore a more balanced relationship among nations.