A STUDY OF THE BREAKDOWN OF THE STATE SOCIALIST SYSTEM - A SYSTEMS-APPROACH

Why has the state socialist system collapsed? This paper argues that t he reasons are traceable to the institutional design of state socialis m, which provides no capacity for self-transformation, depletes develo pmental potential, and curtails system capacity. The state socialist s ystem lacks the ability to 'reform itself' in order to improve its ada ptive capacity in rapidly changing external and internal environments. All actions meant to fulfil societal aspirations and rational attempt s to stimulate economic performance run counter to the ideological fou ndations of state socialism. Therefore the system lacks the capacity f or self-transformation that is needed to sustain the system in the cha nging environment. The process of information gathering and allocation of resources based on the bureaucratic mechanism of state socialism c urtails the system's ability to enforce its preferences. In addition, the state socialist system features soft budget constraints and an inv estment hunger mechanism which deplete its developmental potential and make the system lose capacity. Thus this paper suggests that the orig in of the breakdown of state socialism should be sought in its institu tional design. (C) 1997 John Wiley & Sons, Ltd.