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Some system-specific features of capitalism

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Kornai J.

Kozgazdasagi Szemle (Economic Review)

2008

vol. 55

issue 5

377-394

The author previously applied the outlook and methodology he named the system paradigm to analysing the socialist system and post-socialist transition. This study takes the same approach to some general attributes of capitalism. After clarifying some concepts, the author presents examples of some system-specific features of capitalism, before addressing two of them in detail. One is the dynamism of the system. The great innovations of the last century that radically altered both the technology of production and people's daily lives were all introduced and disseminated by the capitalist system and its protagonist, the entrepreneur. Only under capitalism can the mechanism of entrepreneurship and innovation emerge, with the strong incentives and flexible capital market they require. The other immanent feature is a chronic surplus on the labour market that contrasts sharply with the chronic labour shortage prevalent under the mature socialist system. Theory and experience confirm that the faster the ongoing transformation of a capitalist economy proceeds, the greater the propensity for structural unemployment to appear. It is explained by the efficiency pay hypothesis how an employer has an incentive to pay more than a market-clearing wage, thereby introducing unemployment. Capitalism is a system that can be reformed, but attention needs paying to relations between reforms of different parts of the system. In fortunate cases they complement each other, but it is commoner to find that tackling one unfavourable tendency only allows another such tendency to increase.

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1 Kozgazdasagi Szemle (Economic Review)

1 Kornai J.

1 2008

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Some system-specific features of capitalism