State capacity and the socialist calculation debate

Abstract

Despite its invaluable contribution to the field of comparative economics, the socialist calculation debate has focused on the narrow topic of the impossibility of the rational economic calculation under socialism. The literature on new institutional economics suggests that economic development is determined by economic and political institutions which are far more complex than the issue of economic calculation. To bridge the gap between the calculation debate and new institutional economics, this paper utilizes the historical case studies of Perestroika and Deng's China to demonstrate relationship between state capacity and economic calculation. We argue that rational economic calculation requires the state's institutional ability to make a credible commitment to constraints inhibiting public predation.