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The soft budget constraint - today a popular metaphor - is a paradox. In socialist economies, it implies that the state tends to bail out state-owned firms in financial trouble, in spite of the tremendous performance problems of the entire system that result. When the socialist system broke down, the soft budget constraint was expected to disappear. However, it seems to persist, and its persistence appears to hamper the transition process itself. The Soft Budget Constraint The Emergence, Persistence and Logic of an Institution seeks an answer to this paradox. It aims at increasing our understanding of why the soft budget constraint exists. By investigating state-owned enterprises in Tanzania before, during and after socialism, the prevalence of the soft budget constraint is examined and an explanation of its existence is suggested. The approach is institutional. The soft budget constraint is defined as an informal institution and an invisible-hand explanation of its emergence, persistence and logic is applied. The book shows that the soft budget constraint emerged as an unintended consequence of the establishment of the Tanzania socialist system in the 1970s. A behavioral solution to recurrent systemic problems was offered, and thus the soft budget constraint performed several functions. Once established, its very existence set off a cumulative process of self-generation. Four reinforcement mechanisms that accounted for its maintenance during Tanzanian socialism are identified. Its character as an informal rule helps to explain why it persisted during market-oriented reform, initiated in the mid-1980s. The soft budget constraint was part of the socialist heritage, was adapted to systemic change, and influenced the direction and character of this change

Since the 1970s social security in the European Union has been dominated by attempts at reform and cost control. In the last decade of the twentieth century these attempts have been strengthened by the coming European Economic and Monetary Union (EMU). This book offers an overview of the social security system and its development in Belgium, Denmark, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain and the United Kingdom. The national contributions are preceded by an introduction on the development of social security in Europe till the present day, with special reference to the postwar process of European integration and its effects. The book is concluded by two essays. The first examines the danger and opportunities of European integration for social security. The second discusses ethical aspects: what effect will European integration have on the quality of social security in Europe?