Emergence during the Establishment of Socialism

Abstract

The story begins by telling about how the soft budget constraint first emerged within the parastatal sector in Tanzania. It takes off in the late 1960s, when the newly independent East African nation took its first major steps on the road to socialism. Comprehensive ideological, institutional and organisational change initiated a process of gradual creation of a new economic and political system. These developments had tremendous consequences for the parastatal sector, which gained a central position within the system, and for the actors within it. As the system evolved, problems arose that parastatal managers and their counterparts in the state and party bureaucracy had to handle within the new and changing environment. By studying the establishment of the socialist system and the consequences for the parastatal sector during the late 1960s and the 1970s, this chapter examines how the soft budget constraint arose in the process. It characterises the institutional structure and other contextual circumstances under which the actors operated, the problems they faced, the opportunities and constraints for dealing with those and the behavioural outcomes of the incentives thus created. Let us first consider the historical, cultural and ideological setting in which these developments occurred.