"In Kornai’s view, the trade off for this increased unemployment and worker suppression is increased productivity and economic growth."
I don't think this is a tradeoff at all. Rather, worker suppression and especially increased unemployment is a hindrance to productivity and growth. You mentioned the need to keep demand high, but beyond that, the pressure for firms to innovate is higher with full employment.
PS: typo here, looks like you added a word on accident: "consumption by extreme wealth inequality. Inequality"
I'm confused why you cite "The Red and the Black" as an example of not understanding the hard budget constraint. I read this Kornai piece just to make sure I was understanding the concept:
On almost-hard budget constraints: "The creditor (bank, etc.) grants credit to a firm only if it is creditworthy... If the firm has taken a loan, it must always fulfill every obligation in the credit agreement"
This would seem to still apply if socially-owned banks are providing the loans, or a SWF is owning the stock. Interest and dividends must still be paid, or else the firm will get less financing, and therefore grow slower and risk failure. The "critical discipline measure" is therefore maintained.
On soft budget constraints: "uncertainty is also caused by the continuous redistribution of the financial receipts of firms. The firm cannot foresee exactly how much the state will take away from it, or how much it will give. "
It seems this applies more to bailouts than anything. If a firm knows how much of their stock is owned by a SWF, or how much they are borrowing from a bank, this uncertainty doesn't apply.
"Nor is it crucial by what formula profit shares are distributed among workers... In the case of a hard budget constraint, the managing director would not be indifferent to profit even if his personal share were zero in the short run - since he has identified himself with the survival and expansion of the firm"
Surely, factors that soften the budget constraint will persist under socialism. But as Kornai points out, plenty of these factors are already present under capitalism. So through what mechanism does a SWF, or the system outlined in "The Red and the Black", soften the budget constraint?
Something is worth emphasizing here, I think:
"In Kornai’s view, the trade off for this increased unemployment and worker suppression is increased productivity and economic growth."
I don't think this is a tradeoff at all. Rather, worker suppression and especially increased unemployment is a hindrance to productivity and growth. You mentioned the need to keep demand high, but beyond that, the pressure for firms to innovate is higher with full employment.
PS: typo here, looks like you added a word on accident: "consumption by extreme wealth inequality. Inequality"
I'm confused why you cite "The Red and the Black" as an example of not understanding the hard budget constraint. I read this Kornai piece just to make sure I was understanding the concept:
https://www.jstor.org/stable/40728773
Some choice quotes follow.
On almost-hard budget constraints: "The creditor (bank, etc.) grants credit to a firm only if it is creditworthy... If the firm has taken a loan, it must always fulfill every obligation in the credit agreement"
This would seem to still apply if socially-owned banks are providing the loans, or a SWF is owning the stock. Interest and dividends must still be paid, or else the firm will get less financing, and therefore grow slower and risk failure. The "critical discipline measure" is therefore maintained.
On soft budget constraints: "uncertainty is also caused by the continuous redistribution of the financial receipts of firms. The firm cannot foresee exactly how much the state will take away from it, or how much it will give. "
It seems this applies more to bailouts than anything. If a firm knows how much of their stock is owned by a SWF, or how much they are borrowing from a bank, this uncertainty doesn't apply.
"Nor is it crucial by what formula profit shares are distributed among workers... In the case of a hard budget constraint, the managing director would not be indifferent to profit even if his personal share were zero in the short run - since he has identified himself with the survival and expansion of the firm"
Surely, factors that soften the budget constraint will persist under socialism. But as Kornai points out, plenty of these factors are already present under capitalism. So through what mechanism does a SWF, or the system outlined in "The Red and the Black", soften the budget constraint?