THE NATURE OF TECHNOLOGICAL FAILURE: PATTERNS OF BIASED TECHNICAL CHANGE IN SOCIALIST EUROPE

The existing studies usually find that technical change was very important in causing the growth slowdown of socialist economies in Europe during the postwar period. While these studies have been reasonably successful in quantifying the extent of technical change, they have been less successful in quantifying its nature. This paper analyzes the patterns of biased technical change in socialist Europe - Czechoslovakia, Hungary, Poland, and Yugoslavia. I find that socialist economies have achieved strong increases in labor efficiency, and strong decreases in capital efficiency. This suggests that the source of their technical malaise lies primarily in capital inefficiency. I argue that labor scarcity is a major factor that debilitated capital efficiency.