According to Kornai, the Fundamental Cause of Shortages Was the “Soft Budget Constraint” that Faced Firms in the State-Socialist Countries

The behavioural explanation concerns the patterns of behaviour that characterise the state-socialist countries, their causes and consequences. For example, according to Kornai (1980, 1985), the fundamental cause of shortages was the soft budget constraint that faced firms in the state-socialist countries. The term ‘soft budget constraint’ refers to a type of behaviour within a particular social relationship. Firms with a soft budget constraint are not constrained by their financial situation. If they run into financial difficulties, their superiors will always bail them out. This results from the fact that they are state enterprises for whom the central bodies are responsible. Hence, in place of economic considerations, the dominant factors which determine the behaviour of enterprises are bureaucratic factors. This enables them to give free rein to typical bureaucratic objectives such as the desire to expand. The soft budget constraint thus implies a virtually unlimited demand for all products, and this is the underlying cause of the shortages that so plague consumers. The only way of overcoming the shortages, according to this line of reasoning, is a radical economic reform (e.g. the expansion of the private sector, the end of directive planning, real self-financing, allowing the possibility of bankruptcies, etc.) which introduces hard budget constraints for the enterprises.

--Michael Ellman, Socialist Planning, 3rd ed. (Cambridge, UK: Cambridge University Press, 2014), 306-307.