The Hungarian economist János Kornai wrote about this. Socialist firms face what he called a soft budget constraint (In this case the soft budget constraint isn’t provided by the central government but by sentimental families). The problems are well understood but they have some advantages. It’s easy to end unemployment. Japan used something like a soft budget constraint during its postwar boom so its domestic firms could massively invest more in innovation and scale up production. Socialists in Sweden were also similarly concerned with efficiency issues as early as the 1920s, which is why they chose to focus on the welfare state and labor rights instead.
The flip side is a hard budget constraint leaves resources idle — unemployment. So you get a different kind of inefficiency. Mixed economies direct which inefficiencies they can live with based on actual human needs.
The flip side is a hard budget constraint leaves resources idle — unemployment. So you get a different kind of inefficiency. Mixed economies direct which inefficiencies they can live with based on actual human needs.