Estonian Economic Reform Why did Estoniamove from a planned economy to a market economy?

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Estonian Economic Reform

Why did Estonia move from a planned economy to a market economy? (5)

When Estonia first gained independence after the First World War, it enjoyed great economic success and development during the twenty-year inter-war period. However, the economic gains were negated by fifty years of Soviet occupation following World War II, leading to economic stagnation. The central government of the Soviet Union had destroyed the Soviet Republic's economy as a whole, as the decision of what to produce, how much to produce and for whom to produce was placed solely on the government. Thus inefficient monopolistic state-owned industries employing the entire population regardless of skill level churned out poor quality goods that nobody wanted, while the rationing of basic foodstuffs was part of daily life. With the loss of the profit motive and no hierarchy system where the better were rewarded, both people and companies had little motivation to be efficient or innovative. The Estonian economy was in reality just the sum of the enterprises physically located on one territory. Due to the closed Soviet Union’s huge shortage economy and immense quantities of natural resources, the Estonian economy could seemingly ignore world competition. As raw materials were bought at heavily subsidized prices from Russia (which led to the unaccountably low prices of energy and raw materials etc.) the majority of enterprises created were material, energy and transport intensive, producing mainly low quality goods.

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But when the Soviet Union began to collapse in 1991, Estonia declared independence and started shifting towards a market economy. It sought an end to the incessant shortages, poor quality goods and inefficient state-owned industries suffering from diseconomies of scale which had plagued it as a planned economy and the diversity and dynamism of a market economy, which would hopefully bring much needed foreign investment, a well-oiled private business sector and stable economic growth to raise living standards.

What problems did Estonia face during its transition? (5)

The Estonian economy faced deep structural problems immediately following ...

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