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Transition Economies

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Transition Economies There have been always different economics systems all over the world. Countries can be either free-market economies or command-planned economies. There are not pure free-market or command-planned economies in the world, only a few. These are just paradigms and most countries are mixed economies, economies with characteristics from the two extreme economic systems. The differences between the two economic systems are huge therefore if a country tried to transform itself from one system to another, some problems will be induced. An economic systems main function is to answer and solve the basic economic problem, resources in the world are scarce but wants are infinite. Resources will have to be allocated. Governments must figure out what to produce, how to produce it and for whom to produce. In an economic system there are different players each with a responsibility to the system. Each player's function in a command- planned economy is different from a free-market's one. Eastern European countries became command economies in the late 1940's and early 1950's after a communist takeover of their governments. In the early 1990's after communism fell, these economies started transforming themselves into market-orientated economies. This essay will try to analyze and evaluate the problems faced by ex command economies switching to a more free-market system. a) A command-planned economy is one, which the fundamental questions of what, how, and for whom to produce, are answered by the state; it's the states main priority. Such systems were mainly found in Eastern Europe and all these went in a transition process after they saw their economic system was proving to be not that efficient in comparison with a more capitalistic economic system, the free-market system. Command systems are also to be found in China and other parts of East Asia, Cuba, and some African countries. What caused the collapse of the command economic systems of Eastern Europe was a combination of political crisis and economic failure. ...read more.


An efficient state monopolist should be able to charge p2 and produce q2. This is marginal cost pricing. A state monopoly not trying to cover its own re-investment could charge p3, but it would require a subsidy to operate in this way in the long term. The large falls in output had lead to extreme rises in unemployment. The movement to a market system had forced many factories and plants to close and workers were laid off. Some enterprises were forced to become more efficient especially now they competing in the economy against imports of the West or other firms. Firms to become more efficient they will try laying off some workers and making the remaining work harder and more productive. Recent % Unemployment Rates for Selected Transition Economies Year Bulgaria Czech Rep Hungary Poland 1989 na 0.0 0.3 0.1 1990 1.5 0.8 1.9 6.1 1991 11.5 4.1 7.5 11.8 1992 15.6 2.6 12.3 13.6 1993 16.4 3.5 12.1 15.7 1994 12.8 3.2 10.4 16.0 1995 10.5 2.9 10.4 14.9 1996e 12.5 3.5 10.5 na Year Romania Russia Slovak R. Slovenia 1989 na na 0.0 na 1990 na 0.0 1.5 na 1991 3.0 0.1 11.8 na 1992 8.1 0.8 10.3 11.0 1993 10.2 5.5 14.4 na 1994 11.0 7.1 14.8 na 1995 8.9 8.2 13.1 15.0 1996e 6.1 9.3 12.8 na NB. (i) Russian figure here is "open" unemployment. (ii) Separate figures for Albania show Unemployment rates of 20% in 1995 and 27% in 1992, and for Ukraine 1.2% in 1996, and for Kazakhstan 3.5% in 1996. Source: The Economics of Transition, May 1997, and EBRD Transition Report. For all countries in transition unemployment has been a really heave cost to bear. Another problem, which was linked with the transition process, is very high inflation. Most of the transitional economies have experienced hyperinflation. There are various reasons for this. For essential commodities, artificially low prices were maintained. ...read more.


In Hungary it is almost three times as high and in the Russian Federation, Latvia and Lithuania, more than three times greater. The transition economies came with costs. There has been a huge deteriorating human security. Employment is no longer secure, nor, is incomes. Rich, get richer, poor get poorer. For many people income poverty has become a way of life. People's residents are no longer stable; there have been mass migrations occurring within the countries in transition. There is not a secure privilege to a decent education, a healthy life or a sufficient nutrition. It depends whether u have the financial ability or not. These costs make up of what is called the free-markets social catastrophe. A big problem that got triggered due to the transition process is that before the process government planners allocated factors of production between differing production units such as factories or farms. All the economic decisions were taken by the state. With the transition, the firm now has to buy its own inputs in order to produce its good or service to the market. With the price mechanism firms have to make their own decisions on how to produce, when to produce and what methods to use. Since many firms were caught by surprise from the transition process, they were not used to making these decisions or buying their own inputs. Therefore, this has lead to a significant decrease in output thus causing unemployment. In the free market most land and capital is owned by the private sector. Moving from one type to another involved many assets to be sold to private individuals. A way to do that is for the state to give the company to the workers. This is not a very good deal because the worker in a factory, which produces goods for export to the West, will do far better than a worker whose factory is outdated. Also some with power like manager of very successful enterprises will use their influence to get the asset transferred into their name. 4:47 AM 5/1/2007 1 Harry Ayiotis 6D ...read more.

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