• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

What have been the economic effects of the transition away from central planning in Eastern European economies?

Extracts from this document...


What have been the economic effects of the transition away from central planning in Eastern European economies? Economic systems exist in order to resolve the basic economic problem, which is the concept of scarcity of resources in a world of infinite human wants. Eastern European countries became command economies following the communist take-over of their governments. A centrally planned economy is one where the state owns all the resources and factors of production with no private ownership. The state makes all the economic decisions and allocates all the resources through a complex planning system. All of the production is carried out by State Owned Enterprises (SOEs) and consumers are directed in what they can buy and there is no free choice of unemployment. The motivation behind the system is 'working together for the common good' where top priorities include being as self-sufficient as possible and being independent of capital economies. Also, the aim of this economy was to allocate resources with minimal use of the price mechanism and encourage rapid economic growth. In the past, centrally planned economies traded with other economies of the same sort. Those that were poorly developed followed Marxist ideology, which had extreme socialist ideas that aim for full employment, for everyone to have a reasonable standard of living and to be an equal a society as possible. There were advantages and disadvantages to the command economy. On the positive side, the economy provided a reasonable standard of living for everyone. ...read more.


This means that individuals have to make their own decisions about production and may prefer to be cautious and produce less at the beginning so they do not over produce and lose money. They are not used to having to make important decisions for themselves and need to learn from their own experiences about exact quantities that they need to produce. The industries had difficulty obtaining the raw materials that they need and may also have problems transporting their products to the markets. There was disruption across other countries, which were also in the transition process, because of the fact that certain factories and shops cut down on imports due to the uncertainty of being able to pay for them. Also, the option of importing for less from countries in the West was now open when it had previously been banned, which meant that countries had the whole world to choose imports from. The countries that were worst affected by falls in GDP generally saw a large growth in their informal sectors. Ukraine, for example, had an informal sector that was approaching the size of its formal sector in 1998. The large falls in output led to sharp rises in unemployment. One of the advantages of a command economy was that it ensured almost no unemployment, and the shift to a market system led to a change in the employment situation. Many enterprises went out of business and factories and plants were closed, which created unemployed workers. ...read more.


Wage inequalities increased the gap between wealth differences. Also, as a market economy rewards those with higher levels of human capital, when in the past coal miners were paid more than doctors were, in a mixed economy this switched around. The transition period lasted different lengths of time for different countries. Where some countries, such as the Ukraine, failed to transform into a market economy. By 2000, the official GDP had fallen to one third of its level in 1989. Government provided services such as education and healthcare are under-funded, as the tax base is very low. Since 1990, all those people who rely on the state for their income, such as doctors and pensioners, have seen a fall in their real income. Criminal activity has been encouraged and investment has been discouraged due to the lack of rule of law in the economic sphere. Therefore, long term growth prospects do not look promising in the Ukraine. In general, Eastern European countries have managed their transitions relatively well, and they are all aiming to join the European Union. To do this they need to match their legal systems with the rest of the EU law and need to have stable currency along with low inflation. As we can see, there have been many effects of the transition away from central planning in Eastern Europe. There have been effects on output, unemployment, inflation, ownership and wealth, the distribution of resources and government finances. In most cases these have not been positive changes to begin with but have over time improved and now have a better prospective for the future economy. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Features of command economies

    The market forces have improved the performance of the economies in Eastern Europe. No central planning is needed, which is a great advantage of market economies. The land and capital are owned by private sector. The resources are allocated by price.

  2. Retailing In India - A Government Policy Perspective

    However as we have seen broad based reforms in the retail sector, in the long run, is extremely beneficial for the entire economy. This would increase employment in retail and would also improve retail spending. Remove Bottlenecks in the supply chain To adequately develop the upstream, the government should take

  1. How in principle do a) market economies and b) planned economies solve the economic ...

    {Johnston B. (1985)} All capital and resources except human labour is owned by the state. The state also makes all the decisions of production and distribution as if it were one big firm. Each producer is given physical targets of how much to produce, how much equipment, labour and materials should be used.

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    Since investors are assumed to prefer a high return and a lower risk, expected utility is assumed to be an increasing function of the mean, and a decreasing function of the variance. Using the mean-variance criterion, investors will focus on the set of portfolios with the smallest variance for a given mean; the mean-variance frontier (see Figure 4 below).

  1. Living Wage

    The most recent data show that, out of the ten major U.S. airline companies, United ranks fifth in passengers declined boarding (i.e., those who are bumped due to over-booking), ninth in on-time performance, tenth in baggage mishandled, and sixth in consumer complaints.

  2. Make investors in the Retail and Consumer goods sector aware of business development opportunities ...

    Lithuania 3,447 Latvia 2,331 Macedonia 2,050 Slovenia 1,996 Estonia 1,356 Total 18 Countries 323,780 US 289,000 EU - 15 379,500 WORLD* 5,726,902 GDP growth (US $ millions) has remained nigh on static year on year (2002 - 2003), Lithuania, Macedonia and Russia are the exceptions: they have grown.

  1. Economics of European Integration

    The European companies appreciate this approach, because it helps to obtain more synchronisation in the liberalisation of all the network sectors. The liberalisation (movement from monopolistic to competitive markets) of the electricity market is one point, but its privatisation (change of ownership structure from state-owned to private)

  2. How is it possible that a tiny, carbon based stone could effect the lives ...

    "In a show of protest and an accusation that the MPLA committed election fraud, Savimbi resumed his guerrilla war against the Angolan government in October of 1992. UNITA controlled more than half of Angola's national territory by 1993." (Lewis) For the next two years Angola was plagued with famine and disease.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work