The Means of Transition
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The Means of Transition The shift from a command or mixed economy to a freer market economy largely depends on how well a country’s government can dismantle certain features such as central planning systems, and create others, such as consumer sovereignty. Most notably, the success of the transition process appears to be intricately linked to the government’s ability to liberalize economic activity, reform business practices, and establish appropriate legal and institutional frameworks. [See Fig. 4.4.] 1. Pri vat iza tio n. Privatization, i.e., the sale and/or legal transfer of government-owned resources to private individuals and/or entities, reduces government debt, on the one hand, and increases market efficiency on the other. A key factor is t hat private enterprises must compete in open markets for materials, labor, and capital; thus, they succeed or fail on their own merits. 2. Dereg ula tio n. Deregulation, i.e., the relaxation or removal of restrictions on the free operation of markets and business practices, allows businesses to be more productive and thus make investments in the innovations and activities that can lead to economic growth. 3. Proper ty Rig hts . The protection of real (tangible) and intellectual (intangible) property rights permits individuals and for-profit and nonprofit business entities, rather than the state, to claim both the present and future rewards of their ideas, efforts, and risk. 4. Fi scal and Mon et ar y Re fo rm. The adoption of free market principles requires a government to rely upon market-oriented instruments for macroeconomic stabilization, set strict budgetary limits, and use market- based policies to manage the money s upply. Although such measures create economic hardships in the short run, in the long run they lead to economic stability that can, in turn, help attract the investment neede d to finance economic growth. 5. Antitrust L aws. Because the anticompetitive practices of monopolies contradict the basic premise of a free market, antitrust laws that are designed to maintain and promote market competition must be enacted. LOOKING TO THE FUTURE: The Future of Transition Countries in transition must determine how to maintain political and macroeconomic stability, increase economic growth, improve legal and institutional policies, and resolve a host of social issues, such as h ealth care, security, poverty, and child welfare. However, critics claim that when fully measured, the costs of transition to a market-based economy greatly exceed the benefits provided by a strong government in a mixed economy. They believe that market-based economies i mpose high social costs and cr eate inequitable income distribution, i.e., that they foster the development of powerful self- interests that threaten s ocial liberties and politi cal rights. As social turmoil has made governments vulnerable to antiprivatization protests and forced foreign firms to retreat, it has become obvious that the road to greater economic and political freedom is uncertain.
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Transcript of The Means of Transition
8/4/2019 The Means of Transition
http://slidepdf.com/reader/full/the-means-of-transition 1/3
The Means of TransitionThe shift from a command or mixed economy to a freer market economy largelydepends on how well a country’s government can dismantle certain featuressuch as central planning systems, and create others, such as consumer sovereignty. Most notably, the success of the transition process appears to be
intricately linked to the government’s ability to liberalize economic activity,reform business practices, and establish appropriate legal and institutionalframeworks. [See Fig. 4.4.]1. Privatization. Privatization, i.e., the sale and/or legal transfer of
government-owned resources to private individuals and/or entities, reducesgovernment debt, on the one hand, and increases market efficiency on theother. A key factor is that private enterprises must compete in open marketsfor materials, labor, and capital; thus, they succeed or fail on their ownmerits.
2. Deregulation. Deregulation, i.e., the relaxation or removal of restrictionson the free operation of markets and business practices, allows businesses to
be more productive and thus make investments in the innovations andactivities that can lead to economic growth.3. Property Rights. The protection of real (tangible) and intellectual
(intangible) property rights permits individuals and for-profit and nonprofit business entities, rather than the state, to claim both the present and futurerewards of their ideas, efforts, and risk.
4. Fiscal and Monetary Reform. The adoption of free market principlesrequires a government to rely upon market-oriented instruments for macroeconomic stabilization, set strict budgetary limits, and use market- based policies to manage the money supply. Although such measures createeconomic hardships in the short run, in the long run they lead to economic
stability that can, in turn, help attract the investment needed to financeeconomic growth.5. Antitrust Laws. Because the anticompetitive practices of monopolies
contradict the basic premise of a free market, antitrust laws that aredesigned to maintain and promote market competition must be enacted.
LOOKING TO THE FUTURE: The Future of Transition
Countries in transition must determine how to maintain political and macroeconomicstability, increase economic growth, improve legal and institutional policies, and resolvea host of social issues, such as health care, security, poverty, and child welfare.However, critics claim that when fully measured, the costs of transition to a market-basedeconomy greatly exceed the benefits provided by a strong government in a mixedeconomy. They believe that market-based economies impose high social costs and createinequitable income distribution, i.e., that they foster the development of powerful self-interests that threaten social liberties and political rights. As social turmoil has madegovernments vulnerable to antiprivatization protests and forced foreign firms to retreat, ithas become obvious that the road to greater economic and political freedom is uncertain.
8/4/2019 The Means of Transition
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8/4/2019 The Means of Transition
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2. Map the proposed sequence of the evolution of the BRIC’s economies. What indicators might companies monitor to guide their investments and organize their
local market operations?
The BRIC’s economies are on the verge of the rapid growth of their consumer markets. (Experience indicates that consumer demand takes off when GNI per capita
reaches levels between $3,000 and $10,000 per year.) In Russia there is alreadysignificant evidence of the growth of consumerism during the past decade. There arealso early signs of similar trends in China and India, where the growth of their middle classes is very rapid. It is expected that within a decade or so, each of theBRICs will show higher returns, increased demand for capital, and stronger nationalcurrencies. Thus, foreign firms will want to monitor major economic indicators suchas GNI, PPP, and the Human Development Index, as well as developments in thecultural, political, and legal environments of those nations.
3. What are the implications of the emergence of the BRICs to careers and companiesin your country?
Responses will vary according to the level of economic development and theeconomic basis of a student’s home country. Those students from industrializednations may feel challenged and express the fear of a decline in their standards of living due to increased pressures in the labor market and the declining costcompetitiveness of their countries’ firms. On the other hand, students fromdeveloping countries may be hopeful that their countries will be able to successfullygenerate and/or compete for the investment capital and those business activities thatlead to significant economic growth and the increasing global competitiveness of their countries’ firms. How-ever, there is ample room for exceptions to thesefeelings, given the present and future comparative advantages of particular nations.
