Chapter 2 Lesson 3 Economic Systems and Decision-Making The Global transition to capitalism

Warm up 9/7/17 With you limited knowledge, what elements would a country need to transition from a socialist/command economy to a capitalist/market economy? Explain some hardships it might encounter also.

Problems of Transition Transitions reflect social and cultural values of each country Privatization of State-Owned property by use of vouchers Vouchers were certificates that could be used to purchase government- owned property. Given or sold to citizens in order to purchase stock in corporations that had been converted from government-owned property. Once vouchers were used, ownership transferred to private hands. Communists feared loss of political power. Most actually lost power before privatization. Voucher system worked well. Sometimes Communist leaders grabbed large shares of vouchers, making it a difficult transition to Capitalism. Old political bosses, became new economic bosses. GDP per capita is still lower today than in other capitalist countries.

Problems of Transition con’t. Citizens have to respond to new incentives in capitalist economy; make decisions, take initiative, work hard, etc. Costs of transition can be very high. Coping with instability, unemployment, social unrest… Countries will experience the instabilities before they experience the benefits.

Countries and Regions in Transition Russia Five Year Plans – first was to achieve rapid industrialization. Gosplan – central authority that devised and directed the five year plans. Assigned production quotas. Collectivization – forced common ownership of all agri. And indus. Enterprises. Constantly increased quotas to insure growth. Perestroika – econ. Restructuring, giving more freedom to managers to pursue profits. Encouraged small business. Under Yeltsin, they distributed vouchers for property purchase and started stock market for private industry. Under Putin today, they are mostly a market economy with exceptions being energy, natural resources, and defense- related industries, which government owns.

China First modeled itself after the Soviet Union, used Five Year Plans Great Leap Forward established large, state- owned communal farms with Five Year Plan….it failed due to low agri output. Abandoned Soviet model in 1970s. Because of Hong Kong’s success other provinces were allowed to adopt some Capitalism. Today China functions in a capitalistic manner. China still has a way to go with its privatization. There is still much government ownership and regulation.

Latin America: Chile is one of strongest market economies in Latin America. Argentina is also attempting to remove government from its economy. Nationalization of energy companies has slowed progression. Venezuela is in crisis in private sector. Hugo Chavez tried to make it a socialist state but today it is going the other direction. Still uncertain.

Eastern Europe Struggle for capitalism began with Poland in 1980. Solidarity, the labor union established in 1980 was influential in securing political freedoms in Poland. After Communism ended, Poland joined the European Union (EU), the asso of European nations created to develop a single market with full economic and political cooperation. Hungary made a successful transition to capitalism because of its strong “Black Market” during communist years. Joined EU in 2004. Most other Eastern European countries made a successful change to capitalism.

Japan Has a capitalist economy based on markets, prices, and private ownership….like US. Develop many new technologies. Use capital-intensive technologies to use large amounts of capital per every employee. Lots of machines, few people. Government is involved more than US with its Ministry of International Trade. They give subsidies to industries to make them competitive in identified areas. Most Japanese firms belong to keiretsu, a tightly knit group of firms governed by an external board of directors. This would be illegal in US under anti-trust laws. Competition rules here.

Other Faces of Capitalism South Korea – after Korean war in 1953, it had highest population density, the number of people per square mile of land, in the world. Changed to capitalism and became a major producer of consumer and electronic goods . Also leading producer of autos. Very fast growth by working their way up from the bottom. Singapore – Small island but ranks 40th in world in GDP. Telecommunications, software, and bio-technology. Taiwan – lots of government planning with high-tech industries, but GDP is only 80% of US. Sweden – major industrial nation today, but was once a socialist nation with up to 80% tax bracket. Economy fell and they changed to free market economy. Still have mix of liberal welfare programs but also high-tech.

Quiz 2.3 _________ reflects the social and cultural values of each country. _________ forced common ownership of all agriculture. This effort actually turned out to be a tremendous fall backward! Nationalization of energy has slowed this country’s transition to capitalism. This union was instrumental in helping Poland secure political freedoms. This is a tightly knit group of firms governed by an external board of directors.