Economic Transitions
Moving Toward a Market Economy Today, many countries are undergoing economic transition. Some are enjoying rapid growth, while others are changing their entire economic systems For many nations, economic transition has meant moving from central planning to a market-based economy Privatization: the sale or transfer of government-owned businesses to individuals
Privatizing Business Only profitable enterprises will survive in a free market No one will want to buy unprofitable businesses, so many people will lose their jobs Government leaders might make it easier for their own friends and associates to gain control of businesses when going through privatization (Russia) Workers must adapt to new work ethics and job security
Case Study: Russia After the fall of the Soviet Union in 1991, price caps were lifted, which resulted in massive price increases Wealth was distributed unevenly in the 1990s State-owned companies were auctioned off, many at low selling prices Billions of dollars in financial aid flooded into the country. However, due to mismanagement and corruption, these funds were not used efficiently
Russia in the 21st Century Tight controls from the central government, combined with rising prices for Russian oil, allowed Russian leaders to stem the crisis and repay foreign debt Challenges Russia’s economy relies too much on the export of natural resources (oil) Control of the economy is in the hands of a few ultrawealthy individuals who are close to President Vladimir Putin (called oligarchs) a shrinking workforce and corruption are limiting growth The political situation in Russia is discouraging investment from Western corporations
Case Study: China In the 1980s, China made major economic reforms Its new leader, Deng Xiaoping, gave farmers and factory managers more freedom to make decisions about what to produce and how much to charge for it Special Economic Zones (SEZs) Foreign businesses could operate, and local governments were allowed to offer tax incentives to foreign investors Chinese businesses could operate freely here, with managers making most of their own investment and production decisions
Case Study: China Issues The poor complain that the government is abandoning its promise to provide jobs and healthcare for all the nation’s people Growth has not reached all parts of the country, especially rural areas The One Child policy has reduced the size of China’s labor force Economic development has not meant political liberty