Chapter 26.3 Economies in Transition

The Transition From a Command Economy Today, many nations are changing from one type of economy to another. Some are moving from traditional economies to more developed ones. Others are shifting from command to market economies. Today, many nations are changing from one type of economy to another. Some are moving from traditional economies to more developed ones. Others are shifting from command to market economies. Command economies were unable to achieve the economic growth that market economies had. By 1991, all were moving toward market economies. In Eastern Europe, the countries moved toward greater democracy as well. Command economies were unable to achieve the economic growth that market economies had. By 1991, all were moving toward market economies. In Eastern Europe, the countries moved toward greater democracy as well.

continued In the Soviet Union, a central planning body called the Gosplan answered the basic production questions. It planned the production and distribution of thousands of products. Often it made mistakes. Too much or too little of a good might be produced. Supplies might not arrive where needed. The process became too complicated. In the Soviet Union, a central planning body called the Gosplan answered the basic production questions. It planned the production and distribution of thousands of products. Often it made mistakes. Too much or too little of a good might be produced. Supplies might not arrive where needed. The process became too complicated.

continued The Soviet Union broke into separate countries in 1991 because Communist leaders could not keep the economy going. Russia’s leaders wanted to convert to a market economy. State-owned factories had to be switched to private ownership. Stock markets had to be created. People had to learn how to let the forces of supply and demand work. The Soviet Union broke into separate countries in 1991 because Communist leaders could not keep the economy going. Russia’s leaders wanted to convert to a market economy. State-owned factories had to be switched to private ownership. Stock markets had to be created. People had to learn how to let the forces of supply and demand work.

continued By the 1980s, China’s command economy was falling behind the market economies of its neighbors. China began introducing market reforms to catch up. It converted many factories to private ownership and set up stock markets. By the 1980s, China’s command economy was falling behind the market economies of its neighbors. China began introducing market reforms to catch up. It converted many factories to private ownership and set up stock markets. China’s economy has grown at a high rate over the past 20 years. Still, millions of Chinese are unemployed and farmers are finding it hard to compete with cheaper food from abroad. China’s economy has grown at a high rate over the past 20 years. Still, millions of Chinese are unemployed and farmers are finding it hard to compete with cheaper food from abroad.

Developing Countries Developing countries are countries whose average per capita income is only a fraction of that in more industrialized countries. Many are trying to change to a market economy. Developing countries are countries whose average per capita income is only a fraction of that in more industrialized countries. Many are trying to change to a market economy. Most countries trying to make this change have traditional economies, in which economic decisions of what, how and for whom to produce are based on custom. Most countries trying to make this change have traditional economies, in which economic decisions of what, how and for whom to produce are based on custom.

continued Developing countries are poor and have a high rate of population growth. When population grows faster than GDP, per capita GDP declines. Each person has a smaller share of what the economy produces. Developing countries are poor and have a high rate of population growth. When population grows faster than GDP, per capita GDP declines. Each person has a smaller share of what the economy produces. Many developing nations are landlocked and do not have access to ocean trade routes. Others lack natural resources. Many developing nations are landlocked and do not have access to ocean trade routes. Others lack natural resources.

continued In many developing countries, civil wars destroyed roads, bridges, factories and other resources. They also left many workers dead. Farming is dangerous because of unexploded land mines left in the countryside. In many developing countries, civil wars destroyed roads, bridges, factories and other resources. They also left many workers dead. Farming is dangerous because of unexploded land mines left in the countryside. Some developing countries borrowed large sums of money to spur economic growth. Now they owe more money than the GDP they produce in a year. Many cannot pay even the interest on the debt. Some developing countries borrowed large sums of money to spur economic growth. Now they owe more money than the GDP they produce in a year. Many cannot pay even the interest on the debt.

continued Corruption in gov’t delays development of some economies. Corruption in gov’t delays development of some economies. The International Monetary Fund (IMF) offers advice and financial assistance on monetary and fiscal policy. It might help a developing country keep the value of its currency stable. The International Monetary Fund (IMF) offers advice and financial assistance on monetary and fiscal policy. It might help a developing country keep the value of its currency stable.

continued The World Bank gives loans and advice. For example, one program worked to improve inland water transportation in Bangladesh. The World Bank gives loans and advice. For example, one program worked to improve inland water transportation in Bangladesh. Many developing countries are unable to repay their debts to the IMF and World Bank. In 1999, leaders in several industrialized nations proposed a plan to cancel a large portion of this debt. This would leave more funds available for social programs and economic growth plans for developing nations. Many developing countries are unable to repay their debts to the IMF and World Bank. In 1999, leaders in several industrialized nations proposed a plan to cancel a large portion of this debt. This would leave more funds available for social programs and economic growth plans for developing nations.