Download Chapter 26.3

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.
 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
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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
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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.
 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.
 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.
 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.
 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.
 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.
 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.
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