Download The Situation of Transition Economies In The Global Crisis

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International Association of Social Science Research - IASSR
ISSN: 2147-6284
European Journal of Research on Education, 2014, 00(00), 00-00
DOI: 10.15527/ejre.201426566
European Journal of Research on Education The Situation of Transition Economies In The Global Crisis
Environment: The Case of Russia
Sinan Cukurcayir
∗
Department of Public Finance / Faculty of Economics / Adıyaman University / Turkey
Abstract
In general, after the Second World War, the Soviet Union and the Central and Eastern European countries which governed by
socialist economic system, began to disintegrate. The political changes which have begun in the countries that gained
independence, also has brought along with the economic change. This process has revealed that the concept of transition
economics. The concept of transition economics refers to the transformation of the planned economy towards to the free market
economy. In this context, this study is discussed that the problems of the transition economies which is the encounter in during
the transition from centrally planned to a free market economy. Also suggestions have been discussed. Afterwards the situation
of transition economies has been analysed in the global crisis environment.
© 2013 European Journal of Research on Education by IASSR.
Keywords: Transition Economies, Global Crisis, Russian Economy
1. Introduction
Towards the end of 1980s, the economic systems based on central planning lost its function and the planned
economic system which was valid in many countries entered in the process of transformation to free market and
transition. In this regard, primarily Europe and Eastern Asia countries turned to free market from planned economic
system. Within this framework, transition from planned economic system to free market concerned many countries
from 1990s on.
Globalization movements of today enabled countries to interact with each other economic, social, political and
cultural, causing an integration of international and interregional. In this context, liberalization movements which
become common globally affected global economy. Thus, the topics discussed here were analyzed within the scope
of globalization and liberalization; and the effects of the recent crisis on countries, especially with transition
economies, were evaluated.
2. The Concept And General Futures Of Transition Economy
In general terms, after the economic, social and political disintegration of the Soviets, the efforts of countries
with central economy for passing to free market economy is called transition economy in literature
(Ramazanoğlu&Acar, 2005: 385). If we evaluate it in this regard, transition economies; were governed based on the
central planning in the period of Soviets, then, it was defined as the state economy which strives to found a
democratic order (Ağayev, 2010: 163).
∗
E-mail: [email protected]
Sinan Cukurcayir
Hence, this conception, which took part in literature towards the end of 1990s and still expresses the transition
period, came to the fore for the economic, social, political structures of the countries founded after the Soviets
collapsed and communism lost validity (World Bank, 1993:12). If we look at the reasons of socialist regime, it is
possible to order : (Altay, 2003:11) “Single party politics means that industry system is ineffective and works
unproductively, production is not enough and unfruitful, there is no right of private property, public expenditures is
used unproductively, there is no social insurance precautions, sense of planning and governing is insufficient.”
Today, most of the researchers state that foundation of some republics in the Middle Asia and Eastern Europe
after the Soviets’ disintegration is “the great geopolitical earthquake of recent history”. The table below shows the
political classification of countries with transition economy.
Table 1. Politically Classification of Transition Economies (IMF Approach)
1.
2.
Transition Economies of the Europe and the Former Soviet Union:
a.
Central Eastern European Countries: Albania, Bulgaria, Croatia, Czech Republic, Macedonia, Hungary, Romania, the Slovak Republic
and Slovenia.
b.
Baltic Republics: Estonia, Latvia and Lithuania.
c.
Turkish Republics and the Commonwealth of Independent States: Azerbaijan, Belarus, Armenia, Georgia, Kazakhstan, Kyrgyzstan,
Moldova, Uzbekistan, Tajikistan, Turkmenistan and Ukraine.
Transition Economies in Asia: China, Cambodia, Laos and Vietnam.
Reference: Ağcakaya (2009); s.2.
With the different of the table above, we may also group transition economies under 3 categories. These are
(Altay, 2003:11-12) first group: Collection of Independent States (CIS) and the countries made from Old Soviets
Union Republics. Though they lived through the same period of change, they have major differences. Second group:
Central and Eastern Europe countries (including Baltic Republic). It is stated that the reforms in these countries is
more radical than others. Third group: China and Vietnam. Today, there are only those countries that are governed
with planned economy; Cuba and North Korea.
If we look at the general features of transition economies; it is possible to say that: (Ramazanoğlu&Acar,
2005:387) “industrial and technological developments are insufficient, agricultural population is high, social and
cultural development is low, finance resources are limited, possible breakdowns in organizational structures, legal
regulations are insufficient.”
On the other hand, we can sort the main problems of transitions economies and developing countries across the
globe: (Acartürk&Tekeli&Arslaner, 2004:3-4).
“Domestic Savings: Per capita income is low in these countries. Also, domestic savings are not enough, because
they people spend all or most of their incomes on consumption.
Exchange Stocks: Exportation is not enough in these countries, because domestic production is not capable to
compete with other counties and productions are not in demand to be important from abroad. They cannot find
necessary foreign currency for raw material, machines and plant.
Technical Knowledge and Technology: New Technologies cannot be used in these countries because level of
education is low and there is lack of qualified personnel. New technology cannot be developed, because they do not
fund education and research and development.
Political structure: There are legal uncertainties, because there is no institutionalization. Political stability requires
a long period.
Economic structure: There is no economic stability. Economic system could not reach a level of resisting to inner
and outer effects. Especially outer shocks affect these economies negatively.”
To solve the problems above, this point should be paid attention (Acartürk&Tekeli&Arslaner,2004:3-4): clearing
the way of bureaucratic issues, reorganizing the legislation, encouraging foreign currency investments to country,
intensification of privatization, developing industrialization policy.
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The Situation of Transition Economies in the Global Crisis Environment: The Case of Russia
Across the globe, in countries governed by central economic system, especially old Soviet Union countries, that
current system were not conducted effectively and that there was no institutional system and legal order to carry out
free market caused serious economic outcomes. Hence, transition from a total central system to free market is not
very easy in the sense of economy and politics (Akalın, 2002:15).
The conception of transition from central planned economic system to free market economy means
(Acartürk&Arslaner,2004:1); “Providing economic fertility and stability by applying iron discipline, creating a
frame of property rights, superiority of law, transparent market, with the help of deregulation of economic activities,
prices and market transactions.”
In transition economies, the size and weight of the public sector in economy is an essential part in general. Thus,
public sector has important mission in harmonisation of current economy institutions, regulations and
implementations. The policies applied in transition economies or reforms should be organized to create a market
economy by public sector. For this, there are some criteria (Acartürk&Arslaner, 2004:2): “For monopoly structure
in politics to get more democratic competitive, economic monopoly should be competitive order, open price system
must be valid for production scarcity, fiscal discipline must be provided to diminish fiscal irregularity, tight money
policy should be applied in order to challenge inflation.”
Within this framework, the entire above are fulfilled, there will be more liberal economic system, instead of
central decision-making system.
Within practice sense, economic systems are grouped under 2 categories. First one is “Centrally Planned
Economies”, where prices in market, resource distribution in economy, resource activity are decided from one
central. Second one is “Market Economies”, where the elements above are decided in free market and private
possession and private enterprise are valid. Also, the third system may be “Mixed Economies”, which emerged
towards the end of 1930, and has vast field of application and is conducted according to Keynesian policy
(Acartürk&Arslaner,2004:2).
Across the globe, from 1980s on, transformation of central planned economies to market economies came to
agenda as an important topic. Thus, evaluation of transition economy countries in the context of central planned and
the other step is important. These economies cannot adopt market economy element totally
(Acartürk&Arslaner,2004:2).
Also, free market conception after 1980s changed trade controls and fields of government. Governments’
principal tasks in free markets (Altay,2003:5): “providing free market, constitutional assurance, creating
competitive environment, providing economic stability, providing inner and outer security, producing basis services,
providing social peace for economic activities, securing the justice in the distribution of income and fortune.”
From this point of view, government has two main tasks. First one is to organize basic rights and liberties
according to current norms. Second one is to make market more competitive. Fulfilling the two tasks here depends
on the context, consistency and practice capacity of legal regulations (Altay,2003:16)
Hence, government must found transition economies and conduct related policies. Government is subjected to the
transformation issue (Altay, 2003:6). The basic principles of market economies’ institutionalization and reaching to
free market economy in transition economies (Altay, 2003:11): “providing market activities for source distribution,
liberating prices and economic activities, developing market instruments, conducting tight budget operation,
transparency regulations for property rights, superiority of law, creating a legal and institutional frame.”
The criteria above are not subjected to be conducted at the same time for some countries. Yet, it was observed
that some countries completed transformation policy in two steps. First step is to recede from the effective areas by
liberating foreign trade and market, privation public economic enterprises. Second step is to secure free market
conduction in the country by organizing legal and institutional structure (Altay, 2003:12).
In addition to that, in the report the World Bank released (From Plan to Market), it was expressed that a three
stepped program will be required to create a free market economy. The first step here is governmental
transformation. For this, public sector should recede from economy, by means of liberating prices and economic
activities. Second step is to reorganize property right across the country and fulfil the necessary privatizations. Third
and the last step are to conduct reforms and regulation in the field of social services and social security.
Consequently, poverty reduces, education and health services are provided in a better way (World Bank, 1996:3637).
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Sinan Cukurcayir
3. Global Crisis And Transition Economies
There are three main crises around the world. First one is the Great depression happened in Germany in 1873.
Second one is the Great Depression in America in 1929. The last one is the Great Recession which effected the
entire globe towards the end of 2007 (İşcan&Hatipoğlu, 2011:193).
Generally, the countries around the world are in interaction with each other economic, social and political. The
reflection of this interaction to economic activities brought positive and negative consequents. Towards the end of
1980s, the economy policies based on market economy in transition economies of the Soviets caused remarkable
capital inflows and outflows, and then caused debt crisis and financial crisis (İşcan&Hatipoğlu,2011:181). Hence,
with the financial crisis took place in this period, production in economy fell, economy got narrow, fiscal deficits
and unemployment problems became common and there were essential breakdowns in fiscal markets
(Yörük,2010:1986-87).
If we evaluate from this point of view, the reasons of the financial and economic crisis in transition economies
(Ağcakaya, 2009:4): “incapability of organizational structure in free market economy, no financial intermediation
system, lack of trading of governmental enterprise, weakness of legal environment, weakness of tax system, weak
local governments to solve the problems, lack of nongovernmental organizations.”
In due course of transition economies in the world, due to the requirement of economic reforms and privatization
policies, fiscal government with fiscal discipline couldn’t be obtained (Ağcakaya, 2009:5). Thus, fiscal policies in
transition period were minimized; the problems of economic growth and income distribution couldn’t be solved.
In the field of public finance, there are main problems especially in foreign debts and public deficit. Also, as
there is no effective tax system, there are serious problems in taxing (Altay, 2003:20). One of the main reasons of
incapability of fiscal discipline in transition economies, the level of public income is on unsatisfactory level (Altay,
2003:26).
4. Russian Sample
From 1990s on in the world, particularly the Soviets, the economic and financial crisis in transition economies
varied in levels. Generally between 1990 and 1993, there was economic and financial regression. Russian crisis in
the same period effected Middle Asia and Eastern Asia economies negatively.
After communism period, Russian economy collapsed. GDP collapsed dramatically and budget deficit occurred.
With the support of IMF by Russian Central Bank, tight economic policies came into effect and tight budget
conducted for inflation.
Stability program for Russia is based on four elements (Fischer, 1994:10): reducing credit expansion by Central
Bank, closing the budget deficit, using foreign financial sources, liberalization in price and trade.
In general, the reforms practiced in Russia from 2001 on (Benli, 2011:6-7): “reorganizing the personal income
tax, practising social tax, decreasing institution tax to %24, reformation in the exemption conditions in consolidated
commercial spending, providing convenience especially in petrol industry, decreasing WAT to %18.”
The economic crisis in Russia in 1991 accelerated the transition to free market industry. After this process, the
prices liberalized and privatization came to the fore (DPT, 2012).
With the disintegration of Soviet Union, Russia who switched to free market economy, has a privileged location
among the other countries. Yet, Russian economy also was affected from global crisis. Sudden decline in petrol
priced stopped Russian economy. The first reaction to crisis, as in other countries, was foreign capital outflows.
Towards the end of 2008 foreign capital flow declined %40 (World Bank, 2010:8).
Moreover, production regressed dramatically with the declining demand in Russian economy. Unemployment
increased to %8 and investments declined dramatically. Consequently, the decline in GDP was %7 level in 2009
(IMF, 2010:3). We can analyze the economic progress in Russian economy from the graph below.
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The Situation of Transition Economies in the Global Crisis Environment: The Case of Russia
GDP-­‐Real Growth Rate 7.3 7.2 6.4 8.2 8.5 4.3 5.2 4.3 3.6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -­‐7.8 Industrial ProducAon Growth Rate 7 6.4 4 4.8 7.4 8.3 3.5 5 2.6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -­‐13.1 InflaAon Rate 13.7 10.9 14.1 12.7 9.7 11.7 9 6.9 8.4 5.1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Unemployment Rate 8.6 8.2 7.6 7.2 8.4 6.1 6.4 7.5 6.6 5.7 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Reference: World Bank (2013); “Annual Economic Data”, http://data.worldbank.org/indicator (28.12.2013)
Figure 1: Basic Macroeconomic Indicators in the Russian Economy
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Sinan Cukurcayir
When we look at the graph above, there are breakups in Russian economy after 2007. Real growth speed of GDP
fell dramatically in 2009. Industry production fell also. The other main sign, inflation, instead in global crisis
periods.
Unemployment increased in these periods. Despite these breakups, Russian economy started to recover towards
the end of 2009. With the recovering of manufacturing and petrol prices, foreign trade got better. Hence, from 2010
on, foreign capital flow accelerated (İşcan&Hatipoğlu, 2010:32). There is micro economic data of Russian economy
in the table.
Table 2: Basic Macroeconomic Data in the Russian Economy
YEARS
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GDP (Billion Dollar)
430,3
591,2
763,7
989,9
1299,7
1660,8
122,2
1479,8
188,5
195,4
YEARS Unemployment Rate (%)
GDP Real Growth Rate (%) Industrial Production Growth Rate (%)
Inflation Rate (%)
7,3
7,2
6,4
8,2
8,5
5,2
-7,8
4,3
4,3
3,6
7
6,4
4
4,8
7,4
3,5
-13,1
8,3
5
2,6
13,7
10,9
12,7
9,7
9
14,1
11,7
6,9
8,4
5,1
Exports (Billion Dollar)
Imports (Billion Dollar)
Public Debt (% of GDP)
2003
8,6
134,4
74,8
2004
8,2
162,5
92,9
2005
7,6
245,0
125,0
2006
7,2
317,6
171,5
2007
6,1
355,5
223,4
2008
6,4
471,6
302,0
2009
8,4
303,4
191,8
2010
7,5
400,4
248,7
2011
6,6
522,0
323,8
2012
5,7
530,7
335,4
Reference: World Bank (2013); “Annual Economic Data”, http://data.worldbank.org/indicator (28.012.2013)
30,4
22,3
14,2
9
8,5
7,9
11
7,9
8,3
12,2
If we look at the table above, during the crisis period, particularly in 2009, import and export values declined.
Public debt increased. There were serious economic problems in Russia. Yet, after crisis period, Russia started to
recover. As could be seen in the table, there are positive progresses after 2009 in Russia.
5. Conclusion
In general, period of free market, which is a feature of transition economies, occurred with the ending of central
planning and practicing privatization. The basic criteria of transition period are micro economic stability, market
liberalization, regulation public concern in accordance with free market, effective privatization policies. The main
aims of transition economies are economic effectiveness, economic growth and nation-wide advance.
After the economic crisis, there were many breakups in transition economies. These breakups affected the
process negatively. These effects are in considerable extent. Russia experienced the negative effects totally. From
this point of view, Russian economy entered the restriction period in 2009. Positive developments were at stake
beginning from 2010.
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The Situation of Transition Economies in the Global Crisis Environment: The Case of Russia
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