Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic democracy wikipedia , lookup
Economics of fascism wikipedia , lookup
Criticisms of socialism wikipedia , lookup
Participatory economics wikipedia , lookup
Non-monetary economy wikipedia , lookup
Economic calculation problem wikipedia , lookup
Chinese economic reform wikipedia , lookup
Production for use wikipedia , lookup
Transition economy wikipedia , lookup
Post–World War II economic expansion wikipedia , lookup
Chapter Nineteen Transition Economies Transition Economies • Command Economy (or Centrally Planned Economy) – an economy where the government sets prices and decides what, how and for whom goods will be produced. • Market Economies - an economy where the individual buyers and sellers set prices and decide what, how and for whom goods will be produced. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 2 Centrally Planned Economies • Socialism – an economic system in which the government owns and controls all the capital and makes decisions about prices and quantities as part of a central plan. • Capitalism – an economic system based on a market economy in which capital is individually owned, and production and employment decisions are decentralized. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 3 Centrally Planned Economies (cont’d) • Communism – an economic system in which all capital is collectively owned. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 4 Central Planning in the Soviet Union • Nationalization – the taking over of private firms by the government. For example, Vladimir Lenin and the Bolsheviks party (the Communist party) nationalized the banking industry and other large and small scale industries after the October Revolution of 1917. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 5 Central Planning in the Soviet Union (cont’d) • When Joseph Stalin took over as the leader of the Communist Party, private property was abolished and production was assigned to state enterprises and collectivized farms. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 6 Central Planning in the Soviet Union (cont’d) • Collectivized Farms – a farm in a planned economy that is in theory collectively owned by peasants, but is controlled by the government. • State Enterprise – an organization, analogous to a firm in a market economy, that is owned and controlled by the government. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 7 Central Planning in the Soviet Union (cont’d) • Central planning required that prices and quantities of goods be set by the government (Gosplan). • Production Target – a goal set for the production of a good or a service in a planned economy. Gosplan tried to control how much was produced at each state enterprise and collectivized farm. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 8 Central Planning in the Soviet Union (cont’d) • Centrally Controlled Prices: Gosplan tried to set the prices of the goods and services. However, these prices were nowhere near the equilibrium price in a market, so shortages were typical. Black markets emerged. • Black Markets – markets that operated outside of the normal central planning procedures. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 9 From Perestroika to the End of the Soviet Union • Perestroika – the restructuring of the Soviet economy by reforming the central planning process. • While Perestroika changes put into place in 1985 did not help the Soviet Union’s economic growth, the gradual changes did result in the collapse of the Soviet Union in 1991. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 10 From Perestroika to the End of the Soviet Union (cont’d) Timeline: • 1985 – Mikhail Gorbachev becomes leader of the Communist Party and introduces “Perestroika” changes to its five year plan. • 1990 – Lithuania declares independence from the Soviet Union. Estonia and Latvia follow. • 1991 – Gorbachev resigns and the Soviet Union ceases to exist. Boris Yeltsin, the president of Russia, abandons central planning. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 11 Soviet-Style Central Planning in China • Mao Zedong, the leader of the Communist Party in China, implemented Soviet-style central planning in China. • “Great Leap Forward” – an economic program implemented by Mao which briefly raised economic growth by promoting a warlike work effort throughout the country, and called for massive expansion. This program failed to promote sustained growth and resulted in declined production. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 12 Soviet-Style Central Planning in China (cont’d) • Economic reforms (toward a market economy) began in the agriculture sector in the late 1970s. After 1978, the growth rate of agricultural production was about 6 percent per year. The increased efficiency of agricultural workers resulted in an increase in the supply of workers that moved into the industrial sector. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 13 Soviet-Style Central Planning in China (cont’d) • By the mid 1980s (around the time of Perestroika), economic reforms spread beyond agriculture. Individual stateowned enterprises were given discretion to produce new products and were allowed to keep some of the profit. • Economic growth averaged 9.6 percent from 1987-1994. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 14 Economic Transition: Elements of Reform • How does a country change from central planning to a market economy? • Requirements for a successful transition include: 1) A legal system specifying property rights with ways to enforce the law must be set up. 2) A system of tax collection must be put in place. 3) The government must stop controlling prices. 4) The government must enforce competition among firms. 5) The government must substantially reduce the budget deficit, if present. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 15 Economic Transition: Elements of Reform (cont’d) • How fast should the transition be? Two basic alternative theories on the speed of transition: Shock Therapy vs. Gradualism. • Shock Therapy – the abrupt introduction of free markets in a formerly centrally planned economy; also known as the big bang approach. • Gradualism – the slow phasing in of free market reforms. Requires that the elements of reform be placed slowly and not all at the same time. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 16 Economic Transition: Elements of Reform (cont’d) Arguments for Shock Therapy: 1) Positive attitudes regarding reform are temporary, creating a brief window of opportunity for reform. 2) All elements of reform are interrelated, making it difficult to implement one without the other. For example, eliminating state enterprises without fostering competition could result in monopolies. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 17 Economic Transition: Elements of Reform (cont’d) Arguments against shock therapy: 1) People require time to adjust. 2) Shock therapy could result in large unemployment. A more gradual approach will allow firms to move into other businesses and allow workers to find other jobs. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 18 Economic Transition in Practice • Poland was the first country to undergo a transition to a market economy using the shock therapy approach. Results: 1) Substantial decline in demand and shortages began to disappear. 2) The current account balance immediately went into a surplus. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 19 Economic Transition in Practice (cont’d) More results: 3) The unemployment rate increased, but not by much. 4) Inflation dropped from an average of 420 percent in 1989 and 1990 to 25 percent in 1992. 5) Real GDP fell in the first 2 years of the reform, and the economy was posting strong growth from 1994-2001. Copyright © Houghton Mifflin Company. All rights reserved. 19 | 20 Key Terms • • • • • • • Socialism Capitalism Communism Nationalization Gosplan State enterprise Collectivized farm Copyright © Houghton Mifflin Company. All rights reserved. 19 | 21 Key Terms (cont’d) • • • • • Production target Perestroika Shock therapy Gradualism Privatization Copyright © Houghton Mifflin Company. All rights reserved. 19 | 22