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Transition to Market Economy. Russia & China. Transition to Market Economy. “What is Transition?” Liberalizing Economic Activity Reforming Business Activity Establishing Legal and Institutional Framework. Transition to Market Economy. The Breakup of the Berlin Wall
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Transition to Market Economy Russia & China
Transition to Market Economy “What is Transition?” Liberalizing Economic Activity Reforming Business Activity Establishing Legal and Institutional Framework
Transition to Market Economy The Breakup of the Berlin Wall The Overthrow of Eastern European Communist Dictatorship in 1989
Transition to Market Economy We can classify transition to a marketeconomy in two groups: 1. Eastern Europe’s Transition: Poland, Hungary, and Czech Republic 2. China’s Transition
Transition to Market Economy Centrally Planned Economy: Fixed Price Centrally Planned Investment Incentive Problem
Transition to Market Economy Centrally Planned Economy . Market Economy
RussianTransition The Common Goal: To gain membership to the European Union (EU)
RussianTransition Includes political and economic transition at the same time. Initial transition steps resulted in steep economic declines. The transition has involved massive, although not all together effective, privatization.
RussianTransition Soft budgets have continued Hard administrative constraints have disappeared and are being repleced with connections and corruption Debts and deficits are a real challange
RussianTransition “The Russian economy is prepared to fully take part in the world economy” Vladimir Putin
ChineseTransition • China’s Unique Initial Conditions: • Centrally Planned Economy • Large Agricultural Force • Low Subsidies to The Population • Rather Decentralized Economic System
ChineseTransition • Heavy Industry Development Strategy • Low Technical Efficiency • Low Incentives • Capital Scarce - Agricultural Economy • Planned Allocation System • Low Interest Rate Policy • Overvalued Exchange Rate Policy • Low Wage Rate Policy • Low Input Price Policy
ChineseTransition • To adopt Heavy Industry Oriented Development Strategy: • Declining the level of Interest Rate • Agricultural Developments • Acquring Living Necessities to the Population Total Value of Agriculture and Industry grew from 15% in 1952 to about 40% in the 1970s.
ChineseTransition • China paid high price for such achievement: • Low Allocative Efficiency • Low Technical Efficiency
Market Reforms In China Agricultural & Rural Reform (Household Based System) Township & Village Entreprises (TVEs) State Owned Entreprises (SOEs) Special Economic Zones (SEZs) Development of Supporting Institutions Macropolicy Enviromental Reform
ChineseTransition’s Outcomes and Prospects • Positive Outcomes of Reform • Problems: • Incomplete Property Rights • Macroeconomic Difficulties • Integration into Global Economy
Conclusion • Russian Transition Process: • A major reason that Russia's transition has been so wrenching is that the country is remaking both its Soviet-era political and economic institutions at once. • It was impossible to set up a tax collection system capable of generating enough public resources as tofund the reforms. • The appearance of (criminal) paralleldecentralized organizations that have taken over some essential state functions. • The incapacity to put forward clear political priorities for coherent decision making, as wellas the difficulty in living up to them due to corruption phenomena • China’s Transition Process: • China’s Communist Partyprevented the turmoil. Authorities had a great control over stages of reform programs, their timing and contents. • Chinese Communist Regime was not eliminated in one night, on the contrary, communist party had made many reforms to make the transition process easier. • In this period of time there were no crises in China and reforms were completed with the support of the community.
