Premium Essay

Difficulties from a Planned to Market Economy

In: Social Issues

Submitted By byunbaekhyun
Words 299
Pages 2
The Basic Diculties of the Transition from a Planned to a Market
The basic diculties of a transition from a planned to a market economy follow already from these general considerations on the base of the theories of a market and of a planned economy. 1. The production structure of a planned economy does not conform to the demand structure of a market economy. The preferences of the consumers and private investors are not those of a politburo, thus the nal demand is di erent and thus the production structure.
2. This means that also the structure of capital goods is di erent. New industries have to be built up, old ones must be given up.
3. Many plants which are now exposed to competition cannot compete with the costs inherited from the planning period. Eciency of production is needed, which in turn leads in most cases to dismissal of workers.
4. If the borders are opened to free trade, the economy has to be integrated into the world trade, i. e. into the international division on labor, which may lead to another type of structural change and in many cases also to unemployment.
5. Prices have to be adapted to marginal cost and wages to the value of the marginal product of labor. This leads to changes in the income distribution which will hurt some people.
6. Elder capital which still has been used in the planning era must be scrapped.
7. With high rates of unemployment labor supply decreases. The real wage of those persons who are nevertheless employed will be higher than under the planning regime because those who are now working at the more modern machines produce a value which is larger than their real wage under the planning...

Similar Documents

Premium Essay

Why Was Central Planning Abandoned in Eastern Europe and the Ussr?

...bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy.” Thesis statement The words of Leon Trotsky, said decades before the eventual demise of central planning, highlight the underlying flaw of the planned economic system; lack of information. The central planner’s realized that the information and signaling required for any modern economy could be found more effectively in a market based system and consequentially central planning was abandoned. The systemic failure of central planning due to poor information was most prevalent in Eastern Europe and the USSR, as evidenced by their economy’s productive inefficiencies, allocative inefficiencies and pricing difficulties. This essay will classify the traditional soviet economy and examine the production, allocation and pricing difficulties which caused its end. The Soviet Model Ericson describes the traditional soviet system as “one of centralized planning, implemented administratively through the issuing of direct commands and extensive, detailed coordinating instructions.” After World War II much of Eastern Europe had adopted the soviet system and had distanced themselves from the Western world, so much so that Winston Churchill had referred to their isolation as an living behind an” iron curtain.” A centrally planned economy relied on government...

Words: 2788 - Pages: 12

Free Essay

Common Heights

...the world with a global economy that is then crippled by World War 1. Following World War 1 two young economists by the name of John Meynard Keynes and Friederich Hayek commence to solve the economic difficulties the world was currently situated in. Each economist had a different vision about the approach the world should therefore take to resolve the world’s economic dilemmas. John Meynard Keynes who first suggested the argument that the economy should be a government controlled. Keynes contemplated the idea that in an event of economic despair the government should allocate their economic resources and go into a state of paucity in order to restore the economy back to normal, “ Keynes felt that the market economy would go to excesses, and when things were in difficulty the market wouldn’t work. Therefore the government had to step in”, (Chapter 2, The Old Order Fails). Therefore, when the economy began to amplify and become stable, a surplus would arise. A profuse amount of people and governments supported this principle. The President of the United States, Franklin Roosevelt when establishing his New Deal, used Keynes theory during the Great Depression. He constituted new government agencies to put the unemployed citizens back to work, “Keynes’s solution to unemployment was for the government to spend its money to restore and maintain full employment”, (Chapter 5, Global Depression). Hayek alternatively believed that for an economy to endure capitalism......

Words: 687 - Pages: 3

Premium Essay

6 Step Financial Management Process

...196 recognized sovereign countries in the world. The economies of each of these 196 countries all face the challenge of trying to tackle the central economic problem of scarcity. There is scarcity because people have infinite wants but the resources available to fulfill these wants are finite. This situation has raised the key economic question of ‘what?’, ‘how?’ and ‘for whom’ to produce. The way in which a country decides to answer this question tends to determine the kind of economic system that the country has in place. An economic system can be defined as a set of rules that governs the production and distribution of goods and services. The economic systems of countries will differ from one another according to the extent on which they rely on the market or the government to allocate resources. There are three main types of economic systems that economists generally recognize, namely the centrally planned economy, the free market economy and the mixed market economy. (John and Alison, 2009, pp 5- 10) Over the last two decades, countries with centrally planned economic systems are looking to redevelop their economies to include more free market characteristics and hence in the process develop a mixed economic system. There are many reasons for this shift and chief among those reasons is the desire to jumpstart entrepreneurial activity (The Economist, 2013). Take for example, the United States of America, whose economy is the largest in the world in terms of gross......

Words: 752 - Pages: 4

Premium Essay


...TABLE OF CONTENT 1.1 Understand the organizational purposes of business ……………………...………... 2 Vision….….………………………………………………………………………..…2 Mission..…….…………………………….....….………………….............................2 Objective……..…………………...…………………………………………………..3 Goal……….……………………..…...……………………………………………….3 2.1 Economic systems attempt to allocate resources effective………………..………......4 Economy market………..……………………………………………………………..4 Command market………….…….………………………………………………….....4 Mixed market……………...………..…………………………………………………4 2.2 The impact of fiscal and monetary policy on business organizations …….....…..…...6 Fiscal policy…....…………..…………………………………………………………6 Monetary policy………………………………………………………………………6 2.3 The impact of competition policy …………………………………………………....8 1.1Understand the organizational purposes of business. A) Vision Vision is the organization aims to grow in the future. It is seen as the key for any company or business want to achieve certain success. Nothing was ever created without a vision. It guides and gives organization direction and purpose, and can serve as a powerful motivate for it. For example: At Nestlé, Nestle believe that research can help them make better food so that people live a better life. Good Food is the primary source of Good Health throughout life. Nestle strive to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet......

Words: 2550 - Pages: 11

Premium Essay

Problems in Lada Do Brasil

...Key Issues and Problems in Lada Do Brasil: 1. High inflation rate: The inflation rate in Brazil was very high despite the stabilization attempts of the government. The government had only managed to bring down the rate of inflation from 1477% in 1990 to 480%in 1991. High inflation rate meant the price of the cars were very high which has affected consumers' willingness to purchase the cars. Recommendation: According to purchasing power parity theory, the only change happen in prices between two countries is because of inflation. Country with higher inflation rate often experiences the value of their currency depreciates. Whenever in Brazil situation high rate of inflation rate exists and car prices go up and affecting customer willingness to purchase. In this situation to increase the sell, company can offer flexible loan policy or government policy may have positive effect eg. Reduce the tax charges on car. 2. Depreciation of cruzeiro: the economy was still in recession and the dollar value of the cruzeiro kept declining. In November, it depreciated by 26%. therefore the prices for the cars increased by 26% for Lada do Brazil. Recommendation: As said earlier country with high inflation rate often experiences less strength of their money and depreciates the value of money against other currency. One of the steps to decrease the inflation rate is, government can inspire to export more, which will make demand of Brazilian currency to other country, and the......

Words: 1027 - Pages: 5

Free Essay

Business Environment

...Business Environment Introduction: The study discusses different types of economic systems and assesses how these economic system attempts to allocate resources efficaciously, explains the UK government policies (namely monetary, fiscal, social, and competitive policies) and assess the effect of all the above-mentioned policies on a “Lloyds Banking Group, UK”, UK based organization. The paper exposits market structure types (namely, perfect competition, monopoly, monopolistic competition, and other market structures. Finally, the paper describes the ways market structures define the output and pricing strategies of the companies. 1.1 Explain how economic systems attempt to allocate resources effectively Economic systems are a set of institutions for assigning resources and making possibility to satisfy human wants. Resource allocation is the assignment of resources to particular tasks to deduce the basic economic choices, which are what to produce, how to produce, and for whom to produce for. Resources may be awarded by markets, by planning or mix systems. In a market economy, goods and resources are...

Words: 1822 - Pages: 8

Premium Essay

Mgmt 470 Test Bank 1-4

...moving toward a world in which national economies are (p. 7) relatively self-contained entities. FALSE Over the past three decades a fundamental shift has been occurring in the world economy. We have been moving away from a world in which national economies were relatively self-contained entities. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Understand what is meant by the term globalization. Topic: Introduction 2. By offering the same basic product worldwide, firms help to create a global market. TRUE Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, video games, McDonald’s hamburgers, Starbucks coffee, and IKEA furniture are frequently held up as prototypical examples of this trend. The firms that produce these products are more than just benefactors of this trend; they are also facilitators of it. By offering the same basic product worldwide, they help to create a global market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Understand what is meant by the term globalization. Topic: What Is Globalization? 3. A company has to be the size of a multinational giant to facilitate, and benefit from, the globalization of markets. FALSE A company does not have to be the size of multinational giants to facilitate, and benefit from, the globalization of markets. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01......

Words: 87342 - Pages: 350

Premium Essay

The Global Economy: a Science of Chaos

...Executive summery: The All Ordinaries Index (XAO) is an index on the Australian Stock Exchange that acts as the market indicator for Australia's share market. Its recent movement suggests a large increase in stock prices of 30% over a short period of time. This has many potential affects on the economy including and increase consumer confidence, the wealth effect increased investment and hence an increase in the level of output. This will have a multiplied affect on the economy by increasing exogenous expenditure and the MPC. This could potentially have an expansionary effect on the economy bringing about full employment and potential inflation. This expansionary gap may prove to be problematic to policy-makers as inflationary pressures rise making it necessary to adopt contractionary macroeconomic policy. However, some may question policy change due to a change in stock prices, as it is such a small segment of the economy. Stock prices refer to the market value of a share or asset. A rise in stock prices will have an indirect affect on the economy through investor and consumer confidence, the wealth effect and the ‘market value Approach’ creating an output gap. This output gap could potentially affect inflation and employment. Although Macroeconomic policy is not used to target asset prices, it may become necessary due to inflationary pressures. Stoke prices are commonly stated by economist to be......

Words: 1372 - Pages: 6

Premium Essay

Organization & Planned Change

...Organizational Development and Planned Changed Lashawnda Norris Everest University Online MAN 5285 Organizational Development and Change Dr. Jimmie Flores Organizational Development and Planned Change Organizational development is a set of planned-change techniques or interventions designed to improve organization effectiveness and employee well-being (Balzac, 2011). According to Worren, et al. (1999) stated: “change management is clearly broader than OD in that it includes a wide range of intervention strategies that may enhance human performance directly or indirectly, including process consultation, work restructuring, strategic HRM planning, and the design or development of information technology (IT) solutions (e.g., user interface design) A crucial feature of change management is that it is seen as only one component of a larger organizational change effort, the other components being strategy, business processes, and technology”. In many organizations, organizational development is primarily concerned with managing change in such a way that knowledge and skills are transferred to build the organization’s ability to achieve goals and solve problems (Cummings, et al., 2009). Worren & Ruddle (1999) states: “Organizational development places specific emphasis on the human resources and organizational culture functions. Talent must be attracted, retained and shepherded in order to achieve long-term success in an information economy.......

Words: 1249 - Pages: 5

Free Essay


...taking to overcome or recover from the crisis. One of the main reasons emphasized in the following text for the crisis is lack of effective regulations. Moreover the most important financial alteration that various committee’s around the world are taking is strengthening the regulatory requirements on the financial institutions. Hereafter it could be settled that government intervention could have played a huge role in avoiding the crisis. Many countries around the world have to decide whether to regulate or not to regulate their accounting standards. Supporters of regulation usually state that the free market notion states that accounting information is like an economic good so it is best to leave the markets to decide what and how much information is needed. This will help achieve efficient market system, however this kind of a system exists only in theory and not in reality, and so then what is the point of a free market system when it cannot be efficient? (Y. Hong, 2007) The rewards of free market system are realized only when it is executed in isolation. But in reality, markets cannot be left completely on its own and some regulation or government intervention is required. Government intervention even at its minimum will not be able to achieve efficient markets and thus it is better to have a well regulated system. Free market system has led to market failures that have had major adverse effects globally in the past. On the contrary, planned economies have also......

Words: 1762 - Pages: 8

Premium Essay

Tata's Time

...going international as follows: Advantages of going international; ① The first advantages of going international for Tata is to achieve benefits of economies of scale; Tata has more than 100 operating companies in seven main business groups doing business in 80 countries: chemicals, information systems and communications, consumer products, energy, engineering, materials, and services. Its two largest businesses are Tata Steel and Tata Motors. Its Tata Tea, which owns the valued Tetley brand, also is one of the largest tea producers in the world. It ranked 6 on the list of the world’s most admired companies in the steel industry. With the economies of scale in the domestic and international market, Tata can lower operational costs potentially and become a stronger competitor, both domestically and internationally; Tata controls many businesses ranging from Eight O’clock Coffee Co. in the United States to the Taj Group of hotels, which took over management of the landmark Pierre Hotel on Central Park in New York City. Through international bold moves like these, Tata have the opportunity to learn more about a particular market or world region and to supplement or strengthen domestic growth; The Tata Group is the largest conglomerate in India. Its latest revenues are estimated at $67.4 billion, of which 61 percent is from business outside India. Its global and diversified strategy makes it exploiting interdependencies among multiple countries. And international......

Words: 2859 - Pages: 12

Premium Essay

Preparing for Global Expansion

... When trying to prepare for a global expansion, you have to look at many different factors such as cost, training, benefits, and many other factors. But you also have to look at the risk that a company can face when expanding. For example, the risk that a foreign country, that is hosting the business that is expanding, they could possibly lose lots of money, could go into a financial crisis and could also lose the business and relationships with many other companies if it does not go as planned. Another issue that could ensue is that the country could gain absolutely nothing if it is not planned out correctly. This could lead to a poor report with the company and many companies to follow. If these risks do not happen, many other barriers can be a factor in the downfall of a company’s plan to expand globally. The company can experience cultural and face many diversity issues. Not only will the language have to be learned, but the company will have to come up with different ways to market to a more diverse group of people. This can be difficult, especially if the research of the nation has not been done. They will also have to...

Words: 1119 - Pages: 5

Premium Essay


...Vietnam’s Economic Growth in Renovation Period With the pressure of the economy sinking into economic crisis, the Party and the Government of Vietnam decided to intiate an ecomomic renovation policy in 1986. After over 15 years of reforming economy, Vietnam has gained progresses and important achievements widely recognised inside and outside the country. Overall, Vietnam has shifted from a centralized bureaucracy plan subsidized economy to a market-oriented one, from an economy massively developing state sector and groups to a diverse multilateral open economy, from an economy priotising heavy industries to an economy emphasizing 3 strategic econmic plans: food and foodstuff, consumer goods exports. The economic growing process in the past 15 years can be divided into the following periods : The 1986-1991 period It was the period of transition, having the most important meaning in the process of tranfering from a centralised planning mechanism to a market one in the context of severe socio-economic crisis in the early 80s. In this period, Vietnam had to face many difficulties and challenges. Foreign investment environment of Vietnam was quite open but some points in its foreign-investment laws were still inadequate and failed to meet the demands of foreign investors. Vietnam’s facility was outdated, not being suitable for its integration into the regional and the world’ecomony. The heavy bulky management mechanism with spead beraucracy was one of the great hinders to......

Words: 939 - Pages: 4

Premium Essay

Swot Analysis of Project Msnsgement

...Strength Strength of our Economy 1. Growing economy, scope for fresh and new projects, need for infrastructural facilities. 2. Availability of resources. 3. Abundance of Manpower. 4. Urge for development. 5. Adaptability Of manpower vis-à-vis technologies. Weakness Weakness of our Economy 1. Poor & very inadequate technical bases. 2. Inadequacy of research & trained manpower. 3. Lack & inadequacy of infrastructural facilities. 4. Dearth of experienced & hardworking and honest entrepreneurs. 5. Poor general economic condition & low per capita income. 6. Size of market & buying capacities. 7. Uncongenial legal framework. 8. Unfriendly administrative machinery. 9. Irrational fiscal policy. 10. Weak & ineffective capital market. 11. Inefficient monitoring of banking structure & banking policy. 12. Default culture. 13. Absence of business ethics. 14. High political risk including instability. 15. Precarious law & order situation. 16. Bangladesh is classified as “high risk” country. 17. Majority of the population lives below poverty label. 18. Low literacy rate & lack of civic sense, patriotism, and sense of belongingness. 19. Absence of social values and social justice with its serious erosion. ......

Words: 678 - Pages: 3

Free Essay

Industrial Relations

...summary Transition from closed economic system to an open economic system invariably has its positives and negatives. Most importantly if manufacturing companies do not completely read the signs of the times and completely respond adequately to this transition this can have heavy toll on the company. What happened to the Bolts & Nuts Co. is a classic example of failure to make this necessary required transition. It also shows the complicated and complex issues that are involved in such a transition especially in terms of Industrial Relation and how to cope with the problems that emerge as a result of such conflicts. Had the company made the right decision it could have been a winner. The wrong decisions it made pushed it to be a loser. 3 QUESTION 01: EVALUATE CRITICALLY THE ABOVE FACTS AND TRY TO FIND OUT WHAT EXACTLY THE CAUSE FOR THIS UNFORTUNATE SITUATION. Bolts and nuts was the company which was manufacturing bolts and nuts which had a fair share of the market in the said product during the time when there was the closed economy which restricted imports from the international market. The organization was enjoying the said large market; consequently was making profit and was a successful organization. The change in the government made a huge impact on the economic system of the country as it transformed the economic system from closed economy to open economy where it opened up to the international market. This open economy caused many difficulties...

Words: 1697 - Pages: 7