What caused the end of Soviet bloc socialism?
- centrally planned socialism needed reform
- reforms turned into complete rejection of the system
- hold outs: china, cuba, north korea
- let people criticize business and gov't problems w/o punishment
- reform the companies to operate better
What do transition economies need to do?
- liberalize (free things up): use free market more, decentralize, and deregulate
- compete (have more competition): motive people/businesses to do better jobs/be efficient
- reform the gov't (new style): more democratic and accountable
Does shock therapy or gradualism usually work better?
shock therapy (big bang approach) when moving from central planning to a market economy
What is SOE?
state owned enterprises
How can you privatize them?
- selling to foreigners
- give/sell companies to ther current managers and workers
- sell to a few wealthy domestic investors
- voucher system (sell shares to public)
Selling to foreigners: benefits and problems
- benefits: gain foreign management ideas, tech, money and export contacts
- problems: fear and resentment of foreign domination, fear of profit repatriation, huge job loss
Give/sell companies to managers and workers: benefits and problems
- benefits: motivated to save jobs, contacts with local gov't, know good suppliers and local distribution networks
- problems: lack of entrepreneurial mindset and modern business skills. may lack export contacts
Selling to few wealthy domestic investors: benefits and problems
- benefits: no foreign domination, new managers with good business attitudes
- problems: may not be entrepreneirial, may lack export contacts, might not have enough money
Voucher system: benefits and problems
- benefits: more widespread ownership, less domination by an old elite, more fair
- problems: old style managers have not been replaced