Transition Economies

Topics: Inflation, Economies, Economic systems Pages: 1 (253 words) Published: March 24, 2013
Transition Economies
1) All transition economies experience falling output i.e. shrinking economies. 2) Corruption increases as government and institutions collapse creating a judicial vacuum. 3) Lack of legal institutions causes problems in settling and collection of taxes thus not allowing creation of companies to replace government run enterprises. 4) Lack of financial institutions (banks) and capital markets often means that good businesses collapse due to lack of loan able funds and start up companies could not get initial loans. 5) This problem was exaggerated by people simply being unaccustomed to a market economy with ensuing competition. 6) High inflation rates resulting from prices being set free which helped cause falling exchange rates. The net effect was redistribution of incomes at best – and at worst obliteration of years of savings. Those with fixed incomes suffered, e.g. pensioners. 7) Party officials enriched themselves with cowboy capitalism. This led to unequal distribution of income n the economy. 8) Increasing inflation led to fall in exchange rates. These two combined made the currency worthless creating a decline in trade. 9) Barter economies started which was a wasteful and time consuming method when applied to a larger portion of the economy. 10) Illegal gains, high inflation and increasing worthless currencies led to capital fights i.e. money was sent to other countries. This also led to economies lacking necessary funds for domestic investment. 11) Black markets and organized crime gained a foothold in many former planned economies. 12) Planned economies saw increase in unemployment.
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