class 5 - ECON 3808 The Economics of Transition Transition...

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1 ECON 3808 – The Economics of Transition Transition economies in the framework of comparative economic systems Sources: Required readings and Prof. Vladimir Popov
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2 Comparative economic systems Market systems Libertarians Monetarists Keynesians Industrial policy school Advocates of income policy (price and incomes control) Non-market systems Indicative planning Directive planning Property, capitalism and socialism Economic systems based on private property Economic systems based on collective property Economic systems based on state property
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3 Classifying market economic systems according to the extent of government intervention Forms of government intervention Instruments of government policy Countries Laisser-faire (libertarians) Providing public goods, eliminating externalities XIX century capitalism Monetarist approach Maintaining constant rates of growth of money supply USA Keynesian approach Macroeconomic stabilization (fiscal and monetary) policy USA, Western Europe, Japan, NIC Industrial policy Selective support of industries, regions, and areas of economic activity trough taxation, subsidies, credit, trade barriers Western Europe, Japan, NIC Income policy Imposing control on the rates of growth of prices and wages A typical wartime measure in most Western countries; a temporary peacetime measure in some Western countries
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4 Classifying non-market economic systems Forms of government intervention Instruments of government policy Countries Directive planning Setting production quotas and rationing supply for producers Soviet Russia under War Communism (1918-20); China under cultural revolution (1966-70) Indicative planning Setting all the prices and wages from above Hungary (1968-90), China (1979-onwards), USSR (1920s) Combined central planning Indicative planning and directive planning USSR (1930s-1980s) and countries with Soviet-type economic system
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5 Rationales for central planning The term “indicative planning” has two meanings a sort of industrial policy (firms are encouraged, but not forced, to fulfill the plan via tax stimulus, credits, etc.) a variety of central planning (prices, but not production quotas) are set by the state Why planning? The market is not perfect in: Maintaining equilibrium at full employment (recessions) Long-term projects Income distribution Allowing the society to control its own development
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6 Elements of indicative planning and market mechanisms in the USSR in the 1980s Not all types of goods are subject to production quotas (25 million types of products, only about 1 million aggregated items planned) Collective farm market (2-3% of total retail trade turnover, 5% of food sales) Consumer goods market (supply and prices were planned, but demand was mostly not planned, i.e. no pervasive rationing) Labor market (demand and prices - wage rates - were planned, but supply was mostly not planned) After 1965 reform enterprises got the right to use part of the profit for paying bonuses, for investment into production and residential and social construction
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This note was uploaded on 03/19/2012 for the course ECON 3808 taught by Professor Cirina during the Winter '12 term at Carleton CA.

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class 5 - ECON 3808 The Economics of Transition Transition...

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