Today’s Warm-Up

Pick up the new learning map and warm up/exit ticket sheet by the turn-in tray.

Answer the following question:During the 20th century, many countries

chose to transition from a command economic system to market. Why do you think this is?

TRANSITIONING ECONOMIES

Today’s LEQ

How and why do command economies move from government ownership of productive resources to private ownership?From collectivization to privatization

What are the pros and cons of each method?

The Main Idea…

During the 20th century, many countries shifted from command economies to market; some took a rapid approach while others transitioned gradually

Such shifts completely changed the way these national economies functioned and provided an overall increase in standard of livingHans Rosling – Video Clip

Command Systems of the 20th Century… Emphasized equity, security, and

stability Productive resources were owned and

controlled by the gov’t Many productive resources spent and

consumed by and for the military Resulted in a low standard of living

Market Systems… Place emphasis on efficiency, freedom, and

growth When these goals are met, security, equity, and

stability should follow since growth means more jobs for more people

Since Adam Smith wrote Wealth of Nations in 1776, the theory that the invisible hand of self-interest would create the greatest good for the greatest number has driven the market systems

Market systems result in a higher standard of living

Important Characteristics of a Market System

Underpinning market economic systems are the following characteristics:Private property rightsProfit motive that spurs growthA price system for allocating resources,

goods, and servicesCompetitionFreedom to make individual decisions

about how to use resources

Government’s Role in a Market System In the market systems, the role of

government Adam Smith envisioned was to:Protect property rightsEnsure competitionProvide public g/s like roads and national

defense Over time, many nations have evolved as

mixed market systems with gov’t’s role expanding to include:Regulating businessesCorrecting for externalities (i.e. pollution)Redistributing income

Transition from Command to Market… Involves a shift in values and priorities –

from social cooperation to individual freedom and responsibility

Transition from Command to Market… Involves many challenges:

From collectivization to privatization – how does a country shift ownership from the gov’t to the people?

Profit is a brand new incentive – involves risks and can be intimidating!

Elimination of price ceilings on all g/s – inflation can be a big problem

Challenges Continued…Increase in unemployment as security is no

longer guaranteed Corruption & increased crime now that there

are “haves & have-nots”Shortage of goods (at least in the short run)Creating a stable monetary system is

challenging and takes time In your opinion, what is the biggest

challenge a country will face with transition?

Impact of Transition…

Despite all of these challenges, those countries which have transitioned successfully have seen increases in the standard of living for their citizens

Impact of Transition…

Because of revolutions in transportation, communication, and information processing, the world has “shrunk” and interdependence has become greater

The shifts from command to market systems since the early 1990s have not only impacted those countries making the transition but also countries that already had a market structure in place

Case Study: China and India Complete the document based

investigation on pgs. 633 – 637 Analyzing the Issue (pg. 637) – Be

ready to discuss #1 and #4! How are the giant emerging economies

of India and China affecting the world?What steps do you think the U.S. could

take to meet the challenge of global competition?

Today’s Exit Ticket

From the film “Good Bye, Lenin” what are some of the challenges citizens in East Germany faced with transition from a command economy to a market economy?

Today’s Warm Up

How might a country transfer ownership of productive resources from the government to the people?i.e. Who will be the new owner(s) of

previously government run businesses?

Methods of Privatization

There is no “one size fits all” with transition from command to market

Countries must decide how to shift from collectivization (gov’t ownership of productive resources) to privatization (private ownership) and whether the changes should be rapid, gradual, or somewhere in the middle

Four Methods We’ll Discuss… Restitution Equal Access Voucher Privatization Sales to Outside Owners Management-Employee Buyout

Restitution

Property is returned to former owners who can show clear ownership claimsFor example, showing

documents that prove you were the last owner before collectivization

Equal Access Voucher Privatization Vouchers or ownership shares are

evenly distributed across the population Citizens are free to invest their vouchers

as they see fitThey may directly invest in firms being

auctioned or may pool their vouchers to acquire larger firms

Management-Employee Buyout

Businesses are sold to existing management and employees

Sales to Outside Owners

State enterprises are sold on a case-by-case basis to people other than the current managers and employees – sometimes to foreign investors

Pros & Cons

What are the pros and cons of each method?

Review each method of privatization in the packet provided then summarize the pros and cons for each in the chart

Guide to Completing the Pros/Cons Chart Better corporate government = will the

business have access to better leadership? Speed = how quick is the transition? Better access to capital and skills = does

the business have access to better, more qualified employees and the tools it needs to succeed (i.e. new productive equipment)

More government revenue = does the government make money off the transition?

Greater fairness = is it a fair process?

Today’s Exit Ticket

Answer on your warm up/exit ticket sheet:

Which method of privatization do you feel is best and why?