Transition to Transition to Market EconomyMarket Economy

Russia & ChinaRussia & China

Transition to Market Transition to Market EconomyEconomy

““What is Transition?”What is Transition?”

Liberalizing Economic Liberalizing Economic ActivityActivity

Reforming Business ActivityReforming Business Activity

Establishing Legal and Establishing Legal and Institutional FrameworkInstitutional Framework

Transition to Transition to Market Market EconomyEconomy

The Breakup of the The Breakup of the Berlin Wall Berlin Wall The Overthrow of Eastern The Overthrow of Eastern European Communist European Communist Dictatorship in 1989Dictatorship in 1989

Transition to Market Transition to Market EconomyEconomy

We can classify transition to a We can classify transition to a marketmarket economy in two economy in two groups:groups:

1.1. Eastern Europe’s Eastern Europe’s TTransitionransition::

Poland, Hungary, and Czech Poland, Hungary, and Czech Republic Republic

2.2. China’s China’s TTransitionransition

Transition to Market Transition to Market EconomyEconomy

Centrally Planned Centrally Planned Economy:Economy:

Fixed Price Centrally Planned

Investment Incentive Problem

Transition to Market Transition to Market EconomyEconomy

..

Centrally Planned Economy

Market Economy

RussianRussian TransitionTransition

The Common Goal: The Common Goal:

To gain membership to the To gain membership to the European Union (EU)European Union (EU)

RussianRussian Transition Transition

Includes political and Includes political and economic transition at the economic transition at the same time.same time.

Initial transition steps Initial transition steps resulted in steep economic resulted in steep economic declines.declines.

The transition has involved The transition has involved massive, although not all massive, although not all together effective, together effective, privatization. privatization.

RussianRussian TransitionTransition

Soft budgets have Soft budgets have continuedcontinued

Hard administrative Hard administrative constraints have disappeared constraints have disappeared and are being repleced with and are being repleced with connections and corruptionconnections and corruption

Debts and deficits are a real Debts and deficits are a real challangechallange

RussianRussian TransitionTransition

““The Russian The Russian economy is economy is

prepared to fully prepared to fully take part in the take part in the world economyworld economy””

Vladimir Putin Vladimir Putin

ChineseChinese TransitionTransition

China’s Unique Initial China’s Unique Initial Conditions:Conditions:

Centrally Planned EconomyCentrally Planned Economy

Large Agricultural ForceLarge Agricultural Force

Low Subsidies to The PopulationLow Subsidies to The Population

Rather Decentralized Economic Rather Decentralized Economic SystemSystem

ChineseChinese TransitionTransition•Heavy Industry Heavy Industry Development Development StrategyStrategy•Capital Capital Scarce - Scarce - Agricultural Agricultural EconomyEconomy

•Low Technical Low Technical EfficiencyEfficiency

•Low IncentivesLow Incentives•Planned Planned Allocation Allocation SystemSystem

•Low Interest Rate PolicyLow Interest Rate Policy

•Overvalued Exchange Rate Overvalued Exchange Rate PolicyPolicy

•Low Wage Rate PolicyLow Wage Rate Policy

•Low Input Price PolicyLow Input Price Policy

ChineseChinese TransitionTransitionTo adopt Heavy Industry Oriented To adopt Heavy Industry Oriented Development Strategy: Development Strategy:

Declining the level of Interest Rate Declining the level of Interest Rate

Agricultural DevelopmentsAgricultural Developments

Acquring Living Necessities to the PopulationAcquring Living Necessities to the Population

Total Value of Agriculture and Industry Total Value of Agriculture and Industry grew from grew from 15%15% in 1952 to in 1952 to about about 40%40% in the 1970s. in the 1970s.

ChineseChinese TransitionTransition

China paid high price China paid high price for such achievement:for such achievement:

Low Allocative Low Allocative EfficiencyEfficiency

Low Technical Low Technical EfficiencyEfficiency

Market Reforms In ChinaMarket Reforms In China

Agricultural & Rural Reform (Household Based Agricultural & Rural Reform (Household Based System)System)

Township & Village Entreprises (TVEs)Township & Village Entreprises (TVEs)

State Owned Entreprises (SOEs)State Owned Entreprises (SOEs)

Special Economic Zones (SEZs)Special Economic Zones (SEZs)

Development of Supporting InstitutionsDevelopment of Supporting Institutions

Macropolicy Enviromental ReformMacropolicy Enviromental Reform

ChineseChinese Transition’s Transition’s Outcomes and ProspectsOutcomes and Prospects

Positive Outcomes of ReformPositive Outcomes of Reform

Problems:Problems:

Incomplete Property RightsIncomplete Property Rights

Macroeconomic DifficultiesMacroeconomic Difficulties

Integration into Global EconomyIntegration into Global Economy

ConclusionConclusionChina’s Transition China’s Transition Process:Process:

• China’s Communist China’s Communist PartyParty prevented the prevented the turmoil. Authorities had a turmoil. Authorities had a great control over stages great control over stages of reform programs, their of reform programs, their timing and contents. timing and contents.

• Chinese Communist Chinese Communist Regime was not eliminated Regime was not eliminated in one night, on the in one night, on the contrary, contrary, communist party communist party had made many reforms to had made many reforms to make the transition make the transition process easier. process easier.

• In this period of time In this period of time there were no crises in there were no crises in China and China and reforms were reforms were completed with the completed with the support of the communitsupport of the community. y.

Russian Transition Russian Transition Process:Process:• A major reason that Russia's A major reason that Russia's transition has been so transition has been so wrenching is that the country is wrenching is that the country is remaking both its Soviet-era remaking both its Soviet-era political and economic political and economic institutions at once. institutions at once.

•It was It was impossibimpossible to le to set up a set up a tax collection system capable of tax collection system capable of generating enough public generating enough public resources as toresources as to fund the fund the reforms.reforms.

• TThe appearance of (criminal) he appearance of (criminal) parallelparallel decentralidecentralizzed ed organiorganizzations that have taken ations that have taken over some essential state over some essential state functionsfunctions..

• TThe incapacity to put forward he incapacity to put forward clear political priorities for clear political priorities for coherent decision making, as coherent decision making, as wellwell as the difficulty in living up as the difficulty in living up to them due to corruption to them due to corruption phenomenaphenomena

Hazırlayanlar:Hazırlayanlar:

Burcu BüyükerkmenBurcu BüyükerkmenÇağla ÖztunaÇağla Öztuna