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The transition from socialist economy to capitalsit economy modelled as a physical system
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Modelling the transition from a socialist to capitalist economic system
Ivan O. Kitove-mail - [email protected]
http://www.ecokitov.narod.ru
The Fourth Annual EEFS Conference,Faculty of Economics, University of Coimbra, Portugal
19-22 May 2005
EU - big hopes and deterministic economic growth
Several Central and East European countries joined the EU in 2004
and some more will join it in 2007 ...
Is there a reasonable economic policy?
EEFS-2005 Conference
“Focus on the changes we observe in the global economy and
on the European Integration process”
- Macroeconomic issues and policy- Growth and development
- Regional economics and policy- New political economy
Transition from a socialist to capitalist system:history and future
1. Was economic growth in socialist countries at its potential level between 1950 and 2003? Comparison with capitalist countries.
2. Is economic performance of developed capitalist countries and socialist countries predefined?
3. Modelling the transition process between two stationary systems: socialist and capitalist
4. Are all the Former Socialist Counties capitalist already?
5. What is the economic future of the European and East European countries compared to that of the USA and leading European countries?
11/08/13 Modelling the transition from a socialist to capitalist system4
per capita real GDP: socialist vs. capitalist countries(Data Source: Groningen Growth and Development Centre and The Conference Board,
Total Economy Database, January 2005, http://www.ggdc.net )
Period of socialist system growth between 1950 and 1989
Was e
conom
ic grow
th in socialist countries at its potential level betw
een 1950 an
d 2003
?
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1940 1950 1960 1970 1980 1990 2000 2010
calendar year
per
capi
ta G
DP
, $ (
1990
)
BulgariaCzechoslovakiaHungaryPolandRomaniaYugoslaviaUSSRUSAFranceAustria GreeceJapan
11/08/13 Modelling the transition from a socialist to capitalist system5
Mean per capita GDP growth rate between 1950 and 1989
Average growth rate in the socialist countries is close to that of most developed countries but lower than that in Spain, Portugal and Greece
0.000
0.010
0.020
0.030
0.040
0.050
Austri
a
Belgiu
m
Denm
ark
Finlan
d
Franc
e
Gre
ece Italy
Nethe
rland
s
Norway
Portu
gal
Spain
Sweden
Switzer
land
Turke
yU.K
.USA
Bulga
ria
Czech
oslov
akia
Hunga
ry
Polan
d
Roman
ia
Yugos
lavia
USSR
mea
n G
DP
gro
wth
rat
e
Wa
s econom
ic grow
th in so
cialist countries at its po
tential level betw
een 19
50 and
2003?
11/08/13 Modelling the transition from a socialist to capitalist system6
Defining relationships
for capitalist economic growth
d(GDP(i))/dt=0.5(N(i)-N(i-1))/N(i-1)+1/Tcr(i-1) (1)
• d(GDP(i))/dt is the real GDP growth rate for time interval dt=i-(i-1)• N(i) is the number of people of some defined age, specific for each country
at time i,
Tcr(i)=Tcr(i-1)sqrt(1+d(GDP(i))/dt-dNT/NT) (2)
• Tcr is the duration of the period of mean income growth with increasing work experience
• dNT/NT is the relative change of total population above 15 years of age
Is econom
ic perform
ance of develope
d capitalist cou
ntries and so
cialist countrie
s predefined?
11/08/13 Modelling the transition from a socialist to capitalist system7
Mean personal income vs. work experience(Data Source: The U.S. Census Bureau, www.census.gov )
Tcr increases with economic growth
Tcr
Is econom
ic perform
ance of develope
d capitalist cou
ntries and so
cialist countrie
s predefined?
11/08/13 Modelling the transition from a socialist to capitalist system8
Real GDP growth rate in the USA: 1930 to 2003(Data Source: U.S. Department of Commerce, Bureau of Economic Analysis,
National Income and Product Accounts Table. Table 1.1.5, www.bea.gov )
The economic growth trend line and predicted GDP behaviour coincide
0.02
0.03
0.04
0.05
0.06
0 10000 20000 30000 40000 50000
per capita GDP, US dollars (1999)
GD
P g
row
th r
ate
real GDP average 10-year window
1/Tcr
Степенной (real GDP average10-year window)
0.15
0.17
0.19
0.21
0.23
0 10 000 20 000 30 000 40 000 50 000
per capita GDP, US dollars (1999)
GD
P g
row
th r
ate
real GDP per Capita +0.15
1/Tcr-dN/N+0.15
Степенной (real GDP per Capita+0.15)
Is econom
ic perform
ance of develope
d capitalist cou
ntries and so
cialist countrie
s predefined?
11/08/13 Modelling the transition from a socialist to capitalist system9
Per capita GDP growth rate in Japan, France, Austria, and Greece:1950 to 2003
Developed capitalist countries follow the US economic pathper capita GDP growth rate = 21.72x(per capita GDP)-0.7052
Japan
0.05
0.1
0.15
0.2
0.25
0 5 000 10 000 15 000 20 000 25 000
per capita GDP, US dollars (1990)
GD
P g
row
th r
ate
per capita GDP + 0.1
USA (1/Tcr-dN/N+0.1)
Степенной (per capitaGDP + 0.1)
France
0.1
0.15
0 5 000 10 000 15 000 20 000 25 000
per capita GDP, US dollars (1990)
GD
P g
row
th r
ate
per capita GDP + 0.1
USA (1/Tcr-dN/N+0.1)
Степенной (per capitaGDP + 0.1)
Austria
0.1
0.15
0.2
0 5 000 10 000 15 000 20 000 25 000
per capita GDP, US dollars (1990)
GD
P g
row
th r
ate
per capita GDP + 0.1
USA (1/Tcr-dN/N+0.1)
Степенной (per capitaGDP + 0.1)
Greece
0.1
0.15
0.2
0.25
-1 000 1 000 3 000 5 000 7 000 9 000 11 000 13 000 15 000
per capita GDP, US dollars (1990)G
DP
gro
wth
rate
per capita GDP + 0.1
USA (1/Tcr-dN/N+0.1)
Степенной (per capitaGDP + 0.1)
Is econom
ic performance
of developed capitalist cou
ntries and socialist cou
ntries predefined?
11/08/13 Modelling the transition from a socialist to capitalist system10
socialism hidden economy capitalism
1990
2005
0<q<p1>p>0
The transition schema
• Simultaneous processes of decay and growth• Conservation laws for population (nobody disappears or reappears) and for performance (predefined capitalist growth)
Modellin
g the transition process betw
een tw
o stationary system
s: socialist and cap
italist
11/08/13 Modelling the transition from a socialist to capitalist system11
M(t)=Ms(t)+Mc(t) Ms(t)=M0
sexp(-αst) Mc(t)=(1-M0
c)(1-exp(-αct))exp(αt)
Defining relationships for the transition from a socialist to capitalist system
M(t) - total per capita GDP at time t, Ms(t) and Mc(t) - portions of the socialist and capitalist systems
in the total per capita GDP, M(t), M0
s and M0c - initial portions of the socialist and capitalist system in the
total per capita GDP, M(0), (M0c=0, M0
s=1) αs - dissipation factor of the socialist system decayαc - dissipation factor of the capitalist system growthα - observed economic trend of the capitalist system growth
The model contains only three defining parameters
Modellin
g the transition process between tw
o stationary system
s: socialist and capitalist
11/08/13 Modelling the transition from a socialist to capitalist system12
M0s
Ms(t)=M0sexp(-αst)
Mhidden(t)=1-Ms(t)-Mc(t)
Mc(t)=(1-M0c)(1-exp(-αct))exp(αt)
0 (no socialist elements) 1 (pure capitalism)
Socialist system decay Growth of capitalism
Hidden economy
Per capita GDP in a socialist country Modellin
g the transition process between tw
o stationary system
s: socialist and capitalist
11/08/13 Modelling the transition from a socialist to capitalist system13
Modelling the transition period in Russia
Current status: almost no socialism (2%) 65% of population in the capitalist system 33% not in either of the main income distribution systems
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system14
Modelling the transition period in Russia
1. Relatively fast decay of the socialist system and slow build up of the capitalist system presence, αc/αs=0.275
2. Two sources of the current economic growth in Russia:• increase of the capitalist system presence (2.2% per year)• internal growth of the capitalist system with an economic trend of 3.3%
• current per capita GDP growth rate = 1.022x1.033=1.073=7.3%
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system15
Modelling the transition period in Hungary
Current status: no socialism (~0.15%) >97% of population in the capitalist system ~3% not in either of the main income distribution systems
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system16
Modelling the transition period in Hungary
1. Very fast decay of the socialist system and fast growth of the capitalist system presence since 1990, αc/αs=0.562. Only one sources of current economic growth in Hungary:• internal growth of the capitalist system ~ 2.0% per year
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system17
Modelling the transition period in Poland
Current status: no socialism (<0.1%) >97% of population in the capitalist system ~3% not in either of the main income distribution systems
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system18
Modelling the transition period in Poland
1. Very fast decay of the socialist system and fast build up of the capitalist system presence since 1989, αc/αs=0.592. Only one sources of current economic growth in Poland:• internal growth of the capitalist system ~ 2.9% per year
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system19
Modelling the transition period in Slovenia
Current status: no socialism (<1%) >93% of population in the capitalist system ~6% not in either of the main income distribution systems
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system20
Modelling the transition period in Slovenia
1. Relatively fast decay of the socialist system and fast growth of the capitalist system presence since 1989, αc/αs=0.552. Two sources of the current economic growth in Slovenia:• increase of the capitalist system presence - 1.1% per year)• internal growth of the capitalist system - 2.0% per year
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system21
Per capita GDP growth rate: observed and predicted
1. The capitalist growth rate for the studied countries is below the theoretical value except Estonia and Kazakhstan 2. East and Central European countries show per capita GDP growth between 1.5% and 3.0%
0
0.05
0.1
0.15
0.2
0 5000 10000 15000 20000
per capita GDP, $ (1990)
per
capi
ta G
DP
gro
wth
rat
e
US trend -(1/Tcr-dN/N)
theory
modelled growth rate
Степенной (US trend -(1/Tcr-dN/N))
EstoniaKazakhstan
Taj
ikis
tan
Are a
ll the F
orm
er S
ocialist Coun
ties capitalist alrea
dy?
11/08/13 Modelling the transition from a socialist to capitalist system22
per capita GDP, US$ αs αc α α-theory αc/αs
Poland 8080 0.39 0.23 0.029 0.038 0.590
11/08/13 Modelling the transition from a socialist to capitalist system23
Future for HungaryAssumption: Theoretical growth rate from 2005
1. Constant lag of the absolute per capita GDP of ~$230002. Decreasing ratio of US/Hungary per capita GDP
Wh
at is the econom
ic future of the C
entral and East E
uropean co
untries compared to th
at of the U
SA
and leadin
g Euro
pean countries
11/08/13 Modelling the transition from a socialist to capitalist system24
Future for Poland
Constant lag of about $27000
Wh
at is the econom
ic future of the C
entral and East E
uropean co
untries compared to th
at of the U
SA
and leadin
g Euro
pean countries
11/08/13 Modelling the transition from a socialist to capitalist system25
Conclusions
1. The transition process from socialism to capitalism can be described by a model defined by only three parameters having simple physical interpretations
2. Central European countries have completed transformation into capitalist countries
3. The countries of the FSU are building the capitalist system with a considerable lag
4. Most of Central and East European countries currently exhibit economic underperformance, except for Estonia (?)
5. The best case scenario guarantees in future a constant per capita GDP lag relative to that of USA
6. An increasing absolute per capita GDP lag relative to that of USA will be observed in the case of economic underperformance