ECN 370 Week 5
Popular in Economy of Eastern Europe
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This 8 page Class Notes was uploaded by Andrew Bashor on Sunday February 28, 2016. The Class Notes belongs to POL/ECN/HIS 370 at a university taught by Dr. Pellillo in Spring 2016. Since its upload, it has received 19 views.
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Date Created: 02/28/16
Reform 02/16/2016 ▯ Crime in USSR Conviction not highly publicized o Accuracy is low o Numbers not highly publicized Theft o from state or persons was high o shortages led to high theft Abuse of position high during 80’s o People losing faith in system o Enterprise directors beginning to take on government Speculation o Partaking in black market o Rose throughout the 80’s o Result of shortage economy Don’t normally see high speculation in capitalism ▯ ▯ Kornai’s model of Socialist and Capitalist Systems* Model of the Socialist System o 1. Undivided power of Marxist-Leninist party -> o 2. Dominant position of state and quasi-state ownership -> o 3. Preponderance of bureaucratic coordination -> o 4. Soft budget constraint, weak responsiveness to prices, plan bargaining, quantity drive -> o 5. Chronic shortage economy, sellers’ market, labor shortage, unemployment on the job -> Model of the Capitalist System o 1. Political power friendly to private property and market -> o 2. Dominant position of private property -> o 3. Preponderance of market coordination -> o 4. Hard budget constraint, strong responsiveness to prices -> o 5. No Chronic shortage, buyers’ market, chronic unemployment, fluctuation in the business cycle ▯ *available on canvas ▯ ▯ Socialism w/out Central Planning in Yugoslavia Economic growth over time o Yugoslavia experienced decent, consistent growth o Other satellite nations experienced poor or negative growth Countries o Bosnia and Herzegovina o Croatioa o Kosovo o Macedonia o Slovenia o Montenegro o Serbia ▯ State Socialism More decentralized structure Limited emphasis on central R&D, directed innovation Form of market socialism Greater international trade and labor mobility Greater emphasis on market relations Further reforms aimed at ecentralization in mid-70’s. o Basic organizations of associated labor 80,000 in early 80’s negotiated exchange agreements between each other like members of umbrella labor union, could coordinate with other members of enterprise No functioning capital market ▯ Self Management in Yugoslavia Centralized state property became “nonstate” social property o Owned by workers o Gives them incentive to manage Enterprises owned by workers/self-managed Aim to maximizing income per worker o Lower level of employment in traditional firm o Due to responsiveness of needs of buyers Still faced soft budget constraints o Led to rent seeking at enterprise level o Sought preferential treatment from government o Enterprise failures rarely penalized Strange fact – each republic in Yugoslavia attempted to develop motor vehicle industry ▯ Reform Directions Two different directions for reforms o Greater centralization and ’taut’ central planning o More decentralization and reliance on markets for some economic activities (agriculture) The New Economic Mechanism in Hungary in ‘68 Reforms undertaken in early/mid 60’s in E. Europe o Greater emphasis on profitability and prices reflecting supply/demand o State ownership of means of production Hungary and Poland: growing imbalances Price liberalization in the 80’s in Hungary o Decentralized of enterprise decision making o Bankruptcy law (86) o Two-tier banking (87) o FDI allowed (88) o Privatization under way ▯ NEM in Hungary Replacing plan directives by market relations among firms Limit scope of central price determination Linking domestic prices of exports and imports to wrld market prices Decentralizing a major part of investment decisions ▯ Prague Spring Late 1960’s in Czechoslovakia: political and economic reform (partial decentralization) o Undertaken by Alexander Dubcek – first secretary of communist party of Czech. Soviet/Warsaw Pact invasion in ‘68 o Suppressed by Soviet Union quickly o Dubcek forced to leave nation and communist party Czechoslovakia maintained central system after 1968 o Stagnant yet fairly stable o Deficits, shortages, imbalance, inflation mostly avoided due to state intervention ▯ Perestroika (Restructuring) Gorbachev – General Secretary (1985 – 1991) Shmelev – critic who basically damned the old system Anti-Alcohol Campaign o Started by Politburo and Central Committee – May 1985 o Measures to increase effective price of drinking and subsidize substitutes o Major alcohol – Vodka and Wine o Campaign 1. Reduced state production of alcohol 2. Restricted alcohol sales (where and when) 3. Centrally planned alcohol prices were increased 4. Sanctions for alcohol-related offenses 5. Subsidized substitute activities (parks, sports, cultural activities) 6. Media propaganda, advertising restrictions, health edu program, national temperance society 7. Treatment of alcoholism o Sales fell by as much as 2/3 o Fell by 50% alone between ’84-‘85 o Black/gray market production o Unpopular and lost revenue; ended in 1988 Felt residual impact Soviet Joint Venture Law (’87) o Eventually allowed majority foreign ownership/control of enterprises Legalized cooperatives in 1988 o Workers controlled assets o Especially prevalent in agriculture, but also banking o Allowed for more private ownership Reform ideas became bolder and more radical over time o Plans for transition to market economy o Recommended that sell state enterprises internationally Internal persons ended up capturing them… Sold assets Issues o Limited price liberalization Total price lib. Would lead to hyperinflation Not politically/economically feasible o Macroeconomic disequilibrium o Growing deficits arising from subsidies and falling revenues ▯ Transition - 1989 Move to mixed economy o Countries move to own planning within borders o Relative to USSR, nations doing own thing Regimes falling to democrats o Many riots and also peaceful transition o Trasition lead by poets, artists, democrats o Fall of Berlin Wall Yugoslavia o Slovenia seceded o Started chain reaction Lithuania o Parliament moved toward sovereignty o Wasn’t immediately accepted by Russia Georgia o Uprisings crushed by Soviet Union o Lead to strong nationalist movement o Massive protests and crushing still memorialized Other notable issues o Most constituent countries moving toward independence o USSR still operated and existed, did not keep nations o Nations took over own enterprises ▯ 1991 – final fall Gorbachev almost overthrown in Crimea o Hardline communists tried to overthrow Gorbachev in August o Coup failed miserably o Set up additional pressures politically Disintegration of State speeds up o Final nations move to independent economic movements o Gorbachev resigns in December 1991 o Gorbachev gives speech and resigns ▯ What Now? How to transition is still debated o What would you do first? o What economic reform/policy recommendations would you make to the gov.? o What advice would you give to entrepreneurs and enterprise managers? ▯
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