The Impact Of Economic Transition On The Economy Essay
Economic transition is an economic change from a centrally planned to a free market economy. A centrally planned economy is an economic system where the government owns all the finished goods and services, known as collective ownership, and makes the economic decisions rather than businesses, households, or individuals. While in a free market economy there is private ownership or resources, finished goods, and freedom of enterprise.
After the death of communism in the 1990s, the Central and Southeastern Europe and the Baltics (CSB) and the Commonwealth of Independent states (CIS) both abandoned central planning and moved towards embracing free market capitalism. However, most of these transition economies have had to go through many short-term difficulties and constraints in the long run.
Initially, output fell sharply following the transition. This could be explained due to the old state owned industries transforming into newly privatized businesses. As they are now exposed to greater competition, privatized business now strive to become more efficient and profitable by trying to reduce costs thus laying off excess workers and keeping or re-hiring the employees they need, which are usually specialists. The unemployment rate now begins to rise with a decrease in output. Many state employed workers also lost their jobs since bureaucracy size fell.()