In: Economics
Western observers of the planned socialist economic systems typically argued that these systems were “distorted.” What does the concept of distortion mean, and why might it be relevant to an understanding of the transition process?
The central argument built against socialist economic systems
based on planning is generally based on uses of dispersed
knowledge. In this view socialism is unfeasible and cannot be
aggregated by a single body and is effectively used for formulating
a plan for entire economy, because doing this can result in
distorted price signals.
Transition process is the changing the fundamental organization of
the economy and making an entirely different free market
institution. Reducing budget deficits, stabilization of the economy
and expanding the credit availability of the economy is included in
the transition process of the economy. The distortions lead to a
pervasive slight budget constraints, misallocation of resources and
rent-seeking. During the transition process a country adopts
gradual, dual-track and pragmatic approach. In the process,
stagnation and social and economic crisis begin to beset the
economies. The socialists and many other developing countries
should remove the distortions by making programs of liberalization,
marketization and privatization with the aim of achieving efficient
and best outcomes in less amount of time.