Question

Explain three main features of economic transition? As an example consider the current challenges facing Russia in terms of economic growth.write 400 words

Answer 1

There are three major categories of economies that exist and are used by countries to govern their natural resources and to ensure that they can function appropriately. These are namely, Centrally Planned Economies, Free Market Economies & Mixed economies.

A Centrally Planned economy is one, in which the forces of demand and supply are handled independently by the government and market based policies are not implemented. Here all major resources are controlled by the government which then allocates the same as per their wishes.

On the other hand, a free market economy is one in which the role of the government is none. The market decides what goods and services are to be produced and the exact quantity in which the production would take place.

A mixed economy is one, in which both government and market economics comes into play.

Case Specifics:-

When an economy shifts from a centrally planned one, to a market based economy, it is said to have enabled economic transition. Over the years, we have numerous economies such as China, India and Russia which were formed on the basis of the theory of centralized economy, but later moved over to free market economies to a certain extent.

In context of the Russian Economy, the transition has been tough, primarily because of the fact that the Western Governments have not been able to gain enough confidence that the country is still following market based economics. It is readily criticized as an economy for its failure to invoke growth, and the existence of monopolies and crony capitalism in which inequality is high and a few members of the administration hold most of the resources is the reason why transition has been difficult.

The core difficulty arises from the differences in allowing a free system to operate theoritically and in reality having a closed approach at managing trade. Free trade cannot be allowed to be implemented selectively behind back doors which is what the problem with Russia has been. Its economic growth story has been low when compared to the nations such as China and India which have fully implemented the policy.

We also need to keep in mind, that Russia has only chosen to spend significant money on development of its army, and exports primarily include defense deals and oil only. Over the years, oil has lost value and is the core reason for the downfall of the economy. During a transition, it is important that all sectors are allowed to operate with free market economics, and restrictions on trade are removed fully and not limited in the hands of few people which has been the case in Russia as it leads to low growth.