MGMT1101 Lecture 11: MGMT 1101 Week 11
Week 11: The new Wild West: Doing business in transitional markets
1. Appreciate the nature of transition economies
Economic system: refers to set of arrangements by which a society determines
• What is produced
• How its produced
• How the resulting personal income and claims to goods and services are distributed (and
redistributed)
Market
Economy
• In a pure market economy, all productive activities and resources are privately
owned
• Owners act in their own self-interests
• Quantity of and composition of goods and services that a country produces are
not centrally planned
• Composition, price and quantity determined by supply and demand and
consumer preferences
• No restrictions on either supply or demand (no monopolistic sellers or buyers)
Command
economy
• In a pure command economy, goods and services, quantity and price are
planned by the government
• Government owns most businesses
Mixed
economy:
• Includes some elements of both market and command
• Certain sectors have private ownership and free market whereas others have
significant state ownership and government planning
Transition Economy:
• Process of transforming their economic systems to market-based systems
• Economic transition involves at least 3 distinct activities
o Deregulation: removing restrictions on free operation of product and factor markets
▪ Political change
▪ Introduction of liberal democracy, especially multi-party system and
protection of political/civil rights
o Privatisation: transfers ownership of state property to private investors (seen as a
way of increasing economic efficiency)
▪ Price liberalisation
▪ Marketization, enterprise level efficiency gains
▪ Liberalisation of foreign trade (internationalisation of economy)
▪ Encouraging entrepreneurship
o Institution development: supporting viable financial and reliable legal systems
▪ Establishing/protecting private property rights
▪ Ensuring freedom of enterprise
▪ Enforcing rule of law (e.g. on labour market, competition, taxation,
accounting, IP protection)
▪ Developing stable financial system and services
o Macroeconomic stabilisation
▪ Reducing budget deficits
▪ Controlling inflation
▪ Stablising currencies (transition recession)
2. Appreciate the process of transition from command to market economies
Since the late 1980s, there have been 2 major changes in the political economy of many of the
orlds atios:
1. Democratic revolutions as totalitarian and authoritarian regimes collapsed
2. Move away from centrally planned and mixed economies towards free markets
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Week 11: the new wild west: doing business in transitional markets: appreciate the nature of transition economies. Economic system: refers to set of arrangements by which a society determines: what is produced, how its produced, how the resulting personal income and claims to goods and services are distributed (and redistributed) Transition economy: process of transforming their economic systems to market-based systems, economic transition involves at least 3 distinct activities, deregulation: removing restrictions on free operation of product and factor markets, political change. Introduction of liberal democracy, especially multi-party system and protection of political/civil rights: privatisation: transfers ownership of state property to private investors (seen as a way of increasing economic efficiency, price liberalisation, marketization, enterprise level efficiency gains, encouraging entrepreneurship. Challenges to economic transition: process can be undermined by 5 institutional weaknesses, unpredictable changes in laws and policies, unstable government.
