Changing Economic Systems
Beginning inthe mid-1980s, dramatic changes occurred in many pf the world,s planned economies. The former Soviet Union, Poland, Hungary, and other nations behan moving. toward greater use of free markets and individual decision making. Described in terms of Figure 2.4, these and other decision making. In several of these countries, econonmic reform was accompanied by greater political freedom. Non-Communist party candidates were elected to top positions in Russia, Poland, and several of the former Sovuet republics, and East and West Germany reunified. Central to many of these economic and political reforms were changes initiated by then Soviet President Mikhail gorbachev. Two significant developments that occurred under his leadership wrer Glasnost, a policy designed to lead to greater freedoms in areas such as speech, and Perestroika, a program of economic reforms to lead to greater dependence on markets and individual initive.
An essential element for the transition from a planned to a market economy is Privatization, which is the granting to individuals of property erty rights to factors of production that were once collectively owned, or owned by the state. Without the protection of private ownership and the right to profit that it secures, individuals have few incentives to carry out the entrepreneurial functions of organizing resources and risk taking that drive a market economy. Successful implementation of privatization is an important key in the actual transformation from a planned to a market economy.