Economies of transition are those that
are shifting from being centrally planned into laissez faire ones (Wikipedia 2007, online]). The ironic bit in the usage of
the term economies of transition stems from the fact that it was Marx and Engels who first popularised the usage of the term
to denote those economies of transition that were shifting from market economies into socialist model (Kevos, 2002). The fall
of the Ancient Regime after the French Revolution drove many societies in Europe and elsewhere to look for “social justice”
in form of socialism, a process that ultimately suffered a spectacular failure some 200 years later (Jeffries, 2001). The
economies that were considered to be in a transition phase in the recent past (mainly the former Soviet block countries) started
as capitalist, or were in the late feudal stage. They combined private enterprise with some degree of state intervention.
The system produced some great social inequality which was socially unacceptable. The mainly communist system was seen as
the bastion of equality and those countries turned to it. This issue looks at the major issues that face economies of transition
when they finally decide to let go of the controls based on previous practice.
At the very onset, economies of transition
face the problem of resource allocation that is mainly blamed on structural inefficiencies (Meyendorff, 2002). The chief concerns
for many economies in transition are to achieve macroeconomic stability and to conduct large scale privatisation that is required
to orchestrate true transition.
The other major issue that faces economies
of transition is the inherent lack of legal and institutional structures that takes care of corporate transformation in order
to protect the various players, and especially the creditors. In a well developed capitalist economy, the corporate sector
enjoys the presence of a wide range of financial instruments that are responsive to most of their needs, for instance, it
is possible to convert debt into equity in such countries. Collateralized Debt Obligation (CDO) is another instrument available
in developed financial markets that involve many kinds of investors with different rights that usually commensurate with the
amount of risk involved. Economies of transition have no such luxury.
The governments of the economies of
transition usually create a situation whereby they create monopoly of power (Kevos, 2002). This is perhaps the greatest challenge
for the economies in transition. The various economies of transition that have faced this problem have resolved it with varying
degrees of success. True transition takes place when there is pluralisation, which is development of institutions and mechanisms
that enables a market formation of prices of goods and services as well as the prices of the factors of production. The governments
of economies of transition should also step in to provide the necessary legal and institutional infrastructure to facilitate
the legality and acceptability of the whole process.
The economies of transition countries
China, Laos, Mongolia, Thailand, Vietnam, Albania, Bosnia
and Herzegovina, Croatia, Macedonia,
Belarus, Georgia, Kazakhstan, Kyrgyz Republic,
Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
1. URL http://en.wikipedia.org/wiki/Transition_economy.
Last accessed 28, October 2007.
MEYENDORFF, A, THAKOR, V (2002). Designing Financial Systems in Transition Economies, MIT Press, Boston.
3. YOUNG, AE, KEVOS, P (2002). Economies
in Transition: Conception, Status and Prospects. World Scientific, Washinton
4. JEFFRIES, I (2001). Economies in
Transition. Routledge, Oxford.