With the CIE AS essay paper on Wednesday next week here are some notes on the issues confronting transition economies – this topic is in Unit 1 of the syllabus. What have been the formidable challenges facing eastern European countries (command) embracing capitalism? Here are some thoughts as well as an informative video from the IMF:

• In planned some goods are provided free but not in a market economy
• Corruption – widespread in communist countries in eastern Europe – Oligarchs
• Inflation ↑ – privatised firms began to charge prices that reflected high costs
• Lack of entrepreneurial experience
• Rising unemployment as owners of businesses try to make them more efficient.
• Labour relations – Poor as workers are in a new environment – Job security?
• Consumer sovereignty – some industries decline/expand
• Resources – surplus and shortage
• Self-Interest – fewer merit goods and more demerit goods
• Time Gap before framework of government controls can be developed
• Expansion of industry – potentially for greater externalities
• Old/disabled – vulnerable with the change of government role
• Welfare system – limited support for unemployed etc. will take time to develop
• Provision of public services – disruption to police and other public services
• Moral Hazard – the state insure workers against risks of losing their job