To a great extent, economic development refers to activities, initiatives, and policies that seek to enhance the quality of life and the monetary well-being of the citizens. Therefore, it is the process whereby low-income countries are transformed into modern industrial economies by increasing their nation’s wealth. In a sovereign state, the consequences of economic development include higher literacy rates, enhanced productivity, improved healthcare, and better public education (Gogokhia & Berulava, 2021). On the other hand, the economic transition changes from central planning to free markets. The paper will discuss transitional economics features, merits, and challenges.
Some Baltic nations, including Latvia and Lithuania, and Central and Eastern European (CEE) countries, including Croatia, Hungary, Albania, Poland, Slovenia, and Bulgaria, have experienced economic transition. The transition process has multiple features, and the first is liberalization. The concept allows most prices to be decided in free markets and reduces trade obstacles that block contact with the cost structure of the world’s merchandise economies. Secondly, under macroeconomic stabilization, inflation is lowered and regulated time after its increase from free trade and the release of suppressed demand (Gogokhia & Berulava, 2021). The process requires discipline in fiscal and monetary policy and government budget and progress toward a sustainable payments balance. Thirdly, legal and institutional reform must redefine the nation’s responsibility in free economies, introduce appropriate business rivalry regulations, and establish the rule of law. Lastly, feasible financial sectors are created through restructuring and privatization, and enterprises are reformed in economies to enable them to produce commodities sold in free markets and transfer ownership to personal companies.
There is no uniqueness concerning which states are transitional, as their cultural, social, monetary, and geographical contexts may disable the distinctive sample that would fit the analysis. The economic transition mainly adopts Douglass North’s model, whereby contracts are enforced, there is the protection of property rights, and the political authorities do not disrupt the decisions made by the economic entrepreneurs (Ullah, 2020). Significantly, the transition has resulted in notable successes, including the commitment to democracy and the creation of a market-based economy, leading to escalated per capita income in the nations, indicating the enhanced living standard of residents (Gogokhia & Berulava, 2021). Most countries have established anti-monopoly laws, competition policies, bankruptcy procedures, improved accounting standards and spearheaded financial market legislations. In addition, the commitment to macroeconomic stabilization and acquisition of structural reforms has made Baltic nations re-join the ranks of middle-income countries and level other richer states.
The countries practicing transition economies experience numerous challenges, including rising unemployment as the newly privatized entities try to become more efficient. For example, under communism, state-owned firms hired more individuals than was required. After private entrepreneurs entered the market, labor costs were reduced to enhance efficiency (Ullah, 2020). However, the increased competition in the market resulted in the loss of jobs. In addition, people lost jobs due to the reduction in the size of the state bureaucracy. Most transition economies encounter massive price inflation due to the elimination of price controls inflicted by governments (Economics Online, 2020). The privatized firm’s management commenced imposing charges mirroring the actual production costs, thus exploiting their position to make excessive profits. Another disadvantage is that many transition economies suffer from a lack of entrepreneurship and capabilities. Due to such, it is highly difficult for state governments to undertake reforms and facilitate market capitalism. The new privatized organizations experience skills gaps as few employees have the necessary working knowledge.
During the early stages of the transition process, corruption increases, deterring the effective introduction of market reforms. Therefore, many items are poorly manufactured and sold unregulated in illegal markets, creating widespread racketeering. The deteriorated inward speculation from foreign investors and the restricted development of financial markets made the transition economies suffer from a lack of real capital, including technology and other infrastructures (Gogokhia & Berulava, 2021). To a great extent, under communism, the state government acquired all the core productive assets, and there were minimal inducements to develop complicated legal systems to safeguard the consumer’s rights. Notably, the transition economies create inequality, whereby some traders and entrepreneurs their position to sell commodities at exorbitant prices (Economics Online, 2020). Significantly, the issue of moral hazard indicates inferior performance among workers. During the transition economies, most individuals believe that the government insures them against uncertainties related to global competition, such as the risk of unemployment. The repercussion is that many employees remain unproductive and inefficient, knowing there are no reduced job prospects.
In conclusion, economic development ensures high literacy levels, improved productivity, and enhanced public education of citizens of a given country to improve their living standards. Most countries, including Bulgaria and Croatia, have changed from central planning to free markets to transition from low-income to modern industrial economies. The notable characteristics of transitional economics include privatization, liberalization, macroeconomic stabilization, and legal reforms. The economic transition’s advantages are that it safeguards consumer and property rights and deters politicians from interfering with choices made by traders. The commitment toward democracy allows the establishment of anti-monopoly laws, enhanced accounting standards, bankruptcy procedures, and competition policies that aid the accumulation of wealth and job creation. However, some challenges of transition economies are unemployment, inflation, corruption, and inequality.
References
Economics Online. (2020). Transition economies. Economics Online. Web.
Gogokhia, T., & Berulava, G. (2021). Business environment reforms, innovation, and firm productivity in transition economies. Eurasian Business Review, 11(2), 221-245. Web.
Ullah, B. (2020). Financial constraints, corruption, and sme growth in transition economies. The Quarterly Review of Economics and Finance, 75(5), 120-132. Web.