Question

ribe the five varieties of capitalism that developed in transition economies. What iniportant features that differentiate the types of capitalism? tran elures hat depate laen uhnat

Answer 1

A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a market economy. Transition economies undergo a set of structural transformations intended to develop market-based institutions. These include economic liberalization, where prices are set by market forces rather than by a central planning organization. In addition to this trade barriers are removed, there is a push to privatize state-owned enterprises and resources, state and collectively run enterprises are restructured as businesses, and a financial sector is created to facilitate macroeconomic stabilization and the movement of private capital.The process has been applied in China, the former Soviet Union and Eastern bloc countries of Europe and some Third world countries, and detailed work has been undertaken on its economic and social effects.

The five varieties of capitalism:

1. FDI based (second rank) market economies

These transition countries exhibit such features as democratic political systems. The integration into the EU [i.e. the European Union], as well as export structures increasingly built around [highly-processed] manufactured goods produced by foreign-owned MNCs.

2. Peripheral market economies

Category can be found within SEECs (e.g. Bulgaria) and in some CEEC countries (e.g. Estonia, Latvia, and Lithuania). These countries have adopted rather stable democratic political systems and developed a basic legal, as well as institutional, environment for private business. Peripheral market economies also provide a relatively low level of welfare payments to their citizens, exhibit large income disparities, and tend to experience a comparatively lower level of development. They therefore tend to largely depend on the financialised growth pattern of international integration including significant dependence on remittances.

3. Oligarchic (clientelistic) capitalism

It exhibits close links between business and political power. This category is represented by CIS members, particularly Russia, Ukraine, Azerbaijan and Kazakhstan .These countries share relatively authoritarian political systems and higher occurrence of rent seeking resulting from close relationships between political power and strategic enterprise owners. Furthermore, they exhibit lower levels of state capacity in the form of social welfare, institutional, and regulatory frameworks.

4. Order states

This category applies to several transition countries that are CIS members experiencing limited progress in political, and economic reforms (e.g. Belarus, Uzbekistan). These nations have undergone systemic transformation since 1990 with regard to integration with the world economy; that is, utilization of price mechanisms, domestic price levels close to the world level, and the development of private undertakings. However, substantial state ownership and the ubiquitous involvement of the government in the economy still remains.

5. Remittance and aid-based economies

This applies to low-income peripheral SECC countries (e.g. Albania, Bosnia-Herzegovina) and many low-income CIS nations (e.g. Armenia, Kyrgyzstan, Moldova, Tajikistan, and Uzbekistan). The “remittance and aid-based economies” model is compatible with a very low-level of economic and political development of formal institutions. These nations are highly dependent on favorable labor market conditions in other countries (e.g. developed European Union nations or Russia) for the supply of foreign currency.

The important features are:

1. Representative Countries

2. Main channel of integration with the world economy

3. State Capacity

4. State involvement in the economy

5. Financial systems requirements

6. Possible prospective direction for change