As you know, there are two main models of the economy: command and market. The command (planned) economy is characterized by direct state regulation of all economic processes, while the market economy is characterized by minimization of regulatory intervention in the economic activity of residents. An intermediate place is occupied by countries with economies in transition. We will talk about them in this article.
Countries with economies in transition are those that are currently on their way from a planned economy to a market economy. In fact, these are the states of the former Soviet Union that, after its collapse, chose a market model. Therefore, all countries of the former USSR, except perhaps Belarus, are countries in transition. They are characterized by accelerated economic development after a period of crisis in the planning system (in fact, precisely because of the government’s inability to plan the entire economic life of the state and the Union collapsed), the creation and development of new enterprises, improving the living standards of the population, the level of wages, and the liquidation of goods deficit and stuff. The economy is becoming more open both inside and out - this means that as resident entrepreneurs receive a greater degree of freedom in creating and developing their own business, so foreigners get the opportunity to invest their available cash in facilities and enterprises located in the country .
As a rule, countries with economies in transition attract increased attention from foreign entities wishing to make so-called direct investments in the economies of these states. The reason for this increased interest is the possibility of a more profitable investment of capital, which can be explained through the action of the laws of supply and demand. Capital is the same resource as raw materials and labor, which means its market exists, and its price is the percentage of return on investment. Naturally, there is already some excess in the capital markets of developed countries , which means that its profitability is very low (for example, interest rates at foreign banks, rarely exceeding 3-4 percent per annum). At the same time, in transition economies there is a significant lack of capital, which means that the rate of return on investment projects there will be significantly higher.
The characteristics of countries with economies in transition include some negative features: rapid social stratification, as a result of which the difference between the incomes of the rich and the poor is tens and hundreds of times. Moreover, there is political and social instability, a high probability of conflict, an increase in crime and others. It is also worth noting that countries with economies in transition may be characterized by an imperfect and unstable system of national legislation, which may be poorly perceived by foreign investors who prefer more stable countries with a lower rate of return.
The main tasks of the government of the country with economies in transition should be:
In the social sphere - ensuring equality and stability, minimizing the likelihood of conflicts on social grounds, caring for vulnerable groups of the population (payment of pensions, scholarships, unemployment benefits);
In the economic sphere - increasing the investment attractiveness of the state, bringing the legal system (including in the field of taxation) in line with international standards, ensuring the protection of foreign investors from changes in legislation and the tax system for a long period.