In Soviet times, there was a planned economy. Then there were monetary relations, but there were no real market mechanisms that would regulate sales transactions, prices, financial flows. There was no balance of prices, competition, the laws of supply and demand did not affect the value of the goods, since it was formed on the basis of spending and was torn off from the situation on the world market. That is why economic liberalization is the main task for the transition to market capitalist relations.
The meaning of the term
Liberalization of the economy is a system of measures aimed at freeing itself from restrictions in the form of state pressure on the economy and business. Liberalization is a term derived from the word “libero,” which means freedom. Thus, the movement towards a “free” economy is aimed at creating favorable conditions for the free movement of prices and the market circulation of services and goods. Also, economic liberalization is the creation of a more open market, transparent, with fair competition.
Liberalization Processes in a Transitional Economy
First of all, the creation of market institutions and their transfer to the capitalist principles of management are considered. Liberalization - the policy of the state economy and economic development, which covers all spheres of society. It involves the abolition of the state’s monopoly on the formation of the activity of national economies and enterprises, a decrease in the level of state and municipal control over exchange operations, the complete abolition of the distribution of resources by the central authorities, and the opening of all possibilities for the development of other markets by economic entities. We are talking about the development of specific structures in sectors of the economy, where the monopoly of state bodies was the strongest. The liberalization of the economy in Russia and in many other CIS countries is taking place in this direction, and it is in this vein that it must be considered. The process of lifting various prohibitions, removing barriers that impede free access to various markets and complicate competition should occur.
Driving directions
Economic liberalization is a process that does not affect the ownership of state-owned sectors of entrepreneurial activity, but strongly contributes to the formation of new entities that are able to create an active competitive environment. In general terms, the development of a “free” economy goes in three main directions.
- The most important starting point of liberalization is the release of price formation from regulation by central authorities.
- Free trade for all individuals and legal entities.
- The most difficult and deepest moment of liberalization is the subordination of all activities of production entities to the requirements of the market, that is, an ideal regulatory model through a balance of supply and demand.
"Release" prices
All of the above transformations fundamentally change the whole system of market relations and management, the way of thinking and life of people, generate numerous contradictions and problems in society. First of all, liberalization of the economy is a process of “letting go” of prices, which leads to a sharp increase, and this will naturally start the process of reducing incomes of the population, lowering living standards, changing the whole structure of market consumer relations and the like. In economic theory, there are two main options for “letting go” of the price: “shock” one-dimensional and gradualist gradual. However, economic liberalization is always a mixed process, which at different times tends to one or another type. There is also a certain pattern: the less developed are market relations within the state, the less effective will be the way of “shock” therapy.
Possible contradictions
The liberalization of the economy is always a lot of sharp contradictions in the production and social spheres. Many enterprises that operate in the military-industrial sphere with a focus on government orders lose sales opportunities for their products. Many enterprises in a market economy may be uncompetitive and go bankrupt, with their subsequent liquidation. Difficulties in sales can give rise to problems in the procurement of materials and raw materials, that is, in fact, call into question the existence and functioning of companies, firms, factories and enterprises as such. The reduction in demand among the population significantly affects the state of affairs of producers, which is already not easy. The production of subsidies and privileges from the state may be in a difficult situation, first of all, this concerns the agricultural and agricultural sectors. The introduction of a “free” economy can largely contradict the prevailing stereotypes and mentality, which will lead to the rejection of this course of movement among the widest masses of the population. It is precisely such problems that the president of the Russian Federation, Vladimir Vladimirovich Putin, faced. The liberalization of the economy is a multifaceted and extremely complex process; it is difficult to achieve even the initial goals in the medium term.
Consequences of a policy of “releasing” prices and the free market
The liberalization of economic relations between countries is a natural consequence of internal economic processes within a single country. The liberalization of the economy is the creation of market mechanisms with a close connection between the markets of different countries, formed into one single market foreign economic space. From here follows the importance of legal interconnections and adequate regulation of relations between states. Foreign economic liberalization can expand the possibilities of providing assistance in the transition from a planned economy, thereby significantly accelerating the solution of complex problems to achieve a “free” market. The main advantages include the expansion of the possibility of entering the country of investments from various foreign institutions, the elimination of centralized foreign economic relations, the removal and removal of all import restrictions (the abolition of privileges, quotas, duties and licenses), maximum liquidity and currency convertibility.