Introduction of market prices in socialist countries

Abstract

After a sudden and swift downfall of the communist governments and their command economies, the former socialist countries are engaged in transforming their centrally planned economies into decentralized free market economies. This transformation can be brought about in one major jump or in phased stages. The first alternative involves an abrupt change from a totally state-controlled economy to a fully free market economy and is fraught with grave risks of hyperinflation, mass unemployment, depletion of foreign exchange reserves, flight of capital, and exodus of skilled workers. The other alternative may allow the formerly socialist economies to avoid extreme forms of disruption and deprivation through a gradual relaxation of state-fixed prices and wages and transfer of state-owned factories and capital assets to private ownership. It has taken a great deal of planning for the institutions of command economies to get established over the last four to six decades; it will take a good deal of planning and implementation of economic policies to displace them.