The movement in the direction of a market-based system with freely determined prices, competition, profits, private ownership, and other features of capitalism is not simple.  Discuss some of the...

The movement in the direction of a market-based system with freely determined prices, competition, profits, private ownership, and other features of capitalism is not simple.  Discuss some of the challenges associated with an economy transitioning from socialism to capitalism.

Asked on by pamela0317

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are a number of problems that can arise in this sort of a transition.  Let us look at two of them.

First, there is a major problem with people having to learn to make decisions on their own.  In a socialist or other command economy, there are only a very few people who are actually making decisions on their own.  For many of the people in that economy, everyday work consists of doing what you are told.  This means that people in such an economy are not really ready to make the sorts of daily decisions that anyone who has responsibility in a capitalist economy must make.

Second, there is the fact that people from a socialist economy are not likely to be sensitive to the needs of consumers or investors.  In a socialist economy, people simply followed the plan.  If they made things inefficiently, or made them poorly, it did not really matter.  In a capitalist economy, by contrast, consumers expect good products and investors expect to make money.  People who work in socialist economies are not used to this “market discipline.”

In both these ways, and others, it can be very hard for people from a socialist economy to get used to the competition and the decision-making involved in a capitalist economy.

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