GLOBALISATION OF BUSINESS, Syed Sajid [reading in the dark .txt] 📗

/> 3
2
1
3 4
3
3
2
3 3
3
3
2
3 2
2+
2
1
3–
________________________________________
Croatia
Czech Republic
Estonia
Georgia
Hungary 55
75
70
60
80 3
4
4
3+
4 4+
4+
4+
4
4+ 3
3
3
3
3+ 3–
3
3+
2+
4
________________________________________
Kazakhstan
Kyrgyz Republic
Latvia
Lithuania
Moldova 55
60
60
70
45 3
3
3
3
3 4
4
4
4
3+ 3
3
3
3
3 2+
3–
3–
3
2+
________________________________________
Poland
Romania
Russian Federation
Slovak Republic
Tajikistan 65
60
70
75
30 3+
3–
3+
4
2 4+
3+
4
4+
2+ 3+
3
3–
3
3 3+
2+
2
3–
1
________________________________________
Turkmenistan
Ukraine
Uzbekistan 25
55
45 2–
2+
3– 2
3+
3 2
3
2 1
2
2–
________________________________________
Source: European Bank for Reconstruction and Development, Transition Report, 1998, Table 2.1.
1 Private sector shares of GDP represent rough EBRD estimates, based on available statistics from both official (government) and unofficial sources. The underlying concept of private sector value added includes income generated by the activity of private registered companies, as well as by private entities engaged in informal activity, in those cases where reliable information on informal activity is available.
2 The numerical indicators range from 1 to 4, with 1 representing the least progress. They are intended to represent cumulative progress in the movement from a centrally planned economy to a market economy in each dimension, rather than the rate of change in the course of the year.

Privatization. The private sector share in GDP, almost insignificant 10 years ago, has risen dramatically in many transition countries, reaching 70 percent or more in Albania, the Czech Republic, Estonia, Hungary, Lithuania, Russia, and the Slovak Republic. Only in Belarus, Tajikistan, and Turkmenistan does it remain at 30 percent or lower. While impressive, these percentages reflect privatization of ownership but not necessarily of management. In many countries, either the prereform managers are still running the enterprises or the new managers behave as if the enterprises were still owned by the state.
One intriguing aspect of the privatization experience in these countries is that, as state ownership has declined, the rise in fiscal proceeds from privatization has not been commensurate. Although the state owned almost everything before the transition, the revenues it collected from the sale of its assets were minuscule. In Russia, for example, assets valued at $50–60 billion were reportedly bought for $1.5 billion.
There are several reasons for the low revenues. Privatization was tantamount to a fire sale to which only a privileged few were invited, and they used their positions or connections to amass enormous wealth. Thus, although constituting a fundamental step toward a market economy, privatization became an obstacle to the protection of private property—another prerequisite of a market economy.
Nomenklatura privatization—the purchase of state enterprises by former high officials of the communist party—and other similar developments, such as the purchase at low prices of valuable assets of state enterprises, have contributed to the dramatic changes in the distribution of income in these countries. Before the transition, they had some of the most even income distributions in the world, a source of pride for their leaders. Within a few years, however, some of the richest men and women in the world—some of whom also acquired substantial political power—were living a life of conspicuous consumption. More worrisome is the increase in inequality that has occurred, not because individuals who rose higher on the income scale created wealth but because they raided the government's wealth.
It is easy to guess the reaction of these countries' populations to the economic changes that created these new circumstances and to understand why the market economy, which is identified with these changes, is blamed. Many of the measures necessary to make a market economy vibrant and efficient will be seen as protecting the ill-gotten wealth of the new upper class and will encounter difficulty in the political process. It should not be surprising if privatization is not universally accepted as a sign of progress.
Price liberalization. The transition countries as a group have gone far toward liberalizing and stabilizing prices (see table). Although Belarus, Tajikistan, and Uzbekistan show little progress, most countries show some, and a few—Hungary and Poland—show a great deal. However, freeing prices on some goods does not ensure increased efficiency if prices remain controlled in large and vital sectors such as energy.
Fiscal reforms. Most transition economies have implemented major fiscal reforms in the 1990s, some more successfully than others. Because a tax culture never developed in the centrally planned economies, people reacted with hostility to the introduction of an explicit tax system.
The economic reforms that took place in these countries at the beginning of the transition had a damaging impact on the existing public finances.
• They destroyed the plan, thus eliminating the information (good or bad) on quantities of goods produced and on prices. The government had to rely on other sources, including taxpayers' declarations, for this information. Tax evasion increased.
• They increased dramatically the number of producers and thus the number of potential taxpayers, as private sector activities came into existence. Tax administrations that had been used to dealing with relatively few, friendly enterprises had to deal with hundreds of thousands, or even millions, of unfriendly taxpayers. Large state enterprises, which had provided the bulk of tax revenue, declined in importance, while new small and difficult-to-tax private producers emerged as the most dynamic sector of the economy. They required both close attention from tax authorities, because of their propensity to evade taxes, and protection from unscrupulous tax officials.
• They removed the restrictions on payment methods that had existed under central planning (when all payments were channeled through the central bank). Unfortunately, tax arrears and payments in the form of barter have grown, creating major difficulties for the new system.
Because of these changes, among others, the old systems could not easily be reformed. Totally new systems were needed, and they required not just new tax laws but also new fiscal institutions, new skills, technical knowledge, and political capital. Few of the transition economies have been able to meet these requirements of a market-oriented system.
Many countries attempted to patch up the old institutions to make them behave like new ones. The poorly paid personnel of these institutions, schooled in the old ways, were often the main obstacle to change, and those who were put in charge of these institutions often had limited knowledge of how tax administrations should work in market economies. Their incentive was to maintain the old system. It would have been far better to create, from scratch, new institutions.
Many governments have failed to accept or understand that, in a market economy, a tax system should be based on laws that establish tax rates and rules for objectively defining the tax bases and should have one paramount objective—to raise revenue as efficiently and equitably as possible. Rather, these governments view the tax system as a tool that should do many things—keep failing enterprises alive, sustain employment by allowing loss-making enterprises to pay wages instead of taxes, stimulate economic activity, and so on. In some ways, the tax system replaced the plan as the key instrument for economic and social policy. Thus, in some of these countries, taxes have continued to be soft and discretionary, and key ministers have continued to spend more time dealing with individual taxpayers' tax problems than reforming the tax system. This may have sharply increased the tax burden on segments of the economy that are not able to receive preferential treatment.
In many of these countries, especially the larger ones, public spending has remained very high as a share of GDP. Once made, spending plans may be difficult to revise, especially downward. This is particularly true of pensions, health benefits, and public employment, which involve long-term commitments. One reason for many countries' high ratios of spending to GDP is that they have experienced declines in output. Another is that they have not yet formulated policies for shrinking the role of the state. The government remains engaged in far too many activities.
Conclusion
Major changes will need to occur to complete the transition. Changes can be either superficial—essentially those envisaged by the shock-therapy approach—or deep, including creation of new institutions, changes in incentives, changes in processes, and transformation of the role of government. These deep changes are much more difficult and time-consuming because they involve structural reforms and require a major modification of attitudes, incentives, and relationships.
Once a country has made the transition to a market economy, the role of government is dramatically different. It operates not through direct controls but mostly through the tax system, the budget, and a few essential regulations. The tax system must be totally reformed to make it efficient and equitable and capable of raising reasonable revenues. Expenditure policies must be brought in line with the reduced public resources. The new regulations will play a role in setting the rules of the game, regulating private pensions, and enforcing competition. Most permits, authorizations, and other mechanisms that are known to promote bribery must be eliminated, because they lead to the corruption that is widespread in many transition economies.
Given the decline in income equality in these countries and their experiences with privatization, it is likely that their governments will be asked to play a more positive role in income redistribution. Policymakers should work hard to harmonize the concept of the role of the state that seems to prevail in many of their legislatures with one that is feasible, given the existing macroeconomic conditions and level of institutional and economic development.
There must be a fuller realization that, while large fiscal deficits are often a macroeconomic problem, they become a more fundamental problem when they force governments to renege on their legal contracts by sequestering or freezing payments across the board. These actions are a corruption of the budgetary process and the market economy. When a public employee is not paid or when pensioners do not receive pensions to which they are legally entitled, something is fundamentally wrong with the whole political budgetary process.


Market economies
A market economy is an economy based on the power ofdivision of labor in which the prices of goods and services are determined in a free price system set by supply and demand.[1]
This is often contrasted with a planned economy, in which a central government can distribute services using a fixed price system. Market economies are also contrasted with mixed economy where the price system is not entirely free but under some government control or heavily regulated, which is sometimes combined with state-led economic planning that is not extensive enough to constitute a planned economy.
In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow self-regulation by market forces.The term free-market economy is sometimes used synonymously with market economy,] but, as Ludwig Erhard once pointed out, this does not preclude an economy from having socialist attributes opposed to alaissez-faire system.
Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces. For example, there is no universal agreement on issues such as central banking, andwelfare.
The term market economy is not identical to capitalism where a corporation