Chapter 1
Economic System in an Era of Change
ECONOMIC SYSTEM IN A NEW ERA
Although the roots of the rapid changes now under way reach back to the 1980s and earlier, the 1990s ushered in a new world order. The dramatic and astonishing events 1990 and 1991 – the ending of the cold war, German reunification, the fall of the communist government is Eastern Europe, and the failed coup attempt in the Soviet Union – caught most observes off guard. For the analyst of different economic systems, traditional models and approaches must be questioned, they may not be appropriate for tracking change deeper and more rapid than could have been imagined just 10 years ago.
How these major issues are resolved will determine the shape of the next century and the way in which different economic systems contribute to the resolution of critical economic problems.
1. Will the Soviet Union and its former Eastern Europe satellites succeed in transforming themselves into viable economies based on market allocation and non-state ownership? Will the economic decline of this region be reserved and the peoples involved gain access to a standard of living consistent with the resource base?
2. Will the Soviet Union and Eastern Europe become full- fledged members of the world economic community, opening up new product and technology markets for themselves and for their Western partners.
3. Will the Chinese embark on renewed economic and political reforms to rejuvenate their economy after the setbacks to reform that occurred in the late 1980s?
4. Will western Europe and North America continue to move toward unification of world markets at the expense of national sovereignty? How will the industrialized west accommodate the desire of Eastern Europe to become part of this unification process?
5. Will the developing economies of Latin America, Asia, and Africa begin to make economic progress relative to the more industrialized countries of the world so that prosperity will cease to be limited to a small fraction of the world’s population?
6. To what degree and in what ways will the new political and economic arrangements generate economic progress in the face of critical constraints such as energy requirements and the need to curtail environment decay?
THE COMMUNIST WORLD
The year 1985 marked the starting point for serious change in the communist bloc. In this year newly selected general secretary of the Soviet Communist party, president Mikhail Gorbachev, announced his intention to initiate “radical” reform of the Soviet political structure, society, and economy. Up until this point, the Soviet Union had been the most important example of a centrally planned socialist economic system that was experiencing serious problems in economic performance but had limited interest in economic reform. After all, Gorbachev was an apparatchik- a person who rose through the party ranks and therefore could be expected to cling to past goals and methods.
