Economic Transition and the Obstacles Countries Face

Economic Transition
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Economic Transition
Economic transition refers to the situation where an economy changes from a centralized system of economic planning to a market-based system. During the transitional process, the economy undergoes a series of transformations in its structural organization, which is aimed to achieve a market-based form of governance CITATION Mar93 \l 1033 (Weitzman, 1993). Such transformations include economic liberalization during which market forces have the role of setting prices instead of the centralized planning organization. Additionally, the transition helps to reduce trade barriers, privatize parastatals and state-owned resources, as well as restructuring collectively and state-run businesses CITATION Eco19 \l 1033 (Economics Online, 2019). The process is characterized by creation and changing of private enterprises and state-owned companies to promote private-owned businesses and create different governmental institutions.
Obstacles that Countries Face During Economic Transition
Increased unemployment
During the economic transition, newly privatized enterprises try to augment their efficiency. In the process, the companies lay off most of their employees, leading to an increase in the rate of unemployment. State-owned organizations that operate under communism tend to employ a relatively high percentage of employees that the firms can support CITATION Eco19 \l 1033 (Economics Online, 2019). However, when private business owners enter the market, companies retrench their employees to reduce their operational costs in a move to increase their efficiency. Moreover, the formation and entry of newly established enterprises into the market; the existing ones need to adjust their operations to cope with the market trends CITATION And00 \l 1033 (Aslund, 2000). However, firms which fail to withstand the competition on the market are forced out of business leading to joblessness.
High inflation
Many countr...