MGT 457 Discussion 2
RockPaper555
MGT457Discussion2TextbookSection.docxChapter 4 Economic Development of Nations
Economic Transition
Over the past two decades, countries with centrally planned economies have been remaking themselves in the image of stronger market economies. This process, called economic transition, involves changing a nation’s fundamental economic organization and creating entirely new free-market institutions. Some nations take transition further than others do, but the process typically involves several key reform measures to promote economic development:
• Stabilizing the economy, reducing budget deficits, and expanding credit availability • Allowing prices to reflect supply and demand
• Legalizing private business, selling state-owned companies, and supporting property rights
• Reducing barriers to trade and investment and allowing currency convertibility
Transition from central planning to free-market economies generates tremendous international business opportunities. Yet, difficulties arising from years of socialist economic principles hamper development efforts from the start, and some countries still endure high unemployment rates. Governments of former centrally planned economies in Eastern Europe continue to sell state-owned companies in order to boost productivity and competitiveness and to raise living standards. Let’s examine the key obstacles for countries in transition.
Managerial Expertise
In central planning, there was little need for production, distribution, and marketing strategies or for trained individuals to devise them. Central planners decided all aspects of the nation’s commercial activities. There was no need to investigate consumer wants and no need for market research. Little thought was given to product pricing or to the need for experts in operations, inventory, distribution, or logistics. Factory managers at government-owned firms had only to meet production requirements set by central planners. In fact, some products rolled off assembly lines merely to be stacked outside the factory because knowing where they were to go after production—and who took them there—was not the factory manager’s job. Recent years, however, are seeing higher-quality management in transition countries. Reasons for this trend include improved education, opportunities to study and work abroad, and changes in work habits caused by foreign companies investing locally. Some managers from former communist nations are even finding managerial opportunities in Western Europe and the United States with large multinational corporations.
Shortage of Capital
Not surprisingly, economic transition and development are expensive undertakings. To facilitate the process and ease the pain, governments usually spend a great deal of money to:
• Develop a telecommunications and infrastructure system, including highways, bridges, rail networks, and sometimes subways.
• Create financial institutions, including stock markets and a banking system.
• Educate people in the ways of market economics.
The governments of many countries in transition cannot afford all the investments required of them. Outside sources of capital are available, however, including national and international companies, other governments, and international financial institutions, such as the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank. Some transition countries owe substantial amounts of money to international lenders, but this is becoming less of a problem today than it was earlier in the era of transition economies.5
Cultural Differences
Economic transition and development reforms make deep cultural impressions on a nation’s people. As we saw in Chapter 2, some cultures are more open to change than others. Likewise, certain cultures welcome economic change more easily than others do. Transition replaces dependence on the government with greater emphasis on individual responsibility, incentives, and rights. But sudden deep cuts in welfare payments, unemployment benefits, and guaranteed government jobs can present a major shock to a nation’s people.
Importing modern management practices into the culture of a transition country can be difficult. South Korea’s Daewoo Motors (www.daewoo.com) faced a culture clash when it entered Central Europe. Korea’s management system is based on a rigid hierarchical structure and an intense work ethic. Managers at Daewoo’s car plants in South Korea arrived early for work to stand and greet workers at the company gates. But problems arose when Daewoo’s managers did not fully comprehend the culture at its factories in Central Europe. Daewoo bridged the cultural and workplace gaps by sending central European workers to staff assembly lines in Korea and sent Korean managers and technicians to work in Central and Eastern Europe.
Sustainability
The economic and social policies of former communist governments in Central and Eastern Europe were disastrous for the natural environment. The direct effects of environmental destruction were evident in high levels of sickness and disease, including asthma, blood deficiencies, and cancer—which lowered productivity in the workplace. Countries in transition often suffer periods during which the negative effects of a market economy seem to outweigh its benefits. But as transition and development efforts continue, the wider population begins to enjoy the benefits of a market economy.
Nations that lived under central planning have had to overcome one of central planning’s lasting legacies—lack of a topnotch healthcare system. The spread of communicable diseases in the world’s poorest nations is especially worrying. Diseases such as HIV/AIDS, tuberculosis, and malaria still infect many people in Southeast Asia, Eastern Europe, and elsewhere. These diseases cause human and economic loss, social disintegration, and political instability. The health care costs required to combat such diseases can significantly impair efforts toward sustainable development. To read about the costs of three particularly lethal diseases, see the Global Sustainability feature, titled “Public Health Goes Global.”
