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Economics and
Emerging Markets

CHAPTER FIVE

INTERNATIONAL

BUSINESS

The Challenges of Globalization

Canadian Edition

Wild • Wild • Valladares Montemayor

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Describe what is meant by a centrally planned economy and explain why its use is declining

Identify the main characteristics of a mixed economy and explain the emphasis on privatization

Explain how a market economy functions and identify its distinguishing features

Describe the different ways to measure a nation’s level of development

Discuss the process of economic transition and identify the obstacles for business

Chapter Objectives

In this chapter, you will learn about different economic systems and their effect on international business.

You will also:

Recognize the importance of economic development.
Understand how nations are classified as developing, newly industrialized, emerging, or developed.
And learn about the process of economic transition and how countries implement market-based economic reforms.

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Economic Systems

Centrally Planned

Market

Mostly private (individual

or business) ownership of

economic resources

Government and private

ownership of economic

resoures split rather evenly

Government ownership of

economic resources and

state planning

Mixed

The phrase “economic system” refers to the structure and processes a country uses to allocate its resources and conduct its commercial activities.

Just as every culture reflects a mix of individual and group orientations, every economy displays a blend of individual and group values.
Judging by the levels of government and private ownership in an economy, we can categorize it as a (1) centrally planned economy, (2) mixed economy, or (3) market economy.

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Range of Economic Systems

We can arrange national economies on a horizontal scale based on their tendencies toward individualist or collectivist economic values.
We see the hard-line communist nations of Cuba and North Korea on the far left of the diagram, and see the United States on the far right.

3.pdf

112 PART 2 • NATIONAL BUSINESS ENVIRONMENTS

S imilar to culture and systems of politics and law, economic systems differ from country to country. In Chapter 2, we saw that one defining element of a culture is its tendency toward individualism or collectivism. In Chapter 3, we saw how a people’s history and culture

influence the development of their political and legal systems. In this chapter, we investigate the linkages between culture and economic systems.

National culture can have a strong impact on a nation’s economic development. In turn, the development of a country’s economy can dramatically influence many aspects of its culture. Economic systems in individualist cultures tend to provide incentives and rewards for individual business initiative. Collectivist cultures tend to offer fewer such incentives and rewards. For example, in individualist cultures, entrepreneurs—businesspeople who accept the risks and opportunities involved in creating and operating new business ventures—tend to be rewarded with relatively low tax rates that encourage their activities.

We begin this chapter by introducing the world’s different economic systems and exploring the links between culture and economics. We then examine economic development and ways of classifying nations using several indicators of development. We conclude by looking at how countries in transition are implementing market-based economic reforms and the challenges they face. Throughout the chapter, we will encounter anecdotes of how emerging markets are faring in their economic development efforts.

Economic Systems A country’s economic system consists of the structure and processes that it uses to allocate its resources and conduct its commercial activities. No nation is either completely individu- alist or completely collectivist in its cultural orientation. Likewise, the economies of all nations display a blend of individual and group values. In other words, no economy is entirely focused on individual reward at the expense of social well-being. Nor is any econ- omy so completely focused on social well-being that it places no value on individual incen- tive and enterprise.

Yet every economy displays a tendency toward individualist or collectivist economic values. We can arrange national economies on a horizontal scale that is anchored by two extremes. At one end of the scale is a theoretical pure centrally planned economy, at the other end is a theoret- ical pure market economy, and in between is a mixed economy (see Figure 4.1). Let’s now explore the workings of centrally planned, mixed, and market economies.

Centrally Planned Economy A centrally planned economy is a system in which a nation’s land, factories, and other economic resources are owned by the government. The government makes nearly all economy- related decisions—including who produces what and the prices of products, labor, and capital. Central planning agencies specify production goals for factories and other production units, and they even decide prices. In the former Soviet Union, for example, communist officials set prices for milk, bread, eggs, and other essential goods. The ultimate goal of central planning is to achieve a wide range of political, social, and economic objectives by taking complete control over the production and distribution of a nation’s resources.

ORIGINS OF THE CENTRALLY PLANNED ECONOMY Central planning is rooted in the ideology that the group’s welfare is more important than individual well-being. Just as collectivist cultures emphasize group over individual goals, a centrally planned economy strives to achieve economic and social equality.

economic system Structure and processes that a country uses to allocate its resources and conduct its commercial activities.

centrally planned economy Economic system in which a nation’s land, factories, and other economic resources are owned by the government, which plans nearly all economic activity.

Pure Centrally Planned Economy

Cuba N. Korea

China

India Brazil

France

United Kingdom

Canada

United States

Pure Market Economy

FIGURE 4.1

Range of Economic Systems

M04_WILD5753_06_SE_C04.QXD 10/11/10 11:37 AM Page 112

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Centrally Planned Economy

Government owns most land, factories, and other economic resources and plans nearly all economic activity

Asia

Central Europe

Eastern Europe

Latin America

Russia (1917)

China (1949)

Cuba (1959)

Welfare of the group

is paramount

Economic and social

equality is the goal

“Communist” system

is needed

In a centrally planned economy, government owns most economic resources and plans nearly all economic activity.

The ultimate goal is to achieve political, social, and economic objectives focused on group welfare rather than individual well-being.
By the 1970s, central planning prevailed across Eastern Europe, Asia, Africa, and Latin America.

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Photo: Gerry Taft, Mount Royal University

These are Stalin era apartments Minsk, Belarus. The buildings form the perimeter of the complex, while the interior of each building complex has a courtyard with playgrounds for children, and areas for people to gather and visit.

A centrally planned economy strives to achieve economic and social equality

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Decline of Central Planning

Central planning failed to:

Create economic value

Provide incentives

Achieve rapid growth

Satisfy consumer needs

But nations that relied on central control of their economies failed to achieve their objectives. Specifically, they:

Failed to create economic value by failing to produce quality products efficiently.
Failed to provide incentives to maximize the benefits from resources, which slowed economic growth and lowered living standards.
Failed to achieve rapid economic growth and witnessed themselves falling quickly behind other nations.
And failed to satisfy consumer needs for even basic necessities.

Farming in North Korea

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“labour-intensive and inefficient”

Seemingly endless famines and economic collapse has cut North Korea’s life expectancy

to 60 years for men and 69 years for women.

Although farming is a high-tech endeavour in the world’s most advanced nations today, it is labour-intensive and inefficient in North Korea. The government’s failed communist economic policies hamper development and are at the root of its inability to afford fertilizers and modern machinery that could boost food production. Seemingly endless famines and economic collapse has cut North Korea’s life expectancy by more than six years

to 60 years for men and 69 years for women.

Source : ©; CORBIS. All Rights

Reserved

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Focus on China

Socialism with

Chinese characteristics:

Communist after civil

war ended in 1949

Agricultural reforms

began in 1979

Township and Village

Enterprises legal in 1984

Aggressive reforms since

Challenges ahead:

Political problems and

social unrest

Unemployment and

migrant labor

Eventual(?) reunification

with Taiwan

China describes its economic system as “socialism with Chinese characteristics.”

China turned communist in 1949 but in 1979 allowed families to grow the crops they wanted and to sell their produce at free-market prices.
Then, in 1984, township and village enterprises were legalized, which laid the groundwork for a market economy.
Several challenges lie ahead for China:
First, restriction of a true democracy means that political and social unrest arises sporadically and sometimes violently.
Second, slow economic progress and high unemployment in rural areas encourages a large migrant worker class.
And third, both China and Taiwan remain wary of reunification with the other.

Chinese
State Capitalism

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Photos: Gerry Taft, Mount Royal University

Socialism with Chinese characteristics. A unique economic model combining socialism and capitalism,

The state dominates the economy by owning controlling shares of publicly listed corporations

A unique economic model combining socialism and capitalism, where the state fosters commercial economic activity while maintaining the conditions of wage labour. The state dominates the economy by owning controlling shares of publicly listed corporations, acting as a large stakeholder.

In addition the communist party maintains ultimate authority over virtually all economic decision making

“Perhaps no country on earth has done more for its people”

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Glistening skyscrapers dominate Shanghai and Beijing…

where most people have good job prospects.

Photos:

Gerry Taft, Mount Royal University

There is possibly no country on earth that has done more for its people economically over the past two decades than China. Glistening skyscrapers now dominate the Shanghai and Beijing cityscapes, where most people have good job prospects.

“China is experiencing rapid urbanization in terms of increases in the urban population and the number of its cities and towns. During the era of central planning (1949-1978), the urban population increased by 114 million. The total number of cities increased from 132 to 223 By the end of 2005, the percentage of the population in urban areas reached 43 per cent of the total population and the urban population was 562 million, that is, 390 million more than in 1978. In the same period, the number of cities increased from 223 to 660. From 1978 to 2004, the number of towns increased from 2,851 to 19,171. It has been estimated that by 2020 the urban population will comprise 60 per cent of

the total population.” http://www.unescap.org/pdd/publications/apdj_13_1/li_piachaud.pdf

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Mixed Economy

Noble goals:

Low unemployment

and poverty

Steady economic growth

Equitable distribution

of wealth

But stagnant:

State-owned businesses

less competitive

Prices and taxes higher,

living standards mixed

Government and private parties share ownership of land, factories, and other economic resources rather evenly

In a mixed economy, ownership of economic resources is split rather evenly between private and government entities.

Government controls the economic sectors important to national security and stability and provides generous unemployment programs.
Mixed economies strive for low unemployment and poverty, steady economic growth, and an equitable distribution of wealth.
Many mixed economies are hampered by government ownership that is less efficient than private ownership, and hurt by higher prices and taxes that lower living standards.

Focus on India

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A typical street in India.

Source : Margy MacMillan

Today India is one of the fastest developing economies in the world

India does not yet have a well-functioning legal and regulatory framework, despite progress made in this regard.

Intellectual and property rights are not well protected, and high levels of corruption persist

India began its transition to a mixed economy in 1947, adopting a democratic government after it gained independence from Britain.

Today India is one of the fastest developing economies in the world and has achieved annual growth rates above 6 percent since 2003. India does not yet have a well-functioning legal and regulatory framework, despite progress made in this regard.

Intellectual and property rights are not well protected, and high levels of corruption persist

Even though Prime Minister Rajiv Ghandi introduced small reforms during the 1980s, India’s economy stagnated, and low annual growth rates prevailed from 1947 to 1990

Focus on Brazil

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Source : Rosane Faria

Port of Santos, Brazil. Currently considered the busiest container port in Latin America.

Dilma Rousseff, Brazil’s first female president, was elected in 2011.

Her government is currently focused on

-reducing inflation,

-tightening Brazil’s monetary policy,

-maintaining and extending social programs.

Brazil began its transition to a democracy in 1985, after 21 years (1964–1985) under an authoritarian military regime. 1995 to 2003 under President Fernando Cardoso, Brazil went through a major economic transformation that saw a reduction of trade barriers and an increase in international cooperation.

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Benefits of Privatization

Privatization aims to:

Increase economic efficiency

Boost productivity

Raise living standards

Photo: Halia Valladares Montemayor: Mount Royal University

A busy Container Port in Brazil

Privatization involves the sale of government-owned economic resources to private companies and individuals.
Mixed economies use privatization to increase economic efficiency, boost productivity, and raise standards of living.

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Discussion Question

A __________ economy is one in which government and private parties share ownership of economic resources rather evenly.

a. Centrally planned

b. Systemic

c. Mixed

A __________ economy is one in which government and private parties share ownership of economic resources rather evenly.

a. Centrally planned

b. Systemic

c. Mixed

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Answer to Discussion Question

A __________ economy is one in which government and private parties share ownership of economic resources rather evenly.

a. Centrally planned

b. Systemic

c. Mixed

The correct answer is c. Mixed

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Private parties (individuals or businesses) own most land, factories, and other economic resources

Demand

Quantity buyers will purchase at a specific selling price

Market Economy

Supply

Quantity producers will provide at a specific selling price

In a market economy, we find that private businesses and individuals own most economic resources.
The price of a good or service is dictated by two forces that comprise the price mechanism: supply and demand.

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Laissez-Faire Economics

Less government

interference in business

Free choice

Alternative purchase options

Free enterprise

Firms choose products and markets

Price flexibility

Prices follow supply and demand

Photo: Gerry Taft, Mount Royal University

A unique type of foot massage in Bangkok, Thailand

In a market economy, individual concerns are placed above group concerns.

In other words, the entire group is thought to benefit when individuals receive rewards for acting in their self interests.
Market economies are grounded on the principle of laissez-faire economics, which is French for “allow them to do [without interference].”
The three key features at the root of a market economy are:
Free choice, which gives individuals access to alternative purchase options.
Free enterprise, which means that companies decide what to produce and which markets to compete in.
And price flexibility, which allows most prices to rise and fall according to the forces of supply and demand.

Think – Pair - Share

In a market economy, individual concerns are placed above group concerns.

A “Social Safety Net”– basic health care, education, etc, is designed to prevent the poor from falling below a certain poverty level.

Do you think these services should be provided by government or charitable organizations?

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Photo, Gerry Taft, Mount Royal University

A man on the street in Manila, prepares a meal

Slide 20 is the first “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

In a market economy, individual concerns are placed above group concerns.

A “Social Safety Net”– basic health care, education, etc, is designed to prevent the poor from falling below a certain poverty level.

Do you think these services should be provided by government or charitable organizations?

Perhaps an easy way to address this question is to compare Canada’s social safety net with America’s social safety net.

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Government’s Role in a
Market Economy

Enforce antitrust laws

Preserve property rights

Provide fiscal and monetary stability

Preserve political stability

Photo: Gerry Taft, Mount Royal University

Unique Tequila bottles in Puerto Vallarta, Mexico

In a market economy, government has four primary roles:

Enforce antitrust (antimonopoly) laws
Preserve property rights
Provide a stable fiscal and monetary environment
And preserve political stability

Let’s look at each of these a bit more closely…

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Enforce Antitrust Laws

Encourages development of industries with as many competing businesses as market will sustain

Keeps consumer prices in check

Prevents growth-stunting monopolies

Photo: Gerry Taft, Mount Royal University

Privately owned and operated “Jitneys”

provide public transportation in the Philippines

In a market economy, government is to enforce antitrust (antimonopoly) laws.

This encourages the development of industries with many competing businesses, and prevents trade-restraining monopolies that can raise prices and exploit consumers.

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Preserve Property Rights

Encourages risk-taking by people and business as claims to assets and future earnings are protected

Market economy needs strong property rights
Firms create new technologies and products
Entrepreneurs start new businesses

Governments in market economies are also supposed to preserve property rights.

A strong system of property rights protection ensures that people and businesses enjoy the fruits of their labor.
In other words, it encourages individuals and firms to create and to invest in new technologies because their efforts are rewarded by the income that these technologies generate.
It also encourages entrepreneurs to start new businesses because it safeguards their claims to assets.

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Provide Fiscal & Monetary Stability

Encourages commerce in a nation because it improves its reputation as a place to do business

Fiscal policies (taxation, government spending)
Monetary policies (money supply, interest rates)

Reduces overall uncertainty
Improves business forecasts
Holds inflation and unemployment low

The government in a market economy is to provide a stable fiscal and monetary environment.

This is achieved through effective management of fiscal and monetary policies.
Stability reduces overall risk in an economy, improves business forecasts, and helps control inflation and unemployment rates.

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Preserve Political Stability

Encourages businesses to engage in activities without fear of disrupted future operations

Promotes economic growth generally
Reduces worries of political risk
Improves chances for business survival

Finally, government in a market economy is to preserve political stability.

This encourages the smooth operation of a market economy.
Political stability promotes economic growth, reduces worries over political risk, and improves chances for business survival.

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Discussion Question

What are the three required features and four expected roles of government in any market economy?

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Answer to Discussion Question

The three key features of a market economy are free choice, free enterprise, and price flexibility.

The four roles of government in a market economy are to: enforce antitrust laws, preserve property rights, provide fiscal and monetary stability, and preserve political stability.

Answer:

The three key features of a market economy are free choice, free enterprise, and price flexibility.

The four roles of government in a market economy are to: enforce antitrust laws, preserve property rights, provide fiscal and monetary stability, and preserve political stability.

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Economic Freedom & Wealth

Source: Index of Economic Freedom (Washington, D.C.: Heritage Foundation, 2006), (www.heritage.org).

The connection between political freedom and economic growth is not certain or guaranteed.
But as this graph shows, greater economic freedom tends to coincide with higher living standards.

image1.emf

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Economic Development

Economic well-being of one nation’s people relative to another nation’s people

Economic output

(agricultural, industrial, and service)

Infrastructure

(communications, transportation, and power)

People

(physical health and education level)

Compare Downtown Warsaw

and

Oceanfront Manila

Photos: Gerry Taft, Mount Royal University

Economic development is a measure for gauging the economic well-being of one nation’s people as compared with that of another nation’s people.

It captures several economic and human economic indicators, including:

Economic output, both agricultural and industrial.
Infrastructure, including power and transportation facilities.
And a people’s physical health and level of education.

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National Production

GDP is the value of goods and services that a nation produces during a one-year period (GNP adds international activities)

* POTENTIAL PROBLEMS *

Averages can disguise regions

Overlook certain transactions

May ignore purchasing power

Ignore economic growth rates

There are several problems related to using GNP and GDP as indicators of economic development.

First, they overlook certain transactions, including volunteer work and unreported cash transactions.
Second, GNP and GDP ignore economic growth rates because they do not indicate whether an economy is growing or shrinking.
Third, per capita figures are averages that can disguise high- or low-growth regions.
Fourth, they may ignore national differences in purchasing power because comparisons at official exchange rates do not reflect local prices.

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Purchasing Power Parity

Relative ability of two countries’ currencies to buy the same “basket” of goods in those two countries

To correct for the inability to compare purchasing power across countries, we turn to another measure of economic development called purchasing power parity.
Purchasing power parity refers to the relative ability of two countries’ currencies to buy the same “basket” of goods in those two countries.
On the next slide, we use purchasing power parity to compare the wealth of several nations.

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National Wealth at PPP

If we convert Canadian dollars to US dollars at official

exchange rates, we estimate Canada’s GDP per capita at $50 345. This is higher than the official

GDP per capita of the United States ($48 112). But adjusting Canada’s GDP per capita for PPP gives

us a revised figure of just $39 660, which is lower than the US GDP figure of $48 820. Why the difference?

GDP per capita at PPP is lower in Canada because of Canada’s higher cost of living. It

simply costs more to buy the same basket of goods in Canada than it does in the United States. The

opposite phenomenon occurs in Mexico. Because the cost of living there is lower than in Canada,

Mexico’s GDP per capita rises from $10 047 to $15 390 when PPP is considered (see Table 5.1 ).

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Human Development Index

The human development index measures the extent to which a people’s needs are satisfied and addressed equally across a nation's entire population.
This index measures the extent to which a nation provides its people with a long and healthy life, an education, and a decent standard of living.
There often is a disparity between wealth and the level of human development in a nation. In other words, high national income alone does not guarantee human progress.

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Classifying Countries

Developed Country

Emerging Market

Newly Industrialized

Country

Developing Country

Highly industrialized, highly efficient, and whose people enjoy a high quality of life

Newly industrialized countries plus those with potential to be newly industrialized

Recently greater national production and exports from industrial operations

Poor infrastructure and extremely low personal income

We can classify countries according to indicators such as GNP per capita, the portion of an economy devoted to agriculture, and the amount of exports in the form of industrial goods.

Developed countries are highly industrialized, highly efficient, and whose people enjoy a high quality of life. People in these countries receive the finest health care and benefit from the best educational systems in the world.
Newly industrialized countries have recently increased the portion of national production and exports that they derive from industrial operations.
Emerging markets are newly industrialized countries plus those having the potential to become newly industrialized.
Developing countries have poor infrastructures, extremely low personal incomes, lack key resources and skills, and rely on one or a few sectors of production, such as agriculture or mineral mining.

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Discussion Question

___________ is the relative ability of two countries’ currencies to buy the same basket of goods in those two countries.

a. Productivity

b. Purchasing Power

c. Purchasing Power Parity

___________ is the relative ability of two countries’ currencies to buy the same basket of goods in those two countries.

a. Productivity

b. Purchasing Power

c. Purchasing Power Parity

5 - *

Answer to Discussion Question

___________ is the relative ability of two countries’ currencies to buy the same basket of goods in those two countries.

a. Productivity

b. Purchasing Power

c. Purchasing Power Parity

The correct answer is c. Purchasing Power Parity

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Economic Transition

Reforms include:

Reduce budget deficits and expand credit

Allow the “price mechanism” to determine prices and economic activity

Legalize private firms and privatize state-owned assets within a property rights framework

Remove barriers to trade and investment and eliminate currency controls

Fundamental reorganization of an economy and the creation of new free-market institutions

Economic transition involves changing a nation’s fundamental economic organization and creating new free-market institutions.

Countries undertaking transition must normally:

Stabilize the economy, reduce budget deficits, and expand credit availability.
Allow prices to reflect supply and demand.
Legalize private business, sell state-owned companies, and support property rights.
And reduce barriers to trade and investment and allow currency convertibility.

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Obstacles to Transition

Cultural

changes

Environmental

degradation

Lack of

managerial

expertise

Capital

shortage

Countries undergoing transition still can face several main obstacles:

First, is a lack of managerial expertise. Central planners had little need for management skills in areas such as strategy, production, distribution, or advertising. But the gap between managers from the former communist nations and Western nations is narrowing.
Second, is a shortage of capital. Transition is expensive and requires funding to develop a telecommunications and infrastructure system, to set up financial institutions, and to educate people in market economics.
Third, are cultural changes. Transition causes cultural change and replaces dependence on the government with greater emphasis on individuals. Cuts are often needed in welfare, unemployment benefits, and guaranteed government jobs.
Fourth, is environmental degradation. Economic and social policies of former communist governments were often disastrous for the natural environment.

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Operated under a staunchly communist system for

about 75 years

Underwent a rough transition of simultaneous

economic and political reform

But the economy is

improving and foreign

investment is returning

Focus on Russia

The Church of Our Savior on the Spilled Blood, St Petersburg, Russia Photo: Gerry Taft, Mount Royal University

Russia’s experience with communism began in 1917 and for 75 years the government controlled all aspects of the economy.

Ordinary citizens have suffered during Russia’s transition.
Although some Russians retained their jobs in newly privatized businesses, others turned to the black market or organized crime.
Several challenges lie ahead for Russia:
First, managers must improve their skills in every facet of management practice.
Second, political instability and nationalism need to be better controlled and the nation’s nuclear weapons need to be secured.
Third, instability characterizes relations between the government and business. The imprisonment of some well-known business leaders illustrates why the Russian government is not trusted.

Focus on Russia

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Moscow International Business Center. A $12 billion construction project

where up to 300,000 people will work by 2020 Photos: Gerry Taft, Mount Royal University

http://rbth.ru/articles/2012/02/21/how_to_build_a_skyscraper_in_moscow_14891.html

Focus on Russia

Challenges include

developing managerial

talent and fostering political and social stability

5 - *

Photos: Gerry Taft, Mount Royal University

Red Square in Moscow and a construction sign in St. Petersburg, Russia.

Between Yekaterinburg and Listvyanka, Siberia, the scenery is very beautiful and similar to Saskatchewan in many ways. Many of the villages along the way only have dirt roads, and their buildings are made from wood. Apparently across Russia, a lot of these little villages are dying, the kids moving to a big city with the older people choosing to end their years in the same little place where they were born. Those who remain spend their days tending to a little garden and perhaps a cow and a few chickens.

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Think – Pair - Share

What is economic transition and what are the remaining obstacles in post-communist countries?

Photo: Gerry Taft, Mount Royal University

Buying food during a stop on the Trans Siberian railway

Slide 42 is the second “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

What is economic transition and what are the remaining obstacles in post-communist countries?

The key remaining obstacles for countries in transition: lack of managerial expertise, shortage of capital, cultural differences, and environmental degradation.

5 - *

Answer to Discussion Question

Economic transition involves changing a nation’s fundamental economic organization and creating new free-market institutions.

Essentially, it involves:

-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.

Remaining obstacles in transition countries include a lack of managerial expertise, a shortage of capital, cultural changes, and environmental degradation.

Answer:

Economic transition involves changing a nation’s fundamental economic organization and creating new free-market institutions.

Essentially, it involves:

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.

Remaining obstacles in transition countries include a lack of managerial expertise, a shortage of capital, cultural changes, and environmental degradation.

A sign in a public washroom in Beijing, China.

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A sign in a public washroom in Beijing, China.