Economic Transition Example

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But until 1989-1990. to radical, revolutionary changes in the political sphere, there was no real change in the system. Another example of a gradualist approach is China. The Chinese leadership does not interfere with market relations where possible, and maintains state control where it considers it necessary. The opposite of gradualism is the concept of "shock therapy" , based on the ideas of monetarism, a modern version of market theory. Monetarism proceeds from the fact that the market is the most efficient form of economic activity.

The market is capable of self-organization. Therefore, monetarists argue that the transformation should take place with minimal state involvement. The main task of the state is to maintain the stability of whatsapp mobile number list the financial system, since the market cannot develop without a stable monetary unit. The monetarists consider momentary price liberalization and a sharp reduction in government spending to be the main instrument of anti-inflationary policy. It is this act, painful for the economy, that is called “shock therapy”.



Proponents of the doctrine argue that it provides a quick restoration of balance in the financial system, strengthening of the monetary unit, the formation of private capital and, on this basis, the transition to economic growth. The financial policy of the government during the "shock therapy" should provide the so-called hard budget constraints. This means that businesses can only spend what they earn themselves.