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The transition from a centrally planned economy to a free market involves state owned enterprises being privatized. But economists debate this is actually beneficial to the country's economy. Discuss this statement from experience of China and Russia - Essay Example

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Governments cannot undertake commercial activities directly; hence utilise these enterprises in undertaking commercial activities, which enable…
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The transition from a centrally planned economy to a free market involves state owned enterprises being privatized. But economists debate this is actually beneficial to the countrys economy. Discuss this statement from experience of China and Russia
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The transition from a centrally planned economy to a free market involves state owned enterprises being privatized. But economists debate this is actually beneficial to the country's economy. Discuss this statement from experience of China and Russia

Download file to see previous pages... State-owned enterprises commonly exist in economic systems which have natural monopoly over free market, and where governments have vested strategic interests upon an industry.
The number of state-owned enterprises within a country remains a determining factor for the economic system existing within the country. In recent times however, challenges in profitability of these enterprises have resulted in governments introducing privatisation as a way of making these entities profitable (Chiu & Lewis 2006). Other political factors like corruption have played a fundamental role in reducing the competitiveness of these entities within a free market. Making the enterprises profitable would involve total privatisation of handing management responsibilities to private organisations. These are the different privatisation approaches undertaken by governments in making these entities both competitive, and profitable. The aspect of privatisation brings about competitiveness while making the market become free.
While monopoly exists to a certain extent within different economic systems, state owned enterprises have played a fundamental role in supporting the occurrence of natural monopoly. This refers to economic situation where an industry’s average production cost becomes controlled by single corporations. Within many socialist economic systems, much of the industries still remain under the dominance of state owned enterprises, which contribute towards monopolistic systems (Mosca 2008). The presence of many government-owned corporations creates cost advantage, economies of scale and barriers to entry, which enable these enterprises to operate alone. This situation restricts outputs and makes production inefficient in satisfying the demand side of any market. Private firms operating within such industries fail to prosper as a result of ...Download file to see next pagesRead More
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