Market Systems Compared to Central Planning
Market systems work better than central planning due mostly to incentives. “Private property rights are critical for making a market economy work because they provide strong incentives for decentralized decision makers to act on their specific information – the wealth effects of economic decisions are borne directly by the resource owners” (Brickley, J., Smith, C., & Zimmerman, J., 2009, p. 86). In central planning, profits go to the state so there is no real incentive for individuals to work harder as they do not get to keep the profits. “A centrally planned economy is an economic system where the factors of production are controlled by the state” (Centrally planned economy - American business, 2010, p. 1).
Centrally planned economies are associated with fascism and socialism but are synonymous with communism. Capitalism is generally synonymous with democracy. “Dr. David Korten of Stanford University, a critic of globalization, argues that, “Contrary to its claims, capitalism’s relationship to democracy and to market economy is much the same as the relationship of a cancer to the body whose life energies it expropriates” (Centrally planned economy - American business, 2010, p. 1).
The prospect of deprivatization will discourage managers of privatized firms to invest. “Under this policy certain past privatizations would be declared illegal and the transactions would be reversed” (Brickley, et al., 2009, p. 92). Deprivatization in Russia will also further discourage foreign investment. Deprivatization will take the power away from the managers of privatized firms and decisions will instead be made by the state. This can lead to efficiency levels in these firms and a lack of response to changing market conditions due to government red tape making decision processing take longer (Parland, Thomas, 2005).
Political Issues Surrounding Deprivatization
If foreign investors see...