Transitional economies and economic globalisation

Abstract

As former communist countries have proceeded with market reforms, they have become more enmeshed in the international economy and their involvement in economic globalisation continues to grow. While economic theory suggests that this should bring several economic advantages to transitional economies (such as greater diversity of choice of commodities, lower costs as a result of greater economic specialisation, enhanced economic growth as a result of liberalization of capital and technology transfers), the social and environmental consequences of globalisation have in many cases not been favourable so far. Unemployment is emerging as a major problem in some transitional economies, social safety nets (especially for women, children and the elderly) have been breached, and basic needs are no longer being met across the board as in communist days. In most cases, inequality of income has increased and a bimodal distribution may be emerging in many other economies. Those on the low welfare‐ (income‐) side of the bimodal distribution are casual workers, those in the informal sector, the unemployed and the handicapped, including the elderly. Those on the right‐hand bulge of the income distribution curve seem to be the permanently employed (a declining proportion of population) and rich entrepreneurs and capitalists. The paper suggests that structural adjustment policies may be altering the shape of the Kuznets curve of income distribution from an inverted‐U to a bimodal form in both capitalist and former communist‐counties. Transitional processes have failed to overcome many of the environmental problems experienced by former communist countries. This is particularly so in transitional economies which have experienced negative economic growth, such as Russia. It is partly a consequence of lack of investment in capital stock. Lack of economic growth makes it difficult to implement environmental reforms and maintain social services. It is also noted that economic globalisation in terms of trade and capital inflows (including aid) makes transitional economies more dependent on the rest of the world. They can therefore be more easily subjected to external strategic economic bargaining or threats.