Government Structures in the U.S.A. and the Sovereign States of the Former U.S.S.R: Power Allocation among Central, Regional, and Local Governments

By James E. Hickey Jr.; Alexej Ugrinsky | Go to book overview

32
Market Economy and Federalism

Jonah Otelsberg

This chapter examines the relationship between a new federal structure for the former Soviet Union and the creation of a market economy.

A market economy is an economic system in which the market determines the prices and quantities of goods and services produced. The regulating mechanism is the interaction between supply and demand.

The system that exists today in the so-called capitalist countries is based on the marketing concept, which puts the consumer and his or her needs at the center of all business activities. The marketing concept is appropriate for economically developed societies where the basic needs of the population are satisfied and where potential supply exceeds demand for products and services. This concept of organizing economic activity is less appropriate in a society where the reigning reality is scarcity. Thus, the former Soviet Union--where scarcity is endemic--cannot create a market economy by copying the institutions and behaviors that now exist in the West. It has to go through the stages that Western countries went through in their transition from economics driven by limited supply to economies driven by limited demand.

There is a close relationship between democracy and successful market economies. Both have as their foundation the importance of the individual who can choose leaders, activities to pursue, as well as the products to buy. Both the economic and political systems are rooted in the individual. The economic system exists to satisfy the needs of individuals, the political system exists to protect their rights. The political system's power comes from the rights given to it by individuals.

Such a system has to encourage private initiative as well as protect individuals from abuse. In short, it is a system built on the rights of individuals and committed to providing the greatest good to the largest number of people.

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