Cambridge International as and a level Economics Ebook

Figure 1.5 
The broad process of economic reform
Source: 
World Bank, 1995 (adapted)
… TO
COMPETITIVE 
MARKETS
FROM
GOVERNMENT
CONTROL …
Large flow of funds for
investment and losses
Government
Subsidies
Marketing boards
Financial
system
Private
sector
Agriculture
Savings 5–10% GDP
Consumers
Public expenditure
Government
Private
sector
Utilities
Manufacturing
Services
Agriculture
Savings 20–30% GDP
Consumers
Infrastructure
Education
Health
Environment
Financial
system
Privatisation
receipts
Public
enterprises
Public sector
Utilities
DOMINANT
PUBLIC
SECTOR
WEAK
FINANCIAL
SYSTEM
DISCOURAGING
BUSINESS
ENVIRONMENT
Public 
sector
Utilities
Remaining
public
enterprises
REFORMED
PUBLIC
SECTOR
STRONG
FINANCIAL
SYSTEM
ATTRACTIVE
BUSINESS
ENVIRONMENT
25
Chapter 1: Basic economic ideas and resource allocation

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Th
e labels at the bottom of each diagram generally 
summarise the state of aff airs. Th
e direction and 
relative size of the arrows are important – these show 
the relationships between the diff erent sectors and the 
strength of their importance. In promoting economic 
development and in the allocation of funding, the 
World Bank seeks to ensure that recipient countries are 
implementing the processes of economic reform shown in 
this fi gure.
Moving towards a market economy is by no means a 
painless task, as experience has consistently shown. Th
e 
restructuring of the economy and the moves to privatise 
former state-run activities are accompanied with substantial 
job losses and the need for social reform. It is also essential for 
there to be a more robust tax regime in place, not least to fund 
government spending and service the external debt that has 
had to occur to fund transition. It is by no means a short and 
trouble-free process. Th
e feature below on China mentions 
some of the ways in which the world’s second largest economy 
is planning for a greater role for the market in the future.