Theme The Transition to Market Economy, Legal Basis and Formation of Market Infrastructure

Theme 8. The Transition to Market Economy, Legal Basis and Formation of Market Infrastructure
In the Soviet Union, the communists, who were at the top of the power, attempted to promote social justice and well-being of the people by establishing the system of public ownership of property, centralizing the economy and distributing resources in planned manner.
Uzbekistan was unable to own its natural resources, land, water, forest and other resources, as well as could not determine the path of economic development during Soviet period. The enterprises that built and operated in the country were subordinated to the center and to its interests.
As a result, cultivated lands of the republic were transformed into cotton fields, cotton monopoly was established.
Uzbekistan ranked 12th in terms of GDP per capita, while the GNP per capita income was two times lower than the Soviet Union’s average. In terms of labor productivity in the industry, Uzbekistan was about 40 percent behind the country and twice as much in terms of agricultural productivity.
The share of ready products in industry was only 50%, more than 80% of agricultural products were exported without any processing. The fact that two thirds of the products imported from the country as raw material, materials and finished products, indicates deep discrepancies in social production structure.
This 70-year-long economic policy did not justify itself; social justice was not resolved; prosperity for the people was not created.
Finally, a highly politicized, administrative economy was collapsed.
After establishment of independence, Uzbekistan started the transition of market economy. Market economy is based on commodity-monetary relations and functions in accordance with the economic laws.
The market economy has been shaping and improving over the millenniums since ancient times. In the economic development, market relations existed in two different ways.
The first is the market economy, which has a chaotic, coherent activity. In this way of development manufacturers and consumers operate in a dispersed, self-sufficient manner, without prior agreement.
Second, the market economy that govern by state and regulated by economic laws and economic instruments.
Features of market economy:
- commodity producers will be economically free;
- People are the property owners, they own the products they produce;
- the commodity producers are free to compete on the market;
- not a producer in the market, but the consumer puts his own demand because the money is in his hands;
- members of the community are classified according to their income.
The First President of Uzbekistan Islam Karimov in his book "Uzbekistan - own model of transition to market relations" introduced the "Uzbek model" of development, that based on five principles of economic reform and democratic development of society:
1) De-ideologization of the economy.
2) The state is the main reformer.
3) The supremacy of law.
4) The strong social policy.
5) The transition to a market economy step-by-step or gradually
De-ideologization of the economy is the basis of democratic and market reforms.
The leading principle of building a new society is the principle of the priority construction of an economic basis, the implementation of economic reforms. The economy should develop only according to its inherent domestic laws without ideological pressure. Overcoming ideological dogmas will promote the formation of favorable public opinion in relation to various forms of management, the perception of market technology.
2. The state is the initiator and main reformer of economic transformations.
During the transition to market relations, the main reformer is the state, which is obliged to develop and consistently implement the transformation of all spheres of the economy and social life. A modern socially-oriented market is a market that is regulated by the state. In the period of the formation of market relations, the state is obliged to be an active participant in the reform process, to act as its initiator as a firm, consistent guide. The state creates and maintains the legal basis for the functioning of the economy and during the transition period and acts as a guarantor of economic ties. Legal provision is the most important basis for economic reforms. The formation of a civilized and socially-oriented market economy is inconceivable without adequate legal support. The creation of a legislative field for a socially-oriented market economy is not only an indispensable condition for a transition period, but also a characteristic feature of the formation of a rule-of-law state. Laws must be vital, closely connected with practice, be based on it. Therefore, one of the leading principles of transition to market relations, and which should be guided by everything, is law-abiding.
3. The supremacy of law is the fundamental principle of the law-based state. It presupposes the establishment of undivided dominance in all spheres of the life of the law. No state body, no economic and socio-political organization, no official, no one has the right to be exempted from the duty to obey the law. A characteristic feature of the rule of law state is the existence of a high level of legal culture.
4. Strong social policy is a reliable guarantee of economic transformation.
One of the leading principles on which Uzbekistan's own way of updating and progress is based is the holding of a strong, proactive social policy at all stages of market transformation. The concentration of attention on the priority solution to the problems of economic recovery, respect for the rule of law and order, evolutionary transformation into a market economy, and with the active reform of the state create a solid foundation of social stability.
Protection of socially vulnerable segments of the population has been and remains an urgent, the most priority task, the leading principle of practical action. The different concept of social policy also corresponds to a different stage of reform. At the initial stage of the reform, social protection measures perform, as a rule, a compensatory function. The main emphasis is on preventing a decrease in the level of consumption of vital food products, essential food products.
The main directions of social policy at the new stage of the formation of market reforms are the following: ensuring the rights and freedoms of citizens guaranteed by the Constitution; support for the most vulnerable segments of the population, but there must also be a targeted focus; creation of conditions for the full realization of labor potential; the formation of a real labor market.
5. Gradual transition to a market economy is the core of its own model of economic reforms.
To pass to the market it is not enough to adopt laws, to proclaim the equality of all forms of property. We need real mechanisms to ensure their implementation. These mechanisms are not included immediately, they are worked out, are being gradually developed. The transition from one socio-economic formation to another can not take place by pseudo-revolutionary leaps. The actual economic situation in Uzbekistan, the low living standards of the vast majority of the population, make the path of "shock therapy" unacceptable for the republic in the transition to the market.
One of the most important directions of economic reforms is to create a market infrastructure. Therefore, Uzbekistan has begun the establishment of basis of market infrastructure since 1991. Market infrastructure is a complex of institutions, organizations, and enterprises that promote market relations and their effective functioning.
In Uzbekistan, the structures of transport, communications, water and energy supply, road and warehouse facilities were transformed and most of them newly created in initial stage.
It should be noted that the stock market has a special place in the formation of market relations. In the early stages of the economic reforms, the government introduced new projects with regard to the establishment of economic and financial institutions that meet the requirements of market economy. In particular, ‘Republican Real Estate Exchange’, ‘Commodity Exchange’, and ‘Tashkent Stock Exchange’ were set up in the country. This network has been further developed.
If we provide statistics, from 1991 to 2000, 58 commodity and raw materials exchanges, 496 audit and consulting firms were established for business entities.
Infrastructure of financial and credit relations of business entities such as new banking system, self-financing institutions, insurance companies, financial companies, taxation bodies, money savings founded. The banking and financial system that serve the economy of the country has been created. In the first year of independence, there were only 6 banks in our country, and in 2002 their number reached 40. Of these, 2 are state-owned, 17 privately owned, 4 foreign-owned and the rest are joint-stock commercial banks. However, nowadays there are 28 banks in Uzbekistan.
At the first stage of economic reforms, prices were liberalized in Uzbekistan. This process has passed without social shocks due to timely governmental support that directed to the socially vulnerable segments of the population. In particular, the government has created various compensation funds, introduced pension benefits, and wages, pensions, and scholarships have been constantly increased.
Price liberalization is obviously related to the creation of a competitive environment in the economy. Therefore, as a realization of the second principle of the Uzbek model of development, that is the state is the main reformer, the state introduced new laws on the development of the market economy. Particularly, the Law of the Republic of Uzbekistan "On Restriction of Monopolistic Activities" came into force in August 1992. Moreover, a number of regulatory documents have been developed and implemented on the basis of this law. The Main Department for Antimonopoly and Pricing Policy established in the Ministry of Finance.
The market economy is primarily based on different forms of ownership that constitutes in other words multi-disciplinary economy. In this regard, the first step in the economic reform in Uzbekistan was the denationalization and privatization of property and thus the formation of the proprietary class.
Privatization in Uzbekistan has not worked for the benefit of some layers of society. How was the process taken place? The privatization process was ensured by selling state property. At the same time, in order to support the business a system of privileges was created during privatization. 
The privatization was headed by state. In February 1992, the State Committee for Management of State Property and Privatization was created for organizing the process and managing it. Later, the Committee reestablished as the State Committee for Management of State Property and Support of Entrepreneurship in 1994 and the functions of the State Committee expanded.
In order to regulate the process of privatization special laws were adopted and the legal basis of it created. In particular, the Laws ‘On privatization of the property’ on November 18, 1991, ‘On Privatization of the State Housing Fund’ (May 7, 1993) and more than 20 special government programs were adopted and have been implemented.
Privatization began with the denationalization of trade, services and local industries, housing stock, farms producing agricultural products. The privatization of this sector of the economy was called as small privatization.
As a practical result of the process, in 1992-1994 about 54 thousand trade, service, motor transport, construction, agricultural enterprises and facilities were denationalized. Of these, 18,400 were privately owned, 26,100 were joint-stock, 8,700 were communal, and 661 leasing companies. More than 14,000 farms were provided with 193,000 hectares of land. The number of private entrepreneurship entities reached 300,000, of which 250,000 were individuals engaged in individual labor activity on a patent basis. In 1994, almost half of the country's GDP was developed in the non-public sector of the economy, with about 4 million people employed in the sector.
The Decrees of the President of the Republic of Uzbekistan "On Measures for Further Deepening Economic Reforms" (adopted on January 21, 1994) and "Priorities for Further Development of the Process of Denationalization and Privatization " (adopted on March 16, 1994) have given a new impetus to the privatization process.
In 1995, there was a period of mass privatization in the national economy. Now large enterprises have also been privatized. In the same year, 89 enterprises of the machine-building complex, 81 units of fuel and energy, 55 units of construction industry, 114 transports, 68 housing and communal services were privatized.
We will come back to the issue of state of economy in Uzbekistan from 2000 in our subsequent session. Now, let’s turn on the Indicators of National Economic Development. Gross domestic product grew by 7.8% in 2016. The volume of industrial production increased by 6.6%, construction works - by 12.5%, services - by 12.5%. The state budget was executed with a surplus of 0.1 percent of GDP. The positive balance of foreign trade turnover was ensured. The inflation rate did not exceed the forecast parameters and amounted to 5.7%. According to the Central Bank, gold and currency reserves of Uzbekistan were estimated at $ 26.6 billion, and in 2017 this reserve was increased to $ 1.4 billion.
According to the World Bank, Uzbekistan's GDP is expected to grow by 4.3% in 2021 and by 4.5% in 2022.
As we focus on the growth rate of GDP in last twenty years, we can see that it has fluctuated between 6 to 7 percent annually. The figures for the past year and the next two years can be explained as a bad consequence of the COVID-19 effect.