The Roles of Foreign Competition and of Financial Intermediation in Revitalising the Czechoslovak Economy

Abstract

Market economies based on the driving force of competition have proved much more conducive to economic efficiency than centralised systems relying on macroeconomic planning. The incentive aspects of competition are particularly apparent: every economic agent is motivated and pressed to reduce costs and to improve the quality of products and services, i.e. to move from the points inside the attainable transformation curve towards a point on the curve. Also, in a dynamic setting, competition is a driving force for technical progress and technological development, i.e. for applying new production techniques and for introducing new products, implying the shift (expansion) of the existing transformation curve.¹⁾ Particularly because of the static and dynamic technological efficiency inherent in decentralised systems driven by competition, the overall efficiency of market economies increasingly outpaced the level reached by the centrally planned economies.