The Bubble Economy of Japan

The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve “zero defect program”. But after the first and second oil crisis that occur from 1973 onward.

The economy move downwards artially due to the poor management of economic policy. Although the government had attempt to adjust the economic policy but the recovery was slow. As the soaring of yen continues the demand for export has increase tremendously. With the concern of the United State of this problem, president Reagan and the G5 have signed an agreement with Japan called “Plaza Agreement” , the agreement stated that the exchange rate of Japan and Deutschmark can appreciate against the U. S. . Since then the yen value began to appreciate, Japan was going through a period of trade balance adjustment.

While Japan is prepare to go hrough a period of trade balance adjustment, it will also suffer a period of recession, so the government strongly encourage business activities to strengthen the economy in order to prevent backwash effect. It was this event which boost up the GNP and raise the exchange rate. With this exchange rate advantage it stimulate business activity on housing and stock investment which created a bubble economy. During this period almost the entire country was involve in land speculation or other speculate activities.

In this essay it will prove that land speculative activities had create many negative impacts to he Japanese society and economy. Firstly, it will describe the cause of land speculation. Secondly it will discuss on the society and political effects in Japan and lastly it will focus on the economy effects, more over it will include the aftermath when the bubble collapse. The root of this bubble economy is due the wave of land speculation. The wide spread of land speculation activities were mainly because it is profitable. The speculative transactions in assets grew and grew and many believe that this will last for very long period of time.

One of the reason that leads to massive nvestment in the risky activities is because of the success of the Japanese in the international market during 70*s – 80*s. Many Japanese enterprises and business man had become very wealthy. These people have a large sum of equity to invest. Some of these people have focus on risky asset such as stocks and land, therefore many of the regular ventures were left behind. One of the major cause of the massive transaction in the land market was due the incremental of loans by banks. Financial institution was very positive in lending money to the enterprise.

This enhance the accessibility to the land speculate market. Each size of this loan is very large. This is because the size of mortgage in Japan financial institutions are based on the collateral, (house) while in North America the size of the mortgage is based on the borrower*s income stream. Therefore the size of loan can be obtain by borrower is larger in Japan than North America. Also 62% of Japanese households own the home that they live and in average the value is near 4 million yen. Therefore there are lots of potential investors.

And during the period of speculative activities, borrowers increase the value of their loans as the value of their collateral increases. Since asset is highly liquidate, the number of potential speculators are high and borrowers in Japan were able to get a larger size loan on real estate therefore speculative activities sink into the level of common home owner and large enterprise. Beside the method of calculating mortgage size, another reason why the size of loan was so large is probably that both the bank and the investor were behind the land speculation activity (banking scandal).

Investors were paying some key money (sort of a bribe) to financial institution in order to obtain a larger size loan. Therefore many financial institutions were over loan during this period. Another form of raising cash flow for the speculate market was by braking down a loan that obtain from a large financial institution to a specific enterprise, then lend a small piece of this loan to those who was not eligible to obtain a loan from the bank. These companies that act as the funnel will earn a certain amount of interest from these smaller companies (branch effect).

Therefore all classes of companies and society can easily access in the speculate market. Other large corporate, construction company, rganize crime group and even temple (religious) were also involve in land speculation. Another encouragement to the speculative market was because the government (liberal democratic party) had originally lower the capital gain tax in the early 80*s. Therefore the profit for owner to resale their land was large. Flaws in government policy also indirectly allow investor to get away of property tax expense.

For example some land owner could just plant little crops over a large piece of expensive vacant land in urban city and declare them as agriculture land. As a result they will be tax very little. Therefore the incremental of land speculative activities were due to over size loan, high accessibility to the land speculative market and indirectly by the government flaws. During the peak of the land speculation there is a quite interesting study of land price in Japan.

“If you sell the entire property of Tokyo you can actually buy the entire United state and by just selling the surrounding land of the Imperial palace you can buy Canada. ” Although it might of been a little over exaggerate, but the point is that the land value in Japan compare to North America is much higher. Since there is no one side of a coin, Land speculation had create many social problems in Japan. Firstly, land speculation had rise the rent and housing cost tremendously.

As a result many young couples and low income families were unable to form their own house hold. In average the cost of a house in Tokyo had raise to about 500 million yen. The younger group with low income cannot afford it and the mid age workers may also not able to afford it. Primary is because they would have to give up at least three- fifth of their income in loan repayment. Also if they have a relatively low mount of down payment, there working age may not be long to repay a mortgage.

The longer the amortization period, the larger the amount of interest they bare. The white collar had become the slavery or sacrifice of the never ending mortgage payment and high cost of housing. In 1990 the births live in Japan was 1. 2 million, in fact the number is the lowest since 1893. Many analysts believe that one of the reason that lead to this slow growth of population could be create by high house prices. So Japanese people have stopped having children and large family is rare. Therefore this is one of the causes of Japan is unning our of Japanese.

This is also a very big social issue of the modern Japanese society but the precedent of the slow growth of population has now move from high housing cost to other social problems. During this period, there were lots of cases regarding on the robbery and suicidal in the police force. This was mainly because of the heavily debts that these police bare and they have no other choice than to attempt to go above the law. Due to the financing problems in the real estate market, it leads to the founding of what is program call “2 generations mortgage plan”.

The founding of this plan was propose to suit the majority of the white collar in the Japanese society. This plan was develop since 1983 but it became more useful from 1985 onwards and the qualification of this program must be father-son that plan or already living together. (son must be older than 20 and must repay the loan by the age at 70) The size of the mortgage is determined by the borrower, interest is flexible and the applicants must purchase an life insurance in order to protect the risk of un collectible due to death. Pay by the bank) Husband and wife can also join this program.

Banker said that the applicant may able to repay this loan in 40 yr. and this type of program also encourage a bonding relationship between father and son. On one side this program may allow a regular income worker to be a home owner but on the other side this person will bare a debt for the entire life and passes on to the next generation. Moreover it may limit on the consumption of the borrower on other composite good.

The booms in land prices also discourage people’s incentive to work. 2) “Because if any lucky individuals inherited or own a piece of land in metro Tokyo, they will suddenly gain a net worth of 250 o 300 million yen. ” This amount of money is equivalent to honest man*s life time income plus retire pension. Since may people get rich during this period, the number of middle class income in Japan had tremendously increase. Under these circumstances, many believe they have already achieved the good life therefore people lose the incentive to work hard and get ahead.

Therefore it will distort the social structure in Japan and create many problems to the government (taxations). Since the sacrifice and cost of home ownership is so high therefore many Japanese had prefer to rent. Since the demand of rental arket increase, it also attracted many investor and speculator. Therefore tenants also suffer from the incremental raise of land price. In Japan, young couples, low income group and the elderly participated as the major group of tenant in Japan.

During this period, owners were looking to sell their property for high return and in order to force the tenant to move (after tenant moves landlord can chose higher quality tenant or resale the property for a larger profit) rent rises extremely high. Many elderly were unable to afford such high rent so many were force to move. As a result many had become homeless. In some ases tenant refuses to move so some owner will hire organize gang group to force them out. Some of these unfortunate tenants will give up the hope in home ownership in the core and move further and further away from the center.

Therefore many of them will spend over 2 to 3 hours to commute from their place to work. So either way, home owner ship and tenants suffer from the raise of housing price. The natural populations are not the only civilian of this incident. Many foreign students also suffer from the housing problem. (3) “In 1986, there was a statistic taken over a total number of 8116 foreign students. Apparently only 17% lives in an adequate resident facility. ” The primary reason was due to the cost of rent, high exchange rate and lastly it was because the local people do not wish to rent their property to foreign student.

Student associate had propose to built new resident housing but due to the heat of land speculation (create an increase in the demand of land) and high construction cost, the new residential housing will be very costly. Therefore this new construction will probably raise the rent 2 to 3 times. While the housing problem continues for foreign students from 80 onward the Japanese government ad still declare that they (4) “expect a total of 100,000 new foreign student will be coming in during the 21st century.

This reflects that the government has pay very little awareness not only on the natural population but also foreign student. Beside foreign students and the natural population, another group that affects by the high land prices was foreign ambassador. As the price continued to rise (specially in Tokyo), the ambassadors of the lower wealth countries (such as Africa or Uganda ) were force to move their location away from Tokyo due to high rent. Although this problem was reflect to the Japanese government but it was remain un solve.

Other side effects of the land speculation was the new residential construction during that era. In (thousand leaf city) many of the new construction area no longer have a large plain or play ground that similar to a traditional residential area. In one of the Japanese newspaper there is an advertise article that describes their forecast on the living condition of the Japanese in the 21st century. (5) “The husband should not return home until weekend, during weekdays just live in worker*s resident near their workplace.

This resident housing should be similar to hotel where it has an into desk that can wash your cloths, postal service and take your message. Their home should be in some rural or less urban area that 100 km away from work. ” This reflected that the rise of land value did not just only effect the affordability of the housing but also distort the lifestyle of the Japan workers as it had reflect in the earlier incident of the 2 generations mortgage. (6) “During the bubble economy period the zoning regulation in Tokyo has revise to allow builder to built more capital on the piece of land.

So this ndirectly rises the potential of building space in Tokyo. It will again raised the real estate value, property taxes and traffic congestion level of the area. ” According to the (7) “National Land Agency statistic, about half of firms surveyed in the mid to late 1980s responded that they had no development plans for the land that they acquired. ” They rarely built homes or apartments, but instead constructed office buildings that would bring in steady revenues.

From the developer*s point of view, houses and apartment are the least profitable projects. So land would almost never allotted for housing”. With land speculation and the shortage supply of new construction on housing the Japanese residents are very difficult to find an affordable place to live beside the houses that are very far from work place. In the current Japan election the percentage of participant voters in Japan has drop below 60% of the total population and the liberal democractic did not receive 50 % of the seat through election.

This percentage was the lowest since WWII and mainly was because the populations in Japan no longer believe the liberal democratic party can bring them back from recession. Also they did not have a good control system during the bubble economy, failure of the recovery program after the bubble splash. (program such as expansion in public investment, lowering the interest rate and series of economic counter measure but the yen is still pretty high which discourage export)

In more specific, during the bubble economy the government did not really propose an effective tax law until 1990. National Land Value Tax- prohibitive tax on profits from the sale or transfer of land national land law 1974) This revitalizes the local property tax and assessment ratio for the fixed asset tax. Another official policy was issue during 1990 was through the financial market in which the government regulates on the loan activity. This eventually slow down the loan activities largely in 1991. But still the government really lagged their response for those who already suffer for 5 years of high housing cost.

More over during the period of bubble economy, many politics were either involve in land speculation or was bribe by organize gang group and large enterprise in order for these people to be more conveniently to have more benefits in the land market. One incident is involve y a business man Kyowa and a cabinet minister Fumio Abe, where Abe sold the details of where a new road construction in Hokkaido in return for 480 million yen. Political scandal was expose to the public not long after the bubble economy was splash.

Lastly, most of the asset of the politicians are in the real estate market therefore neither the bank or the officials admit the fall in land prices. So when this incident was expose to the public, the prices of land fall sharply around 50 %. And mainly because of the period of cover up. So many big and small investors suddenly woke up from their happy dreams and face the orrible reality. With the above reasons the government has lost the trust of many Japanese.

Therefore the land speculate activities had also effect the image of the strong liberal democratic. During the bubble splash period, many pre- graduates and graduated university students were unable to find jobs in the labor market due to the diet all companies therefore many students were frustrate about their future. Therefore the supply of the labor market is distorted by the bubble burst. Therefore you can see that the land speculation activities had create many social problems to the Japan society during the ubble period and after the bubble burst.

During the bubble period the economy was strongly boost by the sudden rise of land value and stock market. On the other hand the after math of the bubble splash was a pain for the economy. In general we will look at the effects on the rise and fall of the Japan*s economy. In 1985 the trade balance in Japan need to have adjustment therefore the government declare that it needs some force to grow in order to prevent recession during this adjustment period. (8) “In 1989 the GNP has increased by 481,000,000,000,000 yen and this was mainly due to the speculate market. People put their profit from land to stock market or vice versa) Many companies were mainly focus on the speculate market. (9)

“The Tokyo Stock exchange soared to almost 40,000 points, the value of stock and land was far above the real value and value of property was not rise due to its demand but was due to speculation. Eventually when the bubble splash, the vacancy rate went rocket high due to lack of demand. Many companies had to go on a strict diet to survive, and they made deep cuts in expenditures for entertainment, advertising, communications and much else. And the above statement is the general picture of hat happen during the bubble economy.

During the golden period of land speculation, many investors know that the land market in Japan was limited (due to the potential and limited geographic area) so they began to purchase land over sea in Hawaii. (10) “The Non water front housing price in Hawaii during 1987 went up by 51 % and the water front housing price went up more than 100%. ” This resale land market in Hawaii was primarily between the Japanese; in 1987 the land prices was estimate has rise over 60. % and many tenants have suddenly realize that the rent has tremendously increase and cannot afford it, so many eople have no place to stay (especially the elder).

There are several reasons that Japanese wants to invest in Hawaii such as; the waterfront view is similar to Japan so it will be a good place for vacation and retirement, the distance between Japan is relatively close ( 3 hours trip by plane) and massive left over of equity and advantages in the exchange rate that has tremendously increase the nominal value of their equity so it is an encouragement for investment.

Therefore the wave of land speculation did not only distort the land market in Japan but also affected foreign country. Looking back at the Japanese economy (11) “in 1987, 77 out of the top 100 most heavily taxed people were involve in land speculation (either have resale their lands or have large land properties). This created a very unhealthy economy because most of the economy is depend on the land market and if any thing happen to the land market, it will distort the economy greatly. 12)

“In 1989 the top 100 most heavily tax people 95 of them were involve in land speculation. ” Therefore the situation was worst in the later period this is mainly because of the profitability in the land market. Since many enterprises only focus on speculate market therefore the real growth of GNP of the country was only 4 to 6 %. The growth of the economy was mainly on the nominal sector.

The increase in nominal GNP has created massive appreciate of yen, which had tremendously affect the export businesses and the manufacture industries. the nominal price of the good has increase therefore foreigner has less interest on Japan goods but this mainly effect small and medium enterprise) While some export business was not doing too well, consequently the workers are not getting an appropriate rise in income. 13) “In 1986 (Nissan) several of the high executive had experience an income cut by 5 to 10% and many of them are very frustrated because most of these people were in their 40*s and have to pay for mortgages and children*s tuition.

In later years Nissan had announced to cut 500 in order to balance out their lost. Therefore large manufacture as Nissan was not doing so well during this period. This was worst in the case of the small and medium enterprise. Many small and medium size export companies had contract or even close down during the mid 80*s and as the wave of income cuts continued, every level and lass of the employees were involve. On the other hand the high exchange rate was really an advantage for importer (same value buy more) such as energy, petroleum and primary material. These companies were suddenly becoming so wealthy and the income of their employees were much higher compare to those working in the export enterprise.

Therefore there was a large gap on the profit and income between the two distinct groups of company and it was very unhealthy for the white collar. This period of high exchange rate continues until the bubble burst. The decline of the bubble economy occurs during the Gulf war period, the economy in Japan as very quite and at the same time the government had tighten their policy. (Both tax policy and restriction in loans) As a result, the land speculation market and land prices fall continuously. The real estate market is totally frozen.

The National Land Agency measures that land price of Tokyo and Osaka has dropped 30 to 50 percent. (Total land wealth is near 2000 trillion yen which is really a lot) Many real estate properties were unable to be resale and at the time many companies were unable to pay such high interest payment therefore many of them went bankrupt. While the banks rarely make any loan, many companies cut ack in their capital spending. In fact this had dampen the recovery of economy. Most of these companies that went bankrupt were either small or medium size enterprise which lack of its separate bank center.

Large enterprises with separate bank center also suffer from non performing loans by the borrowers (small and medium size enterprise). Others large lending institution also suffer largely, since the major economic powers at the bubble period was on the land market therefore any decline in land values would strongly influence the balance sheets of Japan*s lending institution. As reported in June 18 1996 The News Times International News that the (14) “parliament approves a $ 6. 3 billion bailout for bankrupt housing lenders.

The vote clears the way for the establishment of an institution to liquidate the assets of the housing lender which collapsed under bad loans made to real estate speculators before Japanese land prices plummeted in the early 1990s. The seven companies are believed to have more than $65 billion in bad debts. ” This $. 6. 3 billion is only a piece of the big picture because (15) “the Finance Ministry said that Japan*s financial institutions held about $324 billion in bad loans as of March 31 1996. Analysts believe the total could be considerable higher.

The government in recent days has been working to persuade banks and farm cooperative to agree to take on a bigger share of the bailout burden to reduce the cost to taxpayer”. According to a current financial post in Tokyo: (16) “Most of the financial banks declare yesterday that with the experience of deficit in last year, this year (ended till September) they had turn deficit into net profit. Banks had systematically write off many of the un collectible accounts. But their revenue is still not very high because of low interest rate and the ncremental of bad debts.

Therefore financial institution will still probably experience quite a long period of recession. ” Therefore residue effects of the land speculation spill over still continues. Land developers also suffer largely. Before the land market crash was expose to the public, there were nearly 1,200 golf course was either approve or under construction. Many pre- member ships were sold but unfortunately many of the construction are never finish because of banks were pulling back the loan. At peak, the total value of golf member ships market in Japan was near 200 billion for 1,700 golf courses.

Therefore closing down 1,200 golf course construction was quite a lost for the economy. Another aftermath of the bubble burst is the high vacancy rate in the office buildings in Tokyo. During the late 1980*s, the new constructing rate (for the office buildings) was double compare with the tradition. After the bubble burst, the value of asset decreases and demand for space also decreases. Therefore many office buildings are unoccupied. As you can see, the after math of the bubble burst did not only affect the business enterprise, government but also the grass root people. 17)

“In last year the economic growth rate was nly around 1% or less and the government had introduce economic revitalization policies such as lowest ever interest rates and increased public investment but judging by the fact that consumer demand has cooled off and capital investment by the corporate sector is not making headway as expected therefore the outlook for economic recovery in Japan remain hazy”. The bubble bursting has affected everyone in Japan. (18) “The country has clearly become a victim of the same wrenching process of debt deflation that had already been visible for several years in so many other economies.

Japan faces the reality of outright deflation n terms of falling prices. With all that implies for companies inability to maintain their profit margins. Japan was facing by the autumn of 1993 an unpleasant combination of excess production capacity, falling demand and a rampantly high yen. By August 1993 wholesale prices were declining at an annualized rate of 4. 2 percent. ” Once again you can see that many Japanese are not very optimistic about the future economy. Therefore you can see that the land speculation had create many negative impacts to the Japan economy not only during the bubble period but also after the bubble burst.

Laissez-Faire Economy

Concept of the Invisible Hand in a Laissez-faire economy “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of it. ” Adam Smith, Inquiry into the Nature and Causes of the Wealth of Nations 1776. What business does a government have in commerce and trade?

Why would a government want to interfere between two countries benefiting from each other by trade? What right does the government have in two individuals wanting each others products or services? According to some, commerce and trade should be permitted to operate free of controls of any kind; there should be no tariffs or other barriers. This is where the term laissez-faire is introduced. Its direct translation in French, “leave alone to do”, is self-explanatory. A strong believer in this type of economics is Adam Smith, oth a philosopher and an economist.

Born on 1723 in Kirkcaldy, Fife, he studied at Oxford, and became a professor of logic at Glasgow (1751), but took up the chair of moral philosophy the following year. In 1776, he moved to London, where he published An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the first major work of political economy. This examined in detail the consequences of economic freedom, such as division of labor, the function of markets, and the international implications of a laissez-faire economy. Adam

Smith is most remembered today for his explanation of our market system. A majority of people saw confusion when they observed economic activity in England during the middle of the 18th century. They saw everyone doing whatever they pleased and deemed necessary. Businesses produced whatever they wanted to make. Consumers purchased whatever they wanted to buy. No one told anyone what had to be bought and what had to be sold especially the government. And yet, somehow, businesses seemed to be providing the goods and services that consumers wanted and needed.

Some might have called it luck; Adam Smith called it an “invisible hand”. And today, it is considered the laissez-faire economy. The “invisible hand” is a term for the unseen process of co-ordination which ensures consistency of individual plans in a decentralized market economy (Pearce, 220). Adam Smith introduced this phrase in his book, An Inquiry into the Nature and Causes of the Wealth of Nations (Book IV, Chap. II), who stressed the role that the “invisible hand” played in attaining a harmony of interests. Imagine this “invisible hand” suspended above everyone.

This “invisible hand” encourages businesspeople to pursue profits and it pushes consumers to buy goods and services. And at the same time, that “invisible hand” discourages government from directing the economic activity. This “invisible hand” that Adam Smith refers to as a guiding force was the people and their attitudes. It all started with profit-seeking individuals. Using self-interest to feed their drive, people started businesses. When a business would become successful, others would notice and enter into the same field.

As a direct result, growing onsumer demand was satisfied while competition controlled rising prices. As demand grew, businesses were established in which workers shared tasks. This is called division of labor, in which one worker handled the first stage, another the second, and a third finished the product. The result was mass production, more efficiency, and lower costs. Mass production meant that people no longer had to grow there own food and remain on the farm; there would be enough to supply a large workforce. Paying all those laborers resulted in an army of consumers with money to spend.

Adam Smith argued that an individual acting purely out of self-interest, would be a progressive force for the maximization of the total wealth of a nation. The role of the government should be permissive, creating a legal defensive setup sufficient to allow individual action. Interference with the free working of this natural order will reduce the growth of wealth and misdirect resources. Though Smith argued for laissez-faire, he recognized the need for minimal government intervention. For example, a tariff for infant industries and for the three functions of the state- security, ustice and certain public works (Pearce, 397).

Our economic system today seems to lean toward another philosophy called Keynesian economics. Keynesian economics is based on a belief that the economy can possibly fall into a recession and not be able to pick itself up. The solution is, without the aid of the government; an economy will stay in the “trough” and will never reach the “peak”. Though laissez-faire has not been a very popular belief since the mid-19th century, we as a people are able to do business independently. For”he intends his own security” and “… intends his own gain. “

The gap between rich and poor in the world today

In the world of 1995, there are still huge differeces between rich and poor, developed and less developed countries. But why? Who is to blame? What can we do about it? Many things have been tried out to solve these problems, but does it work? It seems bizarre, that we, modern, intelligent people, have not yet succeded to get rid of the differences between DCs (developed countries) and LDCs (less developed countries).

We try, don’t we? Every year, we grant 2% of our Gross National Product, GNP, to foreign aid to help the LDCs to get a better standard of living (better agriculture, more and better schools and hospitals, access to health personell, medicines, etc. ). On the other hand, is our “standard of living” the best for LDCs, and the one we should impose on them? For instance, what is the point of giving complex macinery like tractors and harvesters, which need expensive fuel and maintenance, to people who have harvested their crops by manpower for hundreds of years? We know for a fact that the money we grant is not being used adequately.

A lot of the money is taken by the governments of the less developed countries, and a great amount of the sum are not being used to the purposes they are meant for. Bribery and corruption are huge problems in developing countries. It makes more sense to dig wells for people who walk for miles every day to get their daily water supply, than to support officials with BMWs and grand houses. The World Bank was established, and a large amound of capital was poured in, despite of the fact that the Third World lacked the level of infrastructure, the economic and social background, and the skilled personnel of Europe.

The failure of this model of economic development to produce economic well-being and growth for most Third World countries is due to a number of factors. These factors include the concentration of economic resources in the hands of the rich and of unrepresentative governments, the exclusion of the large majority of affected populations from economic decisionmaking, and the integration of Southern economies in an international market where they cannot compete equitably. The industrialized countries are still holding the less developed countries down.

It’s the DCs who decide coffee-, tea- and sugar-prices, and consequently excercise an indirect control of the countries’ economy. We also protect ourselves with high import-taxes and low import-quotas. Increasing protectionism in Northern markets shut off some Third World exports, while at the same time, the increased export of some natural resources, lumber from forests, for example, created the conditions for rapid environmental destruction. At the same time, a major debt crisis developed, particularly among those countries in the South that were producing primarily for Northern markets.

As the 1990s began, popular movements that included farmers, workers, women, environmentalists and community groups in the South were challenging the adjustment policies and large-scale projects that were ruining the poor and the environment. The goal for these groups is sustainable development: building and protecting a base for long-term development by protecting the natural-resources base, sustaining local culture and traditions, and achieving economic growth by building on the capacities of local populations.

In Africa, there are established, with help from, among other countries, Norway, mobile doctors, who visit villages and remote places on regular basis. There are also built a lot of schools with foreign help, there is no doubt that the educational system in most of the LDCs has been improved a great deal over the past few years. These are examples of “basic human needs” programs which are run with some success because the host-country governments impose their own solutions on local problems.

This way of cooperating with the host-countries has proved to be the best way of “helping” the developing countries to develop in their own pace and their “Third World”-way. I guess this is what have kept the Third World countries undeveloped for such a long time: That we have imposed on them OUR development with its flaws, disrespect for nature and other cultures, and the greediness which threatens to ruin the balance of our enviroment.

The Wealth of Nations

As a coherent economic theory, classical economics start with Smith, continues with the British Economists Thomas Robert Malthus and David Ricardo. Although differences of opinion were numerous among the classical economists in the time span between Smiths Wealth of Nations (1776) and Ricardos Principles of Political Economy and Taxation (1817), they all mainly agreed on major principles. All believed in private property, free markets, and, in Smiths words, The individual pursuit of private gain to increase the public good.

They shared Smiths strong suspicion of government and his enthusiastic confidence in the power of self-interest represented by his famous invisible hand, which reconciled public benefit with personal quest of private gain. From Ricardo, classicists derived the notion of diminishing returns, which held that as more labor and capital were applied to land yields after a certain and not very advanced stage in the progress of agriculture steadily diminished.

The central thesis of The Wealth of Nations is that capital is best employed for the production and distribution of wealth under conditions of governmental noninterference, or laissez-faire, and free trade. In Smiths view, the production and exchange of goods can be stimulated, and a consequent rise in the general standard of living attained, only through the efficient operations of private industrial and commercial entrepreneurs acting with a minimum of regulation and control by the governments.

To explain this concept of government maintaining laissez-faire attitude toward the commercial endeavors, Smith proclaimed the principle of the invisible hand: Every individual in pursuing his or her own good is led, as if by an invisible hand, to achieve the best good for all. Therefore any interference with free competition by government is almost certain to be injurious.

Although this view has undergone considerable modification by economists in the light of historical developments since Smiths time, many sections of The Wealth of Nations notably those relating to the sources of income and the nature of capital, have continued to form the basis of theoretical study of the field of political economy. The Wealth of Nations has also served as a guide to the formulation of governmental economic policies. Malthus, on the other hand, in his book An Essay on the Principle of Population (1798) imparted a tone of dreariness.

Malthuss main contribution to economics was his theory that a population tends to increase faster than the supply of food available for its needs. This theory contradicted the belief prevailing in the early 19th century that a societys fertility would lead to economic progress. Malthuss theory was often used as an argument against efforts to better the condition of the poor. Food, he believed, would increase in arithmetic ratio (2-4-6-8-10), but population tended to double in each generation (2-4-8-16-32) unless that doubling was ruled out by natural selection.

According to Malthus natures checks and balances were positive: The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race. The forms it took included war, epidemics, pestilence and plague, human vices and famine, all combining to level the worlds population with the worlds food supply. The only escape from over-population and the horrors of the so-called, positive check was in voluntary limitation of population, not by contraception, rejected on religious grounds by Malthus, but by late marriage and, consequently smaller families.

These pessimistic doctrines of classical economists earned for economics the nature of the dismal science. The writings of Malthus encouraged the first systematic demographic studies. They also influenced subsequent economists, particularly David Ricardo, whose iron law of wages and theory of distribution of wealth contain some elements of Malthuss theory. In his major work, Principles of Political Economy and Taxation (1871), Ricardo offered several theories based on his studies of the long-range distribution of wealth.

Ricardo feared increasing population would lead to a shortage of productive land. He supported the classical theory of international trade, emphasizing national specialization of freedom of competition. Although representation of the classical economist has changed throughout time, its basis is still the center for most political guidelines. In everyday life we live, breathe, and work in conditions that have been set forth previously by all three, Smith, Malthus, and Ricardo Its hard to imagine an economy, for that matter, a world without these natural ways of being and diversity.

How the Rich Benefit from the poor

The United States is the most developed capitalist economy in the world. The markets within the economy provide profit-motivated companies endless potential in the pursuance of pecuniary accumulation. Throughout the twentieth-century competitive companies have implemented modernized managerial procedures designed to raise profits by reducing unnecessary costs. These cost-saving procedures have had a substantial effect on society and particularly members of the working class.

Managers and owners of these competitive and self-motivated companies have consistently worked throughout this century to exploit the most controllable component of the production process: the worker. The worker has been forced by the influence of powerful and affluent business owners to work in conditions hazardous to their well being in addition to preposterously menial compensation. It was the masterful manipulation of society and legislation through strategic objectives that the low-wage workers were coerced into this position of destitute.

The strategies of the affluent fragment of society were conceived for the selfish purpose of monetary gain. The campaigns to augment the business position within the capitalist economy were designed to weaken organized labor, reduce corporate costs, gain legislative control and reduce international competition at the expense of the working class. The owners have gained and continue to gain considerable wealth from these strategies. To understand why the owners of the powerful companies operate in such a selfish manner, we must look at particular fundamentals of both capitalism and corporation strategy.

Once these rudiments are understood, we will more clearly relate the perspective of the profit-seeking corporations of America. Legal discussion will also be included to show how the capital possessing elite operate through political parties to achieve their financial objectives. It is the synergist effect of these numerous strategies that have lead to the widening income gap in America, persistent attempts of contraction in workers rights and increased corporate political influence. These campaigns have come at an expense to Americans and will only continue to benefit the affluent society.

The United States is a capitalist economy. In a capitalist economy individuals who wish to gain wealth can invest their capital into markets in hopes of future returns. If this investment gains in value then the investor has earned a return, which can be reinvested. This creates a cycle of investing and reinvesting for potential future return. This wealth creating cycle is a fairly simple concept to understand, but wealthy individuals have learned to fabricate this cycle into different situations. A common form of investment is purchasing and selling of corporate stocks.

The stock market works like all markets on the fundamental theory of supply and demand. The more demand for a stock the higher it is valued and conversely the less demand the less it is valued. Corporations are legal entities which issue stock to investors who purchase them and become shareholders of the company. The risk taken by investors is that when they buy stocks it is possible that the individual company will not do well, or that stock prices will generally weaken. At worst, it is possible to lose entire investments, but no more then that.

Therefor, shareholders of a corporation are not responsible for corporate debts. So, a corporation would be a very attractive type of investment for potential investors to consider. Corporations compete against each other in markets in the United States and around the world. These corporations have employees who perform various functions that contribute to successful strategic goal completion. Corporations often will offer stock incentive plans strategically to employees in positions of importance.

The enticement to employees is to work in a manner that will increase the value of the company and their shares of stock. These incentive plans were strategically developed by major shareholders because the corporate executives felt that people would be motivated to increase their own wealth. Most employees are motivated by money and will work harder when the chance is given for more money. The very nature of this strategy consolidates all the employees to act as one self-motivated entity in the pursuit of monetary accumulation.

In Piven and Clowards Regulating the Poor, this point is illustrated: Capitalism, however, relies primarily upon the mechanisms of a market-the promise of financial rewards or penalties-to motivate men and women to work and to hold them to their occupational tasks (4). The increased motivation of important members of the workforce by the enticing tactics of greed for wealth is a result of strategic planning by the major shareholders of the firm. The cost to these primary shareholders is the stock incentive plans needed additional stock to fulfill, which reduced the valuation of all stocks.

The major shareholders know this devaluation is only temporary because self-motivated employees will act in a manner that will increase the value. The primary concept for discussion purposes is that self-motivated major shareholders have utilized the capitalist theory and thus, created a business compact with employees that will make self-motivated decisions on all levels. The strategy worked and throughout the country employees are busy increasing the value of their stock, but most importantly, they are increasing the value of the major shareholders.

We will see this investing concept throughout most this paper because the wealthy resist adverse conditions with money. The Republican Party remained dominant throughout the 1920s, remaining unaffected by factionalism that plagued the Democratic Party. The party continued to align its platforms with the southern whites, and owners and managers businesses. Even in extraordinary economic times of prosperity for the wealthy, the Republican Party continued to advocate industrial economic values. The primary dilemma to republican business interests was the labor problem.

The Republicans finally concentrated their discussion on four broad approaches to labor problems: the progressive approach, the open shop approach, the efficiency-engineering approach, and the political approach (Zeiger 11). Most businessmen resolved harshly to end labor activism and to quietly continue their profitable business interests. This behavior of this standpoint took the pattern of employer resistance to labor unions, but originally the open shop crusades proved to be the most fruitful in the short-run.

The open shop crusade, now illegal because it gave employers the ability to hire prospective employees on the basis if they belonged or support trade union activities. This restricted the employees ability to strike on a particular issue because they lack the power of numbers that a union possesses and could be replaced. Open shop enthusiasts were a major and vocal part of the Republican Party because of the financial resources they possess. Many republicans determined them intemperate and adherent, and their perspectives were damaging and extreme.

These open shop enthusiasts constituted a vocal and influential segment of the party. They often proved quite effective in their efforts to chastise organized labor, for many Americans shared their concern. Still, many Republicans considered them extreme and doctrinaire, and their views harmful and inexpedient (Zieger 74). It was these Republicans that lamented these controversial assaults on labor problems, such as Herbert C. Hoover who wished to devise a whole new style of labor relations based on the philosophies of efficiency and cooperation.

By 1921 industrial engineers and other experts had developed the Taylor Society, the Federated American Engineering Societies. The Taylor Society was designed to improve the efficiency of a job-place in hopes of reducing severe factory working conditions. This in theory would increase aggregate production, which would lead to more available jobs and lower-unemployment. The main points to be established is that the Republican Party was support by wealthy business owners. The worst opponent of the worker is the wealthy business owner within the Republican Party.

These are the characters that advocate extreme hostile tactics such as the open shop crusades. Regardless, they support the Republican Party financially and therefor the Republican Party acts as their voice politically. One component of the production process that can be controlled by management is automation. Regardless, the employee still performs a necessary function in the production process. The taylorization theory states employers have an incentive to make a job function more efficient.

The increased efficiency results in lower production costs, lower aggregate unemployment rates and higher company profit returns. The industrial revolution was characterized by the widespread replacement of manual labor by machines that could perform the job functions quicker and or at lower costs. The industrial revolution was the result of interrelated fundamental changes that transform smaller market economies into an industrialized economy. Many products that were made at home or in small work units were transferred to large factories.

Since the factories could produce at lower costs the product could be sold at a lower cost. This competitive advantage drove the smaller competition out of business. The people who profited from this effect were the owners of the mechanisms of production. This marks the beginning of an era where these wealthy owners would prosper over the working class. The aggregate effect of the increase production efficiency lead to the development of massive industrial parks. These parks expanded the scale of production dramatically and became concentrated in cities and large towns.

Since traditional production relied heavily in the needs of local subsistence it gave way to the more market orientated production devices. This economically forced large numbers of the rural poor who moved to towns and cities to become the wage seeking labor force necessary to run rapidly expanding industries. This extensive movement of communities had a considerable result on labor prices and ultimately constrained these people to become the urban poor. The effect of the Industrial Revolution on American society was substantial.

Income following workers increased the population of large towns and cities severely. From 1860 to 1900 the number of urban areas in the United States expanded fivefold. Even more striking was the explosion in the growth of big cities. In 1860 there were only 9 American cities with more than 100,000 inhabitants; by 1900 there were 38. Labor markets were flooded with eligible workers seeking employment and through pure labor competition they were willing to work in any environment for any wage. The environments factory laborers were forced to work in were considered by many Americans to be despicable.

Regardless of the factory working conditions, many people were obligated to take the employment. Employment was necessary to generate income to support oneself and family. As a result, the Exploited workers received no power to contract with the owners of production. Instinctively managers and owners of capital have contrasting labor interests then those perspectives of employees. Wages and profits incomes divide the value that production adds, so by definition, labor and capital interests often are on opposing sides of social policy that affects the price level of the real wage.

The real wage can be regarded as the price that equates the supply of and demand for labor, (Foley and Michl 70). Owners and mangers of capital seek a flexible labor force, which is counter for the workers desire for stability and security in their employment and conditions of life. At this point in history, the affluent society of the United States was generating immense wealth by capitalizing on the poorer workers needs for minimal financial requirements. The wealthy invested their capital into factory production devises, which drove out smaller competing business from the market place.

This profit seeking strategy worked because it economically forced resource deficient workers into the cities. The supply for labor increased, which coerced many employees to work for the affluent owners at a corresponding cut-rate real wage rate. These events began to illustrate a scenario that would set the scene for modifications in workers rights. The laborers had to develop a strategy to counteract the poverty-stricken working conditions imposed upon them by the owners of the factories. The labor market surplus further developed the workers dependency upon the self-motivated employer.

Trade unions were formed to advocate alleviation of some dependency and support the workers efforts by gaining a quantifiable measure of power over their economic standing. Initially, the trade unions had limited success until they exercised the real true power workers have over employers: The strike. The strike in labor relations is a completely organized halt of work and production carried out by a large group of employees. The purpose of the strike is either enforcing workers demands that relate to unfair labor practices and or to employment conditions created by the self-motivated owner.

The response to labor unions by business owners was the use of open shop tactics. Employers organizations and business groups commenced a vigorous campaign for the open shop. Armed with the then-legal yellow-dog contract, by which an employer could require a prospective employee to agree not to join or support a union (Zeiger 20). The wealthy opposed the trade unions use of the concept of collective bargaining because it advocated the subject of workers rights. Collective bargaining is where individuals with interest in the matter negotiate their stipulations until a compromise is found.

The wealthy industrialists despise that their interests would are in constant danger by collective bargaining. In response, Americas industrialist launched a well-financed general attack on the very concept of collective bargaining (Zeiger 20). The use of collective bargaining proved to be an effective tool in bargaining with owners and managers. This meant that workers have finally developed a technique through labor unions that competently combats the proprietors regimen.

During the 1920s and 1930s, strikes occurred as a natural feature of nationwide unions of the American Federation of Labor and other groups soon to be recognized as the Congress of Industrial Organizations. Striking had become a major weapon in the labor movement and was threatening the profitability of the production owners. The strikes and threatened strikes, the radical agitation, the sharp industrial depression, and the whole atmosphere of discord and unrest that pervaded the country endangered the Republic and demanded action (Zeiger 74).

The wealthy republicans had to promote an offensive campaign to end this threat. So as previously stated, they adopted well-financed strategies aimed at the courts to obtain injunctions, which would legally prevented strikes in specific circumstances. The success of these strategies is confirmed in Zeigers Republicans and Labor 1919-1929, The 1920s marked the climax of antilabor judicial activities. (260) The basis the owner persuaded the courts with was that their property was either damaged or threatened and that they were powerless without legal solutions.

It was the possession of financial resources that allowed the wealthy to recruit and employ powerful and persuasive lawyers. Legally persuading the courts of law with expensive lawyers was the sole purpose of the use of financial power to authoritatively force workers back into the production factories and produce profit for the owners. From the perspective of the wealthy, the application of financial resources to generate future income is honorable capitalism regardless of the situations context.

The power of wealth even can influence courts of law through lawyers and thereby, give the wealthy extreme power in legislation during this period in history. The Democratic Party during this era was experiencing outbursts of factionalism. The convention in 1924 was racial divided by southern whites and the northern urban blacks. The future success of the party was depended on the need for a change. The strategy developed by the leaders was to begin the alteration of the Democratic Party appeal. The leaders of the Democratic Party realized that poor people could be a powerful voting coalition.

The great depression of 1929 forced millions of people into unemployment and poverty. These unemployed workers practiced approaches of protest through disruption demonstrations. These massive demonstrations help encouraged the working class voters hostility and defection of the Republican Party. The Democratic Party thus capitalizing on this realigned their platform to advocate the needs of poor people with the intent to gain votes. This re-alignment of party policy angered the southern democrats whose views were becoming more Republican.

Having lost the southern support, the Democratic Party became the primary political instrument of vocalization and evolution of labor class politics. During the electoral realignment of the 1930s, the Democrats gained the overwhelming allegiance of most manual workers and their unions, (Piven and Cloward 421). The alignment of the working class with the Democratic Party coalition developed two powerful strategies to combat the wealthy and business leaders. As stated previously, the workers held extreme striking power over the means of production in factories.

Now they had power in the organization of the working class population and could coordinate their votes to consolidate political force for their perspectives. The concept is similar to how the employees of a corporation have incentives to pursue company goals as a team. The main political project of labor parties became the use of state power to develop the welfare state (Piven and Cloward 21). Therefor, in the 1930s the democrats became a party of vigorous government intervention in the economy and thus the social realm.

The goals of the party were to regulate, redistribute economic wealth and to protect people who are in need of assistance in an increasingly competitive society. The depression of 1929 and the coming of Franklin D. Roosevelt into the presidency with the New Deal help syndicate and enlarge the commitment to governmental expansions of assistance programs and industry regulation. Due to the economic conditions of the era, the advocators of economic assistance proved to be attractive to society and The Democratic Party flourished.

The result of these campaigns was increased workers rights and a seemingly practical welfare state. Massive unemployment during the Great Depression created a socially dysfunctional society. Without the ability to create income through employment, basic physiological necessities were not being met. When large numbers of people are suddenly barred from their traditional occupations, the entire structure of social control is weakened and may even collapse (Piven and Cloward 7). During the depression, society experienced this symptom, which resulted in massive protests.

The Democratic Party under the direction of Roosevelt recognized the need for government intervention. The party aligned itself with the working class and began to advocate workers rights legislation. Under Democratic Party control, federal funds were used to establish the Works Progress Administration, now known as the Work Project Administration, which distributed assistance to citizens in need of subsistence. In 1935, Roosevelt again used federal funds to create public works programs, which gave employment opportunities to the unemployed.

As a result of declining republican political power, these and other initiatives were introduced to help increase workers rights. These workers rights that the Democratic Party supported were the same rights that the Republican Party had worked so hard to repress from regulation. In addition to passing labor rights laws, legislative action was taken against the wealthy industrialists use of legal injunctions. These lawful injunctions were used as an intimidating scheme to suppress union membership and ultimately strikes.

In 1932 the U. S. ngress enacted the Norris-La Guardia Anti-Injunction Act. This legislation severely limited the self-motivated employers use of injunctions as a standard operating procedure against strikes. Another tactic of wealthy employers to combat unions was the use of the open shop strategy. Abolishment of the open shop regime was usually one of the primary demands by labor unions in collective bargaining. The National Labor Relations Act of 1935, known as the Wagner act, because of its sponsor Robert Wagner was adopted and help end the open shop crusades.

This act federally guaranteed workers the right to organize through trade unions, use of collective bargaining and firmly incorporated a set of employment standards. It also restricted employers from practicing pre-employment tactics such as the open shop strategy. This reduced the power that republican business representatives could exert over the prospective and employed worker. In addition, the federal mandated right of collective bargaining guaranteed workers negotiation hearings in which employers had to listen to the workers needs. Congress also established the Social Security Act, which is a form of social welfare.

In 1938, the United States Congress implemented the Fair Labor Standards Act. This primary functions of this act was to eliminate labor conditions that are dangerous to works health and productivity, it also established a minimum wage to eliminate the disastrous effects of high labor supplies, overtime wages were developed to eliminate excessive work weeks, and finally it eliminate oppressive child labor. The result of the Democratic Party effect on legislation during the labor movement is essential a bill of rights granted to the working class of America.

No longer would the wealthy elite of America victimize the low wage working class in such inhumane techniques. Instead, these legislative acts marked the beginning of a new challenge to the Republican Party. Now the party had to reclaim lost legal ground by slowly returning to power of the United States Government. The legislative mandates of the Roosevelt era helped establish what is now known as the labor movement. Society was suffering adverse conditions and the Democratic Party mobilized the people into a political voice.

The Republican Party was essentially powerless, regardless of their financial position because government officials were responding to public outcries. This historically proves that when conditions are unfair, a political party can mobilize society and gain control. Roosevelt also initiated measures that resulted in higher taxes on the rich and restricted private utility companies. Although these combinations did not stop the wealthy republicans from continuing to gain additional wealth, it only slowed their progress.

History when again prove that the Republican Party would come back into power and restrict the rights of workers. This occurred when a Republican majority Congress passed the Labor-Management Relations Act of 1947, known as the Taft-Hartley Act evidencing this reoccurring political phenomenon. This act retracted some of the rights that were implemented during the labor movement. These provisions included restricting supervisory employees protection from the NLRA and emphasized the right of employees not to join a labor union.

These restrictions of labor rights were in the interest of the Republican Party and were created to reduce the power previous legislation granted labor unions. The successful creation of this statute reinforces the evidence that wealthy Republicans continually attempt to swindle the blue-collar labor class. Their motives are based within selfish financial greed and capitalist economy theory. This congressional act illustrates the phenomenon that bipartisan control and power is cyclical.

The Democrats did regained majority of congress and implemented numerous anti-business and social interest acts in the 1960s. Due to the political cycle, The Republican Party inevitable would gain control of congress once again, but the question was when? During the economic crisis of the seventies, particularly the great recession of 1973-1975 businesses began to understand their role in the worlds economy. America was importing more then it was exporting, which was creating an unfamiliar and enormous trade deficit. In 1971, for the first time since the 1890s, the U. S. ported more then it exported, (Cohen and Rogers 36) Increased competition from foreign firms posed a substantial threat to American corporations. The result of this threat forced American corporations to compete with globalization. Corporations could no longer produce simple marketing campaigns to develop brand loyal consumers. Global competition forced these companies to produce the highest quality, lowest price and distribute through efficient channels. The international competition however, operating in countries were labor is cheaper, taxes are lower, there is fewer industry regulations and an absence of unions.

In addition to these competitive forces, managers of the corporations must also answer to the wealthy shareholders of the corporation. Many business leaders formed think tanks to devise strategies to compete with this new threat. American business leaders set about developing a political program to shore up profits by slashing taxes and business regulation, lowering wages and welfare spending, and building up American military power abroad, (Piven and Cloward 443). The sources of all of these objectives were rooted within government policies.

These policies would inevitable have to change for these goals to be achieved. So, the corporate elite implemented a political strategy that would slowly form over decades to achieve. Even in modern times the wealthy elitist of society still could influence political matters through the power massive financial resources. During the 1980s business elite continued to align themselves with the Republican Party for it conservative ideals. The methods the wealthy corporation shareholders influence legislation during modern times has extremely advanced.

The development of political action committees has encouraged corporations to channel financial contributions into political campaigns. Corporations will develop a PAC, establish a set of issues that it promotes politically. If a politician is campaigning for an election with corresponding views, then it is in the best interest of the PAC to contribute to the campaign. More importantly, corporations are to contribute to groups and individuals not directly affiliated with a candidate, such as the GOP.

These groups or individuals can register, persuade voters, endorse a platform, advocate a candidate and oppose another. The Supreme Court ruled that the First Amendment of the Constitution protected this type of spending as a form of free speech in its 1976 decision, Buckley vs. Valeo. These donations are referred to as soft money because they are not directly related to a campaign. The absence of regulation on soft money donations results in the option for corporations to contribute millions of dollars to further their political interest.

This advantage has a profound effect in the corporate political strategy. [Corporations] can simply treat politics as a business expense, a budget item like advertising, research and development, or public relations (Clawson, Neustadl, and Weller 109). Through the strategy of the use of campaign contributing soft money, corporations have vastly increased their influence on political issues. This new corporate political influence has succeeded in their campaign to minimize threats to profitability. These threats were reduced most noted during the Reagan years when the Republican Party dominated the government.

The administration has made significant cuts in social spending, particularly in low income programs, and made plain its desire for deeper cuts; achieved a massive, and massively regressive, revision of the Federal tax system in 1981; dramatically scaled back the enforcement of regulations that posed any significant limits to business power, (Cohen and Rogers 38). This success demonstrates the influential power that wealth has over the United States government. The government by definition should act in the best interest of the population and not the elite.

Instead the influx of soft money continues to be unregulated and as proven by the Supreme Court decisions in 1976. This decision closely resembles how the courts protected the rights of employers in the labor disputes of the 1920s. The reasons why the rich corporations target the government are because the government holds the supreme lawful power over the entire population. History has proven to these elitists that with well financed operations targeting campaigning officials over time favorable legislation will be passed. The legislation usually reduces some sort of cost or regulation in that firms industry.

This increases the profitability of the company, which is directly related to the owners wealth. These incremental increases in profits have lead to more investments to further heighten the value of the wealthy. This is apparent by the vast and increasing gap between the rich and the poor in America. The poor are relatively easy targets in comparison to the costs of soft money contributions. In America, it is very difficult for the poor to change their financial status. So, once a person is poor they are generally poor for the rest of their lives.

They will continue to spend their lives spending the little money on the products these corporations provide. In short, the corporations are developing an enlarging consumer base that is dependent upon their products. The middle class is slowly disappearing because of the loss of blue-collar jobs. The loss of blue-collar jobs is a symptom of the increasing presence of globalization. Globalization has privileged companies to outsource their production needs to other countries with lower regulation and labor costs. This resembles much of the labor practices of companies in the 1920s were the labor rights were essentially ignored.

Another easy solution to minimize the firms operating costs is by eliminating valuable jobs. These sometimes massive downsizing satisfied the wealthy stockholders because the firm had lower production costs and higher profitability. Investors often applaud the news of a layoff as a sign of corporate turn-around. The payroll is a large, ongoing liability to the balance sheet, and investors are titillated by anything that reduces it, (Downs 14). History repeats itself as we see that wealthy investors and managers again behave in manners regardless of peoples needs.

The forces unleashed by corporate executions and globalization have brought into the labor market thousands of unskilled job seekers with little or no income. A new underclass has of previously employed individuals has become a nationwide trend in our social and economic condition. These people are forced to take jobs within the service sector and these jobs typical pay wages that are lower then those of manufacturing jobs. These trends have formed a synergetic effect on the growing wealth gap between the rich and the poor.

In todays modern economy companies do not have to worry about the United States government regulating the labor industries in other countries because of jurisdiction. The use of soft money in the United States government has proven that even at home corporations can freely advocate legislation that is favorable to their terms. This has had a profound effect on the income gap in American society. The wealthy possess financial resources that provide enormous opportunities to create more wealth. This need for excessive wealth is deeply rooted into the personalities of these individuals. In America, society considers th

Asian Crisis Essay

The crisis began in Thailand in July 1997 and spread to Indonesia, the Philippines and Malaysia, then to Hong Kong, Korea and Japan. Financial systems in Thailand, Korea and Japan all came under intense strain, but nowhere as destructively as in Indonesia, which by early 1998 had become the worst-affected victim. The 1997 Asian financial meltdown began in Thailand on July 2 after the collapse in late June of 16 finance companies alerted investors to the strains on the financial system.

After surging ahead in the mid 90s Thai exports had shrunk in 1996. The government was shaky, economic growth was slowing, and there ad already been two speculative attacks on the currency. By July 1997 money market traders believed the government could be forced to abandon its pledge to link the Thai baht to the US dollar. Malaysia was not as badly hit by the currency crisis as Thailand, Indonesia or South Korea.

Mahathir’s complaints helped bolster his political support at home but undermined his nation’s credibility with the outside world. Hong Kong remained almost untouched by the Asian turmoil until a massive selloff of its sharemarket in the week of 20 October, a trauma that brought home to the world that the crisis would not be isolated to Southeast Asia. The dive in the market was driven by fears of a downturn in the Hong Kong economy and the prospect it would abandon the peg between the Hong Kong and US dollars.

In the background was a deeper concern, that financial strife in Hong Kong could have profound effects on China. China had been the darling of Western investors for several years, and huge projects will be under threat if the Chinese economy strikes trouble. China is partially insulated from the turmoil because its own financial markets are rigidly controlled. But its banks are similarly overburdened with debt and its exports at risk from a worldwide slowdown in demand.

Belarusian Economy Essay

Belaruss economy has done fairly well from the situation it started in. The economy has some strengths, but it is also not without its weaknesses. Also the Republic has not done yet enough to restructure its economy after the break up of the USSR. Belarus has a fairly well balanced economy with an agriculture capable of feeding its population and a well developed industrial base. Belarusian industry is capable of producing 1. 1 million tons of steel per year, and it manufactures machine tools, agricultural machinery, motor vehicles.

It also has a well developed chemical manufacturing plants, and there is also a branch of industry for consumer goods such as radio, television sets and bicycles. Furthermore its industrial construction complex ensures a considerable scope of construction. The Republic also has a diversified agricultural crop ranging from potatoes and grain to flax and livestock. The agricultural sector accounts for 20% of the GDP while the industrial around 43%. Besides helping to develop the industry, Russia helped to develop the infrastructure of Belarus making most of the country accessible.

Belarus has a reasonably well developed industry and a long history of agricultural development. Problems for the economy of Belarus began to arise after the collapse of the Soviet Union. The weakness with Belarusian industry is two-fold. It has to import much of its raw materials from other nations and it imports most of its energy. As a result industry came under severe economic pressure shortly after independence. The problem with its agriculture is that it that about two thirds of the peasants are still organized into collective farms and the remainder in state farms.

A few private farms were established but the treatment they received from the state discouraged other from trying. Also Belarus has a 14% trade deficit, which increase the vulnerability of the economy. Another drag on the economy is the continuing cost associated with the 1986 Chernobyl nuclear disaster, estimated in 1995 at a quarter of the national economy. The southern part of Belarus was severely hit by the nuclear fallout and many of the estimated 2 million victims live in Belarus.

The Belarusian economy has room for improvement, however if put in the right circumstances it could thrive. After the dissolution of the USSR the national economy of Belarus was being restructured to introduce science intensive and low power consuming industries. However, Belarus has seen little reform since 1995 when president Lukaschenko launched the country on a path of “market socialism. ” Privatization of enterprises controlled by the central government virtually ceased in 1996. Only about 10% of all enterprises under central government control had been privatized.

In addition, Lukaschenko has re-imposed administrative control over prices and the national currency’s exchange rate, and expanded the state’s right to intervene arbitrarily in the management of private enterprise. Lack of structural reform, and a climate hostile to business, have inhibited foreign investment in Belarus in 1995-97. Belaruss economy consisted mainly of secondary industry, dependent on Russia and other Soviet republics for both raw materials and markets. The second problem is that it inherited a weak political leadership at independence that never managed to even begin economic reform.

To make the conditions favorable for investments Belarus is taking steps for creating an adequate base of legal standards for foreign investment security, liberalization of taxation order and customs regulations, granting cost benefits to investors and providing various information and business services. The economy of Belarus has great potential. Its strengths can be strengthened and its weaknesses can be improved. Having a strong trading partner would put Belarus in a position to over come the crisis in its economy.

The Bubble Economy of Japan

The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve “zero defect program”. But after the first and second oil crisis that occur from 1973 onward.

The economy move downwards partially due to the poor management of economic policy. Although the government had attempt to adjust the economic policy but the recovery was slow. As the soaring of yen continues the demand for export has increase tremendously. With the concern of the United State of this problem, president Reagan and the G5 have signed an agreement with Japan called “Plaza Agreement” , the agreement stated that the exchange rate of Japan and Deutschmark can appreciate against the U. S. . Since then the yen value began to appreciate, Japan was going hrough a period of trade balance adjustment.

While Japan is prepare to go through a period of trade balance adjustment, it will also suffer a period of recession, so the government strongly encourage business activities to strengthen the economy in order to prevent backwash effect. It was this event which boost up the GNP and raise the exchange rate. With this exchange rate advantage it stimulate business activity on housing and stock investment which created a bubble economy. During this period almost the entire country was involve in land speculation or other speculate activities.

In this essay it ill prove that land speculative activities had create many negative impacts to the Japanese society and economy. Firstly, it will describe the cause of land speculation. Secondly it will discuss on the society and political effects in Japan and lastly it will focus on the economy effects, more over it will include the aftermath when the bubble collapse. The root of this bubble economy is due the wave of land speculation. The wide spread of land speculation activities were mainly because it is profitable. The speculative transactions in assets grew and grew and many believe that this will ast for very long period of time.

One of the reason that leads to massive investment in the risky activities is because of the success of the Japanese in the international market during 70*s – 80*s. Many Japanese enterprises and business man had become very wealthy. These people have a large sum of equity to invest. Some of these people have focus on risky asset such as stocks and land, therefore many of the regular ventures were left behind. One of the major cause of the massive transaction in the land market was due the incremental of loans by banks. Financial institution was very positive in lending money to the nterprise.

This enhance the accessibility to the land speculate market. Each size of this loan is very large. This is because the size of mortgage in Japan financial institutions are based on the collateral, (house) while in North America the size of the mortgage is based on the borrower*s income stream. Therefore the size of loan can be obtain by borrower is larger in Japan than North America. Also 62% of Japanese households own the home that they live and in average the value is near 4 million yen. Therefore there are lots of potential investors.

And during the period of speculative activities, borrowers ncrease the value of their loans as the value of their collateral increases. Since asset is highly liquidate, the number of potential speculators are high and borrowers in Japan were able to get a larger size loan on real estate therefore speculative activities sink into the level of common home owner and large enterprise. Beside the method of calculating mortgage size, another reason why the size of loan was so large is probably that both the bank and the investor were behind the land speculation activity (banking scandal).

Investors were paying some key money (sort of a bribe) to financial institution in order o obtain a larger size loan. Therefore many financial institutions were over loan during this period. Another form of raising cash flow for the speculate market was by braking down a loan that obtain from a large financial institution to a specific enterprise, then lend a small piece of this loan to those who was not eligible to obtain a loan from the bank. These companies that act as the funnel will earn a certain amount of interest from these smaller companies (branch effect).

Therefore all classes of companies and society can easily access in the speculate market. Other large corporate, construction company, rganize crime group and even temple (religious) were also involve in land speculation. Another encouragement to the speculative market was because the government (liberal democratic party) had originally lower the capital gain tax in the early 80*s. Therefore the profit for owner to resale their land was large. Flaws in government policy also indirectly allow investor to get away of property tax expense.

For example some land owner could just plant little crops over a large piece of expensive vacant land in urban city and declare them as agriculture land. As a result they will be tax very little. Therefore the incremental of land speculative activities were due to over size loan, high accessibility to the land speculative market and indirectly by the government flaws. During the peak of the land speculation there is a quite interesting study of land price in Japan.

“If you sell the entire property of Tokyo you can actually buy the entire United state and by just selling the surrounding land of the Imperial palace you can buy Canada. ” Although it might of been a little over exaggerate, but the point is that the land value in Japan compare to North America is much higher. Since there is no one side of a coin, Land speculation had create many social problems in Japan. Firstly, land speculation had rise the rent and housing cost tremendously.

As a result many young couples and low income families were unable to form their own house hold. In average the cost of a house in Tokyo had raise to about 500 million yen. The younger group with low income cannot afford it and the mid age workers may also not able to afford it. Primary is because they would have to give up at least three- fifth of their income in loan repayment. Also if they have a relatively low mount of down payment, there working age may not be long to repay a mortgage.

The longer the amortization period, the larger the amount of interest they bare. The white collar had become the slavery or sacrifice of the never ending mortgage payment and high cost of housing. In 1990 the births live in Japan was 1. 2 million, in fact the number is the lowest since 1893. Many analysts believe that one of the reason that lead to this slow growth of population could be create by high house prices. So Japanese people have stopped having children and large family is rare. Therefore this is one of the causes of Japan is unning our of Japanese.

This is also a very big social issue of the modern Japanese society but the precedent of the slow growth of population has now move from high housing cost to other social problems. During this period, there were lots of cases regarding on the robbery and suicidal in the police force. This was mainly because of the heavily debts that these police bare and they have no other choice than to attempt to go above the law. Due to the financing problems in the real estate market, it leads to the founding of what is program call “2 generations mortgage plan”.

The founding of this plan was propose to suit the majority of the white collar in the Japanese society. This plan was develop since 1983 but it became more useful from 1985 onwards and the qualification of this program must be father-son that plan or already living together. (son must be older than 20 and must repay the loan by the age at 70) The size of the mortgage is determined by the borrower, interest is flexible and the applicants must purchase an life insurance in order to protect the risk of un collectible due to death. Pay by the bank) Husband and wife can also join this program .

Banker said that the applicant may able to repay this loan in 40 yr. and this type of program also encourage a bonding relationship between father and son. On one side this program may allow a regular income worker to be a home owner but on the other side this person will bare a debt for the entire life and passes on to the next generation. Moreover it may limit on the consumption of the borrower on other composite good. The booms in land prices also discourage people’s incentive to work. 2)

“Because if any lucky individuals inherited or own a piece of land in metro Tokyo, they will suddenly gain a net worth of 250 o 300 million yen. ” This amount of money is equivalent to honest man*s life time income plus retire pension. Since may people get rich during this period, the number of middle class income in Japan had tremendously increase. Under these circumstances, many believe they have already achieved the good life therefore people lose the incentive to work hard and get ahead.

Therefore it will distort the social structure in Japan and create many problems to the government (taxations). Since the sacrifice and cost of home ownership is so high therefore many Japanese had prefer to rent. Since the demand of rental arket increase, it also attracted many investor and speculator. Therefore tenants also suffer from the incremental raise of land price. In Japan, young couples, low income group and the elderly participated as the major group of tenant in Japan.

During this period, owners were looking to sell their property for high return and in order to force the tenant to move (after tenant moves landlord can chose higher quality tenant or resale the property for a larger profit) rent rises extremely high. Many elderly were unable to afford such high rent so many were force to move. As a result many had become homeless. In some ases tenant refuses to move so some owner will hire organize gang group to force them out. Some of these unfortunate tenants will give up the hope in home ownership in the core and move further and further away from the center.

Therefore many of them will spend over 2 to 3 hours to commute from their place to work. So either way, home owner ship and tenants suffer from the raise of housing price. The natural populations are not the only civilian of this incident. Many foreign students also suffer from the housing problem. (3) “In 1986, there was a statistic taken over a total number of 8116 foreign students. Apparently only 17% lives in an adequate resident facility. ” The primary reason was due to the cost of rent, high exchange rate and lastly it was because the local people do not wish to rent their property to foreign student.

Student associate had propose to built new resident housing but due to the heat of land speculation (create an increase in the demand of land) and high construction cost, the new residential housing will be very costly. Therefore this new construction will probably raise the rent 2 to 3 times. While the housing problem continues for foreign students from 80 onward the Japanese government ad still declare that they (4) “expect a total of 100,000 new foreign student will be coming in during the 21st century.

This reflects that the government has pay very little awareness not only on the natural population but also foreign student. Beside foreign students and the natural population, another group that affects by the high land prices was foreign ambassador. As the price continued to rise (specially in Tokyo), the ambassadors of the lower wealth countries (such as Africa or Uganda ) were force to move their location away from Tokyo due to high rent. Although this problem was reflect to the Japanese government but it was remain un solve.

Other side effects of the land speculation was the new residential construction during that era. In (thousand leaf city) many of the new construction area no longer have a large plain or play ground that similar to a traditional residential area. In one of the Japanese newspaper there is an advertise article that describes their forecast on the living condition of the Japanese in the 21st century. (5) “The husband should not return home until weekend, during weekdays just live in worker*s resident near their workplace.

This resident housing should be similar to hotel where it has an into desk that can wash your cloths, postal service and take your message. Their home should be in some rural or less urban area that 100 km away from work. ” This reflected that the rise of land value did not just only effect the affordability of the housing but also distort the lifestyle of the Japan workers as it had reflect in the earlier incident of the 2 generations mortgage. (6) “During the bubble economy period the zoning regulation in Tokyo has revise to allow builder to built more capital on the piece of land.

So this ndirectly rises the potential of building space in Tokyo. It will again raised the real estate value, property taxes and traffic congestion level of the area. ” According to the (7) “National Land Agency statistic, about half of firms surveyed in the mid to late 1980s responded that they had no development plans for the land that they acquired. ” They rarely built homes or apartments, but instead constructed office buildings that would bring in steady revenues.

From the developer*s point of view, houses and apartment are the least profitable projects. So land would almost never allotted for housing”. With land speculation and the shortage supply of new construction on housing the Japanese residents are very difficult to find an affordable place to live beside the houses that are very far from work place. In the current Japan election the percentage of participant voters in Japan has drop below 60% of the total population and the liberal democractic did not receive 50 % of the seat through election.

This percentage was the lowest since WWII and mainly was because the populations in Japan no longer believe the liberal democratic party can bring them back from recession. Also they did not have a good control system during the bubble economy, failure of the recovery program after the bubble splash. (program such as expansion in public investment, lowering the interest rate and series of economic counter measure but the yen is still pretty high which discourage export) In more specific, during the bubble economy the government did not really propose an effective tax law until 1990.

National Land Value Tax- prohibitive tax on profits from the sale or transfer of land national land law 1974) This revitalizes the local property tax and assessment ratio for the fixed asset tax. Another official policy was issue during 1990 was through the financial market in which the government regulates on the loan activity. This eventually slow down the loan activities largely in 1991. But still the government really lagged their response for those who already suffer for 5 years of high housing cost.

More over during the period of bubble economy, many politics were either involve in land speculation or was bribe by organize gang group and large enterprise in order for these people to be more conveniently to have more benefits in the land market. One incident is involve y a business man Kyowa and a cabinet minister Fumio Abe, where Abe sold the details of where a new road construction in Hokkaido in return for 480 million yen. Political scandal was expose to the public not long after the bubble economy was splash.

Lastly, most of the asset of the politicians are in the real estate market therefore neither the bank or the officials admit the fall in land prices. So when this incident was expose to the public, the prices of land fall sharply around 50 %. And mainly because of the period of cover up. So many big and small investors suddenly woke up from their happy dreams and face the orrible reality. With the above reasons the government has lost the trust of many Japanese.

Therefore the land speculate activities had also effect the image of the strong liberal democratic. During the bubble splash period, many pre- graduates and graduated university students were unable to find jobs in the labor market due to the diet all companies therefore many students were frustrate about their future. Therefore the supply of the labor market is distorted by the bubble burst. Therefore you can see that the land speculation activities had create many social problems to the Japan society during the ubble period and after the bubble burst.

During the bubble period the economy was strongly boost by the sudden rise of land value and stock market. On the other hand the after math of the bubble splash was a pain for the economy. In general we will look at the effects on the rise and fall of the Japan*s economy. In 1985 the trade balance in Japan need to have adjustment therefore the government declare that it needs some force to grow in order to prevent recession during this adjustment period. (8) “In 1989 the GNP has increased by 481,000,000,000,000 yen and this was mainly due to the speculate market. People put their profit from land to stock market or vice versa) Many companies were mainly focus on the speculate market. (9)

“The Tokyo Stock exchange soared to almost 40,000 points, the value of stock and land was far above the real value and value of property was not rise due to its demand but was due to speculation. Eventually when the bubble splash, the vacancy rate went rocket high due to lack of demand. Many companies had to go on a strict diet to survive, and they made deep cuts in expenditures for entertainment, advertising, communications and much else. And the above statement is the general picture of hat happen during the bubble economy.

During the golden period of land speculation, many investors know that the land market in Japan was limited (due to the potential and limited geographic area) so they began to purchase land over sea in Hawaii. (10) “The Non water front housing price in Hawaii during 1987 went up by 51 % and the water front housing price went up more than 100%. ” This resale land market in Hawaii was primarily between the Japanese; in 1987 the land prices was estimate has rise over 60. % and many tenants have suddenly realize that the rent has tremendously increase and cannot afford it, so many eople have no place to stay (especially the elder).

There are several reasons that Japanese wants to invest in Hawaii such as; the waterfront view is similar to Japan so it will be a good place for vacation and retirement, the distance between Japan is relatively close ( 3 hours trip by plane) and massive left over of equity and advantages in the exchange rate that has tremendously increase the nominal value of their equity so it is an encouragement for investment.

Therefore the wave of land speculation did not only distort the land market in Japan but also affected foreign country. Looking back at the Japanese economy (11) “in 1987, 77 out of the top 100 most heavily taxed people were involve in land speculation (either have resale their lands or have large land properties). This created a very unhealthy economy because most of the economy is depend on the land market and if any thing happen to the land market, it will distort the economy greatly. 12) “In 1989 the top 100 most heavily tax people 95 of them were involve in land speculation. ”

Therefore the situation was worst in the later period this is mainly because of the profitability in the land market. Since many enterprises only focus on speculate market therefore the real growth of GNP of the country was only 4 to 6 %. The growth of the economy was mainly on the nominal sector. The increase in nominal GNP has created massive appreciate of yen, which had tremendously affect the export businesses and the manufacture industries. the nominal price of the good has increase therefore foreigner has less interest on Japan goods but this mainly effect small and medium enterprise) While some export business was not doing too well, consequently the workers are not getting an appropriate rise in income. 13)

“In 1986 (Nissan) several of the high executive had experience an income cut by 5 to 10% and many of them are very frustrated because most of these people were in their 40*s and have to pay for mortgages and children*s tuition. In later years Nissan had announced to cut 500 in order to balance out their lost. Therefore large manufacture as Nissan was not doing so well during this period. This was worst in the case of the small and medium enterprise.

Many small and medium size export companies had contract or even close down during the mid 80*s and as the wave of income cuts continued, every level and lass of the employees were involve. On the other hand the high exchange rate was really an advantage for importer (same value buy more) such as energy, petroleum and primary material. These companies were suddenly becoming so wealthy and the income of their employees were much higher compare to those working in the export enterprise.

Therefore there was a large gap on the profit and income between the two distinct groups of company and it was very unhealthy for the white collar. This period of high exchange rate continues until the bubble burst. The decline of the bubble economy occurs during the Gulf war period, the economy in Japan as very quite and at the same time the government had tighten their policy. (Both tax policy and restriction in loans) As a result, the land speculation market and land prices fall continuously. The real estate market is totally frozen.

The National Land Agency measures that land price of Tokyo and Osaka has dropped 30 to 50 percent. (Total land wealth is near 2000 trillion yen which is really a lot) Many real estate properties were unable to be resale and at the time many companies were unable to pay such high interest payment therefore many of them went bankrupt. While the banks rarely make any loan, many companies cut ack in their capital spending. In fact this had dampen the recovery of economy. Most of these companies that went bankrupt were either small or medium size enterprise which lack of its separate bank center.

Large enterprises with separate bank center also suffer from non performing loans by the borrowers (small and medium size enterprise). Others large lending institution also suffer largely, since the major economic powers at the bubble period was on the land market therefore any decline in land values would strongly influence the balance sheets of Japan*s lending institution. As reported in June 18 1996 The News Times International News that the (14) “parliament approves a $ 6. 3 billion bailout for bankrupt housing lenders.

The vote clears the way for the establishment of an institution to liquidate the assets of the housing lender which collapsed under bad loans made to real estate speculators before Japanese land prices plummeted in the early 1990s. The seven companies are believed to have more than $65 billion in bad debts. ” This $. 6. 3 billion is only a piece of the big picture because (15) “the Finance Ministry said that Japan*s financial institutions held about $324 billion in bad loans as of March 31 1996. Analysts believe the total could be considerable higher.

The government in recent days has been working to persuade banks and farm cooperative to agree to take on a bigger share of the bailout burden to reduce the cost to taxpayer”. According to a current financial post in Tokyo: (16) “Most of the financial banks declare yesterday that with the experience of deficit in last year, this year (ended till September) they had turn deficit into net profit. Banks had systematically write off many of the un collectible accounts. But their revenue is still not very high because of low interest rate and the ncremental of bad debts.

Therefore financial institution will still probably experience quite a long period of recession. ” Therefore residue effects of the land speculation spill over still continues. Land developers also suffer largely. Before the land market crash was expose to the public, there were nearly 1,200 golf course was either approve or under construction. Many pre- member ships were sold but unfortunately many of the construction are never finish because of banks were pulling back the loan. At peak, the total value of golf member ships market in Japan was near 200 billion for 1,700 golf courses.

Therefore closing down 1,200 golf course construction was quite a lost for the economy. Another aftermath of the bubble burst is the high vacancy rate in the office buildings in Tokyo. During the late 1980*s, the new constructing rate (for the office buildings) was double compare with the tradition. After the bubble burst, the value of asset decreases and demand for space also decreases. Therefore many office buildings are unoccupied. As you can see, the after math of the bubble burst did not only affect the business enterprise, government but also the grass root people. 17)

“In last year the economic growth rate was nly around 1% or less and the government had introduce economic revitalization policies such as lowest ever interest rates and increased public investment but judging by the fact that consumer demand has cooled off and capital investment by the corporate sector is not making headway as expected therefore the outlook for economic recovery in Japan remain hazy”. The bubble bursting has affected everyone in Japan. (18) “The country has clearly become a victim of the same wrenching process of debt deflation that had already been visible for several years in so many other economies.

Japan faces the reality of outright deflation n terms of falling prices. With all that implies for companies inability to maintain their profit margins. Japan was facing by the autumn of 1993 an unpleasant combination of excess production capacity, falling demand and a rampantly high yen. By August 1993 wholesale prices were declining at an annualized rate of 4. 2 percent. ” Once again you can see that many Japanese are not very optimistic about the future economy. Therefore you can see that the land speculation had create many negative impacts to the Japan economy not only during the bubble period but also after the bubble burst.

Federal Reserve Essay

The United States took over a hundred and twenty years to prefect a working banking system that could adequately adjusts to the constantly changing economy. The Federal Reserve System most important purpose is to preserve a stable economy in the US. The focus on monetary policy is to protect the purchasing power of the dollar and to encourage conditions that promote sustainable economic growth and high employment. The Federal Reserve System is a network of committees working together to ensure a productive unified monetary policy for the United States that is flexible with the ups and downs of in the business.

This network oversees the banking industry to protect the security of the monetary policy. At the birth of the Nation there was a need for one central bank to oversee and control all the banks in the United States. The Bank of the United States was given a charter to be the first central bank by Alexander Hamilton in 1791. Due to the longstanding mistrust farmers held for the banking industry, the idea of one bank holding such immense power was not well received and when the twenty-year charter was due for renewal in 1811, the United States Congress voted it down.

Recognizing the need for a central banking authority, the United States Congress voted to begin the Second Bank of the United States in 1816. Much like the Bank of the United States, the Second Bank of the United States was given a twenty-year charter. It was more powerful than the previous central bank and was not only supported, but was met with significant opposition by the citizens of the United States. Its charter was allowed to expire in 1836 (Andelman 48). The U. S. banking systems proved to be unable to respond adequately or flexibly to the variances in business cycles.

Under the National Bank Act of 1864, the countrys banking system was divided into three groups: central reserve city banks, reserve city, and country banks. The central reserve city banks were first located in New York and then Chicago and Saint Louis were added in 1887. The reserve city banks were located in sixteen other large cities. All of the national banks were required to hold reserves, while country banks were allowed to hold a percentage of these deposits in reserve city banks. When the various country banks required some additional reserves, in order to meet their customers cash demands, they would call on the reserve city banks.

These banks would then demand funds from the central reserve city banks. Any weak section in this particular system threatened a collapse to the entire system. Additional funds could not be created anywhere, and postponement of gold coin payments was the most predominant consequence. In the United States, the Resumption Act had restored the gold standard in 1879, and the Gold Standard Act of 1900 had established gold as the ultimate standard of value (Crabbe 423). Many banking crises occurred in 1873, 1883, 1893, and 1907.

It was, however, the panic of 1907 that led to the formation in 1908 of a bipartisan congressional body, titled the National Monetary Commission, whose report then set the stage for the Federal Reserve Act of 1913 and a decentralized, adaptable banking system (423). The reason for the need was made evident when the First World War nearly demolished the international gold standard (Crabbe 423). Although it was not until 1917 that the United States entered the war, the outbreak of war in Europe in 1914 immediately disrupted the U. S. financial and commodity markets.

The commodity markets were heavily dependent on London for the financing of exports. As Europe was preparing for war, the worlds financial markets became highly disorganized, especially after acceptance and discount houses in London shut down their operations. Late in July of 1914, as foreigners began liquidating their holdings of U. S securities and as U. S. debtors were desperately trying to meet their obligations to pay in sterling, the dollar-pound exchange rate soared as high as $6. 75, which was far above the average of $4. 8665 (Parley 957).

The premium on sterling made exports of gold highly profitable to use which caused an explosion of gold flowing out of the US. Under the pressure of heavy foreign selling, stock prices fell sharply in New York. The banking and financial systems in the United States seemed on the verge of collapse (Crabbe 424). On July 31, the New York Stock Exchange joined with the worlds other major exchanges and closed its doors. This eased pressure on the gold standard by preventing the export of gold arising from foreign sales of U. S. corporate securities.

In August, the unsafe shipping conditions and the unavailability of insurance slowed gold exports even further. Although the export sector was in mayhem and with $500 million in short-term debts outstanding due soon to Europe, the United States needed to take additional actions to preserve the exchange value of the dollar (Crabbe 424). The most significant relief measure came on August 3, 1914 when the Secretary of the Treasury, William McAdoo, authorized the national and state banks to issue emergency currency by invoking the Aldrich-Vreeland Act.

In light of the fact that it allowed banks to use such notes to meet currency withdrawals, and to further safeguard reserves, this extreme measure kept panic from sweeping over the banking system, and the country. In early September, less than a month after its first members took the oath of office, the Federal Reserve Board, in conjunction with the Secretary of the Treasury, organized a syndicate of banks that subscribed $108 million in gold to pay U. S. indebtedness to Europe (Crabbe 425).

One of the most interesting facts surrounding the beginnings of the Federal Reserve in November 1914 to signing the Armistice, November 1918, was that wholesale prices in the United States doubled, and the money supply grew 70 percent (Crabbe 423). Under any normal conditions, a huge credit expansion, combined with sizable inflation, would likely have endangered the gold standard. However, the flood of gold imports during this period of U. S. neutrality had urged the ratio of gold reserves to deposit and Federal Reserve note liabilities to 84. ercent in March 1917 (Crabbe 424).

Although the gold reserve ratio declined fairly steadily after the United States entered the war, it stood at 48. 3 percent at the end of the war, which was more than enough to meet the legal minimum (Crabbe 243-425). The Great Depression was also a time of great upheaval and change, in relationship to the Federal Reserve System. Samuelson states that, during the Great Depression, prices dropped by almost one-quarter between 1929 and 1933 (Samuelson 32). As prices collapsed, borrowers could not repay loans.

Lower prices had reduced their incomes. When borrowers defaulted, banks became insolvent. The failure of some banks spread the fear that other banks would fail. Depositors withdrew funds, which prompted banks to reduce loans. More firms and farms went bankrupt. The economy got worse, forcing down prices more and accelerating the vicious circle. The Great Depression stemmed from this credit collapse, about two-fifths of U. S. banks failed between 1929 and 1933 (32). The Great Depression, however, is not the only incident that illustrates the perils of an unstable market system.

While it was perhaps the most obvious and influential, there have been other smaller incidents as well. Under the late 19th centurys gold standard, where paper currency could theoretically be exchanged for gold coin, the limited amounts of gold meant that the nations currency did not expand adequately to meet the many needs of a growing economy. Repeated business failings pushed prices down, and between 1865 and 1896, the cumulative wholesale price decline was decidedly more than half. Money was not stable then, when declining prices meant that moneys value was rising.

The Populist farmers and small businessmen felt strongly that a system that required them to repay their loans in hoarded dollars was unfair (33-34). The more recent inflation repeats the basis pattern: as price changes accelerated events quickly took on a momentum of their own and moved out of governments control (Samuelson 32). Cooper and Madigan state that in todays economy recession is doubtful unless there is a huge decrease in the US expansion or in the commodity prices (23). Today the Federal Reserve System is the central banking system of the United States and is most commonly referred to as Fed.

An individual central bank serves as the banker to the banking community and also to the government. In addition, it issues the national currency, regulates any monetary policy, and is a prevalent role in the supervision and regulation of banks and bank holding companies. Within the U. S. these functions are the responsibilities of certain key officials of the Federal Reserve System. These key officials are the Board of Governors, located in Washington, D. C. , and the top officers of the 12 district Federal Reserve banks, located in various spots throughout the nation.

Andelman states that, Its function is not limited to dollar control flow in the country but more significantly, it regulates the interest rates and influences the setting of the American economic landscape, but for the most part the Federal Reserves basic powers are focused in the Board of Governors, which is predominant in all policy issues concerning bank regulation and supervision and in most aspects of monetary control (48). The Federal Reserve System does the work that is necessary in any monetary system. It processes checks, serves as a clearinghouse for bank transaction processes.

Treasury securities transactions, and lends money. It determines the interest rate for loans to commercial banks, selects the required reserve ratio which determines how much of customer deposits a banks must keep on hand. This affects how much new credit the bank can create, and also decides how much new currency Federal reserve banks may issue each year. It releases coins and currency notes produced by the Treasury Department, to the commercial banking system. The demand for money by the public varies from day to day and from week to week. There are even differences from season to season.

Banks are usually first to feel the impact of the public’s demand for cash. To meet these needs, banks turn to their regional Federal Reserve Bank for coins and currency when their supplies are low (Andelman 49-52). The Federal Reserve Banks are used to clear checks, to lend money to banks that are temporarily strapped for reserves, to issue currency, and to hold member banks reserve deposits. Today the Fed has four basic functions. An important function is conducting the nation’s monitory policy by influencing the supply of money and credit.

They must also regulate and supervise the United States financial institutions, banking operations and protect the credit rights of consumers. A third function is the Fed serve as the banker and fiscal agency for the United States. Finally the Fed supply payment services to the public through depository institutions (The Federal Reserve System 3). All four roles are important in maintaining a stable growing economy, but influencing the supply of money and credit know as monetary policy is the most important and probably the function that are people are most familiar with.

Monetary policy is the strategic actions taken by the federal reserve to influence the supply of money and credit in order to foster price stability and maintain economic growth. In this way, the Fed helps keep the national economy strong. This influence over monetary policy is the Feds real authority, and the reason for its enormous prominence in the financial world. The Feds main purpose regarding monetary policy is to ensure that enough money and credit are available to sustain economic growth without inflation.

If there are signs that inflation is threatening the US purchasing power, the Fed may need to slow the growth of the money supply. It does this by using three tools: the discount rate, reserve requirements and most important, open market operations. Two main committees direct Fed policies. They are the Board of Governors and the Federal Open Market committee. Two other organizations assist the Fed board. The Federal Advisory Council advises the board on business and financial conditions, and the Consumer Advisory Council advises the board on its responsibilities under consumer credit protection laws (The Federal Reserve System 4).

The Board of Governors was established as a federal agency. It is made up of seven members appointed by the President and confirmed by the Senate. The full term of a member is fourteen years with appointments staggered so that the terms expire on January 31 of each even-number year. The chairman of the Board is appointed for a four-year term that starts midway through each presidential term. The board monitors domestic and international financial economic developments. A Washington staff of about one thousand and seven hundred people supports the Board.

The Board is audited annually by a major public accountant firm and is also subject to audit by the General Accounting Office, an arm of Congress (Andelman 54). The Federal Open Market committee (FOMC) exercises an influence over monetary policy. FOMC sets Fed policy for trading government securities (Treasury bills, Treasury bonds and Treasury notes) and it is responsible for open market operations. The committee consists of the Board of Governors, the presidents, who serves on a rotating basis, although all members participate fully in deliberations. The Federal Open Market meets eight times a year.

The meetings usually feature summaries of international economic developments, reports on conditions in the domestic financial markets and the banking system. The Fed also gives a presentation on the United States economy as a whole and a forecast for the future. Policy options are discussed and votes are taken to decide whether or not the Fed will act. Reserve Bank boards of directors research departments and regional business leaders contribute vital information and insight that are used to formulate monetary policy. Both the public and the private sectors contribute to these decisions (The Federal Reserve 35-41).

Open market operations is the buying and selling of United States Government securities on the open market for the purpose of influencing short term interest rates and the growth of money and credit. If there is a need for an increase in the growth rate of the money supply, credit is needed, or a downward pressure on short-term interest rates, the Fed buys securities from brokers or dealers, which adds money to the reserve accounts of the banks of brokers or dealers. Then the banks credit the accounts of the brokers and dealers, which increases the amount of money and credit available in the market.

Whenever the growth of money and credit needs to be slowed down, the Fed sends securities to brokers and dealers, taking payment by debiting the accounts of banks of the brokers and dealers. Reserves leave the banking system, which reduces the money supply and cuts back the expansion of credit. Even though the Fed has enormous influence over the financial markets, it cannot force banks to raise or lower interest rates, which have remained at historically high levels ever since the early 1980’s. The Fed does not control the market, but it does hold sway over short-term interest rates because it is influenced by the open markets operations.

Its a vital participant in providing a strong central bank during times of crisis (Cooper & Madigan 24). The discount rate is the interest rate at which banks can borrow from the Federal Reserve System for short-term liquidity needs. The discount rate is changed infrequently and can discourage or encourage financial institutions lending and investment activities. It is usually lower than the Federal Funds Rate because troubled institutions can borrow to get them through short periods of problems. Originally, it was designed to help end “runs on the bank.

Banks only borrow in this way if they need the help. The reserve requirement is the percentage of deposits in demand deposit account that financial institutions must set aside and hold in reserve. If the Fed raises the reserve requirement, banks have less money to lend, which slow the growth of the money supply. If the Fed lowers the reserve requirement, banks have more money to lend and the money supply increases. The Federal Reserve System is responsible for providing the total amount of reserves consistent with the monetary needs of the economy at reasonable stable prices.

Changes in the volume of reserves influence the money supply, the available credit, and interest rates. As result, the volume of spending Depository institutions feel the impact of changes first, but the effects spread quickly to the entire financial structure of the nation, the domestic economy and often to the international economy as well. The board proclaims the Feds policies on monetary, as well as banking, matters. On account of the fact that the board is not an operating agency, a majority of the day-to-day implementation of policy decisions is given to the district Federal Reserve banks.

The stock in these banks is owned by the commercial banks that are members of the Federal Reserve System. However, ownership in this instance does not necessarily imply control, for the Board of Governors, and the heads of the Reserve banks, normally orient their policies toward public interest rather than to the advantage of the private banking system (Andelman 55). At the foundation of the Federal Reserve System are the individual member commercial banks. Every national bank is required to join the system, although membership of state-chartered institutions is voluntary.

Each member is required to purchase capital stock in his or her individual district Reserve bank. The benefit is that they are entitled to a sanctioned six percent stock dividend and also the right to vote for the directors of that particular district bank. The Monetary Control Act of 1980 ordained a reserve requirement on all depository institutions, but at the same time also permits them to borrow from the Federal Reserve and to acquire payment-mechanism services from the Fed (The Federal Reserve System).

In addition, the act mandates that the Federal Reserve charges a fee for all services provided. By enabling these banks to borrow reserves from the Reserve banks, the liquidity of the entire banking system is further increased. The twelve individual districts Reserve banks are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Georgia, Chicago, St. Louis, Minneapolis, Kansas City, Missouri, Dallas, and San Francisco. Each one of these banks is formally responsible to a nine-member board of directors. This board of directors is divided into three unique classes.

The member banks elect Class A and B directors; the Board of Governors appoints class C directors. The board of directors is responsible for the administration of the individual bank and for appointing the banks president and vice president, which is subject to the approval of the Board of Governors. In addition, the directors set the discount rate, which is also subject to review by the Board of Governors (Federal Reserve System 7-10). The Fed also has many various responsibilities for writing rules or enforcing a number of major laws that offer consumers protection in their financial dealings.

The Fed enforces truth in lending, which ensures that accurate information on the cost of credit is available to consumers. They make sure everyone has equal credit opportunity, which prohibits discrimination in lending. The Federal Reserve System ensure there are home mortgage disclosures, which requires depository institutions to disclose the geo-graphic distribution of their mortgages and home improvement loans. In the age of technology the Fed also take on the responsibility of electronic fund transfers.

They identify the rights, liabilities and responsibilities of consumers and financial institutions for electronic transfer services, such as automated teller machines, ATMs. An important law the Federal Reserve enforces is the Community Reinvestment Act. The Fed discourages red lining. The depository institutions are expected by the Fed to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods (Samuelson 37-39).

Sometimes the Federal Reserve is thought of as a fourth branch of the U. S. vernment because it is composed of a powerful group of national policymakers that are free from the usual restrictions of governmental checks and balances. And in fact, the Board of Governors is formally independent of the executive branch of the government and protected by tenure far beyond that allotted to the president. A very unique working relationship has evolved between the two as the Federal Reserve works in accordance with the objectives of economic and financial policy that is established by the executive branch of the government (Andelman 48).

The relationship that exists between the Federal Reserve and Congress is a bit more complex. On one hand, the central bank is clearly a component of Congress, being responsible to it for its mandate and its continued existence, while on the other hand, the self-financing characteristic of the Federal Reserve takes away from Congress its primary source of influence, which is the agency budget. In this way the Federal Reserve is somewhat free from partisan political pressures, although it must report quite frequently to the Congress on the conduct of monetary policy (Samuelson 33).

The United States has the Federal Reserve System set into place to protect the well being of the country. History has proven in order to have a healthy economy there is a need to have powerful central network to maintain the economy. Therefore without proper structure in some form, this country would no longer be the powerful nation it is today. The United States is able to provide support and structure to other nations of the world. While the system is by no means a perfect one, it is essentially stable for the most part, providing a sense of security for the entire country, if not the entire world.

A Basic Analysis Of The Balkan Economy In Relation To The E.U. farm subsidies: a necessary evil

Subsidies are payments, economic concessions, or privileges given by the government to favor businesses or consumers. In the 1930s, subsidies were designed to favor agriculture. John Steinbeck expressed his dislike of the farm subsidy system of the United States in his book, The Grapes of Wrath. In that book, the government gave money to farms so that they would grow and sell a certain amount of crops. As a result, Steinbeck argued, many people starved unnecessarily. Steinbeck examined farm subsidies from a personal level, showing how they hurt the common man.

Subsidies have a variety f other problems, both on the micro and macro level, that should not be ignored. Despite their benefits, farm subsidies are an inefficient and dysfunctional part of our economic system. The problems of the American farmer arose in the 1920s, and various methods were introduced to help solve them. The United States still disagrees on how to solve the continuing problem of agricultural overproduction. In 1916, the number of people living on farms was at its maximum at 32,530,000. Most of these farms were relatively small (Reische 51). Technological advances in the 1920”s brought a variety of effects.

The use of machinery increased productivity while reducing the need for as many farm laborers. The industrial boom of the 1920s drew many workers off the farm and into the cities. Machinery, while increasing productivity, was very expensive. Demand for food, though, stayed relatively constant (Long 85). As a result of this, food prices went down. The small farmer was no longer able to compete, lacking the capital to buy productive machinery. Small farms lost their practicality, and many farmers were forced to consolidate to compete. Fewer, larger farms resulted (Reische 51).

During the Depression, unemployment grew while income shrank. “An extended drought had aggravated the farm problem during the 1930s (Reische 52). ” Congress, to counter this, passed price support legislation to assure a profit to the farmers. The Soil Conservation and Domestic Allotment Act of 1936 allowed the government to limit acreage use for certain soil-depleting crops. The Agricultural Marketing Agreement Act of 1937 allowed the government to set the minimum price and amount sold of a good at the market. The Agricultural Adjustment Act of 1938, farmers were given price supports for not growing crops.

These allowed farmers to mechanize, which was necessary because of the scarcity of farm labor during World War II (Reische 52). During World War II, demand for food increased, and farmers enjoyed a period of general prosperity (Reische 52). In 1965, the government reduced surplus by getting farmers to set aside land for soil conservation (Blanpied 121). The Agricultural Act of 1970 gave direct payments to farmers to set aside some of their land (Patterson 129). The 1973 farm bill lowered aid to farmers by lowering the target income for price supports. The 1970s were good years for farmers.

Wheat and corn prices tripled, land prices doubled, and farm exports outstripped imports by twenty-four billion dollars (Long 88). Under the Carter administration, farm support was minimized. Competition from foreign markets, like Argentina, lowered prices and incomes (Long 88). Ronald Reagan wanted to wean the farm community from government support. Later on in his administration, though, he started the Payments In Kind policy, in which the government paid farmers not to grow major crops. Despite these various efforts, farms continue to deal with the problems that rose in the 1920s.

Farm subsidies seem to have benefits for the small farmer. “Each year since 1947, there has been a net out-migration of farm people (Reische 53). ” American farm production has tripled since 1910 while employment has fallen eighty percent (Long 82). Small family farms have the lowest total family incomes (Long 83). Farming is following a trend from many small farms to a few large farms. Competition among farmers has increased supply faster than demand. New seed varieties, better pest control, productive machinery, public investments in irrigation and transportation, and better management ill increase farm output.

The resulting oversupply of farm products, which creates a low profit margin, drives smaller farms out of business. Smaller farms lack the capital and income to buy the machinery they need to compete with larger farms (Long 85). Many see this tendency towards consolidation and mechanization of farms to be harmful to the United States in the long run, and they see subsidies as a way of achieving a social desire to preserve the family farm. “If the family farm represents anything, it”s a very intimate and fundamental relationship between people and resources (MacFadyen 138). ” Fewer arms mean fewer jobs and a higher concentration of wealth.

Ten 30,000-acre farms may produce as much food as a hundred 3000-acre farms, but the former supports machinery; the latter, community (MacFadyen 138). Farm subsidies are designed to prevent the extinction of the small farmer. Despite the social benefits, subsidies have many problems. The subsidy system is often wasteful; the government finances irrigation systems in the California Imperial Valley, and then pays farmers not to grow crops on it (Solkoff 27). Some benefits hurt the small farmer. Marketing orders and tax breaks hurt small operators by giving more oney to bigger farms.

Big farms can then overproduce and undersell using advanced machinery, driving lesser farms out of business (Fox 28). Subsidies also allow foreign markets to become competitive by artificially raising market prices (Long 91). Artificially raising market prices create a surplus that would normally be solved by the free market system. In a theoretical free market, overproduction would drive excess farms out of business, until equilibrium would establish itself for both price and quantity of farm products. Subsidies allow inefficient farms to continue to exist, which creates an inefficient economic system.

Subsidies also increase the cost of other consumer products, while also increasing taxes to pay for them. Perhaps most importantly, subsidies do not fulfill their social role. “About 112,000 large farms– equivalent to the number of farms in Minnesota alone– produce half the nation”s food and fiber (Long 82). ” The many government subsidy policies do not preserve the family farm, and the number of small farms has almost continuously been on the decline. Subsidies are impractical in the economic and the social aspects. Despite perceived benefits, farm subsidies are an inefficient and dysfunctional art of our economic system.

Their goal, nonetheless, is noble. Writers like John Steinbeck made people aware of the plight of the small farmer, and subsidies were the only solution he government could think of. If there is some way to prevent the decline of small farms that does not carry the many subsidy problems, the agricultural policy would undoubtedly change. Perhaps the same anti-trust laws that prevented the monopolizing of industry could be used to prevent the consolidation of farms. Until some other system is developed that can deal with the problems of the farmer, subsidies will continue to be used.

The term “downsizing”

The economy was strong, inflation was falling, and real GNP was growing at a steady, confident pace. Corporate profits had reached historically high levels, and investors were on a buying spree in the stock market, pushing it from one record close to the next. Unemployment had fallen to a level that many economists felt was consistent with non-accelerating inflation. Expectations of inflation were abated, and the boom seemed to be poised to last for a long time, with no economic downturn in sight.

At the same time, the major corporations in the US appeared to be firing workers by the undreds of thousands, and job insecurity had risen to a surprisingly high level. Regardless of seniority, the company’s profitability, or the surging demand for the firm’s outputs, the threat to an employee of finding a pink slip in the next pay envelope was real and widespread. No job seemed safe.

The above statements, describing the US economy in the mid 1990s, seem inconsistent not only with a standard textbook characterization of an economic boom, but also with any historically observable relationship between the labor market and other economic arenas, such as the financial market r the goods market. Politicians and unions pointed to the greed of corporate America, and the insensitivity of management to the contributions and value of workers. Standard microeconomics was at a complete loss to explain the phenomenon.

If strong firms were anticipating a greater demand for their products during the economic boom, and labor costs were not rising excessively relative to productivity, why were firms firing workers? The term “downsizing” was coined to describe the action of dismissing a large portion of a firm’s workforce in a very short period of time, particularly when the irm was highly profitable. In a standard downsizing story, a profitable firm well-poised for growth would announce that it was firing a large percentage of its workforce.

The equity market would get excited, and initiate a buying frenzy of the firm’s stock. This goes counter to a standard micro-economic analysis, in which a weak firm anticipates a slump in the demand for its products, and lays off workers, while a strong firm foresees a jump in the demand for its products, and hires more workers to increase production. Investors care about downsizing, since it contains severe implications for the short-term profitability and even the long-term growth of a company.

A downsizing is quite unlike a traditional layoff: in a layoff, a worker is asked to temporarily leave during periods of weak demand, but will be asked back when business picks up. In a downsizing, the separation between a worker and a firm is permanent. A downsizing is also not a dismissal for individual incompetence, but rather a decision on the part of management to reduce the overall work force. Through a downsizing, the management inadvertently (or perhaps deliberately) signals to investors what the future economic health of the firm is.

In the 1980s, the largest layoffs were executed by weak companies, who were losing market share to foreign firms, or had large drops in demand for their products. Downsizings were clearly regrettable, but understandable, as they helped the firms to survive. Such a large amount of workers was certainly unnecessary for a firm doing a smaller volume of sales, so the workers were released in large numbers over short intervals of time. Investors noticed hat major layoffs were taking place, and downgraded their expectations of the firm’s future profitability, so they dumped the stock.

Yet, this perfectly logical explanation seems inconsistent with what was actually taking place in corporate boardrooms and on the trading floors of the New York Stock Exchange of the 1990s: the companies ridding themselves of workers by the thousands were strong, and had bright economic futures ahead of them. Upon learning of downsizings, the alleged signals of firm weakness, investors went on a buying spree, and sent the company’s stock price soaring.

Taxation Without Representation

If “taxation without representation” could rally the colonists against the British Crown in 1776, tight money and ruinous interest rates might be cause for populist revolt in our own day. Federal Reserve monetary policy also has severe social burdens, measured by huge changes in aggregate output, income, and employment. The imperious Fed, much like the English Crown two centuries ago, formulates and carries out its policy directives without democratic input, accountability, or redress.

Not only has the Fed’s monetary restraint at times deliberately pushed the economy into deep recession, with the attendant loss of millions of jobs, but also its impact on the structure of interest rates and dollar exchange rates powerfully alters the U. S. distribution of national income and wealth. Federal Reserve shifts in policy have generated economic consequences that at least equal in size and scope the impact of major tax legislation that Congress and the White House must belabor in public debate for months.

Popularized studies of Federal Reserve performance in recent decades convey the image of the Fed seated in its Greek temple on Constitution Avenue, with Chairmen Volcker and Greenspan elevated to the realm of the gods. From centers of economic power around the nation – Wall Street, Capitol Hill, the White House, and corporate boardrooms – the classical Greek chorus intones its defense of Federal Reserve independence.

On the surface, central bank independence seems an eminently reasonable, appealingly simple solution for an agonizingly complex and muddled process of making economic policy in this postindustrial, electronically linked, and computerized global economy. The independent central bank is an institutional concept that complements well the counterrevolution now underway in U. S. budget policy.

Washington’s fiscal policy is locked into a deficit-cutting mode for the near future, while Congress is determined to retreat from all discretionary spending, regulatory intervention, or measures to improve equity in the distribution of national income and wealth. With the federal fiscal policy on automatic pilot, the Fed’s monetary policy could be removed entirely from the inefficiencies and confusion of the democratic process. But this deceptively simple conception poses profound questions for the process of democratic representative government in the United States as it pertains to managing the nation’s economy.

Federal Reserve independence has a direct impact on the daily lives of most Americans in their “pursuit of happiness,” of which their economic welfare is a major element. Since World War II, the Federal Reserve, together with policy makers on Capitol Hill and the White House, gradually worked out strategies for achieving a balance between tolerable rates of unemployment and inflation. The government was determined to prevent the recurrence of the kind of massive unemployment suffered in the Depression of the 1930s. In 1944, President Franklin Roosevelt set forth the basis for his postwar domestic program in an “Economic Bill of Rights.

His number one priority was “the right to a useful and remunerative job. ” Congress soon passed the historic Employment Act of 1946 with strong Democratic and Republican support. It gave the federal government explicit responsibility to promote “maximum employment, production, and purchasing power. ” (This was subsequently amended and strengthened in the Full Employment and Balanced Growth Act of 1978. ) In the 1950s and 1960s, both Republican and Democratic administrations pursued the generally accepted goals of full employment, sustainable growth, and minimal inflation.

Economic managers shifted weight among the several objectives as the economy moved up and down over the business cycle. During those decades, American economists in the mainstream shared a broad consensus that backed counter cyclical policy aimed at a mix of full employment and reasonable price stability. We now look back on those decades as a period of “golden growth” in U. S. economic history. By the mid-1970s, however, the oil price shocks and the emergence of stagflation shattered the consensus among economists.

Arthur F. Burns, chairman of the Federal Reserve Board, described the new world after the first oil price shock had driven the economy into a deep recession in testimony before Congress (October 11, 1974). According to Bums, one of the nation’s most distinguished researchers of the business cycle, the recession was extremely unusual, because it was accompanied by “galloping inflation” and “booming” capital investment: said Burns, “I have been a student of the business cycle for a long time, and I know of no precedent for it in history.

Thus, by the mid-1970s, soaring oil prices fueled a rising consumer price index (CPI) at double-digit rates in 1974 and again in 1979-80. (Once those oil price crises had passed, however, CPI inflation settled down to relatively modest rates during the past twelve years. (1)) Meanwhile, the unemployment rate had also shifted erratically higher in the 1970s. Unemployment became a persistent problem, alleviated with only a few years of improvement until very recently.

In the period of golden growth from 1950 to 1974, the unemployment rate rose above 6 percent in only two recession years (1958 and 1961). In the years of oil price crises and economic and financial turbulence, from 1975 to 1993, the unemployment rate fell below 6 percent in only four years (1979 and 1988-1990). (2) The oil price shocks and the persistence of intolerable rates of both unemployment and inflation -labeled stagflation – tore apart whatever consensus might have existed among economists.

As a result, the broad agreement on economic theory dissolved, as did the basis for economic policy at the national level. The U. S. economic malaise created conflict among those economists and policy makers in the Federal Reserve System who designed and carried out monetary policy, as well as among those at the Treasury, the White House, and in Congress who created tax laws and carried out fiscal policy. The intractable economic crisis led to the election of Ronald Reagan in 1980.

His administration adopted a radical “supply-side” economic strategy that linked a high-deficit fiscal policy to a tight “monetarist” policy at the Federal Reserve. This historic reversal of policy amounted to a counterrevolution against the “New Economics” revolution that Kennedy’s economists had launched in the 1960s (on the counter-revolution, see the outline of supply-side economics documented in the Economic Report of the President, 1982; the New Economics revolution is outlined clearly in the Economic Report of the President, 1962).

The Kennedy policy mix, in sharp contrast to Reaganomics, had built upon a tightly controlled budget policy with low real interest rates. The supply-side Reagan counterrevolution had several profound consequences: first, the Economic Recovery Tax Act, passed in August 1981, opened up a structural deficit in the federal budget that was a major cause for the U. S. national debt to rise from $909 billion at the end of 1980 to $2,600 billion when Reagan left office at the end of 1988, and to $4,000 billion when Bill Clinton was elected president at the end of 1992. )

The on-budget deficit had reached $340 billion in the last year of Republican rule (5. 7 percent of GDP). The uncontrolled explosion of the federal budget deficit left the Clinton administration no real choice but to attack the fiscal problem aggressively. Because of Clinton’s budget package passed in 1993, the steep decline of interest rates, and the revival of growth, the deficit has declined faster than expected to some 3. 8 percent of GDP in 1994, and to about 2. 5 percent estimated for 1995.

The second major result of the twelve Reagan-Bush years is that fiscal policy is now locked into a stabilization mode, and therefore paralyzed as a tool for achieving full-employment growth under the mandate of the Employment Act of 1946. Indeed, a steadily declining budget deficit so far in the Clinton administration has dragged down real growth of GDP and slowed the creation of jobs. Therefore, monetary policy has become the only instrument of macroeconomic policy to cope with short-run cyclical problems and long-run growth.

This shift to a tighter fiscal policy has spread abroad to other major countries and has now become an international pattern. From Sweden to Great Britain, Germany, and Italy, politicians have tightened central government budgets to cut down deficits and to reduce intervention of government in the private sector (Steinmo, 1994). In many countries, we can observe the push to “privatize” nationalized industries, reduce government regulation and free up markets.

All across the board, governments are retreating, both as a stimulus to aggregate demand and as an instrument to regulate markets, influence the allocation of resources, and redistribute national income more equitably. This transformation of policy was occurring at a time when OECD countries had 35 million unemployed and 15 million more underemployed. The remarkable retreat from active fiscal policy, and the role of government as a regulator of economic power and an instrument of economic justice, is another result of the extraordinary philosophical counterrevolution carried out during the Reagan experiment.

Government in all its activities from federal to state and municipal levels – even including public education in local communities – was believed to be “part of the problem, not the solution” of the chronic U. S. economic malaise. The historic retrenchment of the public sector at federal, state, and local levels gained momentum when the Republican landslide in the 1994 mid-term elections wrested control of both the U. S. House and Senate from the Democrats.

The new majority, led by Newt Gingrich, attacked the very foundations of FDR’s New Deal welfare state, and the Federal Reserve emerged clearly as the only institutional instrument to carry out macroeconomic policy. Apart from the upheaval in Congress, the year 1994 also signaled the beginning of another cycle of Federal Reserve monetary restraint. On February 4, 1994, Chairman Alan Greenspan announced a quarter-point hike in the Federal funds rate, the first such rise since 1989.

Following that decision, interest rates bottomed out and climbed higher, following seven consecutive increases in the Fed funds rate from 3 percent to 6. ercent(4); the Federal Reserve discount rate was raised from 3 to 5. 25 percent. By early November 1994, thirty-year bond yields had pushed through the 8 percent level, rising from their cyclical low of 5. 78 percent in the Fall of 1993; as the national economy slowed markedly in response, thirty-year yields have dropped back toward 6. 5 percent by early Summer 1995. As Greenspan had explained, the 1994 restraint was a preemptive strike against the emergence of future inflation.

This argument seemed unconvincing, since the economy was improving only moderately well at that time. Even though real growth was picking up, unemployment was falling, and the federal deficit was declining, accelerating inflation was, however, nowhere a visible problem. These deliberate steps to raise the entire spectrum of money and long-term capital rates, despite the fact that inflation had remained at a fairly stable and moderate rate of 3 percent, had generated widespread criticism from Wall Street analysts and bond traders, leaders of U. S. nufacturing and labor, members of Congress from both parties, and academic economists (see the Challenge Symposium, January-February 1995).

The Fed’s actions in 1994 and the chairman’s explanations of the FOMC’s motivations are causing analysts to reexamine the Fed’s policy strategies over the past fifteen years. In retrospect, the Federal Reserve’s performance in the turbulent economic times since the early 1970s raises many questions in a number of major policy areas. The three major functions of the Federal Reserve should be thoroughly examined within the debate over central bank independence: .

The conduct of monetary and credit policy: This should include an examination of the Fed’s selection of the ultimate goals of policy – price stability versus full employment growth. The Federal Reserve clearly operates under the goals set down in the Federal Reserve Act (including, of course, all the contemporary amendments): the Federal Reserve System and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates” (Board of Governors of the Federal Reserve System, 1994, p. ).

The Fed’s ultimate goals are also related to the objectives laid down by Congress in the Employment Act of 1946 (“maximum employment, production, and purchasing power”). The Board of Governors, however, seems to set a narrower policy target (zero-rate inflation, for example) that appears at times to conflict with the policy program of Congress and/or the administration.

Beyond these ultimate objectives defining the performance of the nation’s economy as set by the body politic, the Federal Reserve has considerable flexibility in setting intermediate target variables and day-to-day operating targets. At various times the Fed has experimented with a variety of money and credit aggregates as guides to achieve the ultimate performance goals. But even in formulating and carrying out policy concerning intermediate targets, the Fed is subject to congressional requirements under the Humphrey-Hawkins Act (1978), amending the Employment Act of 1946.

Accordingly, the Fed must announce its targets for growth of money and credit in February of each year and review progress toward the intermediate goals and the economy’s response at midyear. Meanwhile, the system operates on a daily basis directly on money rates (Federal funds, for example) to achieve the desired level of member bank reserves (excess and borrowed reserves) through day-to-day open-market purchases and sales of government securities, and by lending to the banks through the Fed discount window.

Maxed Out Essay

The reasons people buy on credit vary, but without it most of us would probably never be able to purchase necessities such as a home or automobile. The nation’s economy depends on credit, the promise to pay later for goods and services used today; but along with consumer credit comes consumer debt. With the rise in telemarketing and commercializing in America it is no wonder why Americans feel the impulse to buy now, pay later.

The most common form of consumer debt is installment debt, which is when a consumer borrows the money to purchase an item and agrees to repay the loan in equal installments over a fixed period of time. Without installment debt most consumers could not afford to purchase items such as a home. People, tend to want to purchase more than we can afford to purchase when we want it. But, we can afford to pay it out, over time, in fixed payments. Mortgages, a debt owed on real property, are the latest form of installment debt.

Other forms include automobile loans and credit card purchases. Just pick up the newspaper any time after Christmas and you will find articles on managing your mounting debt from Christmas. Not realizing the extent of the consumers’ debt is one of the most common types of credit problems. Denial may play a partial role in this problem, but the lack of education seems to be the largest reason for consumer debt. Credit card use is up 20% and a large number of peole do not know the percentage rate at which the credit card companies charge.

Many credit card companies have started “personalizing” interest rates by not disclosing the interest rate until after the consumer has received the card. By not disclosing the interest rate on the application the credit card companies prohibit the consumer from shopping around for the best deal. You could just say they should cancel the credit card, but did you know several requests for consumer credit could be viewed negatively because the information is reported to the credit bureaus?

This leaves you, the consumer, with a bad credit report. Household debt and bankruptcy are at record levels and appear to be on the rise. Until we as consumers begin to educate ourselves and stop living beyond our means, we only have ourselves to blame. In conclusion, although consumers are not forced to buy, most feel compelled to purchase goods and services because they need them and do not want to wait. Rather than saving they go into debt, the most common of which is installment debt.

Articles of Confederation

Analyze the degree to which the Articles provided an effective form of government with respect to any two of the following: Foreign Relations, Economic Conditions, or Western Lands In 1777, the states enacted the Articles of Confederation to preserve democracy and prevent tyranny from those who sought to centralize power. But in their efforts to keep their independence, the states created a weak central government that was unable to improve an insolvent economy and poor foreign relations.

Although the confederation gained some substantial powers, the crucial powers to tax and regulate commerce remained with the individual states. Each state passed their own currency, and therefore created inflation and made ‘Continentals’; in circulation worthless. Compounded with restrictions on trade to Great Britain and down the Mississippi River, the states became mired in a heavy depression. John Fiske, of the conservative view, realized the precarious situation when he stated ‘the Nation was under the verge of collapse and near-anarchy and that the five year period after 1783 was the most critical time in American History.

Robert Morris, secretary of finance, resorted to desperate measures with the Newburgh conspiracy in an attempt to raise funds for a depleted military; but it took an impassioned plea from General Washington himself to put down the rebellion. Furthermore, the Articles allowed for personal rights abuses such as unsubstantiated foreclosures on farms and ill advised loans to certain ‘ small groups’;, the antithesis of republicanism. As Arthur Schlesinger Jr. stated ‘the Articles were to impotent to govern. ‘; Lastly, no judicial system was provided for to enforce laws and therefore allowed for insurrections such as Shay’s Rebellion.

In addition, to pass legislation required a unanimous consent and more than not a single dissenting vote prevented the ratification of strong economic bills. Overall, the Articles were ineffective in improving the economic state of the new nation. Although Thomas Paine (Common Sense) believed that the Articles and decentralization was a logical choice of government after the strict rule of the British, the Articles inherently divided the interests of the thirteen colonies. Following the war for Independence, foreign relations with Britain and Spain was tense at best, but division of the states made relations worse.

American delegates had to satisfy the needs of thirteen sovereign states, and therefore any resulting treaty was regarded by the minority as a failure. Such was the case in the Jay Gardoqui treaty in which John Jay created a deal for East Coast merchants but at the expense of the interests of the West and South. In addition, a lack of national unity allowed Britain and Spain to continue to subvert the new nation by increasing hostilities with the Indians. Unless a strong a central government was created, the confederation would not be taken seriously by European powers.

The British believed that the new nation could not survive and therefore continued to have military personnel stationed in Canada and in the West. The republicans, such as Adams and Madison, summed up their fears when they said that democracy rule under the confederation was ‘mob rule at worst, uneducated at best. ‘; The Articles was a short term failure in democracy because it lacked the essential strength a government of a national power needed. It wasn’t until the states finally decided to relinquish some power in the Constitution did improvements in economics and foreign relations begin solidify and take shape.

The Current Oil Crisis And How It Is Affecting The Economy

With the current spike in oil prices, many American consumers have asked, “what is going on? ” In order to fully understand the current situation and how it is affecting the economy one must look at a variety of factors including: the history of oil crisis in the United States, causes of the current situation, and possible outcomes for the future. It is only after meticulous research in these topics that one is prepared to answer the question, “what is the best possible solution to the oil crisis? ”

Although many critics have not yet labeled the current oil situation a “crisis,” there is sufficient evidence that it is becoming more severe and is beginning to reflect oil crisis of the past. The current crude oil price spike began early in 1999 due to a variety of factors. Struggle in the Middle East along with minimal policy changes from the Organization of Petroleum Exporting Countries and the U. S. Government has kept prices high to this very day. The History of Oil Crisis Within the United States Before looking at the current oil situation, it is important to understand the times of oil crisis in our country’s past.

Through the years between 1970 and 2000, the price of oil has risen and fallen in often-drastic amounts. It is these price fluxuations in crude oil that has caused fuel prices to vary and the economy of the United States to be volatile. Throughout the past twenty years there have been several drastic changes in oil prices. These dramatic shifts are helpful to look at because of their impact upon the economy and the oil industry. During this time period there are three major shifts in oil price that can be linked to specific events in world history (Miller, 1998).

First, the Arab oil embargo of 1973 caused a widespread oil crisis and brought crude oil from three dollars a barrel to a staggering twelve dollars a barrel. Second, the 1979 Iranian revolution caused another crisis that brought crude oil prices to an all time high of thirty-six dollars per barrel. Finally, the third major shift occurred in 1991 due to the Persian Gulf War (Miller, 1998). Source: The Energy Information Administration (Hakes, 1998). The first large price shift in oil prices came in 1973. The oil crisis of 1973 began in the Mediterranean because of a war.

The Yom Kippur War was a result of an attack on Israel by Syria and Egypt an October 5, 1973. Throughout history, the United States has always shown support for Israel and its campaigns. This situation was no different. The United States and many countries in the western world showed strong support for Israel (Williams, 1999). As a result of this support, Arab exporting nations imposed an embargo on the nations supporting Israel (Williams, 1999). Because these nations had the power of a monopoly in the oil industry, they tried to use the embargo as a blackmail technique.

The Arab nations began the embargo by curtailing oil production by five million barrels per day. In turn, the United States increased production in other countries by about one million barrels per day. The remaining net loss of four million barrels per day extended through March of 1974 and represented seven percent of the free-world production (Williams, 1999). The oil embargo was imposed by Arab oil producers through the then-powerful cartel, the Organization of Petroleum Exporting Countries (OPEC)(Miller, 1998). OPEC was founded in 1960 with five members: Iraq, Kuwait, Saudi Arabia, and Venezuela.

Six other nations had joined OPEC by the end of 1971. These included Qatar, Indonesia, United Arab Emirates, Algeria, and Nigeria. This cartel had experienced a decline in the real value of their product since the foundation of the Organization of Petroleum Exporting Countries (Williams, 1999). But in March of 1971, the power to control crude oil prices shifted from Texas and the United States to OPEC because of a change in governmental regulations. If there was any doubt that the ability to control crude oil prices had passed from the United States to OPEC, it was removed during the Arab Oil Embargo.

During the oil embargo, OPEC boosted prices from $2. 90 per barrel before the embargo to $11. 65 by Christmas. Prices in other markets were even worse; some Iranian oil went for $17 per barrel (Sheets, 1998). The extreme sensitivity of prices to supply shortages became all too apparent. Prices increased four hundred percent in six short months (Williams, 1999). Even though the OPEC induced embargo lasted only six months; it triggered worldwide energy shortages that lasted eight years, a global recession, and permanent changes in the oil market and U. S. economy.

In 1973, the President of the United States, Richard Nixon, tried to bring peace between the Arab states and Israel. His attention could have been more helpful if it was not overshadowed by the scandals of Watergate. The nation at this time was dependant upon foreign oil to keep its transportation systems and factories working (Sheets, 1998). In 1977 – four years after the embargo – President Jimmy Carter appeared on national television and declared “the moral equivalent of war” on the nation’s dependency on imported oil (Miller, 1998).

Because the nation was heavily dependent on outside sources for oil, the impact of shortages and higher prices rippled through the economy and left motorists in a predicament. According to Daniel Yergin in his book The Prize, “motorists waited in line an hour or two, with their engines running and their temperature rising, sometimes seeming to burn more gas than they were able to purchase. ” When the crunch hit, motorists felt security in having a full tank and went to the pumps whenever the needle dipped below completely full.

True, some stations had no gasoline and others rationed out what they had. But the main reason for the long lines was related to the increased trips of Americans to the gas pump (Popular Mechanics, 1996). Although the oil crisis of 1973 affected motorists, it also created havoc in other areas of transportation and the economy. The airline industry was forced to cancel flights and raise the price of tickets. The United States government imposed a blanket fifty-five mile per hour speed limit so that fuel efficiency could be optimized.

An all year daylight savings time was instigated as an energy-saving measure. During the holiday season many neighborhoods banned Christmas light displays and the population had to live with turning down their thermostats. Office building lights were extinguished and big-city skylines faded into the night (Sheets, 1998). The economy was also affected during this time. As the oil crisis hit the country head on in 1973, the economy was slowed dramatically. The stock market became volatile and the American people were thrown into a time of uncertainty.

One lasting effect on America that came out of this time of crisis was switch to smaller, more economical cars. For many years the general public had driven large cars made by Lincoln, Buick, and Cadillac. With the rise in fuel prices, Americans began to buy smaller imported cars. This shift of the market helped the Japanese who had been bringing in nothing but small cars for a decade. But as always there are two sides to an issue. The American car manufacturers were hurt by the shift of the market.

This decline in the U. S. to industry further helped to push the economy into a slump (Popular Mechanics, 1996). The oil embargo ended in the spring of 1974. But a second oil shock jolted the industrial world in the winter of 1978-1979, when crude oil shipments from Iran were halted by a revolution and the overthrow of the Shah (Sheets, 1998). Problems in the Middle East only escalated over the next few years as Iran and Iraq became involved in war. The Iranian revolution resulted in the loss of two to two and a half million barrels per day between November of 1978 and June of 1979.

In 1980, Iraq’s crude oil production fell by 2. 7 million and Iran’s fell by six hundred thousand barrels of oil per day. The combination of these two events resulted in crude oil prices more than doubling from $14 in 1978 to $36 per barrel in 1981 (Williams, 1999). Once again this oil crisis sent the economy into disarray. Motorists had to line up outside of gas stations as they watched the prices go higher and higher. The same governmental controls were still in effect from the oil crisis of 1973 and energy saving methods were once again reinstated.

The one thing that did change through the oil crisis of 1979 was the government’s attitude. They began to realize that if nothing were done soon, the U. S. dependency upon foreign oil and the vicious cycle of oil problems would continue. Therefore, at this time the United States government launched programs to develop electric vehicle, gasohol blends, and expand oil exploration (Popular Mechanics, 1996). During the mid 1980’s, an oil glut developed as a result of a global recession and strict conservation measures (Sheets, 1998).

The methods of conservation in the United States and other countries around the globe were finally making a difference. The price of oil plunged from $32 a barrel in 1985 to $10 a few weeks later. Some Persian Gulf cargoes sold for about $6 a barrel. The stranglehold that the Organization of Petroleum Exporting Countries had on the rest of the world was finally broken. Although this price drop was good for American consumers, it did little to help the struggling U. S. oil industry. The recession in the petroleum industry caused companies to restructure, downsize, and adapt (Sheets, 1998).

By the late 1980’s a newly refocused industry had emerged. It was this new industry that helped America find new sources of oil production and solidify that there would never again be another oil crisis to the extent of the ones in the past. The third and final major oil crisis in U. S. history began in 1991 as a result of the Persian Gulf War. This war originated in the Middle East when Iraq invaded Kuwait on August 2, 1990. After Iraq finished the invasion it proceeded to annex Kuwait, which it had long claimed (Infoplease. com, 2000).

Iraqi president Saddam Hussein declared that the invasion was a response to overproduction of oil in Kuwait, which had cost Iraq over fourteen million when oil prices fell. Saddam Hussein and the Iraqis also accused Kuwait of illegally pumping oil from Iraq’s Rumaila oil field (Infoplease. com, 2000). When the United Nations became involved, it called for Iraq to withdraw it’s troops and issued an embargo on trade with Iraq as well. Subsequently this embargo also applied to the vast amounts of oil that America depended on from Iraq and Kuwait.

On August 7, United States troops moved into Saudi Arabia to protect Saudi oil reserves from their neighbors in the east (Infoplease. com, 2000). When Iraq failed to meet the deadline for peaceful withdrawal set up by the United Nations, Operation Desert Storm was launched. This attack by the U. S. and its allies began on January 18, 1991 and came to a close by the twenty-eighth of the following month. This war in the Persian Gulf had a great affect upon the U. S. economy. The shortages sustained during the conflict were comparable to those during the oil crisis of 1973 and 1979.

Once again American consumers were forced to pay outrageous gas prices and deal with shortages at the gas pump. Also, the New York Stock Exchange was deeply impacted by the oil crisis that ensued due to the Persian Gulf War. Stock prices plummeted and the American public went into a slight panic. Recently, oil prices have been rising at an unprecedented rate. Crude oil has been flirting with twenty to twenty-five dollars per barrel, levels almost reminiscent of the shocks of the seventies (Jaffe, 2000). These dramatic price increases have both impacted the U. S. and world economies.

Although there are many issues involved in oil’s recent price fluxuation, the causes can be narrowed down into three main factors: the influence of the Organization of Petroleum Exporting Countries (OPEC), the dependency of the U. S. upon foreign oil, and the recent conflicts in the Middle East. A near tripling in price of crude oil from March 1999 to the first months of 2000, coupled with developments, initially brought about sharp increases in the price of heating oil and gasoline.

The first factor that is to be considered in determining the causes of the current oil crisis is the influence of OPEC. During this period of soaring oil price, concerns were raise that a commitment from OPEC producers to boost production by roughly two million barrels per day would be needed to replenish worldwide crude inventories and forestall the potential for price volitity and spot shortages of gasoline in late spring and summer of 2000 (Bamberger, 2000). These petroleum-exporting countries held the power to continue the oil crisis by further cutting back on production and raise the crude price even higher.

When OPEC adjusted the production quotas of member nations in March 1999, crude oil supply was reduced by approximately two million barrels per day from previous production levels. In its estimate of global demand for the remainder of 1999, OPEC seriously underestimated the demand for oil. By early 2000, the resulting supply balance from the production cuts was a contributing factor to a raise in crude prices to thirty-two dollars per barrel, significantly higher than the level targeted in the March 1999 meeting (Bamberger, 2000).

In the United States, concerns about reliability of supply and the high price of oil fuels escalated all winter. By late winter, inventories were so low that gasoline supply and avoiding further price increases for the rest of 2000 appeared in jeopardy (Bamberger, 2000). In the weeks prior to the Organization of Petroleum Exporting Countries’ meeting scheduled for March 27, 2000, the United States Administration vigorously pursued a diplomatic course to persuade the OPEC nations that the sharp run up in prices in prices and volatility in world markets threatened the generally upbeat international economic climate (Bamberger, 2000).

Due to these diplomatic efforts, most of the OPEC producers agreed that a boost in production was warranted. On March 28, 2000, OPEC and other producers agreed to raise production (Bamberger, 2000). This increase in production followed up on anticipation of price drops and caused crude oil prices to decline to roughly twenty-five dollars per barrel by the end of the first week of April. Still, this price of crude oil was significantly higher than in the past few years and brought consumers to question the stability of the oil market.

The dependency of the United States upon foreign oil In its annual report, the Department of Energy forecasted that the United States dependence on imported oil will grow to sixty-six percent by 2020, far higher than the record set in 1998 of fifty percent (Miller, 1998). To illustrate how much this percent has changed over the past twenty years, at the time of the 1973 oil embargo the nation was importing a mere thirty-three percent of its oil. This increase in oil imports is largely due to a reduction in oil production within the United States and an increase in U. S. demand for petroleum products (Miller, 1998).

There are a variety of factors that are involved in the decision to import. The truth from an economic perspective is that it is cheaper to import oil rather than to try to develop it domestically. It is also true that any reasonable level of dependence in itself would not make a country vulnerable (Aaron, 2000). The problem that arises in situations that involve dependence is that no matter the degree of dependence, sudden disruptions of supply can occur.

Furthermore, a country that is heavily dependent upon a good or service is extremely vulnerable to economic catastrophe. Because of the market for oil and the countries that produce it locally, some degree of dependence is inevitable. To combat this vulnerability, a country must minimize its vulnerability at any moment of time. Diversity of supply has to be front and center (Aaron, 2000). For the United States, oil must be acquired from as many sources as possible. The most secure supply source, all things being equal, has to be within the United States (Aaron, 2000).

If the United States continues to rely upon foreign oil sources too heavily, the doors are left wide open for oil crisis in the future and the current situation will have difficulty culminating. The recent conflicts in the Middle East Just like a decade ago, the current conflict in the Middle East is threatening to end the longest-running economic expansion in United States history. The events that take place in the Middle East have a great impact upon the U. S. economy and the price of oil worldwide.

The recent events that transposed have caused conflict between the Israelis and the Palestinians. According to Barbara Slavin in USA Today: It has been only two weeks since Israeli opposition leader Ariel Sharon visited Jerusalem’s disputed Temple Mount to underscore Israel’s claim to a site deemed holy by Jews and Muslims alike. But in days of rage that followed, as Palestinian riots swept the West Bank, “the conflict has been transformed from a nationalist one to an ethnic, religious one that is much harder to control,” says Shibley Telhami, a Middle East expert at the University of Maryland.

It’s automatic now that most of the passion is going to be anti-American. We are entering a period of huge uncertainty. ” This current situation suits Saddam Hussein interests perfectly and allows him to “attack” Arab leaders without raising a finger. Some have speculated that Iraq might take advantage of the current tight market to turn off the tap of more than two million barrels a day, thereby throwing the industrial world into a financial crisis (Slavin, 2000).

These events leave the rest of the world on the edge of their seats in anticipation. This conflict has done much to raise the price of oil worldwide. The Affect of the Oil Crisis upon the Economy Since 1970, sharp increases in the price of oil have always been followed by economic recession in the United States (Blake, 1997). The impact on the economy of U. S. dependence on foreign oil is great. Because the U. S. imports over half its oil, the energy efficiency of the nation is steadily decreasing. In 1996, the U. S. sent 60. billion dollars overseas to pay for fossil fuels, funding foreign economies rather than strengthening American communities (Blake, 1997).

This loss in energy efficiency will ultimately undermine and weaken the economy. One important factor to consider when looking at economic stability is the United State’s share of oil in the gross domestic product. For example, before the U. S. ended price controls in 1979, oil in the gross domestic product (GDP) was 8. 7% (Aaron, 2000). Because of this it is not surprising that until 1990, every time oil went up, the U. S. ent into economic recession. But a dramatic rise in oil prices in 1999-2000 has not led to a measurable decline in the growth of the GDP.

This is because currently, the share of oil in the GDP is only about three percent (Aaron, 2000). Therefore, one can surmise that oil has a smaller affect upon the nation’s economy than in previous years. According to Larry Goldstein, the director of the Petroleum Research Foundation: I think we’re less vulnerable today to a political disruption in supply in part because oil is less important to the United States economy.

However, while the economy has tried to insulate itself from oil price shocks, it is still not fully immune (Aaron, 2000). In late August 2000, oil prices which had dipped below thirty dollars per barrel began to rise again and the Dow Jones Industrial Average slipped toward ten thousand, a level not seen since March. The United States economy is cushioned more against a possible recession than it was a decade ago but, higher oil prices combined with a plummeting stock market could have a significant impact (Slavin, 2000).

Coping With High Oil Prices: A Summary of Options With the continued rise of petroleum, the Government and other sources have begun to look at possible solutions to this problem. The impact of a virtually doubling in residential home heating costs along with sharply higher gasoline prices has had an “adverse economic impact” that seems to justify drastic measures (Burt, 2000). When considering possible solutions to the oil crisis, it is important to look at a verity of options that would be beneficial.

The Northern Alliance Essay

Delegations representing the northern alliance, exiles backing the ex-king and two smaller exile groups all pledged to seek a power-sharing formula as they began talks under strong international pressure to end more than two decades of war. While the Afghans are meeting, the United States, Russia and neighbors such as Pakistan and Iran are exerting heavy influence from the corridors.

Regional stability and billions in development aid are at stake. ”The atmospherics for the opening session were remarkably good,” said James F. Dobbins, the U. S. government’s Central Asia envoy. ”The prospects of us making some progress are pretty good. Dobbins said detailed discussions were only beginning, but he suggested the factions could agree to establish former king Mohammad Zaher Shah – who has lived in exile in Italy since his 1973 ouster – as uniting figure.

”Everybody sees the ex-king as a rallying point and hopes that he will be ready and able to play that role,” he said. Zaher Shah is a Pashtun, the largest ethnic group in Afghanistan, estimated at between 40 and 55 percent of the population. The Pashtuns – whose participation is seen as key in any government – have no separate delegation at the talks, though there are Pashtun representatives in each of the groups.

The northern alliance, made up mainly of members of the Tajik and Uzbek ethnic minorities, holds a strong hand entering the conference, since its fighters now control around half the country and hold the capital, Kabul. During their first closed session, the delegates agreed that their goal was to establish an interim administration that would be followed by the convening of a national assembly of tribal leaders, or a loya jirga, possibly by the Afghan New Year, in March, U. N. spokesman Ahmad Fawzi told reporters. The assembly would then approve another transitional administration that would govern for up to two years.

After that would be a second loya jirga, which would approve a constitution that will guarantee rights for all Afghans, women included, and a goal of elections, Fawzi said. The leaders also agreed to try and reach a consensus in three to five days, he said. In a strong Pashtun endorsement, Pashtun leader Hamid Karzai telephoned the conference room from Afghanistan.

Fawzi read excerpts from the call: ”We have been made extremely poor and vulnerable but we are a strong people who would like to assert our will and a sense of self-determination,” he said. ”This meeting is the path toward salvation. Due to rapid developments on the battlefield, key warlords – including Karzai – stayed home, sending sons, sons-in-law or key aides instead.

German Foreign Minister Joschka Fischer opened the conference at a luxury hotel overlooking the Rhine River, urging delegates ”to forge a truly historic compromise that holds out a better future for your torn country and its people. ” The delegates must agree on binding rules for a future political system and respect for human rights, particularly for women, whose participation is ”essential for the country’s peaceful future,” Fischer said.

The northern alliance delegation here said it would not use its battlefield victories to seek advantage. ”It is not our pride to monopolize power. It will be our pride to work for a broad-based government based on the will of the people of Afghanistan,” the northern alliance delegation leader Younus Qanooni said. However, the alliance’s titular head, Burhanuddin Rabbani, said the Germany talks were unlikely to yield substantial results. He told reporters in Dubai that the Bonn talks ”should be the last meeting held outside Afghanistan. I don’t expect decisive results from the meeting.

Rabbani, a Tajik who was ousted from the presidency by the Taliban in 1996, has never given up his claim to the post. He had pressed for the conference to be held in Kabul, which is controlled by his forces. Each of the four delegation heads underscored the need for flexibility and an interim authority that would include all Afghans. Two women were among the Afghan delegates at the table. At the foot of hill where delegates met, about 30 Afghan women rallied for greater rights in their country, where the Taliban stripped away nearly all women’s rights.

About 300 supporters of the exiled former king also demonstrated. The former king’s grandson, Mostapha Zaher, descended from the hill to greet the crowd. He told reporters that talks were proceeding in a friendly atmosphere and expressed optimism they would succeed. ”We are going to get peace. That’s what we came for,” Zaher said. The talks at Peterson, a secluded luxury hotel across the river from Bonn, Germany, are seen as a historic opportunity to stabilize Afghanistan and avert a repeat of fighting between rival warlords after they drove out Soviet occupiers in 1989.

The economy in the United States

The current state of the economy in the United States has been slow in recent months. While the economy is not currently in a recession, we may eventually fall victim to the first recession we’ve had in nearly ten years. The economy in general is showing growth, just not much. It will be difficult to predict what exactly will happen to the US economy in the future. Many economists do not agree on what will become of the economy. Some feel that we will begin a recession over the next year, and some feel that there is significant policy implementation that will allow us to dodge a recession and regain our economic strength.

There are many factors that make up the US economy. The means in which I will discuss the overall growth and current status of the economy is by analyzing the Gross Domestic Product, and discuss the factors that cause it to rise and fall. The GDP is the total aggregate income of the United States. It is comprised of consumption, investment, government spending, and net exports. The GDP in the fourth quarter of 2000 grew at a 1. 1% annual rate, the lowest since a 0. 8% increase in the second quarter of 1995. The below par performance in GDP is due to those factors that comprise the GDP.

The most important of which is consumption. Consumption in the United States has been less than expected mainly due to low consumer confidence. Consumer confidence has hit a 10 year low with an index of 106. 8 as reported by Alan Greenspan. In the past 2 months the index number has plummeted nearly 22 points, the biggest decrease since the 1990-1991 recession. The reason for this recent drop in consumer confidence is due to several key factors. One factor is the poor performance of the stock market. The Dow Jones is down from its peak that was hit last year, but has now rebounded slightly.

The Nasdaq took a dive with the decrease in the prices of tech stocks. The Nasdaq has fallen nearly 56% from its peak in March of 2000. The Wilshire 5000, which is a broader market, is also down by about 22%. Also a factor in dropping consumer confidence is the fear of more layoffs by major employers. The media has paid a lot of attention to large layoffs of companies, yet the labor markets still remain fairly tight.

The natural rate of unemployment in the US is approximately 5%, which is higher than the actual rate of unemployment, which is estimated to be 4. . Another reason for the depletion of consumer confidence is the rise in inflation. The inflation rate was 3. 5 percent last year as calculated by the consumer price index. Raising prices mean that consumers are less likely to purchase goods and services, and it also causes concern amongst them. A main reason for the increase in the inflation rate is the increase in energy costs. The increase in costs of energy is due primarily to a decrease in the supply of energy and an increase in the demand.

Also playing a role in the lack of consumption is the purchasing power of net assets, or net wealth. In recent years when the stock market had been performing well, consumers were experiencing large increases in net wealth. Now that the market has been falling, net wealth is down and people have less purchasing power. Investment is another part of the economy that contributes to the GDP. Categories of investment include physical capital, residential construction, and inventories, all of which are owned by firms. Manufacturing activity has decreased so far this year in most parts of the US.

Falling output among makers of high tech equipment and motor vehicles and parts was reported in the “Beige Book” in Atlanta, Chicago, St. Louis, and Dallas. Also noted was declining production of electronics and telecommunications, as well as production of industrial equipment and building materials. However there were improvements in production of pharmaceuticals and biotechnology. Most of the firms who reported declines in production also had increases in inventories. They reported that their inventories were higher than they had anticipated, and due to that have cut capital spending.

It is hardly a wonder why investment has declined with the effect that consumer confidence has had on consumption. Government spending is also a very important part of the GDP. Government spending makes up about 16 percent of the economy’s aggregate expenditures. The government purchases many things with the taxes it generates. Some such things that the government spends their money on are defense, education, Medicare, and other government programs. Currently, and in recent years the government has been spending less than they could have.

With the tax money generated, the government has actually been running surpluses. This means that the tax dollars generated by the taxpayers have been stockpiled and have not gone to purchase goods and services. This is good because for the first time in many years we have not been running a deficit. It is also bad because the government could be spending more and it would increase the real GDP. In the future President Bush plans to increase government spending as well as cut taxes. The final component of the GDP is net exports. Net exports are composed of total exports minus total imports.

This number is usually a negative number because we are running a trade deficit. The US imports more goods and services than it exports. In the fourth quarter of last year, net exports were down 14. 6 percent and net imports were up 0. 6 percent. This means that there is an even greater trade deficit. The reason for the increase in the trade deficit is due to the strength of the US dollar. The US dollar has remained strong in the foreign exchange, while some countries such as Australia have struggled to maintain high exchange rates on their currency.

Based on the sub par numbers the economy has been producing recently there has been a lot of concern about a recession. Some feel it is inevitable, while others believe that the economy will bounce back. The government has realized that the economy is showing signs that are primary for a recession. But before the country goes into a recession, it has to have negative economic growth for at least 2 quarters or six months. The government fearing that we may slump into a recession has already implemented monetary policy changes and plans on implementing fiscal policy changes.

The changes in government policy will increase the growth of the economy and stabilize the slide downward. The first action that has been taken was by the Fed. The Fed had realized that the economy seemed to be taking a turn for the worse in recent months and were forced to react to the threat of recession. The Federal Open Market Committee decided to cut back interest rates by half a percentage twice in January. First at the regularly scheduled meeting in January, the FOMC agreed to cut interest rates by one half of a percent.

Then later in the month, FOMC chairman Alan Greenspan announced at a surprise to most people that he would cut the short term interest rates by another half percentage at an unscheduled meeting, which is a rare event and usually signals economic unrest. There has also been concern that the Fed may cut interest rates again before the next scheduled meeting of the FOMC. Amid these rumors, in an appearance before congress FOMC chairman Alan Greenspan announce that the Fed would not be moving again outside of their regularly scheduled meeting.

However Greenspan is expected to announce at the meeting between the FOMC that the Fed will once again be reducing the short-term interest rate by half a percent. This will adjust the interest rate to a mere 5 percent. The effect that the lowering of interest rates has on the economy is due to the theory that if interest rates decrease then the supply of loanable funds will increase. Therefore the consumers will have access to more loanable funds and will be able to consume more goods. Also people will be more inclined to borrow money because they won’t have to pay such high interest rates.

Many economists believe that simply reducing the interest rates will stimulate the economy into periods of more rapid growth. Two economists William McDonough the President of the New York Fed, and the President of the Chicago Fed Michael Moskow are cautiously optimistic about the future of the economy. They think that after one or two quarters of sluggish economic progress, the economy will then regain its strength. They are reluctant to say that there will be no recession at all, however they feel that the growth of the economy in the first quarter of this year will be weak, but they think it will still remain positive.

They also noted that the biggest problem would not be increasing inflation, but weakness of market due to low consumer expectations. President Bush has also proposed a series of fiscal policy changes that will help to bring the economy back to its splendor. President Bush has proposed a tax cut bill that will reduce the rate of income tax payable of all US taxpayers. His bill will eliminate the fifth tax bracket and reduce the income tax rates in all brackets. Over the next 10 years, the bill will reduce taxes by about 1. rillion dollars.

While cutting taxes, President Bush also plans to increase government spending, but with controls and limitations on congressional spending. He plans on raising funds in defense, education, as well as other areas. By doing so, President Bush is attempting to effectively use supply-side economics tactics. President Reagan also attempted supply-side economics in the 1980’s, but he was unable to keep the deficit from skyrocketing because the spending restraints on congress never materialized.

If the rate of domestic spending had risen at the same rate as inflation, at the end of his presidency, the government would have had a surplus of almost 250 billion dollars. The way that supply-side economics works is by increasing the disposable income of the taxpayer, which will inevitably increase consumption. The theory is that if people get to retain more of the money that they earn they will work better and longer thus increasing productivity as well as the quality of goods. President Bush’s tax cut plan if done correctly will help greatly to get the US economy to increase its growth.

So is the United States in a recession? The answer is no it isn’t. The US has had a period of sluggish growth, but still it has been positive. The economy will have to grow at a negative rate over the next two quarters in order for the US to be in a recession. But is there cause for concern that a recession may occur? Yes there is, but the government’s interventions should keep the US from falling victim to recession. I believe that the economy will eventually pick itself back up and avoid a recession. The GDP will once again grow at a quick pace.

Strategic challenges of the 21st Century

This module describes ‘what is strategy’ and ‘what kind of strategic challenges can be faced by the organisation in the next century’ by the impact of globalisation. The module of ‘Strategic Challenges’ consisted of 10 weeks time. During these sessions, I will be able to understand the strategy and its positive implementation and how to plan a strategic plan. The different seminar and presentations helped me in the development of personality. It also gave me direction to explain my ideas to other people. I have learnt a lot during this time. It will also help in my future.

The first part of my module deals about ‘what is strategy? ‘. Strategy basically deals with three basic questions and it applies to get the answer of these questions. The three questions are ‘where are we today? ‘, ‘where we want to go in future? ‘, and ‘how we can go there? ‘. Strategy basically makes a bridge among these questions. Initially, strategy is related with or derives form the military vocabulary as term or tool. Than I explain the modern view of the strategy. I explain the concept of ‘Globalisation’ with its demands and complications.

I also describe the impact of globalisation on the business. The last session of this model is about indicating the some ‘Strategic Challenges with the cope of globalisation impact, which would be faced by the organisations. The first challenge for the any organisation is to find out the complexity of the task and setting the vision of the organisation. Normally, strategy is designed by the top management and implemented by the operational management. In this model, I try to describe the every strategic challenge cope with schools of strategy by ‘Mintzberg’.

I have also included the different frameworks and diagrams of different authors. I have also included the different theories and concepts of other authors. All the challenges of the 21st century, I take form the Internet by the expert’s strategic managers. What is strategy? There is no single, universally specific definition of strategy. Different authors, managers, and military leaders use this term differently; some include goals and objective as part of strategy while others make firm distinctions between them.

Initially strategies referred to a role (a general in command of an army). Later it came to mean “the art of the general,” which is to say the psychological and behavioural skills with which he occupied the role. By the time Pericles (450 B. C) it came to mean managerial skill (administration, leadership, oration, and power). And by Alexander’s time (330 B. C. ) it referred to the skill of employing forces to overcome opposition and to create a unified system of global governance. (The strategy processes, 3rd. d. , by Henry Mintzberg 1996, p. 2).

The thought and vision of every human being is different to each other. Every human being has a specific vision in his life. He is very much optimistic about his goal. Than next step, how he can achieve it. What kind of way he should be adopted. Than he started to apply different tactics to meet his shake and satisfying his dominant nature. When he reached, he became a superior on others and occupied a certain position. Thought is known as planning.

Tactics and objectives are known as strategy. The example that comes into my mind for understanding what strategy is, is a bridge. This is where you are, on one side, and this is where you want to go, on the other side. The bridge has to be rooted at both ends. It doesn’t make much sense to talk about strategy, which is just how you get across the bridge from where you are to where you want to go, and have your proposals fit one side and not the other. Now that’s a trivial kind of notion.

If you have a strategy that orients nicely toward your goal, but which makes all sorts of wrong assumptions about where you are starting out, will get you nowhere fast. If you have a strategy that understands the present context well, and relates sensibly to its possibilities and has good recipes for moving rapidly forward, but which doesn’t aim toward where you want to wind up, that might be worse than no strategy at all. If we are examine the corporate strategies of the world’s organisations. We will find the three basic kinds of strategies like as Parenting, Following and Rule breaking.

The first strategy is concern with ‘Parenting group’, this group of organisations like GM, FORD, IBM, GE, Motorola, NEC, Philips….. all these organisations have tendency and responsible for inventing the new products throughout the world. Their main strategy is retain their customer and hold their market share with new and modified products. The second type of strategy is ‘Following’. In this group, their main strategy is following the ‘parenting group’ inventions and produced the same goods and services which introduced by the parenting group.

They get the benefit from the success and failure of the their products, example like as Toshiba, Nokia, Sony, Hitachi ……… The third type of strategy ‘Rule Breaking’ is used by those organisations, which are only involved in inventions and nothing else. Their main strategy is invention. These organisations sale their patents to other organisations of the world. The major examples of these organisations are Del Computer, 3M, Depot Chemicals, Philips etc. I think it is hard to say which kind of strategy is best.

But in the global competition every organisation should have capacity to be best by all means, Modern views on strategy The determinant of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. (Chandler-1962). “The pattern of objectives, purposes, or goal and the major policies and plans for achieving these goals, stated In such a way to define what business the company is in or to be and the kind of company it is or is to be. (Kenneth Andrews-1969)

The impact of Globalisation on Business If developments at the level of the industry are tending to converge on worldwide basis the industry can be said to be globalising. In other words, from the perspective of competition the world needs to be treated as a single market. In this regard, the global industry “is not merely a collection of domestic industries but series of linked domestic industries in which the rivals compete against each other on a truly world-wide basis” (Porter 1986).

If a movie makes by the any Hollywood actor, it means that they will sell it only in USA market but for the global market. In 1996, a movie “Daylight” was a box office did in the home market, earning a modest $33m in North America, but also about the fact that it provide to be a successful export and earned $120m elsewhere. If you are Nolan Archibald, the CEO of Black & Decker, it means that, in reviewing your strategy for the North American power tools market, you look at the strategies of competitors such as Makita and Bosch not only in North America but also world-wide.

If you are Ken Iverson, the chairman of Nucor Steel, it means that, when deciding on major capacity additions such as a new $700m mini-mill, you consider not only US locations but also foreign ones such as Brazil. As the above anecdotes suggest, the world is becoming a global village. The notion of an increasingly interconnected global economy poses a number of related questions: what is globalisation, what is driving globalisation, and what do these trends imply for companies and for managers. (By Vijay Govindaran Amos Tuck School OF Business Admin. 5 Feb 1999)

After the collapse of the former USSR, the process of ‘Globalisation’ accelerated as its main impediment ‘Communism’ in its way died its own death. It means demolish of the boundaries and make the ‘One world’. Development in technology, satellite communications, and crisis of different countries has been shrinking the world. The phenomenon of globalisation is although not new but it always existed in different forms in the world. It brought more potential for organisations to grow and expand becomes almost unlimited.

However, new competitors can suddenly appear any time, from anywhere. Managers who do not closely monitor changes in their global environment or fail to respond quickly to those changes are likely to find their organisation survival in doubt. A major impact of globalisation will be on Branding & Marketing. Companies increasingly compete with each other on a global scale and find themselves having to communicate their products to a global audience. My intriguing area of study is how different companies are responding to the global marketing challenge.

Heinz argues that in the next century “we will increasingly see the development of a global consumer. Heinz has responded to the challenge by standardising all its tomato ketchup bottles, while re-branding the product, through a 31m advertising campaign, to reflect its “distinctive, laconic, cool personality”. However, not all companies view the global market in the same way. Amway, one of the world’s largest direct-selling companies, argues that consumer in different companies have different needs, which makes global marketing extremely high-risk.

Finding the right marketing mix requires finding the common ground between the geographical differences, which requires a detailed understanding of individual marketplace. A study of companies at the start of the third millennium would be incomplete without a look at e-commerce. Microsoft also appears in the guide, with look at the way e-commerce is starting to take over from traditional retailing method. Microsoft predicts that the shape of business will alter more in the next ten years then in the previous 50. It forecasts that the value of transactions completed over the Internet will exceed $3500 billion a year in five years time.

These examples of different successful organisations in last century are providing a guideline for other managers to what kind of cognitive strategy they have made. (The Time) To succeed in the international operating environment of the 21st century, global manager must be preparing his strategy more dynamic and broad way. They have to look the following framework on global forces. (The strategy processes, 3rd. ed. , by Henry Mintzberg 1996, p. 739). Strategic challenge for 21st century In the presence of above framework and effects of globalisation the following strategic challenges could be face by the managers in next century.

Managing across borders: Recent changes in the international operating environment have forced companies to optimise efficiency, responsiveness, and learning simultaneously in their worldwide operations (Bartlett and Ghoshal, 1987). Companies that previously concentrated on developing and managing one of these capabilities, this new challenge implies not only a total strategic reorientation but also a major change in organisational capability, as well. It kind of complex task for the any organisation to keep and balance all three objective in any circumstances.

But it is just initial task, may be they have to face more complicated tasks while doing in global business. It will be very important for the administration to increase the effectiveness/efficiency of tasks not involved directly in the delivery of the product or service as well as internal perspectives. It can be possible for the parent company to keep and improve all these efficiency in his domestic product-market. But it will not be easy to counterbalance all these efficiencies in other unit, which located in the other part of world.

The environmental, cultural, distance and language difference like issues can create a major complexity to keep balance these objectives. We can link and demolish this complexity by applying the Learning and cognitive school of strategy (Mintzberg) introduced the psychology into the field of strategy. The cognitive school of strategy is emerge as description in terms of concepts, maps, schemas, and frames- that shape how people deal with inputs from the environment. The strategic management concerned with functionally specific tasks, any one of which is unlikely to imperil the organisation’s future.

Is the strategic management has competency to cope with challenges or not? The administration is essentially about the change managing, not concepts or ideas, but people. Tom peters tells us that good managers are doers. Michael Porter suggests that they are thinkers. Not so, argue Abraham Zalezinzik and Warren Bennis: good managers are really leaders. Yet, for the better part of this century, the classical writers- Henri Fayol and Lyndell Urwick, among others- keep telling us that good managers are essentially controllers.

The challenge of global building leadership, according to Gary Hamel and C. K. Prahalad, is to embed the ambitions for such leadership throughout the company and to create “an obsession with winning” which will energise the collective action of all employees. The role is build in such an ambition, to help people develop faith in their own ability to deliver on though goals, to motivate them to do so, and to channel their energies into a step by step progression that they compare with “running the marathon in 400-meter sprints”.

I would like to recommend here, to start global business. Management should conduct and frame of their strategy and evaluate it either our HR skills can maintain the balance or not. I am also agreed on the view of Bartlett & Ghoshal, and management should pay more intention towards increasing the efficiencies. Investment Generation For the global operations, every organisation needs huge funds. Fund raising is not difficult task but difficulty starts when we have to return them. The interests- rate, taxes and government policies gobble up more than 60% of profit.

The difference in exchange rates also affects on profit. Most of organisation raised their funds by the “Centralisation”. The complexity can be linked with the strategy of learning and designing/planning school of strategy by Mintzberg, The design school is a formation of a deliberate process of conscious thoughts like level of control, simplicity and formal and indicating the all possible risk factors. The planning school is conscious and control process of formal planning and decomposed the process in distinct steps by detailed execution of operation.

Moreover on designing school, ‘The end product of strategic decisions is deceptively simple; a combination of products and markets is selected for the firm. This combination is arrived at by addition of new products-markets, divestment from some old ones, and expansion of the present position. (Ansoff model 1965:12 from the rise & fall of strategy planning by Mintzberg 1994 p# 43) The Ans. Sterner model on design of new strategy is also emphasis on the current position of the organisation.

The design of a strategy should be very much clear and decomposed into small steps and well define. The analysis of a strategy is evaluated by the concept of SWOT model. This model was initially discovered by the Philip Selznick’s (1957). The SWOT model is stand for as strengths, weakness, opportunities and threats analysis of a design & planning strategy. The above global strategy framework (part 1) is also indicating about the position and resources of business and parent company. In this challenge, I would like to give some suggestions.

The short-term loans are not favourable for any long-term projects. They are some other possible ways like the long term debt, equity financing, venture projects, and new partnerships. If any company is going to open a new project in other country than he should adopt the strategy of making the new partnerships/joint venture either with their government or local company. If it make the partnership with the government than the business will become much securer. This kind of designing/planning strategy is good to become international organisations.

If any company start the any new project within her country than strategy of debenture would be best for the company. Above kinds of designing/planning strategies, company has to pay the very low rate of interest and have a no pressure to return the investment in borrowing time. Improvement in productivity Product improvement only possible by the proper using of resource leverage, strategic alliances and improve productivity ratio. The resource leverage deals with the organisational capacity to gain the maximum profit out of the available resources.

This idea originally reflects Japanese production out of the system. They applied this strategy after the destruction from atomic bomb, when they had only intellectual resource. The improving productivity ratio means, increasing sale rather than cutting cost and head accounts. It requires better intellectual and technological skills. In last two decade, most of organisation is chasing the skill-full workers. Then can increase the production by using the technology but they have no skill to balance business. Therefore, they failed to estimate the exist demand of product.

Most of time, they had to face the surplus production or under production. These elements are not good for those companies who specially involve in global business. The improvement process is also linked with the learning and designing/ planning school of strategy. In this school, where we are decomposing the process into small steps and evaluate it through say using SWOT analysis, but we also have to set some targets and objectives. The targets and objectives are evaluated through the internal and external audit stage.

The audit stage of strategy is shown by the following figure (The rise & fall of strategy by Mintzberg 1994, p. 55) Future Goals Current Strategy At all levels of management how the business is currently And in multiple dimensions competing Competitor’s Response Profile Is the competitor satisfied with its current? Position? What likely moves or strategy shifts will? The competitor makes? Where is the competitor vulnerable? What will provoke the greatest and most? Effective retaliation by the competitor? Assumptions Capabilities Held about itself Both strengths

And the industry and weakness This planning model presents checklists of factors to consider in the external audit, often categorised as economic, social, political, and technological. The internal audit is once again deals with the strengths and weakness of the company. In the above figure, competitors are in the centre. While the other factors deals with the environment of the company. The improvement strategy of product is planned after evaluate the above mention factors. The method of increasing the productivity is normally design by the ‘value added method’.

This process gives us the some numeric data in the shape of how many funds would be need adding the new value, and how much profit we could generate by adding this value. Some time, it may include the new process, automation, and new improved facilities. When we talk about Global business challenge, the improvement in product will become more important. I think in this next century, only that company can survive those could launch the innovative and modified product without waiting of competitor. Companies have to make such strategy and planning about the improvement of their productivity.

But this improvement should be fare calculated on the bases of future demand and supply. The large number of companies had been failed or bankrupt, due to wrong calculation. Proper forecasting and the use of market mix in the presence of globalisation? , it is only when possible, then managers would be use the strategy of cognitive and learning school together. Therefore, Amway has already adopted the cognitive strategy by the standardisation of their products. Knowledge of competition It is very basic and broad term in the business world. The trend of globalisation has been broken the boundaries among the nations.

First companies just have to face the internal competitor in their country. But this next century, every company has to face the global competition. Therefore the knowledge of competition will be biggest challenge for the next century. Now every company has to make global strategy. According to the arguments of Michael Porter about the competitive strategy, he argues, is achieved in one of three ways; through cost leadership, through differentiation or through focus based strategies. He argues that it is important that the organisation is not ‘stuck in middle’ -that it is following the one of the strategies.

Mcnamee and Mchugh’s attempt to test out porter’s concepts in the clothing industry refers to ‘low price’ strategies rather than cost leadership. Karnani infers that, for cost leadership to be attained, the firm must compete on price, and Govindarajan, citing Porter, maintains that’s a strategy of low cost signifies an attempt to sell an essentially undifferentiated product at lower-than-average market price. But according to Donald Schon suggests that it is a mistake to conceive of managerial thought and managerial action as separable: he suggests that management is characterised by ‘reflection in action’.

In effect, managers develop over time and through experience an understanding and interpretation of the context in which they operate, which they apply to situations they face (The challenge of strategic Management by David Faulkner & Gerry Johnson p. 181). The view of Donald Schon about the thought of managers is true. But in this century managers have to follow the arguments of Michael Porter. Otherwise may be they lost their market share. If we take one argument of the Porter like ‘Cost leadership’. It means being the lowest cost to the customer (i. lowest price); others interpreted it as porter intended but felt that it would be difficult to purse such a strategy.

Some companies are conducting by as ‘we aim to be lowest cost producer in our industry’; example likes supermarkets, chain stores. I think the porter model, only applicable in manufacturing industry. But we can not apply it in service industry. And Mintzberg is also linked this model only with the designing school of strategy. Global competition has increased the more importance of proper use of entrepreneur and cognitive strategy.

I have banking background, in my country most of foreign banks took the 25% our customer, only due to their best internal branch atmosphere. My bank have high bureaucracy, I tried to point out the weakness of bank. But my management replayed much negatively. We are doing the business in the best way. We do not need any suggestions. They are very much orthodox in their policies. Therefore I agree on the statement of Donald Schon. In future, as manager, I would like to adopt the strategy of the ABB and Scandivea Bank of Sweden.

They are getting strong edge our competitor by using the strategy decentralisation and ABC & ABB (activity base cost/budget). Expand product line It argues a product/service line by adding additional varieties in the base product line. The attention of this strategy is to provide a broader range of products or services for customers/clients to retain them with your company. The globalisation put a deep impact on the product line and its life. And introduction of new products by our competitors has increased the more choice and product standardisation towards the customers.

It has created a complex atmosphere in the every market. According to the Mintzberg schools of strategy, it could be linked with ‘The positioning school’ & ‘The cultural School’. The positioning school has prescriptive like the design and planning school, but the position school places a greater emphasis on the external environment at the expense of the resources, competencies & capabilities of individual firms. The cultural school is concerned with the scope of an organisation’s activities by matching to its environment.

It also deals with the major allocation and re-allocation of resources and its movement in long term. Some organisations have in culture to introduce the new and modified products after the specific time period. They are applying this strategy to hold their position in the business environment. If, we examine the most successful organisation of this century, like as Ford motors, McDonalds burger, Citizen Watch co. , etc The success of these companies is based on the life of products, the life of existing products is very small and they introduce a new product after the certain time period.

The life of a Burger in McDonalds is only 48 weeks, the age of any citizen watch is only six months and Ford motor also exchange its models after the every six months. The introduction of new product and services in market has been changed the perception of the customer. I think, In this century, every organisation has to emphasis on the short life of product, and they will also emphasis on the modification and invention in products and services as soon as possible. Otherwise, their competitor will launch the new product or service and it will put ultimate effects on their market share.

The learning school of strategy will be worked here. The above ‘Global strategy framework’, in his 3rd part is also indicating such strategy. It will be very important for every organisation to adopt such strategy if he wants to compete in the global market. They have to make this strategy as the part of their cultural. Otherwise, they will be in very big trouble and they will face very difficulty to retain their customers by their historic products. The change in business environment The business environment of the any country is depended upon the following environmental factors.

These factors are represented by the following figure. These factors influencing any organisation, but when organisations are going to start the global operations. Then, the position will be totally opposite. They have to follow regulatory framework of the country and have to change the strategy and make the new strategy according to the demographic changes of that country. Many companies plan strategically on a five-year cycle. The top CEO’s uses the cognitive school of strategy to plan this long term planning. They have to consider and evaluate the all factors and give the some predict about the future.

Normally they use the Michael Porter model in which he describes the five forces, which influence industry profitability. These are ‘competitive rivalry; barriers of entry; threat of substitutes; the power of buyers and the power of suppliers’ However it is not feasible to avoid making the accurate predictions in some cases. For example, the currency of the world aerospace industry is the US dollar; i. e. all aeroplanes are priced in US dollars. This industry makes their price strategy by the predictions of their domestic currencies by the future movement against in the US dollar.

The political changes affect the economic and social dimensions. The recent failure of the WTO at Seattle, It is a very big set back for freer trade/trade-liberalisation of the globe. This set back will put a big affect on the five years strategy cycle. The technology development is directly affected on social trends. The rapid use of technology may hasten the general drive to reduce working hours thus making it more difficult for organisations to attract employees with the appropriate skills.

Last three daces, that ecological or ‘green’ factors are putting majors impact on manufacturing industry. In next century, this trend will also be more accelerated. The final area is social changes. The population rate is very much reasonable in the developed countries of the world. But in the third world countries have been crossed the red light. This rate of increase in their population may be the biggest challenge of the next century. The movement of this population towards the developed countries is also a major problem.

In 2050, the population of the world will be double as compare to 1990. The positive strategy making is an art in the presence of environmental forces. The most well known method of making strategy is ‘Implicitly or explicitly’, the view that one market is intrinsically more profitable than other another has gained wide acceptance in the business community. According to business specialist, those companies which implicitly or explicitly build on these assumptions will find themselves skating on very thin ice. In the survival global business, every industry has to adopt this formula.

They should not try to move forward with same business or same product. Like the position the school, where industry find a new type of business and those business of gaining the market then should start that business and try to make your position strong. They are four stages in the product life cycle ‘Introduction; Growth; Maturity and Decline’. If your business have reached maturity stage than you should look for the any other business that’s at the growth stage. The environmental changes in business need the very appropriate strategy and long term planning.

If any industry has not adopted the any fundamental rule and style of making strategy than it will be very difficult to compete in the global environment. Price policy & terms/conditions of billing The price strategy is put a deep impact in the sale of product. If any industry offer more favourable terms and conditions in order to stimulate market demand for specific services. Price policy is directly to the positioning school. The positioning school emphasises on the external environment at the expanse of the resources, competencies & capabilities of individual firms.

Strategies are generic, identifiable positions in the market and based on analytical calculation. These strategies also based on ‘aim and fired’. The ability of moving position to position and after analysing, anticipated then hold the position is the basic rule of positioning school. The model of Michael Porter’s is used to make the position strategy of the any industry. Potential Entrants Threat of entrants Suppliers Buyers Bargaining power Bargaining power Threat of substitutes Substitutes To describe this model we take the example of ‘Heineken’ world leader in brewing industry.

The first force is threat of entrance of other competitors. Heineken is facing the 14 major competitors in market. It is open market, and there is no any specific law to stop the new entrance. But some people say that it is a monopoly industry of the Heineken firms. The next step is belonged to suppliers. Suppliers have a very big market and lot of their buyers in the market but the policy of Heineken is paying more intention on suppliers as compare to buyers. Because, they are responsible for supplying the raw material for their industry.

Every year they change the terms and conditions with suppliers and try them make more flexible for their suppliers. Therefore they provide them low cost and high quality raw material. While the next step is belonged to buyer power, the buying power is the most important force in the market. Where buying power of the people is strong, every businessman tries to enter in this market. The price strategy of Heineken bear is always focused the middle class people. The Heineken is supplying his bear more than 170 countries of the globe.

To reduce the cost and for control the price. They have started the partnership projects throughout the world. By applying this strategy, they not only increase the market share but also penetrated in the different region of the globe. Last step of the Poter’s model is threat of substitutes in the market. The soft drinks, energy drinks, juices and wine can effect this market. But, people who used to drink the bear, they can not survive with out drinking the bear. In the example of Heineken, the more focus on only two things price and relation with suppliers.

The reason of opening the different partnership project in throughout the world. They want to reduce the cost of product. If any industry is able to control on its cost and overheads, it can easily for it to penetrate in any market and hold its position strong. This strategy is defined in position school. Therefore, Heineken is world leader in bear market. In the global business, if organisation makes a flexible policy towards price and it’s billing.

Offshore Outsourcing Of Information Technologies Services

Offshore outsourcing is not a new practice in the United States. Offshore outsourcing of information technologies services, however, is relatively new to our nation. It is a hot issue in political debates, with this being an election year. Job loss and job creation in the United States is on the platforms of leading candidates. Economists are projecting that the offshore outsourcing of certain types of jobs will in fact create jobs here at home, ultimately benefiting the labor force and our economy.

While there is not significant statistical data yet to support this theory, if one looks to the history of outsourcing as a whole, it does not seem an impossibility. But why are we outsourcing these jobs? What are the factors that have brought us to this place in the labor market? What caused employers to look to other countries for employees? The purpose of this short study is to consider these questions and provide some thoughts as to where we are now, how we got here, and where we are headed with offshore outsourcing of information technology jobs.

Outsourcing is the process of subcontracting services and operations to other firms that can provide them more cheaply or better . Companies outsource tasks, projects, and sometimes even entire operations. Offshore outsourcing, then, would be outsourcing to firms in other countries. This practice is not new, just as the loss of jobs here in the Untied States to other countries is not new. The automobile industry and the steel production industry were hit by outsourcing long ago , as factories were built in other countries and manufacturers hired workers at lower wages to produce parts and products.

And even before this, workers actually lost “skilled jobs to low-wage foreign competition” as long ago as the Industrial Revolution . In the 1800s British skilled weavers were protected by the government with bans on the use of the textile machinery , but only temporarily as the machines proved to be five times more efficient; Indian cloth makers in the 1830s lost out to British textile workers ; in 1892 Andrew Carnegie’s efforts to automate steel production resulted in the infamous Homestead strike of 1892 .

Outsourcing was not the only way low-wage foreign workers affected the work force in the 1800s. There were also millions of immigrants added to the workforce. When that many new workers were added to the labor force, of course it was not without effect on industrial wagesthey were driven down. Both outsourcing and immigration affected the economy in more ways than just the cost of labor. Products were manufactured at a lower cost and thus sold for a lower price. Lower manufacturing costs benefited the companies, and the lower prices of the goods produced benefited consumers.

Outsourcing TodayOffshore Outsourcing How is it Possible? According to Philip Kotler, “Today’s economic landscape is being shaped by two powerful forces– technology and globalization. ” Offshore outsourcing is made possible by these same two factors. This is not surprising, given the history of technological advances’ effects on the economy. Advances in communications technologies and information technologies are making it possible. Several jobs can be performed at one place while reporting to another, by electronically sending the work wherever it is needed.

And offshore outsourcing is having a tremendous affect on the economies of the countries involved. The transportation revolution in the late 1900s was driven by technology, and it completely changed the way goods were transported from place to place. Trains and steamboats made it possible to move raw materials and finished goods alike across continents and even overseas. This resulted in a profound change in the way businesses functioned. The cost of shipping goods fell dramatically. Nations began importing and exporting goods, which changed the way U. S. mpanies worked.

Also, these new technologies created new markets and new industries, such as department stores and mail-order catalogs, which were dependent upon the rail cars to deliver goods. The addition of refrigerated rail cars facilitated the beginning of a national meat-packing business, which forced the closure of local meat-packing plants. In similar fashion, the Internet and the availability of high-speed data access and communications have changed the way we do business today. Some companies allow employees to work from home, via the virtual office.

A computer with Internet access and a telephone are the only tools necessary. There are stay-at-home jobs, such as medical transcriptionists, insurance claim processors, and even computer programmers. These also require only Internet access and a telephone. Communication with employers is primarily done via telephone calls and e-mail. The same technology that created these opportunities for us is now making it possible for workers in foreign countries to compete for them. One example of improved technology making a marked difference is the fiber-optic cabling of telephones into India.

According to TeleGeography, a research division of PriMetrica, Incorporated, the capacity of the lines had increased sevenfold from 2001 to 2002 . This improvement also allowed for better Internet and e-mail services by increasing the bandwidth possible on the phone lines. Worldwide, there have been improvements in bandwidth, compression, secure methods of connectivity, and falling prices for Internet services. All these are contributing factors to the offshore outsourcing; it has become technologically possible. And firms are beginning to take advantage of it.

Here in the United States, communications companies and fiber-optics specialists hit with a whirlwind, and “the glut of high-speed fiber-optic telecom networks in the U. S. led to a near-total collapse of domestic pricing along those routes in the late 19990s: during 1998, in a period of less than a year, prices fell 50%, and they have fallen 80% more since then, according to Oncept. But now, the impact of overcapacity of telecom is reverberating throughout other industries as companies rush to take advantage of improved technology, plummeting costs and cheap labor. ” We saturated ourselves and now the market is ripe.

The physical location of potential employees is no longer a constraint. We have made it possible to share information over data and communication lines in a matter of seconds, from several thousand miles away, and at a reasonable price. Recently in a speech Bruce P. Mehlman, Assistant Secretary for Technology Policy of the U. S. Department of Commerce, said it like this: ” Advances in communications technologies (e. g. broadband Internet) have empowered once-distant service sector workers to compete in real-time, while foreign workers and service providers continue to improve their quality, processes and expertise.

Globalization has influenced offshore outsourcing, also. To some extent, globalization is driven by technology. Physical borders are no longer boundaries, and neither are seas and oceans. More and more businesses are serving multiple countries with their products and services. The ease with which the products can be moved creates a need for laborers as well as skilled workers and management in each market served. According to Dr. Catherine Mann of the Institute for International Economics, globalization caused the 0. 3% growth in the U. S. oss domestic product between 1995 and 2002.

Manufacturing is not the only industry involved but also service industries, such as information technology call centers and software design and development. Why Do We Outsource As defined in section one, outsourcing is the process of subcontracting services and operations to other firms that can provide them more cheaply or better. Firms that outsource believe the job can be done more efficiently by outsiders than by their employees. Traditionally, outsourcing work was about finding workers at lower wages to cut labor costs.

The lower wages are still a factor today, in offshore outsourcing. “Wipro, Limited pays its Indian engineers a fraction of what their U. S. counterparts make. ” Also, Proctor and Gamble found that offshore labor rates were about twenty percent of those in more advanced economies, such as the United States. Other estimates have rates at thirty percent of salaries in the U. S. However, some experts say offshore outsourcing of information technology jobs today is less about reduced labor costs and more about the quality of work and turnaround time.

Bob Evans, Editor in Chief of Information Week, said, “The truth–as galling and bitter as it might be for many in this country to accept–is that companies are turning today to offshore outsourcers because in return they can get better quality in shorter times at lower cost and the object of that hunt is twofold: new sources of reasonably priced innovation and new sources of reasonably priced quality. ” Workers in places like India, Warsaw, the Philippines, Malaysia, and Indonesia are educated, well trained and extremely motivated.

Their economies are bad and they desire to raise the standard of living for themselves and their countries. In India, it seems to be working. The economy grew 10. 4% in the quarter ended in December as compared to one year ago, helped by agriculture, manufacturing, and the services sectorwhich includes outsourcing contracts from other countries. Companies have also benefited by the time difference from the U. S. to Asian countries. There are fourteen time zones from shore to shore. That puts a new spin on working around the clock.

The U. S. stands to gain from offshore outsourcing, too. In global competition, our nation’s companies can “gain opportunities to win global business, particularly as developing nations improve their own domestic markets for hardware, software and servicesExpanding operations around the globe enables American companies to operate closer to growth markets and new customers, improving economies of scale for entire enterprises with global reach and tapping the best-and-brightest talent around the world. “

Australia’s Economy Essay

Australia became a commonwealth of the British Empire in 1901. It was able to take advantage of its natural resources to rapidly develop its agricultural and manufacturing industries and to make a major contribution to the British effort in World Wars I and II. Now, Australia has a prosperous Western-style capitalist economy, with a per capita GDP at the level of the four dominant West European economies. Rich in natural resources, Australia is a major exporter of agricultural products, minerals, metals, and fossil fuels.

Commodities account for 57% of the value of total exports, so that a downturn in world commodity prices can have a big impact on the economy. The government is pushing for increased exports of manufactured goods, but competition in international markets continues to be severe. While Australia has suffered from the low growth and high unemployment characterizing the OECD countries in the early 1990s and during the recent financial problems in East Asia, the economy has expanded at a solid 4% annual growth pace in the last five years.

Canberra’s emphasis on reforms is a key factor behind the economy’s resilience to the regional crisis and its stronger than expected growth rate. Growth in 2000 will depend on key international commodity prices, the extent of recovery in nearby Asian economies, and the strength of US and European markets. Australia’s economy is basically free-enterprise in structure, and its largest components are finance, manufacturing, services, and trade. The gross national product (GNP) is increasing more rapidly than the population, and the GNP per capita is comparable to those of other industrialized countries.

Agriculture produces 4 percent of the gross domestic product (GDP) and occupies an almost equal proportion of the labour force. Arable land totals approximately 6 percent of the total area; of that, about one-third requires irrigation. Wheat and sugarcane are the leading crops, followed by barley, oats, rice, potatoes, cotton, sunflower seeds, and tomatoes. Fruits include grapes, primarily for wine, and oranges, apples, pineapples, and bananas. Rangeland and pastures occupy about 55 percent of the total land area; on this are raised the world’s largest number of sheep, producing more wool than any other country.

Other livestock include cattle, about one-twelfth for dairying, and pigs. Beef and cattle hides are important products. Australia is almost self-sufficient in lumber production. Most of roundwood production is broadleaved, and timber plantations account for about one-fifth of the lumber output. Most fishing in Australia is marine, three-fifths from the Indian Ocean and two-fifths from the Pacific Ocean. More than two-thirds of the annual catch consists of crustaceans; tuna is also important.

Mining and quarrying account for about 4 percent of the GDP and employ about 1 percent of the labour force. Bituminous and lignite coal are the leading energy minerals, followed by petroleum and natural gas. Australia leads the world in the production of bauxite, industrial diamond, and lead; other metallic minerals include iron ore, manganese ore, titanium oxide, zinc, copper, nickel, tin, silver, gold, platinum, cobalt, cadmium, antimony, zircon, bismuth, and tungsten. The principal nonmetallic minerals include limestone, sand and gravel, brick clay, shale, salt, and sulfur.

Manufacturing is well diversified and comprises more than 17 percent of the GDP; it employs about 15 percent of the labour force. The principal manufactures include cement, crude steel, pig iron, metal manufactured products, refined-petroleum products, chemicals, wheat flour, plastics, newsprint, beef and mutton, and textiles. More than four-fifths of electrical production is from thermal power plants, the rest from hydroelectric plants. Tourist attractions include beaches and deep-sea fishing, diving along the Great Barrier Reef, and winter sports in the mountains.

Australia’s labour force was a little less than half of the population in the late 20th century. Unemployment rose to 7 percent in the late 1980s, but some industries reported a shortage of skilled labour. Most unions, organized by industry, are affiliated to the Australian Council of Trade Unions. Except for part of the railway system, industry is privately owned; many of Australia’s large companies are subsidiaries of multinational corporations. The government regulates the economy mainly through monetary policy and taxation.

Government spending cuts achieved a balanced budget in 1981 after deficits throughout the 1970s, and surplus budgets were achieved in the late 1980s. The principal revenue sources are income taxes, excise and sales taxes, corporate taxes, and nontax revenue. The principal expenditures are for social security and welfare, state-government transfers, health, interest on the public debt, and defense. The Reserve Bank of Australia, located in Sydney, is the central bank, with a separate department for commodity-market finance.

The Commonwealth Banking Corporation controls its member development, savings, and trading banks. There are branch banks throughout Australia. The Australian Stock Exchange, located in Sydney, has member exchanges in the six state capitals. The Australian National Railways Commission incorporates the Commonwealth railways and the South Australian (nonmetropolitan) and Tasmanian state railways; other railways are operated by the state governments. About two-fifths of the road network is paved.

Major port facilities are located in Adelaide, Brisbane, Darwin, Fremantle, Gladstone, Gove (Melville Bay), Launceston, Melbourne, Newcastle, Sydney, Townsville, and Westernport. Most of the nation’s inland waterways are accessible only to small, shallow-draft vessels. The busiest international airports are at Sydney, Melbourne, Brisbane, and Adelaide. Australia achieved a foreign-trade balance or slight surplus annually from the late 1970s to the mid-1980s. In the late 1980s the country experienced a small foreign-trade deficit annually.

Major exports are metal ores and scrap, wheat, coal, meat, and wool, principally to Japan and the United States. Major imports are machinery, miscellaneous manufactured products (textiles, paper, and nonferrous metals), transport equipment, and crude petroleum, primarily from the United States, Japan, the United Kingdom, and Germany. In the past, the Australian economy has revealed itself as moody, rugged, rebellious and magnanimous, in keeping with the way many Australians see themselves.

Amid financial market turmoil and the economic ruin and civil strife of neighbors, a bold Australian economy has surged ahead. Again and again, it has defied all odds. By 1998, Despite 8% unemployment, Australian consumers continued to shop, build houses and buy cheaper Asian cars. The stock market hit new highs, enticing more than a million Australians to buy shares for the first time. “The secret of this economic magic is productivity growth, which has been more rapid and sustained than at any time in the last two decades,” says John Edwards, chief economist at investment bank HSBC in Sydney.

Australia’s economy was once exposed to capricious markets and climate, relying on tariffs to keep foreigners at bay. It is now more robust, flexible and export-oriented. The country of almost 19 million people, with a medium-sized economy (comparable to Mexico, South Korea and the Netherlands), can now better withstand shocks such as a currency crisis or trade slump. But, after such a powerhouse fundraiser such as the 2000 Olympics in Sydney, Australia need not worry. Australia and it’s government has experienced much. It has suffered and triumphed, and has stood the test of time.

The Rise of Capitalism

In the mid-19th century, a great system of economics, which would change our lives forever, was formed. That system was called capitalism. Capitalism is an economic system that was created by combining many parts of many other economic systems. Capitalism was based on the idea that private individuals, and business firms would carry out all factors of production and trade. They would also control prices and markets on their own. Mercantilism was the pre cursor to Capitalism although each of them different in many ways.

Mercantilism was for the wealth of the state, while the motive of capitalism was for the wealth of the individual. There were many outlines for this new system called capitalism, which would make it different from any other economic system we have ever seen. What made capitalism different from all other economic systems was that production facilities, land, and capital were all privately owned. What made capitalism different was the government did not control the economy entirely. Capital is based on the idea of free economic decisions for the people; basically the people were free to spend their money how they like.

Companies on the other hand were able to decide what they wanted to produce and how much to charge. In a capitalistic society, the prices of products were regulated by the competition. This means that as long as the markets stay competitive prices would have to also. The system of capitalism was different than any other because non-profit organizations, like churches could also flourish. Capitalism introduced us to the idea of consumer sovereignty, which means that producers will have to best serve their customers in order to stay in business.

Government would be used minimally as a tool to help to prevent injustice’s from being done to the people. Government would protect the people from foreign attack, to guarantee contracts, and to uphold the peoples right to private property. Adam Smith was a British economist who helped to create the system of capitalism that we use today. Adam Smith was one of the major critics of the old system of mercantilism as was seen in his book The Wealth of Nations. He was against mercantilism because he felt like the people worked to make the place where they lived rich and not themselves.

Mercantilism was based on a few major points, most important was that the state must have a favorable balance of trade, which means that they must export more than they import. As you can see in our nation today our balance is not in our favor but yet we remain to be the richest country ever. Mercantilism also focused on the idea of bullionism, which was having hard currency in gold and silver to back up trade. Smith’s idea was that they would take parts of mercantilism and create this new system capitalism.

He felt that in a society with free enterprise people would be able to pursue profit themselves, and this would also benefit the society as well. Smith advocated the new system of capitalism to replace mercantilism. Smith created this idea of the “invisible hand” which was a theory that stated by each person pursuing their own well being they would in the end actually improve the well being of the whole society. Where Adam Smith left off other economists with the same beliefs like Thomas Robert Malthus picked up.

Malthus was most famous for his book entitled An Essay on the Principle of Population where he stated his philosophy on population growth in relation to food consumption. He believed that food production increased arithmetically (2,4,6,8,10), but population tended to double every generation. Although this was not definite because every so often population would check itself. The action of checking itself could come in many different forms like war, plagues, and famine. Malthus felt that we must voluntary limit population growth by late marriage, which would lead to people having fewer children.

Malthus believed that population grew the most when food was abundant. I believe that Thomas Malthus saw overpopulation and starvation as the future of humanity. Karl Marx and Friedrich Engels were also two economists from this time, but their beliefs were very different from that of Smith and Malthus. Marx and Engels were both communists in that they believed that land and capital should be owned by the society, and the fruits of their labor would be distributed equally among all the individuals of the society. Marx knew that capitalism would have to exist as well as communism otherwise no one would survive.

Marx believed that the capitalist class would be overthrown, and that it would be eliminated by a worldwide working-class revolution and replaced by a communist society. Capitalism has evolved since its early introduction by Adam Smith and other early economists. Adam Smiths view of having a complete “laissez faire” society did not come true in today’s world because our government is very much involved in our lives, and defiantly has a greater presence in business. Malthus’s prediction also did not come completely true as we today that overpopulation is not our main problem at least in the United States.

As for Marx’s and Engels’ philosophies they did not take off because people do not want to be limited in the amount of money they could earn. Although communism did develop in countries like Cuba and China they did not develop in the way they were supposed to. Capitalism appears to be the best form of economy right now, but who is to say what lies ahead in the future. As for now our country still remains to be growing even with an unfavorable balance of trade. Everyday new ideas and invention are created which help to impact our economy. The basis that allows for all of this growth and opportunity is capitalism.

Free Trade Report

In an economic age in which speedy transactions of imports and exports are essential, is free trade a necessity for aiding worldwide economic development? At least John F. Kennedy thought so, he being the initiator of removing tariffs and other limitations on U. S. imports. His hypothesis was that by doing that, other nations would follow America’s example and leadership. However, that never happened because the other nations were more concerned with their own problems. Even today, the United States continues to support free trade, an example being NAFTA (North America Free Trade Agreement).

The problem is that America’s generosity has caused the foreign industry to take over the U. S. marketplace. This unfortunately has resulted in high unemployment rates just because consumers and firms can purchase foreign goods for a little less than domestic products. But with this country’s abundant resources, is free trade really necessary? From a conservative viewpoint, the only remedy to decrease unemployment and stimulate our own economic growth is to abandon the free trade policy and raise tariffs. Free trade has only crippled the American work force, increased poverty, and added to our national debt.

If the liberals in Washington D. C. need proof, look at the figures: today there are about 10 million unemployed citizens and 35 million Americans are living in poverty because of free trade. It’s obvious that the foreign industry is taking advantage of us. Just visit any clothing store and you’ll find that most of the apparel comes from South Korea, China, Hong Kong, Sri Lanka, and the Philippines. It’s simply not feasible for the U. S. apparel industry to compete with the extremely low production costs in Third World countries. Also, another example of an industry hurt by free trade is the lumber industry.

Even though our country possesses the largest supply of timber resources, the United States is the largest importer of wood products in the world. The reason: imported wood is less expensive, especially from Canada. Other examples of industries that have responded negatively to free trade are the U. S. textile, petrochemical, fishing, and auto industries. The temptation for consumers to buy cheaper foreign goods has only slowed production in U. S. industries and has caused unemployment levels to skyrocket. America needs to become less generous, more independent, and definitely more self-sufficient.

Free trade policies need to be discontinued if that it is to be accomplished. The liberal viewpoint, however, is somewhat different. In a world of ever-increasing global economic interdependence, the United States should accept the responsibility of leadership towards the approaching 21st Century by promoting free trade. We need to do so in such a way that builds and matures the economies of other countries. As technology continues to advance in areas such as computers, medicine, and communication, we need to prioritize the spreading of these advancements across the world in hopes for reaching worldwide economic stability and unity.

Free trade is the best way to allow for the sharing of valuable resources and technology, which in turn makes the world a better, safer, and more united place for all. Inhibiting free trade is a step backwards in politics that only made sense back in the days when communication was slow and wars were being fought. Allowing for the existence of free trade is a step forward in the right direction towards the necessary global interdependent ways of the nearing 21st Century. Having clarified the different perspectives of the two main political parties on the free trade issue, it is hard to determine which action would be the most advantageous.

Actually, both parties have come to conclusions on this issue which would allow for positive and negative results. The only problem is deciding which one would have the best overall effects. Should we put the immediate focus on our own economy and allow it to prosper, while other poorer countries suffer from the tariffs? Or, should we do away with all taxes on imports in hope that others will follow our bold lead? Only the near future can show which was the best decision. For certain, however, the results will be global.

Bonds and The Bond Market

Given today’s uncertain economy, many people are taking time to examine various options for their financial future. Different types of investments are investigated and bonds are one of the more popular choices considered. Many of the same people who talk about investing in bonds, however, do not fully understand them nor where they place in the economy. Many individuals believe that they should simply buy a bond and wait until it matures before cashing it in.

These people fail to realize that they may be losing a lot of money due to the fluctuation of bond prices. At some point it may be more profitable or them to sell their bond than to keep it until the payment date is reached. There are many people who do not understand what bonds really are. A bond is an agreement between two separate entities. One of these bodies gives, to the other, use of their money for a period of time and, in return, may receive a “bond”. The bond issuer agrees to a fixed rate of return which he will pay the supporting person or business.

This fixed rate of return is an amount, in percentages, which is paid at regular intervals until some future specified time ( the “maturity date”). Upon reaching the maturity date, one’s riginal investment is returned to them. As previously mentioned, bonds are one of the more popular types of financial investment in today’s economy. There are many reasons why people invest in bonds. For example, if one chooses a stable and profitable bond, it will provide a steady source of income through interest payments during the lifetime of the bond.

As well, the risk when investing in a bond is considerably less than for most other forms of investment. The bond does not, for instance, experience the volatility of a stock on the stock market, like many other forms of investment do. Also, in instances where the issuer fails to pay the principal amount back to the bond holder, legal recourse is available. Furthermore, in cases of bankruptcy within large corporations with stock holders, bond holders take priority and are guaranteed payment before stockholders.

During the past forty five years, bonds have experienced their ups and downs. As shown in the chart on the following page, the return rate on bonds has surpassed the inflation rate. Bonds have averaged an interest rate of over six and a half percent, while the inflation rate has averaged under four and a half percent. Although it may seem like an nsignificant amount of interest, over time, this difference in interest rates can lead to extremely large profits. If you invested $1 000 dollars in bonds in 1950, by the end of 1995 you would have acquired $17 630.

While according to the Consumer Price Index (the cost of living rate), you would only need $7 000 to have the same buying power that you would have had in 1950. That is a difference of $10 630 in purchasing power that you would have gained. This increase in purchasing power seems very significant; however, you must also realize that these profits do not include the numerous times when ou could have sold out of your bond for an even greater return. You must also realize that the large difference between bonds and stocks is not fairly represented as well.

Although the stocks show a $79 750 increase over the inflation rate, you must keep in mind that stocks carry a lot more risk than bonds do; this volatility could lead to an enormous loss in money if your money is not invested in the right companies. Let us now examine the various types of bonds available. When people consider investing in bonds they should be aware of their choices and what each different possibility means to them. As with mutual funds and other forms of financial investment, there are many different types of bonds available on the market.

Each individual, when considering bonds, must decide which of type of bond is best suited to him. Some bonds provide a stable income from interest earned and must be kept in the form of a bond until maturity, while others give the bearer an the option of whether or not he or she would like to ‘trade’ the bonds in for common stock. Canada Savings Bonds are labeled as “government bonds”, however, in comparison to regular bonds, their characteristics differ. One advantage of Canada Savings Bonds is that, unlike most bonds on the market, their prices do not fluctuate with interest rates or credibility ratings.

Another advantage that Canada Savings Bonds have is the stability of their value. At any time, a holder of Canada Savings bonds may cash their bonds and receive face value for them. One difference which might be considered a downfall between Canada Savings Bonds and regular bonds is that the federal government guarantees the interest rate of the bond for the first year only, with annual adjustments to the rates every year thereafter. These adjustments, however, do not necessarily have to mean bad news, as there have been many years when the interest rate have gone up.

Another type of government bond is the “municipal bond”. Municipal bonds are provided as a means of financing public works within a particular municipality; for example, the installation of street lights, establishment of libraries and construction and maintenance of roads. This is one of the only ways that municipalities can raise funds, other than through taxes, donations from the federal government and the introduction of fees for different privileges. Failure to pay either the interest or the principal amount of a municipal bond may be followed by legal action against the issuer of the bond.

A big advantage of purchasing municipal bonds is that the interest one earns is tax-free, and can therefore provide you with a tax-sheltered means of income. As well, municipal bonds are more stable than other bonds and are less susceptible to changes in price due to fluctuations of interest rates. Another advantage of the municipal bond is its marketability. Because these types of bonds are in such demand, there is a large market eady to purchase them at a fair price, should one decide to sell. The price of municipal bonds fluctuates.

This means nothing to those who intend to keep their money in the bond until the maturity date. On the other hand, if you must sell your bond before its maturity date, there is the risk that it will have a lower value than what you originally paid for it. This, then, could be viewed as a disadvantage when purchasing this type of bond. Another disadvantage is the presence of a ‘call feature’ on many municipal bonds. This means that the issuer can order you to return the bond. At the point of the call-back, all interest payments cease.

When you return your bond to the issuer, he will give you its face value, with perhaps a slight premium. Another variety of bond is most often referred to as a “zero coupon bond”. One of the biggest differences between this bond and others is that there is no visible interest being paid throughout the bond’s lifetime. Instead, the issuer sells the bond for less than its actual face value and when the maturity date arrives, the difference between what one paid for the bond and the par, or face value, of the bond, reflects the compounded interest hat would have been earned.

This type of bond has many advantages. First the investor does not have to keep re-investing his money, as interest is automatically placed back into the bond until it matures. Secondly, you know exactly what you will end up with on the maturity date. A third advantage is that the rate of return on the investment can be easily determined so that it can be compared to other investments before or while you have the bond, so that you can decide whether it might be wiser to sell the bond before it comes due.

The two main disadvantages in deciding to purchase this type of bond are hat there is no current stream of income and that, in many cases, the interest earned is still taxable. Convertible bonds, as the name implies, is a security that can be “converted” into pre-determined forms and amounts. When a convertible bond is purchased the owner has the right to convert his investment into common stock at any time he might consider it advantageous to do so. Until the conversion is made, the owner collects interest according to the terms of the bond. Once the transaction of conversion takes place, it cannot be converted back into a bond.

After the conversion, the shares of stock that the wner receives are no different from any other shares of common stock in the company. This type of security can be quite advantageous if the price of the bond increases with the prices of stocks in the company. It may also be advantageous to purchase convertible bonds if one is investing in an unstable or questionable business. Bonds rank ahead of all preferred and common shareholders in the event the business declares bankruptcy. It is for this reason that many use the convertible bond as a method of investing in riskier companies.

By using convertible bonds to invest in a company, should bankruptcy occur, ou are guaranteed to receive your money back before almost any other type of investor. Only a small percentage of companies, however, issue convertible bonds. It is because of this that the issue of marketability must be raised when considering these bonds. There is not as much selection when investing, and the bonds that are available might not be attractive to other investors if or when you decide to sell. Further, these bonds might feel a downward pull if the common stock suffers or interest rates go up (as will be discussed later).

Perhaps one of the most interesting types of bonds is the “foreign bond”, which is often lso referred to as an “international bond”. These bonds do not necessarily have to have any ‘special’ features, as one is automatically built in. As with regular bonds, the holder will receive interest payments throughout the year and the face value when the maturity date is reached. However, when purchasing an international bond, what you are actually doing is investing in another country’s currency. Consequently, you must take both the bond price and the currency rate into account.

This additional ‘investment within an investment’ can greatly increase your profit; however, there is also the risk that the ountry’s currency might decline in worth, which in some instances could be quite disastrous. This last problem can usually be avoided if an investment is made in a country with a relatively stable economy. Another advantage to foreign investment and international bonds is the choice which you are presented with. Because you are expanding into the international marketplace, you have many more choices as to what you may invest in and, if investing internationally, you also have a wide range of interest rates.

There are many companies which rate the different bonds on a bond rating scale. These ond ratings carry with them immense power in the financial marketplace. Many money-lending agencies use these ratings to determine the percentage of interest they will charge others to borrow money. These bond ratings, when changed, may cause a great disturbance in a company and may sometimes even lead to its bankruptcy. Of course, the lower the business is rated on the bond rating scale, the more unstable it will appear to potential investors.

Too, businesses that would be considered unstable would also have to pay a considerably larger rate of interest in order to obtain a loan, while ther higher rated businesses would not have to pay quite so much. If a business is unable to make its loan payments, its rating will suffer even more and eventually it will enter a downward spiral until it sinks into the depths of bankruptcy. There are always variations and differences in the rating of companies’ bonds on the bond rating scale. This is because of the number of different companies involved in actually doing the rating.

As bond ratings are not derived from applying numerical formulas to financial data, many companies are rated at a level that is higher or lower than the level ssigned by other rating agencies. An example of these discrepancies can easily be seen when one looks at the ratings for Calmar Inc. Prior to November 25, 1991, Moody’s Investment Service rated Calmar Inc. with a B rating, while Standard & Poor’s rating was significantly lower at CCC+. On November 25 of that year, Moody revised its rating to a Ba rating, supporting what they believed to be a strengthening trend.

Two days later, Standard & Poor’s rating agency decided that the outlook for Calmar Inc had switched from positive to negative. Both of these decisions ere made using the same financial data, yet each agency regarded Calmar’s credit quality differently. While Standard & Poor’s agency had remarked that the earnings for the year were the same as last year, Moody’s agency believed that there was a great potential for further growth. The following are but a few of the rating agencies that one can find in today’s financial market: Moody’s Investment Service, Standard & Poor’s, A. M.

Best, Duff & Phelps, and Fitch Investors Service. The two largest rating agencies, Moody’s Investment Service and Standard and Poor’s, are regarded as the paragons of the rating business. Below are the ratings used by Moody’s Investment Service. MOODY’S INVESTORS SERVICE, INC. Ratings Chart: Aaa. : This is the highest rating a bond can receive. Bonds in this category are of the highest quality. These bonds carry with them the smallest degree of investment risk, often referred to as the “glit-edge”. Their interest is protected by a large or exceptionally stable margin, and the principal remains secure.

Any changes in the economy are not likely to change the financial position of the company. Aa. : Bonds with this rating are regarded as high quality by all financial standards. The argin of security, however, may not be regarded as large as Aaa bonds. There may also be some slight problems within the company which may make the long-term risks slightly greater than the Aaa bonds. Together with the Aaa group, these bonds comprise what are generally known as the ‘high grade’ bonds. A: These bonds have many favourable attributes and are considered upper medium grade.

The security offered on principal and interest are considered adequate but something may be present which might suggest a susceptibility to weakness later on in the life of the company. Baa: This is a medium grade rating. Moody’s believes these bonds to be poorly secured or not highly protected. The interest and principal payments appear good at the present time; however, the long term is uncertain as some protective elements may be lacking. Ba: The bonds falling under this rating are judged to have speculative elements. The future is not well-guaranteed. The security of principal and interest payments is very moderate.

Uncertainty characterizes bonds in this class. B: Moody’s Investment Service believes these bonds to lack characteristics of desirable investment. The assurance of stability in these bonds is small. Caa: Bonds belonging to this category of rating are regarded as poor investments. These companies may default on some or all of their payments. There may also be considerable elements of danger present with respect to future principal or interest payments by this company. Ca: This is the second worst rating that can be attained by Moody Investment Service Inc.

Bonds which fall into this category are highly speculative. Companies listed under this rating often have marked shortcomings. C: Bonds which receive this rating are the lowest rated class of bonds, and companies ith this rating can be regarded as extremely poor prospects of ever attaining any real investment standing. It is quite inadvisable to invest in such companies or corporations. As is evident, there are many different levels on which a bond can be rated. It is no wonder that a bond can be rated at two different levels by two different rating agencies.

In many cases, it is merely an investor’s opinion of an agency’s possible future that decides what rating the bond is to be assigned. Bonds, like many other forms of investment, require potential investors to be aware of current economic conditions. I would stress that a great deal of money can be made if investors consider selling their bonds before they reach their maturity. As with stocks, previously issued bonds are traded every day. The price they are sold for is determined by what the market will bare, that is, the willingness of others to buy a particular bond.

People sell their bonds as the interest rates increase and decrease due to different economic conditions. In fact, the two main determiners of bond prices are interest rates and credit risk. With respect to the risk of the credit quality of the bond issuer, imagine if you will, nvesting money in a nation that is in financial ruin, for example, Somalia. The borrower, in this case Somalia, might not be able to pay interest on a regular schedule or return your principal amount as promised in the end. Somalia might default on some or even all of their payments.

As is quite evident, this would not be a wise investment, and this is why the Somalian bond prices suffer as there is no demand in the financial market for them. Bonds issued by Canada’s federal government are considered to have virtually no credit risk, since the Canadian treasury is unlikely to default on a loan. For corporations, owever, the possibility of “going broke” is not all that inconceivable. Therefore corporate bond prices fluctuate depending on how well the issuing company is doing in the marketplace.

The other main determinant of bond prices is the interest rates in the current economy. When interest rates rise, bond prices will fall. However, during times of declining interest rates, bond prices will rise. There is quite a logical reason for this change in prices when interest rates fluctuate. When the interest rates fall, many people turn to bonds as there is a greater rate of return. The more people who buy bonds, the greater the demand which eads eventually to higher prices, and for the investor, a large profit on the sale of previously purchased bonds.

Interest rates rising, on the other hand, leads to a lesser demand for bonds and consequently the prices of previously purchased bonds decrease. If you are able to hold onto your bond until the maturity date is reached, temporary changes in interest rates will not affect your financial investment; however, if you need to sell the bond before the marked maturity date, you might have to accept LESS than what you paid for it. This volatility can work to your advantage too, because it is possible that our bond could be worth more at the time you decide to sell.

This is why it is important to keep up to date on bond prices. You may be able to make money by simply selling your bond before it’s maturity date. In conclusion, I would suggest that bonds are a wise venue for anybody wanting to financially invest in different corporations or governments. I would caution, however that when selecting a bond, one should seek the guidance of an experienced investor. By choosing a bond that is right for you and your lifestyle, you have the potential of increasing your profits greatly and going home wealthier and happier.

The Foreign Affairs in United States

With the beginning of a seemingly endless war on terrorism, and a shaky United States economy, now hardly seems the time to examine our general policy towards all other nations, and developing nations in particular. The wreckage of the World Trade Center is still smoldering, and our troops are marching on Kabul as I write. Nationalism is at a height only previously experienced during the World Wars. Every other car you see on the highway has Old Glory proudly flying in their window or on their antenna, some right next to their Rebel Flag.

On the surface it appears the United States has pulled together for one more righteous cause, and evil, or those that oppose the US as they are commonly called, will surely fall. We wont stand for innocent attacks on civilians, and those damned Afghanis and Osama bin Laden had better hide. If you dont believe this, not only are you un-American, but you must be a damn terrorist yourself. Quietly, however, the argument is being made among scholars and free thinkers in the United States that perhaps we are not the innocent victims we portray ourselves to be in the September 11, 2001 destruction of the World Trade Center.

Some forward thinking minds even predicted a tragedy somewhat like this, albeit not on such a large scale. Unenlightened people ask why something like this could or would occur. What would make such a poor and unstable country like Afghanistan decides to stand up to the almighty United States? The answer is not an easy one, and requires a large adjustment in what we expect in foreign relations, and how we see and treat the rest of the world as a whole.

The United States is one of the last remaining super powers of the world, and we have the obligation to maintain and support good relations with the smaller and weaker nations throughout the world. We should take full advantage of this relationship in several different ways, all without exploiting the original peoples or our own power. First the U. S. must focus on investing and trading with those nations who have yet to become economic powers. Second, we must implement a consistent foreign policy towards the Middle Eastern nations, and all third world nations in general.

Third, the United States needs to respect the attempts and results of the democratization and religious revivals in the Middle East and Latin America, while taking a passive role in letting the a Western type of democracy take its course. Fourth, the U. S. must ease and downplay its conflict with those civilizations that dislike the “Western people” and their way of life. Obviously, foreign investment is necessary for the future of developing other nations as well as our own.

There must be an emphasis on foreign investment and trade, otherwise the third world nations will continue to fall behind economically, technologically, and domestically, which could lead to an economic downfall for the U. S. as well. The question then arises as to what the United States must do in order to have large trade agreements with other countries other than Japan and Mexico. In order for the U. S. to play a more active role in the economic and political development of many of these developing nations, it must first accept a different philosophy than its current one.

First, it is imperative for the United States to play a similar role in Latin America to the one Japan has played with many of the developing nations in East Asia. The U. S. neighbors Latin America, and if it wants to play the role of big brother, it must accept the responsibility. Japan has invested, traded, and been a guide for many of it’s neighboring countries in East Asia, making them grow politically and economically while also profiting economically itself (Japan Remains 1996).

The U. S. st realize that the economies of Latin American Nations will play an important part in the future of our own economy, and that it must begin to lead, invest, and aid not just Mexico, but countries such as Peru, Argentina, Bolivia, and Columbia into the twenty first century. The mainstay in American foreign policy has always been to promote and instill democracy. However, in order to do this in a foreign nation, the U. S. must be able to first establish a viable economic relationship and system within the desired nations.

We should not expect or want a nation to switch from a total authoritarian government to a market economy; doing so would be a disaster. The United States rests too much on its ideological beliefs, when there is no need to do so. Foreign countries seek our capital and trade routes, not our morals and culture. We, unfortunately, do not feel this is the case. The US has traditionally required all or nothing, in regards to demands on prospective trade partners, and political allies. The United States stance towards Cuba is a notable example of this philosophy. Instead, the U. S. has to be willing to allow developing to nations invest in U. S. markets before we invest in theirs, regardless of ideology.

In return, a viable export / import system will be established. But it is essential that the economy of the developing nation be monitored and run by its own government, and the United States should only be there for advising purposes. When a reasonable system has finally been achieved, then–not right away–a more American, laissez – faire type of economic network will be allowed to grow. If the greatest challenge the United States faces is implementing a foreign policy that is consistent throughout the Middle East, weve done nothing but shoot ourselves in he foot so far.

Islamic nations aren’t likely to be responsive to ideas such as human rights, and democracy. These nations will never be responsive to western ideas when the United States continues to levy sanctions against them. The U. S. is lucky that it has an ally in Saudi Arabia and Israel, allowing them to implement many of these foreign policy agendas against the other Middle Eastern countries, without having to face serious economic consequences in the oil and gas industry. Oddly enough though, Saudi Arabia is probably as much against western ideologies as any nation in the Middle East.

Women do not have equal rights, torture is frequent, there is no separation between church and state, and Saudi Arabia is extremely far from developing any sort of democracy (Miller 58). Now, when the U. S. promotes democracy and human rights, why does it support one country and condemn the next? Throughout the Cold War, American foreign policy would give aid to any nation who opposes communism. So during that time the U. S. developed a “you’re either with us or against us” type of policy, non- alignment. With this policy, many of the Middle Eastern countries became so called enemies with the U. S. , which has led to unrest and hatred of western democracies.

In this time of global economics, the United States cannot pick and choose which countries to invest in. In order for the U. S. to defeat the challenges it faces in the Middle East, it must start by supporting the entire Middle East. Israel and Saudi Arabia may be the most attractive offers, but Syria and even Iran have vast resources that will be very valuable to our economy in the future. Of course we cannot forget about our dear friends off the coast of Miami, Cuba. What edge does a country like China hold over Cuba besides size?

Nothing besides a larger source of cheap labor. Our current stance on Cuba was correct in 1962. Castro was indeed a communist, but only after the US, who he turned to first, refused to help him. In 2001, however, it seems apparent that Castro has metamorphisized into something else. Castro has done an almost complete 180 in his political philosophy, and some would argue that Cuba is almost a democracy already. If we lifted our ineffective embargoes and opened the trade lines in Cuba, I see no reason why Castro would not open his society even more. Americans are missing out on a chance to change Cuba, both financially and politically.

We have the chance to rebuild an entire economy from the ground up, and all we have to do is invest in it. These opportunities are not hypothetical either, but real as apparent to other countries like Canada and the Europeans. Everyone else in the world knows this already because they have made the necessary attitude adjustments and are in there rolling up their sleeves and getting their hands dirty. Castro knows that he cant do this task of changing his entire structure himself, and its only a matter of time before he finds someone to help that will most likely not be favorable to the US.

It happened before when the US denied him and he turned to the USSR, there is no reason why we should let it happen again. As the supposed leader of the free world we should know better. All the US does is preach about the importance of stability and free market systems, and the need for democracy. With an example like we are setting, why should anyone follow? Why should we do everything in our power to ensure neither survives in Cuba? Its time and has been for a long time to swallow our pride and admit we were wrong. The rest of the free world already knows it.

They sit in their Cuban financed offices, smoking big fat Cuban cigars laughing at our arrogance and us. (Smith) Next, the United States must respond to the problems of democratization and religious revival in the Middle East and Latin America. In the Middle East, there seems to be the notion that attempts at democratization would lead to the downfall of minority rights. As Judith Miller pointed out, “The promotion of free elections immediately is likely to lead to the triumph of Islamic groups that have no commitment to democracy in any recognizable or meaningful form” (Miller 59).

What the United States must do is establish a representational or parliamentary process that recognizes all forms of political action. Simply promoting free elections would lead to a backlash in democratization efforts. The fear is in the idea of one group outlawing another. A democracy might be based on majoritarian rule; but all groups, whether they be Islamic fundamentalist or even Christian, must be able to participate in the political process.

Similarly, the United States must show complete support for the democratic process in Latin America. When Salvador Allende was elected President of Chile, the West feared the thought of a complete Marxist government (Rosenberg 28). Not only did we try to kidnap his main general and fail miserably when we actually killed him, we set forth a coup to overthrow a legitimately elected official and went against everything we have preached over the last 150 years about respecting democracy and working within a system.

What needs to be respected is not the political ideology of one group or country, but rather its democratic process. Because democracy neither forms countries nor strengthens them initially, a multiparty system is best suited to nations that already have an established bureaucracy and a middle class which pays income tax, and where the main issues of property and power-sharing have been resolved. Leaving two politicians or parties to argue about the budgets, and letting the tax payers decide who should come to power.

Kaplan E9) A problem then arises as to the issue of Islamic and Christian revivalism, because as countries become poorer and poorer, religion plays an ever increasing role in citizens lives as they search for any glimmer of hope to believe in. Occasionally an extremist group like the Taliban will gain power with ease. How the United States deals with this problem is crucial in maintaining its leadership and future economic entities in both regions. The revival of Islam in the Middle East is a reaction to Western encroachment during and after the Cold War.

Traditionalists believe that by opening up to Western culture they are losing their true faith in Islam. The first step in solving this problem might be to recognize that Muslim nations do not embrace every aspect of liberalism. If the United States can establish itself as a legitimate foreign investor and/or trading partner, rejection of Western philosophies will soon begin to diminish. The U. S. should still stand strong in its fight to combat terrorism and radical militant groups, but must also stop showing favoritism in the region (i. e. Saudi Arabia).

The democratic process can work, but it needs to show the nations of the Middle East that it can be reconciled with religious revival. Allowing groups, majority or minority, the chance to reap in the rewards of democracy does this. Can religious revival be intertwined with economic development or democracy in Latin America? The case of Brazil gives us good evidence as to whether it can or cannot. “The theory of liberation grew out of the militant priests’ direct involvement with the working poor, both urban and rural” (Haynes 100). In Brazil, the church has always embraced the poor.

Priests have worked to show that the church is taking an active role in the impoverished lives of that country. Religion then became an integral part of the societys identity, their politics, and their government. In most developing lands, there is no such concept of separation of church and state. US citizens have an extremely difficult time dealing with this, feeling religion has no business in the affairs of the state, and fail to realize that not only do some cultures feel the opposite, but that they are basically the same entity.

The idea began to spread through out the slums and the pueblos, and the poor were soon being encouraged to participate in some sort of political movement, no matter how minor or trivial it seemed. This was the first evidence of a nation undergoing a religious revival and taking steps toward development and democracy. However, missionaries from other countries, especially from the US, trying to spread their own religion are seen as a direct threat to the integrity of the native peoples religion.

While some do embrace the teachings of Christianity and other foreign cults, others see the work of missionaries as the work of the United States government in a form of divide and conquer. This is painfully apparent in Latin America where the masses are all Catholic, and the missionaries are Protestant. Admittedly most foreign missionaries see themselves as doing the work of their god, and do so out of the best intentions, but fail to see in all occasions the sometimes-irreparable damage this disruption in culture causes.

This incurs a great hatred and a feeling of deep-rooted resentment in native cultures. In much the same way most American families have had values instilled by the church since birth, so too have the cultures afar. Although some will argue that the heart of the conflict lies in the ignorance of the native people to the USs policy of church/ state separation, at least some fault lies in the US for not explaining. It has been proven that participation in a regime allows for a greater wealth of resources economically and politically, while encouraging development.

But, if we try to impose our will by force or intimidation, there will be few willing volunteers to follow and join such a movement. Again, the United States needs to respect the efforts of religious revival because it is returning Christianity or Islam to its roots just as the U. S. is trying to establish democracy to its most basic fundamental aspect in many of these developing nations. The U. S. must allow democracy, in whatever form it takes, to grow.

This means concentrating on being empathetic and tolerant to the political and economic developments that might occur during this time of change, rather than taking forceful actions that many believe is necessary. The role the United States took when communism was being defeated in Eastern Europe and the Western way of life was being pushed to the forefront is the same approach it needs to take with most of these developing nations. Since the United States is at its peak of power in relation to other civilizations, and Western military power is unrivaled, the U. S. st attempt to redefine its image in the non- Western part of the world.

“The United States dominates the international political, security, and economic institutions with Western countries such as Britain, Germany, and France. All of these countries maintain extraordinarily close relations with each other, excluding the lesser and largely non-Western countries. Decisions made at the United Nations Security Council or in the International Monetary Fund that reflect the interest of the United States and its Western allies are presented to the world as reflecting the desires of the world community” (Huntington 39).

This type of selfish global policy can not be tolerated if the United States wishes to be the leader in binding a “World Community. ” The non-westerners view this global decision making in such a way that it in effect makes “the West look as if it is using its international institutions, military power, and economic resources to run the world in ways that will maintain Western predominance, protect Western interest and promote Western political and economic values” (Huntington 40).

These views do have merit to them nonetheless, because the United States does use it worldly powers to influence these international councils in situations when the so-called anti-American countries are involved. Because one nations civilization and culture are totally different from that of the Western nations, the US should not deem which cultures are acceptable and non-acceptable in the realm of the world.

Because for the most part as Huntington states “Western ideas such as individualism, liberalism, constitutionalism, human rights, equality, liberty, the rule of law, democracy, free markets, the separation of church and state, often have little in Islamic, Confucian, Hindu, Buddhist or Orthodox cultures” (Huntington 40). By trying to influence its views through the United Nations and International Monetary Fund on the non-Western Countries, the U. S. in fact just building up more negative sentiment towards itself, which can be seen in the support for fundamentalism of all types by the younger generation in non-Western cultures.

If the U. S. does not attempt to change it’s image in the near future, a new generation of fundamentalist will begin to strike with terroristic activity against the U. S. more devastating than the World Trade Center bombing, and far more widespread. Hate towards the West over unfair foreign policy and favoritism will have been instilled sense birth, and the terrorist will feel that means are justifying the cause.

It is through these policies, agendas, and attempts at foreign investment, and humbleness throughout the world that the United States will be able to maintain its classification as a world power, economically, politically, and socially. If the United States does not act upon these ideas and problems in the near future the results might not be immediate; but we will see the effects well into the twenty- first century when we are no longer regarded as the super power we once were. The attacks on the World Trade Center and the Anthrax scare will merely be the tip of the iceberg.

Is The Celtic Tiger A Paper Tiger

Last year Ireland’s GDP grew faster than anywhere else in the world. In 2001 Ireland remains at the top of the OECD growth league (Economist Intelligence Unit, 2001: 10- 11; OECD, 2001: vi). Nonetheless, though the Irish economy continues to attract the headlines, gone is the euphoric tone of even a year or two ago. Now attention focuses more on plant closures by (mainly U. S. ) multinationals and the downward revision of growth forecasts.

Economists debate the prospects of a ‘soft landing’ and the sustainability f growth rates half or less those experienced in the 1990s. Nonetheless the achievements of the last decade or so have been indeed notable. For reasons noted below, they are better captured by GNP per head than by GDP per head. Not only has GNP per head in the Republic moved far ahead of Northern Ireland’s in the 1990s, but it has reached that of the UK as a whole. Living standards have risen too, if not quite in tandem.

Who would have believed all this possible even a decade ago? Just as there was no hint that a Celtic Tiger was about to roar in the conomic commentary of the early 1990s, there was little sense that the experience might prove temporary in the commentary of the late 1990s (e. g. Gray, 1997; Sweeney, 1998; ansey, 1999; Barry, 1999). Accounts of the Irish economic miracle tended to be very presentcentred. Reading them just a few years later, they seemed to imply that Ireland had switched definitively to a new, higher, steady state growth regime.

So much so that for a few years policy makers from far and near sought the key to achieving apid sustained economic growth from Ireland. 1 It became the turn of IDA personnel and Irish economists to travel abroad offering rather seeking advice. A longer-term, more historical perspective suggests a less dramatic spin. Measuring the performance of the Irish economy against that of the OECD convergence club (shorthand for the pattern reflected in Figures 1(a) and 1(b) below) between mid-century and the mid-1980s implies serious under-achievement.

In this period only the 1960s offered a ray of hope. The 1950s were a ‘lost decade’ of virtual stagnation and mass emigration, while between 1973 and the mid-1980s the record was one of initial growth fuelled by reckless fiscal deficits and a bloated public sector, followed by a painful fiscal correction. However, applying the same simple convergence framework to the 1950-1998 period as a unit suggests that Ireland was 2 ‘on track’, in the sense that it grew as fast as an economy with its 1950 income level might be expected to grow ( Grda and O’Rourke, 1996; 2000).

The difference is clear from Figures 1(a) and 1(b). This, and signs that the economy is now returning to more modest growth rates, suggest that the Celtic Tiger’s main achievement was catching up with the rest. Seen from this perspective, the signs that growth is slackening are nothing to be concerned about. Press commentary evokes a sense of disappointment, however, and public policy, with its focus on the need for yet more and more imported capital and imported labour seems hell-bent on the pursuit of continued rapid growth.

Chaos in The Currency Markets

1. What does the crisis of September 1992 tell you about the relative abilities of currency markets and national governments to influence exchange rates?

The currency markets and national governments both have abilities to influence exchange rates. Like other financial markets, foreign exchange markets react to any news that may have a future effect. Speculators are the part of the currency markets that take currency positions based on anticipated interest rate movements in various countries. Day-to-day speculation on future exchange rate movements is commonly driven by signals of future interest rate movements.

By using the signal, speculators usually take the position before the things actually occurred. Sometime, if high power enough, the speculators position can influence the exchange rate movement. The government controls is one of the factors affecting exchange rate. The government can influence the equilibrium exchange rate in many way, including direct intervening (buying and selling currencies) in the foreign exchange markets and indirect intervening by affecting macro variables such as interest rates.

2. What does the crisis of September 1992 tell you about the weakness of fixed exchange rate regimes?

From European currency crisis of September 1992, it shows us that there are weakness of the fixed exchange rate system. When exchange rate are tied, a high interest rate in one country has a strong influence on interest rates in the other countries. Funds will flow to the country with a more attractive interest rate, which reduces the supply of fund in the other countries and places upward pressure on their interest rates. The flow of fund would continue until the interest rate differential has been eliminated or reduced.

This process would not necessarily apply to countries outside ERM that do not in the fixed exchange rate system, because the exchange rate risk may discourage the flow of funds to the countries with relatively high interest rate. However, since the ERM requires central banks to maintain the exchange rates between currencies within specified boundaries, investors moving funds among the participating European countries are less concerned about exchange rate risk.

3. Assess the impact of the events of September 1992 on the EU ‘s ability to establish a common currency by 1999.

A major concern of a common currency is based on the concept of a single European monetary policy. Each country’s government may prefer to implement its own monetary policy. It would have to adapt to a system in which it had only partial input to the European monetary policy that would be implemented in all European countries, including its own. The system would be alike to that used in the U.S., where there is a single currency across states. Just as the monetary policy in the U.S. cannot be separated across different states, European monetary policy with a single European currency could not be separated across European countries.

While country governments may disagree on the ideal monetary policy to enhance their local economies, they would all have to agree on a single European monetary policy. Any given policy used in a particular period may enhance some countries and adversely affect others. There are some other concerns that could prevent the implementation of a single currency.

For example, at what exchange rate would all currencies be cash in to be exchanged for the common currency to be used? (think about the trouble after reunification of Germany). It would be difficult to reach agreement on this question for each European country’s home currency. Also, some economists believe that changing exchange rates serve as a stabilizer for international trade. Thus, the lack of an exchange rate mechanism could possibly cause greater trade imbalances between countries.

4. The crisis of September 1992 occurred because the ERM system was too inflexible. Discuss.

The inflexible system was not the main reason. The main reason is because there are too different monetary policies among the member of ERM. The German government was more concern about inflation and less concerned about unemployment because its economy was relatively strong. On the other hand, other European governments were more concerned about stimulating their economies to reduce their high unemployment levels. This argument was proved at the end of the crisis when Germany and France s government joined forces to defend the franc against speculative pressure. If all the member joined forces early the crisis may not occur.

5. If you were an executive for a company that engages in substantial intra-EU trade, how would you react to the events of September 1992?

Because the company engages in substantial intra-EU trade, the exchange rate risk is not the major issue-under fixed exchange rate system the exchange rate will fluctuate narrowly. A major concern is the interest rate movement. High interest rate results in high cost of capital to the company and slow growth economic. The problem will even more serious if the company have to pay floated rate liabilities in foreign currencies. The company should consider hedging against interest rate risk such as using interest rate swap or using fixed rate liabilities.

The Gilded Age

A successful economy is perhaps the most key ingredient leading to a successful nation. An economy is a delicate balance of many different conflicting and coexisting elements. Naturally, an economys success can often be measured by the amount of wealth is contains, not to mention the effectiveness or ineffectiveness of its distribution of the wealth. Effective distribution of wealth is no easy feat. Wealthy and poor people will always need to coexist- this is an inescapable truth. The governments job in many cases becomes that of a referee.

Naturally, perfect peace and harmony between to totally different classes would be a utopia, and probably will never be completely achieved. A government must, therefore, regulate economy so that one class does not overrun the other. The real struggle is over a vastly more important issue: who owes what to whom. This most hoary and basic of all social debates usually afforded reverence and inattention of great art: People know its there and mostly they ignore it(Wines238). Society will constantly debate this issue. By very definition, however, there will also always be a wide spectrum of opinions because of social status.

Naturally, the poor will always feel cheated because they feel as if opportunity never has and never will pass them by. The rich, conversely, will always feel as if they are doing society a great favor simply by having their wealth. Poor versus rich debates will never go away no matter how much change is done to government and society. The just deserts theory of poverty is one that best describes American society. For many, the logic of the mobility ideology led to a just deserts rationalization. The matter was simple, according to a local editor: We declare it a vice and a sin for a man to be poor, if he can help it.

And the typical poor man in America could help it(Thernstrom33). More often than not poverty can be helped. Perhaps poverty is what is deserved for laziness in American society. America can not alleviate the defective state of society. Other nations inevitably encounter many of the very same problems and deal with them differently, establishing a wide range of economic systems. Some take on a traditional economy in which one assumes the same job as his or her parents. This system allows very little mobility and is not seen very much worldwide. Other nations chose a command economy.

This entails the federal government appointing individuals with occupations and allows them to become skilled at their respective craft. The market model of economy, developed by Adam Smith entails a freely flowing economy that places little or not restriction on occupation allowing individuals utmost rights. America took on an ethos of a mixed economy of market and command that struck a successful economic equilibrium. American economy also changes with different periods of history. The Civil War had lit the spark of industrialization needed to enhance the American economy.

Technology advanced by leaps and bounds and free labor was done away with to make room for Industrialization and Adam Smiths market model of capitalism. Capitalism was a promoter of the entrepreneur and individual success. It was only natural that during this time of private interest the gap between rich and poor would be greatly widened and a state of disorder might arise. Capitalism was a new ideology and drastic labor problems and social disorder arose because Americans were simply adjusting to (and taking advantage of) the new system.

Although the gap between rich and poor during the late nineteenth and early twentieth century was unquestionably large, the nation was also prospering through large economic gains. Although it may have seemed like a nation in which the rich were detached from the poor, the US was actually harvesting a new breed of self-accomplishing individuals. With the end of free labor, the US had sought a new ideology, and found it in Adam Smiths market model. The market model was a beneficial system overall, however, many focused not on the gains that it brought but instead on the condition of the poor.

The market model was indeed a gain of the time period and was met by the pursue of individual interest. These questions lead Smith to a formulation of the laws of the market. What he sought was the invisible hand, as he called it, whereby the private interests and passions of men are led in the direction which is most agreeable to the interest of the whole society(Borg74). Smiths model promoted a much more aggressive economy and individuals sought their own success. The entrepreneur became the icon of society. The new system allowed individuals to exploit opportunity and rise to astronomical heights.

However, the new system was not solely based on individual success. Corporations sprung up all over the US, which promoted a constant struggle to compete in the business economy. Corporations were constantly seeking the improvement that would put them over the top, above competition. This cutthroat competition, by its nature left some corporations and individuals in the proverbial dust. The entrepreneurial war of all vs. all had begun. Both businessmen (Benjamin Franklin Newhall and Benjamin Franklin) experienced the entrepreneurial war of all against all.

Both saw merchants sometimes pursue interests different from manufacturers. And both stood committed to the underlying system of private property in the means of production owned and controlled by individuals and small firms who bought and sold commodities (including the time and skills of human labor) and competed with one another for sales and, ultimately, profits. the definition of virtue as hard work and self-denial(Dawley40). In order to attain optimal circumstances for increased capitalism heads of corporations naturally needed to outdo each other.

In many cases the price of lowering prices and speeding up production came in the form of pay cuts and layoffs. The individual needed to serve the means of the corporation. Simply because some workers had poor working conditions does not mean that the US economy was in the gutter. Statistics show that the American economy on the whole flourished during the Guilded and Industrial Age (91).

In the fifty years between the eight consensus and the twelfth consensus, taken in 1860 and 1910 respectively, the countrys population soared from 31. 5 million to 92. illion, an increase of almost three times. During these same years the GNP, representing the dollar value of all the goods and services produced each year, leaped from about $7 billion to over $35 billion.

This meant an average increase of in output from $150 to about $380 for every adult and child in the nation(Burner411). These statistics point to economic gains of colossal proportions. Goods produced made up for job layoffs as the US economy became, like a machine, more industrialized each day. All of the key components were in place to have a thriving economy.

Investment bankers also stepped in and became powerful. J. P. Morgan is a prime example of not only economic success, but also how the rich gave back to society. Although the rich of the time (such as Rockafeller, Carnegie, and Morgan) seemed detached from the rest of society and appeared to be dominant, they actually contributed more than they took. While the stereotype contains much truth, it overlooks a redeeming aspect of that opulent time: our harshest industrial overlords proved our most enlightened philanthropists.

The lives of John D. Rockafeller and Andrew Carnegie, tough men from hardscrabble backgrounds who lacked college education, furnish rich lessons for would-be benefactors. They transcended the sentiment and haphazard methods of Victorian charity, substituting the rigor of modern philanthropy. Instead of sponsoring another hospital or museum wing, Carnegie and Rockafeller promoted ideas(Chernow103). It is clear that the rich of the time were elevated to another level, however these men never lost sight of society no matter how high they got. The time of rising large businesses had arrived in force and brought with it newfound economic gains.

The industrialization and guilded age were characterized by abuses through American society, which were not the fault of the system, but the fault of the people. It is common knowledge that the time of Carnegie, Rockafeller and Morgan was marked by extreme wealth of the upper class. Corporation, as illustrated, was a new and thriving force and many individuals were simply taking advantage of the opportunity that frequently passed their way. In many cases the advantages taken were excessive and it is for this that abuses in the national economy were the fault of the bosses and entrepreneurs.

Granted, all individuals were adjusting to the new system of economy, however the blame must be laid somewhere. The rich were living a life of flamboyancy during the early twentieth century. Andrew Carnegies annual income was nearly twenty five million dollars whereas many of his laborers and employees made a mere four hundred and seventeen dollars per year on average (Allen24). The rich were also mentally incapable of even dreaming of being poor. The lives they lived were so extravagant that it was often easy to lose oneself in upper class society and neglect the lower class without a thought.

If Rockafellers own house was not a palace, it was one of more than seventy-five buildings on his estate; if he himself used one car for fifteen years, the garage on the estate was built to hold a fleet of fifty. Within his estate there were seventy miles of private roads on which he could take his afternoon drive; a private golf links on which he could play his morning game; and anywhere from a thousand to fifteen hundred employees, depending on the season(Allen30). Hundreds of entrepreneurs lived in similar lavishness.

During a time of private interest such conditions were natural, however in this particular case the effects of privately interested classes were amplified due to the state of government. The government at the time was practicing a laissez faire attitude, which ultimately meant that they would not interfere with business matters and basically allow the cycle to occur. The aristocracy took advantage of this ideology of government and also thrived without the burden of income taxes. The more advantages the aristocracy took, the greater the gap between rich and poor grew.

The social abuses used by the rich against the poor created an unstable, yet prosperous economy. It is irrefutable that technological advances and success had created perhaps the richest economy to date- rich not just monetarily however, but also rich with ideas and knowledge. All of this wealth came at the price of abuses, however. The biggest categorization of these abuses was namely exploitation. The rich were so detached from the poor mentally, economically, and socially that they could not even fathom the injustices that they were causing. Working conditions and wage labor were at all-time lows.

About the same time a New York newspaper surveyed the unemployed and the poor of the city and found 150,000 persons were out of work. Another 150,000 earned less than 60 cents per day, many of them girls who worked eleven to sixteen hours daily. During the course of the year over 23,000 families were evicted from their homes because they could not pay the rent(Meltzer51). American society at the time was really a coin with two very opposite sides. Working conditions were perhaps the most apparent sign of exploitation. Never before had employers and entrepreneurs acted with such disregard for the laborer.

There were men who worked in the cooking rooms, in the midst of steam and sickening odors, by artificial light; in these rooms the germs of tuberculosis might live for two years, but the supply was renewed every hour. There were the beef luggers, who carried two-hundred pound quarters into the refrigerator cars, a fearful kind of work, that began at four oclock in the morning, and that wore out the most powerful men in a few years(Sinclair101). The gap between rich and poor had grown so big, in fact that bosses only cared about success, and not the means necessary to achieve success.

By allowing such blatant problems in working condition for the workers, the employers and aristocracy in many cases displayed an apathetic feeling towards the consumer. If the bosses had such disregard for the workers, the workers in many cases attempted to find ways to better their conditions (rather than continue weathering them), which only hurt the consumer. A classic example of disregard for the workers from a boss was on the Durst Ranch in California. Ralph Durst, the ambitious boss acted as if his employees were machines and had no need to be cared for.

Living conditions on the Durst Ranch were hellishSince Durst has provided no garbage cans or common trash receptacles of any sort, garbage piled up throughout the encampment. Choked with garbage, two well sump-holes filled the area with stench, polluted the well water, and became the breeding ground for swarms of blue flies The most distress, personal and environmental, was caused by the lack of toilets(Starr159). Although success was imminent in the American economy, social conditions were failing to say the least. The richest one percent of the country enjoyed wealth greater than the total of the remaining 99 percent.

As one historian said, Never before or since in American history have the rich been so rich and the poor so poor(Meltzer53). The Gilded Age was named as such for a reason and it was becoming clear why. The time around the turn of the century had given new meaning to the phrase all that glitters is not gold. Fueling the entrepreneurial exploitation of the lower class was the governments policy of laissez faire in dealing with business. By having a passive government, the aristocracy acted more or less as it chose, actually controlling all three branches of government.

It was well known at the time that the wealthy controlled the senate. Many of the elite upper class would not even deny this accusation. these men constituted a ruling clique that through the committee system of legislation controlled every bill that tried to run the gantlet of the Senate. And pressing over their activities was Vice President Levi Morton, who ranked with Belmont and Morgan as one of the greatest bankers in the land. This august body was labeled the Millionaires Club by contemporaries(Cochran&Miller164). The cause of such extreme wealth had been a lack of regulation by the Federal Government.

Now, however, the lack of regulation would be frozen in place because of the social status of the men in the senate, who understood the power of their position. To put it plainly, no bill would be passed by the Millionaires Club that would in any way cripple themselves. The millionaires did not just control the legislature, either. Harrisons cabinet was sometimes called the Businessmans Cabinet because it included the merchant John Wanamaker and the marble king of Vermont, Redfield Proctor(Cochran&Miller163). The executive and legislative branches were being controlled by a group that could not call themselves unbiased if forced to.

American government had become an aristocracy. One example of the manipulation of government by individual enterprise was the Sherman Anti-Trust Act. The Sherman Anti-Trust was originally meant to restrict big businesses from merging and forming trusts. The act was also passed in order to avoid monopolies. This act, as well as the Interstate Commerce Committee were both toothless regulatory acts which were ultimately turned on the people. The Sherman Anti-Trust was even manipulated by the legislature of millionaires to thwart the rising union powers.

In the Danbury Hatters Case (1905), the Supreme Court also decided that a labor union could not, under the Sherman Act, initiate a secondary boycott-could not boycott one business to force it to put pressure on another engaged in a labor dispute(Burner429). The judicial branch of the Federal Government was also manipulated by entrepreneurs and affected greatly by the laissez faire attitude. The Fuller Court was sitting in the Supreme Court at the time and essentially was used by corporations incessantly. In essence, what the court did through a smattering of decisions all favoring companies (such as Wabash vs.

Illinois and Santa Clara vs. South Pacific Railroad), was protect the companies from the rights of the state government. State government, by right should have had the power to regulate business and be generally dominant in any unfair business matters. Through these court rulings, however, the tables had completely been turned. In Santa Clara Co. v. Southern Pacific Railroad (1886) the court accepted the view that corporations were legal persons and so, like black people protected by the Fourteenth Amendment against being deprived of property without due process of law(Burner428).

Under these rulings, only the Federal Government could regulate commerce, yet the Federal government was practicing a laissez faire attitude. The only regulations of the time were narrow and most were vague and minimally enforced. With all three branches of the Federal Government being controlled by entrepreneurs and millionaires, large corporation held all the cards. Naturally, the lower class would only take the beating of corporation for so long and eventually struck back (literally) in a flurry of strikes and labor protests that were caused by none other than the actions of the wealthy.

For years the railroads of this country have been wholly run outside the United States ConstitutionThey have charged what they pleased for fare and freight rates. They have corrupted the state and city legislatures. They have corrupted Congress employing for the purpose a lobby that dispensed bribes to the amount of millions and millionstheir managers have been plundering the roads and speculating on their securities to their own enrichment(Meltzer91). The corruption spoken about in the above Daily News article had been brewing since the beginning of the generation of such great wealth.

The exploitation of corporation would only go unnoticed for so long and finally the general public began a series of defensive strikes. These strikers sought not to run the entrepreneur out of business, but merely to protect what they had, which was very little. Unions were firstly formed in order to reassure laborers that they would have some protection to fall back on. The unions agreed only to strike when threatened. The logic behind this was that if an entrepreneur had such disregard for his laborers, perhaps a strike would help to wake him up.

The American Federation of Labor (AFL) was an impeccable example of the nature and goals of these early labor unions. Under Gompers, the AFL avoided politics. A former socialist, he concluded that capitalism was in American to stay. Whatever benefits wage earners gained they would have to get within the capitalist system. Taking up with radical movements would only alienate the middle class. Even engaging in middle-of-the-road politics was a mistake. Better to stick to pure and simple trade unionism(Burner471).

The AFL did not seek any grand riot or revolution, they simply wanted justice to be done. The strikes led by the AFL and other unions reflected these humble approaches to labor protests. The Homestead Strike of 1892 reflected a demand for greater wage for the hours worked. The Homestead strikers wanted to defend what they had. The price of living had gone up and their wages down (and plummeting continuously), so that it became almost impossible to support oneself let alone a family.

A man who has a family of normal size to support, can provide for them only a two-room tenement in a crowded court, with no sanitary conveniences; a supply of food below the minimum sufficient for mere physical well-being; insurance that makes provision which is utterly inadequate for the family left without a breadwinner; a meager expenditure for clothes and furniture, and an almost negligible margin for recreation, education and savings(Meltzer136). The strikers were seeking to protect themselves economically, chiefly, but also physically. The disregard for working conditions by the company managers crated a very unsafe and risky workplace.

By striking against economic and physical conditions the demonstrators were striking defensively, and only because they had been provoked for so long that they could not ignore it anymore. The Pullman Strike of 1894 was another example of an entire town uniting to defend itself against George Pullman himself who held a firm stranglehold on the throat of the citizens. The depression caused Pullman to reduce wages by a dire 25 to 40 percent. The effects of such a great chop dealt a debilitating blow to the towns economy, however the citizens found themselves with nowhere else to go.

We are born in a Pullman house, fed form the Pullman shop, taught in the Pullman school, catechized in the Pullman church, and when we die we shall be buried in the Pullman cemetery and go to the Pullman hell(Meltzer151). For lack of a better action, the citizens of Pullman struck and fought to defend themselves from the drastic pay cuts. George Pullman, the unscrupulous businessman won out, however and the men returned back to work. The Lawrence Strike was no different in idea than these other two strikes. Of all the mingled peoples of Lawrence, none are so humble as the Italians, none so eager for work at any price, and none so ill-paid.

They are the last and the poorest of the successive waves of people from Europe, which have been surging upon our shores during the last thirty years. When these people opened their envelopes, they found that there was a reduction of pay corresponding to two hours of work in a week- the price, perhaps, of three or four loaves of bread(Meltzer172). The strikers in Lawrence managed to improve their own conditions somewhat by their defensive strike, yet the exploitation of corporation still remained a dominant force.

Society will always have these natural flaws of exploitation and gap between rich and poor. An economy thrives on the fact that the gap between rich and poor will never be completely bridged. From the time of Carnegie and Rockafeller to the present day, the aristocratic upper class has always been a world away from their workers and employees. Today, however, entrepreneurs have changed form as robber barons. Rather than thriving on the steel industry as Carnegie did or in investment banking as Morgan did, the super rich have now focused on new technological advancements.

The image of greedy bosses and corporate heads has been softened into images of CEOs. Entertainment giants have taken the place of steel robber barons, yet their abuses remain. The potency of entrepreneurship has changed a great deal over the years, however. In December, Disney CEO Michael Eisner exercised 7. 3 million stock options worth over $400 million. But, since the sale came after the close of Disneys fiscal year. Eisners windfall wont show up until next years pay survey. Eisner has more stock option fortunes to come.

Thats not the case for the families who save for years to visit Disney World, or the workers paid pennies an hour to make Disney toys in China and Vietnam(Sklar137). The US still grapples with many of the same issues it did over one hundred years ago- most importantly the issue of who owes what to whom? However, the US is not currently in constant strife between upper and lower class. Strikes are not a frequent occurrence as they were at the turn of the century happening at least every two years. To explain this one can only turn to the hypothesis that the US has shifted from a period of private interest to one of public purpose.

Even if some are still self-interested, the US as a nation has matured and handles labor issues more effectively, accomplishing more. One major difference is that the government has stopped practicing a laissez faire attitude that allows all branches of government to maintain a firm grasp on business using regulations. Now problems attack the economy and government from very different angles. One thing remains constant, however and that is that there will always be a contrast between classes and the struggle to succeed will take on different forms as history progresses.

The North American Free Trade Agreement (NAFTA)

In January 1994, the United States, Mexico, and Canada implemented the North American Free Trade Agreement (NAFTA), forming the largest free trade zone in the world. The goal of NAFTA is to create better trading conditions through tariff reduction, removal of investment barriers, and improvement of intellectual property protection. NAFTA continues to gradually reduce tariffs on set dates and aims to eliminate all tariffs by the year 2004. Before NAFTA was established, investing in Mexico was a difficult process. Investors needed the Mexican Government’s approval and were also required to meet specific investment guidelines.

These requirements necessitated investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors no longer need government approval to invest and are treated as domestic investors. NAFTA has also increased intellectual property rights and allowed companies to obtain patents in Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods; with increased intellectual property protection, however, exports of these goods have shown a definite increase.

As a result of better trading conditions, exports and imports of most other goods have increased along with the research and development intensive goods. In Mexico, the elimination of investment barriers has allowed investment to expand. Increased trading and investment has then created many jobs, raised the Gross Domestic Product, and lowered consumer prices. The free trade that NAFTA has established among the United States, Mexico, and Canada has greatly benefited the U. S. economy. During the years from 1994 to 1997, U. S. trade with Mexico and Canada rose 44 percent.

This extensive growth is accredited primarily to the reduction of tariffs. As tariffs were lowered, U. S. goods became cheaper and more competitive in Mexican and Canadian markets, and at this lower price level the quantity demanded of U. S. goods increased. Therefore it becomes less expensive for U. S. firms to supply goods to Canada and Mexico as the supply curve shifts upward. In order to meet the new demand, the firms must hire new workers and increase investment. Between 1994 and 1997, 90 to 160 thousand jobs were created in the U. S. due to the increase of trade with Mexico, and 2. million jobs were dependent upon trade with Mexico and Canada (Harbrecht 12). The increase in employment and investment then leads to increased national income. The work of NAFTA has also served to benefit Mexico’s economy; in accordance with the United States’ economy, Mexico’s exports have increased, more than doubling since 1993. The elimination of investment barriers has caused a dramatic rise in foreign investment from four billion in 1993 to ten billion dollars in 1998. NAFTA has enabled Volkswagen, IBM, and the textile industry to seek labor and materials in Mexico.

In 1994, a Canada-based entrepreneur invested four million dollars in a metal-stamping plant. The plant is now a major material suppler for Volkswagen although it was originally intended to employ only 130 people. The plant currently employs 1,300 workers and generates 57 million dollars in sales each year (Ebrahim 24). NAFTA has also allowed IBM to create plants in Guadalajara that would otherwise have been built in Asia. As a result, the exports of IBM de Mexico have increased from 350 million to 2 billion dollars in five years and the increased exports have created over 270 jobs (Ebrahim 26).

Mexico’s textile industry, too, has grown as a result of NAFTA, in 1996 overtaking China to become the largest supplier of textiles to the United States. U. S. mills invest hundreds of millions of dollars to build plants in Mexico as an effect of the reduced tariffs and shipping time. It takes only eighteen hours to ship goods to the Mexican border, while it takes twenty-one hours to China. Increased investment and exports have created jobs and increased GDP. In 1998, Mexico’s economy grew 4. 5 percent and economists predict that it will grow an additional 2. percent in ’99 (Harbrecht 35).

Free trade under NAFTA has also encouraged international specialization, the production of only the goods that a particular economy can produce most efficiently. If the U. S. for example, is efficiently manufacturing cars and Mexico, producing corn, then the U. S. should produce only cars and Mexico, only corn. They are more efficient if they each produce at their highest output, and trade for other goods. International specialization increases efficiency, lowering consumer prices; consumers no longer have to pay for inefficiently produced goods.

With all the good effects of NAFTA unfortunately there is some negative effects. One of the greatest impacts on Canadian and United States economies has been loss of jobs and decreased wages. Even though NAFTA has created jobs in the export sector, other production industries have moved their facilities to Mexico where wages are lower and operating costs are lower. Also, wages in Canada and the United States have been held in check and in some cases lowered by the threat of job loss associated with companies moving to Mexico if employees were not willing to work for less benefits or wages.

On a whole, it is perceived that workers rights have diminished somewhat because employers now can hire “cheaper labor”. In the United States and Canada some wages are stagnating if not declining somewhat. In addition, many border workers on the United States and Mexican sides have lost their employment when factories were relocated to other areas where lower wages helped decrease production costs and increase profits. In essence, the larger corporations and businesses have benefited from NAFTA while smaller companies have been effectively erased from the economic equation.

The influx of immigrants from Mexico has increased even though some see this as only temporary but nonetheless has also led to loss of jobs or wages for some Americans because the immigrants will work for minimum wage more readily and generally do not have the “power heavy” unions to protect them. The agricultural sector from all sides has seen various adverse effects of NAFTA. United States and Canadian exports are increasing in the agricultural sector but the value of the exports has decreased due to competition from the “south”(Dentzer 82).

Mexican farmers have also seen increased exports but have lost their government subsidies, which effectively negates the gains from increased exports. There are many benefits of NAFTA, which are increased employment, raised national income, higher productivity, and lower consumer prices. The negative effects are increased pollution, loss of U. S. jobs, and unfair treatment and unsafe conditions for Mexican workers. The benefits definitely outweigh the negative effects in the long run because improved economies will raise the standard of living and promote better overall economic growth in all of North America.

Economic comparsion

GREAT BIG WHITE WORLD In space the stars are no nearer they just glitter like a morgue and I dreamed I was a spaceman burned like a moth in a flame and our world was so fucking gone but I’m not attached to your world nothing heals and nothing grows because it’s a great big white world and we are drained of our colors we used to love ourselves, we used to love one another all my stitches itch my prescription’s low, I wish you were queen just for today in a world so white what else could I say? d hell was so cold all the vases are so broken and the roses tear our hands all open mother mary miscarry but we pray just like insects the world is so ugly now because it’s a great big white world and we are drained of our colors we used to love ourselves, we used to love one another all my stitches itch my prescription’s low, I wish you were queen just for today in a world so white what else could I say?

ROCK IS DEAD All simple monkeys with alien babies amphetamines for boys crucifixes for ladies sampled and soulless worldwide and real webbed you sell all the living for more safer dead anything to belong rock is deader than dead shock is all in your head your sex and your dope is all that we’re fed so fuck all your protests and put them to bed god is in the tv 1,000 mothers are praying for it we’re so full of hope and so full of shit build a new god to medicate and to ape sell us ersatz dressed up and real fake anything to belong rock is deader than dead shock is all in your head your sex and your dope is all that we’re fed so fuck all your protests and put them to bed god is in the tv U

SER FRIENDLY Use me when you want to come I’ve bled just to have your touch when I’m in you I want to die user friendly fucking dopestar obscene will you die when you’re high you’d never die just for me she says, “I’m not in love, but I’m gonna fuck you ’til somebody better comes along. se me like I was a whore relationships are such a bore delete the ones that you’ve fucked user friendly fucking dopestar obscene will you die when you’re high you’d never die just for me she says, “I’m not in love, but I’m gonna fuck you ’til somebody better comes along. ”

FUNDAMENTALLY LOATHSOME I want to wake up in your white, white sun I want to wake up in your world with no pain but I’ll just suffer in a hope to die someday while you are numb all of the way when you hate it you know you can feel but when you love it you know it’s not real no and I am resigned to this wicked fucking world on its way to hell the living are dead and I hope to join them too I know what to do and I do it well… when you hate it you know you can feel but when you love it you know it’s not real no shoot myself to love you if I loved myself I’d be shooting you

COMA WHITE There’s something cold and blank behind her smile she’s standing on an overpass in her miracle mile (coma): “you were from a perfect world a world that threw me away today today to run away” a pill to make you numb a pill to make you dumb a pill to make you anybody else but all the drugs in this world won’t save her from herself her mouth was an empty cut and she was waiting to fall just bleeding like a polaroid that lost all her dolls (coma): “you were from a perfect world a world that threw me away today today to run away” a pill to make you numb a pill to make you dumb a pill to make you anybody else but all the drugs in this world won’t save her from herself

THE SPEED OF PAIN They slit our throats like we were flowers and our milk has been devoured when you want it it goes away too fast when you hate it it always seems to last but just remember when you think you’re free the crack inside your fucking heart is me (thought, not spoken): I wanna outrace the speed of pain for another day I wish I could sleep but I can’t lay on my back because there’s a knife for everyday that I’ve known you when you want it it goes away too fast when you hate it it always seems to last but just remember when you think you’re free the crack inside your fucking heart is me (thought, not spoken):

I wanna outrace the speed of pain for another day lie to me, cry to me, give to me I would lie with me, die with me, give to me I would keep all your secrets wrapped in dead hair I hope at least we die holding hands for always. NEW MODEL No. I’m as fake as a wedding cake and I’m Vague and I know that I’m Homopolitan pitifully predictable correctly political I’m the new, I’m the new, new model I’ve got nothing inside better in the head and in bed at the office I can suck and I smile new new new model I can choke and diet on coke I’m Spun and I know that I’m Stoned and Rolling lifelike and poseable hopeless and disposable I’m the new, I’m the new, new model I’ve got nothing inside better in the head and in bed at the office I can suck and I smile new new new model don’t let them know how far you go or that you use your “lovers” oh look, you’re like a vcr stick something in to know just who you are you new new new model

I WANT TO DISAPPEAR Look at me now got no religion look at me now I’m so vacant look at me now I was a virgin Look at me now grew up to be a whore and I want it I believe it I’m a million different things and not one you know Hey and our mommies are lost now hey, daddy’s someone else Hey, we love the abuse because it makes us feel like we are needed now but I know I wanna disappear I wanna die young and sell my soul use up all your drugs and make me come yesterday man, I was a nihilist and now today i’m just too fucking bored by the time I’m old enough I won’t know anything at all Hey and our mommies are lost now hey, daddy’s someone else Hey, we love the abuse because it makes us feel like we are needed now but I know I wanna disappear

THE DOPE SHOW The drugs they say make us feel so hollow we love in vain narcissistic and so shallow the cops and queers to swim you have to swallow hate today there’s no love for tomorrow we’re all stars now in the dope show there’s lots of pretty, pretty ones that want to get you high but all the pretty, pretty ones will leave you low and blow your mind we’re all stars now in the dope show they love you when you’re on all the covers when you’re not then they love another the drugs they say are made in California we love your face we’d really like to sell you the cops and queers make good-looking models I hate today who will I wake up with tomorrow? ere’s lots of pretty, pretty ones that want to get you high but all the pretty, pretty ones will leave you low and blow your mind they love you when you’re on all the covers when you’re not then they love another we’re all stars now in the dope show

POSTHUMAN She’s got eyes like Zapruder and a mouth like heroin she wants me to be perfect like Kennedy this isn’t god, this isn’t god god is just a statistic, god is just a statistic say, “show me the dead stars, all of them sing. ” this is a riot religious and clean god is a number you cannot count to you are posthuman and hardwired she’s pilgrim and pagan softworn and so-cial in all of her dreams she’s a saint like Jackie-O this isn’t god, this isn’t god god is just a statistic, god is just a statistic say, “show me the dead stars, all of them sing. his is a riot religious and clean coma white: “all that glitters is cold, all that glitters is cold”

DISASSOCIATIVE I can tell you what they say in space that our earth is too grey but when the spirit is so digital the body acts this way that world was killing me that world was killing me disassociative the nervous systems down, the nervous systems down I know I can never get out of here I don’t want to just float in fear a dead astronaut in space sometimes we walk like we were shot through our heads, my love we write our song in space like we are already dead and gone your world was killing me your world was killing me disassociative your world was killing me your world was killing me disassociative

THE LAST DAY ON EARTH Yesterday was a million years ago in all my past lives I played an asshole now I found you, it’s almost too late and this earth seems obliviating we are trembling in our crutches high and dead our skin is glass I’m so empty here without I crack and split my xerox hands I know its the last day on earth we’ll be together while the planet dies I know it’s the last day on earth we’ll never say goodbye the dogs slaughter each other softly love burns its casualties we are damaged provider modules spill the seeds at our children’s feet I’m so empty here without you I know they want me dead I know its the last day on earth we’ll be together while the planet dies I know it’s the last day on earth we’ll never say goodbye

MECHANICAL ANIMALS We were neurophobic and perfect the day that we lost our souls maybe we weren’t so human if we cry we will rust and I was a hand grenade that never stopped exploding you were automatic and as hollow as the ‘o’ in god I am never gonna be the one for you I am never gonna save the world from you but they’ll never be good to you or bad to you they’ll never be anything anything at all you were my mechanical bride you were phenobarbidoll a manniqueen of depression with the face of a dead star and I was a hand grenade that never stopped exploding you were automatic and as hollow as the ‘o’ in god I am never gonna be the one for you I am never gonna save the world from you but they’ll never be good to you or bad to you they’ll never be anything anything at all I DON’T LIKE THE DRUGS (BUT THE DRUGS LIKE ME)

Norm life baby “we’re white and oh so hetero and our sex is missionary. ” Norm life baby “we’re quitters and we’re sober our confessions will be televised. ” you and I are underdosed and we’re ready to fall raised to be stupid, taught to be nothing at all. I don’t like the drugs but the drugs like me I don’t like the drugs, the drugs the drugs Norm life baby “our god is white and unforgiving we’re piss tested and we’re praying. ” Norm life baby I’m just a sample of a soul made to look just like a human being. Norm life baby “we’re rehabbed and we’re ready for our 15 minutes of shame.

Norm life baby “we’re talkshown and we’re pointing just like christians at a suicide. ” you and I are underdosed and we’re ready to fall raised to be stupid, taught to be nothing at all. I don’t like the drugs but the drugs like me I don’t like the drugs, the drugs the drugs “There’s a hole in our soul that we fill with dope and we’re feeling fine. ” I don’t like the drugs but the drugs like me I don’t like the drugs, the drugs the drugs IRRESPONSIBLE HATE ANTHEM I am so all american, I’d sell you suicide I am totalitarian, I’ve got abortions in my eyes I hate the hater, I’d rape the raper I am the animal who will not be himself Fuck it Hey victim, should I black your eyes again?

Hey victim You were the one who put the stick in my hand I am the ism, My hate’s a prism Let’s just kill everyone and let your god sort them out Fuck it Everybody’s someone elses nigger/I know you are so am I I wasn’t born with enough middle fingers, I don’t need to chose a side I better better better better not say this Better better better better not tell I hate the hater, I’d rape the raper I am the idiot who will not be himself Fuck it (Chorus) THE BEAUTIFUL PEOPLE I don’t want you and I don’t you Don’t bother to resist, I’ll beat you It’s not your fault that you’re always wrong The weak ones are there to justify the strong The beautiful people, The beautiful people It’s all relative to the size of your steeple You can’t see the forest for the trees And you can’t smell your own shit on your knees Hey, you what do you see? Something beautiful, something free? Hey, you are you trying to be mean?

If you live with apes man it’s hard to be clean There’s no time to descriminate Hate every motherfucker That’s in your way The worms will live in every host It’s hard to pick which ones they eat the most The horrible people, The horrible people It’s as anatomic as the size of your steeple Capitalism has made it this way Old fashioned facism Will take it away (Chorus) DRIED UP TIED UP AND DEAD TO THE WORLD You cut off all of your fingers Trade them in for dollar bills Cake on some more make up to Cover all those lines Wake up and stop shaking Cause your just wasting time Don’t you want some of this? Don’t you need some of this? You take but cannot be given You ride but cannot be ridden Pinch this tiny heart of mine Wrap it up in soiled twine You never read what you’ve written I’ll be your lover, I’ll be forever I’ll be tomorow, I am anything when I’m high Don’t you want some of this? Don’t you need some of this?

You shove your hair down my throat I feel your fingers in me Tear this bitter fruit to mess And wrap it in your soiled dress Now you must spit out the seeds (Chorus) All dried up and tied up forever All fucked up and dead to the world TOURNIQUET She’s made of hair and bones and little teeth And things I cannot speak She comes on like a crippled play thing Spine is just a string I wrapped our love in all this foil Silver tight like spider legs I never wanted it to spoil But flies will lay their eggs Take all your hatred out on me Make your victim my head You never ever beleived in me I am your tourniquet Prosthetic synthesis with butterfly Sealed up with virgin stitch If it hurts just tell me Preserve the innocence I never wanted it to end this way But flies will lay their eggs

LITTLE HORN There’s an apple in the pussy mouth Now I am the dinner whore There’s a tumour in the TV mouth Burn it out before in grows Someone better get the dog to kick Jaws wired shut to save the dick Out of the bottomless pit comes the little horn “Little Horn Is Born” The world spreads it’s legs for another star World shows it’s face for another scar Dead will dance for what is left The worms will wait with bated breath “Your blind have now become my deaf” So says the little horn “Save yourself from this” (Chorus) Everyone will suffer now “You can’t save yourself” (Chorus) CRYPTORCHILD Each time I make my mother cry an Angel dies and falls from heaven When the worm is still a boy it’s hard to Learn the number seven But when they get to you It’s the first thing that they do Each time I look outside My mother dies, I feel my back is changing shape When the worm consumes the boy it’s never Considered rape When they get to you Prick your finger it is done…. The moon has now eclipsed the sun…. The angel has spread it’s wings…. The time has come for better things…

DEFORMOGRAPHY When you wish upon a star Don’t let yourself fall, fall in too hard I tell into you and I’m on my back An insect decaying in your little trap I squirm into you, now I’m in your gut I tilt into you now I’m in a rut I lift you up like the sweetest angel Tear you down like a whore, I will bury your God in my warm spit, You will be deformed in your porn Rock star yeah, you’re such a dirty dirty Rock star yeah, dirty dirty dirty You eat up my heart and all the little parts Your star is so sharp It leaves me jagged holes I make myself sick just to poision you If I can’t have you then no one will (Chorus) You are the one I want and what I want is so unreal I’m such a dirty rock star yeah I am the one you want and what you want is so unreal

WORMBOY When will you realize, you’re already there So watered down, your feelings have turned to mud Love everybody is destroying the value of All hate has got me nowhere I know I’m slipping, I know I’m slipping, I know I’m slipping away. Oh No! It is, everything they said it was Oh No! I am all the things they said I was When you get to heaven, you will wish you’re in hell When will you realize you’re already here You’ll thank us now that you have crossed over Don’t pick the scabs or you will never heal The world shudders as the worm gets his wings (Chorus) Then I got my wings and I never even knew it When I was a worm, thought I wouldn’t get through it

MISTER SUPERSTAR Hey Mr. superstar I’ll do anything for you I’m your number one fan Hey Mr. porno star, I,I,I,I want you Hey Mr. sickly star I want to get sick from you Hey Mr. fallen star Don’t you know I worship you Hey Mr. big rock star I wanna grow up just like you I know that I can turn you on I wish I could just turn you off I never wanted this Hey Mr. superhate I just want to love you Hey Mr. superfuck I wanna go down on you Hey Mr. supergod Will you answer my prayers Hey Hey Hey Mr. superman I wanna be your little girl (Chorus) Hey Mr. superstar I’ll kill myself for you Hey Mr. superstar I’ll kill myself if I can’t have you Superstar, superfuck baby

ANGEL WITH THE SCABBED WINGS He’s the angel with the scabbed wings Hard drug face want to powder his nose He will de flower the freshest crop Dry up all the wombs with his rock n roll sores Dead is what he is, he does what he pleases The things that he has you’ll never wan to see What you’re never gonna be now Sketch a little key hole for looking glass people You don’t want to be him You only want to see him Mommy’s got a scarecrow Gotta let the corn grow Man can’t always reap what he sow He is the maker He is the taker He is the saviour He is the raper (Verse 2) (Chorus) Get back you’re never gonna leave him Get back you’re always gonna please him

KINDERFELD He lives inside my mouth And tells me what to say When he turns the trains on, he makes it go away The hands are cracked and dirty The nails are beetle wings When he turns the trains on he unties all the strings The worm: Tell me something beautiful Tell me something free Tell me something beautiful And I wish that I could be (Then I got my wings and I never even knew it When I was a worm thought I couldnt ge through it) Jack: (Not spoken) Come Come The toys all smell like children And scab knees will obey I’ll have to kneel on broomsticks Just to make it go away |The inauguration of the worm| (Then I got my wings and I never even knew it When I was a worm thought I couldnt ge through it) A voice we have not yet heard: “Because today is black Because there is no turning back Because your lies have watered me I have become the strongest weed” weed Through Jack’s eyes: The taste of metal Disintegrator Three holes upon the leather belt It’s cut and swollen and the age is showing Boy: “There is no one here to save ourself” The disintegrator: (To himself) This is what you should fear You is what you should fear ANTICHRIST SUPERSTAR You built me up with your wishing hell I didn’t have to sell you You threw your money in the pissing well You do just what they tell you REPENT Thats what I’m talking about I shed the skin to feed the fake REPENT Thats what I’m talking about Who’s mistake am I anyway Cut The head off Grows back hard I am the hydra Now you’ll see your star Prick your finger it is done The moon has now eclipsed the sun The angel has spread it’s wings The time has come for better things (Chorus) The time has come it is quiet clear Our antichrist Is almost here It is done 996 Anti Choice Anti Girl I am the anti flag unfurled Anti white and anti man I got the anti-future plan Anti facist Anti mod I am the anti-music god Anti sober Anti whore There will never be enough of anti more I can’t beleive in the things That beleive in me Now it’s your turn to see misanthropy Anti people now you’ve gone to far Here’s your antichrist superstar Anti money Anti hate Anti things I fucked and ate Anti cop Anti fun Here is my anti president gun Anti satan Anti black Anti world is on my back Anti gay and anti dope I am the faggot anti pope (Bridge) (Chorus) Anti peace Anti life Anti husband, Anti wife Anti song and anti me I don’t deserve a chance to be (Chorus) MINUTE OF DECAY There’s not much left to love Too tired today to hate I feel the empty I feel the minute of decay I’m on my way down now I’d like to take you with me I’m on my way down The minute that’s it’s born It begins to die I’d love to just give in I’d love to live this lie I’ve been to black and back I’ve whited out my name A lack of pain A lack of hope A lack of anything to say There is no cure for what is killing me I’m on my way down I’ve looked ahead and saw A world that’s dead I guess I am too (Chorus) I’m on my way down now I’d like to take you with me

THE REFLECTING GOD Your world is an ashtray You burn and coil like cigarretes The more you cry your ashes turn to mud It’s the nature of the leeches The virgin’s feeling cheated You’ve only spent a second of your life My world is unaffected, there is an exit here I say it is and then it’s true There is a dream inside a dream I’m wide awake the more I sleep You’ll understand when I’m dead I went to god just to see And I was looking at me Saw heaven and hell were lies When I’m god everyone dies Scar/can you feel my power Shoot here and the world gets smaller Scar/Scar/can you feel my power Let’s jump upon the sharp swords And cut away our smiles Without the threat of death There’s no reason to live at all My world is unaffected, there is an exit here I say it is and then it’s true There is a dream inside a dream I’m wide awake the more I sleep You’ll understand when I’m dead (Bridge) (Chorus) “Each thing I show you is a peice of my death” Shoot shoot shoot motherfucker LAST FEW LINES UNKNOWN}

MAN THAT YOU FEAR The ants are in the sugar The muscles atrophied We’re on the other side the screen is us and we’re TV Spread me open, sticking to my pointy ribs Are all your infants in abortion cribs I was born into this Everything turns to shit The boy that you loved Is the man that you fear Pray until you’re number Asleep from all your pain Your apple has been rotting Tomorow’s turned up dead I have it all and I have no choice but to I’ll make everyone pay and you will see You can kill yourself now because you’re dead in my mind The boy that you loved is the monster you fear Peel off all those eyes And crawl into the dark You’ve poisioned all your children To camoflage your scars Pray unto the splinters Pray unto your fear Pray your life was just a dream The cut that never heals Pray now baby Pray your life was just a dream (I am so tangled in my sins I cannot escape) Pinch the head off Collapse me like a weed Someone had to go this far I was born into this Everything turns to shit The boy that you loved Is the man that you fear Peel off all those eyes And crawl into the dark You’ve poisioned all your children To camoflage your scars Pray unto the splinters Pray unto your fear Pray your life was just a dream The cut that never heals Pray now baby Pray your life was just a dream The world is in my hands Theres no one left to hear you scream There’s no one left for you.

Real Estate Economics

Real Estate is, by definition, the land and everything that is a part of it and the extent of one’s interest in it. The word real in real estate stands for the fact that it is land and different than personal property. It is real property, property that is more or less immobile. The word estate in real estate stands for the interest that one has in the property. This definitions shows that real estate is a different sort of property. It is property that may be legally yours but it is still not your personal property. Real Estate is land and property that can be acquired, owned or transferred by both individuals and business.

There are rules and regulations to follow when performing any one of those actions. These rules and regulations become very important when discussing the balance in real estate. But what is real estate? Real estate is the process of purchasing real property and the problems and steps that one must follow through with. Elements of Real Estate I. Home When buying a new house there are many things that must be solved before the deed can be signed to the proud new owner. Page 2 Very few people have the financial means of making a one-time full payment on a home. The price of living has ncreased and so has the prices for homes.

For many, the only outlet to buy the house of their dreams is to go and find a mortgage to finance their home. The first thing the prospective homeowner does is go to his bank and try to find a loan that is large enough and has the right interest rate that he can use to buy a house that he wants and can afford. In order to get the loan the future owner must establish credit. He will be asked about income, employment history and credit history. All of these variables allow the bank to determining whether or not this person will ever fully pay for the mortgage.

Once the loanee has established credit for the loan the amount of money paid on each payment and the amount of time allowed to pay the payment is determined by the bank and must be agreed to buy the loanee. Most of the time it is a monthly payment and is between 15 to 35 years. The mortgage is made of two parts. There is the interest and there is the principal. The principal is the amount of the loan still owed and the interest is the fee that the bank sets in order for its money to be used. The interest is often the only variable in mortgages and signals the difference in the two main kind of mortgages.

The fixed-rate mortgage and the adjustable-rate mortgage. With fixed-rate mortgage the Page 3 interest rate stays the same over the life of the loan. With an adjustable-rate mortgage, the interest rate can change at the end of pre-determined intervals. The interest rate is based on the published index on the current interest rates. The effects of raised interest rates are most felt in this type of mortgage. Before the mortgages final and its terms become legal, the loanee must sing a promissory note that obligates them to pay for the mortgage debt.

During the time that the loanee is paying for the mortgage nd thus, still paying for the house, he must promise to keep the property insure against fire and other hazards. He must also promise to pay for any of the property taxes. When the mortgage is done and fully paid for, the ownership belongs fully to the loanee. However, if the owner fails to pay the mortgage payment or misses a payment there is a late fee and the interest percentage of the house may rise or the loan may be foreclosed.. If the owner just totally can no longer afford to make the payments the bank will seize the house and it will be sold to satisfy the bank.

The would-be owner will ose the house and will lose any equity that has built up in it. In times of unemployment, the foreclosure rate rises. Foreclosure is usually a last resort for the bank and very often if the loan becomes to hefty a price to pay, the mortgage will be reopened and the loan payment schedule may Page 4 be reworked to give the loanee a better chance to pay off the loan. II. Condominium The condominium concept of ownership was introduced in the United States in 1961. The Condominium concept entails that there is separate ownership of individual apartments or units in a multi-unit building.

The purchaser of the condominium becomes the owner of a particular unit and a proportionate share in the common elements and facilities. When purchasing the condominium it may be mortgaged. After purchase the owner is required to pay the taxes and a fixed monthly sum to maintain the common elements. III. Cooperative Ownership Cooperative Ownership seems very similar to the condominium concept but it is, in fact, quite different. In Cooperative ownership, the legal owner of the whole building is a corporation.

The purchaser of an apartment in the corporate-owned building is actually buying stock in the orporation. Not only does the purchaser get a stock certificate. bit he also receives a permanent or temporary deed of the apartment. The corporation owns all the units and common areas. When paying the cost, it covers their share of the single mortgage for the entire building, real estate taxes, insurance, and the service and maintenance Page 5 required by the common areas. When a cooperative unit is sold, the seller surrenders his stock and deed back to the corporation.

There are many laws and regulations that differ between states on the form and structure of cooperative ownership. IV. Commercial Commercial Real Estate is real property owned by a business venture like cooperative ownership, but it shares more of the same aspects as Home Real Estate. The only real major differences between Home and Commercial real estate is that in commercial real estate the property may be financed differently and they may receive certain tax breaks. Just recently, companies have found easier ways of financing their real estate.

In lieu of cash payment, companies may be giving out company stock options to the bank. The recent boom of Silicon Valley is a very good example of this idea. Silicon Valley has harbored the new technological wave of industry and the home to many startup Internet and technological companies. Because many of these companies start with only an idea and no money, giving away company stock is the only feasible alternative. For the banks it can have it’s good and bad sides. If the company bankrupts, the bank will lose valuable worth because of unusable stock.

But if the company succeeds then the bank could potentially have a very valuable and profitable investment. It is a hit Page 6 or miss situation. It is risky but then again so is any investment. Commercial Real estate also includes the new variable of taxes more up front. Very often cities will grant business tax breaks if they promise to build an office of factory in their town. When cities have valuable industry it brings jobs and wealth to the city. Everybody benefits because the city is being kept employed and the company has workers to work.

Because this mutual relationship is more of a great benefit to the city, the city will try to give lucrative incentives to court commercial business. Economics of Real Estate The economics of real estate basically include how real roperty is acquired and it’s affects on the economy. The process between the sellers and buyers in the industry is what the economics of real estate really is. It is a cycle of business. Between the customers, banks, sellers, and federal interest rates, there are so many different sorts of information to gather in order to fully discuss this idea.

The cycle of new building and the tearing down of old homes show how everything is a renewing cycle. The old buildings must be teared down to make room for more profitable real estate. Real estate is not only a revenue producer but also a way for people to start a true home. Page 7 I. Interest Rates The economics of real estate are very complicated that has many different variables that can affect it. The one variable that puts the most stress on economics is the interest rates. Depending on the mortgage, the interests rates set by the Feds can have serious affects on peoples abilities to pay off the loan.

When interest rates are raised it makes it more difficult for people to pay off the loans because it raises the price of the each loan payment. That is why the recent hikes in the interest rates have affected the stability of the real estate industry. The nterest rate hikes are in response to the super fast growth of the stock market. The stock market was out of control and it was also causing the economy to grow to fast for it’s own good. When the economy grows to fast, the risk of inflation rises and can cause our money to be worth less.

By raising the interest rates people have had to pay more on their loans and thus have had less money to spend and it can be seen in how the stock market has dropped. There is less money to go around and is instead going to the banks. II. Loans These loans have a great affect on the economy. The loans iven out by banks keep our nations banking system running. When banks give out loans they expect to make money in the end. Because there is an interest fee put on all loans, at Page 8 the end of the loan schedule the bank will have made money. Only banks have the sort of money to give as loans.

They are counting on the ability of the people to pay back the loan. The banks use the money from customers deposits and transfer those funds into money that they can loan out. This whole system of borrowing is very good and beneficial for both parties. The bank makes money off the loan customer and can use the profit to fund more profitable oans. The loan customer is given the money that he will make in the future to pay for something that he needs now. In reality, when the loan customer signs the mortgage they are also mortgaging their future.

When signing the contract the customer must realize that this contract states that for many, many years, they must continue to make every payment everytime. They have to have the faith that they will continue to make money and pay back the loan. The banks must trust the customer that they will get paid back and the customer must trust themselves that they will make all payments. III. Unemployment The unemployment rate in the nation can signal serious problems in the economy. When the unemployment rate rise so does the foreclosure rate in real estate.

When unemployment rises it lowers the peoples abilities to pay back their loan. If during that time period, unemployment is a serious Page 9 problem it can wreak havoc on the nations banking system. The banks only survive because people have to make their payments. If banks cannot receive the money back from their loans, they fail. So if banks fail to collect loans, they will go under and ruin the stability of the country. IV. Real Estate Tax Real estate tax is a tax levied upon real property. In the United states, the real estate tax has been the chief method of collecting local revenue.

It accounts for more that 25 percent of all state and local government receipts. The tax may be assessed on the sale value of the property, although a better method would be on the classification of the land according to its productiveness. The effects of the real estate tax greatly affect the economy. By being such a good revenue producers it gives a valuable source of tax dollars. By becoming the primary source of tax money, it is the most mportant tax in keeping our nation going. The tax dollars are used to pay for government services that the public needs.

If there was no real estate industry the nation could not function so it’s importance is extreme. In commercial real estate especially the real estate tax can become an important variable. Often the real estate tax may be lessened for certain real estate if a company promises to bring industry to the are. The local governments realize that the profit brought in by a new business is more Page 10 profitable than the taxes that could be imposed on the building. Business bring in business and jobs and put money nto the city that just filters through and can rejuvenate a town.

Then by bringing in the business it jump-starts the economy and by weighing out the different options, the town can make the greatest profit. Either by taxing or buy the money that the new business can bring. Real Estate Conclusion In conclusion, there are many different parts that constitute real estate. There are different forms of real estate but all share many of the same characteristics. The cost of real estate is what is determining the economics of real estate. The balance and cycle of purchasing and selling real estate shapes the industry and economics.

Communism as the Dream of Economic Equality

Many people all over the world look for an outlet for which they can improve their quality of life. They strive to find the means of transforming their dreams into reality. Communism, to people everywhere, has offered the means for transforming the dream of economic equality into reality, throughout history. Communism, however, like various other political and economic movements in the history of man, has become a distant realization. Communism is a political and economic movement brought out to the public in the mid-nineteenth century.

The communist’s main demand is the abolition of private property, which in turn will put an end to any present class system. This is undoubtedly the shortest and most significant way to characterize the revolution (Engels). This revolution instills in every proletarian mind the feeling that they can be victorious. The working classes of the world are the ones who are being done wrong. In the Communist Manifesto Karl Marx and Friedrich Engels proudly proclaim that “proletarians have nothing to lose but their chains. They have a world to win” (77).

Often, a political party will have a further motive behind their struggle. Communists that “every class struggle was a political struggle” (Marx 46). The proletariat is often considered the working class. This group of people was the main concern of all communist principles. The proletariat is the class of modern wage laborers who, having no means of production of their own (like farming), are reduced to selling their labor power in order to live (Marx 34). The proletariat does not draw profit from any kind of capital.

On occasion the average worker can have a small victory for themselves, but for the most part the real freedom comes when all the workers unite and take a stand against what they’re put through on a day to day basis. Their victory only comes from the union of the proletarians, which is helped by the improvement of communications created by the modern industry (Marx 46). There haven’t always been proletarians, though. They originated in the industrial revolution of England in the last half of the eighteenth century (Engels).

The first industrial revolution began in Britain around 1750. It was during this time that many people turned to industry rather than farming to make a living (Wilkinson 70). Friedrich Engels often compared the average proletariat to a slave except one aspect. “The slave is sold once and for all; the proletarian must sell himself daily and hourly” (Engels). The opposite class of the proletariat was the bourgeois. This was considered the modern capitalist class. According to Marx and Engels they were the “owners of the means of social production and employers of wage labor” (34).

The bourgeois, in other words, were the employers; the business men who sat around while their employees worked painstaking hours. Now the capitalists, who have always been the opposing party of the communists, was the political power. In the Communist Manifesto Marx and Engels state political power as “merely the organized power of one class for oppressing another” (61). As the industrial revolution went on and became an international revolution, more factories were built and the two classes of people emerged; the huge army of working-class people (or proletarians), and their capitalist bosses (Wilkinson 70).

The factory bosses were considered the capitalists because they supported the system in which the country’s wealth is owned by individuals. These bosses were money hungry and used the unknowing workers to support their addiction. They became rich but paid workers low wages for long, strenuous hours of labor in difficult conditions (Wilkinson 70). These poor working conditions were the reason Karl Marx and Friedrich Engels joined to form the working-class movement and eventually wrote the Communist Manifesto in 1848. There are many communist principles.

Most principles were made for the abolition of private property, but some were created for a separate goal. One principle concerning the abolition of private property is the “centralization of money and credit in the hands of the state through a national band with state capital” (Engels). Another measure was the confiscation of all the property and possessions of immigrants and rebels, because of their inability to side with the majority of the people. One, very prominent principle was the abolishment of private property through various taxation’s.

This principle stressed that inheritance through collateral lines had terribly adverse effects. Many communist principles were and still are there to support agriculture, since most communists thought the industrial revolution to be profitable only to the capitalists. Another general aim of communism is “free education for all children in public schools” and the abolition of children’s factory labor (Engels). Also, communists believed that “centralization of all means of communication and transportation in the hands of the state” was necessary (Engels).

Communism is a major aspect of world and American history. The early years of communism seemed promising and rational. Karl Marx was a German philosopher, radical economist, and revolutionary leader (Padover 228). He founded modern socialism and later his basic ideas become known as Marxism. He believed that Marxism “formed the foundation of socialist and communist movements throughout the world” (Padover 228). No one picked up on Marxists ideas until a long time after he brought them into public view. By the end of the 19th and beginning of the 20th century, socialist parties everywhere had by and large accepted a considerable measure of Marxism” (Padover 228). Although he was a brilliant man and fought for a rational and understandable cause, Marx spent most of his life in exile because some of his ideas were considered radical. Friedrich Engels was the cofounder with Karl Marx of modern socialism. According to Saul K. Padover “Engels had a brilliant mind and was quick, sharp, and unerring in his judgements” (580).

Engels and Marx met in the 1840’s and decided to collaborate in their writings because they had the same opinion on almost everything (Padover 580). Both agreed heavily on one very important thing; they predicted that the workers would unite, along with a few capitalists, and fight for better wages. Then there would be a revolution that would replace the capitalist revolution with communism (Wilkinson 72). Later, after the rise of communism, it was corrupted and turned against by many anticommunists and communists. The first communist revolution happened in Russia in 1917, which then became the Soviet Union. Other eastern and central European countries also adopted a communist system of government” (Padover 72). After the revolution in 1917 in Russia many socialist parties quickly turned to communism. After a long time in political limbo communism was swept away in the late 1980’s and early 1990’s when many political changes took place in formerly communist countries. Democratic elections and capitalist values overthrew many Marxists’ ideals.

In 1990, Germany was reunified from their previous division of communist East Germany and democratic West Germany (Padover 72). Contrary to popular believe, communism was not always an irrational-seeming corrupted movement. Communists have always believed that a political party must work for the good of the people as a whole. Communism promotes economic equality. In the beginning, a communist was one not known to be competitive, like the capitalist. Friedrich Engels believed we should “abolish competition and replace it with association. As long as people are willing to produce more than is needed, a ruling class will always exist. This willingness will also produce a poor, oppressed class (Engels). Communism is the force behind the liberation of the working-class. Along with the good principle of promoting economic equality, the abolition of materialism was another honorable ideal of communism. Karl Marx believed that every existing society was materialistic and communism could resolve that. Materialism is concern only for physical things, like private property.

Communists believe that the major consequence of the disappearance of private property will be the abolishment of all economic crisis (Engels). Communism did, and still does have many radical and corrupt ideals and leaders. At many points in time the communists believed that their goals could only be achieved by forcefully overthrowing all existing conditions (Marx 77). Many people didn’t like that idea of having the heavy income taxes that would come along with the communist revolution.

In 1903, the split of the Russian Social Democratic Party led to the definition of communists as those who seek change by a forceful revolution, and socialists as those who seek change by peaceful reform (Padover 72). In the early 20th century, Marxian communists knew that it could not build itself on the backward peasant economy, but they believed the Russian revolution would spark similar revolutions throughout Europe. Soon after the death of the Marxian communist leader, Lenin, died, Joseph Stalin began a reign of terror.

Stalin was the ultimate corrupter of communism. He put an end to the Marxist-Leninist dream of world proletarian brotherhood (Goldston 110). In Russia, Stalin took communism to a high level of corruption. The rich became richer and the poor became poorer. He tortured the peasant for not willingly turning over all of their private property. According to Robert Goldston, when the peasants were told to give up all of their possessions they responded by burning everything they owned (116). “Starvation became an effective weapon against the peasants. Eight to ten million peasants died as a result and the remaining ones went to collective farms (Goldston 117). In Stalin’s deranged mind, all who disagreed with him became traitors to be dealt with as dangerous enemies of the state. His “entire life and career may be viewed as the deepening obsession of a paranoid personality to retain control” (Goldston 119). It wasn’t until 1953 that Stalin’s regime of horror ended. He died of a massive brain hemorrhage on May 5 of that year. The communist movement hit America in the early twentieth century.

Initially, American communism operated legally and American communists could proclaim their goals at an open convention (Haynes 57). Some American communists claimed the party to be “the only place where I saw or experienced . . . compassion for the poor and persecuted” (Fast 242). Many Americans saw this communist revolution as a way to unite with people who suffered from the same economic depravity. Since the American communist movement consisted of mainly immigrants without U. S. citizenship, terrorist threats and bombings forced the movement to become underground in the early 1900’s.

A little later in the 1920’s the movement was forced to resurface by the Communist International. Only little harassment was given. For the most part, they were still legally and openly operating (Haynes 58). Soon after resurfacing, however, the American communist party was thought to be involved in Soviet espionage through the Communist International. A short while after these allegations, an extensive relationship with Soviet intelligence began within the realms of the Communist Party USA (CPUSA), especially by the senior members (Haynes 233). This began the worst time in the history of the CPUSA.

During WWII the CPUSA secret apparatus supplied personnel for Soviet operations in Europe” (Haynes). In the mid-1930’s, President Roosevelt ordered the Federal Bureau of Investigation (FBI) to reenter the domestic security field and closely observe American communists for counterintelligence activities. Several secret apparatus operations where going on in the CPUSA. One in particular, led by J. Peters, engaged in the wholesale procurement of false American passports for use by American communists and Soviet intelligence for espionage purposes (Haynes 79).

In the 1930’s the party supplied several recruits for Soviet intelligence abroad. Two landed in European jails and one, sent to Asia, paid with his life. Also, in the 1930 and 40’s, the CPUSA was involved in extensive spying on Stalin’s ideological enemies. The party also had considerable involvement with the murder of Stalin’s arch-rival, Leon Trotsky, who posed a threat to Soviet communism (Haynes 250). A little later they began to infiltrate into the closely guarded military scientific secret, the atomic bomb. Theft of scientific and technical information constituted the earliest and perhaps the most widespread from of Soviet espionage in the U. S. ” (Haynes 287).

Julius Rosenburg is best known for his role in Soviet atomic espionage. Rosenburg had been an engineering student at the College of the City of New York and a member of the Young Communist League and later recruited many of his colleagues into Soviet espionage (Haynes 295). Now the American government simply referred to the CPUSA as murderous villains or “puppets on strings held by Moscow” (Haynes 242).

An anticommunist movement was quickly put into action. By the late 1940’s just about every important sector of American society had representatives within the anticommunist network ranks (Schrecker 45). Although all American communists were not involved in Soviet espionage, the government quickly defined communists as villains. For quite sometime “the FBI had been engaged in the exhaustive task of compiling a compendium of legally admissible evidence that would prove the unlawful status of the communist party” (Schrecker 42).

In the 1940 and 50’s Joseph McCarthy led a “witch-hunt” for communists. McCarthyism produced widespread fear among all Americans. “By the end of 1950, Joe McCarthy was riding high, bolstered by the aura of political invincibility that the fears of his opponents served to enhance” (Schrecker 249). The fifties were considered by many people a time of silence instead of fear. People kept quiet in order not to get blacklisted. Thousands of people were blacklisted, both for refusing to name names and for being unwilling to sign the proliferating loyalty oaths (Fast 245).

Joe McCarthy even made an attack on the presidency at one point. In 1953, he charged that the Eisenhower administration was soft on communism. Ultimately, McCarthy “got a lot of his facts wrong” and put many innocent people to shame (Schrecker 241). In their Communist Manifesto Karl Marx and Friedrich Engels proclaimed “working men of all countries, unite! ” (77). Communism’s original intentions on being a political party for the people as a whole were ultimately destroyed. Many corrupter came along the way, and as in every other political and economic doctrine, the dream has vanished.

Scarcity and choice impact economic decisions of individuals, families, and communities

Scarcity and choice impact economic decisions of individuals in many ways. An Individual makes economic choices based on their needs and wants, which reflect their desires for certain goods and services. Since a persons wants are unlimited and their resources, such as money, are limited, they are forced to make a decisionto choose how they are going to spend their money. Scarcity causes a person to have to figure out how to allocate their resources in order to satisfy the greatest number of their needs and wants.

For example, a person has twenty dollars and they could either buy the nineteen-dollar Express shirt they have been wanting or the ten-dollar book they need to pass the upcoming English test. Since their money is scarce they have to choose only one. It would be in their best interest to buy the book because they need it more than they do the shirt. They could, however, get a similar shirt on sale someplace else for fourteen dollars and get the same book at a used bookstore for five dollars. Given that they allocated their resources effectively they were able to get both their need and their want.

Scarcity and choice impacts economic decisions of families in numerous ways as well. A family, resembling an individual, has a limited amount of resources which causes them to have to make decisions based on their needs and wants, which reflect their desires for certain goods and services. Most of the time however, unlike an individual, the way they allocate their resources and the choices they make, can be more serious. A family, which is made up of a group of individuals acting as one has to consider the needs and wants of not only themselves but the other members of their family.

The way they allocate resources depends on the urgency of each persons needs and wants and how it affects everyone as a whole. Groceries and water come before cable TV or a vacation because food and water are needs of the family and each individual that make up the family while cable TV and a vacation are only wants. Most of the time families have to choose needs before wants due to scarcity because each person in a family unit depends on each other and the decisions that are made. Scarcity and choice also impacts economic decisions of the community.

In a community limited amounts of resources causes people to make decisions based on their needs and wants, which reflect their desires for certain goods and services. To distribute resources effectively, an economic system or a society must address three basic economic questions: what to produce, how to produce and for whom to produce. The answers to these questions help a society determine the best distribution of resources to meet its needs and wants. Since a societys needs and wants can never be met completely they must determine the urgency of each. They must then decide how to allocate their resources effectively due to their scarcity.

Lastly they must agree on how to distribute the goods and services they produce while considering who will consume the goods and services. 12. 9. 2 Families must make choices as they budget their income and expenses. Families must make many choices as they budget their income and expenses. All financial planning begins with a spending and saving plan, or budget. The budget lists fixed expenses and flexible expenses. Fixed expenses are those payments that remain constant from month to month, such as payments for mortgage and insurance premiums. Flexible expenses can vary from month to month.

Examples include expenders for pizza and movies. The budget should also include the amounts that a person is willing and able to set aside for saving and investing. 12. 9. 3 Money, goods, and services link households and businesses in the U. S. economy: Households and businesses in the U. S. are linked together through money, goods and services. As economic actors, households and business distribute goods and services through a system of exchange. Goods and services are assigned a value or worth that can be expressed in terms of money. Money is an item readily accepted by people in return for goods and services.

Exchange reduces self-sufficiently and encourages interdependence, linking different regions and economic actors such as households and businesses. 12. 9. 4 People use psychological and intellectual resources to deal with scarcity. Scarcity is the basic fact of economic life. Human needs and wants are always grater than the resources available to satisfy them. Thus, choices must be made concerning how to best use the limited resources available. To make these choices, and economic system or society must answer the tree basic economic questions of what to produce, how to produce, and for whom to produce.

A nations answers to these questions are determined by its economic system. An economic system is the way that a nation or society is organized to produce and distribute goods and services. Economists have identified four types of economic systems: traditional, command, market and mixed. When people make choices they must sacrifice one choice for another, which is called a trade off. The next best chose is an opportunity cost. With a production possibilities curve people can figure out how to use scarce resources as efficiently as possible. 12. 9. 5 States and Nations use scarce resources to satisfy human wants.

To effectively allocate scarce resources in order to satisfy the greatest number of needs and wants of people, states and nations must address three basic economic questions of what to produce, how to produce and for whom to produce. States and Nations must determine the urgency of the peoples needs and wants which gives them the answer of what to produce. Then they determine how people will allocate the resources produced and who will consume their products. Once an economic system has answered the questions of what, how and for whom to produce, production must be carried out as effectively as possible. 2. 9. 6 Money encourages specialization, promotes markets, helps organize production, and distributes goods and services. Money encourages specialization, promotes markets, helps organize production, and distributes goods and services. Money, a means of exchange, reduces self-sufficiency and encourages interdependence, linking different regions and economic actors.

Interdependence in turn, encourages specialization, as individuals, industries, and regions concentrate on producing specific goods and services to meet particular needs and wants. 12. 9. choices translate into opportunity costs that result in trade-offs, which determine what goods, and services are provided. Scarcity requires choice. Economists call the sacrifice of one choice for another a trade-off and the next best choice an opportunity cost. The production possibilities curve can be used to analyze the trade offs and opportunity costs involved in producing specific combination of goods and services. A production possibility curve assumes that the amount of available resources and the state of technology will not change during the period being studied and that resources are used as efficiently as possible.

Changes in resources or technology result in a shift of the entire production possibilities curve either to the left or the right. The assumptions are important because they determine which production combinations will fall on the curve and which will not. All of the combinations on the curve meet these assumptions. Combinations that lie inside (below) the curve, on the other hand represent an inefficient use of existing resources. Combinations that lie outside (above) the curve represent production impossibilities, given existing technology.

Each production combination is measured in terms of opportunity costs. That is, more of one good can be produced only by making less of the other good. 12. 9. 8 Economic decision-making based on marginal benefit and marginal cost for individuals and government: To make production decisions, businesspeople or the government need to know not only their companys total costs but also the marginal costs for the company. Marginal costs are the additional costs of producing one more unit of output. To determine marginal costs as production levels change, a business must look at its variable costs alone.

This allows business people to calculate the exact cost of any change in production levels. Many businesspeople or the government do indeed make marginal production decisions-decisions to produce a few more or a few less units of output. Marginal casts allow the business to determine th profitability of increasing or decreasing production by a few units. 12. 9. 9 Explain how consumers spend their budget to maximize the net benefits of their income. Consumers must make many choices as they budget their income and expenses, which allow them to maximize the net benefits. They must make a financial plan.

All financial planning begins with a spending and saving plan, or budget. The budget lists fixed expenses and flexible expenses. Fixed expenses are those payments that remain constant from month to month, such as payments for mortgage and insurance premiums. Flexible expenses can vary from month to month. Examples include expenders for pizza and movies. The budget should also include the amounts that a person is willing and able to set aside for saving and investing. After fixed expenses are paid and savings are set aside a consumer can decide what else they want to buy which fall under their flexible expenses.

2. 9. 10 The present day choices that may have important future consequences. The ways people choose to spend their money have important future consequences. If they do not spend their money wisely (spending it all on what they want) than they may not have enough later to but what they need. Because resources are scarce people have to be careful of how they allocate them. If they use to many than there wont be enough for later use. 12. 9. 11 Factors of production Economic decisions involve resources. A resource is anything that can be used to satisfy a consumers need or want.

Resources that can be used to produce goods and services are known as factors of production Economists general recognize four categories of resources: natural resources human resources, capital resources, and entrepreneurship. Items provided by nature that can be used to produce goods and to provide services are called natural resources. A natural resource is considered a factor of production only when its scarce and some payment is necessary for its use. Any human effort exerted during production is considered a human resource. The effort can be either physical or intellectual.

Capital resources are the manufactured materials used to create products. Capital resources include capital goods and the money used to purchase them. Capital goods are the buildings, structures, machinery and tools used in the production process. Capital goods are the manufactured resources that are used in making finished products. These finished products-the goods and service that people buy-are consumer goods. The organizational abilities and risk taking involved in starting a new business or introducing a new product are called entrepreneurship.

The goal of entrepreneurship is to develop a new combination of the other factors of production, creating something of value. 12. 9. 12 Specialization and division of labor permit scarce resources to be used more efficiently. To reach the highest possible levels of productivity, producers may rely on division of labor and specialization. Productivity is the given level of output that results from a given level of input. One option to improve efficiency might be the introduction of division of labor, assigning a small number of tasks to each worker. Since these steps are performed repeatedly, workers gain expertise in the assigned tasks.

This focus on one activity is known as specialization. Introducing division of labor would enable a company to increase production, using the smallest amount of resources to produce the greatest amount of output. 12. 9. 13 explain how producers allocate their expenditures to minimize production costs. Manufacturers must look at their costs of production when deciding how much to supply to the market. A businesss costs of production include any goods and services used to make a product. Manufacturers are particularly interested in their costs of production because these costs directly affect the amount of profit their business makes.

Manufacturers another suppliers deal with complicated production costs and must consider many factors. To make analyzing costs easier, most producers divide them into several categories: fixed, variable, total, and marginal. Analyzing these various production costs helps producers determine production goals and potential profits. 12. 9. 14 People make economic decisions in traditional, command, market and mixed-market economies. Nations-as well as individuals respond to scarcity and answer the three basic economic questions of what to produce, how to produce, and for whom to produce.

A nations answers to these questions are determined by its economic system. An economic system is the way that a nation or society is organized to produce and distribute goods and services. Economists have identified four types of economic systems: traditional, command, market and mixed. In the modern would all economies are mixed; pure traditional, command, and market economies are models that no longer exist. Traditional economies depend on long-established patterns of behavior and belief. Command economies rely on government decision-making and control of resource.

Market economies allow individuals to control and allocate resources. Market economies also rely on self-interest and incentives. Mixed economies have elements of traditional, command, and market models. Because mixed economies vary in their characteristics, economists classify them by their degree of government control. Nations whose economies are closest to the pure command model are said to practice authoritarian socialism, or communism. Nations whose economies are closest to the pure market model are said to practice capitalism. Nations with systems between theses two extremes are said to practice democratic socialism. 2. 10 Markets and the role of demand and supply in determining price and resources allocation. 12. 10. 1 Conditions that make industries either more or less competitive: Competitive markets provide consumers with a range of products that are priced fairly and that reflect costs accurately. The forces of supply and demand promote competition by encouraging producers to supply consumers with a wide selection of goods and services. Perfect competition is an ideal market structure in which buyers and sellers compete directly and fully under the laws of supply and demand.

In general, perfect competition exist when four conditions are present: there are many buyers and sellers acting independently, sellers offer identical products, buyers are well informed about products, and sellers can enter or exit the market easily. Monopolistic competition is much more common than perfect competition and differs from it in one important respect-sellers offer slightly different, rather than identical, products. In monopolistic competition, sellers exert some control over prices by differentiating their products through nonprice competition. 2. 10. 2 Describe the nature and roles of competition in a market economy. Free enterprise gives businesspeople the right to choose what, how and for whom to produce. Sometimes two or more businesspeople make the same production choices.

Theses choices lead the businesspeople and their companies into competition. Competition is the economic rivalry that exits among businesses selling the same or similar products. Competition is important because it encourages producers to improve existing products and develop new ones in order to attract customers. 2. 10. 3 Explain the law of demand and the law of supply: In a free enter price system; price is the key factor affecting not only the quantity demanded but also the quantity supplied. The quantity supplied is directly related to the prices that producers can charge for their goods and services. The law of supply describes this relationship. The law of Supply states that producers supply more goods and services when thy can sell them at higher prices and fewer goods and services when they must sell them at lower prices.

Demand is the quantity of a good or service that a consumer is willing and able to buy at various prices during a given time period. Price is one of the most important factors affecting demand. The law of demand states that an increase in price decreases the quantity demanded and that a decrease in price increases the quantity demanded, other things remaining the same. 12. 10. 4 identify the nonprice determinants of demand and those of supply. Factors other than price can affect demand for a product over time, causing a shift in its demand curve.

Theses shifts illustrate a change in demand at each and every price. The determinants of demand are consumer tastes and preferences, market size, income, prices of related goods (substitute goods and complementary goods), and consumer expectations. Changes in market size can be caused by private business decisions such as new advertisements, government policy decisions, and new technology. Changes in any to the determinants of demand can produce an entirely new demand curve for a product. Factors other than price can affect supply of a product over time as well, shifting the supply curve to the left or right.

The determinants of supply are prices of resources, government tools, technology, competition, prices of related goods, and producer expectations. Resources include raw materials and labor. A decrease in the price of resource causes an increase in supply. The opposite is true when an increase in the price of resources occurs. A tax hike causes a decrease in supply, while government subsidies increase supply. Loose government regulations tend to increase supply, while strict regulations tend to decrease supply. New technology and competition both usually increase supply.

A change in the price of related goods can cause an increase or decrease in supply. Producer expectations also can cause an increase or decrease in supply. 12. 10. 5 Examine how changes in the nonprice determinants of demand cause demand to change. Factors other than price can affect demand for a product over time, causing a shift in its demand curve. Theses shifts illustrate a change in demand at each and every price. The determinants of demand are consumer tastes and preferences, market size, income, prices of related goods (substitute goods and complementary goods), and consumer expectations.

Changes in market size can be caused by private business decisions such as new advertisements, government policy decisions, and new technology. Changes in any to the determinants of demand can produce an entirely new demand curve for a product 12. 10. 6 Examine how changes in the nonprice determinants of supply cause supply to change. Factors other than price can affect supply of a product over time, shifting the supply curve to the left or right. The determinants of supply are prices of resources, government tools, technology, competition, prices of related goods, and producer expectations.

Resources include raw materials and labor. A decrease in the price of resource causes an increase in supply. The opposite is true when an increase in the price of resources occurs. A tax hike causes a decrease in supply, while government subsidies increase supply. Loose government regulations tend to increase supply, while strict regulations tend to decrease supply. New technology and competition both usually increase supply. A change in the price of related goods can cause an increase or decrease in supply. Producer expectations also can cause an increase or decrease in supply. 2. 10. 7 Analyze how change in market price and quantity result from changes in demand and supply.

Changes in demand and supply cause a change in market price and quantity. Demand is the quantity of a good or service that a consumer is willing and able to buy at various prices during a given time period. Price is one of the most important factors affecting demand. The law of demand states that an increase in price decreases the quantity demanded and that a decrease in prices increases the quantity demanded, other things reaming the same.

The law of demand is explained by the income effect, the substitution effect refers to consumers tendency to substitute a similar, lower-priced product for a more expensive one. Diminishing marginal utility reflects the decreasing satisfaction experienced as increasing amounts of a product are consumed. Demand schedules and demand curves can chart how changes in price affect quantity demanded for a specific period of time. A demand curve slopes downward, reflecting the greater quantity that consumers will buy at lower prices.

A change in price results in movement along the products demand curve. Supply is the quantity of goods and services and services that producers offer at various possible prices during a given time period. Quantity supplied is the amount of a good or service that a producer is willing to offer at each particular price. The law of supply states that producers supply more goods and serves when they can sell them at higher prices and fewer goods and services when they must sell them at lower prices. The supply of goods can be either elastic or inelastic. 12. 10. explain economic incentives that lead to the efficient use of resources

The price system provides producers and consumers with incentives to participate in the market. An incentive is something that encourages a person to behave in a particular way. High prices, when combined with low costs, generally encourage producers to supply more goods and services. This reflects the law of supply-that high prices encourage increases in the quantity supplied, while low prices encourage reductions in the quantity supplied, Low prices, meanwhile, give consumers an incentive to buy more goods and services.

This, in turn , reflects the law of demand which states that high prices generally encourage reductions in the quantity demanded while low prices tend to encourage increases in the quantity demanded. If there were no price incentives, producers and consumers would have a much more difficult time exchanging goods and services. 12. 10. 9 explain market equilibrium and the mechanism for eliminating shortages and surpluses The price system helps producers and consumers reach market equilibrium, a situation that occurs when the quantity supplied and the quantity demanded for a product are equal at the same price.

At this equilibrium point the needs of both producers and consumers are satisfied, and the forces of supply and demand are in balance. When a market reaches its equilibrium point, producers and consumers have communicated effectively. The price system steers producers and consumers toward the equilibrium point through a process of trial and error as producers change prices and quantities of the goods and services supplied.

This adjustment process works to eliminate surpluses and shortages-situations in which the forces of supply and demand are not in balance and the market has not reached equilibrium. 2. 10. 10 identify the components of market research and its impact on products. In order to know what products to make and how to present these products, companies need to find out what consumers like and dislike. Market researchers help companies answer these types of questions by doing things such as conducting surveys. They rely on information collected by governments and businesses.

They provide companies with valuable insight into consumer habits and demand. With this information companies are able to produce an item that is not only wonderful but also catches the eye of the consumer. 2. 11 The learner will demonstrate an understanding of the sources of income and growth in a free enterprise economy. 12. 11. 1 Illustrate how entrepreneurial decisions are influenced by changes in taxation and government regulations. The organizational abilities and risk taking involved in starting a new business or introducing a new product are called entrepreneurship. The gal of entrepreneurship is to develop a new combination of the other factors of production, creating something of value. Taxes affect entrepreneurial decisions.

A tax is a required payment of money to the government to help fund government services. Entrepreneurs may have to pay taxes on the materials they use, the property they own, and the profits they make. Taxes add to their cost of production. Higher taxes mean that they are faced with higher costs and the prospect of making less profit and will supply less of their product to the market. To protect the public, the government passes many kinds of regulations, or rules, about how companies conduct business.

Regulations are designed to prevent pollution, discrimination, and other problems that affect citizens. Loose government regulations tend to increase supply. Strict regulations, on the other hand, tend to decrease supply. Entrepreneurs have to worry about following strict government regulations which adds to the frustration of creating a business. 12. 11. 2 define interest and explain how interest rates and investment are related As a moneylender, the bondholder is repaid the principal of the loan, plus interest. The principal is the actual amount of money that was borrowed.

Interest is the amount that the borrower must pay for the use of those funds. The longer amount of time that passes from the time of the loan the more interest the borrower will owe. Similar to an interest rate, is an investment. An investment occurs when people exchange their money for something of value with the expectation of earning a profit on it in the future. As time passes the value to the item invested upon will increase. Time affects the price rise of both investments and interest rates. 12. 11. 3 explain the importance of profits and losses in a free enterprise economy

The amount of money remaining after producers have paid all of their costs is called profit. A business makes profit when revenues are greater than costs of production. Theses costs include wages and salaries, rent, interest on loans, bills for electricity, raw materials, and any other goods and services used to manufacture a product. To make a profit, producers must provide the goods and services that consumers want-at prices that consumers are willing and able to pay. The profit motive has a far-reaching effect in free-enterprise markets.

It not only governs how individual companies make decisions, it also helps direct the use of resources in the entire market. 12. 11. 4 describe the relationships among technology, productivity, and capital When estimating and determining ways to increase a nations capacity to produce goods and services, economists often focus on labor productivity. Labor productivity is a measure of how much each worker produces in a given period of time, usually one hour. Economists define productivity growth as an increase in the output of each worker per hour of work.

Two factors that have a significant impact on productivity growth are Level of available technology, and quantity of capital goods available per worker. Invention and innovation-new knowledge and new ways of applying this kowlede-are the leading sources of productivity growth. New ideas, methods, and tools increase efficiency and output and often lower costs. Another measure of productivity is the capital-to-labor ratio, or the amount of capital stock available per worker. This ratio is calculated by dividing the total amount of capital stock by the size of the workforce.

When the amount of a nations capital goods increases faster than the size of that nations workforce, capital deepening-an increase in the amount of capital goods available per worker-result. Workers who have access to more and better capital goods-machines, tools, equipment, and work facilities-usually will produce more in less time. Thus, capital-deepening results in increased labor productivity. 12. 11. 5 explain the relationship of an educated workforce to economic growth and prosperity An important influence on productivity is the education and skill level of the labor force.

As trade becomes more global and people become more mobile, workers entering the labor force face greater and stiffer competition for jobs. In addition, as the level of skill required to perform certain jobs increases, employees must continue to learn and to improve their skills to keep their jobs. 12. 11. 6 analyze how profits affect investment and hence productivity and living standards Investing allows consumers to exchange their money for something of value, with the expectation of future profits.

To meet their goals, investors develop financial plans that include spending and savings plans, investment plans, retirement plans, and estate plans. Investors who hope only that the value of their investments will grow with time are practicing financial investment, while investors who hope to increase their investment while creating new capital goods are practicing real investment. Real investment contributes to economic growth by creating new products and indirectly new jobs. 12. 11. 7 explain and compare personal income distribution and functional income distribution

To determine the total income paid to the owners of a nations factors of production, economists use the measure national income. National income refers to the sum of employees and proprietors income, real and estimated rental income, corporate profits, and net interest. To calculate national income, economists subtract subsidies and indirect taxes from net national product. Indirect taxes-as opposed to direct taxes on income-are taxes included in the final price of goods and services. Sometimes economists are interested in the total amount of income earned by people in a given nation.

To estimate this measure, economists subtract from national income all income that does not go to people, such as profits that firms retain and reinvest and money that firms spend on corporate income taxes and employees social security. Economists then add to this amount the money that individual receive from government transfer payments, such as social security checks, The result is personal income, the total amount of income paid to individuals living in a given nation.

12. 12 The learner will demonstrate an understanding of the various economic institutions vital to a market economy. 12. 2. 1 describe examples of the basic institutions of capitalism: private property, free enterprise, competition, and the profit motive. Mixed economies have elements of traditional, command, and market models. Because mixed economies vary in their characteristics, economists classify them by their degree of government control. Nations whose economies are closest to the pure market model are said to practice capitalism (the U. S. ). The economic system of the U. S. leans toward the market model. The fact that there is some government involvement and regulation, however, means that the U.

S. economy is not a pure market model. Because the economic system of the U. S. is based on the freedom to make choices it is often referred to as a free-enterprise system. In the U. S. , individuals have the right to own private property, and enter into contracts, make individual choices; engage in competition, and make decisions based on self-interest. Only a limited amount of government regulation and intervention exists in the U. S. economy. 12. 12. 2 examine the interaction of banks and business firms to crate and expand business enterprise through savings and investments

Business enterprises customarily take one of three forms: individual proprietorships, partnerships, or limited-liability companies (or corporations). In the first form, a single person holds the entire operation as his personal property, usually managing it on a day-to-day basis. Most businesses are of this type. The second form, the partnership, may have from two to 50 or more members, as in the case of large law and accounting firms, brokerage houses, and advertising agencies. This form of business is owned by the partners themselves; they may receive varying shares of the profits depending on their investment or contribution.

Whenever a member leaves or a new member is added, the firm must be reconstituted as a new partnership. The third form, the limited-liability company, or corporation, denotes incorporated groups of personsthat is, a number of persons considered as a legal entity (or fictive person) with property, powers, and liabilities separate from those of its members. This type of company is also legally separate from the individuals who work for it, whether they be shareholders or employees or both; it can enter into legal relations with them, make contracts with them, and sue and be sued by them.

Most large industrial and commercial organizations are limited-liability companies. 12. 12. 3 explain positive and negative impacts on market-driven economies when dominated by a strong authoritarian government. Mixed economies that are closest to the pure command model are said to practice authoritarian socialism, which is also know as communism. In these economies the government owns or controls nearly all the factors of production. In An authoritarian government The individual has no say so in factors of production.

Mexican Economy

Mexico was the site of some of the earliest and most advanced civilizations in the western hemisphere. The Mayan culture, according to archaeological research, attained its greatest development about the 6th century AD. Another group, the Toltec, established an empire in the Valley of Mexico and developed a great civilization still evidenced by the ruins of magnificent buildings and monuments. The leading tribe, the Aztec, built great cities and developed an intricate social, political, and religious organization.

Their civilization was highly developed, both intellectually and artistically. The first European xplorer to visit Mexican territory was Francisco Fernndez de Crdoba, who in 1517 discovered traces of the Maya in Yucatn. In 1535, some years after the fall of the Aztec capital, the basic form of colonial government in Mexico was instituted with the appointment of the first Spanish viceroy, Antonio de Mendoza. A distinguishing characteristic of colonial Mexico was the exploitation of the Native Americans.

Although thousands of them were killed during the Spanish conquest, they continued to be the great majority of inhabitants of what was referred to as New Spain, speaking their own languages and retaining much of heir native culture. Inevitably they became the laboring class. Their plight was the result of the ‘encomienda’ system, by which Spanish nobles, priests, and soldiers were granted not only large tracts of land but also jurisdiction over all Native American residents. A second characteristic of colonial Mexico was the position and power of the Roman Catholic church.

Franciscan, Augustinian, Dominican, and Jesuit missionaries entered the country with the conquistadores. The Mexican church became enormously wealthy through gifts and bequests that could be held in perpetuity. Before 1859, when church holdings were ationalized, the church owned one-third of all property and land. A third characteristic was the existence of rigid social classes: the Native Americans, the mestizos, mixed Spanish and Native American (an increasingly large group during the colonial era), black slaves which were brought from Africa and the Caribbean, freed blacks and white Mexicans.

The white Mexicans were themselves divided. Highest of all classes was that of the peninsulares, those born in Spain, as opposed to the criollos, or Creolespeople of pure European descent who had been born and raised in New Spain. The peninsulares were sent from Spain o hold the highest colonial offices in both the civil and church administrations. The peninsulars held themselves higher than the criollos, who were almost never given high office. The resentment of the criollos became an influential force in the later movement for independence.

In 1808 the viceroy, under pressure from influential criollos, permitted them to participate in the administration. Other peninsular officials objected and expelled the viceroy. In the midst of these factional struggles a political rebellion was begun by the Mexican people. Mexico has been rocked by political rebellion during most of its ntire history in one way or another. Under the various dictatorships that Mexico found itself under at times in history, it made tremendous advances in economic and commercial development. Many of the new undertakings were financed and managed by foreigners (mostly American and European).

This was and continues to be a major factor in the discontent of most Mexicans. Moreover, the government favored the rich owners of large estates, increasing their properties by assigning them communal lands that belonged to the Native Americans. When the Native Americans revolted, they were sold into peonage. Discontent, anger and a pirit of revolt continued to grow throughout Mexico. Madero was elected president in 1911, but was not forceful enough to end the political strife. Other rebel leaders, particularly Emiliano Zapata and Francisco (Pancho) Villa, completely refused to submit to presidential authority.

Victoriano Huerta, head of the Madero army, conspired with the rebel leaders and in 1913 seized control of Mexico City. New armed revolts under Zapata, Villa, and Venustiano Carranza began, and Huerta resigned in 1914. Carranza took power in the same year, and Villa at once declared war on him. In addition to the ambitions of rival ilitary leaders, intervention by foreign governments seeking to protect the interests of their nationals added to the confusion. In August 1915, a commission representing eight Latin American countries and the United States recognized Carranza as the lawful authority in Mexico.

The rebel leaders, except for Villa, laid down their arms. The bandit leader incited his forces to commit crimes against Americans to show his resentment against the United States and in 1916 led a raid on Columbus, New Mexico. As a result, an American force under General John J. Pershing was sent to Mexico. A new constitution, enacted in 917, provided for a labor code, prohibited a president from serving consecutive terms, expropriated all property of religious orders, and restored communal lands to the Native Americans. Many provisions dealing with labor and social welfare were advanced.

Some of the most drastic were intended to curb foreign ownership of mineral properties and land. In 1936 an expropriation law was passed enabling the government to seize private property whenever necessary for public or social welfare. The national railways of Mexico were nationalized in 1937, as were the soil rights of the oil companies. A government agency called Petrleos Mexicanos, or Pemex, was created to administer the nationalized industry. The expropriations seriously affected the Mexican oil industry, for it became difficult for Mexico to sell oil in U. S. Dutch, and British territories. Mexico was forced to arrange barter deals with Italy, Germany, and Japan. The oil trade with these nations was interrupted by World War II. In 1940, the so-called Good Neighbor Policy of the United States became dominant in Mexican politics. This policy involved close cooperation with the United States in commercial and military matters. Mexico agreed to allow the United States Air Force to use Mexican airfields and also agreed to export critical and strategic materials (mostly minerals) only to countries in the western hemisphere.

Consistent with its policy of cooperation with the United States, Mexico severed diplomatic relations with Japan, Italy and Germany in December 1941. In May 1942, after the sinking of two Mexican ships by submarines, the Mexican Congress declared war on Germany, Italy, and Japan. Later that same year a trade agreement, establishing mutual tariff concessions, was negotiated by Mexico and the United States. In 1944, Mexico agreed to pay U. S. oil companies $24 million plus interest, for oil properties expropriated in 1938. In June 1945, Mexico became an original member of the United Nations.

The government stabilized the peso in with the aid of loans from the Treasury of the United States and the International Monetary Fund. In 1950, the problem of Mexican laborers who entered the United States to seek seasonal farm employment became a matter of grave concern to the two governments. Official agreements between Mexico and the United States provided for the legal entry of a specified number of such workers annually. Approximately 1 million, however, crossed the border illegally every year. The problem was further complicated by the demand of the Mexican government for guarantees against the exploitation of its citizens by U.

S. employers and by the hostility of U. S. farm labor organizations toward the competition of Mexican migratory laborers willing to work for substandard wages. In March 1952, the Congress of the United States passed a bill providing for the punishment by fines and imprisonment of those recruiting and employing aliens who entered the country illegally. The Mexican economy grew at a healthy annual ace during the period from 1970 to 1974, but beginning in 1975 growth decreased markedly and inflation rose substantially.

In an attempt to reduce the nation’s foreign-trade deficit, the government in 1976 devalued the peso by more than 50 percent by changing from a fixed to a freely floating exchange rate. A potentially beneficial economic development was the discovery in 1974 and 1975 of huge crude-petroleum deposits in Campeche, Chiapas, Tabasco, and Veracruz states. Oil production more than doubled during the latter half of the 1970s. By the mid-1980s a rapid increase in foreign debt, coupled with falling oil prices, ad plunged the country into severe financial straits.

In 1989, the Salinas government sped up the privatization of state-controlled corporations and modified restrictive trade and investment regulations to encourage foreign investment by permitting full control of corporations by foreign investors. The current president, Ernesto Zedillo, is a strong advocate of reform. He has taken the lead in performing budget cuts, price and tax adjustments, tight monetary policy and further deregulation and privatization. Population The Mexican population is composed of three main groups: the people of Spanish descent, the

Native Americans, and the people of mixed Spanish and Native American ancestry, or mestizos. Of these groups, the mestizos are by far the largest, constituting about 55 percent of the population. The Native Americans total about 30 percent. The population of Mexico is 90,419,606. The population density in 1990 was 119 people per square mile with about 73 percent of Mexicans living in urban areas. (Encarta, “Mexico”) Political Divisions Mexico consists of 32 administrative divisions31 states and the Distrito Federal (federal district), which is the seat of the federal administration.

The national xecutive power is vested in a president, who must be Mexican-born and the child of a native Mexican. The president is popularly elected for a six-year term and may never be reelected. The president appoints the cabinet, which is confirmed by the congress. The legislative power in Mexico consists of the senate and the chamber of deputies. The upper house is a senate, with 64 members popularly elected for six years. Two senators are elected from each state and from the federal district. The lower house is a chamber of deputies, made up of 500 members elected to 3-year terms.

Three hundred are elected from single-member istricts based on population, and the remainder are elected according to a system of proportional representation. Senators and deputies may not serve two consecutive terms. The highest tribunal in Mexico is the supreme court of justice, made up of 21 full-time members appointed by the country’s president with the consent of the senate. Other important judicial bodies in Mexico include circuit courts and district courts. The chief executive of each state is a governor, popularly elected to a six-year term.

The governor of the federal district is appointed by the president of Mexico. Legislative power in the tates is vested in chambers of deputies, whose members are elected to three-year terms. The Partido Revolucionario Institucional (Institutional Revolutionary Party; PRI) is the largest and most important political party in Mexico. It was formed in 1928 as the Partido Nacional Revolucionario (National Revolutionary Party) and has been continuously in power since that time, although under several different names. Opposition parties exist, but not until the 1980’s did they represent a serious challenge to the PRI.

Chief among them is the Partido de Accin Nacional (National Action Party; PAN), a conservative, ro-Catholic group drawn primarily from the middle class and the Frente Democrtico Nacional (National Democratic Front, FDN), a coalition of leftist opposition groups. (Encarta, “Mexico”) Culture Mexican culture is a rich, complex blend of Native American, Spanish, and American traditions. Rural areas are populated by Native Americans, descendants of the highly developed societies of the Maya, Aztec, and Toltecs, and by Spanish and mestizo farmers and laborers.

Each of these heritages has enriched the regional culture. In the cities, both European and North American influences are evident. Most contemporary Mexican rtists are striving to produce identifiably Mexican work that blends Spanish, Native American, and modern European styles. (Encarta, “Mexico”) Economy Mexico reflects a shift from a primary-production economy, based on mining and agriculture, to a semi-industrialized nation. Economic achievements are the result of a vigorous private enterprise sector and government policies that have made economic growth a predominant objective.

Traditionally, the government also emphasized Mexicanization of industry, and local control of companies engaged in mining, fishing, transportation, and exploitation of orests was required by law. More recently, however, foreign investment in new enterprises has been actively encouraged, and government controls on some sectors of the economy have been loosened. Mexico’s gross domestic product (GDP) increased by 6. 5 percent annually during the period from 1965 to 1980 but only 0. 5 percent yearly during 1980 to 1988.

Weak oil prices, rising inflation, a foreign debt of more than $100 billion, and worsening budget deficits exacerbated the nation’s economic problems in the mid-1980s, although the economic picture brightened toward the end of the decade. In 1992 the GDP was 324. 29 billion. The annual budget included $107 billion in revenue and $122 billion in expenditure. (Encarta, “Mexico”) II. NAFTA In December of 1992, Presidents Salinas and Bush and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement (NAFTA).

The Mexican legislature ratified NAFTA in 1993 and the treaty went into effect on January 1, 1994, creating the largest free-trade zone in the world. Creating a North American free-trade zone and privatizing state-owned industry was part of a plan by the Salinas government to revive the Mexican economy. By 1993, the Mexican overnment had sold 80 percent of its industries to private investors for about $21 billion and had reduced inflation from 150 percent to 10 percent.

In November 1993, President Clinton predicted that if the trade agreement passes, American companies will add another 200,000 jobs by 1995. NAFTA’s promoters predicted that by the end of 1995 the U. S. would enjoy a $9 billion trade surplus with Mexico. The reality is that the post-NAFTA surge in imports from Mexico has resulted in an $8. 6 billion trade deficit with Mexico for just the first six months of 1995. By adding the Mexican trade deficit numbers to the urrent deficit with Canada, the overall U. S. NAFTA trade deficit for the first six months of 1995 alone is $16. billion. Using the Department of Commerce trade data in the formula used by NAFTA proponents used to predict job gains, the real accumulated NAFTA trade deficit would translate into over three hundred thousand U. S. jobs lost.

A number of companies that specifically promised to create new jobs actually laid workers off because of the agreement. Allied Signal, General Electric, Mattel, Proctor and Gamble, Scott Paper and Zenith all made specific promises to create jobs, and all have laid off workers because of NAFTA as certified by the U. S. Department of Labor’s special NAFTA unemployment assistance program (NAFTA TAA). As of mid-August 1995, the U. S. Department of Labor has certified 38,148 workers as having lost their jobs to NAFTA. A total of 68,482 U. S. workers have filed to receive NAFTA-related unemployment assistance through the NAFTA-TAA program. Despite the job losses, trade officials said NAFTA remains a net gainer for U. S. workers. Increased exports to Mexico and Canada will support some 3 million U. S. jobs this year, up some 500,000 from two years ago, according to the U. S. Trade Representative’s office. Briones) III.

Recent Events A. The Chiapas Uprising and the Zapatistas On January 1, 1994, a group of Native Americans called the Zapatista National Liberation Army (EZLN) captured four towns in the southern Mexican state of Chiapas and demanded reforms from the Salinas government for better treatment for poor Indians there. They chose to begin their rebellion to coincide with the implementation of NAFTA because they consider it a “death sentence. ” They demand bilingual and intercultural education in their indigenous language as well as in Spanish. They want titles and protection of the lands where they ive.

Finally, they say that the governments should ratify the International Labor Office’s (ILO) resolution 169 on the promotion and protection of the rights of indigenous people. The group is named for Emiliano Zapata, a 19th-century Mexican revolutionary leader and agrarian reformer. The EZLN has organized itself among some of the most dispossessed people of the world. Its’ soldiers are drawn from the forests, mountains and small towns of the region, both from the indigenous Mayan population, and from immigrants from Central and Northern Mexico. The EZLN soldiers have been subsistence cultivators and andless wage-laborers.

They have grown and marketed their own export crops and have worked on the plantations and ranches of others. A very few are intellectuals drawn to the area over a decade ago by their ideals and hopes. The EZLN understands how NAFTA opens Mexico to U. S. exports and imports, and how the most threatening of these is corn, the basic food crop of the indigenous population and an important source of cash income. Already they are suffering from low prices for coffee, another cash crop, due to government’s elimination of financial support for that production.

They also know that export development eans ecological destruction, especially deforestation. (Marcos) Although Mexican troops quickly retook most of the territory held by the rebels and a cease-fire was called soon afterward, the rebel group generated momentum for political reform in Mexico. A government negotiating team, headed by former Mexico City mayor Manuel Camacho Solis, met with rebel leaders and offered them a 34-point proposed agreement that included promises of political changes, new social programs, land reform, and better standards of living. However, the group rejected the plan in June.

Subcommandante Marcos is the enigmatic spokesperson nd highest army commander of the Zapatista National Liberation Army. He is known for his well-written press releases filled with wit and sarcasm. He is always masked in public, and often smokes a pipe. The government claims to have “identified” Marcos as Rafael Sebastian Guillen Vicente, but Marcos and the EZLN have denied this. Major Ana Mari’a was the commander of the operation for taking the municipal palace of San Cristo’bal for the Zapatista National Liberation Army (EZLN). She was 25 years old when she joined the Zapatista Army and saw almost the whole process of how it moved forward.

She was ne of the first women who was part of the ranks of the Army and has risen to hold the highest rank of any woman in the EZLN. (Gabriel) This revolt affects the current exchange rate due to the uncertainty surrounding this uprising. Many valuable resources can be found in the Chiapas region, such as timber, coffee and oil. Many foreign industries have reduced or canceled work in the region for fear of being caught between the EZLN and government troops. There is much more fighting taking place than most American newspapers report. With businesses reducing their spending in Mexico, the inflow of U. S. dollars is reduced which increases the demand for the dollar in Mexico. This causes the dollar to strengthen against the peso.

B. The Colosio Assassination On March 23, 1994, during the Mexican presidential campaign, the PRI’s candidate Donaldo Luis Colosio Murrieta, was assassinated while campaigning in Tijuana, Baja California. Unnamed U. S. intelligence officials have stated that former Mexican police commander Fernando de la Sota Rodalleguez, charged in connection with the assassination, was a paid informant for the U. S. Central Intelligence Agency in Mexico City from 1990 to 1992.

De la Sota began his police career in 1973 working for Mexico’s Federal Security Directorate, and by 1992 he had become investigations department commander for the federal attorney general’s office. He was fired that year on suspicion of taking bribes from alleged drug lord Rafael Aguilar Guajardo and the CIA dropped him soon after. De la Sota was working as the head of the private security team for Colosio on the day of the assassination. Federal investigators arrested De la Sota in February of this year on charges of giving false and conflicting testimony about the assassination.

Despite his 20 years’ experience in police work, De la Sota claimed that the gunshots set off a diabetic attack which kept him from seeing what was happening. He was released on Feb. 28 on a $7,000 bond. At the time of his arrest, Mexican officials indicated off the record that De la Sota was closely connected to the assassination. Currently two men are under arrest for the murder: Mario Aburto Martinez, a factory worker who allegedly shot Colosio in the head from the right side, and Othon Cortes Vazquez, who is charged with shooting the candidate in the abdomen from the left side.

Cortes Vazquez and De a Sota knew each other. Cortes Vazquez worked for various PRI officials as a driver and messenger, and on the day of the murder he was driving for Gen. Domiro Roberto Garcia Reyes, who was in charge of the official security for Colosio. One of the videotapes held by the attorney general’s office reportedly shows De la Sota and another member of the private security team, Hector Javier Hernandez Thomassiny, guarding Colosio’s left side.

Cortes Vazquez suddenly “replaced” the two experienced bodyguards just before he and Aburto shot the candidate, according to people who saw the tape. As soon as Colosio ell, De la Sota and Hernandez Thomassiny allegedly seized Aburto and let Cortes Vazquez escape. The uprising in Chiapas and the murder of presidential candidate Luis Donaldo Colosio are two examples of how Mexico’s social and civic institutions are crumbling under the pressure of drug-related lawlessness and corruption, factors that are making Mexico a very dangerous place even for members of the ruling elite.

Indeed, the same environment of lawlessness and impunity that has allowed Mexico’s ruling party, known as the PRI, to govern for over 65 years is now aiding the expansion of the influence of the narcotics rade. Federico Reyes Heroles, editor of the monthly magazine Este Pais, says bluntly that the killing was a deliberate hit by Mexico’s powerful drug lords. News reports in the days following the killing included numerous off-the-record comments by government officials confirming the suspicion that the killing was a hit organized and paid for by drug traffickers.

Another prominent Mexico City editor, speaking off-the record, says that the Mexican politicians are being killed off because of a power struggle related to money and drugs, not over questions such as democracy and human rights. Beyond the death of Colosio, owever, another explanation exists: the need to maintain the appearance of “fighting drugs” to satisfy Washington. Eduardo Valle, former aide to Interior Minister Jorge Carpizo, has given the Mexican government documents and testimony allegedly linking government officials and drug traffickers to the assassination of presidential candidate Colosio.

The former official, who is known as “the owl”, worked as a senior official directing Mexico’s anti-drug efforts. He says that Colosio was murdered by members of the Grupo del Gulfo cocaine cartel, with the involvement of Colosio campaign officials close o Communications and Transportation Minister Emilio Gamboa. Included with the documents provided by Valle during testimony given at the Mexican consulate in Washington was a DEA report about telephone calls last December by cartel members to the offices of the presidency. (Whalen, p. 2-4) Assassinations affect exchange rates due to the uncertainty that is caused.

Many investors flee from the market if there is a risk of losing their investments. Without these investments, the economy begins to tumble downward due to increased unemployment and a lower demand for goods. This may cause the dollar to strengthen as the eople move away from the uncertain peso. IV. Exchange rate See graph attachment. V. Devaluation of the Peso Due to the weaken peso, caused by constant printing of money and high inflation, Mexican investors took close to $11 billion dollars out of Mexico in a few days in December 1994.

The political turmoil from regional insurrection to a string of assassinations and disrupted elections help cause the collapse of the peso, requiring a $20 billion bailout from the U. S. Treasury. The International Monetary Fund has pledged another $17. 8 billion, while the central banks of other industrialized nations, acting hrough the Bank of International Settlements, are obligated for an additional $10 billion. (Banda) VI. Advantages/Disadvantages of Importing/Exporting Goods A Houston company exporting to Mexico will find some difficulty selling its goods in a country were the peso is weak against the U.

S. dollar. The Mexican businesses will be forced to buy only the necessities due to the unfavorable exchange rate. However, on the positive side, if the Mexican businesses expect that the peso will devalue further, it may decide to purchase big ticket items now in hopes of beating any further devaluation. A Mexican company whose primary usiness is exporting Mexican made products to the U. S. will enjoy the weak peso, strong dollar economy. Imports from Mexico into the U. S. has resulted in an $8. 6 billion trade deficit with Mexico for the first six months of 1995.

While the Mexican company is paying for its labor and overhead with weakened pesos, it is receiving a stronger U. S. dollar for its goods. The company can request payment in the stronger U. S. dollar and invest them into various financial instruments until the peso can rebound or is needed to continue operations. VII. Opinion The signs are growing ever stronger that Mexico’s etermined adherence to its economic austerity program is setting the stage for a remarkably solid and sustainable recovery from the recent financial crisis.

The country’s Bolsa stock index has rebounded more than 60 percent from its February low, the peso has stabilized, compared to what it has done in the past, and Mexico’s recent $500 million bond offering was oversubscribed by $1. 3 billion. Mexico is making clear progress in improving its debt structure, and strong export growth is producing a dramatic correction in Mexico’s current account imbalance. Mexico has a balanced federal budget and a largely privatized conomy.

The North American Free Trade Agreement and Mexico’s other trade pacts are continuing to play a significant role in creating new opportunities for Mexican businesses. A number of U. S. companies have chosen to create co-production partnerships with Mexican firms over geographically more remote partners in Asia because of Mexico’s proximity, modern infrastructure and industrious workforce. NAFTA is playing a key role in encouraging such partnerships. By reducing North American trade barriers, NAFTA is enabling firms which might otherwise manufacture in Asia to work with Mexican partners instead.

The growth of business partnerships, along with Mexico’s ongoing economic, legal, judicial and political reforms helps to explain Mexico’s ability to attract long-term investment. However, the peso is currently in a tailspin against the dollar due mostly to currency speculators. If the Mexican government can stay with its current plans and programs with minor adjustment, the peso should rebound. The bottom line from Mexico is that its continued commitment to open markets and economic integration is paying off and will be reflected in the overall strengthening of the Mexican peso against the U. S. dollar in the long run.

World Trade Center

With the beginning of a seemingly endless war on terrorism, and a shaky United States economy, now hardly seems the time to examine our general policy towards all other nations, and developing nations in particular. The wreckage of the World Trade Center is still smoldering, and our troops are marching on Kabul as I write. Nationalism is at a height only previously experienced during the World Wars. Every other car you see on the highway has Old Glory proudly flying in their window or on their antenna, some right next to their Rebel Flag.

On the surface it appears the United States has pulled together for one more righteous cause, and evil, or those that oppose the US as they are commonly called, will surely fall. We wont stand for innocent attacks on civilians, and those Afghanis and Osama bin Laden had better hide. If you dont believe this, not only are you un-American, but you must be a terrorist yourself. Quietly, however, the argument is being made among scholars and free thinkers in the United States that perhaps we are not the innocent victims we portray ourselves to be in the September 11, 2001 destruction of the World Trade Center.

Some forward thinking minds even predicted a tragedy somewhat like this, but not on such a large scale. Unenlightened people ask why something like this could or would occur. What would make such a poor and unstable country like Afghanistan decide to stand up to the almighty United States? The answer is not an easy one, and requires a large adjustment in what we expect in foreign relations, and how we see and treat the rest of the world as a whole. The United States is one of the last remaining super powers of the world, and we have the obligation to maintain and support good relations with the smaller and weaker nations throughout the world.

We should take full advantage of this relationship in several different ways, all without exploiting our own power. First the U. S. must focus on investing and trading with those nations who have yet to become economic powers. Second, we must implement a consistent foreign policy towards the Middle Eastern nations, and all third world nations in general. Third, the United States needs to respect the attempts and results of the democratization and religious revivals in the Middle East and Latin America, while taking a passive role in letting the Western type of democracy take its course. Fourth, the U. S. ust ease and downplay its conflict with those civilizations that dislike the “Western people” and their way of life. Obviously, foreign investment is necessary for the future of developing other nations as well as our own.

There must be an emphasis on foreign investment and trade, otherwise the third world nations will continue to fall behind economically, technologically, and domestically, which could lead to an economic downfall for the U. S. as well. The question then arises as to what the United States must do in order to have large trade agreements with other countries other than Japan and Mexico.

In order for the U. S. to play a more active role in the economic and political development of many of these developing nations, it must first accept a different philosophy than its current one. First, it is imperative for the United States to play a similar role in Latin America to the one Japan has played with many of the developing nations in East Asia. The U. S. neighbors Latin America, and if it wants to play the role of big brother, it must accept the responsibility.

Japan has invested, traded, and been a guide for many of it’s neighboring countries in East Asia, making them grow politically and economically while also profiting economically itself (Japan Remains 1996). The U. S. must realize that the economies of Latin American Nations will play an important part in the future of our own economy, and that it must begin to lead, invest, and aid not just Mexico, but countries such as Peru, Argentina, Bolivia, and Columbia into the twenty first century. The mainstay in American foreign policy has always been to promote and instill democracy.

However, in order to do this in a foreign nation, the U. S. must be able to first establish a viable economic relationship and system within the desired nations. We should not expect or want a nation to switch from a total authoritarian government to a market economy; doing so would be a disaster. The United States rests too much on its ideological beliefs, when there is no need to do so. Foreign countries seek our capital and trade routes, not our morals and culture. We, unfortunately, do not feel this is the case.

The US has traditionally required all or nothing, in regards to demands on prospective trade partners, and political allies. The United States stance towards Cuba is a notable example of this philosophy. Instead, the U. S. has to be willing to allow developing nations to invest in U. S. markets before we invest in theirs, regardless of ideology. In return, a viable export / import system will be established. But it is essential that the economy of the developing nation be monitored and run by its own government, and the United States should only be there for advising purposes.

When a reasonable system has finally been achieved, then a more American, laissez – faire type of economic network will be allowed to grow. If the greatest challenge the United States faces are implementing a foreign policy that is consistent throughout the Middle East, weve done nothing but shoot ourselves in he foot so far. Islamic nations aren’t likely to be responsive to ideas such as human rights, and democracy. These nations will never be responsive to western ideas when the United States continues to levy sanctions against them.

The U. S. s lucky that it has an ally in Saudi Arabia and Israel, allowing them to implement many of these foreign policy agendas against the other Middle Eastern countries, without having to face serious economic consequences in the oil and gas industry. Oddly enough though, Saudi Arabia is probably as much against western ideologies as any nation in the Middle East. Women do not have equal rights, torture is frequent, there is no separation between church and state, and Saudi Arabia is extremely far from developing any sort of democracy (Miller 58). Now, when the U. S. promotes democracy and human rights, why does it support one country and condemn the next? Throughout the Cold War, American foreign policy would give aid to any nation who opposes communism. So during that time the U. S. developed a “you’re either with us or against us” type of policy, non- alignment. With this policy, many of the Middle Eastern countries became so called enemies with the U. S. , which has led to unrest and hatred of western democracies. In this time of global economics, the United States cannot pick and choose which countries to invest in.

In order for the U. S. to defeat the challenges it faces in the Middle East, it must start by supporting the entire Middle East. Israel and Saudi Arabia may be the most attractive offers, but Syria and even Iran have vast resources that will be very valuable to our economy in the future. Of course we cannot forget about our dear friends off the coast of Miami, Cuba. What edge does a country like China hold over Cuba besides size? Nothing besides a larger source of cheap labor. Our current stance on Cuba was correct in 1962.

Castro was indeed a communist, but only after the US, who he turned to first, refused to help him. In 2001, however, it seems apparent that Castro has metamorphisized into something else. Castro has done an almost complete 180 in his political philosophy, and some would argue that Cuba is almost a democracy already. If we lifted our ineffective embargoes and opened the trade lines in Cuba, I see no reason why Castro would not open his society even more. Americans are missing out on a chance to change Cuba, both financially and politically.

We have the chance to rebuild an entire economy from the ground up, and all we have to do is invest in it. These opportunities are not hypothetical either, but real apparent to other countries like Canada and the Europeans. Everyone else in the world knows this already because they have made the necessary attitude adjustments and are in there rolling up their sleeves and getting their hands dirty. Castro knows that he cant do this task of changing his entire structure himself, and its only a matter of time before he finds someone to help that will most likely not be favorable to the US.

It happened before when the US denied him and he turned to the USSR, there is no reason why we should let it happen again. As the supposed leader of the free world we should know better. All the US does is preach about the importance of stability and free market systems, and the need for democracy. With an example like we are setting, why should anyone follow? Why should we do everything in our power to ensure neither survives in Cuba? Its time and has been for a long time to swallow our pride and admit we were wrong. The rest of the free world already knows it.

They sit in their Cuban financed offices, smoking big fat Cuban cigars laughing at our arrogance and us. (Smith) Next, the United States must respond to the problems of democratization and religious revival in the Middle East and Latin America. In the Middle East, there seems to be the notion that attempts at democratization would lead to the downfall of minority rights. As Judith Miller pointed out, “The promotion of free elections immediately is likely to lead to the triumph of Islamic groups that have no commitment to democracy in any recognizable or meaningful form” (Miller 59).

What the United States must do is establish a representational or parliamentary process that recognizes all forms of political action. Simply promoting free elections would lead to a backlash in democratization efforts. The fear is in the idea of one group outlawing another. A democracy might be based on majoritarian rule; but all groups, whether they are Islamic fundamentalist or even Christian, must be able to participate in the political process.

Similarly, the United States must show complete support for the democratic process in Latin America. When Salvador Allende was elected President of Chile, the West feared the thought of a complete Marxist government (Rosenberg 28). Not only did we try to kidnap his main general and fail miserably when we actually killed him, we set forth to overthrow a legitimately elected official and went against everything we have preached over the last 150 years about respecting democracy and working within a system.

What needs to be respected is not the political ideology of one group or country, but rather its democratic process. Because democracy neither forms countries nor strengthens them initially, a multiparty system is best suited to nations that already have an established bureaucracy and a middle class which pays income tax, and where the main issues of property and power-sharing have been resolved. Leaving two politicians or parties to argue about the budgets, and letting the tax payers decide who should come to power. Kaplan E9)

A problem then arises as to the issue of Islamic and Christian revivalism, because as countries become poorer and poorer, religion plays an ever-increasing role in citizens lives as they search for any glimmer of hope to believe in. Occasionally an extremist group like the Taliban will gain power with ease. How the United States deals with this problem is crucial in maintaining its leadership and future economic entities in both regions. The revival of Islam in the Middle East is a reaction to Western encroachment during and after the Cold War.

Traditionalists believe that by opening up to Western culture they are losing their true faith in Islam. The first step in solving this problem might be to recognize that Muslim nations do not embrace every aspect of liberalism. If the United States can establish itself as a legitimate foreign investor and/or trading partner, rejection of Western philosophies will soon begin to diminish. The U. S. should still stand strong in its fight to combat terrorism and radical militant groups, but must also stop showing favoritism in the region (i. e. Saudi Arabia).

The democratic process can work, but it needs to show the nations of the Middle East that it can be reconciled with religious revival. Allowing groups, majority or minority, the chance to reap in the rewards of democracy does this. Can religious revival be intertwined with economic development or democracy in Latin America? The case of Brazil gives us good evidence as to whether it can or cannot. “The theory of liberation grew out of the militant priests’ direct involvement with the working poor, both urban and rural” (Haynes 100). In Brazil, the church has always embraced the poor.

Priests have worked to show that the church is taking an active role in the impoverished lives of that country. Religion then became an integral part of the societys identity, their politics, and their government. In most developing lands, there is no such concept of separation of church and state. US citizens have an extremely difficult time dealing with this, feeling religion has no business in the affairs of the state, and fail to realize that not only do some cultures feel the opposite, but that they are basically the same entity.

The idea began to spread through out the slums and the pueblos, and the poor were soon being encouraged to participate in some sort of political movement, no matter how minor or trivial it seemed. This was the first evidence of a nation undergoing a religious revival and taking steps toward development and democracy. However, missionaries from other countries, especially from the US, trying to spread their own religion are seen as a direct threat to the integrity of the native peoples religion.

While some do embrace the teachings of Christianity and other foreign cults, others see the work of missionaries as the work of the United States government in a form of divide and conquer. This is painfully apparent in Latin America where the masses are all Catholic, and the missionaries are Protestant. Admittedly most foreign missionaries see themselves as doing the work of their god, and do so out of the best intentions, but fail to see in all occasions the damage this disruption in culture causes.

This incurs a great hatred and a feeling of deep-rooted resentment in native cultures. In much the same way most American families have had values instilled by the church since birth, so too have the cultures afar. Although some will argue that the heart of the conflict lies in the ignorance of the native people to the USs policy of church/ state separation, at least some fault lies in the US for not explaining. It has been proven that participation in a regime allows for a greater wealth of resources economically and politically, while encouraging development.

But, if we try to impose our will by force or intimidation, there will be few willing volunteers to follow and join such a movement. Again, the United States needs to respect the efforts of religious revival because it is returning Christianity or Islam to its roots just as the U. S. is trying to establish democracy to its most basic fundamental aspect in many of these developing nations. The U. S. must allow democracy, in whatever form it takes, to grow.

This means concentrating on being empathetic and tolerant to the political and economic developments that might occur during this time of change, rather than taking forceful actions that many believe is necessary. The role the United States took when communism was being defeated in Eastern Europe and the Western way of life was being pushed to the forefront is the same approach it needs to take with most of these developing nations. Since the United States is at its peak of power in relation to other civilizations, and Western military power is unrivaled, the U. S. ust attempt to redefine its image in the non- Western part of the world.

“The United States dominates the international political, security, and economic institutions with Western countries such as Britain, Germany, and France. All of these countries maintain extraordinarily close relations with each other, excluding the lesser and largely non-Western countries. Decisions made at the United Nations Security Council or in the International Monetary Fund that reflect the interest of the United States and its Western allies are presented to the world as reflecting the desires of the world community” (Huntington 39).

This type of selfish global policy cannot be tolerated if the United States wishes to be the leader in binding a “World Community. ” The non-westerners view this global decision making in such a way that it in effect makes “the West look as if it is using its international institutions, military power, and economic resources to run the world in ways that will maintain Western predominance, protect Western interest and promote Western political and economic values” (Huntington 40).

These views do have merit to them nonetheless, because the United States does use it worldly powers to influence these international councils in situations when the so-called anti-American countries are involved. Because one nations civilization and culture are totally different from that of the Western nations, the US should not deem which cultures are acceptable and non-acceptable in the realm of the world.

Because for the most part as Huntington states “Western ideas such as individualism, liberalism, constitutionalism, human rights, equality, liberty, the rule of law, democracy, free markets, the separation of church and state, often have little in Islamic, Confucian, Hindu, Buddhist or Orthodox cultures” (Huntington 40). By trying to influence its views through the United Nations and International Monetary Fund on the non-Western Countries, the U. S. s in fact just building up more negative sentiment towards itself, which can be seen in the support for fundamentalism of all types by the younger generation in non-Western cultures. If the U. S. does not attempt to change it’s image in the near future, a new generation of fundamentalist will begin to strike with terrorist activity against the U. S. more devastating than the World Trade Center bombing, and far more widespread. Hate towards the West over unfair foreign policy and favoritism will have been instilled since birth, and the terrorist will feel that means are justifying the cause.

It is through these policies, agendas, and attempts at foreign investment, and humbleness throughout the world that the United States will be able to maintain its classification as a world power, economically, politically, and socially. If the United States does not act upon these ideas and problems in the near future the results might not be immediate; but we will see the effects well into the twenty- first century when we are no longer regarded as the super power we once were. The attacks on the World Trade Center and the Anthrax scare will merely be the tip of the iceberg.

Economic Development in three Urban Areas: Atlanta, Baltimore and Cleveland

The following pages review the comprehensive strategies that have been used by the cities of Atlanta, Baltimore and Cleveland to improve their economic conditions. It should become apparent to the reader that the fate of each city is determined by many factors including historical events, the balance of power between stakeholder groups, the ability of the city to capitalize on federal programs and the relationships between the private sector and the community. Unfortunately, no clear winning strategy arose from each city’s economic development efforts; they all caused both gainers and losers.

Atlanta is a city that is led by business leadership whose main priority is to promote business interests that are at times at odds with the communities’ development. Baltimore, with very little private investment, relies heavily on its citizens’ involvement whose collective bargaining and activism have hindered its political leadership’s attempts at growth. Cleveland has fallen victim to “ivory tower” leadership that has led to financial mismanagement and increased community frustration.

I have attempted to review the last decade in each city, and in the context of that city examine the strengths and weaknesses of their actions. The scope of this project is large. To focus the reader’s attention on the difficulty the cities have experienced in trying to meet their stakeholders’ needs and expectations, I have chosen to focus on a few specific actions that were taken in each city to promote economic development. This discussion is by no means exhaustive; additional learnings can be gleamed from further research. Atlanta

Atlanta’s political and social structure and development has been characterized by what author Clarence Stone labels regime politics in his book Regime Politics: Governing Atlanta: 1946-1989. The regime’s determining factor is the loosely formed coalitions and collaborations between the white Atlanta elite and the black middle class leadership. The partnership (although the power was not balanced between the groups equally) has its beginnings in the 1940’s when astute white businessmen properly predicted the growth of a black middle class and a shifting in electoral power.

Faced with two choices: to use their social and economic clout to fight the inevitable changes in political power or adopt more cooperative policies that permitted the growing minority freedom to participate and influence the political and economic process; they chose the former. Sixty years later, Atlanta is still controlled by its business elite; however the complexion of the city and its power structure has changed dramatically. The urban area is predominantly African-American, although Hispanic neighborhoods are beginning to surface.

The mayors of the last few decades have been African-American and there has been a steady growth of African-American businesses. Atlanta’s response has been to increase its efforts to make the city more attractive to businesses in the hopes that the businesses will help Atlanta continue its growth. The following discussion reviews some of the strategic steps taken by Atlanta’s elite to move it into the upper echelon of cosmopolitan cities that are capable of attracting Fortune 500 companies. The Atlanta Project

The Atlanta Project (TAP) was created in 1991 by former United States President Jimmy Carter to facilitate discussion on problems in economic development, housing, education, children/youth, health, arts and the public safety for the half a million Georgia residents that live in Atlanta and the surrounding areas. Although TAP was crafted to be an intermediary from the very beginning (a result of meetings of leaders from Atlanta corporations, academic institutions and non profit organizations); there was a misinterpretation by the very public it wished to serve.

Local residents believed that TAP, as an entity would solve their problems and began to pressure the organization to act on their behalf. As a result, TAP engaged in quick fixes to raise its public image but muddied the water’s on its exact goal and was considered by many to be ineffective. After nine years of lackluster performance, TAP was transferred to the management of Georgia State University (GSU). In the nine years under the Carter Center, TAP was responsible for immunizing 16,000 children and helped 1,100 Atlanta residents find housing and jobs, far short of the success most had imagined for it.

Under GSU’s Neighborhood Collaborative, TAP has shifted its emphasis to partnerships with the University to accomplish its community capacity building, which are in line with the university’s focus on service learning opportunities. In addition TAP provides support services to the Community Empowerment Advisory Board, the resident comprised arm that advises the Atlanta Empowerment Zone Corporation. Empowerment Zone In 1994, Atlanta recognized the dire straits of fifteen percent of its urban residents and applied for designation in the initial round of the federal empowerment zones.

Fifty five percent of its population had incomes under the poverty level with an unemployment rate of 17% and half of its residents in public housing. Thirty neighborhoods in Atlanta over 9. 3 square miles were designated as an urban empowerment zone at the end of 1994. Under the empowerment zone plan, over several years, Atlanta will receive $100 million in grant money and a variety of financing tools, including loan guarantees, tax-exempt bond financing, accelerated property depreciation, and wage tax credits to promote economic growth.

To qualify for designation, it needed to submit a plan on how it would spend the funds allocated for its economic development. As part of the plan, Atlanta envisioned an “urban village” where residents work cooperatively to improve quality and emphasized development that is economically and ecologically sound. Its five point plan included: increasing employment opportunities and attracting new jobs, increasing public safety, reducing poverty and drug use, providing adequate housing and establishing an organization to govern the process.

The Atlanta Empowerment Zone Corporation (AZEC) was formed to oversee the implementation of the strategic plan. Its actions are governed by two boards: the executive board and the advisory board. The executive board is comprised of representatives of public agencies, service providers, the private sector and the community. The advisory board is comprised of representatives from each of the neighborhoods. It is the responsibility of the advisory board to represent the interests of the community to the executive board.

Almost one fifth of the activities planned for the Atlanta Empowerment Zone were linked to economic development. Almost thirty one percent of the funds allocated to the empowerment zone were related to economic development. Atlanta’s single biggest activity that it has funded through the empowerment zone was five million dollars for the Centennial Olympic Park Area Business Park. $4. 5 million has been dedicated to loan portfolios for both home and community businesses as well for businesses to locate into the area. $1 million was dedicated to a technical shop.

The progress of the Empowerment Zone has been spotted with allegations of fraud and mismanagement. Less than three years after the designation, almost all the employees of the AEZC had been fired by Atlanta Mayor Bill Campbell due to findings of mismanagement. A third through the ten year life program (the zones’ designation have been extended recently), the administration had only approved a fraction of programs earmarked to spur economic growth but had spent the entire $4 million budget that was outlined for administrative costs over the ten years.

Adding to the negative feeling surrounding the AZEC has been the HUD’s findings that the agency had used over $1million dollars to assist Atlanta residents that did not live or operate businesses in the empowerment zone area. Finally, some residents feel that the empowerment zone shows a preference towards large corporations at the expense of the small entrepreneur. 1996 Olympics The 1996 Olympics are an example of how public private partnerships worked to improve Atlanta’s competitiveness as a thriving city.

Proponents of the Olympics in Atlanta planned for it to favorably impact Atlanta’s economic environment as well as its public image. To properly plan for the resulting economic development, the city’s Olympic Committee joined forces with the Atlanta Chamber of Commerce to launch Operation Legacy. The project, which began in 1993 and was composed of players from the state’s and city’s chamber of commerces and the state economic development agency, had help from the private sector in attracting new businesses to the era.

The goal of Operation Legacy was to create 6,000 jobs by 1998. The non-profit organization, the Corporation for Olympic Development in Atlanta (CODA), was formed by the city and the private sector to organize its neighborhood revitalization efforts. It efforts were centered on sixteen neighborhoods that surrounded the area where the Olympics took place which were pockets of poverty and majority African American. (79% of the residents had annual incomes less than $20,000) On one hand the results have been positive.

Phillips and Porsche have located to Atlanta and surveys before and after the Olympics have indicated that perception of Atlanta by business people located outside of Atlanta had been positively impacted. In preparation for the Olympics, other long term projects also took place: expansion of Hartsfield Airport, improvements GSU campus, extension of the transit rail system, redevelopment of the Techwood housing projects, facial rehabilitation of Woodruff Arts Center, the restoration of Piedmont Park and various roads projects.

After the Olympics, the city found uses for the Olympic landmarks: the Olympic stadium is now called Turner Stadium and became the home of the Atlanta Braves in 1997, the Olympic Village where the Olympic athletes resided during the 1996 Olympics now houses students at Georgia Technical University and GSU and Centennial Olympic Park will remain as a commemorative park. What was even more impressive about the changes made in Atlanta was the financial commitment of the private sector.

Although Atlantans supported a $150 million bond referendum for improvements in Atlanta’s infrastructure, the vast majority of the Olympic developments were privately funded and the games were supported by the fees for television rights, corporate sponsorships and ticket sales. However, critics say that Atlanta failed to meet many of its goals related to employment and neighborhood revitalization. Most of the renovation centered around the universities which is located in the midtown area which had already been experiencing a rebirth with rising housing prices and an influx of young professionals.

Critics believe that attributing the development of the midtown area to the Olympics is overstating the value it actually is responsible for creating. In addition, compared to the Olympic developments that were being funded by the private sector, CODA had very little resources to actually fund its plans. As such, they encountered many of the same obstacles faced by most community development corporations nationwide: lack of coordination with city agencies, lack of resources to carry out plans and impatient residents who desperately needed on the creation of new affordable housing.

The two projects that were completed, Techwood Homes and Grenlea Commons, were wrought with controversy as the low-income housing was replaced with mixed income, displacing a number of the residents. The goal of making a twenty-four hour downtown was not been met save for nine blocks that have been made into safe, pedestrian blocks. Smart Growth Initiatives Smart growth initiatives have surged forth as low population density, traffic congestion, pollution and doubling populations in the suburbs are beginning to limit economic development.

Hindering the movement has been residents’ reluctance to change their lifestyles and their contempt for public transportation as well as outlying counties reliance on tax revenue from suburban developments. Prior to 1996, there was little in the way of government regulations to prohibit sprawl and organize growth. Several authorities have formed as the city and county officials struggle to deal with the problems that stretch across ten counties. Clean Air Campaign is a consortium of businesses, government agencies and environment groups that is trying to break long standing regional habits.

Georgia Regional Transportation Authority (GRETA) was created in 1999 by state legislators to control growth and transportation. It has the power to build or veto the roads and transit systems over counties’ wishes and the right to issue permits for large, new developments. Businesses are also taking an active role fearing the passing of more restrictive legislation and negative impact on Atlanta’s image as well as the growing congestion and pollution.

Some of Atlanta’s largest corporations have plans to consolidate offices and centralize their operations in Atlanta to keep employees from having to commute to work. Real estate developers have launched new urbanism projects that center housing around offices and retail shops that encourage residents to walk to work and for their shopping and entertainment. Perhaps even more importantly, smart growth has put more fire in the redevelopment of downtown and urban Atlanta. In 1999, Turner Broadcasting opened the Phillips Arena opting to build downtown over the suburbs.

The Future of Atlanta Recently, Michael Porter produced a cluster review on Atlanta that reported it has spent too much of its energy on increasing jobs and its population when its interests would be better served by putting its efforts in increasing the income level of its residents. Most neighborhood groups would agree. While Atlanta’s elite has done an excellent job of improving Atlanta’s image and attracting new companies; it has neglected a portion of its citizens that are barely surviving below the poverty level.

Unfortunately, with the flight of white and black middle class residents to the outlying counties that comprise the metro Atlanta area, there has been a dearth of capital invested in some of its most historic neighborhoods. The recent corporate headquarter relocations have done little to employ the Atlanta citizens who have little formal education or professional job skills. The housing rehabilitation that resulted from the 1996 Summer Olympics gentrified and displaced many of the long time residents. The mismanagement of the AEZC reinforced the perception that Atlanta favors corporate interests over local.

The failure of TAP can be attributed to pressure from area residents’ to hold someone responsible for the disparity between the suburban have’s and the urban have not’s. It is plausible that Atlanta can continue on its path of economic development without the inclusion of its poorest neighborhoods. Community development corporations started appearing in Atlanta in the 1970’s and continue to struggle to get their voice heard among the inner circle of business elite where the direction of Atlanta is being decided.

Without increasing Smart Growth initiatives, Atlanta can continue to grow at its circumference and allow its residents to commute to work, leaving their wealth outside the urban area. An inadequate rapid transportation system leaves inner city residents powerless to capture any of the growth Atlanta has experienced. Without the support of the business elite, there seems little that these neighborhoods can do to ensure their survival. Baltimore Baltimore city suffered in the mid 1900’s as manufacturing jobs were lost to oversee operations.

Serving as one of America’s ports, Baltimore relied heavily on the shipping and manufacturing industries that have seen a decline over the past century. Further inhibiting Baltimore’s growth was the exodus of its working middle class to the suburban areas outside of Baltimore’s city limits. The movement was partly prompted by the availability of new housing developments outside Baltimore and the growing racist fear of the Black population that had settled in Baltimore’s inner city.

Over the last thirty years, Baltimore has strived to develop comprehensive strategies that include all its stakeholders and is responsive to all its constituents on issues such as public safety, education, housing and employment. Baltimore has been very active in using the resources from the city, the state, the private sector and the local community for its urban renewal, which has focused on revitalizing its downtown area and other neighborhoods throughout the city. The discussion that follows reviews the actions taken by Baltimore political leadership and the responses of its stakeholders.

Empowerment Zone The goal of the Baltimore’s strategic plan for spending the funds designated through the federal Empowerment Zone is neighborhood empowerment to solve the problems of unemployment and poor quality of life for its residents. Baltimore outlined its strategy into eight components: create village centers that push technology into the community, community development (including land use plans), public safety, housing, health and family development, education, training and literacy, attracting and developing new businesses and establishing an organization to govern the process.

Like Atlanta, under the empowerment zone plan, Baltimore will receive $100 million in grant money and a variety of financing tools, including loan guarantees, tax-exempt bond financing, accelerated property depreciation, and wage tax credits over several years. The Empower Baltimore Management Corporation (EBMC) is the non-profit organization formed to oversee the implementation of the plan. Its actions are governed by an executive board that is comprised of community leaders, city agency heads, and representatives of the business community, foundations and universities.

Six village centers have been created as affiliated non-profit organizations to aid in implementation of the EBMC’s plans. The 6. 8 miles covered by the empowerment zone is not contiguous. The residents of the Empowerment Zone represent 10% of the overall city population and at the time of the designation were facing a 41% poverty rate and a 15% unemployment rate. Eighteen percent of the residents lived in public housing. The three areas covered under the Empowerment Zone are the University of Maryland in west Baltimore, the John Hopkins area in east Baltimore and the Fairfield Community in south Baltimore.

Almost have of the activities planned or ongoing in the Baltimore Empowerment Zone are linked to economic development. Almost 67% of the funds allocated to the fund are set to be spent on activities related to economic development. One of the developments that have arisen from the Empowerment Zone is the establishment of Community Development Ventures, which provides senior subordinated debt and equity to businesses in the Empowerment Zone to grow current business or as start up capital. In addition, it offers technical assistance to the areas’ businesses and youth outreach to promote young entrepreneurism.

A form of community development venture capitalism, it has a $8 million asset portfolio of eight businesses in which it has invested funds from The Ford Foundation, Prudential Insurance Company, and Empower Baltimore Management Corporation and the CDFI Fund. The zone also sponsors a housing venture fund that provides up to $5,000 for low-income people to purchase homes to increase homeownership. Despite the zone’s efforts, critics charged that the administration has moved slowly in launching projects and financing to promote economic development.

Questions have been raised as to whether the inroads the zone has made is enough to turn the tide. Reaction to Empowerment Zones in general have been mixed and many experts, politicians, and community leaders are unsure that the zones will produce the results that the cities outline in the plan. Complicating Baltimore’s empowerment process has been the significant number of players involved and the mismatch between short-term expectations and the length of time needed to exact results.

Critics of the zone believe that the incentives and programs do little to create the full employment with the high waged jobs that are needed to move the areas out of poverty. In addition, many feel that the empowerment zones are facing an uphill battle as welfare reforms have placed more residents in need of their services. Finally, it is unclear how much of the empowerment zones’ successes have been due to good economic times or the empowerment zones’ financial packages and training opportunities.

Baltimore Development Authority The Baltimore Development Authority is a non-profit organization leads the city’s economic development initiatives. Though a separate entity from the city, it receives 75% of its funding from the state and shares close affiliation with the city’s officials. In the last year, it has launched requests for proposals for the area surrounding Pennsylvania Station and the Inner Harbor. Both sites have historic value and serve as attractions for tourism and business guests.

It is looking at the plans for creative solutions to problems of poor street lighting, space usage and parking as well as the attraction of different types of retail and industrial businesses. The Baltimore Development Agency has come under fire for not being open to the public. Local residents view it as a city agency despite its non profit status and believe that their meetings with business interests should be open to the public, particularly since the authority has the right to agree to tax exemptions for large projects which deprive the neighborhoods of income.

Armed with a distrust of the local government and fearing that the business owners will not represent their interests, they are lobbying the city to make the authority more accessible to the public. Digital Harbor In November of 2000, the mayor of Baltimore announced a plan to build a technology center along the harbor that would attract new business, increase employment by 50,000 and increase the city’s tax revenue by $71 million in five years. The $300 million plan calls for investment in the roads, parks, neighborhood revitalization and rehabilitation construction along the harbor.

A year later, the state awarded Baltimore a fraction of its request, $18 million, for the road construction, citing it needed to see more evidence that the project would work before committing to the plan. Providing the proof has been an uphill battle. The Digital Harbor would compete against well-established technology centers in an economy where many technology companies are near insolvency. In addition, Baltimore will have to contend with its image of a city plagued with a poor education system and high crime.

The mayor is betting on the city’s low office property rates attracting the businesses. The Future of Baltimore In its attempt to be inclusive, Baltimore has hindered its own growth. Unlike Atlanta, Baltimore generally attempts to include the local citizen in its economic development plans and believes that growth will come from small businesses on the community level as well as large corporate presence. The influence of active neighborhood organizations, county and state governments have stymied the mayor’s and his agencies ability to pursue all their economic projects at full strength. Baltimore is walking a slow path to economic recovery. Long approval processes and lack of private sector financial investment and hindered its ability to prove its economic viability and provide for its poorest citizens. Cleveland The history of Cleveland is spotted with race riots, ineffective government leadership and mismatched agendas in the business and public sector. The descent of Cleveland reached to bottom when in 1978 it went into default on its financial obligations.

Fearing that the current mayoral office would not be able to pull the city out of its predicament and the ramifications that its demise would have on their businesses, business leaders sought a candidate that had experience with economic development and would represent their interests. In 1979, George Voinovich was elected and an era of public-private partnerships was launched. One of his first activities in office was to launch an audit of Cleveland’s city agencies. The cost of preparation and implementation of the audit was paid for by the business community.

During this same period, several organizations important to the growth of Cleveland were also developed to foster collaborations among and between the private, government and community groups. Cleveland Tomorrow, formed from a McKinsey & Company study in 1980, is a group of CEOs from Cleveland’s largest businesses that meet to discuss and develop a focused agenda for action to improve Cleveland. Leadership Council was a leadership enrichment organization that brought the leaders from private, public and government sectors together to solve problems.

The Greater Cleveland Roundtable was patterned after a similar organization in Detroit and sought to promote understanding and harmony among the diverse racial and ethnic groups in Cleveland, a chief objective given Cleveland’s past racial incidences. The greatest leader in present day Cleveland economic development is still Cleveland Tomorrow. With 55 members from the areas corporations, the group focuses on strategic issues that affect Cleveland’s competitiveness and economic environment.

A large portion of their efforts has been to create networks of affiliates that promote industry clusters particularly in the area of biotechnology. The city is now headquarters to 112 corporations with revenues of $250 million or more; twelve are Fortune 500 companies collectively generating $54. 7 billion in revenues. Gateway Development Corporation: Gateway Arena sports complex The use of stadium as economic development tools has been widely used by cities across the country. Attempts to raise the profile of its city and develop its downtown areas. Cleveland embarked on a stadium project to house its baseball and basketball teams.

The project was led by the Gateway Development Corporation, a non-profit organization that created the development plan that included restaurant, retail and office outlets as well as additional entertainment facilities. However almost ten years later, the stadium that was to produce economic prosperity for the downtown area has not lived up to its promise. The cost of the stadium and related projects has topped $750 million and required an additional $3 billion to be spent in public funds to improve the housing and infrastructure of the surrounding areas.

It was this economic cost that Cleveland officials thought would be borne by the private sector investments in the area that have yet to be realized. Residents were given hopes of 16,000 jobs, office, retail and hotel projects to surround the complex estimated at $1 billion in private investment. In light of the stadium’s social mission, residents agreed to an excise tax on alcohol and tobacco to help pay for the complex in addition to the multimillion-dollar tax exempt bonds the developer had already received to build the stadium.

In addition, when the developer had cash flow problems due to cost overruns and ineffective pricing contracts, Cuyahoga County floated a $45 million bond to cover the shortfall in order for the developer to meet its deadlines and avoid high penalties. Many reasons have arisen for the lack of development: a soft economy, climbing land prices and acquisition costs, inadequate surrounding housing and an over saturated office space market. Some people even fault the city for spending so much money in physical rehabilitation of the surrounding blocks when money was needed for long term economic development planning.

The money Cuyahoga County has had to pay for secured bond issues that were made to Gateway, which has been unable to pay, which has diminished needed funds from economic development. Empowerment Zone Cleveland was designated as a supplemental enterprise zone. Cleveland is to receive $90 million in federal money and an additional $87 million in low interest loans through HUD. Similar to Baltimore, Cleveland diagrammed its strategic plan on neighborhood empowerment with the use of four CDCs to represent the area covered by the enterprise zone and resident boards to provide input from the local communities that covers almost 52,000 residents.

The concerned area includes three East Side residential neighborhoods (Fairfax, Glenville, Hough) and the Midtown Corridor commercial district downtown. Its goal was to provide jobs for 10,000 residents and to provide incentives that would inspire private investment. The success of Cleveland’s empowerment zone completely depends on perspective. Business owners have benefited from the CDCs, which each receive $350,000 annually to assist business owners in navigating the enterprise zone allocation system. The big winner has been the midtown Cleveland area, which has received almost half of the $80 million, expended by the empowerment zone.

The money, which has largely gone to encourage businesses to either relocate to the area or stay in the area, has been in the form of loans and grants. Small businesses have received a much smaller portion. The zone board claims that due to strict guidelines of the zone many of them do not qualify for assistance. In response, the zone established the Empowerment Zone Business Opportunity Program that provides technical assistance so the smaller firms can qualify for the loans. As of 2001, 14 firms have received loans through the program. Residents do not view the progress as favorable.

The local boards were disbanded because city officials felt their roles were duplicative. Housing rehabilitation is gentrifying neighborhoods, as existing low-income residents are unable to afford the prices of the new dwellings. Case in point: the empowerment zone put $2 million together in an incentive package for the development of a housing development of eighty homes to ease the housing crunch. However, the price of the homes are over three times what the local residents can afford; the homes have offering prices between $159,000 and $273,000.

The city’s argument that these homes are to keep residents from fleeing the city to the suburbs once their wages increases has done little to the current residents’ frustration with the empowerment zone’s inability to address their needs. The city has produced less than 500 new units of housing thus far. As far as employment is concerned, the One Stop Career Center was established as a clearinghouse for private and public job training and placement services but has been virtually shut down because of fraud and mismanagement.

As a result, only 2,200 residents have been trained. The 1,100 residents that have placed through the empowerment zone are from neighborhoods that have unemployment rates reaching 20% and poverty rates at 40%. Citizens even criticize Job Match, the empowerment zone’s more successful employment matching and screening service for its lack of outreach, responsiveness and publicity. Managers of the program cite lack of funds for publicity and the disqualifications of residents who failed to show up for drug and alcohol screening. Cleveland Campaign

In 1978, while business, civic and political leaders were focused on the city’s financial problems, the publisher of the Plain Dealer, Thomas Vail founded the New Cleveland Campaign with a $1 million to promote the improved image of Cleveland nationwide. The Campaign, which spent the majority of its energies advertising and attempting to get favorable press coverage for Cleveland, believed that the competitiveness of the city is partly determined by its ability to attract private investment and tourists from outside the state.

In 1998, the New Cleveland Campaign changed its name to Cleveland Today and switched its focus to touting the “future of Cleveland” and doubled its efforts in promoting the city’s clusters of biotech, biomedical, polymer and computer software. Despite the great changes that have taken place in improving the city’s infrastructure and the building of the stadium and the Rock & Roll Hall of Fame, Cleveland Today reports that many people outside Ohio still have a negative image of Cleveland as a blue collar town with poor education and transportations systems, explosive race relations and inclement weather.

The truth may not be that far from their perception, Cleveland has the second largest number of manufacturing jobs in the state of Ohio. However, reluctant private investment might be in relocating to Cleveland, the Convention & Visitors Bureau of Greater Cleveland reports that tourism increased by 57% from 1995-2000 generating over $2 billion in revenue and $150 million in taxes to the area. Tourism also accounts for 55,000 jobs in the tourism industry. Other Investments in Redevelopment Private investments have fared better than public investments.

Besides the stadium fiasco, many of planned projects for Cleveland have been drastically scaled back as officials struggle to find ways to finance the projects without increasing taxes. Cleveland Tomorrow, on the other hand, has successfully launched three community development investments funds to help Cleveland finance its projects. The “patient capital” is responsible for contributing to a variety of projects since 1994 including $20 million to the stadium project and $9 million in downtown housing and funds for local theaters.

The majority of the funds are provided for by local corporate investors and foundations in exchange for rates of return similar to the10 year US Treasury Bill rate. The latest fund, the $12. 5 million Cleveland Civic Vision Housing fund, is dedicated to residential housing building of 1,000 units in the downtown and city neighborhoods and small projects. The hope is that the fund, which offers a more flexible schedule than local banks, will help developers finance projects that will encourage residents to move into the urban areas. Due to the timeline of the projects, its success is still undetermined.

Cleveland Tomorrow is also responsible for launching Civic Vision 2000, a planning document for future development. Goals of the initiative include attracting retail stores to the lakefront area, investing in the transportation system, building new convention center and increasing residential housing. The plan has not been without controversy as critics claim that the plan has not had public input. However, the plan has been adopted by the area’s planning commission and many of the projects have been planned for using both private and public investments. The Future of Cleveland

The story of Cleveland’s economic development has been mismanagement and disappointing results. Its fourteen-year attempt at improving its image through the Cleveland Campaign has proven to be unsuccessful. Corporations are reluctant to move to Cleveland due to their perception of it as a second rate city despite its investments to improve the quality of life of its citizens. The leadership of Cleveland Tomorrow is responsible for turning Cleveland around but has been unable to provide its citizens with opportunities to gain or create wealth within their communities.

The economic future in the year 2000

The economy has performed exceptionally well for the past several years, combining rapid growth and very low unemployment with declining inflation. “Not only has the expansion achieved record length, but it has done so with far stronger growth than expected,” stated Federal Reserve Chairman Alan Greenspan in his remarks to the National Community Reinvestment Coalition annual conference in Washington (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000). Figures show that since 1996, the growth of GDP has averaged more than 4 percent, compared with an average of about 3 percent since 1973.

Because of those four years of rapid growth, the unemployment rate has fallen to 4. 1 percent, its lowest level since January 1970. Consumer Price Index (CPI) inflation, excluding food and energy prices, had been vacillating at about 3 percent per year earlier in the decade but was roughly 2 percent over the past year (Bank of America, Economic in Brief, November 1, 1999). Much of the auspicious recent economic developments can be attributed to a surge in productivity growth.

Alan Greenspan noted in his statement that output per hour in the non-financial corporate sector had increased since 1995 at nearly double the average pace of the preceding 25 years (First Union, Monthly Economic Outlook, March 7, 2000). This rapid productivity growth allowed the economy to grow at a faster pace without raising the rate of inflation. However, the growth of consumer demand is exceeding the increase of productivity—boosting employment, tightening labor markets, and raising concerns that recent growth rates may not be sustainable without sparking a rise in inflation.

After spending the past several years, extolling the virtues of improved productivity in allowing higher growth with less inflation, the Federal Reserve Chairman, seemed to turn the tables in his Humphrey Hawkins testimony, stating that the spurt in productivity has produced expectation of higher profit growth, which, in turn, have resulted in higher equity valuations. That surge in equity prices is seen as the primary driver of the “wealth effect”, which he believes has created an “imbalance” between demand and supply, raising inflation pressures (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000).

Speculations of this occurrence may over the long term indicate that the higher the trend growth of productivity, the lower the inflation rate—due to the restraint of labor costs. However, in the short-run, if productivity growth jumps rather quickly to a higher level, its impact on demand would outrun the existing supply of recourses to meet that demand. Since supply cannot be increased quickly enough, Alan Greenspan believes demand growth must be brought back into line with supply growth. The mechanism to achieve a balance, he believes, is higher interest rates.

High interest rates have, in fact, dampened home sales, but the overall economy has not cooled enough to reduce inflationary fears. The Fed is still concerned that strong consumer spending will lead to inflation. Right now, much of the strong demand is being satisfied by imports and expanded U. S. production from increased employment (Bank of America, Economic Research, Economic in Brief, November 1, 1999). Nevertheless, the Fed is worried that there may be limits to employment growth or foreign willingness to hold U. S. dollars earned exporting to the United States.

Fed policymakers would be much more comfortable if the demand for goods would slow, thereby reducing the risk of the economy overheating or the dollar falling. Recent increases in the price of oil have reached their highest level since the Gulf War, and further increases could hurt U. S. economic growth. OPEC’s decision to cut production last March has lead to rising inflation last year. Considering the most recent leap in oil prices, inflation reports in the near future could be strong, pushing the twelve-month CPI rate up to 3 percent or more (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000).

The question of whether to maintain the status quo or increase production remains in the hands of OPEC members. At present, Saudi Arabia and Iran appear to favor increasing production, but some other constituents want to extend the production cuts. OPEC is likely to announce specific production plans at its next meeting on March 27. In the meantime, oil prices have risen to more than $34 per barrel and growing concerns that a shortage of gasoline could arise this summer if OPEC does not pump more oil begin to circulate.

In retrospect, the increase in crude oil prices over the last year is almost the same magnitude as the jump in oil prices going into the Gulf War (Oil and the Economy, “Will higher prices mean a recession? ”, March 13,2000). Oil shocks—steep rises in oil prices, have preceded recessions in the US economy over the past 30 years. The most substantial shocks occurred in 1973-74, 1979-80 and 1991, and roughly correspond to the post-1970 recessions. Statistical data has shown a correlation between rising oil prices and diminishing GDP growth (Oil and the Economy, “Will higher prices mean a recession? , March 13,2000). Based on historical experience, higher oil prices portend a reduction in economic activity to occur about a year after the price increase. According to this interpretation, if OPEC maintains its production cuts and oil prices, thus, continue to increase, the risk of an economic downturn will become greater. This analysis assumes that there is a causal relationship running from energy price increases to output declines. The causality, however, may be in reversed order. Growth tends to increase demand for energy, and hence higher GDP growth may push up oil prices.

The effect of oil prices is not an isolated economic phenomenon. It largely depends on the “political economy” component, since the price of oil is affected by the production decisions of the OPEC countries and these OPEC countries may time their price increases in reaction to world economic conditions – thus complicating attempts to forecast economic behavior. While there has been a definite relation between rising prices and GDP growth, concerns of rising oil prices may not have such a tremendous effect on the economy as in the past.

Oil costs have been a shrinking part of the US economy in recent years. Since 1970, energy use as a fraction of GDP has fallen by around 35 percent (Oil and the Economy, “Will higher prices mean a recession? ”, March 13,2000). Even if the experiences with increasing oil prices are taken under consideration, the risk of a recession, at this point, is low. In either case, however, high oil prices fuel the risk of recession by making the economy vulnerable to other negative developments (Oil and the Economy, “Will higher prices mean a recession? ”, March 13,2000).

If oil prices were lower, the economy could endure other problems more easily. With high oil prices, the economy may not stand up as well to any new unexpected shocks. The current employment situation appears to be another “bright spot” in today’s economy. The unemployment rate rose to 4. 1% in February but remains near its lowest level in more than three decades (Bank of America, Economic Research, Economic in Brief, November 1, 1999). Consumer expectations of the economy remain favorable and spending is strong. Wages are rising faster than inflation, allowing families to stretch their incomes further.

This “gilded” image of the job market, however, has its own shortcomings as well. Despite the existing prosperity and the tightest labor markets in a generation, more workers are afraid of losing their jobs than at the bottom of the 1991 recession (Market News, Greenspan: Worker Insecurity now more than in last recession by Chris Middleton). It is a “pivotal period,” Greenspan went on, that is a direct result of the development of the transistor after World War II.

“It brought us the microprocessor, the computer, satellite and the joining of laser and fiber-optic technologies. The average worker can no longer obtain skills in high school that will be a sufficient support for an entire career, he noted. For this reason, technological changes make many workers concerned about job security, and as a result, excessive wage increases do not come into view. Wage inflation is only 3. 6percent for the twelve-months ended in February, and after adjusting for productivity gains, labor costs to employers are still low. Consumers remain in a buying mood — and February car sales were at their strongest pace of this economic expansion (First Union, Monthly Economic Outlook, March 7, 2000).

Rising incomes and wealth have increased consumers’ willingness to spend and take on more debt. So far, the rise in gasoline prices has not dampened car and truck sales. However, the effect of higher fuel costs could show up in weaker vehicle sales this spring. Consumer debt levels have increased sharply in recent months but remain manageable (First Union, Monthly Economic Outlook, March 7, 2000). Debt levels only become a problem when unemployment rises and consumers begin to worry about their ability to make debt payments.

Here is another area of the economy that is vulnerable to unexpected negative news. The increase in consumer spending shows that Fed rate hikes have not yet cooled this vital sector of the economy, but the increased debt burden also indicates that a slowdown in consumer spending may not be too far in the future. The economy continues to grow faster than the Fed would like. In my opinion, the strong demand for goods and services cannot be indefinitely satisfied by imports and expanded U. S. production. Consequently, inflation will remain a threat, and another increase in interest rates is likely.

If oil prices and interest rates continue to climb up, the economy will lose pace and could become vulnerable to a considerable slowdown should any other problems develop. Consumer price inflation could increase significantly in the next few months because of the recent oil price rise. Slower growth prospects may inhibit the flow of investments into the industry. This, in turn, may trigger an economic recession and unemployment. If, however, OPEC increases production, the fear of inflation could lessen and long-term Treasury interest rates could move lower. In this case, a disastrous scenario of the US economy may be avoided.

Economy In 2000

Evaluating the bull market today, it is almost impossible to pick up a financial journal without seeing news on the bull market that some consider to be overvalued. Overvalued or fairly valued, only the future will show the truth. Either way, this market is one that has shown greater run ups and returns, than any other market in history. (Reference Appendix #1a) Recently the Dow Jones Industrial Average has reached historical highs and then receded back to previous levels, leaving investors who are used to consistent and record setting gains month after month, baffled.

Both the Dow Jones and the S & P 500 indices have seen modest and even flat performances over the past three months. (Reference #1b) A recent article that was published on the front page of the Wall Street Journal emphasized that returns were flat due to the fact that investors were concerned of the possible on set of inflation. If these concerns are warranted and inflation is thus expected, the Bull market may very well be over. This after all makes sense, inflation has slowed and stopped many run-ups in the past, and the onset of inflation now could very well do the same.

While the article introduced some possibilities, it said nothing of the likelihood, the causes of, the Fed. ‘s reactions to, and the probability of expected inflationary increases in the future. This paper is thus dedicated to expanding on these ideas by exploring the rationality of these concerns by examining the circumstances surrounding inflation. It is my speculation that the Bull market may eventually correct itself in the future, but not in the short term due to immediate inflation. That is, that the market was in fact flat due investors concerns, but actual imperative inflation does not look to be expected in the near future.

In order to begin to understand the nature of market trends and forces, one must first consider the current state of the U. S. economy relative to its’ business cycle. Certain aggregates can be measured that tell us a great deal about this. These aggregates have a strong history of leading, coinciding, or lagging the relative business cycle with a high amount of regular correlation. In fact the composite index of leading indicators shows that they have not experienced a significant downturn since the early 1980’s, and have been increasing rather sharply over the past 3 years.

The fact that all of these indicators are currently rising indicate that the economy is in a period of robust growth, or an expansionary phase. The fruits of this expansion have proven to be many, however it is often said that too much of a good thing can be bad. In this regard there are factors associated with the degree and nature of this economy, which could cause slowdown. For example, how is inflation measured, and to what degree should we be concerned with the effects and attributes of cost- push and demand- pull sources of inflation in this robust economy?

According the Baye and Jansen, inflation can be measured by considering the growth of the money supply, the growth of M velocity, and the growth of real output. Algebraically this is represented by the equation: inflation = (gm + gv) – gy. This equation thus considers the monetary, supply-push, and demand-pull factors. When the rate of inflation is measured in this way one can see, that over the last few years inflation has been relatively stable about its’ trend. This is in part, a result of the steady growth of GDP over the same period, and is testimony to the success of the Federal Reserve Board’s monetary and fiscal policies.

The rates of inflation over the last 10 years are graphically illustrated in Appendix 3A. Cost-push inflation incurs when the prices of inputs for production increase and thus cause profit margins to diminish. If firms are unwilling or unable to accept the declination in operating income, they will pass these increases on to consumers in the form of increased prices. In a competitive market it would seem that firms would be unable to raise prices, unless there was uniform pressure affecting the aggregate whole of suppliers. Examples include per unit costs of production, labor costs, energy prices, etc.. ) Both the dollar cost per person per hour, and the output per person have been increasing since 1997. These increases are most likely in response to technological advances in the public and private sectors. It is worth noting that the advances in compensation have exceeded those in output. Hence firms may have experienced a decline in marginal revenues. Another important aspect regarding wages and output is that the rates of increase for both have been declining since the second quarter of 1998.

In the third quarter of 1999, real output was increasing more than the rate at which wages are increasing. This correction may be important when considering cost-push inflationary pressures. (Appendix 3b) On an aggregate level one can measure rising producer costs by examining the producer price index. Appendix 3c graphically explores trends related to the PPI over the past three years. Upon examination it is clear that producer costs have been increasing steadily since 1997. This may be due in part to rising costs of compensation along with recent run-ups on crude oil prices.

There is likely a strong correlation between the producer price index and the consumer price index, (The dependent variable) and is therefore important to include when making a forecast of future inflation. There may also be inflationary pressures attributable to demand-pull effects. This occurs when there are too many dollars chasing too few goods. A point to consider here is worker compensation and disposable personal income. The aggregate disposable personal income has been increasing over the recent economic prosperity. The key here is that the increases in income have been fairly stable.

It is because of this stability that there appears to be little correlation when disposable personal income is regressed against inflation. Despite the low R^2 variable it still may be a worthy component to add to an inflation forecast. The growth of this economy has been very great, and this is support by strong consumer confidence. An area that would seem to contribute to this robust growth and inflationary pressure is the savings rate. Regardless of which indices or months one looks at, it is clear that personal saving in 1999 in considerably down from all other years.

This may have an impact on the velocity of money and thus inflation in the future. The cyclical and irregular activity of the business cycle can be determined by detrending and deseasonalizing the real GDP data. (Appendix 4a) In doing so, one can see how the rates of inflation are correlated with that of the business cycle. The cyclical percentage changes in GDP serve as a good variable in inflationary forecasts because; significant amounts of real increase or decrease tend to be correlated with changes in inflation.

When inflation is regressed against the cyclical increases in real GDP, the R^2 value is approximately 32%, indicating a moderate and useful amount of correlation. Therefore I have also include this variable in my forecasting models. Perhaps the most significantly correlated variable that I have come across is percentage changes in monetary velocity. This predictor shows R^2 percentages in excess of 76%. Clearly, fluctuations in the velocity of money have a significant effect on inflation. Once the inflationary pressures of the 1980’s resided the velocity of money began its steady upward climb.

Only in the last few years has this rate begun to slow and decline. It would appear that the current trend in the velocity of money is one that reflects optimistic consumer behavior. (Appendix 5a shows the trends in the velocity of money over the past few decades. ) Meanwhile the M2 money stock has been increasing at a fairly consistent rate for some time, with very little variation about its’ trend. (A. 5b) Although in the second quarter the M2 money stock increased by a somewhat larger margin than was originally expected.

The above considerations were important when I attempted to create a forecast for inflation by applying techniques discussed in Economic Forecasting 470. In order to attain the most accurate forecast I tried several different methods; including a bivariate, a multivariate, a multivariate with dummy variables, an automatic forecast, and a combination of techniques model. The Bivariate model was based on regressing inflation against the cyclical and irregular behavior of gross domestic product in order to see how the business cycle affected the rate of inflation.

This model produced a significant regression statistic near 32%. In other words, roughly one-third of the variation in inflation can be explained by the stage of the business cycle. Both of the multivariate models contained the following predictor variables; detrended seasonally adjusted GDP, changes in the M2 money stock, changes in the velocity of money, changes in the Ppi, and changes in real wages. The most highly correlated variable being percentage changes in the velocity of money (76)%, and the least correlated being changes in the Ppi (4%).

The multivariate model was able to produce a regression statistic of approximately 46%. The multivariate with dummy variables actually produce a lower R^2 value, and thus a less dependable model. The automatic forecasting method with Smart software produced a model, which could explain 79% of the data. The software chose a single exponential smoothing model for its’ forecast which produced a Durbin Watsin statistic of 1. 85, and standard error statistic of 1. 211. This model eventually proved to be the superior model because of its lower than others error statistics.

The combination model produced lower MAD, MSE, RMSE statistics than did the automatic method, but smoothing model was more accurate in that it produced a significantly lower MAPE. The summary of method errors, as well as forecasting models, are contained in appendix 6a. Therefore, using these crude methods I have been able to determine that Smart’s single exponential smoothing model provides the most accurate forecasting tool for considering this type of numerical data. Based on this model, the forecasted values of inflation for the third and fourth quarters of 1999 are as follows: Q3 = -3. 66*. 258*3. 682 Q4 = -3. 216*. 258*3. 732 Smart software estimates these value ranges with 95% confidence and an average forecast error of 1. 689. By considering some current events that are taking place in the domestic and global economy one might be able to more reasonably estimate this range, and thus assert some greater probabilities upon it. As of August 24, 1999 the Federal Reserve Board took a stance to reduce the leverage of some contributive inflationary aggregates. These actions included a . 25% increase in the federal funds rate, bringing the total to about 5. 25%.

As discussed in Money and Banking, this will have a direct impact on the reserve positions and actions for lending institutions. The FOMC helped to accommodate this position stance by selling treasury securities in the secondary market. This is but one of the FOMC directives that can produce this effect. By doing so it detracts funds from the banks, thus further tightening their positions. On November 3, 1999, the Federal Reserve Bank of Minneapolis released a document prepared with information accumulated before October 25, 1999. These findings were summarized and placed in the Beige Book.

Within this report there is data pertaining to the latest statistics on consumer spending, manufacturing, labor markets, wages and prices, real estate and construction, and banking and finance. The article points out that the majority of districts are reporting increases in consumer outlays, and only a handful show signs of slowing. Some of these districts report that consumer expenditures might be down only due to the effects of hurricane Floyd. Most reported positive outlooks as the economy continues its’ wild ride and the Holiday seasons are soon approaching.

Virtually all districts reported increases in manufacturing across a wide variety of economic sector and industries. This includes massive increases in biotech’s to strong growth in paper processing. The November 3 Beige Book for Minneapolis also points out that labor markets are saturated and the demand for workers exceeds that of the supply in many areas. This may be taken as good news from a college student’s perspective, but at the same time it might also add to cost-push inflationary pressures. Given the increases in wages and disposable income, it is no doubt that mortgage markets continue to prosper.

The east coast has seen 5 to 6 % increases in property value, but the volume of loans is growing at much smaller rate. (1 to 2%) On December 1, 1999 the Bureau of Economic Analysis (BEA) released their information pertaining to the third quarter of 1999. This article contained much information, including some of the most recent economic estimates and reports. Among them was news concerning the trade deficit. Because net exports is a component of GDP, it is important to recognize the nature of this sector when considering the future magnitude of GDP, potential inflation, and future monetary and fiscal policies determined by the Fed.

It is plain to see that the recent currency crisis, increasing energy costs, and tariff problems with China have had a profound effect on the trade deficit. (As demonstrated graphically in appendix 7a) The rate of increase related to the trade deficit, and imports exceeded that of any other in two decades. It is also noteworthy that export growth during this time had slowed considerably and even decreased. The BEA noted that for the first time in many months, foreign markets were beginning to show signs of real recovery.

Having noted this the article went on to mention that import growth had showed only a slight increase above last quarters, and exports showed a 7% increase over last quarter. If these trends continue it could mean additional growth to gross domestic product. The increases have predominantly from Japan and other industrial countries, while the Asian tigers and Latin America are still in turmoil. To what extent this news is relevant to the domestic economy in terms of growth and inflationary pressures has yet to be seen.

However it does seem logical that we can expect the trade deficit to at least flatten out in the coming months, or even experience some decline depending on the resiliency of the other foreign markets. The BEA also estimated that GDP had increased by approximately 5. 5% in the third quarter up from an increase of 1. 9% in the second. This number was slightly higher than the upper range of an earlier estimate. Related to this increase the bureau noted that corporate profits related to current production were up, although the profits per unit of real production have decreased.

These tendencies might be correlated to the factors earlier discussed relating to wage increases relative to productivity. Though not mentioned by the BEA the rate of unemployment continues to slide toward all time lows. Day in and day out, reports of local, state, and federal record low unemployment is being reported. Thus the amount of cyclical unemployment in the economy is virtually zero, and the economy is operating at near full capacity. The unemployment rate is graphically illustrated in appendix 7b. This economics student is not ready to say how long the economy can sustain these r. . m. ‘s, but does know that eventually the engine must be cooled or the economic expansion and bull market may come to an abrupt end. At the time of the August 24 meeting the Federal Reserve Board and Dr. Greenspan did not anticipate the need for any further tightening of the reserve markets in the near future.

Given the fact that the economy has continued to outperform economists expectations over the inter-meeting period, it will be interesting to see what courses of action and concerns the Fed discusses at the next meeting. Scheduled sometime near the end of November) What do these rapid and consistent increases mean for the domestic economy. From my perspective, this economy is all I have known. Many of the problems that used to face Americans seem to have been deleted. Leaving us today with the new challenges and fronts to conquer. One of these challenges is keeping this economy heading in a positive and stable direction. A looming threat to the stock markets and domestic economy is inflation. While doing research for this paper I stumbled across the unofficial fan club for Alan Greenspan.

I had never heard of a fan club for an economist, but after seeing how stable the growth rates of GDP and inflation have been, my interest and admiration are growing quickly. Earlier this year Fred Vogelstein wrote an article quoting Mr. Greenspan as saying, \”Do worry. Be unhappy. \” This from an economist with his own fan club; sounds like trouble. The article summarized some of Greenspan’s remarks in which he speculated about the increasing probability of an \”inflation spike\” and increased interest rates. He also pointed the possibility of a stock market correction, and the possible onset of a bear market.

Given the above remarks from Mr. Vogelstein’s article it seems likely that the inflation forecast previously presented will likely be in the upper portion of the range. That is, it is likely to be between . 25 and 3. 7% for the remainder of 1999. Though it is important to note that this analysis is based strictly on numerical data, and does not consider the realities of global economics. Inflation to investors generally means that their actual returns are going down. As a result the prices are usually bid down in order to better reflect the required yield on equity.

Based on my further analysis of this article it seems that investors concerns about inflation were and are indeed genuine, and the onset of inflation in the future could mean further plateaus in equity prices and increases in interest rates. However, I believe that this course of events might also present diversified and risk adverse investors with several opportunities to strengthen their positions, and add some securities that might be presently overvalued. (Increasing energy prices also increase the attractiveness for companies such as bldp and ucr. )

Chinas Economics

For various reasons, China has always been an important country in the world. With its increasing large population, it was determined by other countries that is has a lot of economic potentials. In just one decade and a half, China has transformed itself from a giant that use to live in poverty into a wealthy powerhouse to the world economy. With one-fifth of the worlds population, China is now producing 4% of world merchandise and a proportion of global production. It has also one of the worlds oldest and most influential civilizations.

China has established three approaches to the world economy and hey are establishing an alternative socialist system (1950s); isolating itself from the system (the 1960s to mid 1970s); and participating in the system again from the 1970s. Chinas economic system was quite similar to Soviet Unions because it is central planning system. However, after the 1950s, this central planning is broken into regional planning by different provinces in China. In another words, China has changed from a centrally based country in a regionally based country, in which different provinces produces different goods and servies.

This change has encouraged the development of small enterprises, which are the ain driving forces of Chinese growth. In 1978, China has liberalised its economy and start participating in the world economy. With its new market reforms in every sector, Chinas door has opened its economic door to foreign investors and freer trade in special economical zones. Beginning in 1994, China’s economic structural reforms have begun new breakthroughs. Major changes have been made to sectors like personal enterprises, taxation, finance, foreign investment and foreign trade.

At the same time, the Chinese government is speeding up its establishment of a socialist market economy system. Hopefully, his socialist market economic system can be in place by 2010. (Roy 1-5) Major Structural Reforms Reforms already launched: 1. Reform of the state-owned enterprises has been furthered. h Some adjustment and reorganisation have been carried out in industries like textile, coal, oil and weapon-makings. 2. The social security system has made huge changes. h People established re-employment centres that can help laid off workers to find jobs in other economic sectors.

Almost 99% of the laid-off staff and workers who were fired from the state-owned enterprises are using this re-employment service centre. Reforms to be launched: 1. Financial reforms will be undertaken h To achieve the perfect management system, sectors like banks, securities, insurance and trust businesses are becoming independent from each other for clearer financial supervisions. h Government is speeding up the reform of state-owned commercial banks, in order for the banks to operate independently. In case when companies have bad credit and unpaid debts, banks are reinforcing strong policies to ensure the quality of bank loans. h To safeguard financial assets and eliminate corruption of people who have political positions. 2. To increase xport to maximize the economy h People are expanding export productions. h People are improving the development of international tourism to increase non-trade exchange earnings. (Online) Economic Activity GDP/GNP China must have annual GDP growth greater than 5% to maintain social stability and political survival.

Economic freedom has increased Chinas prosperity. With its Real GDP of US$960. 91 billion, it seems that is has increased its output by 7. 8% from 1997. Within the GDP, primary industry increased by 3. 5%, secondary industry up by 9. 2%, and tertiary industry enlarged by 7. 6%. The social labour productivity ose by 6. 9% over 1997. In the first half of 1999, GDP grew at the rate of 7. 6%. (Morrison) Beginning in 1979, China launched several economic reforms. To improve the standard of living of farmers, government is now allowing them to sell a portion of their crops on the free market.

The government also established four special economic zones to attract foreign investment and boost exports and imports. The decentralisation of economic control of various enterprises was given to provincial and local governments. This allowed enterprises to operate more freely and competitively, rather be controlled by he central government. Some coastal regions and cities were designated as open cities and development zones, which allowed people to experience free market reforms and to attract foreign investment. Therefore, the state price controls on good and services were gradually eliminated.

Starting from the introduction of economic reforms, China’s economy has grown proportionately faster than during the pre-reform period (see Table 1). This Chinese statistic shows the growth of real GDP from 1979 to 1998, which is making China one the world’s fastest growing economies. According to the World Bank, China’s rapid evelopment has driven 200 million people out of poverty. Table 1. China’s Average Annual Real GDP Growth: 1960-1998 Time Period Average Annual % Growth 1960-1978 (pre-reform) 5. 3 1979-1998 (post-reform) 9. 8 1990 3. 8 1991 9. 3 1992 14. 2 1993 13. 5 1994 12. 7 1995 10. 5 1996 9. 1997 8. 8 1998 7. 8 Sources: Official Chinese government data reported by the World Bank, World Development Report (various issues), and DRI/McGraw-Hill, World Economic Outlook, various issues. Economists who worries about China’s rapid economic growth are mainly concentrating on two factors: large-scale capital investment (by large domestic avings and foreign investment) and rapid productivity growth. These two factors appear to interdependent of each other. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for more investment in the economy.

Most of the Chinese are known to have a high rate of savings. When reforms began in 1979, domestic savings as a percentage of GDP turned out to be 32% (nearly as high as Japan’s at the time). Eventually, savings as a percentage of GDP has steadily risen; it was 42. 7% in 1998, among the highest savings rates in the world. In U. S. dollars, China’s GDP in 1998 was 968 billion with its per capita GDP of $769 billion. Such data would indicate that China’s economy and living standards were significantly lower than those of the United States, Japan, and Germany.

China’s 1998 GDP was about 45% the size of Germany’s, 23% of Japan’s, and 11% that of the United States. Surprisingly, China’s per capita GDP was only 2. 4% of the United States (see Table 2). The following data shows that China’s per capita GDP is $3,701. However, it falls far below the PPP per capita GDP levels of some major developed countries. For example, it is only 12% of U. S. levels. The International Monetary Fund stimates that China might surpass the United States as the world’s largest economy in the year 2007. However, even if that does occur, it would take China significantly longer time to achieve U.

S. standard of living levels. Table 2. Comparisons of U. S. , Japanese, German, and Chinese GDP and Per Capita GDP In Nominal U. S. Dollars and PPP: 1998 Country Nominal GDP ($Billions) GDP in PPP ($Billions) Nominal Per Capita GDP Per Capita GDP in PPP U. S. 8,500 8,500 31,414 31,414 Japan 4,190 2,969 29,860 23,228 Germany 2,109 1,637 26,024 21,376 China 948 4,610 769 3,701 Source: DRI/McGraw Hill. World Economic Outlook, Volume I 1st Quarter, 1999, p. A-27. Employment/unemployment By the end of 1998, China’s employment was 699. 57 million, 3. 7 million more than at the end of the previous year. Of the total, 32. 32 million people were in urban private enterprises. In 1998, great changes were made in the re-employment program, which enabled 6. 09 million laid-off staff and workers of state-owned enterprises to find new jobs. By the end of 1998, the registered unemployment rate in the urban areas was 3. 1% with no significant changes from the previous year. The income of people that re living in urban and rural areas increased steadily, and their living standard continued to rise.

With the falling price levels, the growth of the per-capita disposable income of urban residents rise 5. 8%, and that of rural residents increased by 4. 3%. The registered unemployment rate in the urban areas is 3. 5% in 1999. The number of people laid off in 1997 was 15 million, two-thirds from state owned enterprises. If privatisation of state enterprises continues, it is estimated that 15 million more workers would be laid off over the next two years (although the unemployment number may vary in different rovinces). In some undeveloped provinces, the ratio of laid off to working labour was 3:1 in 1998. Morrison) Inflation Inflation has reached 25. 5% in 1994 and has become a prime concern of the government. Therefore, the government has planned a tight credit policy which helped to bring inflation figures down to 17. 1% in 1995, 8. 3% in 1996, and 4. 1% in 1997. Due to statistics, the year-end figures for 1997 shows an average inflation of 2. 8% for CPI. This steady drop in inflation during 1997 was due to large stockpiles of inventory such as wheat and cereals, which produced more competition in the economy. It looks like steady deflation would continue for the next few years.

In 1998, the total retail sales of consumer goods amounted to US$352. 14 billion, up by 6. 8% compared with 1997. Despite the deflation, the actual growth was 9. 7%. (China: Economic Overview) Value of currency During the period of the Asian financial crisis, China has enforced a policy of maintaining the stability of RMB. There has also been a favourable balance in Chinas current account for five consecutive years. Foreign direct investments have continued to flow in. All these made it possible for RMB to remain stable in 1998. Now, its exchange rate against the US dollar is at US$1: RMB 8. 2789.

Unlike HK dollar, value of RMB might change over the year because RMB is not pegged to the US dollar. Specific contributions From several observations, it is known that the fastest growing provinces are Zhejiang, Jiangsu, Guangdong, Fujian, and Shandong. These places are where the state-owned industries have fallen most sharply. From 1981 to 1994, the shares of state-owned industry in each of the five provinces dropped by more than 40% for it was creating a lot of non-state owned enterprises. On the other hand, in he western regions, the state-owned enterprises have experienced a much slower structure reformation.

The decline of importance of the coastal provinces was caused by the fast growth of enterprises in provinces like Jiangsu and Zhejiang. It can also be caused by foreign-invested enterprises in Guangdong as well as private enterprises in Wenzhou, Zhejiang. The output of these enterprises grew at an annual average rate of 25 %, that is, 14 % higher than that of the state-owned industrial enterprises. The five fastest growing provinces are construction of free enterprise or indirect macro-management because they all ttract foreign investments.

In contrast, the inland areas lack foreign-invested enterprises and private enterprises. The fasted growth province, Guangdong, has an annual average GDP growth rate of 12%, while Jiangsu and Guizhou grew at an annual average growth rate of 6%. However, this increasing difference of provinces’ growth performance could lead to serious economic and political tensions among regions. (Decentralisation and Provinces’ Growth Performances) Government production of public goods/services State economy includes all enterprises that are funded by governments of various levels.

Because of the conomic reform, companies and business that use to receive government funding now have none. To increase growth without arising regional crisis, the government is using the good old-fashioned Keynesian approach V spend big on public programmes. Last year, government investment in telecommunications has increased by 53. 4% and funding in agriculture and water conservation increased by 47. 8%, as well as cement production jumped by 37. 2%. The Statistical has shown that government owned retail sales grew at 9. 4% pa in 1998.

Due to the socialist system, most of the companies in this economy are state-planned roduction companies. The main financial burden that these state companies have to carry is the workers’ life long security, that is, paying for a worker’s child delivery bill and covering the funeral expenses of the dead retired worker. Along with other reasons, more than half of such companies are currently not profitable. Therefore, government is slowly re-organising small state-owned companies and selling them to private entrepreneurs. At the same time, they are transforming large ones into corporations.

To maintain social stability, the government has to make sacrifices in this economic sector. (Roy 48) Economic Stability Fiscal policy Chinas political and economic systems lack of transparency and constant enforcement has created many uncertainties for foreign investors. The complexity of national and local laws has made foreign trade and investment more difficult in China. Chinas main problem has always been the incompleteness of economic reforms and the absence of political reforms. This was due to the fact that Communist Party Officials are functioning as Chinas ruling class.

They are a self-selected group accountable to nobody. Fiscal reforms China has made the following new pledges: 1. To eliminate high tariffs. . To have a more “balanced and equitable access” for foreign companies. They also made the following decisions about State-Owned-Enterprises: 1. Lend to those enterprises that can survive in the market. 2. For enterprises without a lot of hope for survival, better performing ones will acquire them. 3. Support bankruptcy for extremely insolvent enterprises. Mr. Jiang Zemin, Chinas new President has brought some strong changes in China.

However other countries in the World Trade Organisation (WTO) are saying that Chinas should obtain lower tariff and freer trades because the use of high tariffs made it difficult o export to China. Import taxes in the form of value-added tax (VAT) and other taxes are added to tariffs on items entering China. This highly discouraged trade inflow. In 1995, the National People’s Congress (NPC) established banking reforms, including the Peoples Bank of China Law. This new law gives NPC more authority in its functioning. It also abolishes loan and corruption from politicians.

The reforms has sped up the commercialisation of the big four State-owned specialised banks, which include Agricultural Development Bank of China, Export and Import Credit Bank of China, and State development Bank. As a result, the Chinese government has opened its doors to some foreign banks to emerge new banks in China. The new banks are more efficient than the big four and offer much better quality of service. Monetary policy In 1994, Consumer Price Index was up by 24%. This is a sign of Chinas failure for the interest rates being set by the government and not economically.

Monetary policy is useless in China because the central bank is not independent. Inflationary pressure resulted in money supply growth of 34. 4% in 1994. China is not allowed to use the “raising interest rates” tool for fighting inflationary emand because it fears that the effect on state owned industries that survived on borrowed working capital. The raise in interest rates would greatly effect state-owned firms as they already borrow money from banks to pay their interest bills. Monetary reform Formerly Bank of China, it was transformed into a central bank in 1983. Its responsibilities include: 1.

Making and improving financial polices to meet government rules. 2. Controlling the supply of money. 3. Setting exchange and interest rates. 4. Setting policies concerning credit. 5. Controlling both domestic and foreign banking activities. 6. For practical urposes, the bank of China is the overseas agent of Central Bank. Therefore, privately owned firms are left to fund their own funds from sources outside the state banking system which include foreign investments, foreign currency borrowing, domestic share sales, bond issues, credit unions, non-bank financial institutions and unofficial private banks.

The new interest rate for 6-month loans is now 9. 5% and officials say, “Over the next five years our monetary policy direction will be a moderately tightening one. ” Banking system China now has specialist banks and other financial institutions, which include: 1. The ig-four State-Owned Specialised banks i. e. Agricultural Bank of China, Bank of China, Industrial and Commercial bank of China and The Peoples Construction Bank; 2. China International Trust and Investment Corporation; 3. The Industrial / Commercial Bank of China; 4.

Bank of Communications, etc. Since the central bank in China is not independent, the transparency in the banking sector is then very poor. This makes the precise measurement of banks loans to become more difficult. The accounting principles are inconsistent and poorly understood by bankers. Interest rates are still be dictated by the bank and government instead f allowing the market to determine it. However, with the new reforms and laws to its state owned enterprises, China may be on its way to a substantial economic recovery with a bright future in sight. Grace Bosede) Economic Equity Income distribution/Standard of living Less than 60% of Chinese are covered by unemployment insurance. In 1997, most of the laid off workers received payments of less than 10% of the average national wage. There are virtually no social securities or pensions in China. Therefore, some people live at starvation level. However, the high rate of China’s economic growth last year has provided eople with higher standard of living. Urban residents who use to make 27% of the national income are now making more than 50%.

There is also a great difference depending on the specific provinces in which people work in (see Table 3). Table 3. Comparison of per capita income between urban and rural sectors in 1995 Province Urban Per Capita Income (RMB) Rural Per Capita Income (RMB) Anhui 2,767 973 Fujian 3,508 1,578 Guangdong 5,877 2,182 Zhejiang 4,691 2,225 Source: Internet article: “How to Benefit from the Booming Retail Market in China” Because China has a large population, the government rarely nterferes with income distributions of individuals.

However, there is more interference from the government in the state owned businesses than the privately own ones. Therefore, private businesses that try to maximize their profits often exploit workers who are in serious need of money. The average per capita income of urban resident raise from RMB1,826 in 1992 to RMB3,179 in 1994. Recent figures show that the high growth rate will continue for some time (Table 4). Table 4. Urban per capita income Year Average Income (RMB) Growth Rate 1992 1,826. 1 18. 3% 1993 2,336. 5 28. 0% 1994 3,179. 4 36. % Source: Internet article: How to Benefit from the Booming Retail Market in China” China has now developed large shopping centres and department stores in many provinces in order to bring up the standard of living, as well as to encourage consumer spending (Table 5).

Table 5. Consumer spending in different provinces. Rank Area 1994 ( RMB billion ) 1993 ( RMB billion ) Rate 1 Guangdong 175. 67 131. 40 +33. 7% 2 Jiangsu 124. 73 93. 50 +33. 4% 3 Shandong 113. 24 84. 23 +34. 4% 4 Zhejiang 96. 37 67. 44 +42. 9% 5 Sichuan 93. 33 71. 79 +30. 0% 6 Liaoning 86. 80 67. 22 +29. 1% 7 Shanghai 77. 07 62. 19 +23. 9% 8 Henan 70. 25 49. 72 +41. % 9 Hubei 68. 0 50. 05 +36. 9% 10 Beijing 66. 67 53. 18 +25. 4% Source: Internet article: “How to Benefit from the Booming Retail Market in China” International Trade and Competitiveness Trading pattern Chinas international trade in 1928 was only 2. 3% of the world total. In 1977, when Chinas economy was still isolated, its trade was 0. 6%. It did not gain an important economic position until 1993. As one of the WTO members, China has opened many closed sectors under the Western influences. The Washington-based Institute of International Economics estimates that Western exports to China could rise annually by US$21 billion.

Economic reforms have transferred China into a major trading partner for many countries. Chinese exports rose from $14 billion in 1979 to $184 billion in 1998, while imports grew from $16 billion to $140 billion. China’s ranking as a trading power rose from 27th in 1979 to 10th in 1998. China’s trade volume fell slightly in 1998 over 1997 for it is too affected by the global financial crisis. Chinas exports rise by 0. 5% after the rising of 20. 9% in 1997, while imports dropped by 1. 5%. Due to statistics, China has been running trade deficits in some years and surpluses in others. Over the past 5 years, China has run trade surpluses.

In 1998 the surplus totalled about $44 billion (see Table 6). Merchandise trade surpluses and the large amount of foreign investment have made China to become the world’s second largest foreign exchange reserves, with a total $145 billion at the end of 1998. During the first nine months of 1999, China’s exports increase by 2. 1%, while imports rise by 19. 3%. Table 6. China’s Merchandise World Trade: 1979- September 1999 ($Billions)

Exports Imports Trade Balance 1979 13. 7 15. 7 -2. 0 1980 18. 1 19. 5 -1. 4 1981 21. 5 21. 6 -0. 1 1982 21. 9 18. 9 2. 1983 22. 1 21. 3 0. 8 1984 24. 8 26. 0 -1. 1985 27. 3 42. 5 -15. 3 1986 31. 4 43. 2 -11. 9 1987 39. 4 43. 2 -3. 8 1988 47. 6 55. 3 -7. 7 1989 52. 9 59. 1 -6. 2 1990 62. 9 53. 9 9. 0 1991 71. 9 63. 9 8. 1 1992 85. 5 81. 8 3. 6 1993 91. 6 103. 6 -11. 9 1994 120. 8 115. 6 5. 2 1995 148. 8 132. 1 16. 7 1996 151. 1 138. 8 12. 3 1997 182. 7 142. 2 40. 5 1998 183. 8 140. 2 43. 6 Jan. -Sept. 1998 134. 2 98. 6 35. 6 Jan. -Sept 1999 137. 0 117. 6 19. 4 Source: International Monetary Fund, Direction of Trade Statistics and official Chinese statistics. Trading partners China’s trade data differs significantly rom its major trading partners statistics.

This is due to the fact that a large share of China’s trade (both exports and imports) passes through Hong. China treats a large share of its exports through Hong Kong as Chinese exports to a foreign country. However, China treats the imports from Hong Kong as provincial trading. According to Chinese trade data, its top five trading partners in 1998 were Japan, the United States, the European Union (EU), Hong Kong, and South Korea (see Table 7). Chinese data shows that United States is its second largest export partner and the third largest source of its imports.

China’s trade with many of its Asian trading partners fell in 1998, while trade with the United States and the EU rose. Table 7. China’s Top 10 Trading Partners: 1998 ($Billions and % Change over 1997) 1998 Merchandise Trade ($) % Change over 1997 Country Total Trade Exports Imports Total Trade Exports Imports All Countries 323. 9 183. 8 140. 2 -0. 4 0. 5 -1. 5 Japan 57. 9 29. 7 28. 2 -4. 8 -6. 7 -2. 7 U. S. * 54. 9 38. 0 17. 0 12. 1 16. 1 4. 1 EU15 48. 4 27. 9 20. 4 12. 6 17. 2 6. 3 Hong Kong 45. 4 38. 8 6. 7 -10. 6 -11. 5 -4. 7 S. Korea 21. 3 6. 3 15. 0 -11. 6 -31. 0. 4 Taiwan** 20. 5 3. 9 16. 6 3. 3 13. 9 1. Singapore 8. 2 3. 9 4. 2 -7. 2 -9. 1 -5. 4 Russia 5. 4 1. 8 3. 6 -10. 5 -9. 7 -10. 9 Australia 5. 0 2. 3 2. 7 -5. 2 13. 9 -17. 2 Indonesia 3. 6 1. 2 2. 5 -19. 6 -36. 4 -8. 1 Source: Official Chinese trade data. *U. S. trade data on U. S. -China trade differ significantly with Chinese trade data.

**China and Taiwan do not maintain direct trade links. Most trade takes place via Hong Kong. However, the US trade data differs significantly with Chinese trade data. According to the U. S. trade data, it indicates that U. S. arket is an important market to China’s export, but it is not reflected in Chinese trade data. Based on U. S. data on Chinese exports to the US, it is shown the exports have grown from 15. 3% in 1986 to an estimated 38. 7% in 1998. This would indicate that the United States is China’s largest export market. The importance of the U. S. market for China’s exports has increased in 1998 because of the global financial crisis in Asia. China has survived the financial crisis because U. S. imports from China have continued to rise, whereas imports by several East Asian economies from China have fallen.

There is an increasing level of Chinese exports from foreign funded enterprises (FFEs) in China. According to Chinese ata, the total share of Chinese exports produced by FFEs has risen from 0. 1% in 1980 to 44. 1% in 1998. Many of these FFEs are owned by Hong Kong and Taiwan investors because they have shifted their labour-intensive, export-oriented, firms to China to take advantage of low-cost labour. A large percentage of the products made by such firms are exported to the United States. Export and imports/Foreign trade China has gained more access to export markets through the long term restructuring of the Chinese economy.

Reforms initiated by President Jiang Zemin and Prime Minister Zhu Rogji have tended to languish under political ressure and economic and cultural inertia. Another cause of increasing export is the wider opening of China’s industrial and agricultural sectors to Western style management and competitive discipline. The strategy that Chinese used was a currency devaluation to promote export growth. This would inevitably be followed by a new round of defensive devaluation throughout the region, accompanied by further capital outflows, deepening liquidity problems, a return to protectionism and delay in recovery. Roy 57) China’s cheap labour force has made it internationally competitive in many low cost, labour-intensive ountries. As a result, manufactured products comprise an increasingly larger share of China’s trade.

The share of Chinese manufactured exports to total exports rose from 50% in 1980 to 89% in 1998, while manufactured imports as a share of total imports rose from 65% to 84%. A large share of China’s manufactured imports is comprised of intermediates like chemicals, electronic components, and textile machinery that are used in manufacturing products in China.

Major Chinese imports in 1998 included electrical machinery, textile products, specialised machinery, plastics, and telecommunications and recording quipment (see Table 8). China’s major exports included articles of apparel and clothing, electrical machinery, textiles, office machines, and telecommunications and recording equipment (see Table 9). Table 8. Major Chinese Imports: 1998 Commodity Total ($Billions) % of Total Imports Electrical machinery, apparatus, appliances & parts, and household electrical appliances $16. 5 11. 8% Textile yarns, fabrics, and made-up articles 11. 1 7. Specialized machinery for particular industries 8. 3 5. 9 Plastics in primary form 8. 2 5. 8 Telecommunications and sound recording and reproducing apparatus and quipment 7. 9 6. 6 Total top 5 52. 0 37. 0 Source: Official Chinese trade statistics

Table 9. Major Chinese Exports: 1998 Commodity Total ($Billions) % of Total Exports Articles of apparel and clothing accessories $30. 0 16. 3% Electrical machinery, apparatus, appliances & parts, and household electrical appliances 13. 9 7. 6 Textile yarns, fabrics, and made-up articles 12. 8 7. 0 Office machines and data processing machines 11. 6. 5 Telecommunications and sound recording and reproducing apparatus and equipment 11. 1 6. 0 Total top 5 79. 7 43. 4 Source: Official Chinese trade data. China has pursued a trade trategy of import substitution. This means Chinese only import the goods necessary to its economic development that cannot produce itself, and once it attains a domestic production capability, it stops importing those goods. This approach even carried over to China’s exports, which have consciously been used primarily as a means of generating foreign exchange for the purchase of advanced foreign technology.

China’s imports fall mainly into one of two categories: raw materials (food, energy, lumber, wool and synthetic fibres, fertilizer, chemicals, steel, etc. ) from the developing countries, and advanced technology machinery, software, etc. ) from the developed countries. Chinese exports, in keeping with China’s comparative advantage, are mostly relatively cheap labour-intensive manufactured goods, which are particularly attractive in lower-income countries. In other words, China generally “buys in the core and sells in the periphery”.

Thinking that higher-tech products earn higher profits on the capitalist world market, China is running trade surpluses with developing countries and trade deficits with developed countries. China’s foreign trade has grown exponentially since the opening to the world market. Exports comprised about 2% of China’s GDP in 1980; in 1996, they account for 10%. (Roy 89) Total trade between China and the United States rise from $4. 8 billion in 1980 to $85. 4 billion in 1998, making China the 4th largest U. S. trading partner.

China has become a major supplier to the U. S. market with its variety of low-cost U. S. onsumer goods, such as toys and games, textiles and apparel, shoes, and consumer electronics. China has been a major buyer of U. S. aircraft, fertilizers, and machinery. In recent years, U. S. imports from China have far exceeded U. S. exports to China. In 1998, U. S. mports from China totalled $71. 2 billion while U. S. exports to China were only $14. 3 billion. As a result, the U. S. trade deficit with China has increased to nearly $57 billion in 1998. (China-U. S. Trade Issues). Foreign investment China has kept out all foreign investment until 1979, the heavy restrictions were loosened to allow all kinds of foreign investment in China.

This way, China can gain more access to foreign technology. Western investors began to rush into China in the 1970s but decreased in numbers in the early 1980s because they realised that China is still a difficult place for them to do business. Several reasons for this is that China has many regulations, corruption scandals and the assumptions that foreigners are wealthy and therefore should pay extra for everything. In the early 1990s, the Chinese government has reformed and clarified many laws concerning foreign investment to stimulate foreign investment in China. Roy 90)

In 1998, foreign capital investment in China has reached US$58. 9 billion, with foreign direct investment (FDI) of US$45. 6 billion. Within the countries that made direct investment in China, Hong Kong ranked first with 40. 6% of China’s total foreign investment (see Table 10). Table 10. Foreign Direct Investment Countires % in total Hong Kong 40. 6 United States 8. 6 Singapore 7. 5 Japan 7. 5 Source: China’s economic conditions. In the first quarter of 1999, FDI totalled to US$7. 34 billion. In the first half of 1999, FDI reached US$18. 6 billion. As a result, FDI has brought new technology and more capitals into China.

Conclusion Further Outlooks 1999-2002 is the switch period for China from its command economy to a market economy. Therefore the Chinese government develops macro economic policies reinforce things like reform, development and stability. The overnments main objectives in this period are to maintain a low inflation economy and improve employment rate while the restructuring is under its way. The long term outlook for the Chinese economy remains mixed. China has been able to weather out the effects of the Asian financial crisis, although this has done at the cost of delaying economic reforms to the SOEs and banking system.

Continued support of money-losing SOEs draws resources away from more potentially productive enterprises, and thus undermines future growth. China’s commitment to join the WTO appears to represent a major commitment on the part f the Chinese government to significantly reform its economy and provide greater access to its markets. Some China observers believe that the Chinese government views accession to the WTO as an important, though painful, step to making Chinese firms more efficient and able to compete in world market (by exposing them to competition from abroad).

In addition, the government hopes that liberalized trade rules will attract more foreign investment to China. Economists argue that over the long-run greater market openness in China would boost competition, improve productivity, and lower costs for consumers, as well s for firms using imported goods as inputs for production. Economic resources would be more likely redirected away from money-losing activities towards more profitable ventures, especially those in China’s growing private sector. As a result, China would likely experience more rapid economic growth (than would occur under current economic policies).

Goldman Sachs estimates that WTO membership would double China’s trade and foreign investment levels by the year 2005 and raise real GDP growth by an additional 0. 5% per year. In the short run, however, widespread economic reforms (if implemented) could result in isruptions in certain industries, especially unprofitable SOEs, due to increased foreign competition. As a result, many firms would likely go bankrupt and many workers could lose their jobs. How the government handles these disruptions will strongly determine the extent and pace of future reforms.

The central government appears to be counting on trade liberalization to boost foreign investment and spur overall economic growth; this would enable laid-off workers to find new jobs in high growth sectors, especially in China’s growing private sector. However, the Chinese government is deeply concerned with aintaining social stability. If trade liberalization was followed by a severe economic slowdown, leading to widespread bankruptcies and layoffs, the central government might choose to delay (or even rescind) certain economic reforms rather than risk possible political upheaval.

The Chinese government has recently taken a number of steps in preparation for China’s WTO entry. For example, In January 2000, Zhen Peiyan, Chairman of China’s State Planning Commission, stated that the government would eliminate all restrictive regulations against private enterprises in China in preparation for China’s WTO accession. Currently, private firms in China face a variety of discriminatory government policies, including lack of access to borrowing from state banks, that have made it difficult for such firms to develop.

China’s entry into the WTO will require the government to establish a level playing field for Chinese firms to compete against foreign firms. This could greatly expand the role of the private sector in China’s economic development and accelerate China’s transition to a market-oriented economy. Economic Growth – China want to expand its domestic demand to promote its economy. For the next few years, domestic emand, that is, the consumption and investment will slightly increase. Researchers say that after the year 2000, the impact of the financial crisis will gradually reduce, whereas the international environment will gradually improve.

Chinas economic growth rate is expected to be about 7% and its CPI to be around 3% in this period. Investment – Foreign and local investments in fixed assets will continue to be the main driving force in Chinas economic growth. Due to the changes in policies, it is known that investment in the state sector will increase, as well as the investment in the non-state sector will lso speed up gradually. The estimated average increase in the investment in fixed assets will be 12% or so in 1999-2002.

The Chinese government has also pursued policies to improve the amount of foreign investment. Foreign Direct Investment is expected to rise after 2000. Employment – In the period between 1999 and 2002, the working population will be over 11 million and 85% of them will enter the labour market. As the reform of the state-owned enterprises continues and the economic restructuring speeds up, it is estimated that the registered unemployment rate will be 3. 5%. China is speeding up the development f its economy to create more employment outlets and to deepen labour market reforms.

The government is also thinking of building of a social security system that will improve the standards of living among people in the future. (Roy 57) Table 11 China: Overall Economic Performance 1992 1993 1994 1995 1996 1997 1998 GDP and Major Components (% change from previous year, excepted as noted) Nominal GDP (billion US$) 483. 00 601. 10 540. 90 697. 60 816. 90 903. 00 960. 90 Real GDP 14. 20 13. 50 12. 60 10. 50 9. 60 8. 80 7. 80 Total Consumption 14. 20 9. 30 8. 00 9. 20 9. 30 6. 10 6. 80 Private Consumption 14. 30 9. 0 7. 70 10. 10 9. 60 5. 80 6. 10 Government Consumption 13. 0 9. 10 9. 10 5. 90 8. 40 7. 20 8. 90 Total Investment (1) 12. 90 24. 90 15. 60 15. 50 10. 40 7. 10 14. 40 Private Investment Government Investment Exports of Goods and Services (2) 18. 20 8. 00 31. 90 22. 90 1. 50 20. 90 0. 50 Imports of Goods and Services (3) 26. 30 29. 00 11. 20 14. 20 5. 10 2. 50 -1. 50 Fiscal and External Balances (% of GDP)

Budget Balance -0. 97 -0. 85 -1. 23 -1. 00 -0. 78 -0. 78 -1. 50 Merchandise Trade Balance (f. o. b. ) 0. 87 -2. 03 0. 99 2. 41 1. 51 4. 46 5. 48 Current Account Balance 1. 33 -1. 98 1. 42 0. 23 0. 89 3. 9 3. 03 Capital Account balance -0. 5 3. 91 4. 68 4. 74 4. 89 2. 54 0. 00 Economic Indicators (% change from previous year, except as noted) GDP Deflator 7. 90 14. 60 19. 50 13. 10 6. 10 1. 50 -1. 30 CPI 6. 40 14. 70 24. 10 17. 10 8. 30 2. 80 -0. 80 M2 31. 30 32. 40 34. 50 29. 50 25. 30 19. 58 15. 30 Short-term Interest rate (%) 8. 10 8. 80 9. 00 9. 00 9. 72 7. 65 6. 34 Exchange Rate (Local Currency/US$) (4) 5. 50 5. 76 8. 62 8. 35 8. 31 8. 28 8. 28 Unemployment Rate (%) 2. 30 2. 60 2. 80 2. 90 3. 00 3. 10 3. 10 Population (millions) 1172. 0 1185. 0 1199. 0 1211. 0 1224. 0 1236. 0 1248. 1 Source: APEC Members

The Economic Emergence of China, Japan and Vietnam

World War 2 in the mid-90’s drew a hard blow and left a serious and lasting effect to many Asian countries. This however, did not hamper the growth of countries such as China, Japan and Vietnam as their government were taking serious steps to recover economically. Thus, the global market cannot deny a place for these ‘Asian Dragons’, because these countries are growing at a tremendous pace to the extent of being capable in emerging as global market leaders. China’s capitalism and boom was born when their president, Deng Xiaoping permitted the provinces to dismantle their communes and collective farms.

This led China to venture into free-market economics, although they were still under the communist political system. When President Deng announced that they needed Western money and expertise, China flung their trade doors wide open and China went on a capitalist drive without ever looking back. By mid 1960’s, the Chinese Revolution settled down to the job of ruling China. Its main goal was essentially nationalist: a prosperous modern economy.

While there continued to exist substantially economic inequalities, distribution of wealth was probably a bit more equal than in most Western countries. Moise 171 ) Ooi 2 While there were great variations in income between different villages, and between different jobs in the urban sector, the overall averages showed a clear pattern: the cities were much richer than the countryside. Most capital investments were going into urban industries. The urban workers, using considerable amount of heavy machinery, had a much higher average level of productivity compared to the rural workers. The natural consequences was for the city people to arrange themselves an average income level twice as high as that of the people in the countryside.

The most obvious way to attack this poverty problem was to increase production, in all sectors of the economy. Though the easiest way to increase production was to increase capital inputs, China could only afford a limited amount of capital construction. In accordance to this, China went on a construction binge. Whole factories were purchased from abroad while others were built with local resources. By 1978, the frenzy for new projects reached a level that reminded some people of the Great Leap Forward.

In an effort to promote agricultural production, the government released many of the restrictions on the ‘spontaneous capitalist tendencies’ of the peasantry. (173) In the late 1980’s, the government decided to expand the scope of private marketing. Then the next step was to Ooi 3 increase the amount land assigned to the peasants. The peasants were now not responsible to the government for the use they made to the private plots. They simply could grow what the wished, for the sale to the government or to private markets. This led to furious rebuilding and inflow of foreign investments.

All this enabled China to remake itself into Asian’s hub of finance, trade and culture. By 1984, they were producing more than $1 million worth of rice and a range of side products, including rice wine. Their residential earning was up to about $200 a year. ( Prager 52 ) This meant that they could begin replacing their mud-and-straw hats with solid brick houses. Shanghai today is a vast construction site with more than 20,000 projects, with 27,000 companies building bridges, tunnels, flyovers, ring roads, hotels, villas, golf courses and also public housing. This sparked national growth of about 10% a year. 53 ) T

he Chinese now are going home with fat wallets, stocks, bonds and large bank accounts. Banks are reporting that savings have increased sixty-fold and is still growing. This has led China to join the world economic community and has become the globe’s third largest economy. China is now ranked 11th in the world in exports of trade goods. (54) Ooi 4 Of the coast of China, there was another growing country. Japan recovered tremendously well after the bombing of Hiroshima in World War 2. Under post war conservative governments, Japan made a remarkable economic recovery.

American aid of $2 billion gave an initial boost and then the Korean War acted as a further stimulant by creating a demand for military hardware. (Rich 191) By the early 1970’s, Japan was the world’s third biggest steel producer, one of the biggest ship builders, and ranked very high as a manufacturer of general engineering and chemical goods. Japan’s motorcycles were winning import races in Europe, and Japanese cameras, transistor radios, cars, sewing machines, TV sets and optical goods competed successfully in the global market. Japan’s economy is second only to the U. S in absolute terms with a G. D. P of $3,385 billion dollars. By 1987, the Japanese were richer than the Americans with per capita income of almost $20,000. ( World 247 )

This was because the Japanese saved five times as much from their paychecks as did the Americans. Lower military spending, a consequence of the Yoshida doctrine, was an essential contributor to Japan’s economic advancement. Japan net assets rose to about $1 trillion and thus making Japan effectively the world’s banker. In the 50’s through to the 70’s, the Japanese economy was averaging 11% of growth. 250) The Bank of Japan backed commercial banks in providing capital for investments. Ooi 5 Economic growth rates were the highest in the world based on high levels of savings and investments, rapid productivity growth and remarkable social consensus. Japan was willing to forego immediate reward for long term benefits.

Therefore, in large sections of world manufacturing, notably electronics, Japanese producers had no rivals. Manufacturing was the mainstay of the economy, improving quality and price. Japan has continually upgraded its economy and hifted from heavy industry with high-energy requirements to high technology, high value added industries such as semi-conductors, industrial robots and computers. Japanese manufactures than began investing heavily in foreign countries because of it’s own rising yen. This massive outflow of money pushed many Japanese financial institutions to the top of the global financial markets. Japan was also the world largest importer of agricultural products where 60% of its food is imported. (Rich 192). If counted based on efficiency however, per unit of land, Japan is the most efficient in the world.

Greater prosperity lead to a big demand for consumer goods. Western style clothing became very common and wheat products, meat and vegetables took the place of rice in many Japanese dishes. Scotch whiskey was Ooi 6 now drunk in place of the traditional sake. The Japanese people now wanted to acquire more twentieth century gadgets – color televisions, electric sewing machine, washing machines, motor cars and so on. Western sports became very popular – in the 70’s, there were already about 7,000 golf courses. By September 1986, the Japanese had a massive current account surplus of $10 billion U. S dollars. ( World 251).

All this was a result of deep government planning, growth with high depreciation allowance, cheap loans, subsidies and light taxes. The Japanese recovery from its defeat in the Second War presents a truly remarkable story of persistence, determination and hard work by an entire population, and considerable financial and diplomatic skill. Vietnam was the latest among these countries to emerge as a ‘gold mine’. This was set back by the Vietnam War in the 60’s and the 70’s. The war practically crippled the country’s economy. Vietnam’s economy grew based on a five-year plan system.

This has brought moderate success in repairing of three decades of war on infrastructure, forest and farmland. By the mid-1980’s, the government began to liberalize in an attempt to encourage new resources. In 1987, businesses were given tax breaks in their first year, some companies were allowed to obtain bank loan and set their own prices while exporters were authorized to Ooi 7 borrow foreign currency to import raw materials. There were higher cash incentives for peasants and workers. This lead farmers to earn almost 40% profits. ( Gibney 47).

The government too began awarding bonuses and piece-rate wages to reward hard workers. In 1988, there were new investment laws that attracted overseas capital. The main investors were Taiwan, Australia, France, Hong Kong, the United States and also, Malaysia. In 1989, as communism seemed to be collapsing elsewhere in the world, Vietnam flung open its doors to foreign investment. The economy has been growing at an annual rate of 7% to 8% over the past three years. In February 1994, when the U. S. dropped its 19-year trade embargo, aid and investment began to flood in. (49). This led jetstreams of investors into Vietnam.

Western companies such as Coca-Cola, AT&T, and Motorola all invested heavily in the country. This lead Vietnam to grow very fast. Population continued to grow by about 1 million a year. By the 1990, the country’s exports were up to about $800 million U. S dollars while imports totaled nearly $1 billion. ( World 157). Vietnam’s most lucrative business were oil and gas. In addition, it is in this sector of the industry that attracted the most attention of foreign investors. British Petroleum was the first western firm to make a significant contribution to Vietnam’s growing economy.

Ooi 8 Tourism has helped Vietnam grow too. The Vietnamese government were promoting tourism in an effort to earn more hard currency. In addition, Vietnam succeeded in exporting 1. 69 million tons of rice making it the third largest exporters of rice in the world. (Moise 49). From the border with China in the north to the rice mills of the Mekong Delta in the south, Vietnam is humming with activity. Hong Kong investors have been allowed to open a casino near Haiphong, and Westerners are bidding to develop tourist sites along the scenic coast of Vietnam.

Hanoi, long a city of bicycles and moldy old colonial edifices, is now rich in motorcycles and office buildings. In Ho Chi Minh City, as Saigon is now called, the April 30 parade marking the end of the war will be set against a landscape bristling with billboards and construction cranes. ( World 159). All this has brought Vietnam to grow at a tremendous rate and there is no denying that soon Vietnam will become a distinctive force in Asia. The country’s recovery after the Vietnam War shows a truly dedicated nation determined to wealth, success and most all, a better life for all the Vietnamese.

This research has shown that these ‘Growing Asian Dragons’ are a force to be reckoned with in the near future as these countries are developing at Ooi 9 breakneck speed. China, even before the merging with Hong Kong, is currently the center of attraction in the business world. Japan has already establish itself and become the most influential partner in the business world while the ‘youngest’ of them all, Vietnam, is already beginning to stamp its mark in South East Asia and soon, without doubt, throughout the world.

The North American Free Trade Agreement (NAFTA)

In January 1994, the United States, Mexico, and Canada implemented the North American Free Trade Agreement (NAFTA), forming the largest free trade zone in the world. The goal of NAFTA is to create better trading conditions through tariff reduction, removal of investment barriers, and improvement of intellectual property protection. NAFTA continues to gradually reduce tariffs on set dates and aims to eliminate all tariffs by the year 2004. Before NAFTA was established, investing in Mexico was a difficult process. Investors needed the Mexican Government’s approval and were also required to meet specific investment guidelines.

These requirements necessitated investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors no longer need government approval to invest and are treated as domestic investors. NAFTA has also increased intellectual property rights and allowed companies to obtain patents in Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods; with increased intellectual property protection, however, exports of these goods have shown a definite increase.

As a result of better trading conditions, exports and imports of most other goods have increased along with the research and development intensive goods. In Mexico, the elimination of investment barriers has allowed investment to expand. Increased trading and investment has then created many jobs, raised the Gross Domestic Product, and lowered consumer prices. The free trade that NAFTA has established among the United States, Mexico, and Canada has greatly benefited the U. S. economy. During the years from 1994 to 1997, U. S. trade with Mexico and Canada rose 44 percent.

This extensive growth is accredited primarily to the reduction of tariffs. As tariffs were lowered, U. S. goods became cheaper and more competitive in Mexican and Canadian markets, and at this lower price level the quantity demanded of U. S. goods increased. Therefore it becomes less expensive for U. S. firms to supply goods to Canada and Mexico as the supply curve shifts upward. In order to meet the new demand, the firms must hire new workers and increase investment. Between 1994 and 1997, 90 to 160 thousand jobs were created in the U. S. due to the increase of trade with Mexico, and 2. million jobs were dependent upon trade with Mexico and Canada (Harbrecht 12).

The increase in employment and investment then leads to increased national income. The work of NAFTA has also served to benefit Mexico’s economy; in accordance with the United States’ economy, Mexico’s exports have increased, more than doubling since 1993. The elimination of investment barriers has caused a dramatic rise in foreign investment from four billion in 1993 to ten billion dollars in 1998. NAFTA has enabled Volkswagen, IBM, and the textile industry to seek labor and materials in Mexico.

In 1994, a Canada-based entrepreneur invested four million dollars in a metal-stamping plant. The plant is now a major material suppler for Volkswagen although it was originally intended to employ only 130 people. The plant currently employs 1,300 workers and generates 57 million dollars in sales each year (Ebrahim 24). NAFTA has also allowed IBM to create plants in Guadalajara that would otherwise have been built in Asia. As a result, the exports of IBM de Mexico have increased from 350 million to 2 billion dollars in five years and the increased exports have created over 270 jobs (Ebrahim 26).

Mexico’s textile industry, too, has grown as a result of NAFTA, in 1996 overtaking China to become the largest supplier of textiles to the United States. U. S. mills invest hundreds of millions of dollars to build plants in Mexico as an effect of the reduced tariffs and shipping time. It takes only eighteen hours to ship goods to the Mexican border, while it takes twenty-one hours to China. Increased investment and exports have created jobs and increased GDP. In 1998, Mexico’s economy grew 4. 5 percent and economists predict that it will grow an additional 2. percent in ’99 (Harbrecht 35). Free trade under NAFTA has also encouraged international specialization, the production of only the goods that a particular economy can produce most efficiently. If the U. S. for example, is efficiently manufacturing cars and Mexico, producing corn, then the U. S. should produce only cars and Mexico, only corn. They are more efficient if they each produce at their highest output, and trade for other goods. International specialization increases efficiency, lowering consumer prices; consumers no longer have to pay for inefficiently produced goods.

With all the good effects of NAFTA unfortunately there is some negative effects. One of the greatest impacts on Canadian and United States economies has been loss of jobs and decreased wages. Even though NAFTA has created jobs in the export sector, other production industries have moved their facilities to Mexico where wages are lower and operating costs are lower. Also, wages in Canada and the United States have been held in check and in some cases lowered by the threat of job loss associated with companies moving to Mexico if employees were not willing to work for less benefits or wages.

On a whole, it is perceived that workers rights have diminished somewhat because employers now can hire “cheaper labor”. In the United States and Canada some wages are stagnating if not declining somewhat. In addition, many border workers on the United States and Mexican sides have lost their employment when factories were relocated to other areas where lower wages helped decrease production costs and increase profits. In essence, the larger corporations and businesses have benefited from NAFTA while smaller companies have been effectively erased from the economic equation.

The influx of immigrants from Mexico has increased even though some see this as only temporary but nonetheless has also led to loss of jobs or wages for some Americans because the immigrants will work for minimum wage more readily and generally do not have the “power heavy” unions to protect them. The agricultural sector from all sides has seen various adverse effects of NAFTA. United States and Canadian exports are increasing in the agricultural sector but the value of the exports has decreased due to competition from the “south”(Dentzer 82).

Mexican farmers have also seen increased exports but have lost their government subsidies, which effectively negates the gains from increased exports. There are many benefits of NAFTA, which are increased employment, raised national income, higher productivity, and lower consumer prices. The negative effects are increased pollution, loss of U. S. jobs, and unfair treatment and unsafe conditions for Mexican workers. The benefits definitely outweigh the negative effects in the long run because improved economies will raise the standard of living and promote better overall economic growth in all of North America.

Bibliography: Works Cited Dentzer, Susan. The Pain and Gain of Trade. U. S. News Sept. 1992 Harbrecht, Douglas. What Has NAFTA Wrought? Plenty Of Trade. Business Week Nov. 21, 1994: 48-49 Ebrahim, Margaret Can Mexico and Big Business USA Buy NAFTA? The Nation June 14, 1993. Nafta1 In January 1994, the United States, Mexico, and Canada implemented the North American Free Trade Agreement (NAFTA), forming the largest free trade zone in the world. The goal of NAFTA is to create better trading conditions through tariff reduction, removal of investment barriers, and improvement of intellectual property protection.

NAFTA continues to gradually reduce tariffs on set dates and aims to eliminate all tariffs by the year 2004. Before NAFTA was established, investing in Mexico was a difficult process. Investors needed the Mexican Government’s approval and were also required to meet specific investment guidelines. These requirements necessitated investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors no longer need government approval to invest and are treated as domestic investors.

NAFTA has also increased intellectual property rights and allowed companies to obtain patents in Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods; with increased intellectual property protection, however, exports of these goods have shown a definite increase. As a result of better trading conditions, exports and imports of most other goods have increased along with the research and development intensive goods. In Mexico, the elimination of investment barriers has allowed investment to expand.

Increased trading and investment has then created many jobs, raised the Gross Domestic Product, and lowered consumer prices. The free trade that NAFTA has established among the United States, Mexico, and Canada has greatly benefited the U. S. economy. During the years from 1994 to 1997, U. S. trade with Mexico and Canada rose 44 percent. This extensive growth is accredited primarily to the reduction of tariffs. As tariffs were lowered, U. S. goods became cheaper and more competitive in Mexican and Canadian markets, and at this lower price level the quantity demanded of U.

S. goods increased. Therefore it becomes less expensive for U. S. firms to supply goods to Canada and Mexico as the supply curve shifts upward. In order to meet the new demand, the firms must hire new workers and increase investment. Between 1994 and 1997, 90 to 160 thousand jobs were created in the U. S. due to the increase of trade with Mexico, and 2. 4 million jobs were dependent upon trade with Mexico and Canada (Harbrecht 12). The increase in employment and investment then leads to increased national income.

The work of NAFTA has also served to benefit Mexico’s economy; in accordance with the United States’ economy, Mexico’s exports have increased, more than doubling since 1993. The elimination of investment barriers has caused a dramatic rise in foreign investment from four billion in 1993 to ten billion dollars in 1998. NAFTA has enabled Volkswagen, IBM, and the textile industry to seek labor and materials in Mexico. In 1994, a Canada-based entrepreneur invested four million dollars in a metal-stamping plant.

The plant is now a major material suppler for Volkswagen although it was originally intended to employ only 130 people. The plant currently employs 1,300 workers and generates 57 million dollars in sales each year (Ebrahim 24). NAFTA has also allowed IBM to create plants in Guadalajara that would otherwise have been built in Asia. As a result, the exports of IBM de Mexico have increased from 350 million to 2 billion dollars in five years and the increased exports have created over 270 jobs (Ebrahim 26).

Mexico’s textile industry, too, has grown as a result of NAFTA, in 1996 overtaking China to become the largest supplier of textiles to the United States. U. S. mills invest hundreds of millions of dollars to build plants in Mexico as an effect of the reduced tariffs and shipping time. It takes only eighteen hours to ship goods to the Mexican border, while it takes twenty-one hours to China. Increased investment and exports have created jobs and increased GDP. In 1998, Mexico’s economy grew 4. 5 percent and economists predict that it will grow an additional 2. percent in ’99 (Harbrecht 35).

Free trade under NAFTA has also encouraged international specialization, the production of only the goods that a particular economy can produce most efficiently. If the U. S. for example, is efficiently manufacturing cars and Mexico, producing corn, then the U. S. should produce only cars and Mexico, only corn. They are more efficient if they each produce at their highest output, and trade for other goods. International specialization increases efficiency, lowering consumer prices; consumers no longer have to pay for inefficiently produced goods.

With all the good effects of NAFTA unfortunately there is some negative effects. One of the greatest impacts on Canadian and United States economies has been loss of jobs and decreased wages. Even though NAFTA has created jobs in the export sector, other production industries have moved their facilities to Mexico where wages are lower and operating costs are lower. Also, wages in Canada and the United States have been held in check and in some cases lowered by the threat of job loss associated with companies moving to Mexico if employees were not willing to work for less benefits or wages.

On a whole, it is perceived that workers rights have diminished somewhat because employers now can hire “cheaper labor”. In the United States and Canada some wages are stagnating if not declining somewhat. In addition, many border workers on the United States and Mexican sides have lost their employment when factories were relocated to other areas where lower wages helped decrease production costs and increase profits. In essence, the larger corporations and businesses have benefited from NAFTA while smaller companies have been effectively erased from the economic equation.

The influx of immigrants from Mexico has increased even though some see this as only temporary but nonetheless has also led to loss of jobs or wages for some Americans because the immigrants will work for minimum wage more readily and generally do not have the “power heavy” unions to protect them. The agricultural sector from all sides has seen various adverse effects of NAFTA. United States and Canadian exports are increasing in the agricultural sector but the value of the exports has decreased due to competition from the “south”(Dentzer 82).

Mexican farmers have also seen increased exports but have lost their government subsidies, which effectively negates the gains from increased exports. There are many benefits of NAFTA, which are increased employment, raised national income, higher productivity, and lower consumer prices. The negative effects are increased pollution, loss of U. S. jobs, and unfair treatment and unsafe conditions for Mexican workers. The benefits definitely outweigh the negative effects in the long run because improved economies will raise the standard of living and promote better overall economic growth in all of North America.

The Economy of Japan remendous growth since the end of the Korean war

The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve “zero defect program”. But after the first and second oil crisis that occur from 1973 onward.

The economy move downwards partially due to the poor management of economic policy. Although the government had attempt to adjust the economic policy but the recovery was slow. As the soaring of yen continues the demand for export has increase tremendously. With the concern of the United State of this problem, president Reagan and the G5 have signed an agreement with Japan called “Plaza Agreement” , the agreement stated that the exchange rate of Japan and Deutschmark can appreciate against the U. S. . Since then the yen value began to appreciate, Japan was going through a period of trade balance adjustment.

While Japan is prepare to go through a period of trade balance adjustment, it will also suffer a period of recession, so the government strongly encourage business activities to strengthen the economy in order to prevent backwash effect. It was this event which boost up the GNP and raise the exchange rate. With this exchange rate advantage it stimulate business activity on housing and stock investment which created a bubble economy. During this period almost the entire country was involve in land speculation or other speculate activities.

In this essay it will prove that land speculative activities had create many negative impacts to the Japanese society and economy. Firstly, it will describe the cause of land speculation. Secondly it will discuss on the society and political effects in Japan and lastly it will focus on the economy effects, more over it will include the aftermath when the bubble collapse. The root of this bubble economy is due the wave of land speculation. The wide spread of land speculation activities were mainly because it is profitable. The speculative transactions in assets grew and grew and many believe that this will last for very long period of time.

One of the reason that leads to massive investment in the risky activities is because of the success of the Japanese in the international market during 70*s – 80*s. Many Japanese enterprises and business man had become very wealthy. These people have a large sum of equity to invest. Some of these people have focus on risky asset such as stocks and land, therefore many of the regular ventures were left behind. One of the major cause of the massive transaction in the land market was due the incremental of loans by banks. Financial institution was very positive in lending money to the enterprise.

This enhance the accessibility to the land speculate market. Each size of this loan is very large. This is because the size of mortgage in Japan financial institutions are based on the collateral, (house) while in North America the size of the mortgage is based on the borrower*s income stream. Therefore the size of loan can be obtain by borrower is larger in Japan than North America. Also 62% of Japanese households own the home that they live and in average the value is near 4 million yen. Therefore there are lots of potential investors.

And during the period of speculative activities, borrowers increase the value of their loans as the value of their collateral increases. Since asset is highly liquidate, the number of potential speculators are high and borrowers in Japan were able to get a larger size loan on real estate therefore speculative activities sink into the level of common home owner and large enterprise. Beside the method of calculating mortgage size, another reason why the size of loan was so large is probably that both the bank and the investor were behind the land speculation activity (banking scandal).

Investors were paying some key money (sort of a bribe) to financial institution in order to obtain a larger size loan. Therefore many financial institutions were over loan during this period. Another form of raising cash flow for the speculate market was by braking down a loan that obtain from a large financial institution to a specific enterprise, then lend a small piece of this loan to those who was not eligible to obtain a loan from the bank. These companies that act as the funnel will earn a certain amount of interest from these smaller companies (branch effect).

Therefore all classes of companies and society can easily access in the speculate market. Other large corporate, construction company, organize crime group and even temple (religious) were also involve in land speculation. Another encouragement to the speculative market was because the government (liberal democratic party) had originally lower the capital gain tax in the early 80*s. Therefore the profit for owner to resale their land was large. Flaws in government policy also indirectly allow investor to get away of property tax expense.

For example some land owner could just plant little crops over a large piece of expensive vacant land in urban city and declare them as agriculture land. As a result they will be tax very little. Therefore the incremental of land speculative activities were due to over size loan, high accessibility to the land speculative market and indirectly by the government flaws. During the peak of the land speculation there is a quite interesting study of land price in Japan. ) “If you sell the entire property of Tokyo you can actually buy the entire United state and by just selling the surrounding land of the Imperial palace you can buy Canada. ” Although it might of been a little over exaggerate, but the point is that the land value in Japan compare to North America is much higher. Since there is no one side of a coin, Land speculation had create many social problems in Japan. Firstly, land speculation had rise the rent and housing cost tremendously. As a result many young couples and low income families were unable to form their own house hold.

In average the cost of a house in Tokyo had raise to about 500 million yen. The younger group with low income cannot afford it and the mid age workers may also not able to afford it. Primary is because they would have to give up at least three-fifth of their income in loan repayment. Also if they have a relatively low amount of down payment, there working age may not be long to repay a mortgage. The longer the amortization period, the larger the amount of interest they bare. The white collar had become the slavery or sacrifice of the never ending mortgage payment and high cost of housing.

In 1990 the births live in Japan was 1. 2 million, in fact the number is the lowest since 1893. Many analysts believe that one of the reason that lead to this slow growth of population could be create by high house prices. So Japanese people have stopped having children and large family is rare. Therefore this is one of the causes of Japan is running our of Japanese. This is also a very big social issue of the modern Japanese society but the precedent of the slow growth of population has now move from high housing cost to other social problems.

During this period, there were lots of cases regarding on the robbery and suicidal in the police force. (1) – Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg. 50 This was mainly because of the heavily debts that these police bare and they have no other choice than to attempt to go above the law. Due to the financing problems in the real estate market, it leads to the founding of what is program call “2 generations mortgage plan”. The founding of this plan was propose to suit the majority of the white collar in the Japanese society.

This plan was develop since 1983 but it became more useful from 1985 onwards and the qualification of this program must be father-son that plan or already living together. (son must be older than 20 and must repay the loan by the age at 70) The size of the mortgage is determined by the borrower, interest is flexible and the applicants must purchase an life insurance in order to protect the risk of un collectible due to death. (Pay by the bank) Husband and wife can also join this program . Banker said that the applicant may able to repay this loan in 40 yr. d this type of program also encourage a bonding relationship between father and son. On one side this program may allow a regular income worker to be a home owner but on the other side this person will bare a debt for the entire life and passes on to the next generation. Moreover it may limit on the consumption of the borrower on other composite good. The booms in land prices also discourage people’s incentive to work. (2) “Because if any lucky individuals inherited or own a piece of land in metro Tokyo, they will suddenly gain a net worth of 250 to 300 million yen.

This amount of money is equivalent to honest man*s life time income plus retire pension. Since may people get rich during this period, the number of middle class income in Japan had tremendously increase. Under these circumstances, many believe they have already achieved the good life therefore people lose the incentive to work hard and get ahead. Therefore it will distort the social structure in Japan and create many problems to the government (taxations). Since the sacrifice and cost of home ownership is so high therefore many Japanese had prefer to rent.

Since the demand of rental market increase, it also attracted many investor and speculator. Therefore tenants also suffer from the incremental raise of land price. In Japan, young couples, low income group and the elderly participated as the major group of tenant in Japan. During this period, owners were looking to sell their property for high return and in order to force the tenant to move (after tenant moves landlord can chose higher quality tenant or resale the property for a larger profit) rent rises extremely high. Many elderly were unable to afford such high rent so 2) – Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg. 1 many were force to move. As a result many had become homeless. In some cases tenant refuses to move so some owner will hire organize gang group to force them out. Some of these unfortunate tenants will give up the hope in home ownership in the core and move further and further away from the center. Therefore many of them will spend over 2 to 3 hours to commute from their place to work. So either way, home owner ship and tenants suffer from the raise of housing price. The natural populations are not the only civilian of this incident.

Many foreign students also suffer from the housing problem. (3) “In 1986, there was a statistic taken over a total number of 8116 foreign students. Apparently only 17% lives in an adequate resident facility. ” The primary reason was due to the cost of rent, high exchange rate and lastly it was because the local people do not wish to rent their property to foreign student. Student associate had propose to built new resident housing but due to the heat of land speculation (create an increase in the demand of land) and high construction cost, the new residential housing will be very costly.

Therefore this new construction will probably raise the rent 2 to 3 times. While the housing problem continues for foreign students from 80 onward the Japanese government had still declare that they (4) “expect a total of 100,000 new foreign student will be coming in during the 21st century. ” This reflects that the government has pay very little awareness not only on the natural population but also foreign student. Beside foreign students and the natural population, another group that affects by the high land prices was foreign ambassador.

As the price continued to rise (specially in Tokyo), the ambassadors of the lower wealth countries (such as Africa or Uganda ) were force to move their location away from Tokyo due to high rent. Although this problem was reflect to the Japanese government but it was remain un solve. Other side effects of the land speculation was the new residential construction during that era. In (thousand leaf city) many of the new construction area no longer have a large plain or play ground that similar to a traditional residential area. ) – Cao Man Kit, “The Life of Foreign Student in Japan”, Ming Chang, H. K. 1991, pg. 160 (4) – Cao Man Kit, “The Life of Foreign Student in Japan”, Ming Chang, H. K. 1991, pg. 167 In one of the Japanese newspaper there is an advertise article that describes their forecast on the living condition of the Japanese in the 21st century. (5) “The husband should not return home until weekend, during weekdays just live in worker*s resident near their workplace. This resident housing should be similar to hotel where it has an into desk that can wash your cloths, postal service and take your message.

Their home should be in some rural or less urban area that 100 km away from work. ” This reflected that the rise of land value did not just only effect the affordability of the housing but also distort the lifestyle of the Japan workers as it had reflect in the earlier incident of the 2 generations mortgage. (6) “During the bubble economy period the zoning regulation in Tokyo has revise to allow builder to built more capital on the piece of land. So this indirectly rises the potential of building space in Tokyo.

It will again raised the real estate value, property taxes and traffic congestion level of the area. ” According to the (7) “National Land Agency statistic, about half of firms surveyed in the mid to late 1980s responded that they had no development plans for the land that they acquired. ” They rarely built homes or apartments, but instead constructed office buildings that would bring in steady revenues. From the developer*s point of view, houses and apartment are the least profitable projects. So land would almost never allotted for housing”.

With land speculation and the shortage supply of new construction on housing the Japanese residents are very difficult to find an affordable place to live beside the houses that are very far from work place. In the current Japan election the percentage of participant voters in Japan has drop below 60% of the total population and the liberal democractic did not receive 50 % of the seat through election. This percentage was the lowest since WWII and mainly was because the populations in Japan no longer believe the liberal democratic party can bring them back from recession.

Also they did not have a good control system during the bubble economy, failure of the recovery program after the bubble splash. (program such as expansion in public investment, lowering the interest rate and series of economic counter measure but the yen is still pretty high which discourage export) In more specific, during the bubble economy the government did not really propose (5) Cao Man Kit, “The Strategic of Japan Enterprise”, Ming Chang, H. K. 1992, pg. 68 (6) Mc Millian Charles, “The Japan Industrial System”, Berlin, New York, 1996 , pg. 6 7) Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg. 89 an effective tax law until 1990. (National Land Value Tax- prohibitive tax on profits from the sale or transfer of land national land law 1974)

This revitalizes the local property tax and assessment ratio for the fixed asset tax. Another official policy was issue during 1990 was through the financial market in which the government regulates on the loan activity. This eventually slow down the loan activities largely in 1991. But still the government really lagged their response for those who already suffer for 5 years of high housing cost.

More over during the period of bubble economy, many politics were either involve in land speculation or was bribe by organize gang group and large enterprise in order for these people to be more conveniently to have more benefits in the land market. One incident is involve by a business man Kyowa and a cabinet minister Fumio Abe, where Abe sold the details of where a new road construction in Hokkaido in return for 480 million yen. Political scandal was expose to the public not long after the bubble economy was splash.

Lastly, most of the asset of the politicians are in the real estate market therefore neither the bank or the officials admit the fall in land prices. So when this incident was expose to the public, the prices of land fall sharply around 50 %. And mainly because of the period of cover up. So many big and small investors suddenly woke up from their happy dreams and face the horrible reality. With the above reasons the government has lost the trust of many Japanese. Therefore the land speculate activities had also effect the image of the strong liberal democratic.

During the bubble splash period, many pre-graduates and graduated university students were unable to find jobs in the labor market due to the diet all companies therefore many students were frustrate about their future. Therefore the supply of the labor market is distorted by the bubble burst. Therefore you can see that the land speculation activities had create many social problems to the Japan society during the bubble period and after the bubble burst. During the bubble period the economy was strongly boost by the sudden rise of land value and stock market.

On the other hand the after math of the bubble splash was a pain for the economy. In general we will look at the effects on the rise and fall of the Japan*s economy. In 1985 the trade balance in Japan need to have adjustment therefore the government declare that it needs some force to grow in order to prevent recession during this adjustment period. (8) “In 1989 the GNP has increased by 481,000,000,000,000 yen and this was mainly due to the speculate market. ” (People put their profit from land to stock market or vice versa) Many companies were mainly focus on the speculate market. )

“The Tokyo Stock exchange soared to almost 40,000 points, the value of stock and land was far above the real value and value of property was not rise due to its demand but was due to speculation. Eventually when the bubble splash, the vacancy rate went rocket high due to lack of demand. Many companies had to go on a strict diet to survive, and they made deep cuts in expenditures for entertainment, advertising, communications and much else. ” And the above statement is the general picture of what happen during the bubble economy.

During the golden period of land speculation, many investors know that the land market in Japan was limited (due to the potential and limited geographic area) so they began to purchase land over sea in Hawaii. (10) “The Non water front housing price in Hawaii during 1987 went up by 51 % and the water front housing price went up more than 100%. ” This resale land market in Hawaii was primarily between the Japanese; in 1987 the land prices was estimate has rise over 60. 2% and many tenants have suddenly realize that the rent has tremendously increase and cannot afford it, so many people have no place to stay (especially the elder).

There are several reasons that Japanese wants to invest in Hawaii such as; the waterfront view is similar to Japan so it will be a good place for vacation and retirement, the distance between Japan is relatively close ( 3 hours trip by plane) and massive left over of equity and advantages in the exchange rate that has tremendously increase the nominal value of their equity so it is an encouragement for investment. Therefore the wave of land speculation did not only distort the land market in Japan but also affected foreign country. (8) Iwami Toru, “Japan in International Financial System”, MacMillian Press, New York 1995, pg. 5 (9)

Iwami Toru, “Japan in International Financial System”, MacMillian Press, New York 1995, pg. 135 (10) Kenneth V. Smith, “Inman News”, June 1996 Version, Section B4 email address: [email protected] com Looking back at the Japanese economy (11) “in 1987, 77 out of the top 100 most heavily taxed people were involve in land speculation (either have resale their lands or have large land properties). This created a very unhealthy economy because most of the economy is depend on the land market and if any thing happen to the land market, it will distort the economy greatly. 2) “In 1989 the top 100 most heavily tax people 95 of them were involve in land speculation. ”

Therefore the situation was worst in the later period this is mainly because of the profitability in the land market. Since many enterprises only focus on speculate market therefore the real growth of GNP of the country was only 4 to 6 %. The growth of the economy was mainly on the nominal sector. The increase in nominal GNP has created massive appreciate of yen, which had tremendously affect the export businesses and the manufacture industries. he nominal price of the good has increase therefore foreigner has less interest on Japan goods but this mainly effect small and medium enterprise)

While some export business was not doing too well, consequently the workers are not getting an appropriate rise in income. (13) “In 1986 (Nissan) several of the high executive had experience an income cut by 5 to 10% and many of them are very frustrated because most of these people were in their 40*s and have to pay for mortgages and children*s tuition.

In later years Nissan had announced to cut 500 in order to balance out their lost. ” Therefore large manufacture as Nissan was not doing so well during this period. This was worst in the case of the small and medium enterprise. Many small and medium size export companies had contract or even close down during the mid 80*s and as the wave of income cuts continued, every level and class of the employees were involve. On the other hand the high exchange rate was really an advantage for importer (same value buy more) such as energy, petroleum and primary material.

These companies were suddenly becoming so wealthy and the income of their employees were much higher compare to those working in the export enterprise. Therefore there was a large gap on the profit and income between the two distinct groups of company and it was very unhealthy for the white collar. (11) – Iwami Toru, “Japan in International Financial System”, MacMillian Press, New York 1995, pg. 178 (12) Iwami Toru, “Japan in International Financial System”, MacMillian Press, New York 1995, pg. 178 (13) Cao Man Kit, “The Strategic of Japan Enterprise”, Ming Chang, H.

K. 1992, pg. 135 This period of high exchange rate continues until the bubble burst. The decline of the bubble economy occurs during the Gulf war period, the economy in Japan was very quite and at the same time the government had tighten their policy. (Both tax policy and restriction in loans) As a result, the land speculation market and land prices fall continuously. The real estate market is totally frozen. The National Land Agency measures that land price of Tokyo and Osaka has dropped 30 to 50 percent.

Total land wealth is near 2000 trillion yen which is really a lot) Many real estate properties were unable to be resale and at the time many companies were unable to pay such high interest payment therefore many of them went bankrupt. While the banks rarely make any loan, many companies cut back in their capital spending. In fact this had dampen the recovery of economy. Most of these companies that went bankrupt were either small or medium size enterprise which lack of its separate bank center. Large enterprises with separate bank center also suffer from non performing loans by the borrowers (small and medium size enterprise).

Others large lending institution also suffer largely, since the major economic powers at the bubble period was on the land market therefore any decline in land values would strongly influence the balance sheets of Japan*s lending institution. As reported in June 18 1996 The News Times International News that the (14) “parliament approves a $ 6. 3 billion bailout for bankrupt housing lenders. The vote clears the way for the establishment of an institution to liquidate the assets of the housing lender which collapsed under bad loans made to real estate speculators before Japanese land prices plummeted in the early 1990s.

The seven companies are believed to have more than $65 billion in bad debts. ” This $. 6. 3 billion is only a piece of the big picture because (15) “the Finance Ministry said that Japan*s financial institutions held about $324 billion in bad loans as of March 31 1996. Analysts believe the total could be considerable higher. The government in recent days has been working to persuade banks and farm cooperative to agree to take on a bigger share of the bailout burden to reduce the cost to taxpayer”.

According to a current financial post in Tokyo: (16) “Most of the financial banks declare yesterday that with the experience of deficit in last year, this year (ended till September) they had turn deficit into net profit. (14) – Kenneth V. Smith, “Inman News”, June 1996 Version, Section B4 email address: [email protected] com (15) – Kenneth V. Smith, “Inman News”, June 1996 Version, Section B4 email address: [email protected] com (16) – Herman Li, “Sing Tao News”, November 23 1996, Toronto, Section B 12 Banks had systematically write off many of the un collectible accounts.

But their revenue is still not very high because of low interest rate and the incremental of bad debts. Therefore financial institution will still probably experience quite a long period of recession. ” Therefore residue effects of the land speculation spill over still continues. Land developers also suffer largely. Before the land market crash was expose to the public, there were nearly 1,200 golf course was either approve or under construction. Many pre-member ships were sold but unfortunately many of the construction are never finish because of banks were pulling back the loan.

At peak, the total value of golf member ships market in Japan was near 200 billion for 1,700 golf courses. Therefore closing down 1,200 golf course construction was quite a lost for the economy. Another aftermath of the bubble burst is the high vacancy rate in the office buildings in Tokyo. During the late 1980*s, the new constructing rate (for the office buildings) was double compare with the tradition. After the bubble burst, the value of asset decreases and demand for space also decreases. Therefore many office buildings are unoccupied.

As you can see, the after math of the bubble burst did not only affect the business enterprise, government but also the grass root people. (17) “In last year the economic growth rate was only around 1% or less and the government had introduce economic revitalization policies such as lowest ever interest rates and increased public investment but judging by the fact that consumer demand has cooled off and capital investment by the corporate sector is not making headway as expected therefore the outlook for economic recovery in Japan remain hazy”.

The bubble bursting has affected everyone in Japan. (18) “The country has clearly become a victim of the same wrenching process of debt deflation that had already been visible for several years in so many other economies. Japan faces the reality of outright deflation in terms of falling prices. With all that implies for companies inability to maintain their profit margins. Japan was facing by the autumn of 1993 an unpleasant combination of excess production capacity, falling demand and a rampantly high yen.

By August 1993 wholesale prices were declining at an annualized rate of 4. 2 percent. ” Once again you can see that many Japanese are not very optimistic about the future economy. (17) Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg. 205 (18) Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg. 206 Therefore you can see that the land speculation had create many negative impacts to the Japan economy not only during the bubble period but also after the bubble burst.

The Japanese Economy

The prewar economy of Japan was a Socialist economy and the country was ruled by an emperor up to WW2 and after WW2 it started to lean towards a mixed market economy until what it is today although its government is Socialist it is leaning towards a mixed market economy. The Japanese economy is a mixed economy that leans towards market, it is like this because almost all business are run by private corporations or people and that is the market in the economy. And the reason that they are thriving and are so competitive is because of the trade tariffs and quotas that the government has in place.

These regulations include heavy taxes on some products and denial on some others for example: the way Japan will only let certain foreign cars in to Japan and even then they are so heavily taxed that the average Japanese person cant pay that much and will have to buy a Japanese made car and at the same time in other countries they are selling their cars for less than anyone else in that country and that is what they do with most of their products and is how they get a trade surplus year after year. Manufacturing is the most important economic activity in Japan it accounts for about 28% of its GDP.

The Japanese people import more than half of the products that they manufacture from other countries in their crudest form and manufacture them into transportation equipment, iron, steel, chemicals, petroleum and coal products and textiles. Most of these products are produced by large corporations with many employees and the happier the employees are the more it will be done. An aspect of a market economy that Japan has is the way the companies treat their workers. The way the Japanese treat their workers is so different form the way we treat our workers here.

The Japanese are so much more respectful owards their employer( the exact opposite from other countries especially those with a centralised economy) and often work for one employer until retirement. Some of the special treatment that the workers receive is housing; some of the companies namely Honda have a special housing unite for their workers and their families and a company cemetery for all the workers and their families. Because of this the employees work habits are much more productive and a larger profit can be turned and they can get a jump on the competition.

In centralised economies very few lucturies are returned to the people nd in market economies most of them are, in Japan there are to kinds of people farmers and city dwellers, the farmers get no lucturies and live in poor conditions while the city dwellers on the other hand get just about all the lucturies like mass transit, hospitals and if you have a job financial security. The government keeps whatever is necessary and whatever the people will buy and will export the rest. In the farmlands there is a strong sense of a command system and in the city there is capitalistic economy.

Farming is one of the larger employers in Japan it employs 9% of the work force but it only accounts or 3% of the GDP. There are few government owned companies the only ones they own are some power plants, railways and some airlines as well as the commuting services and civil services. The government employs about 1 in 10 people in Japan mostly civil services. There are some strict regulations set forth by the government to insure that the countries stores are filled with Japanese goods rather than forgien goods and they include trade restrictions such as tariffs, bands and quotas.

After reviewing all this evidence the Japanese economy is leaning heavily towards a market economy but does have some socialist government views nd laws but the market out weighs the command. BIBLIOGRAPHY Comptons learning company 1988. InComptons encyclopedia (vol. 12 pp. 34-39. ). Chicago: devision of encyclopedia Britannica, inc. John J. Curran(May 18, 1992). Why Japan will emerge stronger. Fortune, pp. 46-60. Ross Laver( nov. 1991). The company man. Macleans. pp. 55-57. Richard Swift(May 1992). Prisoners of prosparity. New Internationalist. p. 4-8.

The Japanese Economy The Japanese Economy Jonathan Allen The prewar economy of Japan was a Socialist economy and the country was ruled by an emperor up to WW2 and after WW2 it started to lean towards a mixed arket economy until what it is today although its government is Socialist it is leaning towards a mixed market economy. The Japanese economy is a mixed economy that leans towards market, it is like this because almost all business are run by private corporations or people and that is the market in the economy.

And the reason that they are thriving and are so competitive is because of the trade tariffs and quotas that the government has in place. These regulations include heavy taxes on some products and denial on some others for example: the way Japan will only let certain oreign cars in to Japan and even then they are so heavily taxed that the average Japanese person cant pay that much and will have to buy a Japanese made car and at the same time in other countries they are selling their cars for less than anyone else in that country and that is what they do with most of their products and is how they get a trade surplus year after year.

Manufacturing is the most important economic activity in Japan it accounts for about 28% of its GDP. The Japanese people import more than half of the products that they manufacture from other countries in their crudest form nd manufacture them into transportation equipment, iron, steel, chemicals, petroleum and coal products and textiles. Most of these products are produced by large corporations with many employees and the happier the employees are the more it will be done. An aspect of a market economy that Japan has is the way the companies treat their workers.

The way the Japanese treat their workers is so different form the way we treat our workers here. The Japanese are so much more respectful towards their employer( the exact opposite from other countries especially those ith a centralised economy) and often work for one employer until retirement. Some of the special treatment that the workers receive is housing; some of the companies namely Honda have a special housing unite for their workers and their families and a company cemetery for all the workers and their families.

Because of this the employees work habits are much more productive and a larger profit can be turned and they can get a jump on the competition. In centralised economies very few lucturies are returned to the people and in market economies most of them are, in Japan there are to kinds of people armers and city dwellers, the farmers get no lucturies and live in poor conditions while the city dwellers on the other hand get just about all the lucturies like mass transit, hospitals and if you have a job financial security.

The government keeps whatever is necessary and whatever the people will buy and will export the rest. In the farmlands there is a strong sense of a command system and in the city there is capitalistic economy. Farming is one of the larger employers in Japan it employs 9% of the work force but it only accounts for 3% of the GDP. There are few government owned companies the only ones they wn are some power plants, railways and some airlines as well as the commuting services and civil services.

The government employs about 1 in 10 people in Japan mostly civil services. There are some strict regulations set forth by the government to insure that the countries stores are filled with Japanese goods rather than forgien goods and they include trade restrictions such as tariffs, bands and quotas. After reviewing all this evidence the Japanese economy is leaning heavily towards a market economy but does have some socialist government views and laws but the market out weighs the command.