The Structure of the Industries within the Economic System - Case Study Example

1. The structure of the industries within the economic system of a country determines a lot how the economy of that particular country behaves. Thereare four basic economic structures which can rule an industry. The four economic structures are oligopoly, monopoly, perfect competition and monopolistic competition. A country with many industries that are either monopolies or oligopolies may have an unemployment problem since in monopoly there is one company ruling the industry and in oligopoly one a few meaning that these industries do no generate a lot of employment. The consumers would also have very few purchasing option which is not good for any economic system. An industry belonging to perfect competition or monopolistic competition there are many players and lots of economic associated with many firms located in region for that particular industry. Prices tend to go down in industry with many players due to the competition. Sometimes in oligopolies there are price wars since the companies react to the action of other players this situation is good for customers, but bad for the industry since profits are diminish in these scenarios. Bad corporate profits weaken an economy and have the effect of lowing total imports and exports as well as the overall supply of currency movement within an economy. 2. The Soviet Union though that industrialization was the root towards development. At the time the world was completely different and manufacturing seems the logical route towards expanding the economy and developing the nation. The United States had successfully utilized the industrialization model during the 20th century to build a strong economy able to sustain its people and bring prosperity to the nation. The government invested wisely in infrastructure, in the former Soviet Union this did not occur and the factories were not able to create the jobs needed. The economist did not diversify enough into other segments such as the service industry, agriculture and high technological products. The Rise of China was another factor that shifted business into Asia. The energy consumption in the Soviet Union to manufacture was higher due to the weather. Governmental mismanagement of funds did not allow the Soviet Union to offer attractive incentives to attract investors into the land. The overall vision of the Soviets was not bad as far as choosing industrialization based on the historical success of the model by other nations. The shift from the information age brought new opportunities which the Soviet Union did not capitalize on. The soviets simple did not adapt world to the world surrounding them and the external factors internationalization. 3. Neo-Malthusian theory relates to the relationship between the economy and the size of the population and economy must sustain. Too large of economy reduces the resources available in a region to sustain the community. In China population controls were established in 1979 to stop a potential Malthusian catastrophe which means that there is not food to go around because the economy and the land cannot support the vast amounts of population. A region which basically is modern day example of a Neo-Malthusian catastrophe is the Sub-Sahara African region. The countries in this region have the least developed economies in the world. There is scarcity of food and a large portion of the population suffers from malnutrition and lives in extreme poverty. The population growth rate is out of control and currently the population is approximate 770 million, a figure that is expected to double in 40 years. The economy simple cannot support the amount of people in the region and chaos and scarcity of resources is the outcome in this area. A country in such an economic low is very difficult to repair and it would decades for this area to recover with good economic plan, but the current population growth projection of an area growth at a 2.3% yearly rate make even harder to implement economic reforms in the area. This region needs serious help from all other nation around the world to provide the resources need to implement radical change in the Sub-Sahara Africa. 4. The way the Chinese economy operates due to the priorities of a communist view which prioritizes the good of the whole over the individual influenced the economic decision of the government that controls the economy to shy way from introducing intermediate technologies into the productive stages of its economic system. The Chinese have a lot of residents to employ, thus in order to achieve a higher level of employment at times companies stay away from sophisticated technologies that will reduce the need of manual labor to automating systems facilitated by intermediate technologies. In a way the government is preventing higher levels of efficiency because the goal of the economic system is maximizing that amount of job that can be created by any singular manufacturing entity with the economy of China. China has stayed away from many higher capital intensive industries and concentrated on light manufacturing and labor intensive operations. They are the number one producer to all types of apparel worldwide, which is an industry with basic principles which in reality does not merit or does it need intermediate technologies to improved efficiency. Even though there are solutions that can improve productivity, the state prefers to invest many of its funds to improve the social condition of laborers in the factories.   5. Commodities are valuable goods such as copper, oil and steel which have good value in the market are sold instantly in the open market which prices and follows the value of the commodity every second during trading hours. Mechanisms such as the London Stock Exchange provide liquidity to the commodities market. A commodity can be trap for countries that concentrate in using commodities are primary generators of economic activity in a system. The former Soviet Union is a perfect example of an economy that emphasis too much in primary commodities and ended up with scarcity of resources to sustain the economy and limited the industries in the system. Petroleum is a commodity that controls the energy creating in the world. It is a factor limiting the emergence of new technologies and fresh niche industry such as solar energy and the introduction of mass utilization of alternative fuel sources such as ethanol. Ironically ethanol comes from a different types of commodity the sugar cane provides much better eco-friendly manufacturing techniques since it involves agriculture which provides humans with energy. Oil is limiting the economy because is creating unnecessary inflation in energy cost and fuel cost which is damaging the budgets of families worldwide. Lower energy consumption leads to greater opportunities and lower costs.   6. The Washington Consensus was created by economist JA in 1989. Its purpose is to create a guideline to be followed by developing countries in order to achieve a self-sustained economy with positive annual growth over an extended period of time. The Washington consensus follows 10 basic recommendations. • Fiscal policy discipline • Redirection of public spending from subsidies towards broad based provisions primary services such as health care, education and infrastructure investments • Tax reform • Competitive exchange rate • Trade liberalization • Market determined interest rates • Liberalization of foreign direct investment • Privatization of state enterprises • Deregulation • Legal security of property rights These factors have had good and bad consequences for certain nation in hyperinflation has followed the Washington consensus implementation. Argentina is one most recent cases of hyperinflation induced by Washington consensus application. In such cases of hyperinflation organizations such as the international monetary fund provide assistance in order to remedy the situation. The international monetary fund is an organization of 185 members established to promote monetary cooperation, exchange stability, orderly exchanged arrangements, foster economic growth and high levels of employment. A case of good economic development following Washington consensus implementation is Malawi. In this state used agriculture as key driver to elevate the economy of the nation. The international bank of reconstruction and development provides assistance to countries trying to get out of poverty and to the route of economic reconstruction of the countries to achieve positive goals.   7. The Doha in November 2001 was the round which made the greatest economic impact in the future economies of developing countries called emerging markets. This round had controversy but despite that progress was made allowed in key economic areas such as property rights, opening agricultural and manufacturing markets as well as service negotiations for developing countries. There are many good economic implications for emerging markets such as been able to participate in an open market where products are protected among participating nations to foster economic growth. Greater manufacturing would create industrialization for the nation which brings production, jobs and income into the economy and the families in the system. More agriculture production and access to trade agreements with players that move the economy and allow greater value of imports and exports to exist along with liquidity in the currency exchange among participation nations. Manufacturing indirectly helps the economy because it forces governmental institutions to improve the infrastructure of the nation in order to attract greater levels of investment associated with these types of activities. Developing nation need industry to bring production in to country and provide much needed jobs to increase income. More food production associated with greater agriculture will bring energy and help relieve malnutrition, improve shelter, provide more medicine and improve the standard of living of people living in developing nations. 8. The assistance programs of developed countries over the last 50 years have not achieved the goal of improving the standards of living of the world population. The problem lies in the incredible inequality among the rich and the poor. Developed nation such as the US and the UK enjoyed a very good standard of living, but other areas such as the African nation people do not have enough to eat and are struggling to survive and stay alive. The root of the problem lies in the fact the world has become very sophisticated and many new problems have risen. The typical aid programs to spur economic developed are no longer sufficient to help place in which the infrastructure is not existent and the levels of education are low. There has not been enough nations during the last 50 years to reach the status of developed nation, thus there is not enough money to go around. Wars and other problems created by ourselves such as global warming have drained resource that could have been for help those places in true need. Other social ills and natural disasters such as the Aids Epidemics have created new battles that affect the global economy. The developed nation now have to put forth a greater effort and better assistance programs to drive many of these economies into the international forum in order for them to become self sustainable economies. Other projects such as the European Union must be formed in other parts of the world such as in Asia and Latin America. 9. The Soviet Union model was a central planned economy spurred by manufacturing of heavy and light industrial products. The system followed a strategic route of being organized around recurring five-year economic plans which always kept the government forward thinking. These types of planning can work in developing nation which can not look too much beyond ten years and beyond and has to concentrate on its internal structure and short to medium term plans to improve the infrastructure and attend immediate needs of the people. Of course it is necessary to plan have plans for 10, 25, and 50 years into the future. The soviets also had other good ideas such as the soviet’s farming initiatives. Farming was run through a series of collective farms that utilized high technology and heavy machine with the capability to exploit a product and produce in masses. In hot tropical climates of many countries such as the South American emerging economies agriculture can be exploited due to the fact that these climates are great for a many types of harvest which can diversify the amount of commodity markets the economy can penetrate. The soviet kept good control of currency value fluctuation by effectively hiding its currency from external factors which may affect its price, the strategy would be hard to implement in the economic system of an economy in the 21st century, but the principle of closely monitoring the value of a currency and utilizing sound economic principles is something that could benefit an emerging economy.   10. The period of time between 1980 and 2000 demonstrated the importance of the Sub-Sahara countries for the overall outcome of the economic growth in the continent of Africa. These two decades market a period of very poor economic performance in these African countries. One of the main problems was the inability of the public official to create an adequate educational system to extend knowledge among the population by improving firms and foremost the illiteracy plagued the nation has suffered through which is not enabling transfer of technology and knowledge to be correctly implement since the workforce lacks a lot education needed for companies to bring new manufacturing and other service industry to open operations in these areas. Others problems were associated in this era was bad governmental actions and lacks of governance among the institution leading the people. The money was not spent correctly and apartheid limited the ability to create the synergy needed to unite the people in order to have an economic system with the capability to grow. A great victory was the elimination of the social tragedy that was apartheid in 1994. This social event represent a variable the will provide access to new partners and inflow of greater foreign direct investments along with greater private investors to help restore the economic system due to the lower sociopolitical risk. 11. In order to determine how well and economy is performing economist utilized different metrics and indicators that provide insight into the behavior of an economic system. One metric does not provide enough information about an economy, thus in order to measure many aspects about the economic development a person must use a variety indicators. Some of best economic indicators are inflation, unemployment rate, value of the currency in the open market, annual income per capita and gross domestic product. The inflation tells us how stable the currency of economy. The Euro is good example of a currency with a low inflation rate (3%). A nation’s unemployment rate is a good indicator because the amount of jobs in a region is is correlated with the amount of cash in the streets. Annual income per capita provides information of the state of the economy and the standard of living in a society. Gross domestic product measures the size of the economy. The larger the number the better is doing. It is also to measure GDP in relation with the size of the population. Gross domestic product must be compared over time to determine if the economy has achieved growth. The foreign currency valuation of a country in the open market is important because this indicator affects foreign trade and the amount of goods that are exported and imported into a nation. The combination of the variables mentioned in this discussion may be utilized to create a composite economic development index. 12. China has achieved great levels of economic growth during past few decades achieving annual growth rates of nearly 10% per year. The country in a macroeconomic perspective has lots of potential, but internally the nation has many institutional problems which defy economic wisdom. One example of the problems and bad decision making of the institution controlled by the government is underdevelopment and bad it’s of China’s agricultural capacity. Many social problems have risen due to the new cities in which many poor Chinese people are living in. Corruption is another bad characteristic of the institutions that is bad for business international relations and to attract foreign direct investments funds. The governance of the institution is weak and must be improved. The country needs to undertake an institutional reform to define the role of the state, improve management of public spending, and make public action more efficient and effective. Management in institution such as accounting concerns is just beginning to follow some kind of formal framework that provides consistency. China is trying to open its doors to investors to enter the land, but the way its institutions are being managed leaves a lot to be desired. The political factor is an important variable for an economic to be strong and competitively internationally. There needs to be better coordination among the nation’s public institutions to raise its levels of efficiency. Read More