Important Insights into United States Economy - Essay Example

Running Head: Economic experiences Compare and contrast the economic experiences of United s in relation to economic experiences of Asia,Latin America, and Africa. Name: Institution: Date: It is true that different continents have had different social, economic, as well as political experiences. Countries within the same continent have also undergone different paths in socio-economic and political growth. America’s economic experiences are radically different from the economic experiences of other continents such as Asia, Latin America, and Africa. Different countries in different continents have used different economic approaches and theories to achieve economic growth. Some of the theories used are similar or relate to one another but the application has always been different. The economic experiences employed by various countries have obvious advantages and limitations, which serves as benchmarks of gauging if the experiences are working or not (Stephens, 2000). The US has had its moments of ups and downs in its economic experiences. Asia, Africa, and Latin America have had their seasons too. Some economic experiences that happened in some of the Asian countries in the 90’s are being repeated in the US and Africa. In the same Vein, some popular and unpopular American economic viewpoints are also replicated in other countries worldwide (Columbus & Wusu, 2006). Important insights into United States economy For beginners, the United States economy is the most important national economy in the whole world today. By the end of 2007, its gross domestic product (GDP) was approximated to be over $13.8 trillion. The European settlements in the 17th and 18th centuries form the basis of the United States economy. America had many colonies which evolved from insignificant majestic economies to a miniature, autonomous farming economy. In 1776, these colonies became what is today known as the United States of America (The U.S. Economy, 2007). From its inception, the United States developed into a gigantic, amalgamated, and industrialized nation which today comprises over a quarter of the total global economy. The huge growth has been necessitated by among other factors, endowment of enormous natural resources including coal, oil, and timber, possession of huge area of highly prolific farming lands, a large united market, a good entrepreneurial spirit, and a obligation of devoting in human and material capital (The U.S. Economy, 2007). The United States economy has its own advantages and limitations when compared to other economic experiences witnessed around the world, especially in Asia, Africa, and Latin America. Following the great depression of the 1930’s, the economy experienced hard-hitting recessions. Periods of high unemployment and slow economic growth rate were recorded in United States economy (Lee, 2002). When government officials realized the dangers posed by the recession, they responded by reducing taxes to enable consumers to spend more. The government also facilitated a swift growth in the money supply thus encouraging more spending. This offered a remedy to the woes facing the economy at that time. The economy continued to grow steadily until 1970’s, when inflation fears were acknowledged mainly due to the economic anguishes brought about by major price increases and the Vietnam conflict. Instead of fighting recession that was threatening to destroy the gains made on the economy, government officials made efforts to control inflation by opposing tax cuts, curtailing growth in the money supply, and limiting spending (The U.S. Economy, 2007). Fiscal policy was widely used by the government to control and stabilize the economy in much of the 1960’s. Government officials, including the president and members of the United States Congress manipulated state revenues to influence the economy. High unemployment, huge state deficits, and acute inflation levels witnessed during this period weakened the public’s confidence in fiscal policy as a mechanism for controlling the general pace of the economy. Such a scenario was witnessed in most Asian economies during the 1990’s (Lee, 2002). Majority of the African economies still faces acute state deficits, huge inflation levels and a weakened money market (Columbus & Wusu, 2006). A case in point is Zimbabwe where inflation levels has leached the 10, 000,000 mark. Since the stagnation of the economy in the 1970’s, the United States economy has continued to grow at slower growth levels that it used to. It has continued to face trade deficits with its partners and its debts are on the rise. For example, its national debt now stands at $9 trillion, mortgage debt at $10 trillion, corporate debt at $9 trillion, unfunded medical liability at $30 trillion, and unfunded social security liability stands at $12 trillion (The U.S. Economy, 2007). The United State’s economy has undergone through various experiences in relation to other economies, specifically from Asia, Latin America, and Africa. Below I attempt to compare and contrast some of the experiences and expound on their advantages and limitations. Globalization and the economy Issues of globalization have made economic performances of countries around the world to be divergent. In Africa for example, economic development has been less commendable owing to the fact that respective economies took quite a long time to embrace the ideas and concepts of globalization. Globalization had its roots in the United States and entails complex political, cultural, economic, and geographic procedures in which the mobility of ideas, capital, discourses, people, and organizations has adopted a global form (Bachus and Foerster, 2005). The United States economy as well as economies of majority of Asian countries has benefited so much through globalization. Various studies that have been commissioned show that American and Asian economies continue to increase their involvement in the world economy – otherwise known as globalization. Major investors and Multi national organizations from the two economies are setting up businesses all over the world and continue to take advantage of cheap labour costs available in other economies, especially in Africa. Such investments has given their economies the much needed boost as revenues realized by these investors and multinationals are often repatriated to their home countries (Aryeetey, Court, Nissanke, & Weder, 2003). The Africa experience is different. Africa participation in the world economy has indeed shrunk over the years. Majority of the African economies failed to take advantage of the many chances that were supplied by mounting economic interactions. Whereas American and Asian economies were becoming globalized and integrated in the 1970’s and 80’s, African economies became more marginalized. This made them to experience sluggish growth and stagnation. Of course the past decade have made African countries realize the need to participate in the globalization process. The gradual embrace of globalization by African countries brought about the economic crises that was witnessed in some of the Asian economies in the 1990’s (Aryeetey et al., 2003). Globalization as an economic experience has had its advantages and disadvantages. Many Americans feel that the benefits of globalization far outweigh the disadvantages. It has increased the connections of the United States economy with other economies around the world. It has helped the American population to have access to cheaper consumer goods, more jobs, and increased trade in manufacturing, agricultural, and service industry (Chen & Charles, 2002). But globalization has made the world’s environment to degenerate, exploited the developing nations, as well as facilitated U.S. jobs to be transferred to other foreign countries. Free market economy The United States economy has been built on economic freedom that has been made possible by the low intensities of instructions from the government. Apart from taxation issues, the government’s involvement in the running of private businesses is minimal. This has given United States companies some room to grow and contribute to the economic gain that the country has attained so far (Aryeetey et al., 2003). Property rights and contracts are tightly guarded by an efficient court system. This has given companies and individuals effective ways of solving their conflicts thus contributing to the process of economic growth. But this cannot be true for the African economic experience. Political interference in the running of the economy has been recorded in almost every country in the continent. This has had grave consequences for the economies of countries involved. Political interference has stagnated African economies for decades and poverty has increased across the continent as a result. Successive politicians and the army have continued to interfere with and manipulate the African economies. This has often resulted in gross economic inefficiency, financial mismanagement, political corruption, nepotism, and favoritism (Columbus & Wusu, 2006). The United States model of political non-interference in economic issues has served the country better and has ensured that stable economic growth is achieved. For Africa, political interference has resulted in a complete destruction of economies that were erstwhile performing. Free market economy is a foreign concept in African economies. In the 1970’s, stringent measures were being employed by the government to monitor the economy and control the various players involved. Governments were up in arms against companies that threatened their existence regardless of whether they contributed to economic wellbeing of their respective countries (Columbus & Wusu, 2006). Those with personal, nepotistic, or factional ties to the politically connected individuals were promoted. This brought about a complete economic meltdown. This perception is gradually changing but it has left a big dent in the economies of African countries. The Asia economic experience regarding political interference and free market economy mirrors the African experience. Infact, political interference and lack of private decision making organs in economic issues was directly linked to the Asian financial crisis that was witnessed in 1997-99 (Stephen, 2000). During that period, there were a lot of political influences, maneuvers, and regulations coming from Asian governments that brought about the economic meltdown of the 90’s in Asia. Many banks were closed down due to the economic slump. For example, 186 banks and 97 non-bank financial institutions were closed down in Indonesia, Malaysia, Thailand, Philippines, and Korea during that period (Paola, Stijn, & Giovanni, 2000). Cronyism and patronage has continued to affect Latin America economies to date. Political interference with the economic activities of member countries has been widespread. Lucrative government contracts are awarded to political allies while state owned ventures are run by relatives of the politically connected through patronage appointments. Credit is allocated to favored firms without proper supervision (Sharma, 2003). This is in stark contrast to the United States economic experience which continued to register growth due to practicing free market economy. Mixed economy In the United Sates, the government together with privately owned enterprises plays vital roles in ensuring that the economy remains stable. Private as well as public sectors have continued to make relative contributions to the economy. Private ownership of property is emphasized in the free American enterprise arrangement. Most good and services are produced by private enterprises. Individuals in the United States rakes in almost two-thirds of the country’s total economic output for personal use (U.S. Department of State, 2008). The role of the consumer is so big in the economy of the United States such that the economy is characteristically regarded as a consumer economy. This is in stark contrast to the economic experiences of Africa, Asia, and Latin America. In Africa for example, governments use up to three-quarters of all the revenues derived from various economic activities to meet their running costs. There is nothing like a consumer economy in Africa as monies generated from the economy are often not enough to run government functions (Columbus & Wusu, 2006). Citizens are overburdened by governments’ expenditures. This has never offered a recipe for African economies to grow. The same can be said of Latin America economies. Labor force and the economy In the United States, the labor force and the population in general have dramatically shifted away from rural areas to urban areas. In the 18th century, the United States economy grew pretty much due to the farming economy. This focus has changed and people are shifting to factories from fields. Service industries have continued to contribute towards the wellbeing of the United States economy. Currently, personal and public service providers far outweigh manufactured and agricultural goods providers. Available research also points out to the fact that, as the United States economy grows more complex, there has been a noted shift from self-employment towards working for other people and organizations (U.S. Department of State, 2008). This is perhaps one of the very few U.S. economic experiences that have been replicated in other continents. African economies started out as farming economies and majority remains so even to date. In Kenya for example, agriculture is the backbone of the economy. Latin America and Asia economies are also substantially supported by Agriculture (Farming). As they progress, these economies are shifting from fields to factories in urban areas (Lee, 2002). Service provision is becoming a focus point in the economies of Africa, Asia, and Latin America. The only departure point is that individuals in these continents are being encouraged to be self employed because of unemployment challenges that continue to face their economies. Poverty and disparities of wealth. This is another economic experience that has been shared across all economies, from America to Asia. Americans believe that their economic system provides prospects for all its citizens to live good lives. But despite the fact that their economy is the strongest in the world, many parts of the United States still reel under the pressure of poverty. More jobs and opportunities that have been brought about by strong economic growth in the United States have so failed to eliminate the problem of poverty (U.S. Department of State, 2008). The same applies to Asia and Latin America. In Africa, poverty levels are so high such that in some instances, governments have been totally unable to feed its own people. In the United States, people living below the poverty level dropped from around 22.4 percent in 1959 to slightly above 11percent in 1978. It has since fluctuated to stand at 12.7 percent in 1998. The American economic system has failed in its totality to apportion rewards with equal measure. According to Economic Policy Institute (EPI), one-fifth of American families accounted for over 47.2 percent of American’s national income in 1997. In stark contrast, the poorest 40 percent accounted for merely 14 percent of the national income, and one-fifth of the poorest earned just over 4.2 percent of income (U.S. Department of State, 2008). Concerns about American inequality have been going on during the 1980’s to the present despite the widely held belief that theirs is a prosperous economy. This has been brought about by increased international competition that continues to threaten workers engaged in numerous traditional manufacturing industries. Their wages has remained dormant. To add salt to the injury, the federal government tax policies no longer favor the low-income earners. It favors wealthy individuals. The government, through its economic reforms has downsized domestic programs that sought to help the disadvantaged. The booming stock market continues to give wealthy families something to fall back to while poor families continue to suffer (U.S. Department of State, 2008). The above scenario is an economic experience replicated all over the world. In Africa, poverty and disparities in wealth is at fever pitch. In South Africa for example, poverty continues to persist despite its high ranking in the African economies. Inequality in wealth distribution is still high and continues to broaden. A research commissioned in the KwaZulu-Natal Income Dynamics Study (KIDS) between 1993 and 2004 shows that, despite the growth in economy, poverty and inequality has been on the increase since mid-1990. This is a reflection of all the other African nations (Aguero, Carter, & May, 2007). Wages for African workers have remained dormant for as long as they can remember. Tax policies practiced by most governments do not take into consideration the plight of the poor in the African and Latin American economies. As such, poverty levels continue to mount while wealth disparities continue to increase. People are being paid very little and at the same time being taxed very heavily to maintain governments’ expenditures. The result is almost disastrous (Columbus & Wusu, 2006). In Asia, poverty and inequality in wealth has been made worse by globalization. Contrary to popular belief that globalization would assist Asian developing countries to raise wages through increasing demand for unskilled labor, multinationals and foreign investors continue to misuse the labor market while condemning them to perpetual poverty (Mazumbdar & Sarkar, 2008). The economies of Latin American countries are also affected by the experience of poverty and disparities in wealth. Infact, the economic meltdown of some of the Latin American countries due to these experiences can only be termed as a scandal. For example, 46 percent of Latin Americans lived in abject poverty in 1990. Today, these people are poorer than they were in the 90’s. Just like in the American situation, rapid economic growth that has been attained by some Latin American countries has been unable to reverse this trend of poverty and inequality in wealth distribution. The rich are getting richer while the poor are increasing by the day. Since 1970’s, poverty levels have almost doubled in Chile and Argentina (O’Donnell, 1996). There are many more economic experiences that have reverberated across continents but cannot be discussed due to lack of space. But in a nutshell, the American economy has being characterized by a supportive political-legal framework, huge areas of extremely productive lands, high entrepreneurial spirit, common obligation to invest in material and human capital, huge natural resources reserves, and a large unified market. References Aguero, J., Carter, M.R., May, J. (2007). “Poverty and inequality in the first decade of South Africa’s democracy: What can be learnt from panel data from KwazuluNatal?” Journal of African economies, vol. 16 no. 5 pp 782-812. Retrieved Sept. 29 2008, from Aryeetey, E., Julius, C., Machiko, N., Beatrice, W. (2003). Asia and Africa in the global economy. New York: United Nations University Press Chen, S. Charles, W. (2001). China, the United States and the global economy. Rand. Retrieved Sept. 29 from, Columbus, F.H., Olufemi, W. (2006). Politics and economics of Africa. Nova publishers. Retrieved Sept. 29 2008, from Lee, K.T. (2002). Globalization and the Asia Pacific economy. 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