Transcript markets - Foundation for Teaching Economics

“Capitalism” is identified by its
characteristic institutions
Institutions: the formal and informal “rules of the
game” that shape incentives and outline expected
and acceptable forms of behavior in social
interaction.
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Private Property Rights
Rule of law
Open, competitive markets
Entrepreneurship and innovation
ECONOMIC ANALYSIS
clearly present – the component is present in the economy with few
exceptions
generally present – the component is present in the economy, but with
many or significant exceptions
generally absent – the component is only present in the economy in
some limited forms
clearly absent – the component is almost entirely excluded from the
economy
not enough information
Present ?
markets
private property
rule of law
entrepreneurship
Evidence?
United States
•The judiciary functions independently and predictably
although serious constitutional questions have arisen
regarding the government mandated health insurance
decision.
•Corruption and cronyism is on the increase and is
undermining the institutional integrity of the rule of law,
resulting in an 86th percentile ranking in control of corruption
and a corruption perception index of 7.1 (out of 10) by
Transparency International and a decrease of 4 points in the
heritage Foundation score to 71 from a previous 75 in 2010.
•Property rights are guaranteed, although affected by
increasing regulations, ranking the US 19th in the world, with
a score of 85 out of 100 by the Heritage Fndn.
Specific Situation: Apple Patent Victory
Aug. 25, 2012
SAN JOSE, Calif.—Nine jurors delivered a sweeping victory to
Apple Inc. in a high-stakes court battle against Samsung
Electronics Co., awarding the Silicon Valley company $1.05
billion in damages and providing ammunition for more legal
attacks on its mobile-device rivals.
Jurors Friday found that Samsung infringed all but one of the
seven patents at issue in the case—a patent covering the
physical design of the iPad. They found all seven of Apple's
patents valid—despite Samsung's attempts to have them
thrown out. They also decided Apple didn't violate any of
the five patents Samsung asserted in the case.
ECONOMIC ANALYSIS
clearly present – the component is present in the economy with few
exceptions
generally present – the component is present in the economy, but with
many or significant exceptions
generally absent – the component is only present in the economy in
some limited forms
clearly absent – the component is almost entirely excluded from the
economy
not enough information
Present ?
markets
private property
rule of law
entrepreneurship
Evidence?
clearly present
Prices and products
determined in markets
clearly present
Patents upheld
clearly present
Courts act and
decisions are enforced
clearly present
Millions of companies
operate in every sector
2012 Country Scenario Updates
Capitalism is best thought of not as “a system,” but as a
continuum of institutional combinations . . . .
More
Less
capitalist
capitalist
Capitalism is best thought of not as “a system,” but as a
continuum of institutional combinations . . . .
More
Less
capitalist
capitalist
Some institutional forms confer benefits on the poor
. . . and others do NOT.
Heritage:www.heritage.org/index/
Ranking Criteria:
• Size of government
• Legal system & Property rts
• Sound money
• Freedom to trade internationally
• Regulation
Process: Identify quantifiable data that can be used to rank
countries.
Consider how these measures connect to the institutions we
ranked in the “Will the Real Capitalism?” activity:
1. Size of Government
A. Government consumption
B. Transfers and subsidies
C. Government enterprises and investment
D. Top marginal tax rate
(i) Top marginal income tax rate
(ii) Top marginal income and payroll tax rate
markets, entrepreneurship
2. Legal System and Property Rights
A. Judicial independence
B. Impartial courts
C. Protection of property rights
D. Military interference in rule of law and politics
E. Integrity of the legal system
F. Legal enforcement of contracts
G. Regulatory restrictions on the sale of real property
H. Reliability of police
I. Business costs of crime
rule of law, entrepreneurship, property rights
3. Sound Money
A. Money growth
B. Standard deviation of inflation
C. Inflation: most recent year
D. Freedom to own foreign currency bank accounts
entrepreneurship
4. Freedom to Trade Internationally
A. Tariffs
(i) Revenue from trade taxes (% of trade sector)
(ii) Mean tariff rate
(iii) Standard deviation of tariff rates
B. Regulatory trade barriers
(i) Non-tariff trade barriers
(ii) Compliance costs of importing and exporting
C. Black-market exchange rates
D. Controls of the movement of capital and people
(i) Foreign ownership/investment restrictions
(ii) Capital controls
(iii) Freedom of foreigners to visit
markets
5. Regulation
A. Credit market regulations
C. Business regulations
(i) Ownership of banks
(i) Administrative
(ii) Private sector credit
requirements
(iii) Interest rate controls/ negative
(ii) Bureaucracy costs
real interest rates
(iii) Starting a business
B. Labor market regulations
(iv) Extra payments/
(i) Hiring regulations and minimum
bribes/favoritism
wage
(v) Licensing restrictions
(ii) Hiring and firing regulations
(vi) Cost of tax
(iii) Centralized collective
compliance
bargaining
(iv) Hours regulations
(v) Mandated cost of worker
dismissal
Markets, entrepreneurship
(vi) Conscription
10
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Most Free: Hong Kong 8.97
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Venezuela
Russia
Egypt India
Israel Czech Republic
Poland Uganda Malaysia
Indonesia Belize
Finland Canada Chile
Jordan U.S.
Ireland Peru
Hong Kong
Fraser Institute Index of Economic Freedom 2013
(Released Sept. 2013)
2011 data
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Least Free: Venezuela 3.93
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10
9
8
Most Free: Hong Kong 8.9
7
Venezuela
Belize Russia
India
Egypt
Malaysia Indonesia
Poland Uganda
Israel Czech Republic
Canada Finland Chile
Ireland
U.S. Jordan Peru
Hong Kong
Fraser Institute Index of Economic Freedom 2012
(Released Sept. 2012)
2010 data
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Least Free: Venezuela 4.07
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2013 Rankings* (Out of 151)
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Hong Kong 1
Singapore 2
NZ 3
Switzerland 4
UAE 5
Mauritius 6
Finland 7
Bahrain 8 Canada 8
Australia 10
Chile 11
United Kingdom 12
Jordan 13 (42 in 2010, 62
2012)
• U.S. 17 (3 in 2006)
• Israel 49 (44 in 2007, 83 in
2011)
• Poland 59 (88 in 1990, 44 in
2012)
• Uganda 64 (67 in 2010, 51
in 2001, 113/113 in 1990)
• Greece 85
• Kenya 87
• Mexico 94 (69 in 2010)
• Russia 101
• Egypt 108 (from high of 46,
80 in 2010)
• India 111
• China 123 (82 in 2010)
• Iran 127
• Ethiopia 142
• Zimbabwe 149
• Myanmar 151
• Venezuela 152 * 2011 data
2012 Rankings* (Out of 144)
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Hong Kong 1
Singapore 2
NZ 3
Switzerland 4
Australia 5
Canada 6
Bahrain 7
Mauritius 8
Finland 9
Chile 10
United Kingdom 12
Ireland 12
U.S. 18 (down from 3 in 2006)
Japan 20
Poland 48 (88 in 1990)
• Uganda 50 (67 in 2010, 51
in 2001, 113/113 in 1990)
• Jordan 62 (42 in 2010)
• Greece 81
• Mexico 91 (69 in 2010)
• Egypt 99 (from high of 46,
80 in 2010)
• Israel 52 (44 in 2007, 83 in
2011)
• Russia 95
• China 107 (82 in 2010)
• India 111
• Iran 111
• Zimbabwe 142
• Myanmar 143
• Venezuela 144
* 2010 data
Africa Continues to Lag Behind:
1/3 of the world’s “extremely poor”
What does recent
research tell us
about why Africa
continues to lag
behind – and what
we can do about it?
Reduced Poverty Since 2000:
Research on Growth vs. Safety Net ?
1. 75% growth / 25% redistribution (Dollar, Kraay, Kleineberg study)
• context matters: averages hide wide range of variation
safety net (redistribution)
econ growth
demographic comp.
Reduced Poverty Since 2000:
Research on Growth vs. Safety Net ?
1.
75% growth / 25% redistribution (Dollar, Kraay, Kleineberg
study)
• context matters: averages hide wide range of variation
2. economic growth is not generally associated with increased
income inequality:
• the (overall) share of income going to the poorest 2 quintiles
(40%) does not change significantly with growth
• poor governance often increases income inequality for
specific populations in specific locations
3. 4/5 of the improvements in the lives of the poorest 40% of the
population over the past decade are attributable to economic
growth; 1/5 is attributable to redistribution
Talking about “Is Capitalism Good for the Poor?”
• distinguish between “poverty” v. “poor people”
• distinguish between treating symptoms v. underlying causes
Growth GDP per capita
(average annual %),
1991-2011
Income Share of the Poorest 10% and
Economic Freedom
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Income of the Poorest 10% and
Economic Freedom
Income of the Lowest
10%, 2011
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Growth in Developing Nations Per Capita and
Economic Freedom Quartile
Growth GDP per capita
(average annual %), 19912011
%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Institutions Associated with Economic Growth
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Private Property Rights
Rule of law
Open, competitive markets
Entrepreneurship and innovation
Focus of lessons 2-5 in “Is Capitalism
Good for the Poor?”