Econ Final
Yeaman- Why the Middle East is Economically Underdeveloped: Historical Mechanisms of Institutional Stagnation
- -Comparison of Medieval West -Similarities - -- Few social systems, legal pluralism, allowing selected foreigners their own legal jurisdictions -Differences -- - Religious orders and universities were beginning to get organized as a corporation, emergence of merchant-dominated city-states, more diverse inheritance practices -Four Key Contrast of the 19th century --By the nineteenth century, French, Western enterprises established to pursue production or trade were often much larger in size and far more durable than leading enterprises of the Middle East --The waqf system was failing to supply the Middle East public services now being provided by the West on a large scale. -less material security in the Middle East than the West. -Western European industrialists, merchants, and financiers came to play a growing role in its economy. -Stagnation of Islamic Contract Law -small partnerships kept the Middle East free of various organizational challenges that proved essential to economic development in Western Europe. --inheritance practices easier to change in the west in response to changing needs --The West experienced cumulatively revolutionary organizational advances that largely bypassed the Middle East. -Dysfunctional wafq and stagnation of modern rule of law -Rise of Minorities -- immense handicaps they faced due to Islamic law, but were reluctant to break with legal tradition dating back to Islam's earliest period. -THE PERSISTENCE OF MIDDLE EASTERN UNDERDEVELOPMENT -catching up to west both a challenge and opp -Transplanting a legal code or institution is not the same thing as appropriating the entire social system that produced it. -The prevalence of corruption has proved challenging to overcome. -Chronic economic underdevelopment itself has created obstacles to reform. - Islamic institutions have hindered the accumulation of private capital.
ccording to our reading from Sharma's book and our class discussions, what are the current challenges for the Chinese financial system, and what are their causes?
- 1/3 (21 trillion) of global debt increase racked up by China -massive fiscal ad monetary stimulus in 2010s -debt bomb is one of largest threats to global economy -leadership did not grasp what needed to be done --- President warned about unstable economy -invest too large of income share in construction and concrete -Great Recession (2008) -- heavy state spending --took on more debt --orginate in debt filled property booms -apartment prices increasing 20-30% annually -banks stopped seeing if loans could be repayed -leadership turned on credit spoigot in econ downturn -4 basic signs of market bubble --prices rise higher than the underlying rate of economic growth --high levels of borrowing for stock purchases --overtrading by retail investors --exboritant valuations -worse than casinos: Wu Jinglian
strategic investors in a closed-bid tender offer
- When an enterprise is too large to sell in an open auction, a large share of ownership may be sold to one or more strategic investors participating in a closed-bid tender offer. Pros: The state property agency that selects a winning tender offer can take a wide range of criteria into account, including sale price, market structure, quality of managerial personnel, investment resources, intended maintenance of employment, and so on. Cons: On the other hand, the lack of transparency in this process can cause real or imagined graft and corruption with grave political consequences.
Japanese Keiretsu:
- created after allied occupation to restore Japan's economic power -nearly all mid sized and large firms connected -ziabatsus returned in form of Keiretsu (financial firms) -production K: large industrial concern with subs and subcons w/ stable relationships (like Toyota) -- JIT -> Inv cost--> subcons -Distribution K: exclusive org that moves products from manufacterers to customers -- operate like us auto dealership --automotive, cosmetic and electrical inds -joined not for monopoly profits but for family relationship
Walker's presentation on the Surprising dire situation of children's education in rural Africa
--Findings -Substantial desire by parents and household chiefs for improved education in villages -Children attend schools -Teachers were usually in the classrooms -Nearly 100% of heads of households reported they were prepared to pay money in order to improve the education of both boys and girls -On average, they were willing to spend approximately 20% of income on children's education. -Schools with better infrastructure and equipment did not perform stronger -Few adults read and write --Explanation -Poor teaching quality -Teachers are ---Isolated ---Underequipped ---Receive salaries after long delays ---Have little training
. What major historical developments caused some countries in Central Eurasia to have stronger cultural and economic ties to Western Europe than others? Does this background have significance today?
-Adoption of Eastern orthodoxy in 980 contributed to Eastern separation -Mongol conquest devastated central Eurasia, severed western ties and caused Russian capital to move to Moscow. "Third Rome" -Slavophiles vs. Westerners...? -· Close proximity to Germany and rich markets of the West
What demographic challenge is Japan facing, and what are its apparent causes? Is South Korea facing a similar challenge?
-An aging population and declining population in Japan. Caused by women are not getting married or waiting to get married because the women are getting more westernized. Japanese men not getting married because economy isn't performing well. Japan does not accept immigrants. -South Korea not facing this. Working age share of population is rising in S. Korea unlike Japan.
Neoclassical Washington Consensus View
-Asian growth supported by mkt friendly governmental policies -avoids regulation of prices, interest rates and rents -maintain small budget deficits, stable monetary policies and low level of foreign debt -low barriers to external and internal trade Effects: -stable and flexible environments for market development -high rates of domestic savings and foreign investment -East Asian govs are authoritarian but focus on appropriate services -Public protected -Education for the young -Invs in transportation, communication, and other utilities
. During the Soviet industrialization debate of the 1920s, what positions were taken by Bukharin and Trotsky, and what were their arguments? What position did Stalin eventually support?
-Bukharin and right deviation: - continue NEP's market-oriented policies because of quick economic recovery -Russia would remain agricultural country but okay because of comparative adv -maintain alliance between ag and industrial workers to not alienate farmers -investment in ag sector would reap large enough returns to support industrial -Trorsky, Preobrazhensky and "left deviaition" -NEP means return to capitalism -heavy industry needed to support military -industrialization could be accelerated by exploiting private sector and ag since half of all profits of trade and industry (Pre) -revive state trade monopoly that existed under war communism by levying high taxes on peasants and keeping ag low. -peasants would be moved to collective farms where gov could control them -rapid development of industry and military would protect Russia and led to worldwide socialist development -Stalin -initially supported the right -adopted leftists and teleological (goals rather than beginnings) strategy -first five year plan called for rapid growth rates of all sectors but highest for producer goods and lowest for ag -fulfillment even more leftist
Oikawa- Mobile Phones and Economic Development in Africa
-Consequences of Mobile Phones for Economic Development in Africa --Improve of information --Improve efficiency of supply chains --Create new jobs --Facilitate communication and delivery of a variety of services -How Mobile Phones Improve Information and Markets --amounts of information available --Improving coordination among agents --Increasing market efficiency --A reduction in search costs decreases the variance of equilibrium prices -How gains are distributed is ambiguous How Mobile Phones Affect the Efficiency Supply Chains --Promotes coordination among firms --Better communication between firms and suppliers --Streamlined production processes, reduced stock-outs and disruptions of production -Qualitative research from South Africa and Egypt found that mobile phones were associated with: --Increased profits -- time savings --Improved communications for small firms -How Mobile Phones Create New Jobs --mobile-related services (formal sector) -- both urban and rural areas to generate income (informal sector) --Entrepreneurship opportunities -How the Facilitation of Communication Affects the Economy -- reducing risk exposure --Social networks that serve economic purposes --Informal insurance networks --Increased access to credit --Informal benefits of communication -Other potential benefits: --Planting and harvesting decisions --Technology adoption -How Mobile Phones Facilitate Delivery of Services --Apps --Disseminate agricultural price information --Monitor health care --Mobile personal finances --Voting --Crowdsourcing --Literacy promotion -Research and Conclusions --There is potential, but evidence remains limited --Little evidence of translation into macroeconomic gains --Communications technology still cannot replace investments in infrastructure, and education --While evidence may suggest mobile phones improve welfare, their role as a catalyst for economic growth is relatively unexamined --Largest potential impact is in international money transfers --Not very much data, and it is hard to collect
1st Video Key points:
-Different in terms of typical western politically and economically -World's largest economy based on PPP with the world's largest middle -Latest IPSOS survey --90% of Chinese are reasonably satisfied with the track of China --37% for Americans --11% for French -Success due to China Model --Seeking truths from facts, not dogmas ---Soviet Union model or Western did not really work --People's livelihood orientation ---Down to earth and must produce tangible benefits --Mixed economy ---Combined market forces and government ---Socialist market economy --Gradual reform and trial-and-error approach
loans for shares auctions
-Grew out of Yeltsin's admin's desire to raise revenue for budget and reduce red barron's power by selling federal share holdings in aircraft, energy and mineral inds -Since communist parliament would not acknowledge the sales, admin offered them to russian banks as collateral on loans -control over block of shares transferred to highest bank bidder -if failed to repay loans (frequent occurrence) bank sold collateral shares -any surplus divided between the bank and government PROS: -generate large sums of revenue -continue managerial efficiency by depowering red barrons CONS -not simple or transparent -power transferred to little legitimacy group: the directors of large banks
At the "starting line," what were a few of the significant differences in the initial conditions that may have influenced the relative success or failure of different countries in Central Eurasia in their market transitions?
-Historical advantage: countries with a background in Austro-Hungarian empire had the largest incomes, highest education levels and strongest legal/civil traditions -Private sector development was highest in Poland, Yugoslavia, Hungary, Bulgaria. During the socialist era, all these countries maintained private sectors in ag. -dominance of large firms, especially in CZech. When price controls were lifted, these large firms attempted to exploit their monopoly power and change prices -military spending as percentage of GDP was highest in Bulgaria, USSR, and Poland. Other countries with smaller military burdens proceeded with relative tranquility. -low unemployment, except in Yugoslavia -largest budget deficit in USSR, Albania, Poland and Romania -Highest monetary growth and inflation in Poland and Yugoslavia -Signs of repressed inflation in all except Hungary -External debt heavy in Yugoslavia, Hungary, Poland and Bulgaria; light in Romania, USSR and Czech -Currencies were most overvalued- according to black market exchange rate premium- in Soviet Union and Romania, least overvalued in Yugoslavia and Hungary.
Survey the different systems of agricultural organization that have been used in China since 1949. What is the "family responsibility" or "land contract system"? How can we explain the initial success of this system?
-In 1949: small scale farming (avg 40 acres0 -1953-57: soviet style collectives -1958: collectives merged into communes: too large to operate -1961-65: "agriculture first": reduced commune size, incomes linked to performance of production teams and individuals on work point system. -1966-78: experiment of contracting land and quotas to households, gained support from officials -- Household responsibility system: return to family farming -- communes _> small plots --land exchanged for fixed quotas at fixed prices --farmers could sell or consume excess -1984-95: communes abolished --land ownership-> villages --contracts could extend up to 15 years --hhs could contract to other hhs -System as a whole --largely successful --stronger incentives --even dist of labor
In Soviet central planning, what was a material balance table? Suppose that the table for ball bearings shows a deficit. What options are available to clear the deficit, and what problems are associated with these options?
-Material balance table Planned uses of each product need to reasonably coincide reasonably well with planned sources of product Internal consistency established through these tables, similar to a t-account (sources are debits and uses were credits) -Shortages in the soviet system had to be removed by adjusting the planned allocations. Options: -increase the sources, tell supplier to produce more of (steel for ball bearings) This would require more iron ore and equipment, which in turn would require a new entry of the uses side of iron ore/equipment. Suppliers of these could be told to produce more, but could be impossible because of current production capacity. -planners could have reduced the uses of ball bearings but this would have caused shortages for users -since trade was controlled, planners could have imported more bearings. This could have caused a deficit in the balance of payments and required additional exports of another product, creating deficiencies for that product -planned deliveries could be delayed. Could cause delays in production of consumer items leading to unrest.
What was the organizational structure of foreign trade in Soviet-style centrally-planned economies? According to our class discussion, did this system encourage Soviet enterprises to get involved in foreign trade?
-Organizational structure: -Ministry of foreign trade, which operated several foreign trade organizations (FTO), was established. -FTOS handled negotiation and performance of trade transactions. -FTOS profits and losses determined by differences b/t international market prices and controlled domestic prices -Central planning authorities required FTOS to carry out unprofitable transactions -Profitable FTOs subsidizes unprofitable ones -Little incentive to find profitable trading opportunities -Encouragement/motivation -export and import plans were prepared conjunction with other annual and five year plans -impossible to control international prices and demands, which meant impossible to construct reliable international trade plan. -without market price system, had no dependable way to identify and justify the particular products that their country should import or export -soviet system of quantitative output targets so low quality good production which are difficult to compete in world market
Describe Lenin's New Economic Policy. Why was it established? Why was it eventually replaced?
-Revolts after the Bolsheviks had won the civil war made it clear the government could not sustain the entire economy -War communism system was no longer sustainable -New economic policy (NEP) temporary step back towards communism to move forward to full capitalism -progressive ag tax replaced confiscations -private trade legalized -farmers permitted to sell surpluses so incentives restored -gov rationing replaced by private retail trade -small enterprises to entreprenuers and larger enterprises operated as public trusts (expected to return profit) -commanding heights of the industry operated under gov control -restrictions on labor mobility abolished -income equality gave way to market determined wages -pro-labor entitled workers to many benefits -free market led to return of unemployment -famine killed several million people but NEP system supported rapid economic recovery
Braatelien- Colonialism and Economic Development in Africa
-Scramble for Africa Colonization of Africa between 1881-1914 By 1914 90% colonized Abundant raw materials, open market, limited competition France, Britain, Italy, Spain, Portugal, and others -Colony Categories Previously centralized state Botswana, Ethiopia, Ghana, Rwanda White settlement Kenya, South Africa, Zimbabwe Others Somalia, Nigeria, Uganda -Research Methods Over 60 studies cited Various topics including: GDP per-capita Life expectancy Literacy rates Property rights Inequality -Author Conclusions No average effect of colonialism due to heterogeneous effects Colonialism stunted economic development in white settler, previously centralized colonies Difficult to argue that colonization would promote development even in the other category -Validity Conclusions Many assumptions- technological diffusion, missionary work Many statistics used could argue a different point Certain unreliable historic data used
Second Video:
-System of meritocracy --Selection and election --Confucian --Invented civil service examination --Criteria based on poverty eradication, job creation, local economic growth, social development, environmental protection --Leadership > showmanship --Challenges the dichotomy of democracy versus autocracy --Good governance, competent leadership --World's fastest growing economy --Choose leaders of the highest caliber
Hall's Presentation on The Financial Crisis in Japan: Causes and Policy Reactions by the Bank of Japan
-Transition --No Significant Investment in Sub-Prime Mortgages --Outflow of Foreign Capital --Hurts Bank Capital -Response --Bank of Japan did on less Quantitative and Qualitative --Perhaps because of its experience with how difficult it can be to end such practices --Already had a bankruptcy restructuring laws -Lesson Learned "We argue that the Japanese authorities reacted differently to the recent financial crisis than other central banks, not because Japan was hit, less severely by the current crisis, but because Japan had indeed learned from its experiences during the first crisis."
Describe the system of lifetime employment in Japan. Whom has it included? How is it tied to the system of seniority pay? How is it changing? What are the advantages and disadvantages of the system?
-Under the permanent employment system, large corporations form agreements with selected employees to maintain their employment relationship until retirement. Corporations will not dismiss these permanent employees, except under the most extreme circumstances. The employees also agree that they will not leave for a more attractive job. This agreement is practiced mainly with male employees in larger corporations, which is about 25-30 percent of the labor force in Japan. -First, one advantage associated with this practice is the security and loyalty of workers who are covered. This helps to explain the low level of labor unrest and willingness of employees to participate after working hours without pay in quality control circles and other manufacturing improvement programs. Next, it may contribute to adoption of technology because workers have little fear of technological unemployment and employers know their company will benefit from training. -However, it has significant drawbacks. First, from the employer's perspective, employees who are redundant, incompetent, and unmotivated workers must be retained, sometimes in meaningless jobs. For young employees, it is difficult to leave for a more attractive job. Finally, older employees and workers not included in system act as a buffer and experience greater job uncertainty. -For these and other reasons, the conventional wisdom has suggested that the system was in decline, but recent (2015) research by Japanese authors suggests that it has changed very little.
Japanese Zaibatsus
-family owned holding company controlled shares -pyramid arrangement --- holding-> larger firms-> smaller subs -bank:financing -trading: intelligence and marketing -other firms: specialized functions -american trust dissolved holding companies after war
Developmental states
-industrial policies -Strong bureaucracies contribute to growth -industrial targeting -lead markets rather than follow -Japan, S. Korea and Taiwan, -- active industrial policies --picked key inds to develop --import substitution --production and export subsidies -Research shows private inds would've been unwilling to shift from traditional to modern w/o gov encouragement
For countries that are making a transition from planned to market coordination, what are the arguments in favor of a "shock treatment approach and what are the arguments for a more gradual approach?
Arguments for shock therapy: Interdependence of market institutions Preempt political opposition to reform Aggressive programs in Central Eurasia are generally associated with milder transformational recession (but both of these may reflect historical and initial conditions) Arguments for gradualism: -"first things first": legal and social foundation -key sectors first, ag? -careful prep to avoid mistakes -spread pain of adjustment
Restitution pros and cons
Attempt to return property to pre-communist owners Pro: An attempt to reverse the errors of the communist era Cons: Spontaneous program undertaken more quickly. Also contribute social tension, burdened judicial systems, and caused delays in privatization. Other countries chose to avoid by compensating with cash, vouchers, or other financial instruments
According to Sharma, which countries are following the rules and which are not?
Following: Czech Republic Poland? Romania? Not following: Russia: Putin failed to diversify oil-dependent economy and focused on military Turkey
How were investment decisions made in centrally planned economies? How does this compare with the methods used in capitalist countries?
Investment decisions in centrally planned economies: -investment decisions based on political priority (PPs) -PPs based on consumer demand, determined structure of output, which in turn determined the require structure of capital stock. -profitability influenced operation of financial system -profitable enterprises were taxed heavily while unprofitable ones were subsidized to serve official priorities -following general level of investment in an industry were determined by official priorities, economic criteria used to make more specific investment decisions, which were to include full economic cost of production. (wages, raw materials, charge for proposed capital resources) -planners used a percentage change on capital in a manner similar to the interest rate in capitalist economy Comparison to capital economy: Investment resources flow to a particular sector of the economy if the rate of return in that sector, adjusted for risk, is higher than the market rate of interest.
What is the nature of the "overseas Chinese" business network in Southeast Asia? How does it differ from the Japanese regional network?
Japanese: -1994: stock of 76 billion in Asia -1/3 foreign aid went to japs in recipient countries -invested heavily in infrastructure in South east asia -regional industrial policy -> flying geese formation Chinese -"Overseas": People who left China -Before Opening: Trading network -After Opening: Reconnected and invested in area they left -Loose network of expatriates living throughout Europe and Asia -Overseas China represented 10% of SE Asians but 86% of billionaires -Businesses earned 450 billion annually -Family owned and centrally controlled orgs are small to mid sized -1980: china opened and importance grew -Hong Kong and Taiwan: 65% of China Investment-regions of ancestral origin
What is the difference between "managed privatization" and "spontaneous privatization"?
Managed privatization: is initiated, audited and regulated by a STATE PROPERTY AGENCY Spontaneous: is initiated and undertaken by the MANAGERS AND EMPLOYEES OF STATE ENTERPRISE
management-employee takeover
Pros: affected by a state giveaway or a preferential sale. "Inside" privatizations of this kind are supported by some on grounds of social justice—the enterprise becomes the property of the people who "built" it, and they have the potential advantage or disadvantage (depending on your point of view) of strengthening the role of employees in management and control. Cons: like a broader voucher program, they promise little contribution of managerial efficiency, investment resources, or budget revenue. Croatia, Georgia, Poland, Romania, Russia, and Slovenia have relied heavily on management-employee buyouts in the large privatization programs.
Methods used to privatize firms in Central Eurasia
Restitution Equal access voucher privatizations management-employee takeover auction strategic investors in a closed bid tender offers loans for shares auctions
What were some of the important factors that caused the decline and fall of communism in Central Eurasia?
Soviet economic growth slowdown caused in part by the complexity of central planning East-west normalization, changing attitudes of political and intellectual leaders rise/fall of world energy practices, which destabilized the economies of oil importing countries in Eastern Europe, and the sharp reduction of those prices during the 1980s, which destabilized the Soviet export sector Rise of labor movement in poland, encouraged by Polish Pope Soviet involvement in Afghanistan, causing social problems, like drug traffiking Death of Tito, which caused instability in Yugoslavia Western industrial countries were extending their technological lead and that the other new industrial countries of East Asia were pulling ahead of socialist world Gorbachev's leadership which extended new iberties to the news media, public a reorganized parliament, the Soviet republics and to the resistance movements in other socialists countries. Could have triggered the collapse when allowed the legitimacy of the Communist party to be questioned. -Cheronobyl (1986) and Armenian earthquake (1988) which interfered with plans for economic growth Yeltsin's attack on Party privilege Failed coup attempt, dissolution of Soviet Union
Wendy Zhao's Presentation on China's "Great Leap Forward" in Science and Engineering
The great leap forward in science and engineering (1990s-2000s) •The world's largest source of S&E graduates •Second largest spender on research and development Second largest producer of scientific papers Increase of Domestic Higher Education • Expansion of university enrollments • Expansion of national investments • Because... •Policies of the Chinese government to expand higher education •Desire of young Chinese students to invest in additional years of schooling •High returns to education in China's new market economy. Going Out: More International Students and Visiting Researchers •Rapid growth in the number of international students. •Information flows speed up economic development. •The increased supply of doctorate and other scientists and engineers, expansion of higher education, and increase in R&D spending set the stage for a huge increase in the key measurable outputs from scientific research, academic papers and citations to those papers. More International Collaborations •China diverged from the trend in increased internationalization of papers. •Increase the quality of China's scientific papers Conclusion A. The increase in domestic university enrollments and in students studying overseas that turned China into the number one source country for scientists and engineers worldwide. B. The growth of R&D spending, production of scientific papers, and international research collaborations improved the quality of Chinese science. C. The close links that developed between China and the US in education and research constitute a "special relationship" that augurs well for research in both countries and in the world. The emerging China needs the world and the world needs an emerging China."
What was the Soviet system of War Communism? Did the economy perform well during those years?
War Communism Efforts: -Police and party activists extracted surpluses from agricultural workers -church and private land confiscated -goods rationed to workers and families -private trade outlawed -most industrial enterprises were nationalized and administered by commissariats by Vesenkha -military discipline over labor force -"labor armies rebuilt roads and worked in mines Economy performed poorly because: -confiscation of ag products reduced farmers incentives and encouraged them to conceal surpluses -poor management practices and war harmed the economy -lack of centralized information prevented the gov to coordinate the work of nationalized industries -some economists claim starvation could have been even worse if soviets had not adopted requisitioning and rationalization system
Equal access voucher privatizations
boldest program of property transfer Made it possible for a country to privatize hundreds of large enterprises in a short period of time and distribute ownership to a large proportion of national population. Predominant method of large privatization in many countries. Pros: Voucher programs are usually popular with voters, who receive their "fair" share of ownership of the nation's wealth, and they can prevent some of the backroom bargaining and influence peddling that damages the legitimacy of other methods. They can also contribute to the growth of national securities markets and other financial institutions. Cons: these are giant "giveaway programs" that contribute nothing to the managerial efficiency of the affected enCons: terprises, nothing to the nation's stock of investable capital, and nothing to the governmental budget.
auction
the auction may involve the actual sale of the enterprise, or it may set the rental rate for a long-term lease. Depending on political and national security considerations, the auction may or may not include foreign investors. Pros: is the quickest and simplest procedure if the objective of the privatization program is to attract revenue, capital, and managerial talent. Best for small privatization Cons: The method is often impractical for a large privatization because a pool of qualified and independent bidders cannot be assembled. Furthermore, an open auction may be inappropriate if it is unclear that a company should be owned and managed by the highest bidder. What should be done if the highest bidder is a direct competitor, and the sale would create a monopoly?