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Will the Real Capitalism Please Stand Up ?

Mar 19, 2016

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Classroom Activity – Lesson 1: “Defining Terms”. Will the Real Capitalism Please Stand Up ?. “Capitalism” is identified by its characteristic institutions. - PowerPoint PPT Presentation

  • Classroom Activity Lesson 1:Defining Terms

  • 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.Private Property RightsRule of lawOpen, competitive marketsEntrepreneurship and innovation

  • ECONOMIC ANALYSISclearly present the component is present in the economy with few exceptionsgenerally present the component is present in the economy, but with many or significant exceptionsgenerally absent the component is only present in the economy in some limited formsclearly absent the component is almost entirely excluded from the economynot enough information

    Present ?Evidence?marketsprivate propertyrule of lawentrepreneurship

  • 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 VictoryAug. 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 casea patent covering the physical design of the iPad. They found all seven of Apple's patents validdespite 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.

  • clearly presentclearly presentclearly presentclearly presentPrices and products determined in marketsPatents upheldCourts act and decisions are enforcedMillions of companies operate in every sectorECONOMIC ANALYSISclearly present the component is present in the economy with few exceptionsgenerally present the component is present in the economy, but with many or significant exceptionsgenerally absent the component is only present in the economy in some limited formsclearly absent the component is almost entirely excluded from the economynot enough information

    Present ?Evidence?marketsprivate propertyrule of lawentrepreneurship

  • 2012 Country Scenario Updates

  • Capitalism is best thought of not as a system, but as a continuum of institutional combinations . . . . LesscapitalistMorecapitalist

  • Capitalism is best thought of not as a system, but as a continuum of institutional combinations . . . . Some institutional forms confer benefits on the poor . . . and others do NOT.LesscapitalistMorecapitalist

  • Heritage: www.heritage.org/index/

  • freetheworld.com Index of Economic Freedom

  • Ranking Criteria: Size of government Legal system & Property rts Sound money Freedom to trade internationally Regulation

  • 1. Size of GovernmentA. Government consumptionB. Transfers and subsidiesC. Government enterprises and investmentD. Top marginal tax rate(i) Top marginal income tax rate(ii) Top marginal income and payroll tax rateProcess: 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:markets, entrepreneurship

  • 2. Legal System and Property RightsA. Judicial independenceB. Impartial courtsC. Protection of property rightsD. Military interference in rule of law and politicsE. Integrity of the legal systemF. Legal enforcement of contractsG. Regulatory restrictions on the sale of real propertyH. Reliability of policeI. Business costs of crimerule of law, entrepreneurship, property rights

  • 3. Sound MoneyA. Money growthB. Standard deviation of inflationC. Inflation: most recent yearD. Freedom to own foreign currency bank accountsentrepreneurship

  • 4. Freedom to Trade InternationallyA. Tariffs(i) Revenue from trade taxes (% of trade sector)(ii) Mean tariff rate(iii) Standard deviation of tariff ratesB. Regulatory trade barriers(i) Non-tariff trade barriers(ii) Compliance costs of importing and exportingC. Black-market exchange ratesD. Controls of the movement of capital and people(i) Foreign ownership/investment restrictions(ii) Capital controls(iii) Freedom of foreigners to visitmarkets

  • Regulation

    Markets, entrepreneurship

    A. Credit market regulations(i) Ownership of banks(ii) Private sector credit(iii) Interest rate controls/ negative real interest ratesB. Labor market regulations(i) Hiring regulations and minimum wage(ii) Hiring and firing regulations(iii) Centralized collective bargaining(iv) Hours regulations(v) Mandated cost of worker dismissal(vi) ConscriptionC. Business regulations(i) Administrative requirements(ii) Bureaucracy costs(iii) Starting a business(iv) Extra payments/ bribes/favoritism(v) Licensing restrictions(vi) Cost of tax compliance

  • 10 9 8 7 6 5Fraser Institute Index of Economic Freedom 2013(Released Sept. 2013) Most Free: Hong Kong 8.97 Least Free: Venezuela 3.93 2011 data

  • 10 9 8 7 6 5Fraser Institute Index of Economic Freedom 2012(Released Sept. 2012) Most Free: Hong Kong 8.9 Least Free: Venezuela 4.07 2010 data

  • 2013 Rankings* (Out of 151)Hong Kong 1Singapore 2NZ 3Switzerland 4UAE 5Mauritius 6Finland 7Bahrain 8 Canada 8Australia 10Chile 11United Kingdom 12Jordan 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 85Kenya 87Mexico 94 (69 in 2010)Russia 101Egypt 108 (from high of 46, 80 in 2010)India 111China 123 (82 in 2010)Iran 127Ethiopia 142Zimbabwe 149Myanmar 151Venezuela 152

    *2010 Data* 2011 data

  • 2012 Rankings* (Out of 144)Hong Kong 1Singapore 2NZ 3Switzerland 4Australia 5Canada 6Bahrain 7Mauritius 8Finland 9Chile 10United Kingdom 12Ireland 12U.S. 18 (down from 3 in 2006)Japan 20Poland 48 (88 in 1990)

    Uganda 50 (67 in 2010, 51 in 2001, 113/113 in 1990)Jordan 62 (42 in 2010)Greece 81Mexico 91 (69 in 2010)Egypt 99 (from high of 46, 80 in 2010)Israel 52 (44 in 2007, 83 in 2011)Russia 95China 107 (82 in 2010)India 111Iran 111Zimbabwe 142Myanmar 143Venezuela 144

    *2010 Data* 2010 data

  • Africa Continues to Lag Behind: 1/3 of the worlds extremely poorWhat 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 ?75% growth / 25% redistribution (Dollar, Kraay, Kleineberg study) context matters: averages hide wide range of variationsafety net (redistribution)

    econ growth

    demographic comp.

  • Reduced Poverty Since 2000:Research on Growth vs. Safety Net ? 75% growth / 25% redistribution (Dollar, Kraay, Kleineberg study) context matters: averages hide wide range of variationeconomic 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 growthpoor governance often increases income inequality for specific populations in specific locations4/5 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

  • Income Share of the Poorest 10% and Economic Freedom Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.Most Free . Least Free

  • Income of the Poorest 10% and Economic Freedom Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.Most Free . Least Free

  • Growth in Developing Nations Per Capita and Economic Freedom QuartileSources: The Fraser Institute; The World Bank, World Development Indicators, 2013.Most Free . Least Free %

  • Focus of lessons 2-5 in Is Capitalism Good for the Poor?Private Property RightsRule of lawOpen, competitive marketsEntrepreneurship and innovationInstitutions Associated with Economic Growth

    ***

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