The Global Economic Environment Chapter 2 Global Marketing.

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The Global Economic Environment Chapter 2 Global Marketing

Figure 2-1: Economic Systems Market Command Market Capitalism Centrally Planned Capitalism Market Socialism Centrally Planned Socialism Private Resource Ownership State Resource Allocation

Market Capitalism Economic system in which individuals and firms allocate resources: Production resources are privately owned Consumers decide what goods are desired Firms determine what and how much to produce

Centrally Planned Socialism Total opposite of market capitalism (ex: North Korea) State plans and decides what goods and services are produced and in what quantities Consumers can spend on what is available

Centrally Planned Capitalism Economic system in which command resource allocation is used extensively in an environment of private resource ownership

Market Socialism Economic system in which market allocation policies are permitted within an overall environment of state ownership

Which system is the best one? Canada: Government revenues rose from 29 to 43 percent of GDP between 1966 and This rise in revenues was almost entirely accounted for by a massive rise in personal income tax, from 9 to 20 percent of GDP Extensive social security network Spend-and-tax policy resulted in some loss of international competitiveness Source: Fraser Institute

Index of Economic Freedom by the Heritage Foundation, 2003 Ranking of Economic Freedom (out of 161 economies) 1 Hong Kong1.45 (free) 2 Singapore United States Netherlands Canada2.05 (mostly free) 19 Belgium Germany Japan France Hungary Korea Mexico2.80

OECD: Organization for Economic Cooperation and Development 29 nations each with market-allocation economic systems

G-8 (G-7 plus Russia) Leaders from these high income countries work to establish prosperity and ensure monetary stability United States Japan Germany France Britain Canada Italy

The Triad Dominant economic centers of the world Divisions in research or business organizations 1. Japan 2. Western Europe 3. United States Expanded Triad 1. Pacific Region 2. European Union (EU) 3. NAFTA

Balance of Payments (BOP) Recording all economic transactions between the residents of a country and the rest of the world 1. Current account – record of all recurring trade in merchandise and services, private gifts, and public aid between countries trade deficit – negative BOP trade surplus – positive BOP (Canada) 2. Capital account – record of all long-term direct investment, portfolio investment, and capital flows

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