Saturday, October 4, 2014
Friday, October 3, 2014
gcse Economic Development - Role of the Private Sector
Economic Development - Role of the Private Sector
Introduction
To what extent can private sector businesses and corporations be a key driver of growth and development in many of the world’s poorer developing countries? Free-market approaches favour giving a larger role to private sector enterprises with liberalization of markets, structural economic reforms to boost incentives for people and businesses and increased transparency and accountability for government given a key focus.
““In Dubai we don’t believe in planning or what you call industrial policy. We believe in the free market.” (CEO of Dubai Chamber of Commerce, 2011)
Growing the Private Sector
The Washington Consensus
The Washington Consensus was a term first coined in 1989 in the wake of the Latin American financial crisis and over the years it has become a highly contentious canvas on which supporters and protestors of western-style globalisation have battled.
According to John Williamson, the economist who came up with the idea of the Washington Consensus it comprised a group of market-friendly policy prescriptions favouring the private sector including:
- Fiscal discipline - keeping control of government budget deficits and national debt
- Reallocating state spending from subsidies towards health care, education & infrastructure.
- Tax reform - widening the base of taxation and encouraging lower tax rates to boost enterprise and work incentives as a means of creating wealth
- Liberalising interest rates - allowing financial markets more freedom in setting interest rates on savings and loans and letting market interest rates allocate capital among competing uses
- Exchange rates – supports a choice of fixed or free floating exchange rates but a preference against "dirty floating" i.e. intervention to manipulate the value of a currency
- Trade liberalisation - a gradual reduction in import tariffs and other forms of protectionism – trade seen as an important engine of growth and development
- Liberalization of inward foreign direct investment - capital investment between countries
- Privatization - transferring state-owned enterprises into the private sector
- Deregulation - lowering entry and exit barriers in markets but not at the expense of necessary regulation of aspects such as working conditions and employment rights
- Property rights - protecting intellectual and other rights to encourage innovation and risk-taking
Criticisms of Private Sector Dominated Growth
The Washington Consensus has come under sustained criticism even though private-sector friendly policies in many countries have contributed to an increase in trade and investment much of which has flowed into lower-income developing countries. However, development driven by the private sector has been criticised on several different grounds – some of suspicions about the private sector include the following:
Supporters of the private sector have a firm belief that the wealth generated from private sector activity and investment can have a huge positive effect on prospects for countries at every stage of development.
This quote taken from the UK government website captures this view:
“The private sector is the engine of economic growth - creating jobs, increasing trade, providing goods and services to the poor and generating tax revenue to fund basic public services such as health and education. As well as stimulating growth, new thinking within the private sector, shaped by the market, can also offer insights in to how to ensure better access to vital services or goods such as medicines or information.”
Case Study: Tullow Oil and African Development
Tullow Oil plc is Africa’s leading independent oil exploration business. It has approximately 100 production and exploration licenses in 22 countries. Tullow Oil is an oil exploration business - their job is to find oil and use the latest technologies and top-level human capital both to find oil, drill the wells and eventually bring oil to the ground.
Basic background on Tullow:
- Operations in over 22 countries, employ 1,400+ people
- Explore, appraise, develop and produce oil and gas
- €1 billion+ operating profit in 2011
- No.27 in the FTSE 100 (the business is listed on the UK stock market), market value of £14 billion
- Capital spending (investment) in 2011 of $1.4 billion
Tullow Oil is playing an important role in the broader economic development of Ghana and especially the investment in the Jubilee Field in a country that had no pre-existing infrastructure or deep-water technology in the oil exploration and extraction business.
The capital intensity of Tullow’s operations is breath-taking. Dropping a well in the Jubilee Field cost $100 million and it took a further $3.5 billion to get the oil flowing to the surface. The oil field was developed in a record 40 months - to put that into context, it usually takes over seven years from oil being discovered to a new field being developed. The first oil extraction took place in December 2010 and Ghana is now a world-class oil producing country with the potential for a transformational effect on their growth and development prospects. Tullow employs over 250 people in Ghana; over 85% are Ghanaian and over 1,500 contracts awarded to Ghanaian contractors.
Crucial to Tullow’s success is in recruiting some of the top geologists in the world - they employ over 200 of them and they are a major recruiter of geo-scientists from top universities. The quality of their human capital is essential and they have worked closely with University College Dublin to develop industry-specific courses and build up an expertise that few other players in the industry can enjoy. Many of Tullow’s African employees come to the UK to study on scholarships and who are frequently top of the class beating their Far East Asian counterparts.
Non-Financial Trans-National Corporations (TNCs) from Developing Countries
| Corporation | Home economy | Industry |
| Hutchison Whampoa Limited | Hong Kong, China | Diversified |
| CITIC Group | China | Diversified |
| Cemex S.A. | Mexico | Non-metalic mineral products |
| Samsung Electronics Co., Ltd. | Korea, Republic of | Electrical & electronic equipment |
| Petronas - Petroliam Nasional Bhd | Malaysia | Petroleum expl./ref./distr. |
| Hyundai Motor Company | Korea, Republic of | Motor vehicles |
| China Ocean Shipping (Group) Company | China | Transport and storage |
| Lukoil | Russian Federation | Petroleum and natural gas |
| Vale S.A | Brazil | Mining & quarrying |
| Petróleos De Venezuela | Venezuela | Petroleum expl./ref./distr. |
| Zain | Kuwait | Telecommunications |
| Jardine Matheson Holdings Ltd | Hong Kong, China | Diversified |
| Singtel Ltd. | Singapore | Telecommunications |
| Formosa Plastics Group | Taiwan Province of China | Chemicals |
| Tata Steel Ltd. | India | Metal and metal products |
| Petroleo Brasileiro S.A. - Petrobras | Brazil | Petroleum expl./ref./distr. |
| Hon Hai Precision Industries | Taiwan Province of China | Electrical & electronic equipment |
| Metalurgica Gerdau S.A. | Brazil | Metal and metal products |
| Abu Dhabi National Energy Company | United Arab Emirates | Utilities (Electricity, gas and water) |
| Oil And Natural Gas Corporation | India | Petroleum expl./ref./distr. |
| MTN Group Limited | South Africa | Telecommunications |
| LG Corp. | Korea, Republic of | Electrical & electronic equipment |
Non-Financial TNCs (World)
| Corporation | Home economy | Industry |
| General Electric | United States | Electrical & electronic equipment |
| Royal Dutch/Shell Group | United Kingdom | Petroleum expl./ref./distr. |
| Vodafone Group Plc | United Kingdom | Telecommunications |
| BP PLC | United Kingdom | Petroleum expl./ref./distr. |
| Toyota Motor Corporation | Japan | Motor vehicles |
| ExxonMobil Corporation | United States | Petroleum expl./ref./distr. |
| Total SA | France | Petroleum expl./ref./distr. |
| E.On | Germany | Utilities (Electricity, gas and water) |
| Electricite De France | France | Utilities (Electricity, gas and water) |
| ArcelorMittal | Luxembourg | Metal and metal products |
| Volkswagen Group | Germany | Motor vehicles |
| GDF Suez | France | Utilities (Electricity, gas and water) |
| Anheuser-Busch Inbev SA | Netherlands | Food, beverages and tobacco |
| Chevron Corporation | United States | Petroleum expl./ref./distr. |
| Siemens AG | Germany | Electrical & electronic equipment |
| Ford Motor Company | United States | Motor vehicles |
| Eni Group | Italy | Petroleum expl./ref./distr. |
| Telefonica SA | Spain | Telecommunications |
| Deutsche Telekom AG | Germany | Telecommunications |
Land Grabs – Private Sector Investment in Land
Land Grabs have become an important and controversial issue in development economics in recent years. Throughout the world, it is estimated that 445 million hectares of land are uncultivated and available for farming, compared with about 1.5 billion hectares already under cultivation. About 201 million hectares are in sub-Saharan Africa.
- The vast majority of land deals are for agricultural projects. Forestry is the next largest sector. Of the agricultural deals, fewer than 30% are for food crops alone. Almost 20% are for non-food crops such as bio-fuels and livestock feed.
Arguments in favour of land purchases
The buying of land by transnational investors / companies is viewed favorably by some economists. They see it as an opportunity to reverse under-investment in developing countries’ agricultural sectors, tocreate new jobs, and to bring improved technology to local farming industries that will boost productivity, raise farm incomes and reduce the extreme poverty.
Criticisms of land grabs
Opponents of “land grabs,” argue that transnational land buyers neglect local rights and do not pay a fair price for the land. They seek to extract short-term profits at the cost of long-term environmental sustainability. They claim that land grabs are closely connected to corruption on a large scale. Another argument is that selling thousands of hectares to large-scale investors hurts small-scale farmers. Mechanized farming reduces employment in labour-intensive farming and can accelerate forced migrationinto urban areas.
A report published by Oxfam in 2011 claimed that much of the farm land bought by western investors in recent years has been left idle or given over to bio-fuel production for motorists in rich nations instead of being used to grow food and reduce malnutrition among the poorest communities
According to development economist Professor Paul Collier there are two main types of land grab:
- Pioneer commercial investment: buying unused land at low prices to see if it is viable for production; risky but high-gain. Increases factor productivity; if successful, draws others – as such, it should be encouraged because there is a net benefit
- Speculative acquisition of large areas of useless land: may not stay useless – it has an option value. The investor hopes that the land will become useful in the long run (e.g. because of climate issues), causing the market value to rise.
Paul Collier believes that the 1st type beneficial to developing countries but the 2nd is not. Some countries are introducing legislation to constrain overseas buyers of land.
From January 2013, Tanzania will start restricting the size of land that single large-scale foreign and local investors can "lease" for agricultural use. The vast majority of Tanzanian small-scale farmers do not have legal protection for their property. Tanzania has an estimated population of 42 million people and 12,000 villages, but only 0.02% of its citizens have traditional land ownership titles.
gcse economics - tools of the trade: taxation - why use it?
gcse economics - tools of the trade: taxation - why use it?
1. To collect money to pay for Government expenditure. In 2002 it will collect approximately £400 billion. This will be spent on health, education, social security, roads etc.
2. To influence buying patterns. High taxes on cigarettes discourage smoking. Taxes on petrol encourage motorist to buy less fuel.
3. To help redistribute income between individuals. It is highly likely that high earners will pay more income tax and VAT, this is because they earn and spend more. If this money is given to the poor and unemployed in the form of benefits it has been redistributed.
4. To manage the economy
(a) Increasing the level of income tax will usually slow down the economy. This is because people pay more tax, have less disposable income and buy fewer goods. This is a policy for slowing down inflation.
(a) Increasing the level of income tax will usually slow down the economy. This is because people pay more tax, have less disposable income and buy fewer goods. This is a policy for slowing down inflation.
Increase income tax
> People pay more tax out their wage
> their disposable income falls
> they are able to buy fewer goods
> less demand in the economy
> helps to control inflation / price rises
> People pay more tax out their wage
> their disposable income falls
> they are able to buy fewer goods
> less demand in the economy
> helps to control inflation / price rises
(b) Decreasing the level of income tax will usually ‘kickstart’ the economy. This is because people pay less tax, have more disposable income and buy more goods. This is a policy for increasing economic growth and reducing unemployment.
Decrease income tax
> People pay less tax out of their wages
> their disposable income increases
> they can buy more goods
> more demand in the economy
> helps economic growth and reduces unemployment
> People pay less tax out of their wages
> their disposable income increases
> they can buy more goods
> more demand in the economy
> helps economic growth and reduces unemployment
ACTION
A About 70% of the price of a pint of alcohol is tax. What are the arguments for and against this?
B Try to explain why a reduction in income tax will kickstart the economy
C How could income tax redistribute income? Should the tax be progressive or regressive?
B Try to explain why a reduction in income tax will kickstart the economy
C How could income tax redistribute income? Should the tax be progressive or regressive?
SMART THINKING
D Would you be more likely to tax a price inelastic or price elastic good?
gcse economics - tools of the trade: taxation
gcse economics - tools of the trade: taxation
Taxation is money paid to the Government by individuals and businesses. This money is usually spent by the Government on essential services such as health or education.
MAIN TYPES OF TAXES
DIRECT TAX
A tax placed directly on an individual or business
- Income tax - taken out of an individuals wage
- Corporation tax - paid by businesses out of their profits
- National Insurance – taken out of an individuals wage
- Corporation tax - paid by businesses out of their profits
- National Insurance – taken out of an individuals wage
INDIRECT TAX
A tax placed on a good or service
- VAT - this is put onto the price of most goods and services, usually 17.5%
- Council tax - paid on the value of an individuals property
- Excise duty - extra tax imposed on certain products e.g. petrol, cigarettes and alcohol
- Council tax - paid on the value of an individuals property
- Excise duty - extra tax imposed on certain products e.g. petrol, cigarettes and alcohol
FAIRNESS OF TAXATION?
PROGRESSIVE TAXATION
A tax where the higher the income of the taxpayer, the larger the percentage of their total income paid in tax.
PROPORTIONAL TAXATION
A tax where the percentage of total income paid in tax remains the same at different income levels
REGRESSIVE TAXATION
A tax where higher income earners pay a lower percentage of their income in tax compared to low income earners
ACTION
A Which taxes have you paid / your parents paid? Are they direct or indirect?
B Why is progressive tax seen to be fair and regressive unfair?
B Why is progressive tax seen to be fair and regressive unfair?
gcse economics - tools of the trade: economic systems
gcse economics - tools of the trade: economic systems
No two economies are organised in the same way, but they all have to solve three basic problems
1. WHAT GOODS AND SERVICES TO PRODUCE
e.g. what cars, leisure goods etc.
e.g. what cars, leisure goods etc.
2. HOW TO PRODUCE THE GOODS
e.g. how much machinery, which city to produce in
e.g. how much machinery, which city to produce in
3. FOR WHOM TO PRODUCE
e.g. who should receive the goods and services
e.g. who should receive the goods and services
SHOULD THESE DECISIONS BE MADE BY PRIVATE FIRMS AND INDIVIDUALS OR BY THE GOVERNMENT?
THREE TYPES OF ECONOMIC SYSTEMS
1. FREE MARKET SYSTEM
These decisions are made largely by private individuals and firms. They decide what to produce, how to produce and for whom to produce. Therefore resources are allocated via the forces of supply and demand.
EXAMPLES
Levi’s and Wranglers have the freedom to make and sell jeans in whatever styles and at whatever prices.
Private firms would provide hospitals for patients. They would also decide how much to charge them.
2 COMMAND OR PLANNED SYSTEM
The decisions are made by the Government. The Government makes plans about what to produce, how to produce and for whom to produce. Therefore, resources are allocated by the Government through a system of planning
EXAMPLES
The Government would tell factories what jeans to produce and what price to sell then for
The Government would provide hospitals for patients. They will probably be free to use
The Government would provide hospitals for patients. They will probably be free to use
3 MIXED ECONOMY
In this case some decisions are made by private individuals and firms, and some by the Government. Therefore some resources are allocated via the forces of supply and demand and others by the state planning system
EXAMPLES
Most leisure and household goods are produced by private firms
Certain essential services are provided free of charge by the Government e.g. hospitals, schools
Certain essential services are provided free of charge by the Government e.g. hospitals, schools
THE UK HAS A MIXED ECONOMY
PRIVATE FIRMS ALLOCATING RESOURCES
|
GOVERNMENT ALLOCATING RESOURCES
|
Clothes e.g. Next, Top Shop
|
Hospitals
|
Some private schools
|
Many state schools
|
Industry e.g. Denby Pottery
|
Police force
|
Transport e.g. Midland Mainline
|
Army and weapons
|
ADVANTAGES OF EACH SYSTEM
FREE MARKET
|
COMMAND
|
There is lots of choice for consumers. Private firms understand people better than the Government
|
Essential services are provided free of charge
|
Firms aim to maximise profits therefore they try to meet customer needs
|
Everybody is guaranteed a job. There should be no unemployment
|
Individuals are allowed to start their own businesses. More enterprise
|
There should be less inequality in society
|
People have incentives. They can aim for higher wages or for a better job
|
Everybody is guaranteed housing
|
Firms are in competition with each other. They have to improve their efficiency and quality
|
Most people have the same government wage – whatever their job is
|
ACTION
a. Imagine that the UK had a totally free market system i.e. all services were left to private firms. What problems might happen?
b. Why may a businessman or woman be happier in a free market system?
c. Why may the poor be happier in a command system?
b. Why may a businessman or woman be happier in a free market system?
c. Why may the poor be happier in a command system?
SMART THINKING
d. Which system is a) more efficient b) more equal / greater equality?
New York Times slammed for 'racist' cartoon about India's Mars mission - News paper comment from INDIA
New York Times slammed for 'racist' cartoon about India's Mars mission
After the worldwide appreciation of India’s successful Mars orbiter mission, The New York Times cocked a snook at the Mangalyaan spacecraft by publishing a cartoon that showed a turban-wearing man with a cow knocking at the door of the “Elite Space Club”.
The cartoon drew immediate criticism for being racist in content.
The common refrain from people on social media was that the western world was unable to find any fault with the Mars Orbiter Mission (MOM), and thus resorted to uncharitable tactics to take down India’s impressive foray into space.
Offensive? The cartoon published by The New York Times has made fun of India’s Mangalyaan mission.
The cartoon showed members of the Elite Space Club reading a newspaper with a headline about India’s Mars mission. They appear unhappy with the Indian man knocking at their door.
While attempting to be funny, the cartoon failed to register the importance of the Mars mission, which is being seen as a major development in India’s space programme.
The cartoon left a sour taste for many, particularly as it was published while Prime Minister Narendra Modi was in the U.S.
The cartoon appeared just days before India’s Mangalyaan sent back stunning photographs of the Red Planet that were shared by NASA.
India and US have signed a pact for sharing research data of the Mars mission, a testament to how the space community is treating Mangalyaan.
Several people on social media felt the caricature depicting an Indian with a turban and a cow had nothing to do with contemporary realities and that it failed to register the fact that no other country has managed to enter Martian orbit in its first attempt.
Read more: http://www.dailymail.co.uk/indiahome/indianews/article-2778703/New-York-Times-slammed-racist-cartoon-India-s-Mars-mission.html#ixzz3F9dUGfXj
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