Thursday, October 22, 2015

Mexico's Economic System

Mexico's GDP

"Mexico is quickly becoming an emerging market heavy-weight. Its economic output, as measured by Gross Domestic Product (GDP) was $2.143 trillion in 2014. This was much less than its primary trading partner, the United States ($17.46 trillion) but larger than its other NAFTA partner, Canada ($1.579 trillion). Mexico's geographic size is equivalent to Saudi Arabia, but supports five times as many people while exporting 1/4 of the oil.
Mexico's 2014 GDP growth rate was 2.4%, better than the 1.1% rate in 2013, but slower than the money percentage rate in 2012. Its standard of living, as measured by GDP per capita, was $17,900, less than half that of its other NAFTA partners. (Source: CIA Factbook)" more here

Mexico's Mixed Economy

Mexico is considered to have a mixed economy, infused with a market, traditional and command economy. Mexico's exports and and manufacturers are what determines Mexico's  economic success. It's economy has become increasingly oriented toward manufacturing since entering the North American Free Trade Agreement (NAFTA).Mexico's economy is reliant on its domination on the manufacturing, oil and electronic, industry in Latin America. 

Mexico's foreign trade is a larger percentage of its economy than any other large country. Mexico's largest export is manufactured products. It produces and exports great amounts of oil, about nearly 3 million barrels per day. Pemex, directed by Juan José Suárez Coppel, has a monopoly on the oil and gas industry. It also is one of the largest manufacturing industry, especially to the United States, although it is being greatly effected by China's exports to the U.S. Currently, there has been a higher demand in the auto manufacturing sector, causing improvements in foreign investments. More here

Mexico also has a commanding economy. Although the market has a greater influence on the economy, the government promoted the nationalization of the oil industry and caused a great increase in the GDP.

"Mexico's current government, led by President Enrique PENA NIETO, emphasized economic reforms during its first two years in office, passing and implementing sweeping education, energy, financial, fiscal and telecommunications reform legislation, among others, with the long-term aim to improve competitiveness and economic growth across the Mexican economy. " more here

The traditional aspect of the economy is concentrated on productions in agriculture and in the workforce.Although it only makes up just 3.3 percent of the Mexican GDP, it employs as much as 13% Mexican workforce.  "As many as 52 million people are estimated to live at or below the poverty line in Mexico. This has also led to a cultural phenomenon known as remittances, in which Mexicans are living abroad in nations with higher wages (often the United States) send money back to their families and friends still living in Mexico. This contributed an estimated $22.4 billion to the Mexican economy in 2012. " more here

Mexico group: Viridiana, Jose, Tzu-Huan, Tzu Heng
Mexico’s Economic System

Mexico’s economy is, of course, a mix. A mix of free market, tradition, and command. The government is basically stable and fairly involved in the economy. Despite having a large and complicated industrial base (Mexico is the world’s 4th largest car exporter), the market is still emerging; although there are areas of wealth and modernity, over half of the population is stuck in poverty, with a another quarter in danger of slipping back in. Many poverty-stricken areas remain unconnected because “many of the foundations of the modern Mexican economy were laid a century ago, in the form of roads and railways...That leaves swathes of the country unconnected.”

A majority of Mexico’s society also remain firmly rooted in beliefs of culture and tradition, and resist modernization. Such people think that small business , tied to families, provide stability and are preferable to modernizing. Small firms, usually unregistered, employ most of the labor force and sap the domestic economy because they avoid taxes. The romantic notions of these small business people (who lack skills, contacts, and opportunities) are perpetuated by interest groups who benefit from this arrangement, for example traditional political bosses whose power base resides in peasant communities.
Mexico vastly underutilizes its resources. Not only does it fail to fulfill its economic potential in cities, because of violent, drug related crime, a negative externality of the command components of Mexico's economic system is rampant corruption. Government corruption results in resources not being used to benefit the public good, fulfilling only an individual desire and results in a massive waste of resources.

While, there are exceptions, most Mexican business are struggling to grow in this current economic system. Without public services that make taxes seem worth paying and without a political establishment that serves national interest, the only trustworthy institution people turn to is family. However, despite traditional ideals and government corruption, Mexico's economy is growing and transitioning toward a more free-market style and, as a neighbor to the U.S., has a lot of bearing on our own economy.

Chinese Economic System

The People’s Republic of China is a mixed economy that leans towards being more centrally planned, but has been changing in becoming more of a free market. The government has set legislation in which impedes the free flow of information throughout the country and outside world, most notably censorship on the Internet through what is commonly called the Great Firewall. A lack of information has the potential to influence an economic decision had the appropriate information been present. Another aspect of the Chinese economy that reflects its bias towards being more centrally planned is that a wealth of Chinese companies are owned by the state, rather than privately. These range from the transportation, construction, banking, health, shipping, energy, and agricultural sectors. Compared to other industrial powerhouses, China has only recently allowed for entrepreneurship on more visible scales in the last thirty or so years, officially recognizing the need for the private sector to supplement its state sector in 1987. China’s currency, the renminbi, also called the Chinese Yuan, was largely lifted of regulation on exchange rates in 1994, allowing for it to become valued by the market, albeit with limited control. Three years later, the Chinese government passed the Price Law, allowing for prices to be set by the market, but still with light management. Since the start of the 1980s China set up various special economic zones and development areas. The subsequent regions of China enjoyed greater economic free compared to the rest of the country. These zones include most notably Shenzhen, Shanghai Pudong, Tianjin, and Guangzhou, as well as fifteen others. Over the years, the Chinese government has reformed to allow the opening of markets to investors, lessen trading restrictions, and the increased protection of private property. Recently, China has been strengthening its fiscal policy to further boost its economy. This has been achieved through tax system reforms and government spending on projects such as infrastructure and has been in response to slowing economic growth and related concerns. As the Chinese economy continues to slow, the Communist Party will continue to make efforts to maintain its reputation on the global economic stage. 

"Still, the deceleration has been faster than expected by the Chinese leadership, which at times has fumbled as it tries to restructure the economy to rely more on consumer spending and services. That effort, which economists say is key to nurturing long-term growth, is making headway. But Beijing’s appetite for overhauls appears to be slowing as it moves to shore up the economy near term.

A major challenge is demand, both at home and for exports. Xiang Yili, general manager of Wenzhou Topteam International Trade Co., which exports stationery products, said sales at the closely held company fell 10% in the third quarter year to year and will probably do the same in the fourth quarter. The company, based in China’s Zhejiang province, has bought more automation equipment to cut costs but the outlook remains difficult, she said." - Wall Street Journal

Chinese GPA Growth Rate

Iran's Economic System

      Iran’s modern economy is transitioning into a free market. However, Iran, compared to other countries in its region, is progressing very slowly.

     “Iran’s economic freedom score is 41.8, making its economy the 171st freest in the 2015 Index. Its score has increased by 1.5 points since last year, with improvements in five of the 10 economic freedoms, including labor freedom, the control of government spending, and monetary freedom, outweighing a decline in business freedom. Iran is ranked last out of 15 countries in the Middle East/North Africa region, and its overall score is well below the world and regional averages.”

more here.

     On a scale from the extreme command economy of North Korea to the extreme free market of Singapore, Iran falls under the command category, though it has been shifting towards a more moderate system in recent years.

     Iran is a mixed economy and is thus largely controlled and regulated by the Central Government and traditional aspects of Middle Eastern society. The command aspect of their system grants the state control over all large-scale industries ranging from the mining of natural resources to banking, and results in common government corruption and mismanagement. The governmental sanctions that were enacted in 2010 have shrunken Iran’s economy to between 15 and 20% smaller than before sanctions were established ( 3/27/15) , and have left Iran able to access only one fifth of the money held in international accounts, thus revealing the central governments power to establish economic stability within the country. Iran’s economy also contains elements of Middle Eastern Tradition, such as Bazaars, which are urban marketplaces where international and national trade takes place. Bazaars are a foundational element to Iranian culture, as they have existed since the 16th century, and are identified with the traditional culture of the country. These mass marketplaces allow the economy to thrive through the customary exchange of goods and services, therefore exhibiting the traditional aspects that affect the economy.

An Iranian bazaar:

     With Iran entering into the new nuclear deal, it will become possible for it to enter the international banking system. As it becomes integrated into the world market, it will begin to shift even more into the moderate economic zone that many world powers occupy.

Post by Misha Zaied, Will Lattimore, Meliah Capistrano, and Devon Smith

Nigeria's Mixed Economy

Having the largest population and economy in Africa, Nigeria is considered to be an emerging global power. With the twenty first largest economy in the world, the "Giant of Africa" is also considered an emerging market by the World Bank.

Attaining a stable government less than two decades ago, and is recognized as having one of the most corrupt governments, Nigeria clearly does not sit next to North Korea on the Continuum of Mixed Economies. With a history of coup d'états by the military, the government is now in control, however it is quite weak. According to online article "Nigeria Economic Structure" from Economy Watch,
Nigeria’s economic structure suffers from a lack of infrastructure and poor regulation related to foreign and private investments.
 Nigeria's government is responsible for the lack of infrastructure, which shows the lack of government control. Nigeria's economy relies heavily on oil and natural gas exports, creating eighty-three percent of government revenue. However, there is a lot of corruption within the oil industry (read more about this here). Agriculture accounts for two thirds of employment and is responsible for nearly twenty-seven percent of the country's GDP.

There are over 300 tribes in Nigeria which contribute to the the traditional style economy (read more here). All of the different traditions and languages make it difficult for tribes to communicate and relate to one another.

Nigeria's mixed economy lies closer to a market economy than a command because of the human capital within agriculture and the oil trade industry. Traditional aspects of Nigeria also contribute to the economy, however they are not as prominent.

AP 6 Blog Post #2: Iran
AP Comparative Government, period 1
Karl, Gianna, Johnny
22, October 2015

Economic System of Iran:

Weak rule of law and autarkic trade and investment policies have long undermined the foundations of economic freedom in Iran. Political and religious interference in judicial matters is common. All investment must be approved by the government and is limited to certain sectors. Small-business entrepreneurs struggle to register businesses or acquire capital.”

    The economy of Iran is currently in transition and is considered a mixed economy with a large public sector. A majority of the economy is centrally planned, with the Iranian government directly operating hundreds of state-owned enterprises and many companies affiliated with the nation’s security forces. Price controls and subsidies (particularly on food and energy) burden the economy along with widespread corruption and the smuggling of contraband, both of which undermine the potential for the growth of private sector, which  includes small-scale workshops, farming, and manufacturing. Iran’s economy is characterized by a large hydrocarbon sector, small scale agriculture and services sector, and a noticeable state presence in manufacturing and financial services. Iran is the world’s eighteenth largest by purchasing power parity (PPP) and is ranked 29th by nominal gross domestic product (GDP) primarily because of its immense oil and gas reserves that account for a majority of annual revenue. Oil export revenues allow Iran to amass billions of dollars in revenue each year, therefore its economic activities are greatly dependent on petroleum products. A unique feature of Iran’s economy is the presence of religious foundations called Bonyads; which are charitable trusts in Iran that play a major role in the part of the economy that is not dedicated to petroleum. After the 1979 revolution, Bonyads were nationalized with the intention of redistributing income to the poor. Today, they control an estimated twenty percent of Iran’s gross domestic product and channel revenues to groups supporting the Islamic Republic. Exempt from taxes, they have been criticized for siphoning subsides from the government and providing inadequate charity to the poor. There is substantially less business freedom in the economy of Iran, as all investments are limited to certain sectors and must be approved by the government. As a result, it is difficult for entrepreneurs to acquire capital or even register their businesses. Despite these challenges, small consumer-run marketplaces called bazaars are common in nearly all regions of Iran. An example of the workings of a free market economy, bazaars are known as merchandising areas where goods and services are exchanged or sold. This network of merchants, bankers, craftsmen, and artisans operate with no government influence, and the rise of bazaars and stock trading centers in the Muslim world has successfully allowed the creation of new capitals.
    However, economic sanctions imposed by the United States and the European Union in response to Iran’s nuclear weapons program has likely had the most devastating effect on the country’s economy. For example, petroleum exports,which provide about eighty-five percent of government revenues, declined to about 1.5 million barrels per day in 2012 from about 2.5 million barrels per day the year prior. Additionally, sanctions have reduced Iran's access to products needed for the oil and energy sectors, prompted many oil companies to withdraw from Iran, and caused a decline in oil production due to reduced access to technologies needed to improve their efficiency. The end of these economic sanctions on Iran would give Iran access to frozen assets that Obama administration estimates at roughly $56 billion, which the country could use to boost oil revenue, revive domestic industries, and reduce unemployment. Sanctions force the government to take more control, impeding the transition to the free market.
Although Iran’s economy is currently in transition from one that is centrally planned to one with more aspects of the free market, the evolution has been a slow and convoluted process marked by inefficient state policies, poor management of resources, internal conflicts, and sanctions.
An Iranian Bonyad advertisement.

An Iranian bazaar. Note the various colorful signs advertising their wares, a primary aspect of a free market economy.

A government controlled oil plant. All of the major resource production plants in Iran are directly controlled by the government, and the few private enterprises existing in those fields are under contract with the government.

Continuum of mixed economies shows that Iran is more towards a centrally planned economy.


For more information, visit these sites:

China's Mixed Economy

The People’s Republic of China (PRC) was formed in 1949, when Mao Zedong took power. Under Mao’s government, China’s economic system leaned more towards a command economy than mixed or a free market, with economic development goals set by special planning committees of the government. Factories and farmers operated under state plans. In 1978, Deng Xiaoping came to power. Deng’s “Ten Year Plan” pushed China’s economy to grow industrially and agriculturally, with investments in new technology. Deng also opened up China to foreign investment, which allowed more capital to enter the country.
In 1992, China’s government decided to create a market economy. According to the online article, “Economic System,"

To meet the requirements of the market economy, the operations of state-owned enterprises should be changed so that they fit in with the modern enterprise system. A unified and open market system should be established in the country so as to link the rural and urban markets, and the domestic and international markets, and to promote the optimization of the allocation of resources. The function of managing the economy by the government should be changed so as to establish a complete macro-control system mainly by indirect means.

In 1990, the Shanghai stock exchange re-opened after forty years. China then joined the World Trade Organization in December, 2001.

Imports and Exports
China exports $2.34 trillion worth of goods and imports $1.96 trillion worth of goods per year. Main exports include machinery, apparel, textiles, iron and steel. Main imports include machinery, oil and mineral fuels, and medical equipment.

“Socialist Market Economy”
China’s official description of their economic system is a socialist market economy. This is defined as an economic system in which industry and commerce are run by private enterprise within limits set by the government to ensure equality of opportunity and social and environmental responsibility. China’s government does set limits for the private sector, but the size of the public sector is still very large. The state runs financial institutions (banking), energy, tobacco, transportation, publishing, basic telecommunications, and oil and gas.
Despite the large number of state run enterprises, in 2012, they only accounted for 34% of total fixed investment in China with 48% attributed to private firms. Similarly, in exports, only 11% of exports were manufactured under government control compared to 39% by domestically owned firms. This suggests that privately owned firms are faring just as well as state-run ones, or possibly even better. According to the book, Markets Over Mao, the profit of the private sector in 2012 was 13.9% as opposed to 4.9% in the public sector.
Figure 1
China’s True Mixed Economy
China’s GDP has skyrocketed in the past twenty-four years as seen in Figure 1. More information on this can be found here. This is due to the economic reforms China has implemented, the opening of the stock market, and the development of the private sector. China claims to be a socialist market economy, which in part is true, but the government still controls many aspects of the economy. The private sector of China continues to grow which suggests China is leaning towards a free market economy and less towards a command economy like in the country's past. However, China is clearly mixed as the public and private sectors both play large roles in China’s economy.