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 (time.com: 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

China's Mixed Economy

Background

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.

Russia's Transitioning Economic System

Russia's New Economic System

Russia’s economy has changed drastically since the fall of the Soviet Union. This massive country has switched from a strict command-style economy to one that is transitioning toward introducing more free market elements such as international banking and trade, particularly of oil by large private corporations such as LUKoil. In fact, article from the Center for Strategic and International Studies claimed that “Never in its history has Russia been more prosperous or integrated into the global economy than it is now. Seemingly, this is a positive development and the achievement of one of the core goals of U.S. policy toward Russia since the Soviet collapse.” The complete article can be viewed here.

Recently in economics we have discussed how countries’ economic systems, or how they choose to answer the economic questions of production, are never completely centrally planned or free market. They are always somewhere in-between on the continuum. Furthermore, we have discussed how economic systems can change over time in responses to changes in leadership style or economic necessity. Russia is a perfect example of such an economic transition. Since the fall of the Soviet Union in 1991 Russia has abandoned its pure centrally-planned and isolationist economy in favor of a system that promotes international trade and some private entrepreneurship.Russia has goals set by the Ministry of Economic Trade that would put it at the top in Europe and fifth in the world, by 2020. Russia is still quite far from being completely free market as government oil firms still exist, however Russia’s economy is far more free than it used to be as it has transitioned to a mixed system of free markets and some government intervention.

Ethan Duval, Russia, Period 4

UK Economic System

The UK has a mixed economy that leans towards a free market with some government controlled parts.

The UK has fairly free economy; it is one of the freest countries in Europe. It’s economy was built on the foundation of open trading and an advanced financial sector. It is a powerful trading company. The UK also has efficient businesses and a free labor market. Several of the UK’s most prominent industries have been privatized, such as British Rail, British Airways, and British Petroleum.

"Historically a champion of economic freedom in Europe, the United Kingdom has developed its economy based on a strong rule of law, an open trading environment, and one of the world’s most advanced financial sectors. A relatively liberal labor market by European standards complements one of the world’s most efficient business environments."  (read more here)

However, the UK does have large rates of government spending, so the economy is still mixed between the public and private sector. The government provides many resources free for its citizens, such as healthcare, substantial welfare benefits, and education, among other things. This is funded by high tax rates. The highest individual UK tax rate currently is 45%.

There are also elements of a traditional economy still present in the UK, as they still have a Queen. The Queen brings in money from tourism, however there is still a large cost needed to provide for the Royal Family, so this section of the economy is very small.

UK Group: Ruby, Emily, Kayla