4. MARKET CAPITALISM
Individuals and firms allocate resources
Production resources are privately owned
Driven by consumers
Government’s role is to promote competition
among firms and ensure consumer protection
Market capitalism is practiced most around the world, most notably in Western
Europe and North America. All market-oriented economies do not function in
an identical manner. The United States is characterized by its competitive
“free-for-all” and decentralized initiative. Japan is sometimes called “Japan,
Inc.” because it has a tightly run, highly regulated economic system that is also
market oriented.
5. CENTRALLY PLANNED SOCIALISM
Opposite of market capitalism
State holds broad powers to serve the public
interest; decides what goods and services are
produced and in what quantities
Consumers can spend on what is available
Government owns entire industries and
controls distribution
Demand typically exceeds supply
Little reliance on product differentiation,
advertising, pricing strategy
Marxism is a vanquished economic system. For decades China, the Former
Soviet Union, and India used this economic system. All of these countries now
have economic reforms that have some degree of market allocation and private
ownership.
6. CENTRALLY PLANNED
CAPITALISM
Economic system in which command resource
allocation is used extensively in an environment
of private resource ownership
Examples
Sweden
Japan
In Sweden, where two-thirds of all expenditures are controlled by the
government, resource allocation is more “command” oriented than “market”
oriented. Sweden’s “welfare state” has a hybrid system that has elements of
both centrally planned socialism and capitalism.
China’s Guangdong Province operates within a market system. China’s private
sector accounts for 75 percent of total national output.
Cuba is one of the last countries to use command allocation approach.
7. ECONOMIC FREEDOM
Rankings of economic freedom among countries
free, mostly free, mostly unfree, repressed
Variables considered include such things as:
Trade policy
Taxation policy
Capital flows and foreign investment
Banking policy
Wage and price controls
Property rights
Black market
8. ECONOMIC FREEDOM
Free
1. Hong Kong
2. Singapore
3. Ireland
4. Luxembourg
5. Iceland/U.K.
7. Estonia
8. Denmark
9. Australia/New
Zealand/United States
Repressed
150. Cuba
151. Belarus
152. Libya/Venezuela
153. Zimbabwe
154. Burma
155. Iran
156. North Korea
9. STAGES OF MARKET
DEVELOPMENT
The World Bank has defined four categories
of development using Gross National Income
(GNI) as a base
BEMs, identified 10 years ago, were countries
in Central Europe, Latin America, and Asia
that were to have rapid economic growth
Today, the focus is on BRIC, Brazil, Russia,
India, and China
10. LOW-INCOME COUNTRIES
GNP per capita of $1,035 or less
Characteristics
Limited industrialization
High percentage of population involved in farming
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability and unrest
Concentrated in Sub-Saharan Africa
India is the only BRIC country
11. LOWER-MIDDLE-INCOME
COUNTRIES
GNI per capita: $1,035 to $6,531
Characteristics
Rapidly expanding consumer markets
Cheap labor
Mature, standardized, labor-intensive industries like
textiles and toys
BRIC nations are China and Brazil
12. UPPER-MIDDLE-INCOME
COUNTRIES
GNP per capita: $6532 to $12,616
Characteristics
Rapidly industrializing, less agricultural employment
Increasing urbanization
Rising wages
High literacy rates and advanced education
Lower wage costs than advanced countries
Also called newly industrializing economies (NIEs)
Examples: Malaysia, Chile, Venezuela, Hungary,
Ecuador
13. MARKETING OPPORTUNITIES IN
LDCS
Characterized by a shortage of goods and
services
Long-term opportunities must be nurtured in
these countries
Look beyond per capita GNP
Consider the LDCs collectively rather than
individually
Consider first mover advantage
Set realistic deadlines
14. MISTAKEN ASSUMPTIONS ABOUT
LDCS
1. The poor have no money.
2. The poor will not “waste” money on non-essential
goods.
3. Entering developing markets is fruitless
because goods there are too cheap to make
a profit.
4. People in BOP (bottom of the pyramid)
countries cannot use technology.
5. Global companies doing business in BOP
countries will be seen as exploiting the poor.
15. HIGH-INCOME COUNTRIES
GNI per capita: $12,616 or more
Also know as advanced, developed, industrialized,
or postindustrial countries
Characteristics
Sustained economic growth through disciplined
innovation
Service sector is more than 50% of GNI
16. HIGH-INCOME COUNTRIES
Characteristics, continued
Importance of information processing and exchange
Ascendancy of knowledge over capital, intellectual
over machine technology, scientists and
professionals over engineers and semiskilled
workers
Future oriented
Importance of interpersonal relationships
17. OHMAE’S “INVISIBLE
CONTINENT”
• The global economy is now either capitalist or
highly dependent on capitalist economic
processes.
• It is a new brand of capitalism in which
productivity and competitiveness are a function
of knowledge generation and information
processing.
• Firms and territories are organised in networks
of production, management and distribution
where their core economic activities are global
and where they have the capacity to work as a
unit in real time, or chosen time, on a planetary
scale .
• Firms operate in ultra-dynamic world of
uncertainty, often in economic cyberspace – the
‘new continent’.
18. THE FOUR DIMENSIONS
The ‘real’ economy; economic actors work, consume,
invest within recognised boundaries. Aware of forces
shaping their lives which they can, to some extent,
influence.
The ‘borderless’ world; business and finance develop
invisible inter-connections that transcend traditional
boundaries. Decisions are more remote and less well
understood by economic actors.
‘economic cyberspace’; a new ‘continent’ where global
transactions are conducted at tremendous speed and
scale. Those affected often play no part in the process and
may not even have realised what was happening.
The world of ‘high multiples’; the explosion of high risk/high
yield investments, generating multiples (share
19. THE RESULT
Runaway capital, the growth of huge corporations
more powerful than many governments; rampant
speculation; employment insecurity and growing
inequalities all point to a turbulent global economic
system.
The failure of markets to attain natural equilibrium in
the modern global business environment is therefore
scarcely surprising, given the complexities and
unexplored dimensions of the new 'invisible continent'
and its unpredictability.
20. WHY DOES IT MATTER?
Policy-makers in business and government are
unprepared for the catastrophes of the invisible
continent; for example, millions of dollars might
gush in or out of a local economy in nano-seconds,
with the impact of a typhoon or hurricane on the
population.
(Ohmae, 1999, The Invisible Continent)
21. UNSTABLE WORLD?
Massive, volatile flows of capital
The monetary sector of the economy
(exchange rates & interest rates) adjusts
much faster than the real sector (employment
and output).
Exchange rates often “over-shoot”, creating
problems for real sector
Governments no longer able to stabilise
economy on their own & co-ordination can be
problematic.
Desperate need for economic choreography –
but how?
