Economic systems From Wikipedia, the free encyclopedia
Gift economy In anthropology and the social sciences, a gift economy (or gift culture) is a mode of exchange where valuable goods and services are regularly given without any explicit agreement for immediate or future rewards (i.e. no formal quid pro quo exists).[1] Ideally, voluntary and recurring gift exchange circulates gifts throughout a community, and serves to build societal ties and obligations.[2] In contrast to a barter economy or a market economy, social norms and custom governs gift exchange, rather than an explicit exchange of goods or services for money or some other commodity.[3] Traditional societies dominated by gift exchange were small in scale and geographically remote from each other. As states formed to regulate trade and commerce within their boundaries, market exchange came to dominate. Nonetheless, the practice of gift exchange continues to play an important role in modern society.[4] One prominent example is science, which has been described as a gift economy.[5] The expansion of the Internet has witnessed a resurgence of the gift economy, especially in the technology sector. Engineers, scientists and software developers create open-source software projects. The Linux kernel and the GNU operating system are prototypical examples for the gift economy's prominence in the technology sector and its active role in instating the use of permissive free software and copyleft licenses, which allow free reuse of software and knowledge. Other examples include: filesharing, the commons, open access. HistoryContrary to popular conception, there is no evidence that societies relied primarily on barter before using money for trade.[6] Instead, non-monetary societies operated largely along the principles of gift economics, and in more complex economies, on debt.[7][8] When barter did in fact occur, it was usually between either complete strangers or would-be enemies.[9] Lewis Hyde locates the origin of gift economies in the sharing of food, citing as an example the Trobriand Islander protocol of referring to a gift in the Kula exchange ring as "some food we could not eat," even though the gift is not food, but an ornament purposely made for passing as a gift.[10] The potlatch also originated as a 'big feed'.[11] Hyde argues that this led to a notion in many societies of the gift as something that must "perish".[citation needed] The anthropologist Marshall Sahlins writes that Stone Age gift economies were, as evidenced by their nature as gift economies, economies of abundance, not scarcity, despite modern readers' typical assumption of abject poverty.[12] Gift economies were replaced by market economies based on commodity money, as the emergence of city states made money a necessity.[13]
Characteristics A gift economy normally requires the gift exchange to be more than simply a back-and-forth between two individuals. For example, a Kashmiri tale tells of two Brahmin women who tried to fulfill their obligations for alms-giving simply by giving alms back and forth to one another. On their deaths they were transformed into two poisoned wells from which no one could drink, reflecting the barrenness of this weak simulacrum of giving.[14] This notion of expanding the circle can also be seen in societies where hunters give animals to priests, who sacrifice a portion to a deity (who, in turn, is expected to provide an abundant hunt). The hunters do not directly sacrifice to the deity themselves.[14] Many societies have strong prohibitions against turning gifts into trade or capital goods. Anthropologist Wendy James writes that among the Uduk people of northeast Africa there is a strong custom that any gift that crosses subclan boundaries must be consumed rather than invested.[15] For example, an animal given as a gift must be eaten, not bred. However, as in the example of the Trobriand armbands and necklaces, this "perishing" may not consist of consumption as such, but of the gift moving on. In other societies, it is a matter of giving some other gift, either directly in return or to another party. To keep the gift and not give another in exchange is reprehensible. "In folk tales," Hyde remarks, "the person who tries to hold onto a gift usually dies."[16] Carol Stack's All Our Kin describes both the positive and negative sides of a network of obligation and gratitude effectively constituting a gift economy. Her narrative of The Flats, a poor Chicago neighborhood, tells in passing the story of two sisters who each came into a small inheritance. One sister hoarded the inheritance and prospered materially for some time, but was alienated from the community. Her marriage ultimately broke up, and she integrated herself back into the community largely by giving gifts. The other sister fulfilled the community's expectations, but within six weeks had nothing material to show for the inheritance but a coat and a pair of shoes.[17] Examples Pacific islanders Pacific Island societies prior to the nineteenth century were dominated by gift exchange.[citation needed] Gift-exchange still endures in parts of the Pacific today; for example, in some outer islands of the Cook Islands.[18] In Tokelau, despite the gradual appearance of a market economy, a form of gift economy remains through the practice of inati, the strictly egalitarian sharing of all food resources in each atoll.[19] On Anuta as well, a gift economy called "Aropa" still exists.[20] There are also a significant number of diasporic Pacific Islander communities in New Zealand, Australia, and the United States that still practice a form of gift economy. Although they have become participants in those countries' market economies, some seek to retain practices linked to an adapted form of gift economy, such as reciprocal gifts of money, or remittances back to their home community. The notion of reciprocal gifts is seen as essential to the fa'aSamoa ("Samoan way of life"), the anga fakatonga ("Tongan way of life"), and the culture of other diasporic Pacific communities.[21]
Papua New Guinea The Kula ring still exists to this day, as do other exchange systems in the region, such as Moka exchange in the Mt. Hagen area, on Papua New Guinea.[citation needed]
Native Americans Native Americans who lived in the Pacific Northwest (primarily the Kwakiutl), practiced the potlatch ritual, where leaders give away large amounts of goods to their followers, strengthening group relations. By sacrificing accumulated wealth, a leader gained a position of honor.[citation needed]
Mexico In the Sierra Tarahumara of North Western Mexico, a custom exists called k贸rima. This custom says that it is one's duty to share his wealth with anyone.[22]
Spain In place of a market, anarcho-communists, such as those who inhabited some Spanish villages in the 1930s, support a currency-less gift economy where goods and services are produced by workers and distributed in community stores where everyone (including the workers who produced them) is essentially entitled to consume whatever they want or need as payment for their production of goods and services.[23]
Information gift economies Information is particularly suited to gift economies, as information is a nonrival good and can be gifted at practically no cost.[24][25] In fact, there is often an advantage to using the same software or data formats as others, so even from a selfish perspectve, it can be advantageous to give away ones information. Science Non-commercial scientific research is often considered to be a gift economy. Scientists who perform research and publish their findings in journals and talk about their work in conferences without remuneration. Though authors do not enjoy profits from publishing, subscribing to the journals themselves can be expensive and thus publishers limit access to these intended communal gifts of information. The open access movement makes research available online for far lower costs than traditional publishing. By avoiding prohibitively large subscription fees, this increases the circulation of knowledge and further draws it away from market exchange. Other scientists freely refer to other's research. Persons and institutions with access to these articles can therefore benefit from the increased pool of knowledge. The original scientists receive no direct benefit from making available their research, except an increase in their reputation. Failure to cite and give credit to original authors (thus depriving them of prestige due) is considered improper behavior.[26] Filesharing Markus Giesler in his ethnography Consumer Gift System, described music downloading as a system of social solidarity based on gift transactions.[27] As Internet access spread, file sharing became extremely popular among users who could contribute and receive files on line. This form of gift economy was a model for online services such as Napster, which focused on music sharing and was later sued for copyright infringement. Nonetheless, online file sharing persists in various forms such as Bit Torrent and Direct download link. A number of communications and intellectual property experts such as Henry Jenkins and Lawrence Lessig have described file-sharing as a form of gift exchange which provides numerous benefits to artists and consumers alike. They have argued that file sharing
fosters community among distributors and allows for a more equitable distribution of media. Open-source software In his essay "Homesteading the Noosphere", noted computer programmer Eric S. Raymond said that free and open source software developers have created "a 'gift culture' in which participants compete for prestige by giving time, energy, and creativity away".[28] Prestige gained as a result of contributions to source code fosters a social network for the developer; the open-source community will recognize the developer's accomplishments and intelligence. Consequently, the developer may find more opportunities to work with other developers. However, prestige is not the only motivator for the giving of lines of code. An anthropological study of the Fedora community, as part of a master's study at the University of North Texas in 2010-11, found that common reasons given by contributors were "learning for the joy of learning and collaborating with interesting and smart people". Motivation for personal gain, such as career benefits, was more rarely reported. Many of those surveyed said things like, "Mainly I contribute just to make it work for me", and "programmers develop software to 'scratch an itch'".[29] The International Institute of Infonomics at the University of Maastricht, in the Netherlands, reported in 2002 that in addition to the above, large corporations, and they specifically mentioned IBM, also spend large annual sums employing developers specifically for them to contribute to open source projects. The firms' and the employees' motivations in such cases are less clear.[30] Members of the Linux community often speak of their community as a gift economy.[31] The IT research firm IDC valued the Linux kernel at $18 billion USD in 2007 and projected its value at $40 billion USD in 2010.[32] The Debian distribution of the GNU/Linux operating system offers over 37,000 free open-source software packages via their AMD64 repositories alone.[33] Wikipedia Millions of articles are available on Wikipedia, a free online encyclopedia, and almost none of its many authors and editors receive any direct material reward.[34][35]
Other examples Burning Man Burning Man is a week-long annual art and community event held in the Black Rock Desert in northern Nevada, in the United States. The event is described as an experiment in community, radical selfexpression, and radical self-reliance. The event outlaws commerce (except for ice, coffee, and tickets to the event itself)[36] and encourages gifting.[37] Gifting is one of the 10 guiding principles,[38] as participants to Burning Man (both the desert festival and the year-round global community) are encouraged to rely on a gift economy. The practice of gifting at Burning Man is also documented by the 2002 documentary film "Gifting It: A Burning Embrace of Gift Economy",[39] as well as by Making Contact's radio show "How We Survive: The Currency of Giving [encore]".[37] Blood donation Voluntary blood donation is also a form of gift economy. During the 19th century, Dr. James Blundell discovered that blood could be medically transfused between people which led to the development of blood donation and transfusion practices. Although there are strict regulations concerning who can and cannot participate in the giving of blood, those who can donate blood do so on a voluntary basis in which no rewards are expected in return. The donor provides a "gift of life" to those in need, without
knowing who those people are. In his classic study of the topic, social policy research Richard Titmuss showed that voluntary donation resulted in a better blood supply than paid donation, and this led to new rules in the U.S. regulating blood banks.[40] Blood donation creates social bond between the donor and "strangers," contributing to social cohesion and civic belonging.
Religious gift giving Main articles: Sacrifice and Ritual Buddhism Main article: Alms In Southeast Asia, Theravada Buddhists continue to sponsor "Feasts of Merit" that are very similar to potlatch. Such feasts usually involve many sponsors and occur mainly before and after the rainy season.[41] Hinduism Main articles: bhiksha and karmkand Bhiksha is a devotional offering, usually food, presented at a temple or to a swami or a religious Brahmin who in turn provides a religious service (karmkand) or instruction. Islam Main article: Zakat Zakﾄ》, one of the Five Pillars of Islam, is the giving of a small portion (commonly referred to as 1/40 or 2.5 percent) of one's wealth to charity, generally to the poor and needy.[42] The number 40 in Middle Eastern culture represent an estimate, or many of something. Judaism Main article: Tzedakah According to the Hebrew Bible, tzedakah is a religious obligation that must be performed regardless of financial standing. It is considered as one of the three main acts that can annul a less than favorable heavenly decree.
Social theories Mauss French sociologist Marcel Mauss argues that a gift, a perfect example of 'total' social phenomenon, is essentially never "free". They not only entail the obligation to reciprocate presents received, but also "supposes two other obligations just as important: the obligation, on the one hand, to give presents, and on the other hand, to receive them".[43] According to Mauss, while it is easy to romanticize a gift economy, humans do not always wish to be enmeshed in a web of obligation. Mauss wrote, "The gift not yet repaid debases the man who accepts it,"[44] a lesson
certainly not lost on the young person seeking independence who decides not to accept more money or gifts from his or her parents.[45] And as Hyde writes, "There are times when we want to be aliens and strangers."[46] We like to be able to go to the corner store, buy a can of soup, and not have to let the store clerk into our affairs or vice versa. We like to travel on an airplane without worrying about whether we would personally get along with the pilot. A gift creates a "feeling bond." Commodity exchange does not.[47] The French writer Georges Bataille in his book La part Maudite uses Mauss's argument in order to construct a theory of economy: to his point of view the structure of gift forms the presupposition for all possible economy. Particularly interested about the potlatch as described by Mauss, Bataille claims that its antagonistic character obliges the receiver of the gift to confirm a subjection; the structure of the gift can refer thus immediately to a practice that bears out different roles for the parts that undertake an action in it, installing in this act of donating the Hegelian dipole of master and slave.
Hyde For Lewis Hyde, the gift is an object that must continuously circulate throughout a society in order to keep its gift qualities. In this way the gift perishes for the person who gives it away, even though the gift itself is able to live on precisely because it has been passed on. He calls this the "paradox of the gift": even though it is used up, it is not extinguished. This gift exchange is responsible for establishing connections and emotional ties between people which in turn serve as a basis for community and social cohesion. Hyde pays particular attention to the gift associated with the creative process and art as a whole. The artistic gift is not acquired or purchased; it is bestowed, even somewhat mysteriously, upon the artist. He distinguishes between two types of artistic gifts: the inner gift and the outer gift. The inner gift of the artist is the inspiration and the actual creation of the work, while the outer gift refers to the finished work that is given to an audience. Hyde also argues that there is a difference between a "true" gift given out of gratitude and a "false" gift given only out of obligation. In Hyde's view, the "true" gift binds us in a way beyond any commodity transaction, but "we cannot really become bound to those who give us false gifts."[48] Hyde also addresses the issue of the gift of art within a market dominated society. He argues that when a primarily gift-based economy is turned into a commodity-based economy, "the social fabric of the group is invariably destroyed."[16] Much as there are prohibitions against turning gifts into capital, there are prohibitions against treating gift exchange as barter. Among the Trobrianders, for example,
treating Kula as barter is considered a disgrace.[49] Hyde writes that commercial goods can generally become gifts, but when gifts become commodities, the gift "...either stops being a gift or else abolishes the boundary... Contracts of the heart lie outside the law and the circle of gifts is narrowed, therefore, whenever such contracts are narrowed to legal relationships."[50] He concludes, however, that a market economy and a gift economy are not wholly irreconcilable if rationalization is introduced into the sphere of the gift and if spirituality and emotion are brought into the sphere of the market.
Kropotkin Many anarchists, particularly anarcho-primitivists and anarcho-communists, believe that variations on a gift economy may be the key to breaking the cycle of poverty. Therefore they often desire to refashion all of society into a gift economy. Anarcho-communists advocate a gift economy as an ideal, with neither money, nor markets, nor central planning. This view traces back at least to Peter Kropotkin, who saw in the hunter-gatherer tribes he had visited the paradigm of "mutual aid".[51] Kropotkin argues that mutual benefit is a stronger incentive than mutual strife and is eventually more effective collectively in the long run to drive individuals to produce. The reason given is that a gift economy stresses the concept of increasing the other's abilities and means of production, which would then (theoretically) increase the ability of the community to reciprocate to the giving individual. Other solutions to prevent inefficiency in a pure gift economy due to wastage of resources that were not allocated to the most pressing need or want stresses the use of several methods involving collective shunning where collective groups keep track of other individuals' productivity, rather than leaving each individual having to keep track of the rest of society by him or herself.[citation needed]
Bell The economist Duran Bell postulates that exchanges in a gift economy are different from pure commodity exchange in that they are mainly used to build social relationships. Gifts between individuals or between groups help build a relationship, allowing the people to work together. The generosity of a gift improves a person's prestige and social standing. Differences in social rank are not defined by differences in access to goods, but rather by "his ability to give to others, the desire to accumulate being seen as an indication of weakness."[52] Various other recent social theories concerning gift economies exist. Some consider gifts to be a form of reciprocal altruism. Another interpretation is that social status is awarded in return for the gifts.[53] Consider for example, the sharing of food in some hunter-gatherer societies, where food-sharing is a safeguard against the failure of any individual's daily foraging. This custom may reflect concern for the well-being of others, it may be a form of informal insurance, or may bring with it social status or other benefits. David Bollier takes the position that in a gift economy, "one’s ‘self-interest’ has a much broader, more humanistic feel than the utilitarian rationalism of economic theory".[54]
In literature The concept of a gift economy has played a large role in works of fiction about alternate societies, especially in works of science fiction. Examples include: • News from Nowhere (1890) by William Morris is a utopian novel about a society which operates on a gift economy. • The Great Explosion (1962) by Eric Frank Russell describes the encounter of a military survey ship and a Gandhian pacifist society that operates as a gift economy. • The Dispossessed (1974) by Ursula K. Le Guin is a novel about a gift economy society that had exiled themselves from their (capitalist) homeplanet. • The Mars trilogy, a series of books written by Kim Stanley Robinson in the 1990s, suggests that new human societies that develop away from Earth could migrate toward a gift economy. • The movie Pay It Forward (2000) centers on a schoolboy who, for a school project, comes up with the idea of doing a good deed for another and then asking the recipient to "pay it forward". Although the phrase "gift economy" is never explicitly mentioned, the scheme would, in effect, create one. • Down and Out in the Magic Kingdom (2003) by Cory Doctorow describes future society where rejuvenation and body-enhancement have made death obsolete, and material goods are no longer scarce, resulting in a reputation-based (whuffie) economic system. • Wizard's Holiday (2003) by Diane Duane describes two young wizards visiting a utopian-like planet whose economy is based on gift-giving and mutual support. • Voyage from Yesteryear (1982) by James P. Hogan describes a society of the embryo colonists of Alpha Centauri who have a post-scarcity gift economy. • Cradle of Saturn (1999) and its sequel The Anguished Dawn (2003) by James P. Hogan describe a colonization effort on Saturn's largest satellite. Both describe the challenges involved in adopting a new economic paradigm. • Science fiction author Bruce Sterling wrote a story, Maneki-neko, in which the cat-paw gesture is the sign of a secret AI-based gift economy. Gift Economy (Dama) VIDEO BELOW http://www.youtube.com/watch?v=uHdbBjo2SO8
Autarky Economy From Wikipedia, the free encyclopedia Autarky is the quality of being self-sufficient. Usually the term is applied to political states or their economic systems. The latter are called closed economies.[1] Autarky exists whenever an entity can survive or continue its activities without external assistance or international trade. Autarky is not necessarily economic. For example, a military autarky would be a state that could defend itself without help from another country. Autarky can be said to be the policy of a state or other entity when it seeks to be self-sufficient as a whole, but also can be limited to a narrow field such as possession of a key raw material.
Etymology The word "autarky" is from the Greek: αὐτάρκεια, which means "self-sufficiency" (derived from αὐτο-, "self," and ἀρκέω, "to suffice"). The term is sometimes confused with autocracy (Greek: αὐτoκρατία/αὐταρχία "government by single absolute ruler") or autarchy. Libertarian theorist Robert LeFevre used "autarchy" and "autarchism" in the sense of self-government to describe his own political philosophy and to distinguish it from anarchism.
Modern examples Mercantilism was a policy followed by empires, especially in the 17th and 18th centuries, forbidding or limiting trade outside the empire. In the 1930s, autarky as a policy goal was sought by Nazi Germany, which maximized trade within its economic bloc and minimized external trade, particularly with the then world powers such as Great Britain, the Soviet Union, and France, with which it expected to go to war and consequently could not rely upon. The economic bloc wherein trade was maximized comprised countries that were economically weak—namely, those in South America, the Balkans and eastern Europe (Yugoslavia, Romania and Hungary)[2]—and had raw materials vital to Germany's growth. Trade with these countries, which was negotiated by then Minister of Economics Hjalmar Schacht, was based on the exchange of German manufactured produce directly for these materials rather than currency, allowing Schacht to barter without reliance on the strength of the Reichsmark.[3] However, although food imports fell significantly between 1932 and 1937, Germany's rapid rearmament policy after 1935 proved contradictory to the Nazi Party autarkic ambitions and imports of raw materials rose by 10% over the same period. Today, complete economic autarkies are rare. A possible example of a current autarky is North Korea, based on the government ideology of Juche (self-sufficiency), which is concerned with maintaining its domestic localized economy in the face of its isolation. However, even North Korea has extensive trade with the Russian Federation, the People's Republic of China, Syria, Iran, Vietnam, and many countries in Europe and Africa. Bhutan, seeking to preserve a manorialist economic and cultural system centered around the dzong, has until recently maintained an effective economic embargo against the outside world, and has been described as an autarky. With the introduction of roads and electricity, however, the kingdom has entered trade relations as its citizens seek modern, manufactured goods.
Historical examples • Afghanistan under the Taliban, from 1996–2001. • Albania became a near-autarky in 1976, when Communist Party leader Enver Hoxha instituted a policy of what he termed "self-reliance".[4] Outside trade increased after Hoxha's death in 1985, though it remained severely restricted until 1991.[5] • Austria-Hungary (1867–1918) was an exclusive economic and monetary union with a population of more than 50 million people. It was independent of the world market, thus autarkic.[6] • Burma followed a policy of autarky known as the Burmese Way to Socialism under dictator Ne Win, who ruled the country from 1962 to 1988. • Cambodia under the Khmer Rouge, 1975–1979. • Guyana under Forbes Burnham's PNC dictatorship, from 1970–1985 • India had a policy of near-autarky that began after its establishment as an independent state, around 1950; it increased until 1980 and ended in 1991 due to imminent bankruptcy.[7] • Italy, Benito Mussolini claimed to be an autarky,[8] especially after the 1935 invasion of
•
• •
• •
•
Abyssinia and subsequent trade embargoes. However, it still conducted trade with Germany and elsewhere. Japan was partially an autarky during the era known as the "Edo period", prior to its opening to the west in the 1850s, as part of its policy of sakoku. There was a moderate amount of trade with China and Korea; trade with all other countries was confined to a single port on the island of Dejima. North Korea's official state ideology, Juche, is based heavily on autarky. Romania in the 1980s. Nicolae Ceaușescu proposed such goals as paying the entire foreign debt and increasing the number of items produced in the country and their quality. The aim of these policies was to reduce dependency on foreign imports, as the relationship of Ceaușescu with both Western and Communist leaders was worsening.[citation needed] Spain, under dictator Francisco Franco, was an autarky from 1939 until Franco allowed outside trade again in 1959, coinciding with the beginning of the "Spanish miracle".[citation needed] The United States, while still emerging from the American Revolution and wary of the economic and military might of Great Britain, came close to complete autarky in 1808 when President Jefferson declared a self-imposed embargo on international shipping. The embargo lasted from December 1807 to March 1809.[9] In the Dominican Republic, the rural peasants, escaped slaves, and freed slaves that lived in the sparsely populated woodland interior of the island nation between the 1600s and early 1900s. The weak Dominican government had no control on these autonomous subsistence agriculture based communities.
Economic and political dilemmas of an autarky A self-sufficient economy can experience diseconomies of scale in the public and private business sectors. It is evident that several nations in the world do not have direct access to certain raw materials such as oil, coal, gas, wheat or fabrics such as wool due to geographical boundaries including climate, location, land size or population numbers. Therefore the production of scarce resources becomes relatively expensive and a large cost to consumers and firms that need to pay a higher price for these goods and services. Beginning after the close of World War II, and coming into full prominence in the mid-1970s, trade policy architects of the world's highly industrialized nations began to embrace a transnational system of production, exchange & capital mobility in a process that has come to be known as Globalization. Proponents of Globalization, often referred to as advocates of Free Trade, embrace the economic philosophy of Neoliberalism articulated by economists working in the Neoclassical tradition, such as Milton Friedman. Neoliberalism emphasizes the Ricardian concept of comparative advantage over theories of Import Substitution Industrialization, which had gained prominence in the first half of the 20th Century and which involved a limited use of protectionist measures. Examples of Import Substitution Industrialization regimes include the Dirigisme of France in the De Gaulle era, Stalin's advocacy of Socialism In One Country and the economic policies of Taiwan and South Korea in the 3 decades following the 2nd World War. Import Substitution Industrialization combines aspects of Infant Industry protection, promoted by Alexander Hamilton and Friedrich List, and which defined the trade policy of the United States and Britain during the 19th Century, with Keynesian stimulus policies. Proponents of comparative advantage believe that trade without tariff restriction and regulation will benefit all participating parties, regardless of asymmetries in economies of scale, infrastructural development or commodity holdings between them. Critics, and those associated with the AntiGlobalization Movement, claim that the model has been unevenly applied to favor multinational
corporations over local producers & retailers, and has led to a model of global domination along the north-south divide, characterized by a rich core and an impoverished periphery. As the political influence of those promoting Neoliberal stances and Globalization gained prominence during the 1970s, the advocates of Import Substitution Industrialization, Protectionism, Social Corporatism, Syndicalism, many models of Socialism and other forms of Autarky or semi-Autarky began to occupy an increasingly marginalized space in public policy circles, professional economics and elected office. Due in no small part to the influence of transnational economic bodies such as the World Bank, the International Monetary Fund, the World Trade Organization, the G7, G8, G20, and trade agreements between nations with differing degrees of industrialization such as the Central American Free Trade Agreement, the North American Free Trade Agreement, the Free Trade Agreement of the Americas, the European Union, AFTA, ACTA and TPP, regions of economic exchange have become more integrated across the world than ever before and supply chains for vital commodities and products previously maintained within national borders have became distributed across international lines. Increasing financialization of commodity, industrial and commercial wealth and increasing specialization of national and regional economies and has left them vulnerable to the risk of capital flight, in the face of competitive pressure from other producing nations or localities. The global integration of economies effected by these agreements has resulted in a gradual shift of the composition of wealth among the elites in many large industrial states, from industrial activities, whose proceeds derived mostly from domestic sales, to financial activities, whose profits are stem from substantial investments in foreign trade, including developing markets. This shift from national to transnational sources of profit among the wealthiest has, in turn, altered the focus of dominant lobbying interests across the developed world and, since the mid-1970s, greatly weakened the political bargaining power of proponents of Autarkic principles in many legislative bodies. The domestic changes brought about by a continued entrenchment of Neoliberal economic policies in multinational trade agreements and economic forums has also led to a feedback loop, wherein influence within and thus support for such bodies predicates favorable national economic outcomes for the commercial constituencies that hold most political sway across the political spectrum in many nations. As a result, political parties, such as Britain's Labour Party, France's Socialist Party (France), and Mexico's PRI, which, from the 1930s - the 1970s, fiercely championed the protection of domestic industry and promoted the nationalization of large infrastructural assets, have, since at least the 1990s, abandoned these stances in favor of an internationalist trade policy and public-private partnerships. Cheaper labor, commodity and compliance costs for multinational corporations, access of corporations to raw materials and consumer markets located in previously autonomous regions, and the ability to establish publicly-funded zero tax export zones with minimal regulation are major motivational factors influencing the growth of international trade law and property law harmonization across the world. In this period, and in part as a result of the economic changes brought about by Globalization, geopolitical strategy, military policy and domestic economic policy has become increasingly subject to the lobbying influence of major multinational firms, marginalizing proponents of Autarky across the political spectrum in many countries. These changes have resulted in a corresponding reduction in the national economic self-sufficiency of many nations, whether highly or sparsely industrialized.
See also Local Autarky • Urban Homesteading and Integral Urban House • Mutualism (movement)
• • • •
Commune Kibbutz Movement Utopian Socialism Survivalism
National Autarky Left-Wing proponents of Autarkic Principles: Statist: • Socialism in One Country, State Socialism and Stalinism • Syndicalism • Social corporatism and Neo-Corporatism Anti-Statist: • Anarcho-syndicalism, De Leonism, Solidarity Unionism, • Anarchist Communism, Council Communism, Collectivist Anarchism • Solidarity Economy Left-Wing opponents of Autarkic Principles: • Proletarian Internationalism, World Communism, Stateless Communism, World Revolution, Permanent Revolution • Trotskyism, Fourth International Right-Wing proponents of Autarkic Principles: • Fascism, State Capitalism • Business Nationalism • Producerism Right-Wing opponents of Autarkic Principles: • • • • •
Classical Liberalism, Neoliberalism Neoconservatism Libertarianism, Libertarian conservatism Liberal Internationalism Anarcho-capitalism
Autarkic principles without political affiliation: • Nationalism • Isolationism Macroeconomic Theory of Autarky Proponents or Partial-Proponents of Autarky: • • • • • • •
Mercantilism, Gustave Courbet, Alexander Hamilton Protectionism, Friedrich List Infant Industry Argument Nationalization Import Substitution Industrialization Raúl Prebisch, Hans Singer, Celso Furtado Structuralist economics
• Anti-Globalization Movement • Core-Periphery Model • Singer-Prebisch thesis Opponents of Autarky: • • • • • • •
Economic liberalism Neoclassical Economics Privatization Free Trade Free trade agreement Globalization Milton Friedman
Relevant Microeconomic Theory Topics • Robinson Crusoe economy • Fundamental theorems of welfare economics
References 1. ^ Glossary of International Economics. 2. ^ D. Evans & J. Jenkins, Years of Weimar & the Third Reich, (London: Hodder & Stoughton Educational, 1999), 348-349. 3. ^ D. Evans & J. Jenkins, Years of Weimar & the Third Reich, 349 4. ^ http://www.country-data.com/cgi-bin/query/r-171.html 5. ^ http://www.country-data.com/cgi-bin/query/r-243.html 6. ^ Vide for the controversy of the role of the state: T. I. Berend and Gy. Ranki, "Az allam szerepe az europai 'periferia' XIX. szazadi gazdasagi fejlodesben." The Role of the State in the 19th Century Economic Development of the European "periphery." Valosag 21, no.3 (Budapest, 1978), pp. 1-11; L. Lengyel, "Kolcsonos tarsadalmi fuggoseg a XIX szazadi europai gazdasagi fejlodesben." (Socio-Economic Interdependence in the European Economic Development of the 19th Century.) Valosag 21, no.9 (Budapest, 1978), pp. 100-106 7. ^ http://www.pbs.org/wgbh/commandingheights/lo/countries/in/in_full.html 8. ^ http://www.westernmind.com/syllabus/syllabus20c/09_mussolini.html 9. ^ http://www.dartmouth.edu/~dirwin/Embargo.pdf (PDF file)
Digital Economy From Wikipedia, the free encyclopedia A Digital Economy refers to an economy that is based on digital technologies. The digital economy is also sometimes called the Internet Economy, the New Economy, or Web Economy.
Digital economy The concept of a digital economy emerged in the last decade of the 20th century. Nicholas Negroponte (1995) used a metaphor of shifting from processing atoms to processing bits. He discussed the disadvantages of the former (e.g., mass, materials, transport) and advantages of the latter (e.g., weightlessness, virtual, instant global movement). In this new economy, digital networking and communication infrastructures provide a global platform over which people and organizations devise strategies, interact, communicate, collaborate and search for information. For example: • A vast array of digitizable products - databases, news and information, books, magazines, etc. which are delivered over the digital infrastructure any time, anywhere in the world.
Digital economy in eGovernment With growing population and resource mobilisation, digital economy is not limited to business trading and services only but, it encompasses every aspect of life from health to education and from business to banking. Further while everything is happening on digital medium then why not communication with government. eGovernment is already playing its part in this digital economy by providing eservices through various ministry/department to its eCitizen.
Dual Economy From Wikipedia, the free encyclopedia A dual economy is the existence of two separate economic sectors within one country, divided by different levels of development, technology, and different patterns of demand. The concept was originally created by Julius Herman Boeke to describe the coexistence of modern and traditional economic sectors in a colonial economy.[1] Dual economies are common in less developed countries, where one sector is geared to local needs and another to the global export market. Dual economies may exist within the same sector, for example a modern plantation or other commercial agricultural entity operating in the midst of traditional cropping systems. Sir Arthur Lewis used the concept of a dualistic economy as the basis of his labour supply theory of rural-urban migration. Lewis distinguished between a low-income, rural, subsistence sector with surplus population, and an expanding urban capitalist sector. The urban economy absorbed labour from rural areas (holding down urban wages) until the rural surplus was exhausted.[1] A World Bank comparison of sectoral growth in CĂ´te d'Ivoire, Ghana and Zimbabwe since 1965 provided evidence against the existence of a basic dual economy model. The research implied that a positive link existed between growth in industry and growth in agriculture. The authors argued that for maximum economic growth, policymakers should have focused on agriculture and services as well as industrial development.[2]
Informal sector Economy From Wikipedia, the free encyclopedia The informal sector or informal economy is that part of an economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy.[1] Other terms used to refer to the informal sector can include the black market, the shadow economy, the underground economy and System D. Associated idioms include under the table and "off the books". Definition
Black market speculant on graffiti, Kharkov The original use of the term ‘informal sector’ is attributed to the economic development model put forward by W. Arthur Lewis, used to describe employment or livelihood generation primarily within the developing world. It was used to describe a type of employment that was viewed as falling outside of the modern industrial sector.[2] An alternative definition uses job security as the measure of formality, defining participants in the informal economy as those 'who do not have employment security, work security and social security.”[3] While both of these definitions imply a lack of choice or agency in involvement with the informal economy, participation may also be driven by a wish to avoid regulation or taxation. This may manifest as unreported employment, hidden from the state for tax, social security or labour law purposes, but legal in all other aspects.[4] The term is also useful in describing and accounting for forms of shelter or living arrangements that are similarly unlawful, unregulated, or not afforded protection of the state. ‘Informal economy’ is increasingly replacing ‘informal sector’[5] as the preferred descriptor for this activity. Informality, both in housing and livelihood generation has often been seen as a social ill, and described either in terms of what participant’s lack, or wish to avoid. A countervailing view, put forward by prominent Dutch sociologist Saskia Sassen is that the modern or new ‘informal’ sector is the product and driver of advanced capitalism and the site of the most entrepreneurial aspects of the urban economy, led by creative professionals such as artists, architects, designers and soft-ware developers. [6] While this manifestation of the informal sector remains largely a feature of developed countries, increasingly systems are emerging to facilitate similarly qualified people in developing countries to participate[7] History
Black market in Shinbashi, Japan, 1946 Governments have tried to regulate (formalize) aspects of their economies for as long as surplus wealth has existed which is at least as early as Sumer. Yet no such regulation has ever been wholly enforceable. Archaeological and anthropological evidence strongly suggests that people of all societies
regularly adjust their activity within economic systems in attempt to evade regulations. Therefore, if informal economic activity is that which goes unregulated in an otherwise regulated system then informal economies are as old as their formal counterparts, if not older. The term itself, however, is much more recent. The optimism of the modernization theory school of development had led most people in the 1950s and 1960s to believe that traditional forms of work and production would disappear as a result of economic progress in developing countries. As this optimism proved to be unfounded, scholars turned to study more closely what was then called the traditional sector. They found that the sector had not only persisted, but in fact expanded to encompass new developments. In accepting that these forms of productions were there to stay, scholars began using the term informal sector, which is credited to the British anthropologist Keith Hart in a study on Ghana in 1973 but also alluded to by the International Labour Organization in a widely read study on Kenya in 1972. Since then the informal sector has become an increasingly popular subject of investigation, not just in economics, but also in sociology, anthropology and urban planning. With the turn towards so called post-fordist modes of production in the advanced developing countries, many workers were forced out of their formal sector work and into informal employment. In a seminal collection of articles, The Informal Economy. Studies in Advanced and Less Developed Countries, Alejandro Portes and collaborators emphasized the existence of an informal economy in all countries by including case studies ranging from New York City and Madrid to Uruguay and Colombia.[8] Arguably the most influential book on informal economy is Hernando de Soto's El otro sendero (1986), [9] which was published in English in 1989 as The Other Path with a preface by Peruvian writer Mario Vargas Llosa.[10] De Soto and his team argue that excessive regulation in the Peruvian (and other Latin American) economies force a large part of the economy into informality and thus prevent economic development. While accusing the ruling class of 20th century mercantilism, de Soto admires the entrepreneurial spirit of the informal economy. In a widely cited experiment, his team tried to legally register a small garment factory in Lima. This took more than 100 administrative steps and almost a year of full-time work. Whereas de Soto's work is popular with policymakers and champions of free market policies like The Economist, many scholars of the informal economy have criticized it both for methodological flaws and normative bias.[11] In the second half of the 1990s many scholars have started to consciously use the term "informal economy" instead of "informal sector" to refer to a broader concept that includes enterprises as well as employment in developing, transition, and advanced industrialized economies.
Statistics The Narantuul Market in Ulaanbaatar, Mongolia, colloquially also called Khar Zakh (Black Market) The informal economy under any governing system is diverse and includes small-scaled, occasional members (often street vendors and garbage recyclers) as well as larger, regular enterprises (including transit systems such as that of Lima,
Peru). Informal economies include garment workers working from their homes, as well as informally employed personnel of formal enterprises. Employees working in the informal sector can be classified as wage workers, non-wage workers, or a combination of both.[12] The above definition does not include criminal activities, that are irregular by nature. Crime cannot be included because such acts have no regulated counterpart against which they may be compared. [citation needed] (Of course, by their nature, informal economic activities escape regulation but that does not necessarily imply that they are unlawful or criminal). Domestic labor, such as childcare and cooking, is in general not included when performed in the natural course of daily living. These activities are either formal or informal. Statistics on the informal economy are unreliable by virtue of the subject, yet they can provide a tentative picture of its relevance: For example, informal employment makes up 48% of non-agricultural employment in North Africa, 51% in Latin America, 65% in Asia, and 72% in sub-Saharan Africa. If agricultural employment is included, the percentages rises, in some countries like India and many subSaharan African countries beyond 90%. Estimates for developed countries are around 15%.[13] In developing countries, the largest part of informal work, around 70%, is self-employed, in developed countries, wage employment predominates. The majority of informal economy workers are women. Policies and developments affecting the informal economy have thus a distinctly gendered effect. A report from World Bank estimates the informal economies of 162 countries for the years of 1999 to 2007.[14]
Estimated size of countries' informal economy The table below shows the estimated values of the size of the informal economy in 110 developing, transition and OECD countries. The average size of the informal economy, as a percent of official GNI in the year 2000, in developing countries is 41%, in transition countries 38% and in OECD countries 18%.[15] Country Georgia Bolivia Panama Azerbaijan Peru Zimbabwe Tanzania Nigeria Thailand Ukraine Guatemala Uruguay Honduras
Informal economy (billions of current USD) 2000 2.1 5.4 6.0 3.0 31.1 4.2 5.2 21.3 63.4 16.1 9.7 9.9 2.9
Informal economy in % of GNP 1999/2000 67.3 67.1 64.1 60.6 59.9 59.4 58.3 57.9 52.6 52.2 51.5 51.1 49.6
Country Zambia Belarus Armenia Russia Benin Nicaragua Moldova Sri Lanka Philippines Senegal Kazakhstan Uganda Niger Mali Ethiopia Malawi Mozambique C么te d'Ivoire Latvia Brazil Kyrgyzstan Madagascar Colombia Burkina Faso Ghana Tunisia Nepal Bulgaria Pakistan Morocco Jamaica Bangladesh Egypt Ecuador Romania Kenya
Informal economy (billions of current USD) 2000 1.4 14.4 0.9 114.5 1.0 1.0 0.6 7.1 34.4 1.9 7.4 2.7
48.9 48.1 46.3 46.1 45.2 45.2 45.1 44.6 43.4 43.2 43.2 43.1
0.8
41.9
0.9 2.6 0.7 1.4 3.4 2.9 226.8 0.5 1.5 30.8 0.8 1.9 7.1
41.0 40.3 40.3 40.3 39.9 39.9 39.8 39.8 39.6 39.1 38.4 38.4 38.4
2.2
38.4
4.3 21.9 11.8 2.6 16.7 35.0 4.3 12.5 3.5
36.9 36.8 36.4 36.4 35.6 35.1 34.4 34.4 34.3
Informal economy in % of GNP 1999/2000
Informal economy (billions of Country current USD) 2000 17.3 Algeria Lebanon 5.9 Bosnia and Herzegovina 1.6 Uzbekistan 2.5 40.1 Venezuela Botswana 1.8 1.3 Albania Croatia 6.3 2.7 Cameroon Turkey 64.5 Dominican Republic 6.0 Malaysia 25.6 Lithuania 3.4 Mexico 168.5 Yugoslavia 2.5 32.9 Greece South Africa 34.8 Poland 43.3 125.1 Korea, South Yemen 2.0 Slovenia 4.9 288.0 Italy United Arab Emirates 0.0 Costa Rica 3.8 Argentina 70.5 Hungary 11.1 Belgium 53.1 104.7 India Portugal 23.3 124.8 Spain 23.2 Israel Chile 13.5 61.6 Taiwan Indonesia 27.7 Jordan 1.6 3.1 Syria Czech Republic 9.6
Informal economy in % of GNP 1999/2000 34.1 34.1 34.1 34.1 33.6 33.4 33.4 33.4 32.8 32.1 32.1 31.1 30.3 30.1 29.1 28.6 28.4 27.6 27.5 27.4 27.1 27.0 26.4 26.2 25.4 25.1 23.2 23.1 22.6 22.6 21.9 19.8 19.6 19.4 19.4 19.3 19.1
Country Norway Sweden Iran Slovakia Mongolia Saudi Arabia Finland Denmark Hong Kong, China Canada Germany Ireland Vietnam France Australia China Singapore Netherlands New Zealand United Kingdom Japan Austria Switzerland United States
Informal economy (billions of current USD) 2000 30.6 42.9 17.7 3.6 0.2 32.0 21.9 29.1 27.5 110.1 303.1 12.7 4.9 199.6 58.0 139.6 12.9 47.8 5.9 178.6 553.8 19.0
19.1 19.1 18.9 18.9 18.4 18.4 18.3 18.2 16.6 16.4 16.3 15.8 15.6 15.3 15.3 13.1 13.1 13.0 12.7 12.6 11.3 10.2
22.3
8.8
864.6
8.8
Informal economy in % of GNP 1999/2000
Gender Women tend to make up the greatest portion of the informal sector, often ending up in the most erratic and corrupt segments of the sector.[16] Sixty percent of female workers in developing countries are employed by the informal sector.[17] The reasoning behind why women make up majority of the informal sector is two-fold. Firstly, it could be attributed to the fact that employment in the informal sector is the source of employment that is most readily available to women. Secondly, a vast majority of women are employed from their homes (most likely due to the large number of women who are involved in care work) or are street vendors, which both are classified in the informal sector[18] Furthermore, men tend to be overrepresented in the top segment of the sector and women overpopulate the bottom segment.[16] For example, very few women are employers who hire others and more women are likely to be involved in smaller scale operations.[19] Labor markets, household decisions, and states all propagate this gender inequality.[16] The gender gap in terms of wage is even higher in the informal sector than the formal sector[20]
Issues from within Workers in the informal sector typically earn less income, have unstable income, and don’t have access to basic protections and services.[16][17] Informal businesses also lack the potential for growth, trapping employees in menial jobs indefinitely. On the other hand the informal sector can allow a large proportion of the population to escape extreme poverty and earn an income that is satisfactory for survival.[21] From the viewpoint of governments, the informal sector can create a vicious cycle. Being unable to collect taxes from the informal sector, the government may be hindered in financing public services, which in turn makes the sector more attractive. Conversely, some governments view informality as a benefit, enabling excess labor to be absorbed, mitigating unemployment issues.[21]
Expansion The informal sector has been expanding as more economies have started to liberalize.[16] This pattern of expansion began in the 1960s when a lot of developing countries didn’t create enough formal jobs in their economic development plans, which lead to the formation of an informal sector that didn’t solely include marginal work and actually contained profitable opportunities.[22] In the 1980s, the sector grew alongside formal industrial sectors. In the 1990s, an increase in global communication and competition lead to a restructuring of production and distribution, often relying more heavily on the informal sector.[23] Over the past decade, the informal economy is said to account for more than half of the newly created jobs in Latin America. In Africa it accounts for around eighty percent.[24] Many explanations exist as to why the informal sector has been expanding in the developing world throughout the past few decades. It is possible that the kind of development that has been occurring has failed to support the increased labor force in a formal manner. Expansion can also be explained by the increased subcontracting due to globalization and economic liberalization. Finally, employers could be turning toward the informal sector to lower costs and cope with increased competition. According to SIDA, the key drivers for the growth of the informal economy in the twenty-first century include:[25] • limited absorption of labour, particularly in countries with high rates of population or urbanisation; • excessive cost and regulatory barriers of entry into the formal economy, often motivated by corruption; • weak institutions, limiting education and training opportunities as well as infrastructure development; • increasing demand for low-cost goods and services; • migration motivated by economic hardship and poverty; and • difficulties faced by women in gaining formal employment
Poverty The relationship between the informal sectors and poverty certainly isn’t simple nor does a clear, causal relationship exist. An inverse relationship between an increased informal sector and slower economic growth has been observed though.[16] Average incomes are substantially lower in the informal economy and there is a higher preponderance of impoverished employees working in the informal sector.[26]
Possible improvements Ways to improve the informal sector include formalizing informal jobs through regulation by the state. The issue with this policy is that so many different types of informality exist. It would be extremely difficult to create solutions to meet so many diverse circumstances. Another possible improvement would be to provide better protections and benefits in the informal sector, but creating protection programs could lead to a disconnect between the labor market and protections, which may not actually improve informal employment. It might also be possible to create other methods of generating income through microloans or land rights when access to the formal sector is limited. This is not a satisfactory solution to effectively combat the issues underlying the informal sector though.[16]
Informal Housing The term informal housing can include any form of shelter or settlement (or lack thereof) which is illegal, falls outside of government control or regulation, or is not afforded protection by the state. To have informal housing status is to exist in ‘a state of deregulation, one where the ownership, use, and purpose of land cannot be fixed and mapped according to any prescribed set of regulations or the law.’[27] While there is no global unified law of property ownership[28] typically, the informal occupant or community will lack security of tenure, and with this ready or reliable access to civic amenities (potable water, electricity and gas supply, sanitation and waste collection). Due to the informal nature of occupancy, the state will typically be unable to extract rent or land taxes. The term informal housing is useful in capturing informal populations other than those living slum settlements or shanty towns, which are defined more narrowly by the UN Habitat as ‘contiguous settlement where the inhabitants are characterizes as having inadequate housing and basic services..often not recognised or addressed by the public authorities an integral or equal part of the city”.[29] Common categories or terms for informal housing include slums, slum settlements, shanty towns, squats, homelessness and pavement dwellers.
Informal housing in developing countries Homelessness and insecurity of tenure are issues faced by populations around the world. However there are particularly pernicious circumstances in developing countries that lead to a large proportion of the population resorting to informal housing. According to Saskia Sassen, in the race to become a ‘global city’ (wiki ref) with the requisite state-of-the-art economic and regulatory platforms for handling the operations of international firms and markets’, radical physical interventions in the existing fabric of the city are often called for, displacing ‘modest, low-profit firms and households’.[30] If these households lack the economic resilience to repurchase within the same area, or relocate to a place that offers similar economic opportunity, they are prime candidates for informal housing options. For example, in Mumbai, India, this fast-paced economic growth, coupled with inadequate infrastructure, endemic corruption and the legacy of the restrictive tenancy laws[31] have left the city unable to house the estimated 54% who now live informally.[32] Many cities in the developing world are currently experiencing a rapid increase in informal housing, driven by mass migration to cities in search of employment, or fleeing from war or environmental disaster. According to Robert Neuwirth, already there are over 1 billion, or one in six squatters worldwide. If current trends continue, this will increase to 2 billion by 2030 (one in four), and 3 billion by 2050 (one in three).[33] Informal housing, and the often informal livelihoods that accompany them, are set to be defining features of the cities of the future.
Market Economy From Wikipedia, the free encyclopedia A market economy is an economy in which decisions regarding investment, production and distribution are based on supply and demand,[1] and the prices of goods and services are determined in a free price system.[2] This is contrasted with a planned economy, where investment and production decisions are embodied in a plan of production. Market economies can range from hypothetical laissez-faire and free market variants, to regulated markets and interventionist variants. Most existing market economies include a degree of economic planning or statedirected activity, and are thus classified as mixed economies. In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces.[3][4] The term free-market economy is sometimes used synonymously with market economy,[5] but, as Ludwig Erhard once pointed out, this does not preclude an economy from providing various social welfare programs such as unemployment benefits, as in the case of the social market economy. There are many variations of market socialism, ranging from the cooperative model, where employeeowned enterprises based on self-management are coordinated by markets and output of final goods and services is based on market allocation,[6] to those based on public ownership of the means of production.[7] The term market economy used by itself can be somewhat misleading. For example, the United States constitutes a mixed economy (substantial market regulation, agricultural subsidies, extensive government-funded research and development, Medicare/Medicaid), yet at the same time it is foundationally rooted in a market economy. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces.
Capitalism Capitalism generally refers to economic system in which the means of production are largely or entirely privately owned and operated for a profit, structured on the process of capital accumulation. In general, investments, distribution, income, and pricing is determined by markets. There are different variations of capitalism and these different variations have different relationships to
markets. In free-market and Lassiez-faire forms of capitalism, markets are utilized most extensively with minimal or no regulation over the pricing mechanism. In interventionist, Keynesian and mixed economies, markets continue to play a dominant role but are regulated to some extent by government in order to correct market failures or to promote social welfare. In state capitalist systems, markets are relied upon the least, and the state relies heavily on either indirect economic planning and/or stateowned enterprises to accumulate capital. Capitalism has been dominant in the Western world since the end of feudalism, but most feel[who?] that the term "mixed economies" more precisely describes most contemporary economies, due to their containing both private-owned and state-owned enterprises. In capitalism, prices are decided by the demand-supply scale. For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.
Laissez-faire Main article: Laissez-faire Laissez-faire is synonymous with what was referred to as strict capitalist free market economy during the early and mid-19th century as an ideal to achieve. It is generally understood that the necessary components for the functioning of an idealized free market include the complete absence of government regulation, subsidies, artificial price pressures and government-granted monopolies (usually classified as coercive monopoly by free market advocates) and no taxes or tariffs other than what is necessary for the government to provide protection from coercion and theft and maintaining peace, and property rights.
Social market economy Main article: Social market economy This model was implemented by Alfred M端ller-Armack and Ludwig Erhard after World War II in West Germany. The social market economic model is based upon the idea of realizing the benefits of a free market economy, especially economic performance and high supply of goods, while avoiding disadvantages such as market failure, destructive competition, concentration of economic power and anti-social effects of market processes. The aim of the social market economy is to realize greatest prosperity combined with best possible social security. As a difference to the free market economy the state is not passive, but actively takes regulative measures.[8] The social policy objectives include employment, housing and education policies, as well as a socio-politically motivated balancing of the distribution of income growth. Characteristics of social market economies are a strong competition policy and a contractionary monetary policy. The philosophical background is Neoliberalism or Ordoliberalism[9]
Market socialism Market socialism refers to various economic systems where the means of production or dominant economic institutions are either publicly-owned or cooperatively-owned but operated according to the rules of supply and demand. In the Oskar Lange's model of market socialism, prices would be determined by a government planning board through a trial-and-error approach until they equaled the marginal cost of production as to achieve perfect competition and pareto optimality. In this model, firms would either be state-owned and managed by their employees.
A more contemporary model of market socialism is that put forth by John Roemer, where social ownership is achieved through public ownership of equity in a market economy. The distinguishing feature between non-market socialism and market socialism is the existence of a market in the means of production and the criteria of profitability for enterprises. Profits derived from the public enterprises can either be used to reinvest in production or finance government and social services directly and/or be distributed to the workforce or public at large through a social dividend.
Cooperative socialism Libertarian socialists and left-anarchists often promote a form of market socialism in which enterprises are owned and managed cooperatively by the workers so that the profits directly remunerate the employee-owners. These cooperative enterprises would compete with each other in the same way private companies compete in a capitalist market. An example would be mutualism.
Socialist market economy Following the 1978 reforms, the People's Republic of China instituted what it calls a "socialist market economy", in which most of the economy is under state ownership, but the state enterprises are reorganized into joint-stock companies where various government agencies own controlling shares through a shareholder system. Prices are set by a largely free-price system and the state-owned enterprises are not subjected to micromanagement from a government planning agency. A similar system called "socialist-oriented market economy" has been implemented in Vietnam following the Ä?áť•i Máť›i reforms in 1986. However, this system is usually characterized as state capitalism instead of market socialism because there exists no meaningful degree of employee management in the firms, the state enterprises retain their profits instead of distributing them to the workforce or government, and many function as partial or de facto private enterprises.
Criticisms Robin Hahnel and Michael Albert claim that "markets inherently produce class division."[10] Albert states that even if everyone started out with a balanced job complex (doing a mix of roles of varying creativity, responsibility and empowerment) in a market economy, class divisions would arise. "(...) Without taking the argument that far, it is evident that in a market system with uneven distribution of empowering work, such as Economic Democracy, some workers will be more able than others to capture the benefits of economic gain. For example, if one worker designs cars and another builds them, the designer will use his cognitive skills more frequently than the builder. In the long term, the designer will become more adept at conceptual work than the builder, giving the former greater bargaining power in a firm over the distribution of income. A conceptual worker who is not satisfied with his income can threaten to work for a company that will pay him more. The effect is a class division between conceptual and manual laborers, and ultimately managers and workers, and a de facto labor market for conceptual workers (...)".[10]
Mixed Economy From Wikipedia, the free encyclopedia Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.[1] Most mixed economies can be described as market economies with strong regulatory oversight, and many mixed economies feature a variety of governmentrun enterprises and governmental provision of public goods. The basic idea of the mixed economy is that the means of production are mainly under private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital remain the fundamental driving force behind economic activity. However, unlike a free-market economy, the government would wield considerable indirect influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises and unemployment, along with playing a role in interventions that promote social welfare.[2] Subsequently, some mixed economies have expanded in scope to include a role for indicative economic planning and/or large public enterprise sectors. There is not one single definition for a mixed economy,[3] but the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets. The relative strength or weakness of each component in the national economy can vary greatly between countries. Economies ranging from the United States[4][5] to Cuba[6] have been termed mixed economies. The term is also used to describe the economies of countries which are referred to as welfare states, such as the Nordic countries. Governments in mixed economies often provide environmental protection, maintenance of employment standards, a standardized welfare system, and maintenance of competition. As an economic ideal, mixed economies are supported by people of various political persuasions, typically centre-left and centre-right, such as social democrats[7] or Christian democrats. Mixed economies were also promoted by fascists in the form of corporatism, involving a tripartite arrangement between labor, business and the state for the purposes of diminishing class-conflict and unifying the national economy through class collaboration for the purposes of national unity. Supporters view mixed economies as a compromise between state socialism and free-market capitalism that is superior in net effect to either of those.
History Private investment, freedom to buy, sell, and profit, combined with economic planning by the state, including significant regulations (e.g. wage or price controls), taxes, tariffs, and state-directed investment. The term "mixed economy" arose in the context of political debate in the United Kingdom in the postwar period, although the set of policies later associated with the term had been advocated from at least the 1930s.[8] Supporters of the mixed economy, including R. H. Tawney,[9] Anthony Crosland[10] and Andrew Shonfield were mostly associated with the British Labour Party, although similar views were expressed by Conservatives including Harold Macmillan. Critics of the British mixed economy, including Ludwig von Mises and Friedrich von Hayek, argued that what is called a mixed economy is a move toward socialism and increasing the influence of the state.[11] Around the 1930s, fascists in Italy supported the use of a mixed economy in an effort to protect national defense and security.[12]
Philosophy The term mixed economy is used to describe economic systems which stray from the ideals of either the market, or various planned economies, and "mix" with elements of each other. As most political-economic ideologies are defined in an idealized sense, what is described rarely if ever exists in practice. Most would not consider it unreasonable to label an economy that, while not being a perfect representation, very closely resembles an ideal by applying the rubric that denominates that ideal. However, when a system in question diverges to a significant extent from an idealized economic model or ideology, the task of identifying it can become problematic. Hence, the term "mixed economy" was coined. As it is unlikely that an economy will contain a perfectly even mix, mixed economies are usually noted as being skewed towards either private ownership or public ownership, toward capitalism or socialism, or toward a market
economy or command economy in varying degrees.[13] There is not a consensus on which economies are capitalist, socialist, or mixed. It may be argued that the historical tendency of power holders in all times and places to limit the activities of market actors combined with the natural impossibility of monitoring and constraining all market actors has resulted in the fact that, as we understand a "mixed economy" being a combination of governmental enterprise and free-enterprise, nearly every economy to develop in human history meets this definition; though some systems may be so close to being completely one way or the other that to call them mixed is redundant and it is more meaningful just to call them a free market economy or a command economy.
Elements of a mixed economy The elements of a mixed economy have been demonstrated to include a variety of freedoms:
A TGV train in Marseille operated by the publicly owned SNCF. In many countries, the rail network is partly or completely, owned or controlled, by the state.
A mail truck. Restrictions are sometimes placed on private mail systems by mixed economy governments. For example, in the U.S., the USPS enjoys a government monopoly on nonurgent letter mail as described in the Private Express Statutes.
This hospital run by the National Health Service in the United Kingdom. In most countries the state plays some role in the provision of health care. • to possess means of production (farms, factories, stores, etc.)
• to participate in managerial decisions (cooperative and participatory economics) • to travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed) • to buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself) • to sell (same as buy) • to hire (to create organizations that create wealth) • to fire (to maintain organizations that create wealth) • to organize (private enterprise for profit, labor unions, workers' and professional associations, non-profit groups, religions, etc.) • to communicate (free speech, newspapers, books, advertisements, make deals, create business partners, create markets) • to protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless inefficiencies to maximize wealth creation) with tax-funded, subsidized, or state-owned factors of production, infrastructure, and services: • • • • • • • • • • • •
libraries and other information services roads and other transportation services schools and other education services hospitals and other health services banks and other financial services telephone, mail and other communication services electricity and other energy services (e.g. oil, gas) water systems for drinking, agriculture, and waste disposal subsidies to agriculture and other businesses government-granted monopolies to otherwise private businesses legal assistance government-funded or state-run research and development agencies
and providing some autonomy over personal finances but including involuntary spending and investments such as transfer payments and other cash benefits such as: • • • •
welfare for the poor social security for the aged and infirm government subsidies to business mandatory insurance (example: automobile)
and restricted by various laws, regulations: • • • • • • • •
environmental regulation (example: toxins in land, water, air) labor regulation including minimum wage laws consumer regulation (example: product safety) antitrust laws intellectual property laws incorporation laws protectionism import and export controls, such as tariffs and quotas
and taxes and fees written or enforced with manipulation of the economy in mind.
Relation to forms of government and other ideas The mixed economy is most commonly associated with social democratic policies or governments led by social democratic parties[citation needed]. However, given the broad range of economic systems that can be described by the term, most forms of government are consistent with some form of mixed economy. In contemporary uses, "social democracy" usually refers to a social corporatist arrangement and a welfare state in developed capitalist economies. Authors John W. Houck and Oliver F. Williams of the University of Notre Dame have argued that Catholic social teaching naturally leads to a mixed economy in terms of policy. They referred back to Pope Paul VI's statement that government "should supply help to the members of the social body, but may never destroy or absorb them". They wrote that a socially just mixed economy involves labor, management, and the state working together through a pluralistic system that distributes economic power widely.[14]
Historic examples The American School (also known as the National System)[15] is the economic philosophy that dominated United States national policies from the time of the American Civil War until the midtwentieth century.[16] It consisted of three core policy initiatives: protecting industry through high tariffs (1861–1932) (changing to subsidies and reciprocity from 1932-1970s), government investment in infrastructure through internal improvements, and a national bank to promote the growth of productive enterprises. During this period the United States grew into the largest economy in the world, surpassing the UK (though not the British Empire) by 1880.[17][18][19] Dirigisme is an economic policy initiated under Charles de Gaulle of France designating an economy where the government exerts strong directive influence. It involved state control of a minority of the industry, such as transportation, energy and telecommunication infrastructures, as well as various incentives for private corporations to merge or engage in certain projects. Under its influence France experienced what is called "Thirty Glorious Years" of profound economic growth.[20] Social market economy is the economic policy of modern Germany that steers a middle path between the goals of social democracy and capitalism within the framework of a private market economy, and aims at maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, public welfare and public services by using state intervention. Under its influence Germany has emerged from desolation and defeat to become an industrial giant within the European Union.[20]
Mixed socialist economies The notion of a mixed economy is not inclusive to capitalist economies - that is, economies structured upon capital accumulation and privately-owned profit-seeking enterprises. Many different proposals for socialist economic systems call for a type of mixed economy, where multiple forms of ownership over the means of production co-exist with one another. For example, Alec Nove's conception of feasible socialism provides an outline for an economic system based on a combination of state-enterprises for large industries, worker and consumer cooperatives, private enterprises for small-scale operations, and individually-owned enterprises.[21] Some proposals for market socialism involve a role for both economic planning and market forces in coordinating economic decisions.
The social democratic theorist Eduard Bernstein advocated a form of mixed economy, believing that a mixed system of public, cooperative and private enterprise would be necessary for a long period of time before capitalism would evolve of its own accord into socialism.[22]
Natural Economy From Wikipedia, the free encyclopedia Natural economy refers to a type of economy in which money is not used in the transfer of resources among people. It is a system of allocating resources through direct bartering, entitlement by law, or sharing out according to traditional custom. In the more complex forms of natural economy, some goods may act as a referent for fair bartering, but generally currency plays only a small role in allocating resources. As a corollary, the majority of goods produced in a system of natural economy are not produced for the purpose of exchanging them, but for direct consumption by the producers (subsistence). Belgian economic historian Henri Pirenne noted that: "German economists have invented the term Naturalwirtschaft, natural economy, to describe the period prior to the invention of money. (...) The writers who describe this period as one of natural economy obviously do not intend the term to be understood in any absolute sense. They are well aware that ever since its invention, money has been in continuous use among all the civilised people of the West, and that the Roman Empire handed it on without interruption to its succession states. Thus when the early Middle Ages are described as a period of natural economy, all that is meant is that the part played by money was then so small as to be almost negligible. Undoubtedly there is a good deal of truth in this contention; but at the same time we must be on our guard against exaggeration" (Henri Pirenne, Economic and social history of medieval Europe. London: Routledge & Kegan Paul, 1936, p. 103-104). The term is also used by Karl Marx in his economic writings such as Grundrisse and Capital. Marx comments as follows: Natural economy, money-economy, and credit-economy have (...) been placed in opposition to one another as being the three characteristic economic forms of movement in social production. In the first place these three forms do not represent equivalent phases of development. The so-called credit-economy is merely a form of the money-economy, since both terms express functions or modes of exchange among the producers themselves. In developed capitalist production, the money-economy appears only as the basis of the crediteconomy. The money-economy and credit-economy thus correspond only to different stages in the development of capitalist production, but they are by no means independent forms of exchange vis-Ă -vis natural economy. With the same justification one might contrapose as equivalents the very different forms of natural economy to those two economies. In the second place, since it is not the economy, i.e., the process of production
itself that is emphasised as the distinguishing mark of the two categories, money-economy and credit-economy, but rather the mode of exchange — corresponding to that economy — between the various agents of production, or producers, the same should apply to the first category. Hence exchange economy instead of natural economy. A completely isolated natural economy, such as the Inca state of Peru, would not come under any of these categories. - Capital Vol. 2, chapter 4 [1]
Open Economy From Wikipedia, the free encyclopedia An open economy is an economy in which there are economic activities between domestic community and outside, e.g. people, including businesses, can trade in goods and services with other people and businesses in the international community, and flow of funds as investment across the border. Trade can be in the form of managerial exchange, technology transfers, all kinds of goods and services. Although, there are certain exceptions that cannot be exchanged, like, railway services of a country cannot be traded with another to avail this service, a country has to produce its own. This contrasts with a closed economy in which international trade and finance cannot take place. The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade. There are a number of advantages for citizens of a country with an open economy. One primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose. Additionally, consumers have an opportunity to invest their savings outside of the country. In an open economy, a country's spending in any given year need not to equal its output of goods and services. A country can spend more money than it produces by borrowing from abroad, or it can spend less than it produces and lend the difference to foreigners.[1] There is no closed economy in today's world.
Economic models of an open economy The basic model In a closed economy, all output is sold domestically, and expenditure is divided into three components: consumption, investment, and government purchases. Y = C + I + G
In an open economy, some output is sold domestically and some is exported to be sold abroad. We can divide expenditure on an open economy’s output Y into four components: Cd, consumption of domestic
goods and services, Id, investment in domestic goods and services, Gd, government purchases of domestic goods and services, X, exports of domestic goods and services. The division of expenditure into these components is expressed in the identity Y = Cd + Id + Gd + X.
The sum of the first three terms, Cd + I d + Gd, is domestic spending on domestic goods and services. The fourth term, X, is foreign spending on domestic goods and services(the value of exports). Since, total domestic spendings is a sum of spending on domestic as well as foreign goods and services, we can say that, C = Cd + Cf, I = I d + I f, G = Gd + G f. We substitute these three equations into the identity above: Y = (C − Cf ) + (I − I f ) + (G − G f ) + X.
We can rearrange to obtain Y = C + I + G + X − (Cf + I f + G f ).
The sum of domestic spending on foreign goods and services (Cf + I f + G f ) is expenditure on imports (IM ). We can thus write the national income accounts identity as Y = C + I + G + X − IM.
Since the value of total imports is a part of domestic spending and it is not a part of domestic output, it is subtracted from the total output.This gives us the value of Net Exports (NX = X − IM ), the identity becomes Y = C + I + G + NX.
In closed economy: National savings= Investment. Closed economy countries can increase its wealth only by accumulating new capital. If output exceeds domestic spending, we export the difference: net exports are positive. If output falls short of domestic spending, we import the difference: net exports are negative.
Advantages of an Open Economy Greater Choice for Consumers : In an open economy, the domestic markets are merged with international markets and so the consumers are not limited to consume domestically produced goods and services. They can choose the best from the world market. Increased competition and Lower Prices: A related benefit of an open economy is that the consumers have an increasing number of producers or goods and services competing for their business.Competition among producers results in lower prices and improved services. An open economy allows consumers to benefit from the lower labor and operating costs. Expanded markets and Customer bases :The benefits of an open economy are not limited to consumers. Global interaction allows companies to gain access to customers in other nations. This motivates them to produce world class products, expand their business and customer base.American brands as McDonald's, Apple and Starbucks, plus Finnish communications giant Nokia, have established worldwide customer bases. Global Investment Opportunities:For investors, an open economy expands the opportunities for investing capital. Investors large and small can choose to invest in known domestic companies, or they
can invest in established industrial giants of other nations. Investors with an appetite for risk, meanwhile, can invest in the emerging markets of Latin America, Africa and southern Asia.In an open economy, financial and goods markets are closely related. To understand this relationship, we look at the savings and investment identity. Gains from Trade :One of the key principles of economics is that trade benefits all parties involved. International trade involves interactions with other economies and is therefore possible only among open economies. English economist David Ricardo, argued that trade allows nations to specialize in producing the goods in which they have comparative advantages and trade with other nations to obtain goods in which other nations specialize. This in turn provides consumers with a greater array of goods from which to select.
International Capital Flows and Trade Balance Begin with the identity Y = C + I + G + NX.
Subtract C and G from both sides to obtain Y − C − G = I + NX.
Y − C − G is national saving S, which equals the sum of private saving, Y − T − C, and public saving, T − G, where T stands for taxes. Therefore, S = I + NX.
Subtracting I from both sides of the equation, we can write the national income accounts identity as S − I = NX.
This shows that economy's net exports must be equal to the difference between savings and investment. Another name for net exports is the trade balance, as it tells us the difference between imports and exports from being equal. The left-hand side of the identity is the difference between domestic saving and domestic investment, S − I,known as net capital outflow.Net capital outflow is equal to the amount that domestic residents are lending abroad minus the amount that foreigners are lending to home country.If net capital outflow is positive, the economy’s saving exceeds its investment, and lending the excess to foreigners. If the net capital outflow is negative, the economy is experiencing a capital inflow: investment exceeds saving, and the economy is financing this extra investment by borrowing from abroad. The national income accounts identity shows that net capital outflow always equals the trade balance. That is, Net Capital Outflow = Trade Balance S − I = NX.
If S − I and NX are positive, we have a trade surplus. In this case,since our exports are higher than our imports, we are net lenders in world financial markets. If S − I and NX are negative, we have a trade deficit. In this case, we are importing more goods than we are exporting.And hence we are net borrowers in the world markets. If S − I and NX are exactly zero, we are said to have balanced trade because the value of imports exactly equals the value of our exports.
Capital Mobility and World Interest Rates under Open Economy In case of a small open economy, we assume perfect capital mobility. By "small" we mean that an economy has very small share in the world markets. It has a negligible effect on interest rate. By perfect capital mobility, we mean that residents of a country have full access to goods and services and specially financial markets of the world. Because of this assumption of perfect capital mobility, the interest rate in our small open economy, r, must equal the world interest rate say, r*, the real interest rate prevailing in world financial markets: r = r*. This means that people in this small open economy will never borrow at more than r rate in home country.They will shift to international markets to borrow or invest, in case r > r*. Thus, we can say that, the interest rates in a small open economy are determined by the world markets. World interest rate (r*), on the other hand is determined by equilibrium of world saving and world investment.
Planned Economy From Wikipedia, the free encyclopedia This article is about an economic system based on centralized planning. For economic systems that employ decentralized forms of planning, see Decentralized planned economy. "Planist" redirects here. It is not to be confused with Pianist. A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency.[1][2] A planned economy may be based on either centralized or decentralized forms of economic planning, but usually refers to a centrallyplanned economy. The goal of central planning is to enable planners to take advantage of more perfect information through a consolidation of economic resources when making decisions regarding investment and the allocation of economic inputs within production. In an entirely centrally-planned economy, a universal survey of human needs and consumer wants is required before a comprehensive plan for production can be formulated. The public body responsible for production and resource allocation would require the power to allocate factors of production in order to fulfill the plan, and for overseeing the distribution system of the economy. The most extensive form of a planned economy is referred to as a command economy,[3] centrally planned economy, or command and control economy.[4] In such economies, central economic planning by the state or government directs all major sectors of the economy and formulates decisions about the use of economic inputs and the means of production.[5] Planners would decide what would be produced and
would direct lower-level enterprises and ministries to produce those goods in accordance with national and social objectives.[6] Implementation of this form of economy is sometimes called planification. Planned economies are held in contrast to unplanned economies, such as the market economy and proposed self-managed economy, where production, distribution, pricing, and investment decisions are made by autonomous firms based upon their individual interests rather than upon a macroeconomic plan. Less extensive forms of planned economies include those that use indicative planning as components of a market-based or mixed economy, in which the state employs "influence, subsidies, grants, and taxes, but does not compel."[7] This latter is sometimes referred to as a "planned market economy".[8] A planned economy may consist of state-owned enterprises, cooperative enterprises, private enterprises directed by the state, or a combination of different enterprise types. Though "planned economy" and "command economy" are often used as synonyms, some make the distinction that under a command economy, enterprises need not follow a comprehensive plan of production. That is, a planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc."[9] but a command economy, while also having this type of regulation, necessarily has substantial public ownership of industry.[10] Therefore, command economies are planned economies, but not necessarily the reverse. Beginning in the 1980s and 1990s, many governments presiding over planned economies began marketization (or as in the Soviet Union, the system collapsed) and moving toward market-based economies by allowing individual enterprises to make the pricing, production, and distribution decisions, granting autonomy to state enterprises and ultimately expanding the scope of the private sector through privatization. Although most economies today are market economies or mixed economies (which are partially planned), fully planned economies exist in the remaining few countries of Cuba, Libya, North Korea, Saudi Arabia, Belarus, and Myanmar.[11]
Economic planning versus the command economy Main article: Economic planning Economic planning is a mechanism for resource allocation of inputs and decision-making based on direct allocation, in contrast with the market mechanism, which is based on indirect allocation.[12] An economy based on economic planning (either through the state, an association of worker cooperatives or another economic entity that has jurisdiction over the means of production) appropriates its resources as needed, so that allocation comes in the form of internal transfers rather than market transactions involving the purchasing of assets by one government agency or firm by another. Decision-making is carried out by workers and consumers on the enterprise-level. This is contrasted with the concept of a centrally planned, or command economy, where most of the economy is planned by a central government authority, and organized along a top-down administration where decisions regarding investment, production output requirements are decided upon by planners from the top, or near the top, of the chain of command. Advocates of economic planning have sometimes been staunch critics of command economies and centralized planning. For example, Leon Trotsky believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy would be unable to effectively coordinate all economic activity.[13] Another key difference is that command economies are strictly authoritarian in nature, whereas some forms of economic planning, such as indicative planning, direct the economy through incentive-based methods. Economic planning can be practiced in a decentralized manner through different government
authorities. For example, in some predominately market-oriented and mixed economies, the state utilizes economic planning in strategic industries such as the aerospace industry. Another example of this is the utilization of dirigisme, both of which were practiced in France and Great Britain after the Second World War. Swedish public housing models were planned by the government in a similar fashion as urban planning. Mixed economies usually employ macroeconomic planning, while micro-economic affairs are left to the market and price system. The People's Republic of China currently has a socialist market economy in place. Within this system, macroeconomic plans are used as a general guidelines and as government goals for the national economy, but the majority of state-owned enterprises are subject to market forces. This is heavily contrasted to the command economy model of the former Soviet Union.[citation needed]
Planned economies and socialism Main article: Socialist economics While many socialist currents advocated economic planning as an eventual substitute for the market for factors of production, some define economic planning as being based on worker-self management, with production being carried out to directly satisfy human needs, and contrast this with the concept of a command economy of the Soviet Union, which they characterize as being based on a top-down bureaucratic administration of the economy in a similar fashion to a capitalist firm.[14] The Command economy is distinguished from economic planning, and different theories for classifying the socioeconomic system of the Soviet Union exist; most notably a command economy is associated with Bureaucratic collectivism, State capitalism or State socialism. Furthermore, planned economies are not unique to Communist states. There is a Trotskyist theory of permanent arms economy, put forward by Michael Kidron, which leads on from the contention that war and accompanying industrialisation is a continuing feature of capitalist states and that central planning and other features of the war economy are ever present.[15]
Transition from a planned economy to a market economy The shift from a command economy to a market economy has proven to be difficult; in particular, there were no theoretical guides for doing so before the 1990s. One transition from a command economy to a market economy that many[who?] consider successful is that of the People's Republic of China. By contrast, the Soviet Union's transition was much more problematic and its successor republics faced a sharp decline in GDP during the early 1990s. One of the suggested causes is that under Soviet planning, price ceilings created major problems (shortages, queuing for bread, households hoarding money) which made the transition to an unplanned economy more difficult. While the transition to a market economy proved difficult, many of the post-Soviet states have been experiencing strong, resource-based economic growth in recent years, though the levels vary substantially. However, a majority of the former Soviet Republics have not yet reached pre-collapse levels of economic development. Still, most of the economic hardship that struck many of the former East Bloc countries and the postSoviet states comes from the program of shock therapy. The idea behind this program is to convert from a centrally planned economy to a market economy in a short space of time. This means massscale privatization, budget cuts and liberalization of economy and finance regulations. This shock therapy program was implemented in several former communist states like Poland and Russia.
Iraq, after the fall of Saddam Hussein following the 2003 invasion of Iraq, is currently experiencing the transition from a command economy under Hussein to a free market economy.[16] Iran is currently privatizing companies.
Advantages of economic planning The government can harness land, labor, and capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing. This is what happened in the Soviet Union during the 1930s when the government forced the share of GNP dedicated to private consumption from eighty percent to fifty percent.[17] As a result, the Soviet Union experienced massive growth in heavy industry. The possibility of a digital planned economy was explored by Chile with the creation of Project Cybersyn, the project was a success in many ways but due to the lack of computer technology and need for constant human input was limited in comparison to modern and more advanced technology.[18]
Disadvantages of economic planning Inefficient resource distribution: surplus and shortage Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production (in a market economy, a free price system is intended to serve this purpose). This difficulty was notably written about by economists Ludwig von Mises and Friedrich Hayek, both of whom called it the "economic calculation problem". These opponents of central planning argue that the only way to determine what society actually wants is by allowing private enterprise to use their resources in competing to meet the needs of consumers, rather those taking resources away and allowing government to direct investment without responding to market signals. According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals."[19]
Suppression of economic democracy and self-management Economist Robin Hahnel notes that, even if central planning overcame its inherent inhibitions of incentives and innovation, it would nevertheless be unable to maximize economic democracy and selfmanagement, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom.[20] Says Hahnel, "Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impeding markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it
did only because it was propped up by unprecedented totalitarian political power."[20]
Fictional portrayals of planned economies The 1888 novel Looking Backward by Edward Bellamy depicts a fictional planned economy in a United States c. the year 2000 which has become a socialist utopia. The World State in Aldous Huxley's Brave New World and Airstrip One in George Orwell's Nineteen Eighty Four are both fictional examples of command economies, albeit with diametrically opposed aims: The former is a consumer economy designed to engender productivity while the latter is a shortage economy designed as an agent of totalitarian social control. Airstrip One is organised by the intentionally sarcastically named Ministry of Plenty. Other literary portrayals of planned economies were Yevgeny Zamyatin's We, which was an influence on Orwell's work. Like Nineteen Eighty Four, Ayn Rand's dystopian story Anthem was also an artistic portrayal of a command economy that was influenced by We. The difference is that it was a primitivist planned economy, as opposed to the advanced technology of We or Brave New World. In Ursula K. Le Guin's science fiction novel The Dispossessed, published 1974, mainstream capitalist and state socialist economies on the planet Urras are contrasted with an anarchist self-managed economy on its orbiting twin Anarres.
Subsistence Economy From Wikipedia, the free encyclopedia A subsistence economy is an economy which refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. Capital can be generally defined as assets invested with the expectation that their value will increase, usually because there is the expectation of profit, rent, interest, royalties, capital gain or some other kind of return. However, this type of economy cannot usually become wealthy by virtue of the system, and instead requires further investments to stimulate economic growth. In other words, a subsistence economy only possesses enough goods to be used by a particular nation to maintain its existence and provides little to no surplus for other investments. Therefore, this type of economy aims to create economic stability so that capital can be accumulated and the inevitable economic surplus can be invested in other potentially lucrative business ventures. A subsistence economy also has no money of any sort.
Robinson Crusoe Economy From Wikipedia, the free encyclopedia For other uses, see Robinson Crusoe (disambiguation). A Robinson Crusoe economy is a simple framework to study trade in economics.[1] It assumes an economy with one consumer, one producer and two goods. The title "Robinson Crusoe" is a reference to the novel of the same name authored by Daniel Defoe in 1719. The story is that of a castaway who spent 28 years on an uninhabited island near Trinidad,[2] thus appropriate to describe an uncomplicated economic structure with only one actor.
As a concept in economics, it assumes importance due to its ability to simplify the complexities of the real world. The implicit assumption is that the study of a one agent economy will provide useful insights into the functioning of a real world economy with many economic agents. This article pertains to the study of consumer behaviour, producer behaviour and equilibrium as a part of microeconomics. In other fields of economics, the Robinson Crusoe economy framework is used for essentially the same thing. For example, in public finance the Robinson Crusoe economy is used to study the various types of public goods and certain aspects of collective benefits.[3] It is used in growth economics to develop growth models for underdeveloped or developing countries to embark upon a steady growth path using techniques of savings and investment.[4] In the Robinson Crusoe economy, there is only one individual – Robinson Crusoe himself. He acts both as a producer to maximise profits, as well as consumer to maximise his utility.[5] The possibility of trade can be introduced by adding another person to the economy. This person is Crusoe's friend, Man Friday. Although in the novel he plays the role of Crusoe's servant, in the Robinson Crusoe economy he is considered as another actor with equal decision making abilities as Crusoe. Along with this, conditions of Pareto Efficiency can be analysed by bringing in the concept of the Edgeworth box.[1] The basic assumptions of the Robinson Crusoe economy are as follows:[6] 1. The island is cut-off from the rest of the world (and hence cannot trade) 2. There is only a single economic agent (Crusoe himself) 3. All commodities on the island have to be produced or found from existing stocks
Framework
Figure 1: Income Leisure Preference in a Robinson Crusoe Economy. Robinson Crusoe is assumed to be shipwrecked on a deserted island. Similar to the choices that households (suppliers of labour) face, Crusoe has only two activities to participate in – earn income or pass his time in leisure.[1] The income generating activity in this case is gathering coconuts.[1] As usual, the more time he spends in leisure, the less food he has to eat, and conversely, the more time he spends gathering coconuts, the less time he has for leisure. This is depicted in figure 1.
Production Function and Indifference Curves Crusoe's indifference curves depict his preferences for leisure and coconuts while the production function depicts the technological relationship between how much he works and how many coconuts he gathers. If the axes depicting coconut collection and leisure are reversed and plotted with Crusoe's indifference map and production function,[1] figure 2 can be drawn:
Figure 2: The Robinson Crusoe Economy's Production Function and Indifference Curves The production function is concave in two dimensions and quasi-convex in three dimensions. This means that the longer Robinson works, the more coconuts he will be able to gather. But due to diminishing marginal returns of labour, the additional number of coconuts he gets from every additional hour of labour is declining.[1] The point at which Crusoe will reach an equilibrium between the number of hours he works and relaxes can be found out when the highest indifference curve is tangent to the production function.[1] This will be Crusoe's most preferred point provided the technology constraint is given and cannot be changed. At this equilibrium point, the slope of the highest indifference curve must equal the slope of the production function. Recall that the Marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.[7] Additionally, the marginal product an input is the extra output that can be produced by using one more unit of the input, assuming that the quantities of no other inputs to production change.[7] Then, MPL = MRSLeisure, Coconuts where, MPL = Marginal Product of Labour, and MRSLeisure, Coconuts = Marginal rate of substitution between Leisure and Coconuts
Robinson Crusoe's Multifaceted Role Suppose Crusoe decides to stop being a producer and consumer simultaneously. He decides he will produce one day and consume the next. His two roles of consumer and producer are being split up and studied separately to understand the elementary form of consumer theory and producer theory in microeconomics. For dividing his time between being a consumer and producer, he must set up two collectively exhaustive markets, the coconut market and the labour market.[5] He also sets up a firm, of which he becomes the sole shareholder. The firm will want to maximise profits by deciding how much labour to hire and how many coconuts to produce according to their prices. As a worker of the firm, Crusoe will collect wages, as a shareholder, he will collect profits and as a consumer, he will decide how much of the firm's output to purchase according to his income and the prevailing market prices.[5] Let's assume that a currency called "Dollars" has been created by Robinson to manage his finances. For simplicity, assume that PriceCoconuts = $1.00. This assumption is made to make the calculations in the numerical example easy because the inclusion of prices will not alter the result of the analysis. For more details, refer to NumĂŠraire commodities.
Producer Main article: Production theory
Figure 3: Profit Maximising Condition for the firm in the Robinson Crusoe Economy Assume that when the firm faces 'C' amount of total costs (in producing coconuts), Î represents its profit level. Also assume that when the wage rate at which the firm employs labour is w, L amount of labour will be employed. Then,
The above function describes iso-profit lines (the locus of combinations between labour and coconuts that produce a constant profit of Î ). Profits can be maximised when the marginal product of labour equals the wage rate (marginal cost of production).[8] Symbolically, MPL = w
Graphically, the iso-profit line must be tangent to the production function.[1] The vertical intercept of the iso-profit line measures the level of profit that Robinson Crusoe's firm will make. This level of profit, Π, has the ability to purchase Π dollars worth of coconuts. Since PriceCoconuts is $1.00, Π number of coconuts can be purchased. Also, the firm will declare a dividend of Π dollars. This will be given to the firm's sole shareholder, Crusoe himself.[1]
Consumer Main article: Consumer choice
Figure 4: Robinson Crusoe's Maximisation Problem showing his budget line and indifference curve As a consumer, Crusoe will have to decide how much to work (or indulge in leisure) and hence consume.[8] He can choose to not work at all, since he has an endowment of Π dollars from being a shareholder.[1] Let us instead consider the more realistic case of him deciding to work for a few hours. His labour consumption choice can be illustrated in figure 4: Note that labour is assumed to be a 'bad', i.e., a commodity that a consumer doesn't like. Its presence in his consumption basket lowers the utility he derives.[1] On the other hand, coconuts are goods. This is why the indifference curves are positively sloped. The maximum amount of labour is indicated by L'. The distance from L' to the chosen supply of labour (L*) gives Crusoe's demand for leisure. Notice Crusoe's budget line. It has a slope of w and passes through the point (0,Π). This point is his endowment level i.e., even when he supplies 0 amount of labour, he has Π amount of coconuts (dollars) to consume. Given the wage rate, Crusoe will choose how much to work and how much to consume at that point where, MRSLeisure, Coconuts = w
Equilibrium
Figure 5: Equilibrium in both production and consumption in the Robinson Crusoe Economy At equilibrium, the demand for coconuts will equal the supply of coconuts and the demand for labour will equal the supply of labour.[5] Graphically this occurs when the diagrams under consumer and producer are superimposed.[8] Notice that, MRSLeisure, Coconuts = w MPL = w => MRSLeisure, Coconuts = MPL This ensures that the slopes of the indifference curves and the production set are the same. As a result, Crusoe ends up consuming at the same point he would have if he made all the above decisions together. In other words, using the market system has the same outcome as choosing the individual utility maximisation and cost minimisation plans.[1] This is an important result when put into a macro level perspective because it implies that there exists a set of prices for inputs and outputs in the economy such that the profit-maximising behaviour of firms along with the utility-maximizing actions of individuals results in the demand for each good equaling the supply in all markets. This means that a competitive equilibrium can exist. The merit of a competitive equilibrium is that an efficient allocation of resources is achievable.[1] In other words, no economic agent can be made better off without making another economic agent worse off.[9]
Production Possibilities with Two Goods Main article: Production-possibility frontier Let's assume that there is another commodity that Crusoe can produce apart from coconuts, for example, fish. Now, Robinson has to decide how much time to spare for both activities, i.e. how many coconuts to gather and how many fish to hunt.[1] The locus of the various combinations of fish and coconuts that he can produce from devoting different amounts of time to each activity is known as the
production possibilities set.[10] This is depicted in the figure 6:
Figure 6: Production Possibilities Set in the Robinson Crusoe Economy with two commodities. The boundary of the production possibilities set is known as the Production-possibility frontier (PPF). [10] This curve measures the feasible outputs that Crusoe can produce, with a fixed technological constraint and given amount of resources. In this case, the resources and technological constraints are Robinson Crusoe's labour.[1] It is crucial to note that the shape of the PPF depends on the nature of the technology in use.[1][10] Here, technology refers to the type of returns to scale prevalent. In figure 6, the underlying assumption is the usual decreasing returns to scale, due to which the PPF is concave to the origin. In case we assumed increasing returns to scale, say if Crusoe embarked upon a mass production movement and hence faced decreasing costs, the PPF would be convex to the origin. The PPF is linear with a downward slope in two circumstances: 1. If the technology for gathering coconuts and hunting fish exhibits constant returns to scale 2. If there is only one input in production So in the Robinson Crusoe economy, the PPF will be linear due to the presence of only one input.
Marginal Rate of Transformation Main article: Marginal rate of transformation Suppose that Crusoe can produce 4 pounds of fish or 8 pounds of coconuts per hour. If he devotes Lf hours to fish gathering and Lc hours to gathering coconuts, he will produce 4Lf pounds of fish and 8Lc pounds of coconuts. Suppose that he decides to work for 12 hours a day. Then the production possibilities set will consist of all combinations of fish, F, and coconuts, C, such that
Solve the first two equations and substitute in the third to get,
This equation represents Crusoe's PPF. The slope of this PPF measures the Marginal rate of transformation (MRT), i.e., how much of the first good must be given up in order to increase the production of the second good by one unit. If Crusoe works one hour less on hunting fish, he will have 4 less fish. If he devotes this extra hour to collecting coconuts, he will have 8 extra coconuts. The MRT is thus, MRT Coconuts, Fish
[1]
Comparative Advantage Main article: Comparative advantage Under this section, the possibility of trade is introduced by adding another person to the economy. Suppose that the new worker who is added to the Robinson Crusoe Economy has different skills in gathering coconuts and hunting fish.[11] Assume that Crusoe calls him Man Friday, after the day of the week he appears on the island.[2] Friday can produce 8 pounds of fish or 4 pounds of coconuts per hour. If he too decides to work for 12 hours, his production possibilities set will be determined by the following relations:
=> Thus, MRT Coconuts, Fish
[1]
This means that for every pound of coconuts Friday gives up, he can produce 2 more pounds of fish. So, we can say that Friday has a Comparative advantage [11] in hunting fish while Crusoe has a comparative advantage in gathering coconuts. Their respective PPFs can be shown in the following diagram:
Figure 7: Joint production possibilities in the Robinson Crusoe Economy.
The joint production possibilities set at the extreme right shows the total amount of both commodities that can be produced by Crusoe and Friday together. It combines the best of both workers.[1] If both of them work to gather coconuts only, the economy will have 144 coconuts in all, 96 from Crusoe and 48 from Friday. (This can be obtained by setting F=0 in their respective PPF equations and summing them up). Here the slope of the joint PPF is -1/2. If we want more fish, we should shift that person who has a comparative advantage in fish hunting (i.e. Friday) out of coconut gathering and into fish hunting. When Friday is producing 96 pounds of fish, he is fully occupied. If fish production is to be increased beyond this point, Crusoe will have to start hunting fish. Here onward, the slope of the joint PPF is -2. If we want to produce only fish, then the economy will have 144 pounds of fish, 48 from Crusoe and 96 from Friday. Thus the joint PPF is kinked because Crusoe and Friday have comparative advantages in different commodities. As the economy gets more and more ways of producing output and different comparative advantages, the PPF becomes concave.[1]
Pareto Efficiency Main article: Pareto Efficiency Assume that there are c units of coconut and f units of fish available for consumption in the Crusoe Friday economy. Given this endowment bundle (c,f), the Pareto efficient bundle can be determined at the mutual tangency of Crusoe's and Friday's indifference curves in the Edgeworth box along the Pareto Set (Contract curve). These are the bundles at which Crusoe's and Friday's Marginal rate of substitution are equal.[1] In a simple exchange economy, the contract curve describes the set of bundles that exhaust the gains from trade. But in a Robinson Crusoe/Friday economy, there is another way to exchange goods – to produce less of one good and more of the other.[5]
Figure 8: Production Possibilities Set in Robinson Crusoe Economy and the Edgeworth Box showing a Pareto Efficient situation From the figure 8, it is clear that an economy operating at a position where the MRS of either Crusoe or Friday is not equal to the MRT between coconuts and fish cannot be Pareto efficient. This is because the rate at which, say Friday is willing to trade coconuts for fish is different from the rate at which coconuts can be transformed into fish. Thus, there is a way to make Friday better off by rearranging the
production pattern.[1] Thus for Pareto Efficiency, MRT Coconuts, Fish = MRSCoconuts, Fish [10] (for both Crusoe and Friday) This can be achieved in a competitive market by decentralising production and consumption decisions, i.e. Crusoe and Friday will both solve their own problems of how much to consume and produce independently.[8]
Black market Economy From Wikipedia, the free encyclopedia (Redirected from Underground economy) "Black economics" redirects here. For the economic empowerment of black Africans in South Africa, see Black Economic Empowerment. "Black Market" redirects here. For other uses, see Black Market (disambiguation). A black market or underground economy is a market in goods or services which operates outside the formal one(s) supported by established state power. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and services, e.g. "the black market in bush meat" or the state jurisdiction "the black market in China". It is distinct from the grey market, in which commodities are distributed through channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, and the white market, the legal market for goods and services. Worldwide, the underground economy is estimated to have provided 1.8 billion jobs.[1]
Background The literature on the black market has avoided a common usage and has instead offered a plethora of appellations including: subterranean; hidden; grey; shadow; informal; clandestine; illegal; unobserved; unreported; unrecorded; second; parallel and black.[2] This profusion of vague labels attests to the confusion of a literature attempting to explore a largely uncharted area of economic activity. There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape or are excluded from the institutional system of rules, rights, regulations and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished
according to the particular institutional rules that they violate. Five specific underground economies can be identified: 1. 2. 3. 4. 5.
criminal acts the illegal economy the unreported economy the unrecorded economy the informal economy
The "illegal economy" consists of the income produced by those economic activities pursued in violation of legal statutes defining the scope of legitimate forms of commerce. Illegal economy participants engage in the production and distribution of prohibited goods and services, such as drug trafficking, arms trafficking, and prostitution. The "unreported economy" consists of those economic activities that circumvent or evade the institutionally established fiscal rules as codified in the tax code. A summary measure of the unreported economy is the amount of income that should be reported to the tax authority but is not so reported. A complementary measure of the unreported economy is the "tax gap", namely the difference between the amount of tax revenues due the fiscal authority and the amount of tax revenue actually collected. In the U.S. unreported income is estimated to be $2 trillion resulting in a "tax gap" of $450–$500 billion.[3] [4] The "unrecorded economy" consists of those economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies. A summary measure of the unrecorded economy is the amount of unrecorded income, namely the amount of income that should (under existing rules and conventions) be recorded in national accounting systems (e.g. National Income and Product Accounts) but is not. Unrecorded income is a particular problem in transition countries that switched from a socialist accounting system to UN standard national accounting. New methods have been proposed for estimating the size of the unrecorded (non-observed) economy.[5] But there is still little consensus concerning the size of the unreported economies of transition countries.[6] The "informal economy" comprises those economic activities that circumvent the costs and are excluded from the benefits and rights incorporated in the laws and administrative rules covering property relationships, commercial licensing, labor contracts, torts, financial credit and social security systems. A summary measure of the informal economy is the income generated by economic agents that operate informally.[7][8] The informal sector is defined as the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy. In developed countries the informal sector is characterized by unreported employment. This is hidden from the state for tax, social security or labour law purposes but is legal in all other aspects.[9] On the other hand, the term black market can be used in reference to a specific part of the economy in which contraband is traded.
Pricing Goods acquired illegally take one of two price levels: • They may be cheaper than legal market prices. The supplier does not have to pay for production costs or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth. • They may be more expensive than legal market prices. The product is difficult to acquire or produce, dangerous to handle or not easily available legally, if at all. If goods are illegal, such as some drugs, their prices can be vastly inflated over the costs of production.
Black markets can form part of border trade near the borders of neighboring jurisdictions with little or no border control if there are substantially different tax rates, or where goods are legal on one side of the border but not on the other. Products that are commonly smuggled like this include alcohol and tobacco. However, not all border trade is illegal.
Consumer issues No government, no global nonprofit, no multinational enterprise can seriously claim to be able to replace the 1.8 billion jobs created by the economic underground. In truth, the best hope for growth in most emerging economies lies in the shadows. —Global Bazaar, Scientific American[1] Even when the underground market offers lower prices, consumers still have an incentive to buy on the legal market when possible, because: • They may prefer legal suppliers, as they are easier to contact and can be held accountable for faults; • In some[10] jurisdictions, customers may be charged with a criminal offense if they knowingly participate in the black economy, even as a consumer; • They may feel in danger of being hurt while making the deal; • They may have a moral dislike of black marketing; • In some jurisdictions (such as England and Wales), consumers in possession of stolen goods will have them taken away if they are traced, even if they did not know they were stolen. Though they themselves commit no offense, they are still left with no goods and no money back. This risk makes some averse to buying goods that they think may be from the underground market, even if in fact they are legitimate (for example, items sold at a car boot sale). However, in some situations, consumers can actually be in a better situation when using black market services, particularly when government regulations and monopolies hinder what would otherwise be a legitimate competitive service. For example: • Unlicensed taxicabs. In Baltimore, it has been reported that many consumers actively prefer illegal taxis, citing that they are more available, convenient, and priced fairly.[11]
Traded goods and services Largest black markets
Estimated annual market value (Billion USD)
Total Marijuana Prostitution Counterfeit technology products Counterfeit pharmaceutical drugs Prescription drugs Cocaine Opium and heroin
796[12] 142[12] 108[12] 100[12] 75[12] 73[12] 70[12] 65[12]
Web Video piracy 60[12] Software piracy 53[12] Cigarette smuggling 50[12] In developed countries, some examples of underground economic activities include:
Biological organs Main article: Organ trade
Transportation providers Where taxicabs, buses, and other transportation providers are strictly regulated or monopolized by government, a black market typically flourishes to provide transportation to poorly served or overpriced communities. In the United States, some cities restrict entry to the taxicab market with a medallion system— that is, taxicabs must get a special license and display it on a medallion in the vehicle. This has led to a market in Carpooling/illegal taxicab operation, although in most jurisdictions it is not illegal to sell the medallions.[citation needed] In Baltimore, Maryland, for example, it is not uncommon for private individuals to provide illegal taxicab service[11] for city residents.
Illegal drugs
In the U.S., cannabis has been termed as a cash crop. Main article: Illegal drug trade From the late 19th and early 20th centuries, many countries began to ban the keeping or using of some recreational drugs, such as the United States' war on drugs. Many people nonetheless continue to use illegal drugs, and a black market exists to supply them. Despite law enforcement efforts to intercept them, demand remains high, providing a large profit motive for organized criminal groups to keep drugs supplied. The United Nations has reported that the retail market value of illegal drugs is $321.6 billion USD.[13] Although law enforcement agencies intercept a fraction of the illegal drugs, and incarcerate hundreds of thousand of wholesale and retail sellers, the very stable demand for such drugs and the high profit margins encourages new distributors to enter the market without an increase in the retail price. Many drug legalization activists draw parallels between the illegal drug trade and the Prohibition of alcohol in the United States in the 1920s. In the United Kingdom, it is not illegal to take drugs, but it is illegal to possess them. This can lead to the unintended consequence that those in possession may swallow the evidence; once in the body they are committing no crime.
Prostitution Prostitution is illegal or highly regulated in most countries across the world. These places form a classic study of the underground economy, because of consistent high demand from customers, relatively high pay, but labor intensive and low skilled work, which attracts a continual supply of workers. While prostitution exists in every country, studies show that it tends to flourish more in poorer countries, and in areas with large numbers of unattached men, such as around military bases.[14] Prostitutes in the black market generally operate with some degree of secrecy, sometimes negotiating prices and activities through codewords and subtle gestures. In countries such as the Netherlands, where prostitution is legal but regulated, illegal prostitutes exist whose services are offered cheaper without regard for the legal requirements or procedures— health checks, standards of accommodation, and so on. In other countries such as Nicaragua where legal prostitution is regulated, hotels may require both parties to identify themselves, to prevent the rise of child prostitution.
Weaponry Main article: Arms trafficking The legislatures of many countries forbid or restrict the personal ownership of weapons. These restrictions can range from small knives to firearms, either altogether or by classification (e.g. caliber, automation, etc.), and explosives. The black market supplies the demands for weaponry that can not be obtained legally, or may only be obtained legally after obtaining permits and paying fees. This may be by smuggling the arms from countries where they were bought legally or stolen, or by stealing from arms manufacturers within the country itself, using insiders. In cases where the underground economy is unable to smuggle firearms, they can also satisfy requests by gunsmithing their own firearms. Those who may buy this way include criminals to use for illegal activities, gun collectors, and otherwise law abiding citizens interested in protecting their dwellings, families or businesses. In England and Wales, certain categories of weapons used for hunting may be owned by qualified residents but must be registered with the local police force and kept within a locked cabinet. Another segment of the population who may purchase weapons on the black market are individuals who are unable to pass the legal requirements for registration — convicted felons or those suffering from mental illness for example. In some jurisdictions, collectors may legally keep antique weapons made incapable of being readily restored to a firing condition.
Alcohol and tobacco It has been reported that smuggling one truckload of cigarettes from a low-tax US state to a high-tax state can lead to a profit of up to $2 million.[15] The low-tax states are generally the major tobacco producers, and have come under enormous criticism for their reluctance to increase taxes. North Carolina eventually agreed to raise its taxes from 5 cents to 35 cents per pack of 20 cigarettes, although this remains far below the national average.[16] But South Carolina has so far refused to follow suit and raise taxes from seven cents per pack (the lowest in the USA).[17] In the UK it has been reported that "27% of cigarettes and 68% of roll your own tobacco [is] purchased on the black market".[18]
Booze cruise Main article: Booze cruise In the UK, the booze cruise — a day-trip ferry to continental Europe simply to get alcohol and tobacco at lower tax rates— is still very popular. Its popularity varies on the Euro to Sterling exchange rate, and the relative tax rates between the different countries. Some people do not even bother to get off the boat; they buy their stock on board and sail straight back. Ferry companies offer extremely low fares, in the expectation that they will make the money up in sales on the boat.[citation needed] The same system exists for boats between Liverpool and Dublin, Ireland. Providing the goods are for personal consumption, "booze cruises" are entirely legal. Because there are no customs restrictions between European Union countries it is not strictly a black market, but closer to a grey market. The UK and Ireland are both European Union members and are both in a Common Travel Area so there are neither customs nor migration restrictions for citizens of the two countries. There is however a thriving black market in goods, rubbing tobacco in particular, which have avoided the payment of excise duty. This is partly supplied by "booze cruises".
Copyrighted media Street vendors in countries where there is scant enforcement of copyright law, particularly in Asia and Latin America, often sell deeply discounted copies of films, music CDs, and computer software such as video games, sometimes even before the official release of the title. A determined counterfeiter with a few hundred dollars can make copies that are digitally identical to an original and suffer no loss in quality; innovations in consumer DVD and CD writers and the widespread availability of cracks on the Internet for most forms of copy protection technology make this cheap and easy to do. This has proved very difficult for copyright holders to combat through the law courts, because the operations are distributed and widespread.[citation needed] Since digital information can be duplicated repeatedly with no loss of quality, and distributed electronically at little to no cost, the effective underground market value of media is zero, differentiating it from nearly all other forms of underground economic activity. The issue is compounded by widespread indifference to enforcing copyright law, both with governments and the public at large. To steal a car is seen as a crime in most people's eyes, but to obtain illicit copies of music or a game is not.[19] See also: Copyright infringement Yet, the preceding comparison, although common, is not truly analogous. Automobile theft results in an item being removed from the owner with the ownership transferred to a second party. Media piracy is a crime of duplication, with no physical property being stolen. Copyright infringement law goes as far as to deem illegal "mix-tapes" and other such material copied to tape or disk. Copyright holders typically attest the act of theft to be in the profits forgone to the pirates. However, this makes the unsubstantiated assumption that the pirates would have bought the copyrighted material if it had not been available through file sharing or other means. Many artists and film producers have accepted the role of piracy in media distribution.[20] The spread of material through file sharing is a major source of publicity for artists and has been shown to build fan bases that may be more inclined to see the performer live[21] (live performances make up the bulk of successful artists' revenues[22]).
Organised crime Usually hidden under a front business that is legal.
Currency Main article: Fixed exchange rate Money itself is traded on the black market. This may happen for one or more of several reasons: • The government sets ("pegs") the local currency at some arbitrary level to another currency that does not reflect its true market value. • A government makes it difficult or illegal for its citizens to own much or any foreign currency. • The government taxes exchanging the local currency with other currencies, either in one direction or both (e.g. foreigners are taxed to buy local currency, or residents are taxed to buy foreign currency). • The currency is counterfeit. • The currency has been acquired illegally and needs to be laundered before the money can be used.[23] A government may officially set the rate of exchange of its currency with that of other currencies, typically the US dollar. When it does, the peg often overvalues the local currency relative to what its market value would be if it were a floating currency. Those in possession of the "harder" currency, for example expatriate workers, may be able to use the black market to buy the local currency at better exchange rates than they can get officially. In situations of financial instability and inflation, citizens may substitute a foreign currency for the local currency. The U.S. dollar is viewed as a relatively stable and safe currency and is often used abroad as a second currency. At the present time, $340 billion dollars, roughly 37 percent[24] of all U.S. currency is believed to be circulating abroad.[25] The widespread substitution of U.S. currency for local currency is known as defacto dollarization, and has been observed in transition countries such as Cambodia [26] and in some Latin American countries.[27] Some countries, such as Ecuador, abandoned their local currency and now use US dollars, essentially for this reason, a process known as de jure dollarization. See also the example of the Ghanaian cedi from the 1970s and 1980s. If foreign currency is difficult or illegal for local citizens to acquire, they will pay a premium to acquire it. U.S. currency is viewed as a relatively stable store of value and since it does not leave a paper trail, [dubious – discuss] it is also a convenient medium of exchange for both illegal transactions and for unreported income (tax evasion) both in the U.S and abroad.[3]
Fuel In the EU it is not illegal for a person or business to buy fuel in one EU state for their own use in another, but as with other goods the tax will generally be payable by the final customer at the physical place of making the purchase. Petrol tanks for cooking/water heating are often smuggled from Ecuador into Colombia. The price is in Ecuador for one tank is 2.50, whereas the same tank in Colombia costs 10 dollars. Between the Republic of Ireland and Northern Ireland there has often been a black market in petrol and diesel.[28][29] The direction of smuggling can change depending on the variation of the taxes and the exchange rate between the Euro and Pound Sterling; indeed sometimes diesel will be smuggled in one direction and petrol the other. In some countries diesel fuel for agricultural vehicles or domestic use is taxed at a much lower rate than that for other vehicles. This is known as dyed fuel, because a coloured dye is added so it can be detected if used in other vehicles (e.g. a red dye in the UK, a green dye in Ireland). Nevertheless, the
saving is attractive enough to make a black market in agricultural diesel. In 2007 it was estimated that £350 million was not gained in potential revenue this way in the UK.[30]
Appearance and disappearance If an economic good is illegal but not seen by many in society as particularly harmful, such as alcohol under prohibition in the United States, the black market prospers. Black marketeers can reinvest profits in diverse legal or illegal activities, well beyond the original source of profit. Some, for example in the marijuana-trade debate, argue for removing the underground markets by making illegal products legal. This would, in their view: • decrease the illegal cashflow, thus making the performance of other, potentially more harmful, activities financially harder • allow quality and safety controls on the traded goods, thus reducing harm to consumers • let the goods be taxed, providing a source of revenue • free up court time and prison space and save taxpayer money.
Modern examples Wars Black markets flourish in most countries during wartime. States that are engaged in total war or other large-scale, extended wars must necessarily impose restrictions on home use of critical resources that are needed for the war effort, such as food, gasoline, rubber, metal, etc., typically through rationing. In most cases, a black market develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity.[31] One source of black-market meat under wartime rationing was by farmers declaring fewer domestic animal births to the Ministry of Food than actually happened. Another in Britain was supplies from the USA, intended only for use in USA army bases on British land, but leaked into the local native British black market. During the Vietnam war, soldiers would spend Military Payment Certificates on maid service and sexual entertainment,[citation needed] thus supporting their partners and their families. If the Vietnamese civilian wanted something that was hard to get, he would buy it at double the price from one of the soldiers, who had a monthly ration card and thus had access to the military stores.[citation needed] The transactions ran through the on-base maids to the local populace. Although these activities were illegal, only flagrant or large-scale black-marketeers were prosecuted by the military.[citation needed]
Indian black-money Further information: Indian black money, Indian Economy#Corruption, and Corruption in India The black money market situation in India is epidemic. India currently tops the list for illegal monies in the entire world, estimated to be almost US$1,456 billion stored in Swiss banks in the form of unaccounted money.[32] According to the data provided by the Swiss Banking Association, India has more black money than the rest of the world combined.[33][34] Indian Swiss bank account assets are worth 13 times (1300%) the country’s national debt, and, if this black money is seized and brought back to the country, India has the potential to become one of the richest countries in the world.[35]
Allegations of Indians holding trillions in black money in Switzerland are, however, in dispute. Later reports, including those by Swiss Bankers Association and the Government of Switzerland, claim that these allegations are false and fabricated, and the total amount held in all Swiss banks by citizens of India is about US$2 billion.[36][37]
Prohibition A classic example of creating a black market is the Prohibition of alcohol. In the United States many organized crime syndicates took advantage of the lucrative opportunities in the resulting black market in banned alcohol production and sale. Most people did not think drinking alcohol was particularly harmful nor that its buyers and sellers should be treated like common criminals. This led to the illegal speakeasies, and organizations such as the Mafia grew tremendously more powerful through their black market activities distributing alcohol. This lasted until repeal of Prohibition.
Vertical archipelago Economy From Wikipedia, the free encyclopedia The vertical archipelago is a term coined by sociologist and anthropologist John Victor Murra under the influence of economist Karl Polanyi to describe the native Andean agricultural economic model of accessing and distributing resources. Aside from certain cultures, particularly in the arid northwest coast of Peru, pre-colonial Andean civilizations did not have strong traditions of market-based trade. Like Mesoamerican pochteca traders, there was a trading class known as mindalรกes in these northern coastal societies.[1] A system of barter known as trueque is also known to have existed in these coastal societies as a means of exchanging goods and food stuffs between farmers and fisherman.[2] A simple currency, known to archaeologists as axe-monies, were also present in the area (as well as western Mesoamerica).[3] By contrast, most highland Andean societies, such as the Quechua and Aymara, were organized into moietal lineage groups, such as ayllus in the Quechua case. These lineages internally shared labor through a system called minga. This minga labor system itself rested upon the concept of ayni, or reciprocity, and did not use any form of money as in the case of the coastal Andean traders. Fundamentally, it is a concept of "ecological complementarity" mediated through cultural institutions. [4] Some scholars, while accepting the structure and basic nature of the vertical archipelago, have suggested that inter-ethnic trade and barter may have been more important than the model suggests, despite the lack of evidence in the archaeological and ethnohistoric record.[5][6] Absent the use of trade to access resources, economic transactions were essentially intra-lineage obligations of labor. These lineages required a base level of self-sufficiency to achieve autarky. In the Andes, a long mountain range with a great variety of ecozones and resources, the need to access the proper lands for specific crops or animals meant lineages created miniature colonies or sent seasonal migration (such as transhumance) in different ecoregions. As the Andes are a relatively young mountain range, there is an especially great variation in waterfall and temperature, which has great importance for agriculture. This is all the more important as only about 2% of the land in the Andes is arable.[7]
Ecozones Headed from the arid, western coast to the humid, eastern slopes bordering the Amazon basin, there were four basic ecozones which highland Andean communities exploited:
• The quechua zone refers to relatively warm, relatively low valleys falling between 2,300m and 3,200m (6,900' and 9,600'). This area shares its name with the Quechua people and languages and was especially sought after for growing maize. • The suni zone rose from 3,200m to 4,000m (9,600' to 12,000') and is suitable for the production of native tubers and grains such as quinoa, kaniwa, and kiwicha. Given the innumerable valleys and micro-climates of the Andes, over the millennia Andean farmers developed over 1,000 varieties of potatoes, as well as other tuber species, such as mashua, ulluco, oca, and achira. • The puna zone is composed of high, cold grasslands, suitable largely for pasture by camelids, the domesticated llama and alpaca, as well as the wild vicuña and guanaco. The former were used as not only as pack animals, but also for their meat and wool. Vicuñas and guanacos, though undomesticated, were used for their fine and much-prized wool. Little agriculture is performed in the puna, though in the Bolivian altiplano intensive agriculture was possible through the use of waru waru raised bed agriculture, which used specialized irrigation techniques to prevent frost from destroying crops. • The montaña zone is humid and forested. Populations here were not as large as in other ecozones, as the plants grown in montaña areas were generally speaking not food crops, but rather tobacco and coca. Just as the puna is used to collect resources from wild animals as well as domestic ones, brightly-colored feathers were collected from wild birds in the montaña, such as macaws.[8][9]
Under the Inca See also: Mit'a The Inca state drew its taxes through both tax in kind and corvée labor drawn from lineages and administered through a bureaucracy composed largely of local nobility. The corvée labor force was used for military operations as well as public works projects, such as roads, aqueducts, and storage buildings known as tampu and qollqa. There were parallel institutions of lineage-based colonies known as mitmaqkuna, which produced goods for the state and provided strategic security in newly acquired areas, and yanakuna, which were retainers with labor obligations to higher members of the state.[10] [11] Lands belonging to the Sapa Inca, the state church, and to panaqas (lineages descending from individual Sapa Incas according to the principle of split inheritance) were often vertical arrayed to access a variety of resources. Indeed, it has been widely suggested that the terraces at Moray were testing grounds for determining which crops would grow under what conditions in order to more efficiently exploit ecozones. The terraces were apparently constructed so that different temperatures and humidities could be achieved through the creation of microclimates, and therefore produce different kinds of crops.[12][13]
Virtual Economy From Wikipedia, the free encyclopedia A virtual economy (or sometimes synthetic economy) is an emergent economy existing in a virtual persistent world, usually exchanging virtual goods in the context of an Internet game. People enter these virtual economies for recreation and entertainment rather than necessity, which means that virtual economies lack the aspects
of a real economy that are not considered to be "fun" (for instance, players in a virtual economy often do not need to buy food in order to survive, and usually do not have any biological needs at all). However, some people do interact with virtual economies for "real" economic benefit.
Overview Virtual economies are observed in MUDs and massively multi player online role-playing games (MMORPGs). The largest virtual economies are currently found in MMORPGs. Virtual economies also exist in life simulation games which may have taken the most radical steps toward linking a virtual economy with the real world. This can be seen, for example, in Second Life's recognition of intellectual property rights for assets created "in-world" by subscribers, and its laissez-faire policy on the buying and selling of Linden Dollars (the world's official currency) for real money on third party websites. [citation needed] Virtual economies can also exist in browser-based Internet games where "real" money can be spent and user-created shops opened, or as a kind of emergent gameplay. Virtual property is a label that can refer to any resource that is controlled by the powers-that-be, including virtual objects, avatars, or user accounts.[1] The following characteristics may be found in virtual resources in mimicry of tangible property. Note however that it is possible for virtual resources to lack one or more of these characteristics, and they should be interpreted with reasonable flexibility. [2] 1. Rivalry: Possession of a resource is limited to one person or a small number of persons within the virtual world's game mechanics. 2. Persistence: Virtual resources persist across user sessions. In some cases, the resource exists for public view even when its owner is not logged into the virtual world. 3. Interconnectivity: Resources may affect or be affected by other people and other objects. The value of a resource varies according to a person's ability to use it for creating or experiencing some effect. 4. Secondary markets: Virtual resources may be created, traded, bought, and sold. Real-world assets (typically money) may be at stake. 5. Value added by users: Users may enhance the value of virtual resources by customizing and improving upon the resource. The existence of these conditions create an economic system with properties similar to those seen in contemporary economies. Therefore, economic theory can often be used to study these virtual worlds. Within the virtual worlds they inhabit, synthetic economies allow in-game items to be priced according to supply and demand rather than by the developer's estimate of the item's utility. These emergent economies are considered by most players to be an asset of the game, giving an extra dimension of reality to play. In classical synthetic economies, these goods were charged only for in-game currencies. These currencies are often sold for real world profit.
Marketplace The release of Blizzard Entertainment's World of Warcraft in 2004 and its subsequent huge success across the globe has forced both MMORPG and their secondary markets into mainstream consciousness, and many new market places have opened up during this time. A search for WoW Gold on Google will show a multitude of sites (more than 90 sponsored results as of June 2006) from which Gold can be purchased. Real money commerce in a virtual market has grown to become a multi billion dollar industry. In 2001, EverQuest players Brock Pierce and Alan Debonneville founded Internet Gaming Entertainment Ltd (IGE), a company that offered not only the virtual commodities in exchange
for real money but also provided professional customer service. IGE had a trained staff that would handle financial issues, customer inquiries and technical support to ensure that gamers are satisfied with each real money purchase. It also took advantage of the global reach of synthetic worlds by setting up a shop in Hong Kong where a small army of technically savvy but low wage workers could field orders, load up avatars, retrieve store goods and deliver them wherever necessary.[3] This lucrative market has opened a whole new type of economy where the border between the real and the virtual is obscure. Hundreds of companies are enormously successful in this new found market, with some virtual items being sold for hundreds or even thousands of dollars. Some of these companies sell multiple virtual goods for multiple games, and others sell services for single games. Virtual real estate is earning real world money, with people like 43-year old Wonder Bread deliveryman, John Dugger, purchasing a virtual real estate for $750, setting him back more than a weeks wages.[4] This virtual property includes nine rooms, three stories, rooftop patio, wall of solid stonework in a prime location, nestled at the foot of a quiet coastal hillside. Dugger represents a group of gamers that are not in the market for a real house but instead to own a small piece of the vast computer database that was Ultima Online, the mythical world in which the venerable MMO Ultima Online unfolds. Such trading of real money for virtual goods simply represents the development of virtual economies where people come together where the real and the synthetic worlds are meeting within an economic sphere.[5] Although virtual markets may represent a growth area, it is unclear to what extent they can scale to supporting large numbers of businesses, due to the inherent substitutability of goods on these markets plus the lack of factors such as location to dispense demand. In spite of numerous famed examples of the economic growth of Second Life an amateur analyst in 2008 estimated the income inequity in Second Life's economy as worse than has ever been recorded in any real economy: a Gini coefficient of 90.2, a Hoover index of 77.8, and a Theil index of 91%.[citation needed] However, the application of these economic measures to a virtual world may be inappropriate where poverty is merely virtual and there is a direct relationship between in-game wealth and time spent playing. Price comparison Tools for the comparison of this secondary market have recently become more numerous. This has occurred as a response to alleviate the labor involved in leveling that requires hours, days or weeks to achieve. Being able to exchange real money for virtual currency provides the player purchasing power for virtual commodities. As such, players are guaranteed opportunities, increased skills and a fine reputation, which is a definite advantage over others. As MMORPGs continue to grow in popularity and the secondary markets grow with them (some industry experts have suggested that secondary market sales may total more than subscription sales by 2009),[citation needed] services like those above are likely to become less curiosities and more accepted means of interacting with these markets.[citation needed] Taxation Income from sale of virtual items is being considered as real revenue as players in such games have ascribed a real-world value onto them: "By taking any aspect of the game and connecting it directly to the real world, the games have only brought this possibility on themselves."[6] And as that ascribed value is being increasingly converted into real money, attention is now being given by those in taxation law and in governments. Commentators in taxation law speculate "that profits made in virtual worlds could be taxable even
before they are withdrawn as dollars."[7] The speculation seems to be based on the observation that, as one commentator said, "the easier it is to buy real goods with virtual currency (e.g. order a real life pizza) the more likely the IRS will see exclusively in-world profits as taxable."[8] Gambling regulation Conversion between in-game and real-world currency has led to direct comparisons with other on-line games of chance as 'virtual winnings'. This is why gamers and companies engaged in this conversion, where it is permitted by a game, may fall under gambling legislation. During an interview with Virtual World News, Alex Chapman of the British law firm Campbell Hooper stated: "Now we’ve spoken with the gambling commission, and they’ve said that MMOGs aren’t the reason for the [Gambling Act 2005], but they won’t say outright, and we’ve asked directly, that they won’t be covered. You can see how these would be ignored at first, but very soon they could be in trouble. It’s a risk, but a very easy risk to avoid."[9] He suggested that compliance might require MMOGs and related traders to obtain a gambling license, which is not excessively difficult in the EU. When queried about games where real-world transactions for in-game assets are not permitted, but there is an 'unofficial secondary market', Chapman responded: "Ultimately the point is whether the thing that you win has value in money or money’s worth. If it does have value, it could be gambling."[9] So to avoid regulation by these laws, the "operator would need to take reasonable steps to ensure that the rewards they give do not have a monetary value[,]"[9] possibly by demonstrating enforcement of their Terms of Service prohibiting secondary markets.
Virtual crime Main article: Virtual crime Monetary issues can give a virtual world problems similar to those in the real world. In South Korea, where the number of video game players is massive, some[who?] have reported the emergence of gangs and mafia, where powerful players would threaten beginners to give money for their "protection", and actually steal and rob.[citation needed] Other similar problems arise in other virtual economies. In the game The Sims Online, a 17-year old boy going by the in-game name "Evangeline" was discovered to have built a cyber-brothel, where customers would pay sim-money for minutes of cybersex. Maxis canceled each of his accounts, but had he deposited his fortune in the Gaming Open Market he would have been able to keep a part of it.[10] [11] A 2007 virtual heist has led to calls from some community members in Second Life to bring in external regulation of these markets: "In late July, a perpetrator with privileged information cracked a stock exchange's computers, made false deposits, then ran off with what appears to be the equivalent of US$10,000, disappearing into thin air. Despite the seemingly small haul, this heist left investors feeling outraged and vulnerable."[12] In EVE Online however, theft and scamming other players is perfectly allowed within the game's framework as long as no real world trading is committed. Players are allowed to loot all items from fallen victims in battle, but there is a disincentive in the form of NPC police intervention in highersecurity space. Virtual possessions valued in the tens of thousands of USD have been destroyed or plundered through corporate espionage and piracy. This has resulted in widespread retributive warfare and crime between various player corporations.
Black market Many MMORPGS such as RuneScape, World of Warcraft, Guild Wars, Warhammer Online, Lord of the Rings Online and Final Fantasy XI strictly prohibit buying gold, items, or any other product linked with the game, with real world cash. RuneScape went as far as making this practice impossible by removing unbalanced trades and their traditional player killing system (this was scrapped on February 1, 2011 after having been in place for 3 years), resulting in over 60,000 cancelled subscriptions in protest.[13] Final Fantasy XI and Warhammer Online both have entire task forces dedicated to the removal of real money trading from the game. To control real money trading, EVE Online created an official and sanctioned method to convert real world cash to in-game currency; players can use real world money to buy a specific in-game item which can be redeemed for account subscription time or traded on the in-game market for in-game currency.
Stability Main article: Mudflation For a persistent world to maintain a stable economy, a balance must be struck between currency sources and sinks. Generally, games possess numerous sources of new currency for players to earn. However, some possess no effective "sinks", or methods of removing currency from circulation. If other factors remain constant, greater currency supply weakens the buying power of a given amount; a process known as inflation. In practice, this results in constantly rising prices for traded commodities. With the proper balance of growth in player base, currency sources, and sinks, a virtual economy could remain stable indefinitely. As in the real world, actions by players can destabilize the economy. Gold farming creates currency within the game more rapidly than usual, exacerbating inflation. In extreme cases, a cracker may be able to exploit the system and create a large amount of money. This could result in hyperinflation. In real world entire institutions are devoted to maintaining desired level of inflation. This difficult task is a serious issue for serious MMORPG's, that often have to cope with mudflation.
Capital In these virtual economies, the value of in-game resources is frequently tied to the in-game power they confer upon the owner. This power allows the user, usually, to acquire more rare and valuable items. In this regard, in-game resources are not just tradable objects but can play the role of capital. Players also acquire human capital as they become more powerful. Powerful guilds often recruit powerful players so that player can acquire better items which can only be acquired by the cooperation among many players.
Other virtual economies Virtual economies have also been said to exist in the "metagame" worlds of live-action role-playing games and collectible card games. Other "metagame" currencies have cropped up in games such as Everquest and World of Warcraft. Dragon kill points or DKP are a semi-formal score-keeping system used by guilds in massively multiplayer online games. Players in these games are faced with large scale challenges, or raids, which may only be surmounted through the concerted effort of dozens of players at a time. Dragon kill points are not official currencies, but are created and managed by endgame guilds to manage distributions of rewards in those raids.[14][15]
Moderation on social news and networking sites On a number of discussion and networking sites, such as Slashdot, Reddit, care2 and Yahoo! Answers, points are gained through the garnering of trust evidenced in upward moderations of posted content; however, as stated by Slashdot co-founder CmdrTaco, his implementation of user moderation was not intended as a currency, even though it has evolved on other discussion-oriented sites into such a system. On some such sites, the accumulation of "karma points" can be redeemed in various ways for virtual services or objects, while most other sites do not contain a redemption system. On some sites, points are gained for inviting new users to the site.
Controversy See also: Gold farming A game's synthetic economy often results in interaction with a "real" economy; characters, spells, and items may be sold on online auction websites like eBay for real money. While many game developers, such as Blizzard (creator of World of Warcraft), prohibit the practice, it is common that goods and services within virtual economies will be sold on online auction sites and traded for real currencies. According to standard conceptions of economic value (see the subjective theory of value), the goods and services of virtual economies do have a demonstrable value. Since players of these games are willing to substitute real economic resources of time and money (monthly fees) in exchange for these resources, by definition they have demonstrated utility to the user. In January 2010, Blizzard stepped up its offensive on account security scams with the launch of a new website. The new Battle.Net account security website hopes to highlight the importance of keeping it safe when it comes to subscribers' accounts.[16] These pages are part of a larger effort to provide you with the knowledge and tools necessary to identify and report threats to your account’s safety, to spotlight ways in which we work to fulfill our security commitment, and to act as a helpful resource in case someone manages to steal account information from you. Ongoing campaign by WoW fan sites to boycott gold ads on their sites is just one of several community efforts to raise awareness against crackers.[17] Gold sellers and leveling services are responsible for the vast majority of all account thefts, and they are the number-one source of World of Warcraft-related phishing attempts, spyware, and even credit card theft. Players who buy gold actively support spam, hacks, and keyloggers, and by doing so diminish the gameplay experience for everyone else. On August 1, 2011, Blizzard Entertainment announced that their forthcoming MMORPG, Diablo III, will include a currency-based auction house, wherein players will be able to buy and sell in-game items for real money.[18] Robert Bridenbecker, Vice President of Online Technologies at Blizzard, explained that the intent behind the effort is largely to reduce account thefts resulting from player interaction with third-party sites. [19] An undisclosed fee structure including listing fees, sale fees, and cash-out fees will accompany the Auction House at launch, and all transactions will exist within the protected context of Blizzard's MMORPG. The "Real Money Auction House" (RMAH), as it is called by the Diablo III fanbase, will exist in the presence of a parallel auction house wherein items are exchanged for gold, the in-game currency. Accordingly, gold can be posted on the RMAH such that the two currencies may be exchanged for one another at the market rate less applicable fees.
Other virtual world developers officially sell virtual items and currency for real-world money. For example, the MMOG There has therebucks that sell for US dollars. If the currency in Second Life, the Linden Dollars, can be easily acquired with real money, the reverse is done through a market place owned by Linden Lab, but is not guaranteed, as the TOS of linden Lab explicitly says that Linden dollars are not redeemable. Rates would fluctuate based on supply and demand, but over the last few years they have remained fairly stable at around 265 Linden Dollars (L$) to the US Dollar, due to "money creation" by Linden Lab. The currency in Entropia Universe, Project Entropia Dollars (PED), could be bought and redeemed for real-world money at a rate of 10 PED for U.S.$ 1. On December 14, 2004, an island in Project Entropia sold for U.S. $26,500 (ÂŁ13,700). One gamer also purchased a virtual space station for U.S. $100,000 (ÂŁ56,200) and plans to use it as a virtual nightclub.[20][21] Many Korean virtual worlds (such as Flyff) and other worlds outside that country (such as Archlord and Achaea, Dreams of Divine Lands) operate entirely by selling items to players for real money. Such items generally cannot be transferred and are often used only as a means to represent a Premium subscription via a method which is easily integrated into the game engine. These intersections with real economies remain controversial. Markets that capitalize in gaming are not widely accepted by the gaming industry. Reasons for this controversy are varied. Firstly, the developers of the games often consider themselves as trying to present a fantasy experience, so the involvement of real world transactions takes away from it. Further, in most games, it would be unacceptable to offer another player real currency in order to have them play a certain way (e.g., in a game of Monopoly between friends, offering another player a real dollar in exchange for a property on the board); and for this to be necessary or valuable may indicate a Kingmaker scenario within the game. However, such rules of etiquette need not apply, and in practice they often don't, to massive game worlds with thousands of players who know one another only through the game system. Further and more involved issues revolve around the issue of how (or if) real-money trading subjects the virtual economy to laws relating to the real economy. Some argue that to allow in-game items to have monetary values makes these games, essentially, gambling venues, which would be subject to legal regulation as such. Another issue is the impact of taxation that may apply if in-game items are seen as having real value. If (for example) a magic sword is considered to have real-world value, a player who kills a powerful monster to earn such a sword could find himself being charged tax on the value of the sword, as would be normal for a "prize winning". This would make it impossible for any player of the game not to participate in real-money trading. A third issue is the involvement of the world's developer or maintenance staff in such transactions. Since a developer may change the virtual world any time, ban a player, delete items, or even simply take the world down never to return, the issue of their responsibility in the case where real money investments are lost through items being lost or becoming inaccessible is significant. Richard Bartle argued that this aspect negates the whole idea of ownership in virtual worlds,[22] and thus in the absence of real ownership no real trade may occur. Some developers have acted deliberately to delete items that have been traded for money, as in Final Fantasy XI, where a task force was set up to delete characters involved in selling in-game currency for real-world money.[23] LindeX Market Data However, Second Life has shown a legal example which may indicate that the developer can be in part held responsible for such losses. Second Life at one stage, offered and advertised the ability to "own virtual land", which was purchased
for real money. In 2007, Marc Bragg, an attorney, was banned from Second Life; in response he sued the developers for thereby depriving him of his land, which he – based on the developers' own statements – "owned". The lawsuit ended with a settlement in which Bragg was re-admitted to Second Life. The details of the final settlement were not released, but the word "own" was removed from all advertising as a result. (It should be noted that Bragg purchased his land directly from the developers, and thus they were not an uninvolved third party in his transactions.) My opinion on all these economic systems. my preference would be a gift economy because its closer to the natural order of things in this type of Economy. There would be no stealing no hoarding because everything would be available and humanity will actually care about each others well being instead of being selfish and only thinking about themselves without government forcing you to give. But,you will give willingly because its in everybody's best interest some people say but in this type of economy theirs no incentive to make new things I find this argument to be ridiculous because we have the technology to grow food with minimal human intervention shown here in these videos Hortibot Field Robot http://www.youtube.com/watch? v=FxkMCWqM9gQ&feature=related or Oxbo 3220 Citrus Harvester http://www.youtube.com/watch?v=MPVXmUb_onY&feature=related with this technology perfected we can move on and free humanity from tedious work and work on more pressing issues and have the incentive to explore bigger and better things I’m a firm believer that money itself is the thorn in humanity’s side. You should think about our society and look at how we are controlled through the money system we can grow our own food and the earth doesn't charge us a fee it is given to us as a gift possession has been taught to us in reality we don’t own anything we are aloud to live here on planet earth by the kindness of the creator of the universe who gave us life. If we as humanity continue down the same reckless path we will end up either slaves to the controllers or extinct like the dinosaur’s which path would you prefer? VIDEO'S BELOW ARE ABOUT THE CURRENT MONEY SYSTEM AND HOW WE ARE CONTROLLED BY IT Zeitgeist Addendum The Fraud of The U.S. Banking System VIDEO BELOW http://www.youtube.com/watch?v=1gKX9TWRyfs The Money Masters a History of Money VIDEO BELOW http://www.youtube.com/watch?v=iDtBSiI13fE The Secret of Oz A History of Money VIDEO BELOW http://www.youtube.com/watch?v=swkq2E8mswI The Truth About Your Birth Certificate VIDEO BELOW http://www.youtube.com/watch?v=cfnJ1rOFK7o America: Freedom to Fascism VIDEO BELOW http://www.youtube.com/watch?v=O6ayb02bwp0 The American Dream VIDEO BELOW http://www.youtube.com/watch?v=j69Ap4lndl0
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