ECONOMIC SYSTEMS

Macroeconomics

 

TWO BIG ECONOMIC SYSTEMS

Capitalism and Communism

In the world there are many economic systems exists among the countries such as:

1. Socialism
   
2. Communism
   
3. Capitalism
   
4. Islamic Economic System
   
5. Mixed Economy Systems
   

 

There are also many other economic systems developed by human society like Stalinism, Maoism and Feudalism but 'Capitalism' and 'Communism' are the most important from all of them. Both have exactly opposite economical, social and political chrematistics.

COMMUNISM

Communism is an economic system that stands for total public ownership and rejects private property and personal profit. Its main idea of communism had been taken from socialism, thus these has many common characteristics. It enforces the equality of common people in their wealth and power. It can be said as:

"A system of government in which the state plans and controls the economy and a single, often authoritarian party holds power, claiming to make progress toward a higher social order in which all goods are equally shared by the people."

 

About

Karl Marx became the prophet and teacher of socialism whose writings transformed socialist thinking all over the world. Marx was a philosopher and an idealist who studied history and was greatly influenced by the writings of Georg Hegel, the famous German philosopher. In 1848 Karl Marx published, with the help of his long-time friend and collaborator Friedrich Engels, "Manifest der Kommunistischen Partei," more commonly known as "The Communist Manifesto". The Communist Manifesto was a summary of his entire social and political philosophy. The publication of this book occurred at a most propitious time. The book appeared on the eve of the 1848 revolution in France and less than one year before an attempted revolution in Germany. After the failure of the 1848 revolution in Germany he was expelled from his country of origin and moved to London. He later published "das Kapital" or Capital, an analysis of the economics of capitalism. Marxism, a doctrine developed by Marx and to a lesser extent by Engels, consists fundamentally of two interrelated ideas: a philosophical view of man and a theory of history.

 

Countries

Following countries are the leading as communist countries:

• China
  
• Cuba
  
• Laos
  
• North Korea
  
• Russia
  
• Vietnam
  

 

CAPITALISM

Capitalism is a political system in which all the property and factors of productions are owned privately in order to create profit for the owner. Prices of goods and services fluctuate depending on the desire of the desire of consumer and availability of goods and services. There will be significant difference of wealth and power between those who have capital and those who don't have it. Hence its definition can be:

"An economic system in which all or most of the means of production are privately owned and operated, and where investment and the production, distribution and prices of goods and services are determined privately by producers, rather than by the state. The means of production are usually operated in pursuit of profit".

About

No one can say when capitalism first began. Clearly the development of capitalism was not revolutionary like that of communism. Instead it emerged gradually without anyone making a plan of what it should become.

In 1776 Adam Smith, a Scottish university professor, produced a book which described the workings of a capitalist society. He believed that a country's wealth depends on all people pursuing their own interests. If a person promotes his own interest he or she is unintentionally promoting his country's interest. Smith thought that governments should promote free trade and not interfere by protecting certain industries from competition. The only duty of governments, Smith wrote, was to provide services that couldn't be profitable like the building of roads, schools and churches.

Countries

These countries are the capitalist in all terms:

• United Kingdom
  
• Finland
  
• Canada
  
• Norway
  
• United States of America
  

 

CAPITALISM VS COMMUNISM

Gross Domestic Production (GDP)

For the Year 2005 (in billions $US)
Communist Countries		Capitalist Countries
Country Name	GDP	Country Name	GDP
China	1843.12	United Kingdom	2295.04
Cuba	125.71	Finland	204.38
Laos	2.66	Canada	1098.45
North Korea	720.77	Norway	285.60
Russia	755.44	United States	12438.87
Vietnam	47.11

Reference: IMF World Economic Outlook (WEO)

 

The above chart shows that overall capitalist countries are creating high GDP rates.

 

Characteristics

The following are the comparative characteristics of these systems based on criticism and favors on them:

Capitalism

• Only private sector operates all business.
  
• People can have their own properties and factors of productions.
  

 

• Each business has been operated to have personal profits.
  
• Those who have capital, they have more wealth and power than others who doesn't have.
  
• There is great competition among private businesses.
  
• Investors take risks in investments as the self-organization.
  
• The existence of markets (including the labor market.
  

 

 

 

Communism

• Communist party holds as Government to operate all kinds of businesses.
  
• There is no concept of private property and all the means of productions are owned by Government.
  
• People work for common welfare and grades not for personal profit.
  
• All the peoples are same in power and wealth.
  

 

• No competition exists. Only Government is the monopolist in all businesses.
  
• No entrepreneurship exists.
  

 

• There are no markets.

 

WHAT I SHOULD SAY

As being a Muslim I must say that Islamic Economic System is the best from all of these economic systems. It enforces a total interest free economy, but it has not been applied successfully in any country across the globe. In Pakistan we are facing a mixed economy system. All the major businesses are owned by Government or had been owned by Government and it didn't have any competitor in these businesses. Pakistan Tele Vision (PTV), Pakistan Railways, Pakistan Tele Communications Ltd. (PTCL), Pakistan International Airlines (PIA), WAPDA, Water and Sewerage Authority (WASA), Sui Northern Gas Pvt. Ltd. and State Bank of Pakistan are the kind of business those had been monopolist under the Government authorization. Now a day only some of them have been privatized or have been facing competitors and other of them are still monopolist and these are still owned by Government.

 

Communism, as it exists in the world today, and capitalism are the same things. True communism doesn't, and can't, exist. True communism depends on human nature being basically altruistic. For communism to work, the members of the society either need to be altruistic enough to want to work for the benefit of their neighbors, or they need to be forward thinking enough to see that what benefits the whole benefits themselves. They must be very far-sighted indeed, because large-scale social benefits tend to be more abstract in nature, and more difficult to recognize. Communism was a major cause in break down of Russia.

 

Capitalism encourages non-contributing, support structure industry. Many organizations make fortunes simply by shifting money back and forth, from one place to another. While this is all very integral to our economy, it only exists as a side effect -- it doesn't actually produce anything.

Capitalism allows people to starve. However, unlike communism, capitalism also allows people to better themselves and their situation. Capitalism also allows people to ensure a better future for their offspring, should they have any, and to contribute surplus resources to organizations that they believe in. To quote the old hack, it may not be a perfect system, but it is the best one we have.

MEASURES OF ECONOMIC ACTIVITIES

Gross Domestic Production (GDP)

GDP = C + I + G + X

Where 'C' is the only basic element and it denotes value of consumption.

Consumption Items:

    Goods:

        Non-durable Items → Food.

        Durable Items → Furniture.

    Services:

        Doctors, Lawyer.

And where 'I' is representing investments.

Investments:

    Financial Investments → Monetary, Checks.

    Non-Financial Investments → Rent of a building.

And where 'G' represents Government's investments, consumptions and expenditures.

    Govt. Investments → Bonds, Shares, Securities, Govt. Bills, and land rent.

    Govt. Consumptions →

    Govt. Expenditures →

 

Gross National Production (GNP)

GNP = GDP + Income level of overseas people

 

Net National Production (NNP)

NNP = GNP / GDP – Depreciation Cost.

 

National Income (NI)

    It is calculated to avoid the double counting of indirect taxes, subsidies and others.

NI = NNP – Indirect Taxes – Transfer Payments – Statistical Discrepancy – Govt. Subsidies

 

Personal Income (PI) – Personal National Income

PI = NI – Corporate Profit Taxes – Undistributed Corporate Profit + Transfer Payments (Business Consumptions)

 

Disposable Personal Income (DPI)

DPI = PI – Direct Taxes (Income Tax, Property Tax)

	GROSS DOMESTIC PRODUCTION (GDP)	700	Millions
Less:	Depreciation Cost	20
	NET NATIONAL PRODUCTION (NNP)	680
Less:	Indirect Taxes	50
Less:	Transfer Payments	20
Less:	Statistical Discrepancy	5
Less:	Government Subsidies	10
	NATIONAL INCOME (NI)	595
Less:	Corporate Profit Taxes	100
Less:	Undistributed Corporate Profit	200
Add:	Transfer Payments	20
	PERSONAL INCOME (PI/PNI)	315
Less:	Direct Taxes	50
	DISPOSABLE PERSONAL INCOME (DPI)	265

 

Method to Calculate National Income

Income Approach:
Sum of incomes of factors of productions.

Product Approach: All goods and services produced during the year.

Note: Obtained GDP will be same of both methods.

 

Aggregate Supply

All final goods and services which are produced and brought for sale to the market in whole year.

 

    Aggregate Supply Curve: Relationship between all goods and services with their respective price level, as function of price f (P).

 

Time Frames of Aggregate Supply

1 – Short-run Aggregate Supply: The positive relationship between quantities supplied and price level when all other things remain constant. In short-run only price is changing and other factors remain stable, that's why SAS is +ve slop.

2 – Long-run Aggregate Supply:

IMAGE BUILDING

 

 

▪    Meaning and implications.

▪    What is Minus Image or Negative Image?

▪    How to avoid it?

 

    In the world of business, building a positive and appealing image is imperative. The term "Image Building" is multi-dimensional and covers various aspects in the corporate world. It refers to a constructive approach in all matters, keeping in mind the essential element of courtesy, clarity, conciseness, mutual understanding, listening to and understanding other's point of view. By giving due consideration to others and adjusting oneself accordingly, one wins the confidence of the other party and establishes oneself on firm footing. This is the key to prosperity and progress in the sphere of business. Only by adopting a positive, responsible approach can the reputation an individual or firm grew. The need of image building is felt in every sphere, whether that be marketing, management, corporate structure, innovation, cultural awareness or environmental ethics.

 

    "Minus Image" or "Negative Image" can be observed in some ideas or attitude displayed or projected in such a manner that it become crude, offensive and unacceptable to others. Even if one finds something disagreeable or unacceptable, one should not express his thought in a manner which hurts others. Business ethics should be followed and certain basic principles of representing one's ideas should be adhered to 'Minus' or 'Negative', image can be avoided in a number of ways in business communication.

 

    In the world of marketing, we have 'Logo Image' and 'Global Image'. A logo is a symbol representing a company. In order to avoid a negative image of the product, the logo should be simple and symmetrical in shape. A powerful logo helps to build up the image is created through world-wide advertising or publicity of particular product. In order to remove the negative impact, global advertising should be impressive and memorable. The message in the advertisement should be reduced to an absolute minimum. The global commercial gets its message across succinctly, which belongs to universal language of picture and music. The commercials reinforce the brand-image independent of any real consideration of the product and image outsells product every time. Global image-making however, is a lengthy and costly process.

 

    To create a forceful positive image, you also stand in need of entrepreneurship. To keep away from creating and adverse image, the entrepreneur should have a clear, set goal before him. The goal has to be quite simple. The entrepreneur gets an idea, identifies his prospective customers and makes a sale. Most of all, he should be a master of risk-management.

 

Sales Letters:

 

    For many companies, successful marketing begins with the successful sales letters. A very positive and impressive effect can be created through such letter by following certain rules and principles in which the element of 'minus' image is avoided. Before you write a sales letter, put yourself in the shoes of customer. Make your letter reader-friendly. The majority of sales letters get filed, lost or binned. The reader friendly letter stands a better chance. The first golden principle of remaining away from negative image is that never insult your reader with what is obviously a mass-mailed letter. A short personalized letter, which gets to the point and clearly demonstrates a knowledge of the customer's needs, will invariably be better received. As a general rule, the more important the person, the shorter your letter should be. Managing Directors are deluged with mail. They rarely have time to do more than glance at it and are unlikely to respond to your letter themselves.

 

Business Lunch

 

    Very often a business deal can be clinched over a meal. The process of image-building can be enhanced by inviting a foreign client over a lunch in a local restaurant. The main objective during lunch is to do some business but first a friendly atmosphere need to be created. The conversation should be kept alive by talking a little about current affairs, sports, the weather and holidays. Once a friendly environment is created, one should try to get the conversation round to the subject of the contract or business. For bringing creativity and innovation is business, are should have a positive frame of mind and display a very appealing and impressive image. Such a person should be willing to take risks since those who are reluctant to take risks fail to innovate. At times, one also has to be illogical because an over-reliance on logic kills off ideas before they have a chance to develop. Negative images can be dispelled regularly re-thinking things. Problem–solving frequently involves breaking up problems into parts and putting them back together in a different way.

 

    Positive image has to be created even in the sphere of sales techniques. We have to remember that a customer is the most important person in the business, either in person or on the phone. We have to listen to everything the customer says. Even if he says 'no' we shouldn't argue with him because nobody has ever won an argument with a customer. We should never make extravagant claims for our product. Let the customer take a little more time to make buying decisions. You can't actually make people buy anything, but they want to buy, what you do is make them want to buy from you. This is possible by creating a favourable image by being honest and creating trust in the mind and heart of the buyer.

 

Multicultural Contacts:

 

    When you get into international business, you come in contact with people of different, nationalities and different cultural backgrounds. Under such circumstances, it becomes all the more difficult to avoid a negative image being created in the mind of the clients you are dealing with. They often like to get to know you before they do business with you. They also keep on changing their minds, they tend to dominate meetings, and very often they argue for the sake of arguing. The most logical and positive approach to deal with such people is to exchange information and share ideas, and in some cases, even accept then although you may not agree with them completely. Obviously in delicate negotiation, you should not always say exactly what you think. You have to express yourself diplomatically, to make your point firmly but politely. Here are a few examples of WHAT YOU THINK and WHAT YOU SAY:

 

WHAT YOU THINK		WHAT YOU SAY
1.	We are unhappy with this offer.	1.	I'm sorry but we're not very happy with this offer.
2.	We are dissatisfied.	2.	We are not completely satisfied.
3.	We can't accept it.	3.	Unfortunately, we would be unable to accept that.
4.	You said there would be a discount.	4.	We understood there would be a discount.
5.	Don't forget your obligations.	5.	I'm sure we don't need to remind you of your contractual obligations.
6.	We want a guarantee.	6.	We would need some sort of guarantee.
7.	We won't agree to this.	7.	We would find this somewhat difficult to agree to.
8.	We're shocked you expect us to cover the costs.	8.	We're rather surprises you expect us to cover the costs.
9.	That's wrong.	9.	With respect, that's not quite correct.
10.	We want a bigger rebate.	10.	Actually, we were hoping for a slightly more substantial rebate.
11.	We must finalize the deal today.	11.	We were rather hoping to finalize the deal today.
12.	You obviously don't understand.	12.	I'm afraid you don't seem to understand.

 

    All these example illustrate that whatever you say is slightly different from what you think or wish to express, but by doing so, the minus or negative image is avoided.

 

1. 'Unfortunately' and 'I'm afraid (No.3 and 12) warn the other person that bad news is coming.
   

 

1. Not very/Completely/Entirely + a positive Adjective (No.1 and 2) sounds friendlier than lots of negative adjectives e.g.:- not very good, not very popular.
   

 

1. "That would be a problem" in fact means the same as "That's a problem", but it sounds less direct.
   

 

1. "Quite, rather, slightly and somewhat" are softeners (No. 7, 8, 9 and 10). They make bad news sound better.
   
2. "You said there would be a discount" makes it sound as if you lied! "We understood there would be a discount" means it may just be a misunderstanding.
   

 

1. "You don't seem to understand" is string language but less offensive than "You don't understand" (No. 12)
   

 

Style and Ability:

 

    Coming to management styles and ability, a positive and attractive image can always be built by displaying certain outstanding traits. A person in a managerial position must be able to take initiative. He has to be a good, patient listener in order to understand other's point of view. He should stay calm under pressure and must always be prepared to take risks. In order to avoid a minus image and criticism, a manager must be conscientious and thorough. He should posses good communication skills and be energetic and assertive. He should exercise his authority but at the same time, be supportive towards his colleagues. He should motivate others by example and by being a role model. He should have a co-operative approach and be willing to delegate duties and responsibilities to others. All these qualities put together certainly create a positive image.

 

Presentation Skills

 

    In order to create a positive image, one should also have the knack of a successful presenter. For successful presentation a person should be a meticulous planner. His aim should be to inform, persuade, train or even entertain the audience. He should begin by brainstorming the ideas and deciding which are most relevant and appropriate to your audience. There should be organization in your content. You should be able to control your nerves while speaking and make maximum use of body language, visual aids and voice quality. If these elements are lacking, a negative image is bound to be created.

 

Negotiation Skills:

 

    At the negotiation table, it is essential to create a positive image so that the other party is fully convinces and shows willingness to accept your viewpoint. Before sitting at the negation table, plan your arguments thoroughly, make sufficient research, keep your objectives crystal clear in your mind, be aware of your limitations and adopt the right constructive strategy. During the negotiation, try to establish a good rapport with your opposite number, listen attentively at every stage of negotiation in order to avoid any kind of misunderstanding. Be constructive in your attitude. Treat the other party with respect sensitivity and tact, trying to avoid an atmosphere of conflict. This will create a feeling of harmony and goodwill. Be flexible in your approach and be prepared to consider a range of alternatives. When you have reached agreement, close the deal firmly and clearly without the slightest shade of doubt or ambiguity. All these skills help in a avoiding a negative image.

 

Conveying Information:

 

    Finally, coming to verbal and written communication, Business Communication can't "just-say No:" when conveying negative information, they characteristically use certain vocabulary – positive words and phrases and avoid "you" and other personalized language.

 

    For instance, instead of saying "We cannot automatically transfer funds from your savings to you current account to cover your bad cheques," it is better and far less offensive to say "The automatic transfer of funds between various types of account is outside the capacity of our current computer system and our current procedures for managing accounts." In addition, while writing, business communicators traditionally subordinate negative information in a sentence. Instead of writing "We no longer deal in manual typewriters they write "Although we not longer deal in manual typewriters, you can fund a list of electronic typewriters on Page 11 of the enclosed catalogue." Business communicators also limit the space devoted to negative information in a message and, correspondingly, reserve space for emphasizing the positive. For example, only one line in a negative message is devoted to the bad news. The rest of the message is devoted to positive opening and close and to neutral explanation. Thus the minus image has a minimal effect. Instead of saying "we cannot reimburse you for damage that occurred during storage" is better to say "Listed below is the name and number of the person to contact regarding your claim."

 

    Business communicators also frequently sandwich negative information in between information that is neutral or positive. For example, a performance appraisal might read "John has made great progress in planning visual for his oral presentations. Although he still nervously clears his throat and says 'you know' a lot, he maintains good eye contact and holds the attention of his audience by interspersing his presentation with anecdotes and interesting details."