Rev: Economics & the Env

Economic systems have evolved, historically over time & thus parallel general historical development from hunter gatherer society, to empires, to feudalism, to capitalism, to mixed or state capitalism, to socialism, to communism & to as of yet undefined economic systems

See Also: Unemployment

(4) Unjust distribution of resources: stratification

The distribution of resources is not a question economists usually discuss because it is often viewed as normal or functional

(5) The problem of the commons is the mkt failure wherein public, or common land is mis utilized because everyone may benefit from it while no one is responsible for, or pays for, it

The landlord tenant problem is a special case of the problem of the commons where the common property is owned by one & rented by another, who is induced to mis utilize that & not be responsible for that property

(6) Mkt assimilation, aka pacman econ, is the mkt failure whereby smaller econ enterprises are assimilated, bought up or run out of business by bigger econ enterprises, eventually leading to monopolies

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Outline on the Commons

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THE COMMONS IS PROPERTY THAT IS HELD BY THE PUBLIC

The commons is any resources held in common by the people

Today we often, but not always, call the commons public property

The commons is the opposite of private property or land which has a designated national sovereign

The commons includes resources that are not private property or public property, in that the commons includes resources for which no person, nation, etc. has ownership, & yet it has not been designated as public property

THE NATURE OF PUBLIC PROPERTY HAS CHANGED DRAMATICALLY OVER TIME

Our notion of private property is greatly expanded as compared to that of the middle ages

In the Mid Ages, peasants, i.e. the commoners had private property in the sense of their homes & personal possessions, but in another sense their sovereign, King, actually owned that property

All material property, & the people belonged to the sovereign, but in another sense it belonged to the Kingdom in that the ruler only had limited rights of bequeathal in that in most cases he could only bequeath to the eldest son

The term commons originally referred to the common people as distinguished from their rulers or a ruling class

The commons indicated the body of people not ennobled, as represented in England by the lower house of Parliament House of Commons

Later the term commons came to denote the food provided at a common table

The commons as the food provided by ruler represented the expanded obligation of the ruler to the people, & the right of the people to require the ruler to provide particular goods & services to them

The obligation of the ruler / right of the people finally expanded to include access to land held in common, i.e. the commons

THE 'TRAGEDY OF THE COMMONS' IS THAT EVERYONE TRIES TO EXPLOIT IT AS MUCH AS THEY CAN

The dilemma of the commons is that if I exploit the env, I benefit but everyone else loses; if I don't exploit, I lose & everyone else wins

Today the public property has relatively clearly defined protections that generally prevent individualistic exploitation

However, there is still large amts of resources that are not private or public property & therefore are 'the commons of modernity'

Examples of the commons of modernity include the public property, & the oceans, Antarctica, the Arctic, space, moon, the EM - spectrum, & parts of the env which cannot be made into private property such as the air, some bodies of water, many wild species of flora & fauna, etc.

The tragedy of the commons is seen in that commons areas are often 1st area threatened by misuse

Everyone can use the commons, but no one is responsible for it

It is to an individual's advantage to use the commons as much as possible since it is free

Others may use the commons up if I don't get it first

Grazing on public land encourages individuals, including corps, to graze as many cattle as possible w/o concern for the land

Wood cutting on public land encourages individuals, including corps, to log as much as possible w/o concern for the land

Agriculture industry grows as much as possible to max profits in the short term, w/o a long term concern for the land

Note that these relationships do not necessarily change even w/ private property because capitalism has created an ethic of max profits today, w/o concern for the next gen, even if they are your own family

W/ private land there is a greater chance for responsible use because a limited number of people may use the resource, & one person / grp is responsible

THE COMMONS IS AN 'INDICATOR SPECIES' IN THAT IT'S HEALTH IS REPRESENTATIVE OF ENVL HEALTH IN GENERAL

Healthy societies have had healthy commons policies

This develops a sense of cooperation & common responsibility

Commons areas are often the first to be threatened by misuse

NATIONS ARE GAINING SOVEREIGNTY OVER SOME COMMON AREAS & DESIGNATING OTHER AREAS AS 'COMMONS'

Intl bodies such as UN & EC see envl issues as a way to build their orgs: this is their legit territory

It is hard for nations to argue against the commons w/o appearing to be self interested

The envl mvmt is a creator of the modern commons

The envl mvmt has a greater vision for alt society than other soc mvmts as seen in it's critique of capitalism, alt value sys, alt soc, common property, etc.

LANDLORD - TENANT PROBLEM IS SIMILAR TO TRAGEDY OF COMMONS IN THAT USERS HAVE INCENTIVES TO EXPLOIT

Landlords pay capital investment costs

Tenants pay operating costs

Both tenants & landlords will tend to forego these costs, i.e. investments & operating costs, unless they have long term reasons not to

Landlords often have the long term interest of the value of bldg is going up

The tenant may have the long term interest of intending to stay as tenant for a long term

With the long term nature of the env, landlords do not see the value of, e.g., forest land as increasing after it is logged

Natural resource harvesters operate as tenants who are not going to stay

Landlords will not pay for good insulation unless property is increasing in value, & it benefits tenants so they can raise rents

SOLUTIONS TO THE COMMONS, LANDLORD - TENANT PROBLEMS INCLUDE PRIVATIZATION & REGULATION

The classic economists' solution to the commons landlord - tenant problem is to privatize everything

Modern economists advocate privatizing all resources, even those that are indivisible such as air, water, etc., via a stock mkt, share system

The classic liberals' solution to the commons landlord - tenant problem is public stewardship, i.e. govt ownership, mgt, & regulation of public property

Modern liberals advocate quasi public ownership by, for example, the Nature Conservancy, the people & the town of Boulder, CO, etc.

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Outline on Externalities or Spillovers

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AN EXTERNALITY IS A COST OR BENEFIT THAT IS NOT RECOGNIZED, I.E. IT IS EXTERNAL TO THE TRANSACTION

An externality, aka a spillover, is a benefits or cost associated w/ the consumption or production of a good or service which is obtained by or inflicted w/out compensation on a party other than the buyer (user) or seller (producer) of the good or service

Externalities are costs or benefits that are not included in the cost or price structure of the mkt

An external benefit, aka a spillover benefit, is the benefit obtained neither by producers nor by consumers of a production but w/out compensation by a 3rd party, including society as a whole

An external cost, aka a spillover cost, is the cost of producing a product borne neither by producers nor by consumers of the product buy w/out compensation by a 3rd party, including society as a whole

Externalities or spillovers are mkt relationships which produce the "wrong" amounts of certain goods & services

Examples of spillover benefits include the benefits to a community or a small business when a new major plant locates in a county & the benefit I receive when you are vaccinated

Examples of spillover costs include the costs to a community or a small business when a major plant closes, & the cost I incur when you are not vaccinated

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The Table on Externalities shows that externalities are common & gives examples of spillover benefits & costs

FOUR major areas of externalization or spillovers include the medical field, the environment, property rights, & econ development (or lack of)

In the medical field, the medical costs of cigarettes are borne by the general public & not just the mfrs & users; therefore, the costs of cigarettes spillover onto everyone, even non-smokers; & since mfrs do not pay these costs they escape costs that they do not have to pay for

In the environment, the costs pollution of pollution are borne by the general public & not just by the mfrs & the users of the products; therefore, the costs of pollution spillover onto everyone, even people who do not use the products that are produced by polluting factories or by the polluting products; & since mfrs do not pay for the costs of pollution, they escape costs that they do not have to pay for

In the area of property rights, the costs of unsafe products may be borne by everyone

In the area of econ development, plant closings are encourage by the fact that large firms pay only part of the total costs entailed in moving from location to location

Plant closings & relocations are externalized in that the firms pay only part of the cost while the workers & the general public experiences many of the costs

Many costs involved in plant closings are externalized & are paid by taxpayers or by individuals, especially the former employees

Externalized costs in plant closings include tax write offs negotiated btwn the firm & the new localities in which they relocate, accelerated depreciation allowances, & utility discounts

From 1996 to 2000, 61% of US corps in Am paid no corp taxes & 71% of alien corps in Am paid no corp taxes, & the rate of no tax payment is increasing

Costs which are externalized to a state or local econ reduce local tax revenues

The costs of attracting mfrs means that other taxes such as personal property taxes or sales taxes must be increased

The increased taxes to pay for business subsidies create additional difficulties for communities that are trying to attract skilled labor & professional workers who are discouraged from moving to an area w/ high taxes

The costs of attracting mfrs reduces local revenues & then local services must be curtailed

The increased taxes to pay for business subsidies create additional difficulties for communities that are trying to attract skilled labor & professional workers who are discouraged from moving to an area w/ poor services such as parks, police, ed, etc.

From the firms' standpoint, the pitting of one community or region against another to attract them to their community offers advantages

In order to attract jobs, firms induce communities to offer concessions such as lower taxes, pollution standards, & other regs, & demanding subsidies, tax holidays, free infrastructure such as water, sewer, internet, roads, etc.

Regions such as Lenowiseco have built industrial parks, offered tax breaks, low cost worker training programs, free space in buildings, tax holidays, free infrastructure, & more, all in "behind closed doors" negotiations

Offers by regions to attract a firm may be rational to the firms & the communities but they are irrational for the industry & the nation as a whole

If all businesses in an industry are receiving subsidies, then no business receives any benefits over other businesses because they all cancel each other out

When all businesses in an industry receive subsidies, it is like both teams in a game receiving the same amount of extra points

If all regions in a nation are offering subsidies, then no regions receive any benefits over other regions because they all cancel each other out

The costs of attracting businesses include the costs that regions losing the businesses must pay including moving families, shutting down schools, rebuilding schools in new locations, building new streets, etc.

Federal tax codes allow much of the value of physical plant & equipment of closed factories to be counted as depreciation against income from new plants

The loss of jobs & the loss of social safety nets because of plant closings contribute to increased problems of poverty, homelessness, & marginality

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Table on Externalities

Spillover Benefits

Spillover Costs

FB MC TF

are the benefit obtained neither by producers nor by consumers of a private product but, without compensation, by a third party (society as a whole)

are the cost or the producing of a private product borne neither by producers nor by consumers of the product but without compensation by a third party (society as a whole)

are under produced in a free mkt system

are over-produced in a free mkt system

Examples

vaccines
TB x rays
education
roads
infrastructure
clean air, water, etc.
environmental preservation

Examples
smoking
obesity
unsafe products

pollution
environmental destruction

econ development subsidies

The Table on Externalities shows that externalities are common & gives examples of spillover benefits & costs

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Outline on Public or Social Goods

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PUBLIC GOODS ARE THOSE OWNED IN COMMON, BY A PEOPLE; A PUBLIC OF A SOVEREIGN GOVT

Like the concept of the commons, public goods, including public property, has a socio histl devl & in fact, public goods are a strictly modern conception which evolved from the concept of the corp & the concept of the commons

While corps are owned by a large body of people, they have individual, or share based ownership which they may trade

The commons was land which was totally accessible to all people, could not be traded

Public property cannot be traded, & may or may not be accessible to all people

Govt property is legally public property, but as in the case of the Post Office, DOD facilities, the White House, the Chancellor's residence, etc. there is little or no public access to these properties

Public property includes everything from FS land to the EM spectrum, to public health, to lawfulness, etc.

THE BENEFIT OF PUBLIC GOODS SPILLS OVER TO MANY PEOPLE / THE PUBLIC

Public goods are those whose entire benefit is a spillover benefit (accruing not just to one person, but to all)

Many products cannot be financed by individuals through the mkt: highways, flood control programs, national defense

PUBLIC GOODS HAVE THE 'COMMONS PROBLEM' & ECONOMIC FUNCTION PROBLEMS

Public goods have all the problems of the commons including that everyone has incentives to exploit it & no one has responsibility for it

A. THERE IS NO INCENTIVE TO PRODUCE PUBLIC GOODS

Public goods have the problem that there is no incentive for private enterprise to supply them

Because there is no incentive to produce them, public goods are under - produced in a free mkt sys

B. PUBLIC GOODS HAVE THE FREE RIDER PROBLEM

The free rider problem is that people can receive benefits from a good w/out contributing to its cost

C. PUBLIC GOODS HAVE THE PROBLEM THAT THEY ARE MANAGED BY THE GOVT

Public goods have the problem the only way for society to decide how much to produce is through political means, which has problems of it's own

A democratic govt has the classic 'pitfalls of democracy' including:

1. special interests
2. clear benefits & hidden costs of public project
3. non selectivity in the choice of politician
4. unclear goals,

5. limited pwr, unlimited responsibility, extreme complexity
6. bureaucracy & inefficiency
7. imperfect institutions
8. the fallacy of limited decisions

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The Table on a Comparison of Private & Public Goods demonstrates that the mkt sys tabulates only individual wants & then aggregates them while public prop accts imperfectly attempts to acct for the 'public interest'

D. QUASI PUBLIC GOODS HAVE THE 'PITFALLS OF DEMOCRACY' & A LACK OF EFFICIENCY

Some goods are quasi public goods meaning that some portion of them is privatized, but they are considered to be vital to the public good, & are highly regulated by govt, usually meaning that they are non profits

Examples of quasi public goods, services, corps include utilities, private schools, public health, toll roads, private police, private fire depts, private / public libraries, private / public museums, private sewage disposal cos., etc.

Quasi public goods, services, corps could be subject to the exclusionary principle, but if they were, even their individual benefit would be reduced by lack of benefit to all

The problem w/ quasi public goods, services, corps is that they have a lack of incentive to perform, i.e. they tend to become inefficient

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Table on a Comparison of Private & Public Goods

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Private Property:

Public Property (Goods):

a. is divisible & is small enough for the individual buyer

a. are indivisible in that are not, or, cannot be divided

b. is exclusionary in that those who are willing to pay, get the product; those who are not willing, do not

b. are un - exclusionary in that you cannot exclude anyone, $ or not, in that they benefit all

c. includes the right to use product as owner sees fit

c. have no right to individual use & they must be used in accordance w/ generally acceptable standards

d. includes the right to bequeath

d. have no bequeathal, i.e. they remain a public good for future generations

Examples or private property include:
- a house
- surface rights, but not mineral rights
- a road
- a share of a corp
- ownership of pollution credits

Examples of public goods include:
- a lighthouse
- defense
- flood control
- public health
- insect abatement

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Outline on the Economic Functions of Govt

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SUMMARY: The govt uses its econ functions to shape our economy when it:

1. strengthens & facilitates the operation of the mkt system
2. maintains competition
3. modifies op of the mkt system to correct for mkt failures
4. redistributes income & wealth
5. allocates resources to acct for spillover costs & benefits & public goods

6. makes econ actors internalize externalities
7. increases demand to prime the econ & to correct for externalities
8. provides goods & services that would not be produced by the mkt
9. stabilizes the econ

The econ functions of govt include:

1. redistribution of income & wealth
2. manage allocation of private & public resources
3. change the composition of econ output

4. control the level of national output
5. stabilize the economy
6. control unemployment & inflation

THE ECON FUNCTIONS OF GOVT ADDRESS THE 5 ECON FUNCTIONS & MKT FAILURES

The functions of any econ include determining:

a. what the society is to produce
b. how much of each of many products to produce
c. how production is to be carried out

d. who is to receive the output
e. how & when to adapt to change

While the mkt system addresses some of the econ functions, the govt's econ functions also address some of them

Mkt failures are built in, normal functions of the mkt in which the system produces including:

1. externalities or spillovers
2. public or social goods
3. mkt instability

4. unjust distribution of resources
5. the problem of the commons
6. mkt assimilation

Mkt failures cannot be addressed by the mkt, but the govt has many options for correcting them

The Am econ is called mixed capitalism because the answers to the 5 econ functions are determined both by the govt & by private individuals

Total govt (fed, state & local) expenditures are 20% of national output

1. THE GOVT STRENGTHENS & FACILITATES THE OPERATION OF THE MKT SYSTEM

The govt provide a legal foundation & social env for the econ & society in general

The govt names the players, establish rules of the 'game' in the econ, maintains the separation of state & biz (& the separation of church & state)

The govt:
a. provides the legal status of the biz enterprise
b. defines the rights of private ownership
c. provides the enforcement for contracts
d. establishes laws & standards for measure

2. THE GOVT MAINTAINS COMPETITION

The govt regulates large business, determines which corps my merger & which may not, occasionally breaks up large businesses

The govt estbs fair competition practices

The govt estbs fair trade practices btwn US & foreign firms

Competition is a regulator in our econ in that the invisible hand:
a. guides production
b. sets prices
c. maintains consumer sovereignty
d. prices guide demand which determines supply

3. THE GOVT MODIFIES OPERATION OF THE MKT SYSTEM TO CORRECT FOR MKT FAILURES

The govt works to preserve these functions against monopoly

A monopoly occurs when the sellers become small in number through absorbing smaller firms & therefore big enough to influence total supply & therefore price

The govt prevents monopoly through antitrust laws

The govt regulates monopolies where 'natural monopolies' exist

4. THE GOVT REDISTRIBUTES INCOME & WEALTH

A shortcoming of the mkt system is that distribution of income & goods in unequal

Transfer pmts such as food stamps, soc security, corporate welfare all transfer from the monetary resources from one grp to another

Mkt intervention that redistribute income & wealth include price supports, minimum wage, etc.

Income tax & inheritance tax take greater proportion from rich than poor

The govt lessens income inequality by providing transfer pmts to the poor directly modifying mkt prices, e.g. min wage alter tax system to tax rich more than poor

5. THE GOVT REALLOCATES RESOURCES TO ACCT FOR SPILLOVER COSTS & BENEFITS & PUBLIC GOODS

A shortcoming of the mkt system is that the production of some goods imposes costs on buyers, sellers & others & these costs are not always recognized

In a competitive mkt, the resulting equilibrium output is not always the optimal output

In a competitive mkt, supply & demand often do not reflect spillover costs & benefits, i.e. externalities

A mkt externality occurs when the econ effects of mkt activities accrue to those not directly involved in the mkt transaction

Pollution is an example of a spillover or external cost

The govt corrects for spillover costs when production or consumption inflicts costs on 3rd parties

Examples of govt corrections for spillovers include:
- laws to prohibit or limit pollution
- specific taxes to equal the cost of pollution

6. THE GOVT CAN MAKE ECON ACTORS INTERNALIZE EXTERNALITIES

Econ internalization occurs when a product has spillover costs & the govt adopts policies to force producers to pay for these costs,

When costs are internalized, then the quantity of the product supplied will decrease

If spillover costs are not internalized because of govt policies, the output will exceed the optimal output

Internalizing costs occurs when the govt estbs regs or taxes to make an econ actor pay for an externality

If the govt does not force the actor to pay for the costs, i.e. internalize them, then they affect the public at large

The govt should correct for spillover benefits when there are benefits beyond the immediate consumer

External benefits accrue to parties other than the producer & buyer of a good

If there are spillover benefits, the mkt demand understates the relative importance of the product & resources are under allocated for production

If a goods has spillover benefits & no spillover costs, then too little of the good will be produced unless firms are subsidized

Goods w/ spillover benefits have an under allocation of resources & taxing the product would hurt its production

THE GOVT INCREASES DEMAND TO PRIME THE ECON & TO CORRECT FOR EXTERNALITIES

Increase demand by subsidies such as food stamps

But the purpose of food stamps is not to increase demand but to feed the poor

THE INCREASES SUPPLY TO SLOW THE ECON & TO CORRECT FOR EXTERNALITIES

The govt can increase supply by reducing the cost of production through subsidies or by price supports

The govt supply of goods such as public health & education have large spillover benefits

	8. THE GOVT PROVIDES GOOD & SERVICES THAT WOULD NOT BE PRODUCED BY THE MKT
	Private good & services that are not produced sufficiently by the mkt are called 'orphan products'
	The term 'orphan drugs' was conceived to denote that orphans might not be able to pay for drugs for rare diseases
	Public goods & services are also not sufficiently provided at all through the mkt system because people cannot be excluded from partaking in them
	In economics, the exclusion principle states that those who are willing & able to pay the price, get the product, while those who cannot are excluded
	The exclusion principle applies to private, but not to public goods
	The exclusion principle does not apply to public goods because people cannot prevented from partaking in them
	A public good is not subject to the exclusion principle because you cannot exclude someone from partaking in a public good
	The exclusion principle does not apply because you cannot keep 'free riders' from receiving benefits
	A shortcoming of the mkt system is that some goods will not be produced because there is no way of excluding free riders
	The free rider problem occurs when the benefits associated w/ public goods cannot be denied to those who are unwilling to pay for them, i.e. the free riders
	The free rider problem is the possibility that someone may benefit from a good w/o paying for it
	The govt provides some public goods & services in order to correct inequities created by the exclusion principle
	Public goods are indivisible in that they cannot be divided into priv prop & therefore cannot be sold to individuals
	Public goods yields widespread benefits which cannot readily be denied the public at large
	Because people cannot be prevented from partaking of a public good for free, no one is willing to pay unless the pmt is collectively made through taxes
	The govt reallocates resources to public goods & services
	Taxes take purchasing power from private consumption & reallocate spending power to public sector
	9. THE GOVT STABILIZES THE ECON
	Stabilization Function of govt. is the effort to deal w/ unemployment & inflation
	Unemployment: Govt. can increase its spending and/or cut taxes so individuals can increase their spending. this increases demand for output & increases production & employment
	Govt stabilizes econ beset by unemployment by increasing govt. spending reduces taxes
	Inflation: Govt. tries to decrease excess spending in economy to stabilized prices, cut govt. spending & increase taxes
	Govt. stabilizes econ beset by inflation by reducing govt. spending increasing taxes NOTE: these two conflict
	ECON IS REPRESENTED AS CIRCULAR FLOW OF GOODS & SERVICES IN ONE DIRECTION & PRICES & WAGE IN ANOTHER
Link	The Figure of the Circular Flow Model depicts the economic flows btwn household & businesses
Link	The Figure on the Govt's Role in the Econ demonstrates that the govt has the ability to affect econ flows through several processes
	THE GOVT CAN ADD SPENDING TO THE ECON SYSTEM
	Govt spending provides more demand for goods
	THE GOVT CAN ADD PRODUCTION TO THE ECON SYSTEM
	Govt production adds supply & competes w/ the private sector
	Govt production also corrects for public goods not produced & demand not registered: i.e. redistribution of wealth
	THE GOVT CAN SUBTRACT INCOME FROM THE ECON SYSTEM
	An increase in taxes subtracts from money from homes & businesses which they would otherwise invest
	The belief is that the private sector spends more wisely & efficiently than does the public sector
	The premise of the efficiency of the mkt & the inefficiency of the govt is brought into question when one considers speculation, corp crime, & poor investment on the private side; & spending on infrastructure, education, & healthcare on the govt side
	THE GOVT CAN SUBTRACT RESOURCES (GOODS & SERVICES) FROM THE ECON SYSTEM
	The govt purchasing of resources, or decrease in production of resources creates demand
	Govt action to reduce resources can help prop up demand to correct: a. a recession by encouraging general demand b. a lack public goods by encouraging private production c. a lack of spillover benefits by encouraging private production
	Adding govt to the circular flow model illustrates that govt. may affect the: a. the level of resource use b. allocation of resources c. distribution of income

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The Figure on the Govt's Role in the Econ

The Figure of the Circular Flow Model depicts the economic flows btwn household & businesses

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The Figure on the Govt's Role in the Econ

The Figure on the Govt's Role in the Econ demonstrates that the govt has the ability to affect econ flows through several processes

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Outline on the Limits to Neoclassical Economics

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LIBERALS HOLD THAT OUR CURRENT ECON SYSTEM MUST BE REGULATED BY GOVT & SOC MVMTS

While even advocates of capitalism recognize it's problems, liberals advocate stronger remedies than conservatives prefer

The nine premises of capitalism describe how neoclassical economists believe the econ should operate

The nine premises of capitalism include:

1. Private property
2. Rational, economic person
3. Competitive mkts
4. Supply & demand
5. Freedom of choice

6. Technology is neutral
7. Market is morally neutral
8. Exogenous preferences
9. Preferences are knowable & orderable

The five fundamental functions of an econ sys are answered in a particular way by the neoclassical sys, & another way by the critics of neoclassical sys

The five fundamental functions of any econ include determining:

a. what the society is to produce
b. how much of each of many products to produce
c. how production is to be carried out

d. who is to receive the output
e. how & when to adapt to change

Under neoclassical econ, the operation of the mkt sys should fulfill the five fundamental econ functions

Liberal criticisms to the capitalist mkt sys include:
a. that the competitive system develops into a monopolistic system
b. inherent income inequalities
c. market failures
d. that only “wants” are registered by the mkt
e. that the mkt system is present 'oriented'

The liberal criticisms of capitalism hold that strong remedies of regulation, taxation, oversight, & supplemental production of goods & services are needed to correct its ills

Radicals advocate even stronger solutions than liberals, opting for socialism or other forms of society

A. COMPETITIVE MKTS DEVELOP INTO MONOPOLIES BECAUSE OF 'PAC MAN' ECONOMICS & MAX OF PROFITS

See Also: Pitfalls of Democracy

Under state capitalism, i.e. today, some corps have developed mission statements of 'social responsibility'

While the strategy of corp soc responsibility has great potential, for most corps today it is implemented as a charity policy where a % of profit is given to charity

For the strategy of corp soc responsibility to be paradigm changing, corps need to internalize the strat of soc respon & implement it in their daily ops so that they are accting for extremities, spillover costs, lack of needed public goods, etc.

D. THE MKT ONLY REGISTERS 'WANTS'

Wants are different than needs in that wants are what a person can afford while needs are what a person requires

Under capitalism, needs are half of wants, & money is the other half

Because the mkt only registers wants which can be monetarily represented, non monetarized wants, social, wants, etc. go unanswered, creating social problems, strife, radicalization, & crises

Govts, charities, soc mvmts, NGOs, etc. all function, at least in part to make the system recognize individual & social needs

An example of govt registering needs is the provision for healthcare for some of the poor & elderly who cannot afford it

Govtl provision for healthcare is a public good, i.e. good for even those who already pay for healthcare because of the transferable nature of disease

An example of a soc mvmt registering needs is the provision for clean water for VA mussels as advocated for by the Sierra Club

Soc mvmts' provision for VA mussels is a public good to the extent that people care about nature, & benefit from a living species either directly or aesthetically

E. THE MKT SYSTEM IS ONLY ORIENTED TO THE PRESENT

The mkt system cannot plan ahead

The mkt system lives in the extreme shortterm

Theories of pure cap hold that shortterm planning is sufficient in that a series of decisions over time is superior to a longterm decision

Critics of capitalism, some investors themselves, for example, decry the stock mkts' emphasis on quarterly profits

But because peoples' lives, the welfare of a society, the welfare of an env, community property, etc. are all longterm goals, pure cap has difficulty addressing both their needs & wants

Because govt also has structural factors that make it difficult for it to address longterm issues, issues such as social security, the national debt, global warming, economic planning, etc. are seemingly intractable problems

The intractibleness of some social, econ, & envl problems is largely a function of the shortsightedness of the mkt & the govt, & soc mvmts are not much better

Soc mvmt have only been powerful, some argue, for a few decades, yet some are beginning to develop longterm strategic plans

Some corps, notably Japanese, then European, have also begun to develop longterm strats that by necessity must acct for social factors, externalities, needs, govtl goals, etc.

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Outline on the Economy & the Environment

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- Project: The Neoclassicist & Liberal Positions on the Environment

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INTRO & SUMMARY
The property right's solution to the envl problems, & most soc probs is to privatize
Prop rights school advocates establishing an envl mkt
Estimating the cost of producing/maintaining the env gives an est of the supply
Estimating the value of using / 'harvesting' the env gives an est of the demand
To achieve optimum envl protection, taxes, subsidies, & controls are used
The strength of the envl mkt is that it works, imperfectly
The problems w/ envl mkts, taxes, & subsidies, & controls are economic & ethical
Surveys are inadequate at determining supply & demand
Mkt pricing of envl goods will price some people out
An envl mkt will have the same mkt failures which plague regular mkts
Govt regulation is another methods to correct mkt failures in the env
Govt regulation, like envl mkts, is imperfect
Institutional envl econ builds on neo & liberal econ to acct for monetary & ethical aspects of the env

Most envl analysis is done w/ neoclassical economics

Neoclassical econ attempts to acct for mkt failure

Yet, little is done to account for non monetary assets, benefits, costs, or depreciation

THE PROPERTY RIGHT SCHOOL'S SOLUTION TO ENVL PROBLEMS, & MOST SOC PROBS, IS TO PRIVATIZE

The property rights school (PRS) is aka the public choice theory

For the PRS, the best way to deal with envl problems is to eliminate all public property

The optimal level of envl protection will be achieved by private bargains btwn actors in free mkt

The PRS & the neoclassical approaches hold that envl protection can be achieved by the mkt

The PRS & the neoclassicists believe that the mkt must be supplemented w/ taxes, subsidies, controls, tradable permits etc.

Neoclassicists advocate regulated mkts to deal w/ mkt failures such as externalities, public goods, instability, etc.

The neoclassicists aim to turn the env into a commodity, just like any other

For the neoclassicists, the price of a tree would include all of its values, commercial & aesthetic

The neoclassicists see that the env is frequently undervalued as is anything w/ spillover benefits

The env can often be used free of charge & therefore tends to get over used, & therefore degraded

THE PROP RIGHTS SCHOOL ADVOCATES ESTABLISHING AN ENVL MKT

After the 1st step of privatization is completed by dividing the env into goods & services & eliminating public prop, the next step is to estb an envl mkt

Prices, which are recognized as only an approx of value, are determined the supply & demand of the mkt: if supply is low & demand is high, then prices will be hi, etc.

Since it is not practical to provide ownership for air, oceans, species, etc., determining the cost, to est the supply curve, & determining the value, to est the demand curve, must be done theoretically

ESTIMATING THE COST OF PRODUCING / MAINTAINING THE ENV GIVES AN EST OF THE SUPPLY

The values of non divisible goods should include include normal costs as well as all spillover costs

The value of the env is based on maintenance, opportunity costs, & spillover costs

Valuing the cost of a good can be seen in the example where the cost of car is based on maintenance & what can bought instead of the car, & the cost to neighbors' health in terms of pollution, or cost to my neighbor who lost a son in the Gulf War, etc.

Values must be determined at various levels of env use / protection to come up w/ an accurate supply curve

ESTIMATING THE VALUE OF USING / 'HARVESTING' THE ENV GIVES AN EST OF THE DEMAND

Demand is determined by estbing the willingness to pay

Hedonic pricing is the practice where prices & demand are compared to real life similar goods: e.g. Nat Park prices are compared to RV park prices

Contingent valuation is the practice where prices & demand are determined by surveying people: how much would you pay?

Economists construct a demand curve by seeing how many times a person would use the env at different costs: if the Nat Park was free, how often would you visit? $5? $10? $20? $50? $100? $150?

Economists determine costs at various levels of env use / 'harvest' & come up w/ an accurate demand curve

Economists use supply & demand curves to set prices

TO ACHIEVE OPTIMUM ENVL PROTECTION, TAXES, SUBSIDIES, & CONTROLS ARE USED

Because of mkt failures, to achieve the optimum, mkt based envl protection, taxes, subsides & controls must supplement the econ system

Besides the mkt, another econ method can either substitute for the envl mkt or totally replace it

Some economists, though this is moving away from neoclassical econ to liberal econ, advocate the use of taxes & subsidies to shape econ:

Taxes & subsidies now affect the gen econ

Taxes on producers decreases supply while taxes on consumers decrease demand

Subsidies on producers increase supply while subsides on consumers increase demand

One function of the early gas tax was to use that money to subsidize farming which had the effect of increasing farm supply, & w/ demand staying constant, prices go down

An increase in a gas or energy tax has been proposed by some envlists to subsidize envl practices such as mass transit

Today, taxes & subsidies are used in many ways, including sin taxes for tech subsidies, property taxes for small biz loans, water use taxes for water treatment plant subsidies, etc.

Envlists have proposed using 'green taxes' for solar subsidies, carbon taxes for nuclear power subsidies, gas taxes to subsidize mass transit, etc.

The principle of the liberal envlists is to use tax envlly damaging mkts to reduce demand, & then use that money to subsidize envlly friendly mkts to increase supply

THE STRENGTH OF THE ENVL MKT IS THAT IT WORKS, IMPERFECTLY

Envl mkts would achieve a manageable level of protection

The mkt is the best compromiser of all the values, needs, & wants that people have in relation to a basket of goods such as the env

Envl mkts, advertising, competition, bargains, & other aspects of envl economics can bolster the case for the preservation of the env

Many agree that an envl mkt is better than no regs, no controls, i.e. a free mkt w/ no envl protection

THE PROBLEMS W/ ENVL MKTS, TAXES, SUBSIDIES, & CONTROLS ARE ECONOMIC & ETHICAL

The transactions concerning the env today exhibit mkt failure, so neoclassicists want to create a replacement mkt

For the critics of the neoclassic view, the env is not a commodity, & beginning w/ this false assumption flaws the entire project

There are also tech problems w/ the envl mkt including that the env is not divisible

Another tech problem w/ the envl mkt is that the env is not owned, is not a private good

Everyone should have access to water, air, wildlife, parks, etc.

Species & env protection is a moral question, not a mkt question

The location of the actor in the env should be as a steward, not an owner

SURVEYS ARE INADEQUATE AT DETERMINING SUPPLY & DEMAND

Because, historically, there is no base level of activity in the envl mkt, the neoclassicists rely on surveys to determine supply costs & demand values

The problem w/ surveying people about the mkt is that:

a. protest grps will not participate in surveys

b. surveys have already found that the willingness to pay bids vary widely

c. people are not sure about what they think about the env

While we may be able to use surveys for valuing access to Nat Parks, it is not clear that we can value air, water, ocean, cars, heat, elec, wood, etc.

Liberals find that surveys do not determine costs & prices because historically what people say they will pay in a survey is different that what they actually do

Another complication in the envl mkt is that in relation to the envl people decry a loss more than they care about a gain

Surveys also have the flaw that there are no individually expressed preferences

We make econ choices in relationship to other choices as when we are shopping & buy a basket full of goods

We do not make decisions w/ perfect info, but extremely limited info

It is nearly impossible to est costs & prices & only the real world can do this

But estimating envl costs & prices could be phased in in some cases

	MKT PRICING OF ENVL GOODS WILL PRICE SOME PEOPLE OUT
	The distribution of resources is an extremely important problem in relation to the env, but it is not a question neoclassic economics addresses
	Even is the env mkt could be made to work, like all mkts it is only concerned w/ individual preferences & wants, & not needs or questions of distribution: who can afford $75 Nat Park visits?
	Given the current system of subsidies, taxes & controls related to the env, such a mkt system would be problematic at best
	Sagoff holds that the econ cannot manage the env because the env is in the moral sphere, not the monetary sphere, while others would maintain it is both
	In addition to humans other species are excluded from consideration in the env
	Human rights are often forgotten in the mkt as we see by the number of people out of work & hungry
	AN ENVL MKT WILL HAVE THE SAME MKT FAILURES WHICH PLAGUE REGULAR MKTS
	The mkt cannot account for the needs & wants of future generations
	The landlord - tenant problem is problematic in the neoclassic mkt & even worse in relation to the env
	In the regular mkt, landlords pay capital investment costs & tenants pay operating costs
	In the regular mkt, both landlords & tenants will tend to forego these costs unless they have long term reasons not to
	Landlords & tenants will only pay their costs when value of bldg is going up & intend to stay as tenant for long term, respectively, & because this is not always the situation, landlord tenant relationships are flawed in the regular mkt
	Landlord - tenant relationships operate similarly in the regular mkt & the envl mkt
	With the long term nature of the env, landlords do not register the value of, e.g., forest land as increasing after it is logged; landlords do not register the value of adding insulation to their apartment bldg
	Landlords operate as tenants who are not going to stay
	Landlord will not insulate unless property is increasing in value, & it benefits tenants & they are able to charge tenants for that benefit
	The commons dilemma remains: if I exploit the env, I benefit but everyone else loses; if I don't exploit, I lose & everyone else wins
	GOVT REGULATION IS ANOTHER METHOD TO CORRECT MKT FAILURES IN THE ENV
	For liberals opposed to the neoclassic econ agenda, envl goals should be set by political debate
	Rather than using neoclassical methods of cost & price surveys, estimation of cost & price, etc., liberals advocate a political debate & govtl action to set taxes, subsidies, controls, & implement other policies to enhance envl responsibility
	For envl mkt controls to work, there needs to be a base level of performance & the env does not even approach that level, so we have little ability to est the costs & prices
	In place of envl mkt, liberals advocate non envl controls such as zoning laws, health & safety, etc.
	In place of envl mkt, liberals advocate envl controls such as catalytic converters, smoke stack scrubbers, sewage plants, reclamation, etc.
	GOVT REGULATION, LIKE ENVL MKTS, IS IMPERFECT
	Public sector failure, like mkt failure, makes operation of govt reg of the envl problematic at best, & dysfunctional at worst
	See Also: The Pitfalls of Democracy
	The pitfalls of democracy, aka public sector failure, includes the
	1. the inequitable power of special interests
	There are special interests competing on just the envl side of the debate as to whether species, water, pollution, air, etc. is the most imp
	2. fact that if benefits are not clear in the public sector, they will not be recognized
	People easily recognize the value of logging jobs, but not the value of a forest
	3. fact that if costs are hidden in the public sector, they will not be recognized
	People monetarize the cost of building an indl plant, but to not recognize the long term impact of the mercury pollution it emits
	4. non selectivity, i.e. the inability of people to select the exact type of product they want or the basket full of products they want
	Because the env has so many aspects, people prefer different mixes of it, more than all the possible combinations of 42 flavors of ice cream
	5. unclear goals, i.e. that setting any policy is problematic because constituents may have conflicting or divergent goals
	Because of all the possible selections of the env, & because there is conflict among envlists as well as btwn envlists & other actors, i.e. indlists, reclists, the public, the media, etc. for the political actors, the goals are not clear
	6. inefficiency, i.e. the fact that the govt sector, (& the mkts) can be very inefficient in providing promised goods & services
	The govt is accused of being inefficient, but other complex orgs have this problem too, i.e. the airlines, the fin mkts, telephone cos, ins cos,
	7. imperfect instits, i.e. the fact that the govt sector, (& the mkts) have problems w/ corruption
	The govt is accused of being corrupt, but other complex orgs have this problem too, i.e. Enron, World Com, Microsoft, Wall Str, etc.
	8. the fallacy of limited decisions, i.e. people readily perceive that govt limits choice, but they are less likely to recognize that they also expand choice
	People look at what they want from the env, & often cannot see, or refuse to see alternatives such as building a coal fired power plant vs. all the alternatives which are available including conservation, wind, solar, geothermal, etc.
	INSTITUTIONAL ENVL ECON BUILDS ON NEO & LIBERAL ECON TO ACCT FOR MONETARY & ETHICAL ASPECT OF THE ENV
	a. Institutional envl economists (IEEs) advocate the design mkt valuation procedures so they capture both monetary & moral aspects
	In addition to surveys, IEEs advocate the use of focus grps
	For IEEs, we must view people as both citizens & consumers
	b. IEEs advocate revamping instits so that public decisions are more able to represent a democratic choice
	Increasing public participation is a complex problem that requires innovation & a long term view
	Public participation might be increased through mkting the advantages of participation, lessening secrecy in govt, lessening the impact of money in politics, increasing the power of public meetings, & much more
	c. IEEs advocate moving beyond neoclassical econ to see how people operate in the mkt as tempered by social, cultural, psych, & ethical factors
	Moving beyond the mkt means addressing the problem of accting for nonmonetarized needs & wants
	It is not clear that nonmonetarized needs & wants can be accted for until all monetarized needs & wants are accted for because a hungry person appreciates food more than art
	d. IEEs advocate accting for how tastes, needs, wants, & demands are formed to reduce 'commercially created demand'
	The cost of a bottle of soda pop is mostly in its advertising & IEEs contend this is a waste of resources
	e. IEEs advocate measuring the standard of living based not only on income & GDP but also on quality of life & even classic economists agree

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Outline on Economic Development

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ECON DEVELOPMENT IS THE GROWTH OF THE ECON & USUALLY INCLUDES A GROWTH IN THE NUMBER OF JOBS, WAGES, GENERAL PROSPERITY, & THE PHYSICAL STRUCTURES THAT MAKE IT POSSIBLE

Economic development is the transformation of the nature & composition of the economy & usually implies increases in prosperity

Ec dev is the process whereby simple, low income national economies are transformed into modern industrial economies

ECON GROWTH IMPLIES THAT QUAL ECON GROWTH ACCOMPANIES ECON DEV AS IN PEOPLE MOVING UP IN THE CLASS STRUCTURE

Economic growth is not the same as economic development since the former implies quantitative growth only while the latter implies quantitative growth, but more importantly qualitative growth

Ec growth implies qualitative growth, a movement up the hierarchy of economic types of agriculture econ, extractive econ, industrial econ, high tech econ, & service econ

For many social activist the term econ dev is nearly synonymous w/ exploitation in that ec dev allows corps to move into an area & avoid many of the rules & reg of the indilzed nations including labor laws, envl laws, safety laws, etc.

ECON DEV IMPACTS ARE BOTH POSITIVE & NEGATIVE; FROM ED & WEALTH TO URBAN SPRAWL & ENVL DEGRADATION

For social critics, ec dev retains all or most of the negative impacts that the indlized nations experienced in their own indl rev

All participants in the ec dev debate are concerned w/ making the ec dev process less exploitative & more friendly to corps, labor, the env, etc.

At present there is no clear distinction in the language to differentiate btwn "good" & "bad" ec dev, i.e. there are no labels for different types of ec dev other than to state it is green ec dev, or labor friendly ec dev, etc.

The issue of econ dev is important because through govt policies & the policies of econ dev agencies, many other issues & policies are impacted

Econ dev pol impacts envl pol, military pol, trade pol, human rights pol, etc.

Econ dev pol often impacts the very tone the debate around other issues & thus is often defining what is important on issues, the nature of scientific studies done, & the very ground rules for what is "knowledge" & what is not by setting the parameters of the discussion

A SOCIO HIST ANALYSIS OF ECON DEV INCLUDES COLONIALISM, THEN NEO COLONIALISM, THEN NEO LIBERALISM, & NATION BUILDING

The history of economic development is that in the early 1900s, European colonialism ended

Ec dev was not recognized as a social process until after WW II

Former colonies & other countries had low living standards compared to the developed countries

The colonies came to be known as developing countries

As the concept of econ development emerges, the concepts of developing & undeveloped countries emerges

MEASURING ECON DEV IS PRIMARILY DONE VIA GDP, WHICH INCLUDES THE VALUES OF A NATION'S EXPORTS

Economists usually rank countries as developed, developing or undeveloped based on per capital income criterion

Another intl econ ranking system, which parallels the developed, developing, undeveloped system, labels nations as core, semi peripheral, & peripheral

There are several problems w/ using the developed, developing, undeveloped system to measure ec dev including currency comparisons & quality of life issues

The current measure of ec dev may result in the classification of oil rich nations w/ hi per capita income as dev, when in fact other than the oil ind, they are undeveloped

The current measure of ec dev does not effectively acct for currency exchange rates & variations in the cost of living: comparing dollars to denars & cost of living

The current measure of ec dev does not take into acct quality of life factors such as food, shelter, health, retirement, etc.

GDP, GNP, PPP HELP US UNDERSTAND DIFFERENT ASPECTS OF ECONOMIES

GDP, GNP, PPP are THREE methods of measuring income

Gross domestic product ( GDP ) is the amount of income that a given nation creates both nationally & internationally

GDP is the most frequently used measure of income

Gross national product ( GNP ) is the amount of income that is produced in each nation, thus the international production in another nation is not counted

GNP was the measure on income used until globalization became so widespread that GDP became a clearer measure

Purchasing power parity ( PPP ) is a measure that equalizes the measure of income based on the purchasing power of income for necessities

Using PPP as a measure of income means that, for example, that $55 K provides a mid class living in the US while $45 K provides a mid class living in Australia

PPP is considered to be the clearest measure of income across nations

Other means of measuring development include:

a. nutritional status
b. hospital beds per capita
c. physician per capita

d. teachers per capita
e. infant mortality
f. etc.

Examples of comparing economic development

The gap between rich & poor is over $20,000 and growing
Core: PPP GDP: $ 15,000 to $ 20,000 per yr.
Periphery: PPP GDP: $ 750 to $ 7,000

India      per capita income est at $270 in 1985
Brazil    est at $1,640,
Italy       est at $6,520

An analysis of the ec dev of Italy, i.e. Italy's living standard, is raises the question of whether 24 times greater than India's, or just how they relate to one another

The living standard gap btwn Italy & India could be biased, i.e. it could be too hi or too lo

An analysis of the comparative ec dev of Italy & India leaves no doubt that the Italian living standard is significantly higher than that of Brazil, which in turn was higher than India's by a wide margin

ECON DEV CONCEPTS DEMONSTRATE THE GROWTH OF DIFFERENT SECTORS OF THE ECON & THE FACT THAT ECONS MUST HAVE PARTICULAR CAPACITY LIKE ED IN PLACE BEFORE OTHER ASPECTS CAN MANIFEST

There are FOUR types of economic activities: Primary Activities, Secondary Activities, Tertiary Activities, Quaternary Activities

Geographical path dependence analyzes the relationship btwn the present activities & the past activities of that place

There are always different pathways to development according to the circumstances of the variations in factors involved

What is the Geographic Path Dependence of the coalfields?

FIVE CHANGES IN SOCIAL STRUCTURE IN EC DEV INCLUDE THE BASE, EC SYS, TECH, CONDITIONS, INFRASTRUCTURE

Economic Development causes changes in FIVE a society's social structure including the

a. structure of a region's economic type of base: ag, raw material extraction, industrial, info/ high tech, services

b. form of economic organization (e.g., barter, pure capitalism, state capitalism, socialism)

c. availability & use of tech

d. basic living conditions

e. physical framework or infrastructure

UNEVEN DEVELOPMENT IS WHERE AN ECON STRAYS FROM ECON PATH DEVELOPMENT

Uneven development is a problem that has plagued nations & their economies: e.g., a nation must have the infrastructure of roads, power, etc. to support an industrial base

GENDER & DEVELOPMENT: IN PERIPHERAL NATIONS, WOMEN EXCEL AT STARTING SMALL BUSINESSES WHILE PATRIARCHAL MEN DO NOT

An analysis of gender & development demonstrates that in no country are women better off than men

In the core women have 85 to 95 % of the wealth of men

In the periphery, women have less than 5 % of the wealth of men

Developers have found that women invest in new sectors of the econ, whereas men are more likely to invest in tradl areas

Women must go to new sectors to gain an econ foothold

REGIONAL PATTERNS IN DEVELOPMENT DEMONSTRATE REGIONAL EC DEV SYNERGY

Regional patterns in development are a form of uneven development

Regional patterns in development are explained by the unique interaction of factors affecting development & scarce resources, history of neglect, aka the history of exploitation, lack of investment, concentration of low skilled people, etc.

Explain how each of these has occurred in the Appalachians

In reality, many pathways exist to development

The same factors that effect econ development itself, also effect which pathway is followed

Regions are interdependent & Econ Development is based on geographic, physical & social factors

THE STANDARD PATHWAY TO DEVELOPMENT INCLUDES HG, AG, EXTRACTION, IND, INFO / HI TECH, SERVICE

The 'standard pathway to development' typically includes the SIX phases of:

a. Hunter gatherer economy
b. Agriculture economy
c. Raw materials extraction economy

d. Industrial economy
e. Info processing / high tech economy
f. Services economy

Most core countries followed the standard pathway to it's end

Most semi peripheral countries are struggling in extraction or industry econ systems

Most peripheral countries are struggling in H-G, agricultural, & extraction type of econ systems

We cannot yet foresee what the next type of economy will be for the core countries

We now understand that the pathway to development for semi peripheral & peripheral countries will not be the same path taken by the core countries

Thus economists, social scientists, politician, business people, etc. are all attempting to discover the best pathway for each type of nation to take

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Outline on Factors Affecting Economic Development

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- Project: Factors Affecting Economic Development in Appalachia

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SUMMARY: THERE ARE EIGHTEEN FACTORS AFFECTING ECON DEV, INCLUDING:
1. Location 2. State of the World System 3. Place in the World System 4. Availability of Resources 5. Societal Conditions 6. Processing Costs	7. Infrastructure 8. Technology Availability 9. Skill of People 10. State of the Industry 11. Market Availability 12. Transportation Costs	13. Govt Policy 14. Investment Level 15. Initial Advantage 16. Agglomeration Effects 17. Localization Economies 18. Urbanization Economies

, , , , , , , ,, , , , , , , , , Urbanization Effects

There are EIGHTEEN Factors Affecting Economic Development, including that:

1. location dictates centrality to resources, markets, competitors, suppliers, etc.

2. the state of the world system significantly affects economic, political & other relationships

Link

Today, most analysts believe we have one superpower
Other single superpowers include the ____________________ Empire & the ____________________ Empire
During the Cold War there were _________ Superpowers
FOR THE ANSWERS, SEE BELOW
During the WW1 Era & the Confucian era there were no superpowers

3. a nation's place in world system ( core, semi periphery, periphery ) affect whether a nation experiences a history of neglect & exploitation or history of imperialism

4. the availability of resources such as people, land, minerals, water, energy, cultivable land, etc. are important but not totally determinant

Japan & England have few resources while many peripheral nations have many

5. societal conditions such as political freedom, patriarchy, religion affect the economy because they affect "human capital"

6. processing costs such as labor costs, resources, technology, transportation have a direct impact on any economic project

7. infrastructure such as roads, power, ports, warehouses, etc., are the necessary foundation for any type of economic development

Each type of economic system ( agriculture, extraction, industry, etc.) needs a specific type of infrastructure

Link

Give an example of two types of different economic systems & their infrastructures

8. appropriate technology availability is important

Economies must have the physical technology & the expert systems necessary for their stage of development not just computer tech & telecommunications, but technicians, support services

Nations must have appropriate technical systems

A common problem in economic development is that nations often try to leap too far ahead in technological & economic development

Russia & Stalin succeeded at this after WW 2

China & Mao failed in the 50s & 60s

9. the skill of people including educational level, technology level, ideology, etc. are important human capital features

10. the state of industry includes such factors as support services, suppliers, subcontractors, market, chain of production, etc.

11. market availability includes such factors such as chain of production or final market: proximity? competitiveness? saturation / maturity?

12. transportation costs are an important infrastructure cost, & the basic forms of transportation are RR, air, semi trucks, river shipping, ocean shipping

13. govt policies include taxes, tariffs, subsidies, labor conflict, war, etc.

Governments also affect stability: businesses detest uncertainty more than anything

14. investment level determines how fast an economy can change, grow & develop

Ultimately it comes down to 'Do people have the confidence to invest in this location?'
Examples: US, Russia, Iran

15. the initial advantage emphasized the importance of an early start

Being 1st often better than being best
Example: Microsoft windows may not be as good as other operating systems

Link	16. agglomeration effects are the advantages of clustering w/ other firms, industries, countries, etc.
	Agglomeration effects are also known as external economies which are the costs or benefits that arise from circumstances beyond the orgs' control
	THERE ARE SIX CAUSES OF AGGLOMERATION EFFECTS WHICH INCLUDE:
	a. backward links, which are strong, competitive, innovative suppliers
	b. forward links, which are strong, competitive, innovative markets, including producer markets
	c. ancillary (service) linkages, which include services & subcontractors
	d. the economies of scale, which assist agglomeration in that it is more efficient to build bigger facilities which encourages suppliers etc.
	e. atmosphere, which reflects a community of interest among producers, govt, research instits, etc. which creates flows of resources, info, products
	f. social capital, which consists of labor & infrastructure base are built
	Areas such as SW Va are known for a good work ethic
	17. the localization economies are impacted by the agglomeration effect of a location in FIVE areas including an increase in: a. the pool of specialized labor b. population c. support business d. tax base e. infrastructure
	18. For econ dev, urbanization economies are impacted by the agglomeration effects of an urban area
	THERE ARE FIVE FACTORS AFFECTING ECON DEV IN THE CORE INCLUDING THE:
	a. initial advantage
	b. agglomeration effects
	c. localization effects
	d. cumulative causation
	Gunnar Myrdal held that cumulative causation is a spiral of agglomeration & local effects that attracts the entrepreneurial types: young, enterprising people w/ capital
	e. backwash effect
	The backwash effect occurs when one region saps resources of adjacent regions which helps explain why economic development is so uneven

	THERE ARE SEVEN FACTORS AFFECTING ECON DEV IN THE PERIPHERY
Link	1. Spread effects are the positive impacts of econ dev on a region or adjacent regions, which is the opposite of backwash effects
Link	2. Import substitution is the process by which domestic producers provide goods or services that formerly were bought from foreign producers
	Import substitution allows the periphery to become independent of the core
	3. Agglomeration diseconomies mitigation is the attempt by a nation to reduce the negative effects of urbanization, industrialization, development such as higher prices, traffic, waste disposal, higher taxes, & pollution
	4. Creative destruction occurs because old economies are always being replaced by new economies
	Pac man economics dictates that the big firms takeover/eliminate little firms Example: Deindustrialization in today's core
	Deindustrialization is the process by whereby major industrial nations or regions lose their industry, usually as a result of it moving to semi peripheral or peripheral nations
	5. Govt intervention occurs because today most governments take some responsibility for stimulating their economies via THREE major strategies
	a. Monetary policy which primarily manipulates interest rates & the money supply
	b. Fiscal policy which primarily manipulates govt investment & tax policies
	c. Econ development policy such as when the govt subsidizes & builds economic development to estb, for example, growth poles & enterprise zones
Link	6. Growth poles are economic activities that are deliberately organized around one or more high growth industries
	Govt & industry often cooperate to develop a particular hi growth industry, e.g. propulsive industries, & sometimes both actually participate in a project
	7. Enterprise zones are government created areas in which policies are structured to encourage econ dev
	Enterprise zones usually have low taxes or are free of some other type of regulation

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Superpowers

Single superpowers include the ____________ Empire & the ____________ Empire
Roman British

During the Cold War there were ______ Superpowers
Two

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Example of Economic Systems & Infrastructures

Old ag needed very little
New ag needs roads, RR's, grain storage

Industry needs power, steel, & other basic commodities

High tech needs the internet

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Examples of Agglomeration effects

- Silicon Valley
- Motor Alley
- Med Centers

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Examples of Spread Effects

- farming area transformed into bedroom community
- adjacent areas supply central area

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Examples of Import Substitution

Japan: started making own textiles & heavy engineering

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Examples of Growth Poles

Autos & roads
Shipbuilding
Biotech
Internet

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Outline on the Lenowisco

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Lenowisco: Lee Norton Wise County

Lenowisco is a local development coalition covering Lee County, the city of Norton & Wise County

ARC signifies the Appalachian Regional Commission

ARC was established by President Kennedy in 1965 to promote economic development of the Appalachian region

ARC & Lenowisco had FOUR original goals, including
         a. to increase road building
         b. establishing 200 growth centers
         c. building infrastructure
         d. the creation economic incentives: tax breaks

The TWO major critiques of Lenowisco are that
a. the growth centers are too small & too numerous
b. they built a good highway system but the secondary roads are weak

Neither Lenowisco nor ARC are formally coordinated w/ efforts to develop tourism or eco tourism

No environmental analysis is done by these econ dev bodies other than that required by the EPA such as EISs

Econ dev & concern for the env are not integrated at the policy level in the Appalachian region, nor in most regions

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Outline on Globalization

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- Project: Globalization & the Standardization of Culture

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- Project: Work in the Global Economy

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GLOBALIZATION IS THE INTERCONNECTEDNESS OF DIFFERENT PARTS OF THE WORLD THROUGH ECONOMIC, ENVIRONMENTAL, POLITICAL, CULTURAL, ETC. CONVERGENCE & CHANGE

Globalization is a trend whereby production, competition, & economic exchange increasingly occur on a worldwide scale

Given the impact of globalization, there is almost no remote place on Earth

The effects of globalization include the growth of multinational corps., an increase in international trade, the creation & mystification of global content, the internationalization of capital markets, the creation of nascent world govt. & global regulatory agencies, the homogenization of culture, creating a global western culture, and the polarization of culture, creating a clash of cultures aka, cultural wars