Economic Perspective Contd Consumers have more money to spend if wages are raised Lower interest rates discourage saving encourage consumption makes discretionary income higher Interest rates are historically low right now This lowers debt burdens but encourages consumption to stimulate the economy It s basically 0 so they can t use that anymore to stimulate spending Japan has had 0 interest throughout the whole 2000s Political Economy Where do millionaires live Extreme concentration of wealth in the US 42 also have an extreme concentration of poverty Political economy refers to its political economic and legal system These systems are interdependent rely on each other cannot operate without each other Investment Scores Countries are open for business corporations have a score on whether they have a high risk or not AAA AA B B to inform investors they have scores like this for countries too S P Moody Fitch create sovereign ratings Canada and Australia have a great standing US is very low risk Greece has very high risk if you have a bad rate its going to raise the rate of borrowing money Example California S P downgraded them to A Summer 2012 US government was in lockdown and not effective or functional got downgraded by S P to AA from AAA Why country s attractiveness matters The case of FDI Foreign Direct Countries want to attract capital attractiveness has to take into account Investment Cost Benefit Risk Political system Collectivism collective goals are more important than individual goals individual rights are sacrificed for the good of the majority Plato expressed through socialism Individual direct opposite of collectivism Welfare of society is best served by letting people pursue their own economic self interest We don t want the government to tell us what to do unfettered greed and unregulated markets led to growth in 80s destroyed US in 90s and 00s Gordon Gekko 1987 excessive individualism heightened ambition greed Democracy vs Totalitarianism By the people through representatives vs One person party exercises absolute control over all spheres of human life In Russia you can t really say anything against the government of Putin band Pussy Riot was imprisoned for speaking out and released right before the Olympics Economic systems Market Economy individualism US Command Economy Everything is privatized and run by the supply and demand Regulated by the government rationing quantity and price are all planned by the government socialism state run Sweden Norway Mixed Economy Social Democracy Marxist roots large influence in Australia France Germany Norway Sweden aims to achieve socialism by democratic means through state regulation and the creation of state sponsored programs and organizations belief in public good rather than private profit Many of the services that are taken to be private in the US are provided by public means Property Rights Property A resource over which an individual or business holds a legal title Intellectual property copyrights Very important to stimulate creativity and innovation Piracy violation of property rights doesn t count as stealing Corruption BRIC countries are pretty dirty and corrupt have bad corruption scores Corruption is present in all countries to some degree if your score is low you won t get a lot of FDI lower international trade Corruption raises the cost of doing business in that Economic Development country Growth rate is measure of country s potential 3 main reasons account for the spread of democracy 1 Totalitarian regimes failed 2 Advances in Information Technology 3 Massive expansion of middle class What did Marx predict will happen Proletariats vs Beauvois Forgot about middle class which is driving China s development Democracy and Development Country needs to develop discipline more than democracy Singapore An american kid was caught graffiting and was whipped and was an international outrage We need both to operate Shift towards market based economy involves Deregulation Privatization Legal System to protect property rights not excessively Market economy and incentives Need an infrastructure where people can capitalize on their innovations America has lots of people who did this Wrapping up Countries must improve their investment score and ratings to make themselves attractive for FDI Ex Olympic bids aka extreme makeovers Market transparency is very important Countries especially the advanced economies prefer to conduct business with others that are similar to themselves upper class w upper class