Unit 1 Comparative Economic Systems PDF

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T1.FUNDAMENTALS OF THE WORLD ECONOMY 1-Controversy in economics. 2-Structural analysis 3-World economy of economic science 4-Studies of the world economy in Spain 5-Question of concepts (internationalization, globalization) 6-The importance of statistical sources in understanding the reality of the world economy. 1-CONTROVERSY IN ECONOMIC SCIENCE The lack of agreement in the currents of economic thought leads to a controversy between the different theories or economic conceptions currently in force. The discussion focuses on the method of analysis used by the conception of reality that they defend. We can distinguish between abstract developments that seek to make formal models designed to enunciate the great economic laws and analyzes that start from reality and seek to give a direct explanation of it through observation. On the one hand, the orthodox or conventional line, A. Smith and the classics up to neoclassical theory and the synthesis between classics and Keynesians, with the most recent developments of monetarism and rational expectations. Reality is considered here as a harmonious whole that tends towards equilibrium. It is a mistake that external forces intervene, because they will distort the economic functioning and, far from solving it, they will make the problems even worse. On the other hand, W. Petty, Cantilo, Quesnay ... (fundamentally Mercantilists and Physiocrats). Later it is developed by Marxist, historicist, institutionalist, post-Keynesian and structuralist schools. It considers the economic reality, not as harmonic and in balance, but as a phenomenon that advances in irreversible or historical time, in imbalance, crisis, contradictions, concord and antagonism. This leads to a non-liberal conception of the economy. Therefore, the intervention of external mechanisms (the State) is necessary in order to achieve stability and a better distribution of income and well-being of the population. However, the economy has not been able to solve the fundamental problems raised of inequality and cyclical movements that create instability and imbalances. To understand reality, it is necessary to have both: economic theory and applied economics, the liberal current and the interventionist current; and within each one of them, with the different conceptions that form it. 2-STRUCTURAL ANALYSIS Economic structure: set of elements and stable relationships that define a phenomenon or a reality. JL Sampedro defines it as “a set of elements and relationships that characterize, with a certain permanence, a certain real situation. The Economic Structure will aim to study the interdependence relations that are endowed with a certain permanence and that link the main components of a globally considered economic reality ”. 1

More characteristic elements emerge: globality (analysis made from the totality of reality), interdependence and permanence; in addition to dynamism (phenomena / realities in motion, not static) and change (irreversible, historical time). The structural analysis thus is configured with profound differences in relation to the conventional conception of the economy, not having such an elaborate and sophisticated theoretical development. 3-THE WORLD ECONOMY OF ECONOMIC SCIENCE. Economic Science (integrated into Social Sciences) is divided into different branches, among which the World Economy stands out. We can distinguish three branches:  Economic Theory, subdivided into Micro and Macroeconomics, which aims to build theoretical models that enunciate general laws.  Economic Structure, which analyzes and explains economic reality directly.  Economic Policy, which analyzes the forms of intervention of the different public administrations in the economy. In Spain, a more Anglo-Saxon model has been chosen that distinguishes between abstract economic theory (economics) and applied analysis (applied economics), which collects research and teachings on Economic Structure, Economic Policy and an important part of the studies of mathematical and statistical techniques related to these empirical studies, including econometrics. Reality is one, Science, the analysis of that reality must be one. The World Economy is a branch of Applied Economics, dedicating itself to the analysis and explanation of reality and those that explain the intervention of States and Intergovernmental Organizations or Agencies in that economic reality. 4-WORLD ECONOMY STUDIES IN SPAIN The greatest exponent in Spain in this study is Jose Luis Sampedro, especially developing studies of poverty and the realities of underdevelopment, from a structural perspective, a perspective that he has also developed in his publications. Studies of the World Economy have had little development in Spain compared to what happened in neighboring countries. The look inward throughout the Franco era has made these studies have been in the background. Integration in the European Union and with it our inclusion in the international economic context, studies on this matter began to proliferate. 5-A MATTER OF CONCEPTS. We can distinguish concepts such as "international" and "internationalization" from those of "global" and "globalization." 2

The former put the accent on relations between countries or nations. On the contrary, the latter place it in the global sphere of companies and other economic agents that increasingly act without taking into account or ignoring the idea of the nation and its borders. These are two successive stages in the intensification of relationships on a planetary scale. First there is a process of internationalization of the economy, and then it is overcome by a process where the nation entity ceases to be relevant to take its place the world entity: it is the globalization of the economy. On the other hand we will use the terms "world" and "globalization" and not those of "global" and "globalization". 6-THE IMPORTANCE OF STATISTICAL SOURCES IN THE KNOWLEDGE OF THE WORLD ECONOMIC REALITY. The success of many economic policy measures depends on the statistical information that is collected for this purpose. We can highlight two negative effects caused by a deficient source of information in the adoption of economic policy measures: - the poor adaptation of the same to the problems that it tries to solve. - And its low incidence in the groups on which it intends to influence. People linked to the study of Economics analyze problems and situations that necessarily require the use of relevant statistics. Reasons that appear for the poor use of statistics: 1. the delay in their publications 2. do not correspond to real needs 3. the quality of the statistics is sometimes quite poor in terms of their reliability. 4. The agencies responsible for preparing them are reluctant to provide certain information. 5. The existence of such statistics is unknown. The sources used have been the statistics provided by organizations such as the World Bank, the General Agreement on Tariffs and Trade (GATT), the International Monetary Fund (IMF), the UN, etc. The one that provides the most complete data is that offered by the World Bank, in World Development Reports, published annually since 1978. Another annual report of maximum interest is the Human Development Report (edited since 1990), published by UNDP. Of the various institutions that emanate from the United Nations, we must highlight the United Nations Conference on Trade and Development (UNCTAD), founded in 1964. Special mention deserves the FAO created in 1945 to improve the current levels of world agricultural, livestock and fisheries production. Another specialized agency of the United Nations is the ILO (International Labor Organization), founded in 1919, promoting among the nations of the world programs that allow achieving full employment and raising the standard of living. The United Nations Industrial Development Organization (UNIDO), dedicated to promoting efforts to achieve greater sustainable industrial development, 3

especially in developing countries. The WTO brings together 131 member countries, highlighting among its functions the administration of trade agreements and the supervision of national trade policies, providing technical assistance to the different member states. This organization is in charge of succeeding the General Agreement on Tariffs and Trade (GATT) The OECD (Organization for Economic Cooperation and Development) provides its 29 member states with an adequate forum for joint analysis of different economic policies with a very specific purpose: to achieve higher levels of excellence in the economic growth of these countries and to provide support and cooperation. to those non-member countries with lower levels of economic development. In 1945, the International Monetary Fund currently has 182 member countries, and one of its basic purposes is to promote monetary cooperation policies in the international arena, facilitate the balanced expansion of international trade, and provide assistance in the establishment of the multilateral exchange systems. T2.PROCESS OF GLOBALIZATION OF THE ECONOMY 1-Trade as a key element of globalization  Born as foreign trade  Generalization of trade in the Ancient Ages  Middle Ages  Commercial revolution  Industrial revolution and economic liberalism 2-Monetary globalization (gold standard) 3-Financial globalization (cold capitalism) 4-Productive globalization 5-Other induced globalizations (Internationalization of the population) 1-TRADE AS A KEY ELEMENT OF ECONOMIC GLOBALIZATION.  Trade is born as foreign trade Commercial activity arises when there is something that can be exchanged. It was not until well into the Neolithic stage (from 10 or 15 thousand years ago until 4000 or 3000 BC) when a significant increase in productivity occurs for the first time that gives rise to the surplus, produced by the conjunction of several factors:  emergence of agriculture and livestock, and as a consequence the profitability of appropriating the work of others, since it already produced more than it needed for its own consumption. From this moment on, wars are not only reduced to increase or improve hunting territories, but also to take prisoners who can become slaves (who provide an extra surplus with their work).  Specialization in eminently cattle tribes compared to agricultural tribes, is what provides the interest and the need for exchange between them as a form of economic relationship for moments of peace. Thus arises the first conception of trade that was born as foreign trade.

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At this time, a certain textile, ceramic and slave industry also began to emerge. Specialization and, therefore, trade began to be determined by the knowledge of the technique to produce the different goods and the possibilities offered by the natural environment. The discovery and use of metals (around 4000 BC) represented a new productive revolution that increased surpluses and with it specialization and trade. At this time we can already speak of a rudimentary internal trade system, with the appearance of artisans who produce goods not directly dedicated to consumption. But the effect of the use of metals that interests us most here is the exchange of raw materials for manufactured products. It was necessary to extract and / or buy the metals (copper, bronze and iron) from where they existed to be used where the technique for it was known (Egypt and Mesopotamia first, Greece and Rome later). 

Generalization of trade: the Old Age

Egypt will be the first great empire. It establishes commercial relations with the whole known world: through the Mediterranean with Cretans, Tartessians, Phoenicians and Greeks; across the Nile to southern and western Africa; and, through the desert, with the peoples of the East to India. To Egypt we owe the beginning of maritime trade. However, it will be the Cretans and Phoenicians who will develop it throughout the Mediterranean and even along the Atlantic coasts to Britain. Egypt never became a great commercial emporium, as Mesopotamia and Syria would be. Egypt was largely a closed economy where foreign trade was of little importance in relation to its great economic potential. The most flourishing time of this trade was during the imperial era (15th and 14th centuries BC) It will be Mesopotamia that will establish large-scale commerce. The Phoenicians, a people of merchants, extended maritime trade to the entire Mediterranean and the Atlantic coasts to Britain. If foreign trade is generalized with Greece, it was with Rome that the foundations of the first world empire were laid. However, the Roman Empire was never a commercial or industrial empire, but a construction founded on agriculture and where military demands played an extraordinarily large role. It must be said, however, that both the Greek and Roman colonies played a role similar to the later ones: supplying raw materials at affordable prices in exchange for manufactured goods, usually at comparatively high prices. That is to say, already at this time a generally asymmetrical commercial and economic relationship was established between the metropolis and the colonies or countries that did not have equal power. 

The Middle Ages, waiting time?

During the first centuries of the Middle Ages, the evolution towards an eminently agrarian and natural economy continued, where commercial and monetary aspects were largely forgotten. The Muslims, Byzantines and Jews were the ones who contributed most to the 5

preservation of the monetary economy of the Middle East, which they would later transmit to the agricultural-type economy of Western Europe. It was precisely the commercial penetration of these peoples in the West that made possible the transition from an eminently natural economy to a capitalist and credit economy that would characterize Western Europe at the end of the Middle Ages and would later allow the passage - already in the 16th century. what has come to be called the Commercial Revolution. There is a change in the relative importance of Arab and Byzantine merchants to European merchants linked to the great commercial cities that began to emerge. With the city, the other fundamental element of the medieval "world economy" is undoubtedly trade, and this is also shown by F. Rörig when he says that the "soul and support of the medieval world economy is trade and not product". This trade was clearly asymmetric, it served for the appropriation of the productive surplus of the different internal and external economic activities in the hands of the merchants. This was functional for the evolution that would take place later, since the accumulation of wealth that it caused will facilitate the appearance of the first capitalism (commercial capitalism). The Middle Ages vanished in the 14th and 15th centuries, giving rise to the Modern Age, thanks not only to the appearance and development of cities, but also and precisely thanks to their commercial activity and the accumulation of capital that it fostered. The cities will become the true architects of the capital that it created. Venice, Pisa, Genoa, and Amalf dominated the Mediterranean trade. This dominance was further reinforced by the leagues (hansas) or federations of cities and the merchants' associations of different cities. The most important were the Teutonic Hansa or Hanseatic League. 

The Commercial Revolution

Commercial revolution: change from natural economy to monetary economy. The appearance of capital and credit was a very important propulsion in economic activity. The injection of wealth, especially gold and silver, which came from the discovery and exploitation of the Americas by the Spanish and of North Africa, India and China by the Portuguese, significantly helped. The trade reached a volume, a variety and a geographical extent hitherto unknown. There was a monetary, industrial and transport development according to this civilization that was beginning to be global. The rivalry between the emerging commercial empires was clear. The shopping centers moved to Lisbon, Seville, Cádiz, Bordeaux, Nantes, London, Liverpool, Antwerp, Amsterdam ... All this was made possible by the appearance of a modern banking system and the stock market. The first to use this name was Bruges. The first international stock exchange was Antwerp. Securities exchanges began with municipal loans and later the financing of government “stocks”. The true stock exchanges did not appear until the end of the seventeenth and during the eighteenth century: London, Paris, New York. All this favored trade and economic development, appearing for the first time 6

"soap bubbles" (the South Sea Bubble and the Mississippi Bubble) that will ruin many people and concentrate wealth even more. The appearance of mercantilist ideas allowed to increase the power of the State, propitiating a new rivalry very harmful for all the European countries. Trade wars spread to the colonies, reducing themselves to mere suppliers of raw materials for the metropolis and a market for the exports of its industrial products. Although this doctrine (mercantilism) was beneficial at first for the metropolis, it progressively plunged them into an unbearable "corset" that restricted their capacity for growth, exploding with the Physiocrats and later the liberals of the 19th and 20th centuries. All of this led to the Industrial Revolution. 

the Industrial Revolution and economic liberalism.

IR was a great qualitative change. The new machines, the manufacturing system, the development of the railways and the progress of steam navigation, brought about a great increase in goods and made their transport and distribution much easier and cheaper. A wave of free trade arises that was spreading throughout the world. It is about freeing foreign trade, an idea that arose as a reaction to commercialism. An example of this is Prussia where internal customs barriers were removed and the state was transformed into a fiscal unit. Taking into account the hegemony of England in all branches of industry, this liberalization did not entail an excessive cost. These measures favored the extension and deepening of world trade in the economy of the different states until the First World War. There is a geographical extension of trade towards the interior of the new discovered and conquered lands. The most important thing in international trade throughout this period is the fight for raw materials that are becoming scarce and that it is necessary to control. And secondly, the fight for the markets. The production is growing much more than the demand and, it would lead to a depletion of the same sooner or later. The hardest hit were the less developed countries and the colonies. More than 80% of the imports of the main industrialized countries consisted of raw materials and food products. Foreign trade was concentrated in developed countries. 2-MONETARY GLOBALIZATION The globalization of the economy beyond trade arises basically in the nineteenth century in the middle of the Industrial Revolution: monetary and credit activity. Money arises from a need for exchange that intensifies as the division of labor deepens. It requires an alternative to barter as a primitive form of commerce. The "money" arises fundamentally to respond to a need for foreign trade. The term "money" arises in the Roman monetary system, it is the basic unit of account of this system, represented by a silver coin with this name. The multiples were also regulated in wages and pounds according to the purity of 7

silver (just as the purity of gold was measured in carats, that of silver was estimated in money). A law of 1,000 thousandths, equaled 12 money. This system was spread by Charlemagne throughout Europe. Even Great Britain corresponded to this equivalence with its own monetary system: the shilling and the penny corresponded respectively to wages and money. The characteristics necessary for a good to be considered as money were fundamentally high exchange value in relation to its volume and weight. Although at first a great diversity of goods were used as such, the use of the latter soon became general, specifically gold and silver, and they could be minted without losing part ...