European Economic Systems

1. European Economic Systems United Kingdom Germany Russia

2. Review . . . Types of Economies

3. Economic Continuum • No system has a pure command or market economy. • All economies combine aspects of both of the command and market economic systems – to different degrees. • USA has some government owned businesses – schools, public colleges, postal services – in addition to the privately owned businesses.

4. United Kingdom • What to produce? • Similar to the USA . . . • Largely a service based economy • Extremely efficient agricultural sector • How to produce? • Industries have much freedom • Nationalize some industries – banking • For whom to produce? • Private sector provides goods and services for domestic and international markets • Where are they on the continuum? • Far to the market side

5. Germany • What to produce? • Export based economy • Focused on manufacturing and commodities • How to produce? • Businesses are largely privately owned and independent • Increasing involvement of government in financial sectors. • Still trying to improve the East German economy to match the West German economy. • For whom to produce? • Exports are the primary focus • Billions of dollars are transferred to East German states to help modernize and update factories • Where are they on the continuum? • Market side . . . But not as far as the UK . . . Closer to a command economy.

6. Russia • What to produce? • Government is still largely involved in the economy • Must approve any investments larger than 50 million rubles. • How to produce? • Large scale production changes are difficult due to the immense bureaucracy. • Some movement towards modernizing factories and agricultural equipment. • For whom to produce? • Low tax rates to improve domestic purchases • Trying to allow for market interactions • High tariffs and minimal protection of private property make this difficult. • Where are they on the continuum? • Roughly dead center on the continuum

7. The Continuum • These 3 systems are all mixed economies . . . Leaning mostly towards a market system. • They do have some elements of a command economy.

8. Review . . . Key Concepts • Tariff – tax • A trade barrier that is used to discourage trade with foreign companies • This type of barrier would restrict trade • Created to increase the prices of imported goods and protect a country’s own industries from foreign competition • Embargo • Forbidden trade with another country • This type of barrier would STOP the importing of an item • Can be put in place for safety reasons . . . Unsanitary conditions – lead paint • Also used for political reasons . . . Countries that violate human rights • Quota • Restrictions on the amount of a good that can be imported into a country • This type of barrier can create shortages and an increase in price. • EU placed a quota on Chinese imports of clothing when France and Italy, with strong textile industries, complained about cheap import prices.

9. Summarizing Activity • Is it a QUOTA, EMBARGO or TARIFF . . . . • Only 3,000 pairs of American blue jeans can enter France. • The USA charges an extra 10 cents per pound on bananas from Costa Rica. • No Brazilian beef can be sold in Spain. • Only 10,000barrels of oil can be delivered from Saudi Arabia to Italy this month. • The EU will not accept any products from an African nation because its government will not allow free speech or freedom of religion.

10. Economic Growth • 4 factors for economic growth • Land • Capital • Factories, machines, etc. • Labor • Human capital • Entrepreneurship • Ideas, innovation and risk involved in starting a business • How is economic growth measured? • Gross Domestic Product (GDP) • Total market value of the goods and services produced by a country’s economy in a specific year. • Used to determine the health of a country’s economy and compare it to other countries.

11. How does a country raise its GDP? • Invest in human capital • Education and skills training • Smarter people leads to a more productive workforce • Increase economic growth. • Literacy rate is used to determine the educational level of people . . . • Higher the literacy rate. . . Higher the GDP • Invest in capital resources • Provides workers with the most current and updated tools. • Increases productivity and economic growth • Examples . . . • Germany . . . High GDP • Invested in education and vocational schools • Russia and Ukraine . . . Low GDP • Rebuilding economies after gaining their independence in 1990’s • Ukraine had little money for schools and teacher salaries. • Russia had outdate machines and technology in their manufacturing plants.

12. What role does natural resource play in the success of a country’s economy? • Fuel for a country’s industries. • Source of income when exported. • Examples • United Kingdom • Coal, oil, gas • Germany • Rivers, forests, large deposits of coal and iron ore • Russia • Located in remote areas • Hard to develop due to climate and transportation

13. What role do entrepreneurs play in the success of a country’s economy? • Generate new ideas • Invest in human, capital and natural resources • Willing to take risks • Help countries adapt to changing trends • Do not have as much entrepreneurship activity as the USA or developing countries . . . • Due to high taxes, lots of regulations and job security. • The EU is trying to change this through reducing taxes and regulations on small businesses.

14. Let’s Practice . . . • GDP chart worksheet. . .