Will the Real Capitalism

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Will the Real Capitalism Please Stand Up?
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Capitalism is identified by its characteristic
institutions
Institutions the formal and informal rules of
the game that shape incentives and outline
expected and acceptable forms of behavior in
social interaction.

• Private Property Rights
• Rule of law
• Open, competitive markets
• Entrepreneurship and innovation

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ECONOMIC ANALYSIS clearly present the component
is present in the economy with few
exceptions generally present the component is
present in the economy, but with many or
significant exceptions generally absent the
component is only present in the economy in some
limited forms clearly absent the component is
almost entirely excluded from the economy not
enough information
Present ? Evidence?
markets
private property
rule of law
entrepreneurship
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United States

• The judiciary functions independently and
  predictably although serious constitutional
  questions have arisen regarding the government
  mandated health insurance decision.
• Corruption and cronyism is on the increase and is
  undermining the institutional integrity of the
  rule of law, resulting in an 86th percentile
  ranking in control of corruption and a corruption
  perception index of 7.1 (out of 10) by
  Transparency International and a decrease of 4
  points in the heritage Foundation score to 71
  from a previous 75 in 2010.
• Property rights are guaranteed, although affected
  by increasing regulations, ranking the US 19th in
  the world, with a score of 85 out of 100 by the
  Heritage Fndn.

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Specific Situation Apple Patent Victory
Aug. 25, 2012 SAN JOSE, Calif.Nine jurors
delivered a sweeping victory to Apple Inc. in a
high-stakes court battle against Samsung
Electronics Co., awarding the Silicon Valley
company 1.05 billion in damages and providing
ammunition for more legal attacks on its
mobile-device rivals. Jurors Friday found that
Samsung infringed all but one of the seven
patents at issue in the casea patent covering
the physical design of the iPad. They found all
seven of Apple's patents validdespite Samsung's
attempts to have them thrown out. They also
decided Apple didn't violate any of the five
patents Samsung asserted in the case.
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ECONOMIC ANALYSIS clearly present the component
is present in the economy with few
exceptions generally present the component is
present in the economy, but with many or
significant exceptions generally absent the
component is only present in the economy in some
limited forms clearly absent the component is
almost entirely excluded from the economy not
enough information
Present ? Evidence?
markets
private property
rule of law
entrepreneurship
Prices and products determined in markets
clearly present
clearly present
Patents upheld
Courts act and decisions are enforced
clearly present
Millions of companies operate in every sector
clearly present
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2012 Country Scenario Updates
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Capitalism is best thought of not as a system,
but as a continuum of institutional combinations
. . . .
Less capitalist
More capitalist
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Capitalism is best thought of not as a system,
but as a continuum of institutional combinations
. . . .
Czech Republic
Peru
Uganda
Indonesia
Egypt
Less capitalist
More capitalist
Some institutional forms confer benefits on the
poor . . . and others do NOT.
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Heritagewww.heritage.org/index/
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(No Transcript)
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• Ranking Criteria
• Size of government
• Legal system Property rts
• Sound money
• Freedom to trade internationally
• Regulation

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Process Identify quantifiable data that can be
used to rank countries. Consider how these
measures connect to the institutions we ranked in
the Will the Real Capitalism? activity
1. Size of Government A. Government
consumption B. Transfers and subsidies C.
Government enterprises and investment D. Top
marginal tax rate (i) Top marginal income tax
rate (ii) Top marginal income and payroll tax rate
markets, entrepreneurship
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2. Legal System and Property Rights A. Judicial
independence B. Impartial courts C. Protection of
property rights D. Military interference in rule
of law and politics E. Integrity of the legal
system F. Legal enforcement of contracts G.
Regulatory restrictions on the sale of real
property H. Reliability of police I. Business
costs of crime
rule of law, entrepreneurship, property rights
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3. Sound Money A. Money growth B. Standard
deviation of inflation C. Inflation most recent
year D. Freedom to own foreign currency bank
accounts
entrepreneurship
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4. Freedom to Trade Internationally A.
Tariffs (i) Revenue from trade taxes ( of trade
sector) (ii) Mean tariff rate (iii) Standard
deviation of tariff rates B. Regulatory trade
barriers (i) Non-tariff trade barriers (ii)
Compliance costs of importing and exporting C.
Black-market exchange rates D. Controls of the
movement of capital and people (i) Foreign
ownership/investment restrictions (ii) Capital
controls (iii) Freedom of foreigners to visit
markets
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• Regulation

A. Credit market regulations (i) Ownership of banks (ii) Private sector credit (iii) Interest rate controls/ negative real interest rates B. Labor market regulations (i) Hiring regulations and minimum wage (ii) Hiring and firing regulations (iii) Centralized collective bargaining (iv) Hours regulations (v) Mandated cost of worker dismissal (vi) Conscription C. Business regulations (i) Administrative requirements (ii) Bureaucracy costs (iii) Starting a business (iv) Extra payments/ bribes/favoritism (v) Licensing restrictions (vi) Cost of tax compliance
Markets, entrepreneurship
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Fraser Institute Index of Economic Freedom
2013 (Released Sept. 2013)
Hong Kong Finland Canada Chile
Jordan U.S. Ireland Peru Israel
Czech Republic Poland Uganda Malaysia
Indonesia Belize Russia Egypt India
Venezuela
2011 data

10 9 8
7 6
5
Most Free Hong Kong 8.97 Least
Free Venezuela 3.93

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Fraser Institute Index of Economic Freedom
2012 (Released Sept. 2012)
2010 data
Hong Kong Canada Finland Chile
Ireland U.S. Jordan Peru Poland
Uganda Israel Czech Republic Malaysia
Indonesia Belize Russia Egypt India
Venezuela

10 9 8
7 6
5
Most Free Hong Kong 8.9 Least
Free Venezuela 4.07

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2013 Rankings (Out of 151)

• Hong Kong 1
• Singapore 2
• NZ 3
• Switzerland 4
• UAE 5
• Mauritius 6
• Finland 7
• Bahrain 8 Canada 8
• Australia 10
• Chile 11
• United Kingdom 12
• Jordan 13 (42 in 2010, 62 2012)
• U.S. 17 (3 in 2006)
• Israel 49 (44 in 2007, 83 in 2011)

• Poland 59 (88 in 1990, 44 in 2012)
• Uganda 64 (67 in 2010, 51 in 2001, 113/113 in
  1990)
• Greece 85
• Kenya 87
• Mexico 94 (69 in 2010)
• Russia 101
• Egypt 108 (from high of 46, 80 in 2010)
• India 111
• China 123 (82 in 2010)
• Iran 127
• Ethiopia 142
• Zimbabwe 149
• Myanmar 151
• Venezuela 152

2011 data
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2012 Rankings (Out of 144)

• Hong Kong 1
• Singapore 2
• NZ 3
• Switzerland 4
• Australia 5
• Canada 6
• Bahrain 7
• Mauritius 8
• Finland 9
• Chile 10
• United Kingdom 12
• Ireland 12
• U.S. 18 (down from 3 in 2006)
• Japan 20
• Poland 48 (88 in 1990)

• Uganda 50 (67 in 2010, 51 in 2001, 113/113 in
  1990)
• Jordan 62 (42 in 2010)
• Greece 81
• Mexico 91 (69 in 2010)
• Egypt 99 (from high of 46, 80 in 2010)
• Israel 52 (44 in 2007, 83 in 2011)
• Russia 95
• China 107 (82 in 2010)
• India 111
• Iran 111
• Zimbabwe 142
• Myanmar 143
• Venezuela 144

2010 data
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Africa Continues to Lag Behind 1/3 of the
worlds extremely poor
What does recent research tell us about why
Africa continues to lag behind and what we can
do about it?
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Reduced Poverty Since 2000Research on Growth
vs. Safety Net ?

• 75 growth / 25 redistribution (Dollar, Kraay,
  Kleineberg study)
• context matters averages hide wide range of
  variation

safety net (redistribution) econ
growth demographic comp.
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Reduced Poverty Since 2000Research on Growth
vs. Safety Net ?

• 75 growth / 25 redistribution (Dollar, Kraay,
  Kleineberg study)
• context matters averages hide wide range of
  variation
• economic growth is not generally associated with
  increased income inequality
• the (overall) share of income going to the
  poorest 2 quintiles (40) does not change
  significantly with growth
• poor governance often increases income inequality
  for specific populations in specific locations
• 4/5 of the improvements in the lives of the
  poorest 40 of the population over the past
  decade are attributable to economic growth 1/5
  is attributable to redistribution
• Talking about Is Capitalism Good for the Poor?
• distinguish between poverty v. poor people
• distinguish between treating symptoms v.
  underlying causes

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Income Share of the Poorest 10 and Economic
Freedom
Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Income of the Poorest 10 and Economic Freedom
Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Growth in Developing Nations Per Capita and
Economic Freedom Quartile

Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Institutions Associated with Economic Growth

• Private Property Rights
• Rule of law
• Open, competitive markets
• Entrepreneurship and innovation

Focus of lessons 2-5 in Is Capitalism Good for
the Poor?