The Global Economic
Environment
Chapter 2
Global Marketing
Figure 2-1: Economic Systems
Resource Allocation
Private
Resource
Ownership
State
Market
Command
Market
Capitalism
Centrally
Planned
Capitalism
Market
Socialism
Centrally
Planned
Socialism
Market Capitalism
Economic system in which individuals and firms
allocate resources:
Production resources are privately owned
Consumers decide what goods are desired
Firms determine what and how much to produce
Centrally Planned Socialism
Total opposite of market capitalism (ex: North Korea)
State plans and decides what goods and services are
produced and in what quantities
Consumers can spend on what is available
Centrally Planned Capitalism

Economic system in which command resource allocation
is used extensively in an environment of private resource
ownership
Market Socialism

Economic system in which market allocation policies are
permitted within an overall environment of state
ownership
Which system is the best one?
Canada:
 Government revenues rose from 29 to 43 percent of
GDP between 1966 and 1996.
 This rise in revenues was almost entirely accounted for
by a massive rise in personal income tax, from 9 to 20
percent of GDP
 Extensive social security network
 Spend-and-tax policy resulted in some loss of
international competitiveness
Source: Fraser Institute
Index of Economic Freedom by the
Heritage Foundation, 2003
Ranking of Economic Freedom (out of 161 economies)
1 Hong Kong
1.45 (free)
2 Singapore
1.50
6 United States
11 Netherlands
18 Canada
19 Belgium
20 Germany
35 Japan
40 France
44 Hungary
52 Korea
56 Mexico
1.80
1.90
2.05 (mostly free)
2.10
2.10
2.50
2.55
2.65
2.70
2.80
OECD: Organization for Economic
Cooperation and Development

29 nations each with market-allocation economic
systems
G-8 (G-7 plus Russia)
Leaders from these high income countries work to
establish prosperity and ensure monetary stability
 United States
 Japan
 Germany
 France
 Britain
 Canada
 Italy
The Triad
Dominant economic centers of the world
Divisions in research or business organizations
1. Japan
2. Western Europe
3. United States
Expanded Triad
1. Pacific Region
2. European Union (EU)
3. NAFTA
Balance of Payments (BOP)
Recording all economic transactions between the residents
of a country and the rest of the world
1.
Current account – record of all recurring trade in
merchandise and services, private gifts, and public aid
between countries
 trade deficit – negative BOP
 trade surplus – positive BOP (Canada)
2.
Capital account – record of all long-term direct
investment, portfolio investment, and capital flows