Economic System Comparison
“U.S. and China”
By, AT, KW,
PTL, and SL
Economics 809-195-104
Joe Halter
Fall, 2005
What, How and for Whom
• The United States of
America
• Consumer based
Capitalism
• Total GDP for the
country is 11.75
trillion (2004est.)
GDP growth rate in
2004 was 4.4% per
capita based on
purchasing power of
parity is $40,100
• People’s Republic of
China
• Communist Republic
• Total GDP for the
country is $4.5
Trillion(2000est.)
GDP growth rate in
2001 was 7.3% per
capita based on
purchasing power of
parity is $3,600
Economic Attributes
•
•
•
•
•
•
•
United States – Consumer
Capitalism
Private ownership
Consumers determine prices
based on decisions of what
they will spend
Inequality of income
Production and distribution
prices based on self interest
of decision makers
Competition/ cooperation
Little government
involvement
•
•
•
•
•
China - (Command
Socialism)
Government determines
income earned by resources
Economic activity
coordinated by the central
plan of production,
resources, and amount of
wages
Government planners decide
production and distribution
China is in a state of change
with a decrease in
government control of the
nation’s economic activity
Comparing U.S. and China’s
Economic Systems
Similarities
Differences
• Mixed economies.
• Decisions are
made by
private/public
sectors and
government.
• Different variation
in individual
decisions and
government
involvement and
control.
Real World Examples
• Chinese government took extreme measures by setting
birth planning policies such as sterilization and abortion to
reduce overpopulation which caused severe economic
problems. The increasing population led to labor surplus,
unemployment, and insufficient resource. Balancing its
population was crucial for China’s economic success.
• In the early years of American history, most government
leaders were reluctant to participate in the private sector,
except in transportation. Instead they applied the concept
of laissez-faire with minimum government involvement.
Gradually, the U.S. government stepped-in to set
regulations and laws. Some of the most significant laws
these days are for: minimum wage standards, Securities
and Exchange Commissions, the Federal Deposit
Insurance Corporation, and Social Security systems.
Strengths
China
U.S.
• Beginning in the late
1978, China has changed
from an inefficient
centrally planned
economy to a more
market-oriented system.
• Worlds’ biggest producer
of steel, cement,
aluminum, and copper
and second largest oil
consumer after the United
States.
• Agriculture and foreign
investment have strongly
contributed to China’s
significant economic
growth.
• U.S has the largest and
most technologically
powerful economy in the
world, especially in
computers, medical,
aerospace, and military
equipment.
• It is a leader in economic
freedom. Business
owners benefit greater
flexibility in decision
making.
Real World Examples
•
China’s production industry is taking over the world by storm,
producing 50% of the worlds’ cameras, 30% of air conditioners
and televisions, 25% of washing machines and 20% of
refrigerators. Promoting this growing trends are big
multinationals such as General Electric, Toyota, and Intel. Many
small and large companies are heading to China because it
offers low labor costs, a large domestic market, rapid growth,
good infrastructure, a well-trained workforce, and a business
friendly government.
•
From 1995 to 1998, computer manufacturers of hardware and
software communication promoted 35% of the U.S. nation’s
economic growth.
As a result of improved technology from the early 1990s, the rate
of labor productivity has tripled. The information technology
industries experienced a significant 10.4% average annual
productivity growth and the goods-producing technology
subgroup grew at an amazing rate of 23.9%.
Weaknesses
China
U.S.
• Poverty
• Corruption and economic
crimes
• Insufficient job growth
• Weak civil law structure
(property rights)
• Environmental harm
(pollution, soil erosion)
• Insufficient investment in
economic infrastructure
• Excessive government
spending without restraint
resulting in budget deficits
• Rapidly rising medical
and pension costs in
aging population.
• Lower class families with
stagnant income.
Real World Examples
•
After China transferred a large share of its state-owned
enterprises to privatization two decade ago, the first companies
to become private were more efficient and better equipped to
compete in the market. The remaining state-owned firms were
the least efficient producing at required levels because they
received only enough government funds to pay the wages of
their employees. Each year, an average of $10 billions of
government funds are being stolen by business managers,
which part of it were bribes to local official for keeping silent.
•
Health care cost absorbed 24% of U.S. economic growth from
2000 to 2005. 50% of health expenses have been wasted by
excessive prices and fraud. According to research studies, the
major sources of unnecessary expenditure are from
administrative costs, insurance industries, raising price of drugs
and health services. Government spending in healthcare is
expected to reach $1.9 trillion in 2005.
The Effects of Natural Monopolies
China:
• Chinese enterprises rely
on administrative orders
to have forced
reorganization. Their
survival and development
often rely on having the
strong state machinery as
their backing. They rely
on the monopolization
advantage granted by the
government to gain a high
monopoly return.
United States:
• Natural monopolies are
typically utilities such as
water, electricity, and natural
gas. To prevent utilities from
exploiting their monopolies
with high prices, they are
regulated by government.
The ideal way to deal with
natural monopolies is
therefore a legal structure
where people can voluntarily
choose their governance by
being able to create new
community governments
whenever they wish.
The Effect of Income Inequality
China:
• 100 to 150 million surplus
rural workers are adrift
between the villages and the
cities, many subsisting
through part-time, lowpaying jobs. China often has
experienced the worst
results of socialism and
capitalism. China has
growing income disparities
and rising unemployment.
China thus has periodically
backtracked, retightening
central controls at intervals.
United States:
• The U.S. family income is
highly unequal and has been
increasing since the 1970s.
The reason for this income
inequality is mainly due to
the large number of femaleheaded families, single
parents, and unskilled
workers. As a result of rapid
income growth, between
1979 and 1989, the average
income for the poorest
families dropped from
$10,900 to $10,200 while the
average income of the
richest families increased
from $89,600 to $97,600.
The Market Failure Including
Positive and Negative Externalities
•
Positive
– Government Financing
and Production- the
government has the
option of financing the
desired additional
production facilities so
that the right amount of
the good will be
produced.
– Subsidies- payment
made either to a
business or to a
consumer when the
business produces or
the consumer buys a
good or a service.
– Regulation- the
government can require
by law that individuals in
the society undertake a
certain action.
• Negative
– Special taxes- effluent
fee- a charge to a
polluter that gives the
right to discharge into
the air or water a
certain amount of
pollution.
– Regulation- to correct
a negative externality
arising.
The Five Functions of Government
and Analyzes Cost Benefit of Each
• Legal Structure- Property rights- The rights of an
owner to use and to exchange property.
• Promotes Competition-Law- Antitrust Legislation
passed that makes illegal certain (but not all)
activities that might restrain trade. This is to
reduce the power of monopolies.
• Corrects Externalities- Negative-Special taxes,
Regulation: Positive- Government Financing
and Production, Subsidies, Regulation.
• Provides Public Goods- Goods that can be
consumed by only one individual at a time.
Private goods are subject to the principle of rival
consumption.
• Promotes Economic Stability- Government
stabilization policy- Full employment, price
stability, and economic growth.
Our Position Taken on the Role of
Government in the Economy
• We are in support of the consumer capitalist
economic system with the exception of areas
that we feel are in need of more government
attention, the revisions that we feel are
necessary include:
• Further financial assistance is needed for lowincome families
• Health care should be provided to all citizens
• Additional tuition, housing, child care assistance
for displaced workers and single parent families
• More funds directed toward low income families
for lower interest rates when purchasing a home
• Further funding for small businesses and
entrepreneurs
References
• (http://www.business.gov) Basic Legal Structures
• Economics. Moraine Park Technical College, Pages 102106, & Compendium of Economic Systems.
• http://www.theepochtimes.com/news/5-10-30/33924.html
• http://www.odci.gov/cia/publications/factbook/geos/ch.html
#Econ
• http://www.progress.org/archive/fold74.htm
• Economics Moraine Park Technical College. “Economies
in Transition” pages AB1-AB18
• http://www.heritage.org/research/features/index/index.cfm
• http://www.brainyatlas.com/
• http://economics.about.com/cs/moffattentries/a/birth_plan.
htm
• http://www.findarticles.com/p/articles/mi_m0BRZ/is_4_24/
ai_n6073455
• http://www.aba.com/Industry+Issues/GR_PR_Info.htm
• http://economics.about.com/od/useconomichistory/a/gover
nment_inv.htmhttp://www.econlib.org/library/Enc/Distributi
onofIncome.html
• http://www.sfgate.com/cgibin/article.cgi?f=/c/a/2005/02/09/BUG7RB7VEM1.DTL