Appendix 1 Additional Country Scenarios

Appendix, Fall, 061

Appendix 1 – Additional Country Scenarios

The FTE thanks teacher participants in Is Capitalism Good for the Poor? Online. Their unit 2 assignments comprise the draft pool for the new country scenarios included in this appendix.

BELIZE

General Description:

Belize’s per capita Gross National Income (PPP) is $6,740, 105th in the world, and in the middle of Central and South American nations.
Belize’s main economic sectors are agriculture, fisheries, and tourism. Agriculture is still the largest sector of the economy (35% of GDP and 41% of total employment), producing sugar, bananas and citrus. Some agricultural products (notably sugar) are protected by very high tariffs.
Transparency International, 2005, rated Belize 62nd among the 159 nations evaluated for fighting corruption (tied with Brazil). On a ten-point scale (a score of ten signifies “highly clean” and a score of zero signifies “highly corrupt”), Belize’s score was 3.7.
Government consumption as a percentage of GDP was 16.3 percent in 2001.
Foreign investment is welcomed. Full ownership by foreigners is allowed, but there is a long list of economic activities (commercial fishing in the barrier reef, merchandising, sugarcane farming, real estate and insurance, internal transportation, accounting and legal services, entertainment, beauty salons, restaurants and bars) requiring licenses which foreigners may not hold.
According to the International Monetary Fund, both residents and non-residents may hold foreign exchange accounts subject to government approval. All capital transactions must be approved by the central bank.
There are two minimum wages, one for agriculture ($2.00/hr.), and slightly higher for all other industries ($2.25/hr.).
While the judiciary of Belize is constitutionally independent, the reality is that the courts are often dominated by political influence. The judiciary system is also chronically understaffed, resulting in significant backlogs of cases and frequent delays.
Belize belongs to the Caribbean Community and Common Market (CARICOM) trade organization and adopts CARICOM external tariffs. The World Bank reports that Belize’s average tariff rate is 13.3 percent, almost double the level that the Heritage Foundation has proposed for a nation to qualify as a free-trader. Additionally, trade is restricted through quotas and import licensing.
Belize has a growing off-shore banking community. The United States and other nations are very concerned that Belize’s open offshore financial activities with nonresidents have attract drug money and have stimulated black market activity.

Specific SituationA: Postings from U.S. Ex-Patriots Living in Belize”

“I will have lived in Belize for 7 years this coming Christmas Eve. Some observations:
. . . 5. Unless you don't care what happens to yourself, your possessions, your loved ones, your pets, etc., you must be ever watchful. . . . For example, I don't know the phone number for the police station in Placencia because I have no faith that if I needed them they'd (i) answer the phone, or (ii) come to help even if they did answer the phone. Don't balance your checkbook in the States because the banks don't make that many mistakes? You better do it zealously in Belize because they DO make that many mistakes. . . .
6. Owning a successful business in Belize is REALLY hard work. The supply chains aren't in place, most times the business owner has to create his or her supply chains from scratch -- and have several back-up plans. (For example, you can't call up and order 12 dozen hamburger buns to be delivered on Thursday. The person who makes the buns may decide not to make them that week, or one of his or her pieces of equipment is broken and no one will come to repair it, or there's no part available, or all of the employees just quit -- or all of the above, and there may be must one person who makes hamburger buns where your business is located.) Capital at a reasonable cost is non-existent. The labor pool is very small. Communication is very expensive. The bureaucracy is very slow. Services are in short supply. Nobody will return phone calls, which means you have to call and call and call again to finally talk to whomever you need to talk to in order to get whatever you need to get accomplished, accomplished.” (11-03-06)

Specific Situation B: “Niche” Markets

In general, a niche market (sometimes called a specialty market) is a small market that sells products or services that are not provided by mainstream markets because of the relatively small number of consumers. The text below is an excerpt from an advertisement in Latin Trade magazine, May 2005:

“Belize, the small English speaking country on Central America's pristine north-eastern coast, is poised to become an international location for niche market business.

“In a world increasingly seeking natural products, where organic, fair trade, and eco-labelled certifications fetch price premiums; Belize's natural assets, development policies and pro-business investment climate have created an ideal destination for investors looking to differentiate based on quality.

“No other country has so emphatically proclaimed this niche-oriented destiny. Belize's government, recognized by investors as non-intrusive, supportive and predictable, is wholly committed to creating the conditions, policies and institutions to continue supporting the country's ‘niche-oriented’ development model and preserving the country's distinctiveness.

. . . “Various economic sectors are being targeted by investors attracted by Belize's natural resources, convenient legal framework and export-oriented infrastructure."

Source: (9-10-06)

Sources:

Bohning, Don, “Belize Seeks to Diversify Economy,” Knight Ridder/Tribune Business News, December 22, 1998.
“Corruption Perceptions Index, 2005.” Transparency International. (9-13-06)
Encyclopedia of the Nations: Americas: Belize. (10-28-06)
Food and Agricultural Organization of the United Nations. “Belize.” (10-30-06)
“GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database., July 1, 2006. (10-4-06)
Miles, Marc, and Kim Holmes and Mary Anastasia O’Grady. 2006 Index of Economic Freedom. The Heritage Foundation and Dow Jones & Company, Inc: Washington and New York, 2006.
“Table 1A – Government Consumption as a Percentage of GDP.” United Nations Online Network in Public Administration and Finance. (9-10-06)
“Trouble in Paradise,” The Economist, November 21, 2002.
World Bank. World Bank Atlas. International Bank for Reconstruction and Development: Washington, DC, 2003.

World Bank Governance Indicators. Belize.

©November, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.

Appendix, Fall, 061

CHILE

General Description:

Chile’s capita Gross National Income (PPP) is $11,470, 76th in the world.
When Chile moved to free trade from protectionism in the 1970’s, it was one of the first South and Central American countries to do so. Opening markets proved to be beneficial for existing export industries as well a significant boost in starting new industries. Many observers credit this shift to more free markets as the main reason for Chile’s economic success.
The nominal tariff rate is 6%, but because most imported goods are covered under trade agreements, the average tariff rate is under 2%. Chile has entered into free-trade agreements with the United States, Canada, Mexico, South Korea, and the EU, and is working on agreements with China, Japan, and India.
The country is open to foreign investments and foreign companies enjoy the same guarantees as Chilean companies. The only remaining significant restriction is that fishing vessels within the exclusive fishing zone must have Chilean ownership.
CODELCO, the country’s largest copper mining operation, is a state-run industry, a rare exception in an economy characterized by private enterprise.
The Chilean government consumes approximately 12.5% of the nation’s GDP, as compared to the 2000 world average of developing countries at 14.5%.
Chile’s only price controls are placed on natural monopolies, like utilities. However, many agricultural products are subject to a system of “price bands” in which price ranges are set, annually, based on international market levels. This practice was recently challenged in the World Trade Organization system. As part of the settlement, the Chilean government has begun phasing out the price bands, a process to be completed within the next decade.
Workers are able to organize in unions and bargain collectively. However, negotiating a labor contract is a difficult process and is heavily regulated by the government.
Private contracts in Chile have been called the most secure in Latin America.
Transparency International, 2005, rated Chile 21st among the 159 nations evaluated for fighting corruption. On a ten-point scale (a score of ten signifies “highly clean” and a score of zero signifies “highly corrupt”), Chile’s score was 7.3, the highest score of any country in South or Central America.
The poverty rate has dropped from 46% to 21.7% in about 10 years.
Chile’s financial institutions have a solid international reputation, earning them the highest bond rating in South America.

Specific SituationA:Is It Working?

In Chile, unlike other Latin American countries, bureaucrats closely adhere to the laws and regulations governing their industry. They do so partly because they know that they will be visited by a lawyer from Contraloria, the autonomous, politically neutral national audit agency that most feel is responsible for Chile's reputation as an honest government.

Recognizing that ensuring that public service agencies are honest and above corruption doesn’t necessarily mean that they are efficient, Chile has also established the National Investment System, which performs cost-benefit analyses on public programs and agencies. Pubic agencies are urged to define goals and establish measurable performance indicators. The Government Program Evaluation Department then does an independent assessment of the effectiveness of each government program. Although the system may seem complicated, it has had amazing results in determining which government programs are cost-effective and efficient.

Specific Situation B: A PR Shortfall?

Writing in Newsweek International, March 27, 2006, former Mexican foreign minister Jorge Castaneda commented on the lack of international attention focused on Chile's economic success:

“What is surprising is the stark contrast between Chile's record and its standing in Latin America. Between 1989, when the current Socialist/Christian Democratic coalition reached power and democracy returned to the country, and 2005, the Chilean economy has grown nearly 6 percent per year, more than doubling per capita income. Poverty has been drastically reduced; education, health, housing and other social indicators have all improved significantly, and even inequality, that terrible bane of all hemispheric societies, has finally begun to diminish, albeit modestly. For practical purposes, Chile is on the verge of occupying the lowest rung of the highest ladder: becoming a still poor but now developed nation, perhaps like Greece or Portugal a few years ago in Western Europe, like Poland or South Korea more recently.

“Chileans have dealt with the past bravely and prudently, prosecuting, jailing and stigmatizing those who deserve it, but not allowing themselves to be consumed by score-settling and revenge. The country has gradually left behind much of the institutional legacy of the Pinochet dictatorship, becoming a much more functional democracy today than most other countries in the region. And it has proved able to both disagree with Washington--as over Iraq at the United Nations Security Council in 2003--and get along with the Bush administration, not an easy matter for any government these days. . . .

“So why does no one else really care? Why is such a success story not moving the hearts and minds of millions of Latin Americans? In Mexico City's National University, the oldest and largest in Latin America, Bolivarian Committees are springing up in support of Venezuela's Hugo Chavez; at last November's Summit of the Americas in Mar del Plata, Argentina, former soccer idol Diego Maradona rallied thousands of cheering Chavistas to denounce American imperialism, neoliberalism, free trade and whatnot. Yet there are no Chile Study groups at the universities; there are no Ricardo Lagos T shirts; there are no Chile groupies. Any comparison between Chile and Venezuela over the past seven years (since Chavez took office), or between Chile and Cuba since 1989, is a no-brainer: from any conceivable point of view, Chile comes out miles ahead. But somehow the Chilean model has limited appeal, though the size and weight of the three nations are quite similar.”

Sources:

Chile: Factsheet at Economist.com, August 21, 2006. (10-31-06)
“Corruption Perceptions Index, 2005.” Transparency International. (9-13-06)
“GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database., July 1, 2006. (10-4-06)
“Table 1A - Government Consumption as a Percentage of GDP.” United Nations Online Network in Public Administration and Finance. (10-12-06)
The World Factbook. “Chile.” (9-13-06)
U.S. Department of State. “Background Note: Chile.”

Appendix, Fall, 061

FINLAND

General Description:

Finland’s per capita Gross National Income (PPP) is $31,170, ranking 20th in the world.
Most wages and prices are determined by the market. Only health care services and taxis are subject to wage and price controls, and the agricultural sector is heavily subsidized. The regulatory system is very manageable, although any activities which are considered harmful to the environment are generally not allowed and construction permits are required.
The GDP is currently growing at a steady 3% rate. Composition of GDP clearly shows Finland’s transition to a service economy: agriculture 3.3%; industry 30.2%; services 66.5%.
For 2006-2007, Finland was awarded second place in the World Economic Forum’s Global Competitiveness Report.
Finland has changed dramatically in the last 40 years from a primarily agricultural economy to a highly industrialized supplier of wood, metals, engineering, telecommunications and electronics.
As a member of the European Union, Finland’s average tariff rate is 1.3%. Exports account for 40% of GDP. Approximately 1/3 of GDP relies on trade, and imports supply the majority of the nation’s energy.
The government consumes approximately 22.4% of the nation’s GDP in 2004, as compared to the 2002 developed nations’ average of 20.1%.
Reforms are being implemented by the government, such as reducing corporate income and capital tax rates, but The Economist Intelligence Unit suggests further adjustments will be necessary to maintain Finland’s competitiveness. Currently, the top tax category is 33.5%, down from 35.5% in 2005.
Property rights are respected by the government. Entrepreneurship is encouraged and 187 patents per million people were granted in 2001. Among the top 63 inventive nations of the world, Finland ranks ninth.
Transparency International, 2005, rated Finland 2nd among the 159 nations evaluated for fighting corruption. On a ten-point scale (a score of ten signifies “highly clean” and a score of zero signifies “highly corrupt”), Finland’s score was 9.6.
There is no legislated minimum wage, and the market establishes wages and salaries. However, collective bargaining agreements are required by the government.
Finland is extremely open to foreign investment. Not only do foreign investments not require prior approval, except in national security industries, but there are no restrictions on foreign exchange accounts, which may be held by both residents and nonresidents.

Specific SituationA: “Finnish resolve: efficient farming in extreme conditions”

“The farm families of Finland do not have it easy. They live in the northernmost farmed areas of the world. The growing season is very short and they only have enough sunlight to raise crops during a few months of the summer. Nevertheless they grow cereals, vegetables, berries and grass for hay, which they use for their beef and dairy cows. Today their life is not as difficult as their parents’ due to the automated milking system, complete with a computer program that determines how much feed . . . [cows] . . . will receive, takes milk samples, cleans their udders and milks them. Amazing. This gives them more flexibility in their time so they are able to combine their farming with another resource, moving them into a more profitable situation than their ancestors.

. . . “The resource they turn into profit is their forest. Many farms in this region encompass a percentage of forest land. The timber is sold privately to forest companies which convert it into paper products and lumber. These lands are not only a source of earnings for these families, but annual replanting and clearing provide a security for the hard times and a future investment

“During the busy planting and harvesting season, other work is outsourced. Hiring others to help with the daily labors frees them up to concentrate on the tremendous amount of work that must be done in the fields during the short season. Farm families are also entitled to a holiday leave of 23 days a year, while the “municipal holiday substitute” provides labor for the farm’s daily routines.

Korpela, Salla. “Finnish resolve: efficient farming in extreme conditions.” July, 2005. Virtual Finland (10-12-06)

Specific Situation B: “Cellphone callers talk more than landline users. . .”

“Finns talked more on mobile handsets than on landline phones in 2005 for the first time since cell phones became popular, a government agency said Thursday.

“In the home of Nokia, the world's largest mobile phone maker, cell phone users spent 10.8 million minutes talking on their handsets, up from 9.6 million minutes in 2004, Statistics Finland said. Landline calls fell by 35 percent to 7.4 million minutes, from 11.4 million minutes a year earlier. The number of calls made on cell phones last year was 4 billion, up from 3.8 billion, while those made from fixed-line phones plummeted 28 percent to 1.5 billion, the agency said.

. . . “From the start Finns have been keen on mobile gadgets, and in 1998 cell phone subscriptions surpassed the number of land lines. Besides talking and sending text messages, many use cell phones to check e-mails or access the Internet. Last year, Finns sent a record 2.4 billion text messages, up from 2.2 billion in 2004, the statistics agency said.”