LizaMarie Parker

SBS318- Exam 2

1. The very different societies of the US, Europe, Japan, and Russia have their own varying views on capitalism. Reflective of their individual cultures and histories, these countries have formed their own systems of how they organize their economies. In the US, well known for being very individualistic, we use a system of free market capitalism, where there is little state ownership of industry. Though the US is not purely capitalistic, the invisible hand that Adam Smith wrote about does guide our economy as a whole. That can be contrasted with Communism, where the state owns everything and private ownership is considered illegal. With tight controls of resources and low productivity, this system only remains in 4 countries after the fall of the Soviet Union. Europe and Japan are a bit more similar in their views toward capitalism, but each is fundamentally different. Europe uses social market capitalism, where citizens rely on the state for social welfare, whereas Japan is guided by the government in a close relationship between their Ministries, business, and industry. The US is founded on the idea of freedom; personal freedom, freedom of enterprise, freedom to own land- as well as many more. The breakthrough for these ideas came in the form of a very influential book by Adam Smith. His ideas in The Wealth of Nations revolutionized the way we saw capital, just in time for the US to become a sovereign nation. It was the notion that our economy organized itself by the free market was just one of many of Adam Smiths that built the foundation for what we might call cowboy capitalism today. Free market capitalism has reigned ever since in our society and each individual (seemingly) has the opportunity to rise up and really make something of themselves. Unfortunately, this type of capitalism can create questions of the equality of many versus the success of a few. In Europe, they do everything to make sure that this type of inequality is not a part of their economic system. By using social market capitalism, many European governments offer automatic benefits for their countrymen and really take care of them. A great example of this would be Sweden and their cradle to grave benefits, or the apprenticeship program in Germany. Also, Northern Europe has government infrastructures that connect many of the countries by train and theyve tried to eliminate barriers to going between countries, including signs and labels written in multiple languages and educational harmonization- so students can transfer between institutions in different countries and still keep their prior work. This form of capitalism comes with a cost, though, and Europeans pay much higher taxes in an effort to redistribute wealth. Japan also cares for its citizens through state directed capitalism, but this type of economy is organized in such a way that the government offers protection for their industries. The relationship between government and business is blurred and loyalty is paramount. Private enterprise is encouraged in this Confucian society, but the Japanese are all about the team and a strong work ethic. Their industrial development is guided by the government and they offer low cost loans for companies to start businesses to meet the needs of their constituency. Russia, on the other hand, tried out an experimental type of capitalism- Communism. Though the idea of Communism and Socialism were not truly new, Marxs das Kapital changed the way the region organized their economy when Lenin came to power after the Bolshevik

Revolution. The major theme that is tantamount to Communism is that the state owns the capital and resources. Through the control and allocation of goods and services, bureaucracy, and fervent militarization, Communists tried to show their dominance over the West. This all came crashing down with the fall of the Berlin Wall and the Iron Curtain. Well get to that in a bit! 2. The European Union was born of war; or rather, the intention to lessen the likelihood of another massive war. The Europe that we see today is a far cry from the ravaged countries that made up the region after WWII. In fact, the formation of the European Union and its open exports can be considered a mini economic miracle. By combining the coal and steel markets of the first 6 countries, the original European Community also sought to put and end to war. In many ways it has done so much more that that. The EU has stoked the economic engine of industry and 27 member states have now joined, with many Eastern European countries waiting in the wings to become a cog in that engine. Though they have entered some murky waters while dealing with the debt crisis in the Euro Zone, for the most part the EU has been very successful. Many of the countries that entered the EU from 1951 to the present have made economic strides and continue to grow their GDP. The European Union opened up many barriers and trade restrictions in Western Europe and offers protection for some of the smaller countries through voting rights based on population. That being said, it took Great Britain more that 20 years to decide to join, while many other countries have been clamoring to become part of the European Union. The United Kingdom has a long history of Imperialism. Because they ruled the seas, they also ruled the world by default. With their military strength and maritime prowess, they were able to gobble up about of the world. Through dominance and the act of claiming land, they became the worlds Superpower. Even when they were thwarted by fledgling United States of America (or soon to be), it did not stop their push to claim the entire world as their Kingdom. British companies made tons of money on the aboriginal cultures of the lands they stole, then siphoned it back to Great Britain. The best example of this is the New India Company and their complete take-over of India. Britain got cheap labor and kept all the profits, while the poor Indians did all the work. This was the beginnings of the British Commonwealth, their own private export market. As many countries under British rule declared independence, Britain saw their empire going down the tubes. They saw their export markets drying up and the Commonwealth disappearing at a rapid pace. The 21st century was The American Century and Great Britain could no longer contend with the push for freedom- which was probably one of the biggest exports to come from the United States. Though they still had a few countries under their thumb, they begrudgingly joined the EU. When some of the countries converted to the Euro, they kept their currency as one of the last vestiges of the British Commonwealth. Nowadays, the EU is one of the largest markets in the world and it is home to about 450 million people. Countries that were once considered communist have also joined the EU. With the biggest expansion happening in 2004, the EU welcomed 8 former communist countries in Central and Eastern Europe, including Romania and Bulgaria. Some countries are considered too unstable to join as EU countries must meet certain standards in regard to GDP and debt, etc. Now that Great

Britain has been in the EU for over 40 years, hopefully they no longer think of the good old days when they ruled the world through oppression and their economic markets through the British Commonwealth. 3. The fall of the Berlin wall is a testimony to the true power of the people. Real people- with real dreams, hopes, and fears. People who wanted the freedom, opportunities, and better futures that they saw on western TV. East Berliners no longer believed the Big Lie they were being told by communist leaders and they strove to tear down the biggest symbol of oppression and division in the West. Though Germany was a thoroughly modern country after rebuilding from the days of WWII, East Berlin was stuck in a time warp. The wall did its job to keep people inside East Germany in a very efficient manner- with the help of guards and guns. Though the city was already split in two it wasnt until after the Berlin Blockade that the animosity between East end West brewed to a boiling point. As more and more East Berliners fled to West Germany, the communists needed to find a solution to the problem of losing their most talented people. The brain drain that was occurring to the detriment of East Berlin could not be stopped. After 20 years of losing the best and brightest, they started building the wall in 1960. Families were torn apart and there was no longer a chance for freedom as the communists raced to stem the tide of emigration. The fall of the Berlin Wall is significant for many reasons. First, it was the true end to the Cold War- a stand off between two great powers with different capitalist leanings, and secondly it was the official end of WWII and the occupation of the 4 sectors by the US, France, Russia, and Britain. Thirdly, it was an impetus for the fall of the Soviet Union. Though there is no ONE event that brought the USSR down, the fall of the Berlin Wall was one of the most striking symbolic episodes in the ongoing saga of the Cold War. Most importantly, it was the beginning of the Information Revolution. Maybe we didnt know it at the time (because we couldnt post about it on facebook), but the fall of the Berlin Wall was the pivotal moment when the world started to become flat. In a broad sense, the movement of people back and forth from East and West Berlin also allowed for movement of ideas and capital from West to East. No longer were the East Berliners imprisoned in their drab, impoverished world on one side of the wall- they were finally able to let the sunlight in from the West as they drew the Iron Curtain back. It is this moment in time that Frances Fukuyama would consider as The End of History and the Last Man. This book made the case that Communism was the thing of the past and the best choice for an economic system was the free market and the Berlin wall was a big part of that idea. Those 99 miles in Berlin took time to build and also took time to tear down. There was an immediate sense of relief, but a lot of work to do in the reunification of Germany. East Germany had no money, no power, and they were basically stuck in the dark ages when you compared them with their fellow countrymen in West Germany. There was a great need to modernize and West Germany foot the bill. But there was no longer the blight of the Berlin Wall running through the center of their town and East and West Berlin made the transition peacefully. Though the wall did not come down in a day, the relief to the East Berliners was palpable from the moment the first

pieces started of concrete started to chip away. Now the hope for political and economic freedom was becoming a reality. 4. Now that we can look back on the fall of the Soviet Union, we see that communism in the USSR was the greatest social disaster of the 20th century with far reaching implications. From the book das Kapital by Karl Marx to todays free market, the failure of communism was an intense period of adjustment for the region AND the world. Though no one can pinpoint the exact moment that communism failed, there had been many small events that chipped away at it until it eventually succumbed to the weight of its own bureaucracy. There are many reasons why this happened and they all culminated into the implosion of the Soviet Union. Behind the Iron Curtain, the Communist party tried to perpetuate the big lie that it had the best system in world. Unfortunately for the party, the citizens could no longer be fooled. As they watched Western television, images of freedom and prosperity exposed the fragility of communism. The fear of information was one of the main reasons communism in Russia failed, along with isolation, pollution, corruption, grinding bureaucracy, neglected agriculture, political instability, and an overall shortage of consumer goods. And this is only half of the story. The other half begins with a misguided attempt to base their economy on a proliferation of military goods, which was unsustainable as the Information Age dawned. This stagnation was like an albatross made of steel and coal that strangled their economy and eventually led to bankruptcy. This failure of the financial plan led to a cashless society on the brink. Production was so low and workers were so unmotivated that Russia could no longer give the citizens what they promised in their Utopian experiment. Most Russians worked second jobs on the black market- where they really made their money (hopefully in German Marks or US dollars). After the failure of Russia, the standard of living was so low and poverty was so ubiquitous that the adjustment to capitalism caused strife in the country. Russians were cashing out their pensions at 10 cents on the dollar and living in squalor. The restructuring had a high cost for the citizens, but 25 years later Russians are enjoying a much higher standard of living. Unfortunately this major collapse left a scar on the cultural legacy of the country that they are still dealing with today. Russia is now known as producers of low quality consumer goods with poor infrastructure and uncompetitive trade. The good news is that things are getting better for the Russian people and their oil exports have been a boon to the new economy. Doing business today in Russia is not like working with the Europeans and Japanese. The West was not as interested in bailing out the USSR as it imploded in the early 1990s. Russia is very isolated and the land mass is so great that it is hard to move goods. Trade moves to the east and west, while the major rivers move north to south. This creates a barrier to doing business and trade based on the geography of the region. Also, the corruption and cronyism that brought down the Soviet Union is still alive and well in Russia. Protection of their self interests is paramount to their culture on an attempt to preserve the old way of doing business on the black market. 5. While one quarter of our worlds population lives in relative ease, the rest live in poverty. Less developed countries make up a large portion of our worlds population and there are many

problems associated with the lack of basic necessities. They are so poor that many live in squalor on a few dollars a day and the situation does not seem to be getting better. In countries like Haiti, the per capita income is only $1,200, while US citizens earn about $49,000 a year.. That is pretty unimaginable! Some of the major problems of poor countries include illiteracy, poor infrastructure, overpopulation, disease, and corruption. There is a crisis going on in the developing world and there are very few that are actually paying attention. In the US, we have a tendency to take education for granted. Our public school system guarantees an K-12 education and provides opportunities to move on to college. But in poor countries like Haiti, education is a luxury. In fact, education is basically the key that unlocks the door to prosperity, lower birth rates, and better health. Haiti is a good example of how the legacy of autocratic rule has created an urgent need for education and population control, not to mention infrastructure. With over 1 billion citizens apiece, China and India have the largest populations in the world. There is also a huge disparity in wealth and poverty in both countries. Per capita income has risen as the world became increasingly flat, but this population boom is creating a crisis in an very crowded world. Though China has controls over the amount of children the Chinese citizens can have, in many countries having 5-10 children is an insurance policy for the future. Having many children is their own form of social security in that they will hopefully have one or two of their children to take care of them in old age. Overpopulation is a serious problem in the developing world today and it affects the everyone, whether we are aware of it or not.. Poor infrastructure also causes many difficulties for the poor in the undeveloped world. In many countries that saw dictatorships reign, especially in Africa and Haiti, there has been a lack of facilitation to make the country work better for its people. In the end, the poor suffer because there is a need for control by the leaders of these countries, yet they ignore the social overhead capital and physical capital that is needed to help these countries prosper.. Corruption has its hand in poor infrastructure because those in power try to keep capital for themselves, rather that use it to build roads and schools. Lastly, there is also a major health crisis going on in the undeveloped world. Diseases that have been virtually eradicated in the developed world still ravage the poor. Non potable water also plays a major role in the disease problem. People use the contaminated water because it is in short supply in some countries and they end up with all kinds of problems, including intestinal diseases and hepatitis. There are much fewer doctors per person and health care is a highly sought commodity in the poorest regions of the world. For those of us who live in developed countries, it is hard to imagine the the type of squalor and lack of opportunities that many of our fellow humans face everyday. The type of hurdles one must overcome to rise from poverty are astounding. I, for one, try to be grateful everyday for a comfy bed to sleep in, a roof over my head and running water out of every tap in my home. Plus, where I live in the San Francisco Bay Area, there are many opportunities for work and education. For those who dont have access to education, infrastructure, and health care, the future looks bleak. We already reached the 7 billion mark in the population of the world and I agree with Thomas Freedman when he says the world is Hot, Flat, and Crowded.