Week 2 Review: Economics

1 - Economics is the study of the production, distribution and consumption of goods. It looks at the market of buying and selling or trade, and considers profit.

2 - The most common economy in the world today is a capitalist economy, based on business competition and consumer choice. A capitalist economy considers the use value of goods as well as the mythical value. When a good has a high mythical value, or personal importance, it is an impossible exchange because someone will not or cannot sell it, which is the limit of the capitalist system.

3 - Macroeconomics is the study of the economy at big levels, such as global analysis of nations and international corporations. The main agencies in macroeconomics are the IMF, WTO, World Bank and WEF.

4 - Microeconomics is analysis of specific businesses. All businesses have budgets that include income and expenses. Large corporations often show top down spending that emphasizes upper level jobs and looks to cut costs on lower levels. Top down is considered an unhealthy budget.

5 - Economic crisis happens from not recognizing risk. There is either an over-estimate or under-estimate of resources. Panic and freeze makes a crisis worse. Spending and circulation makes a crisis better.

6 - Culture is the larger, intangible lifestyle of a people while the items exchanged are cultural goods. Localization is recognizing the value of local assets, which are normally natural resources or specific skills of that area passed on through generations. These local goods may be traded internationally to create global esteem for a local product, ex. wine from Bordeaux, France.

7 - Cultural exchange requires that goods are sometimes marked by a “made in” label, but it is not globally required. The UPC is also often required by many stores and uses the two numbers on the outside edges to identify where products are made.

Cultural Exchange

Above, Jean-Luc Godard's Made in U.S.A.,1966, made in France

Culture as the “impossible exchange”

-French thinker Jean Baudrillard described the “impossible exchange” as that which cannot enter the market. Usually personal things have a value greater than what they could be sold for– a family heirloom, a wedding ring - and are impossible exchanges.

-Culture is an intangible asset that is learned through life experience and in truth cannot be bought or sold. Only the resources of a region can be bought or sold and then if they relate to the intangible culture, such as a postcard, foods, music, crafts and films about an area, they are then cultural goods. These are often called high culture (high value such as fine art work) and low culture (low value such as pop music). Cultural exchange of goods is another way to say trade.

Localization and cultural goods

-Every international business now wants to be global but some businesses are undeniably local and only become international because they export. Localization is recognizing the value of local resources which are traded. Local resources are usually natural resources and special skills.

-Examples include French wine, Saudi Arabian oil, African diamonds, most all agriculture

-Businesses evaluate the following before going from local to international

Determining if there is an international market

Responding to an international demand

Speculating a demand by the success of similar products

Establishing international relations

Starting international marketing and trade

Significance of the “Made in” label and the UPC

-When a localized business becomes international the product leaves its home territory and is often labeled as “made in” It is not required and just serves as an informative and marketing device. It is used to promote a country but also to protect a consumer so they can know the product origin and whether they agree with how a product was made which differs country to country. China has in large ceased with this label other keep it http://www.made-in-china.com/

-In the US, The Federal Trade Commission requires by law that automobiles, textiles, wool or fur made entirely in the US it must carry this label when distributed internationally. No other products are required to have the label but if they desire to promote America they must meet the standards. Some cournties have similar mandates on alcohol and food.

-There are “made in” crimes where people have removed “made in” labels from other countries to sell as their own

-In the 1960’s there was a Japanese town named Usa that labeled their products “Made in USA, Japan”

-The UPC, universal product code started in 1974 in the US, there is also the EAN and JAN for Euro and Japan Article Number, they all simply track inventory and are not mandated but starting in 2005 all US retail stores must be able to read them

-UPC is 12 digits with some variations in the EAN and JAN with either the outer most 2 numbers on the edges or the first 3 numbers indicating product origin. 00 - 09 . USA & Canada, 30 - 37 . Fr

ance, 40 – 44, Germany, 47 Taiwan, 49 Japan, 50 UK and 690-692 is made in China

Read more on "Made in China":

http://www.msnbc.msn.com/id/19508453/

http://yaleglobal.yale.edu/display.article?id=9579

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Godard image http://ilovehotdogs.tumblr.com/ and image and statistics www.wikipedia.org

Microeconomics & Crisis

Microeconomics studies individual parts of the economy and guides financial decisions. Rather than focus on large economic climate factors like global exchange, microeconomics tries to determine how small choices effect profit, meaning microeconomics focuses on budgets.

International business budgets

The most basic business budgets include

1-expenses (goods, labor, maintenance, advertising, shipping, travel, taxes, insurance)

2-income (sales, interest)

- International Businesses incur higher costs for shipping, customs, exchange rates, travel, and communication than national businesses.

-There are other variables such as unexpected losses or other assets not accounted for, such as donation, but they still fall under the large categories of expenses and income. A company may also have money or assets that simply sit in investments but again these are placed under income as they earn interest.

-Many international businesses show top-down budgets and spending by supporting corporate jets but outsourcing to cut costs on low salary.

Relationship between top-down priorities and the crisis.

http://www.nytimes.com/2009/07/17/business/global/17bank.html

Another challenge, other that top CEO pay is excessive costs for advertising and promotion.

Global advertising budgets & the Olympics

-Example non-Olympic year global ad budgets include Apple’s at $486 million / Microsoft's at $945 million

-Olympic advertising is some of the most expensive in the world. Highest tier for Olympic advertising is $100 million for 4 year cycle “official” status, often debated if “official status” works because there are many un-official brands that also participate in smaller ways. Major advertisers include global brands like Coca-Cola, McDonald's, UPS, Adidas, Visa.

-The top price paid for a 30-second spot on NBC during the swimming competition of 2008 was $750,000. NBC sold an additional $10 million in ads after the games started due to American wins.

Olympic ads:

http://adsoftheworld.com/node/22514

The “financial crisis” and global effects

-There are both Macroeconomic and Microeconomic theories on financial crisis

-Microeconomics blames budgets

-Macroeconomics sees crisis as normal, meaning re-current. The US has been through economic crisis 3 times in the past century. Crisis helps to contain increasing prices.

-All crisis comes from not recognizing risk. In economics there is usually also an over-estimate of resources and over-extending of credit that cannot be re-paid.

-In general, financial crisis is made worse when people panic and pull out their investments and freeze spending. Crisis is made better with spending and circulation.

- The “Tequila Crisis” happened in 1994 when many countries over-extended credit to Mexico. It was speculated that Mexico could not repay and the IMF lowered the peso value. The problem was mainly in Mexico but there was also a negative Tequila Effect on South American countries with which Mexico traded, especially Brazil.

-The current US crisis began to be identified in 2007 when there were problems with personal and corporate debt, specifically the collapse of the US sub-prime mortgage market. There has also a freezing of foreign credit to the US that has complicated the matter. This limited business expansion, especially international business. It is estimated at $14 trillion dollars loss in business

-The US crisis is one of the first to also become a global crisis because of globalization and many shared networks.

-Foreign companies like Volvo sold 73,102 units in 2008 and 106,213 in 2007. The drop caused budget cuts across the board.

-Iceland had 3 major banks dependent on outside investment collapse at the same time, causing a major drop in the currency and nationalized banks.

-Russia has shown the second greatest European decline

-Food prices have risen in poor countries and aid has deceased to Africa.

The economic effect on Iceland

http://news.bbc.co.uk/2/hi/business/7651313.stm

The economic effect on Senegal

http://www.npr.org/templates/story/story.php?storyId=96503476

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Image Iceland, www.jeffsweather.com and statistics www.wikipedia.org

Macroeconomics & the Global Economy

Above, a coin of Caesar Augustus Tiberius, 5 AD

There have been many economies throughout history and currently there are many different national approaches to economics. Capitalist, Socialist and Communist economies are most common with Captialism leading in global dominance.

Economic policies - Economies are the system of buying and selling assets with the most dominant type of global economy being capitalist.

Capitalist – ex. Russia

In a capitalist economy, competition drives the market and people own their own businesses and property and must buy services for private use, such as healthcare.

Socialist– ex. Norway

Socialist governments own many of the larger industries and provide education, health and welfare services while allowing citizens some economic choices

Communist – ex. Cuba

In a communist country, the government owns all businesses and farms and provides its people's healthcare, education and welfare.

Capitalist Business

-Capitalism is a market economy of competition for profit. Most countries now have a capitalist economy, creating a state of increasing global capitalism.

-In capitalism, price is determined by free choices to purchase that increase competition.

-The value of goods and services in capitalism includes both a use value and a mystical or added value that includes status or other intangible qualities. Businesses try to add mystical value through logos and advertising.

-The market works until you reach an “impossible exchange” on something that someone is not willing to sell.

Macroeconomics

-Macroeconomics is the study of national and regional economies to produce a status report of the global economy. International businesses depend on macroeconomics to forecast their work with other countries. There are many different organizations that mediate macroeconomics.

-The IMF- International Monetary Fund oversees global finances. The organization was formed to stabilize exchange rates (Euro for Dollar for example) and depends on political involvement. Venezuela for example decided to pull out of the IMF and World Bank.

-The World Bank acts as support for developing countries with extreme poverty and provides lending. It is controversially involved in some business.

-Importing and Exporting has an ancient history, the Silk Road in China for example. Traditionally trade was regulated by bi-lateral treaties and tariffs between the two countries. Now the World Trade Organization (WTO) supervises regulation

-The World Economic Forum is a Swiss non-profit open conference for discussion of economy, health and environment.

-The World Trade Organization supervises international exchange.

Other factors

-Foreign Exchange Reserves are assets held by a country in different currency. China has the largest foreign reserve, followed by Japan. The foreign reserve is an indicator of a country’s ability to repay debt.

-The US Council on Foreign Relations is foreign policy non-profit organization. It is primarily concerned with international laws, especially at war time but has major global corporate members such as ABC News, Chevron, ExxonMobil, Fed Ex, IBM, Nike, Pepsi and some foreign businesses like Toyota.

-NAFTA (US, Canada and Mexico) and the EU are small regional trade agreements

-The sock market is used within countries as an investment strategy, to build public investors based on speculation for the future.

Global economic scale of international business

-An international business may be as small as one person with one product or as large as hundreds of thousands of employees and billions of dollars.

-According to Forbes, the top 5 global businesses by net worth are GE (US), Royal Dutch Shell (Netherlands), Toyota (Japan), ExxonMobil (US), BP (UK).

-The top 10 international businesses have on average between $200-700,000,000 billion in assets with the last international business on the Forbes 2000 as San-Ai Oil in Japan, which has $1 billion in assets and does $8 billion in business annually.

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Image Caesar Augustus, coin of the Roman Empire, http://en.wikipedia.org and statistics www.wikipedia.org