BA 447 – day 6 & 7

Virgin of Guadalupestatue made in China

• Contrast three countries: what is the significance of the Virgin of Guadalupe statue being made in China– Mexico– China– Egypt

• What makes one country succeed faster than another?

Chapter 9

• What are major conclusions?

• Assumptions?

• Your opinion?

Reform

• Macro-economic approach to reform– Privatization– Deregulate financial markets

• Entry of foreign banks• Allow repatriation of foreign company earnings

– Float currency– Encourage FDI– Shrink subsidies, force competition– Reduce tariff barriers– Flexible labor laws

IFC/WB prescription

• Simplify and deregulate, allow market forces to “manage” economy

• Enhance property rights• Use ICT, including internet, to implement

regulation. One benefit: reduces human interference and therefore corruption

• Reduce court involvement• Continuous process• Lately, reduce corruption

Discussion

• Privatization: benefits, social issues– Example: Japan Post, Callao port (Peru)– Opportunities for global business

• Shrink subsidies, reduce tariff barriers– Impact on domestic economy– Opportunities

• Others?

Success stories

• Mexico to some extent, although he really forgets that 40% of the revenues of the Mexican government comes from oil

• India, but is development limited to pockets?

• Reduction in poverty rates in China; however the numbers are still staggering – discuss numbers on p 315

Infrastructure issues

• Roads, bridges, electricity

• Communications facilities

• Access to computers and internet

• Government issues:– Priorities -

• Availability of support industries, including educational facilities

Reforming regulatory institutions

• Sources of “rent”– Those who work within these agencies– Politicians, etc.

• Large, e.g. 11,000 employed in Philippine IRS

• Person oriented rather than system

• Find a way to “work” with the system

Reform “retail”

• Micro-enterprise development• Visit from Mercy Corps

– Focus on facilitating enterprise in devastated areas– Reducing or removing bottlenecks, etc.

• Idea is to facilitate or encourage the formation of enterprises, which in turn creates jobs– Infrastructure– Regulatory institutions– Education– Culture

Reform “retail”

• How easy is it to start a business?– Number of steps– Number of days, e.g. 168 days in Jakarta, 19 days in

Panama, 2 days in Australia

• Ability to hire and fire, e.g. more than a year in UAE, company usually lost under a particular Labor secretary in the Philippines

• Enforce a contract, e.g. collection procedures, bribe sheriffs, etc.

Reform “retail”

• Get credit

• Close a business

In class writing

• Would “reform wholesale and retail” have been sufficient for a country like China to be the manufacturing power house it is now?

Discussion

• Examples of how these governments actually work? – Egypt (based on student reports)– Mexico (based on student reports)– Additional notes on India– Myth of China, Inc.– HongKong as Chinese economy evolved

Egypt

• 4.95% growth rate• Perceptions of corruption: state capture• WB/IFC ranking on ease of doing business

– Hiring and firing workers: 165th

– Ease of doing business: worst among Middle east countries

• Some hope: Egyptian Education Initiative, a partnership between public and private sector

Mexico

• Maquiladoras – Refers to a miller’s portion of flour as payment

for grinding the wheat– Manufacturing plants along Mexico-US border

• in general wholly owned by US corporations• exporting to the US

• Started in the 1960s– By mid ’80s, 2nd largest export next to oil– NAFTA (1994) accelerated this growth

Mexico

• Recession in 2000 affected growth• Attempt by Mexican government to induce

relocation of these factories to south• 20% of maquiladoras closed around this

period– A third relocated to china

• 2006: China overtook Mexico as US second largest trading partner (next to Canada)

Mexico

• Oil remains a major export

• New president wants to focus on tourism

• Rules and regulations have changed at the expense of maquiladoras

• Labor practices –– Child labor, long hours, hazardous conditions– Lack of regulatory protection– “a godsend to Mexico”, meaning jobs

India article

• Role of multinationals in pushing development of India outsourcing

• Role of government– End regulation, e.g. satelite dishes require

presence of government official– Allow foreign investment

• Some evidence of overheating– Lack of infrastructure– Inflation pressures

Discussion

• Examples of how these governments actually work? – Egypt (based on student reports)– Mexico (based on student reports)– Additional notes on India– Myth of China, Inc.– HongKong as Chinese economy evolved

Focus on China

• Prior to accession to WTO ’95

• 1970s: mechanisms to allow foreign investments - Foreign Invested Enterprises

• 1980/1990s: Special Economic Zones– Shenzhen, Guangdong, Pudong

• Initial request to enter GATT(WTO): 1986

• 1992: US – PROC Trade Agreement

Tank Man and Friedman

• Reconcile conclusions in Friedman with those in Tank Man– Role of the Berlin Wall? In relation to

Tienamen Square and Tank Man– Reason for China opening up– Issues not raised or papered over in

Friedman, for example, poverty? Freedom and justice?

• Implications for global business?

Current HK facts and figures (I)• Population = 7 million• Age structure: median age 39

– Under 15 (14%), 65+ (12%) • Male:female ratio = 921:1000• Nationalities: 95% Chinese descent

– Philippines 130,000; Indonesia 114,000; US 28,000; Canada 22,000; Australia 16,000; UK 13,000

• Religions mainly Buddhism and Taoism • Employment = 3.4 million• Average Wages = HK$10,797 (US$1400) per month• Unemployment rate = 4.4%• Economic growth = 6.8%• 98% = Small and Medium Enterprises (<50 Non-manuf’g or

<100 Manuf’g people)

Hong Kong’s History & Economic Milestones

1843 June 26th Hong Kong declared British Crown Colony

1898 June 9th Convention of Peking : Extension of the Hong Kong Territory

1841 - 1949 Hong Kong declared a Free Port; healthy and active entrepôt

1950 – 1980 Industrialization of Hong Kong

1978 – PRC’s Open Door Policy

1980 – De-industrialization

1997 June 30th Expiration of 99 year lease and end of Colonial rule

1997 July 1st Establishment of Hong Kong Special Administrative Region, and reunification with China : One country, two systems

1997/1998 Set-back : Economic impact of the Asian Financial Crisis

2001 Set-back : Economic impact of 9/11

2003 Set-back : Severe Acute Respiratory Syndrome (SARS)

China Info

• BBC News on China

• Reforms in China

• PBS discussion: political reforms in China

Exercise

• As we go through each type of reform . . . • “wholesale” reform• “retail” reform

• Let us know if your article is related . . .– Brief description– Country – Your thoughts? questions?

Summary of Ch 9

• Facilitate entry of “3 billion” into global economy by making countries more accessible to business

• Macro-economic reforms

• Reform “retail”