Marjorie A.

Pagsinuhin IBT MWF 6-7pm

BSA 46234 Sir Hans Janssen DImaala

CRITICAL THINKING AND DISCUSSION QUESTIONS:

1. Free market economies stimulate greater economic growth, whereas state-directed
economies stifle growth. Discuss.
Free market economy are economies where all business and productions are owned
privately, as opposed to state-directed economy. In this system all productions of goods and
services takes place freely based on market demands and hence amount produced are not just
planned by an entity on top rather they are all set through the market forces (Bremmer, 2012).
Free market economies encourage healthy competition and enthusiastic rivalry, which in turn
enhances economic growth and efficiency, as long as there is a well-established pricing system
for supply and demand.
State-directed economies, on the other hand, is a system where the decisions relating
economy are based on resource allocations, pricing, investments, and production which are truly
under the control of the state government or some other authoritative entity. It is a stricter form of
a planned economy and hence the state owns and controls all production means and properties.
It is believed that the choices that are necessary for economic planning because of many people
holding interests which are always opposing (Schuman, 2011). As contrast to the other economic
system, state-directed economies are typically generating slow economic growth as well as less
efficiencies because of lower motivations and production or performance inefficiencies.
2. A democratic political system is an essential condition for sustained economic progress.
Discuss.
I believe that democratic political system can be essential for sustained economic
progress, but it is not a prerequisite for economic progress to happen as there are other political
systems implemented in some countries that resulted in a strong market economy and enhanced
economic growth like Hong Kong, Taiwan, Singapore, and South Korea. In hindsight, democratic
political system is good because the people are free to replace the government that hinders rather
than foster, the innovation of local and resident foreign businesses, stability of the markets,
effective pricing, industry growth.
3. Read the Country focus on Chavez's Venezuela (pdf file is uploaded in this activity), then
answer the following questions:
a. Under Chavez's leadership, what kind of economic system is being put in place in
Venezuela? How would you characterize the political system?
Under Chavez’s leadership, Venezuela operated under a command economy, where the
allocation of resources, including determination of what goods and services should be produced,
and in what quantity, is planned by the government.
Under Chavez’s leadership, Venezuela’s political system could be characterized as social
democracy, a political movement advocating a gradual and peaceful transition from
capitalism to socialism by democratic means. Socialism is a way of organizing a society in which
major industries are owned and controlled by the government rather than by individual people
and companies. Consistent with his social rhetoric, Chavez has progressively taken various
Marjorie A. Pagsinuhin IBT MWF 6-7pm
BSA 46234 Sir Hans Janssen DImaala

enterprises into state ownership and has required that other enterprises be restricted as “workers’
cooperatives” in return for government loans.
b. How do you think that Chavez's unilateral changes to contracts with foreign oil companies will
affect future investment by foreigners in Venezuela?
Due to these extreme changes implemented by Chavez, it seems apparent to me that
foreign investors would be unlikely to want to work in and with Venezuela in the future. This lack
of foreign investment into Venezuela’s oil industry would have a negative effect on the overall
economy of the country, as oil accounts for 70 percent of the country’s exports.
c. How will the high level of public corruption in Venezuela affect future growth rates?
From what was mentioned in the article, Venezuela was ranked in 2012 165th out of 174
nations of level of corruption. Because of the corruption happening in the country, the economy
will be futile, the citizens will be unmotivated to work and human resources will become scarcer.
These high level of corruption rates will also impact the number of local and foreign investors,
which may or may not negatively affect the future growth rates, but one thing is for sure, the gap
between the rich and the poor will be wider.
d. In your estimation, what is the long-run prognosis for the Venezuelan economy? Is this a
country that is attractive to international business?
A country where the individual income is low will be bad for all local and foreign investors,
unless the resources there is well-managed. The situation in Venezuelan economy is worse, and
after 10 or more years, if the corruption still continues and those with power still abused the
economy, the country will undergo another recession.