ECONOMY LECTURE 2: A BRIEF INTRODUCTION TO MIZIA ECONOMY
This is a continuation of lower level undergraduate lectures by Monsieur Mercer Ratté. Most of the time in this lecture was spent in discussions, between the M. Ratté and his students, which have been omitted from this text.
Today’s lecture will mainly be a discussion from your end i.e. you will be doing most of the talking. Before that, I would like to discuss two concepts: ‘growth’ and ‘development’. We know that the “growth rate of the Mizia economy is slowing down”. When we say such a statement, we mean that the output of the economy is increasing but at a slower rate than the previous reference period (quarter/half yearly/yearly). Thus when we say that the growth rate of the Mizia Economy in Quarter 4 of the year 2018 was 0.9% and in Quarter 3 of the same year was 1.5%, we mean that the economy is still expanding but at a slower rate. This is growth rate slowing down. However, if during the same reference period the output has declined, it is called contraction. Contractions over two consecutive quarters are known as recession and still longer periods of continuous recession are known as depression. Now, why are we concerned about this growth rate slowing down? Simply because increased income increased purchasing power increased demand for goods and services increased production increased output increased income increased investment increased output increased income. This means more wealth and more ‘development’, or does it?
Can we measure ‘development’ like we have measured ‘growth’? For now, let us answer No; some of you will argue about the Human Development Index, which we will discuss at the end of the lecture but for now understand that development is ‘qualitative’ while growth is ‘quantitative’. Development means that the benefits of growth i.e. increased output are able to reach the bottom most, the worse off and the most marginalized people of the society. We would not be wrong if we say Development means the ‘equitable’, keep in mind, and not equal distribution of this increased output. “To each according to his need” – that is equitable. And then there are systemic barriers to achieving equality. We shall look at these barriers in some detail in the next lecture. Look at this picture to get a better understanding:
Some facts about the Mizia Economy
From time to time I’ve heard this misconception the Mizialand is socialist. What is ‘Socialism’? [The Professor asks a student and the discussion starts; the said discussion turns into a heated argument, among some vocal students, which has been omitted here]
OK, so I guess we have wandered off. Politics and religion are two things that you should never discuss with your friends, especially these days. I just wanted to get an idea of what you mean by these terms. See, we won’t discuss these things at length – that is the job of Political Science majors, or if you are taking those courses for fulfilling some requirement, you will learn more there but let me summarize in one sentence – “Socialism is the social ownership of means of production.” That’s it! It’s nothing more, nothing less. Say you are working in a factory. The owner of that factory provides the means of production – the equipment, the machinery, the instruments and so on. There is nothing stopping you from killing the owner and taking over the means of production (here we are assuming only two entities: the workers and the owner; police, law enforcement and all that does not exist in this hypothetical scenario). You do so and now you, the workers own the means of production. This is Socialism. It is a stage in achieving Communism. Communism is a stateless and classless society. Nothing else. That’s it. There is no money, no government, no class division, no inequality of any kind whatsoever under communism. There is a lot of discussion on these terms which is out of the scope of this course. For those of you who would like to learn more, there are infinite resources on the internet but if I was to suggest one, it would be to read, with a pinch or rather a spoonful of salt this source.
Now, I don’t think that anyone would say that Mizialand is socialist or even communist. Rather there is no country in the world that is entirely communist or socialist or even capitalist. Every. Let me say that again – every economy in the world is a mixed economy. However, the extent that socialism or capitalism influences that mixed economy varies depending upon country to country. We are running short of time, so rather than covering everything, I will stress on a few important facts related to the Mizia Economy. Look at this pie chart from which we concur,
Fact 1: Despite being a post industrial economy, the contribution of the industrial (manufacturing) sector is relatively higher than other post industrial economies.
Like most of the economies, manufacturing sector has matured before service sector. This is important because:
- There is a linkage between manufacturing and agriculture sector either through raw materials or through a market for industrial produce.
- Manufacturing sector has, arguably the most employment generating potential.
However, unlike other post industrial economies, the contribution of service sector, though still higher than that of industrial sector, is relatively low. Why?
- The establishment of Special Economic Zones, which we will cover in a later lecture.
- The policy of “complete industrialization” envisaged by HRH Guérin Vincent from 1918 onward in response to the economic destruction caused by the 1912-15 civil war.
- Guest workers who work for lower wages and for longer hours than their Mizia counterparts, still continue to arrive in large numbers.
- Rapid shift to automation due to which workers risk losing their jobs but translates into higher output for the companies.
Fact 2: However, the manufacturing sector continues to decline at the cost of the service sector, as does the agriculture sector
This is a trend seen world wide. In 1947, the contribution of the service sector was only 11% to the GDP; by 1967, it had increased to 32%, by 1997 to 59% and today it is approximately 65% (still lower than around 70% for other post industrial economies).
In the service sector the employment situation has remained relatively stable compared to in 2017 (+0.2 percent), though about half of the branches of activity have recorded a decline in employment. The hotel and restaurant trade (–1.3 percent) and communications sector (–1.4 percent) were the hardest hit. In contrast, health and social work recorded a rise of 3.8 percent.
In the third quarter of 2018, employment in the manufacturing sector was down sharply by on average –2.6 percent. More than half of the job losses concerned the metal manufacturing sector (- 6.5 percent), mechanical engineering (–6.3 percent) and manufacture of medical equipment, precision instruments, clocks and watches (–5.7 percent).
The agriculture sector (which includes agriculture, forestry and fisheries) has recorded significant job losses since 2005. The reasons lie mainly in the continuing structural changes in agriculture and the tendency towards larger-scale operations.
Fact 3: Growth in IT and Tourism are the biggest contributors to the growth in service sector
The rapid growth in IT has been the most important driver behind the growth of service sector in Mizialand. Though there are of course, other components of the service sector, IT and Tourism contribute the maximum to it.
It is an undeniable fact that Bengalis have become synonymous with the Mizia start-ups. According to the latest Survey of the Mizia Economy, 62% of the start-ups in Noord-Zuid Dakota SEZ are run by people from Bengali background. One of the reasons for this dominance is that Bengalis have been able to integrate into the Mizia economy in a much better manner than any other immigrant group. They have the highest income among any ethnic group (not only immigrant groups but also native Mizias), according to the 2015 Demographics Survey. Another reason may be rigorous and high standard training imparted not only by institutions in Mizialand but also by institutions in Bengal.
Blessed with picture perfect towns, high mountains offering unmatched hiking and trekking opportunities, glaciers, rivers, lakes, inland beaches, rich history and a culture that lies at cross roads of French, Dutch and German ethnicities, tourism in Mizialand has shown considerable growth especially since the Kingdom joined the LC in 2004. Since then, tourist arrivals have grown by an average of 24% annually. The WA ranks Mizialand as the 4th friendliest nation, 7th most beautiful, and 4th most popular tourist destination in Astyria.
Fact 4: Mizialand is an example of a welfare state
The circumstances leading to the establishment of welfare state and the subsequent economic history of the Kingdom, I shall cover in the subsequent lecture. Here let us expand very succinctly on the above fact:
- A comprehensive welfare state (political science majors will discuss at length what is a welfare state)
- High percentage of unionized workforce (something that we have experienced in the university – you have the student’s union, the LGBTQ student’s union, the Bonn student’s union, teacher’s union and even a Dean’s union!)
- State Capitalism (of some sort you can say) – the State has ownership stake in some of the country’s largest public companies
- Highly autonomous local democracies, especially with the Representation of People Act
- Commitment to Free Trade
- An elaborate social safety net – free education and healthcare
- Low Levels of Corruption
- Protection of Worker’s Right
- High tax burden
- Labour market intervention, for example Her Majesty’s Government refused to grant approval to Air Liberte sale unless worker’s rights were protected
At least one editorial per week is printed in some major newspaper or the other either praising this model or criticizing it. I expect you all to read editorials related to matter we cover in the lectures because I will ask some opinion based questions in the final which can only be learned by extensive reading of good quality newspapers.
In the beginning of the lecture some of you were talking about the Human Development Index. It has three dimensions, four indicators, and three indices as shown:
You can remember the dimensions as a person is “born, reads and lives” (Birth, Knowledge and decent standard of living). The method of calculation was updated in 2010. I usually ask one question related to HDI in the finals, so please be well acquainted with its calculation, criticism, and alternatives of the index which are available in the required readings.
Mizialand’s HDI is 0.924 which is the 4th highest in Astyria.
In the next lecture we shall blur the boundaries between Economy and History as I will attempt to give you a brief idea of the Mizia Economy during the Vincent Dynasty i.e. from 1912 to the present times.