Download Appendix 1 – Additional Country Scenarios

Appendix, Fall, 06
1
Appendix 1 – Additional Country Scenarios
The FTE thanks teacher participants in Is Capitalism Good for the Poor?
Online. Their unit 2 assignments comprise the draft pool for the new country
scenarios included in this appendix.
BELIZE
General Description:










Belize’s per capita Gross National Income (PPP) is $6,740, 105th in the world, and in
the middle of Central and South American nations.
Belize’s main economic sectors are agriculture, fisheries, and tourism. Agriculture is
still the largest sector of the economy (35% of GDP and 41% of total employment),
producing sugar, bananas and citrus. Some agricultural products (notably sugar) are
protected by very high tariffs.
Transparency International, 2005, rated Belize 62nd among the 159 nations evaluated
for fighting corruption (tied with Brazil). On a ten-point scale (a score of ten signifies
“highly clean” and a score of zero signifies “highly corrupt”), Belize’s score was 3.7.
Government consumption as a percentage of GDP was 16.3 percent in 2001.
Foreign investment is welcomed. Full ownership by foreigners is allowed, but there
is a long list of economic activities (commercial fishing in the barrier reef,
merchandising, sugarcane farming, real estate and insurance, internal transportation,
accounting and legal services, entertainment, beauty salons, restaurants and bars)
requiring licenses which foreigners may not hold.
According to the International Monetary Fund, both residents and non-residents may
hold foreign exchange accounts subject to government approval. All capital
transactions must be approved by the central bank.
There are two minimum wages, one for agriculture ($2.00/hr.), and slightly higher for
all other industries ($2.25/hr.).
While the judiciary of Belize is constitutionally independent, the reality is that the
courts are often dominated by political influence. The judiciary system is also
chronically understaffed, resulting in significant backlogs of cases and frequent
delays.
Belize belongs to the Caribbean Community and Common Market (CARICOM) trade
organization and adopts CARICOM external tariffs. The World Bank reports that
Belize’s average tariff rate is 13.3 percent, almost double the level that the Heritage
Foundation has proposed for a nation to qualify as a free-trader. Additionally, trade is
restricted through quotas and import licensing.
Belize has a growing off-shore banking community. The United States and other
nations are very concerned that Belize’s open offshore financial activities with
nonresidents have attract drug money and have stimulated black market activity.
©November, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
2
Specific Situation A: Postings from U.S. Ex-Patriots Living in Belize”
“I will have lived in Belize for 7 years this coming Christmas Eve. Some observations:
. . . 5. Unless you don't care what happens to yourself, your possessions, your loved ones,
your pets, etc., you must be ever watchful. . . . For example, I don't know the phone
number for the police station in Placencia because I have no faith that if I needed them
they'd (i) answer the phone, or (ii) come to help even if they did answer the phone. Don't
balance your checkbook in the States because the banks don't make that many mistakes?
You better do it zealously in Belize because they DO make that many mistakes. . . .
6. Owning a successful business in Belize is REALLY hard work. The supply chains
aren't in place, most times the business owner has to create his or her supply chains from
scratch -- and have several back-up plans. (For example, you can't call up and order 12
dozen hamburger buns to be delivered on Thursday. The person who makes the buns may
decide not to make them that week, or one of his or her pieces of equipment is broken
and no one will come to repair it, or there's no part available, or all of the employees just
quit -- or all of the above, and there may be must one person who makes hamburger buns
where your business is located.) Capital at a reasonable cost is non-existent. The labor
pool is very small. Communication is very expensive. The bureaucracy is very slow.
Services are in short supply. Nobody will return phone calls, which means you have to
call and call and call again to finally talk to whomever you need to talk to in order to get
whatever you need to get accomplished, accomplished.”
http://www.belizenorth.com/expats.htm (11-03-06)
Specific Situation B: “Niche” Markets
In general, a niche market (sometimes called a specialty market) is a small market that
sells products or services that are not provided by mainstream markets because of the
relatively small number of consumers. The text below is an excerpt from an
advertisement in Latin Trade magazine, May 2005:
“Belize, the small English speaking country on Central America's pristine northeastern coast, is poised to become an international location for niche market business.
“In a world increasingly seeking natural products, where organic, fair trade, and
eco-labelled certifications fetch price premiums; Belize's natural assets, development
policies and pro-business investment climate have created an ideal destination for
investors looking to differentiate based on quality.
“No other country has so emphatically proclaimed this niche-oriented destiny.
Belize's government, recognized by investors as non-intrusive, supportive and
predictable, is wholly committed to creating the conditions, policies and institutions to
continue supporting the country's ‘niche-oriented’ development model and preserving the
country's distinctiveness.
. . . “Various economic sectors are being targeted by investors attracted by
Belize's natural resources, convenient legal framework and export-oriented
infrastructure."
Source: http://findarticles.com/p/articles/mi_mOBEK/is_5_13/ai_n13717536 (9-10-06)
©November, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
3
Sources:
 Bohning, Don, “Belize Seeks to Diversify Economy,” Knight Ridder/Tribune
Business News, December 22, 1998.
 “Corruption Perceptions Index, 2005.” Transparency International.
www.transparency.org/policy_research/surveys_indices/cpi/2005 (9-13-06)
 Encyclopedia of the Nations: Americas: Belize.
http://nationsencyclopedia.com/Americas/Belize-FOREIGN-INVESTMENT.html
(10-28-06)
 Food and Agricultural Organization of the United Nations. “Belize.”
http://www.fao.org/docrep/005/y4172m/rep2/belize.htm (10-30-06)
 “GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators
Database., July 1,
2006.http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
(10-4-06)
 Miles, Marc, and Kim Holmes and Mary Anastasia O’Grady. 2006 Index of
Economic Freedom. The Heritage Foundation and Dow Jones & Company, Inc:
Washington and New York, 2006.
 “Table 1A – Government Consumption as a Percentage of GDP.” United Nations
Online Network in Public Administration and Finance.
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan014043.pdf#search=
%22government%20consumption%20GDP%22 (9-10-06)
 “Trouble in Paradise,” The Economist, November 21, 2002.
http://www.economist.com/world/la/displaystory.cfm?story_id=E1_TQVQGPV
 World Bank. World Bank Atlas. International Bank for Reconstruction and
Development: Washington, DC, 2003.
 World Bank Governance Indicators. Belize.
http://info.worldbank.org/governance/kkz2002/sc_country.asp
http://info.worldbank.org/governance/kkz2002/sc_chart.asp
©November, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
4
CHILE
General Description:












Chile’s capita Gross National Income (PPP) is $11,470, 76th in the world.
When Chile moved to free trade from protectionism in the 1970’s, it was one of the first
South and Central American countries to do so. Opening markets proved to be beneficial for
existing export industries as well a significant boost in starting new industries. Many
observers credit this shift to more free markets as the main reason for Chile’s economic
success.
The nominal tariff rate is 6%, but because most imported goods are covered under trade
agreements, the average tariff rate is under 2%. Chile has entered into free-trade agreements
with the United States, Canada, Mexico, South Korea, and the EU, and is working on
agreements with China, Japan, and India.
The country is open to foreign investments and foreign companies enjoy the same guarantees
as Chilean companies. The only remaining significant restriction is that fishing vessels
within the exclusive fishing zone must have Chilean ownership.
CODELCO, the country’s largest copper mining operation, is a state-run industry, a rare
exception in an economy characterized by private enterprise.
The Chilean government consumes approximately 12.5% of the nation’s GDP, as compared
to the 2000 world average of developing countries at 14.5%.
Chile’s only price controls are placed on natural monopolies, like utilities. However, many
agricultural products are subject to a system of “price bands” in which price ranges are set,
annually, based on international market levels. This practice was recently challenged in the
World Trade Organization system. As part of the settlement, the Chilean government has
begun phasing out the price bands, a process to be completed within the next decade.
Workers are able to organize in unions and bargain collectively. However, negotiating a
labor contract is a difficult process and is heavily regulated by the government.
Private contracts in Chile have been called the most secure in Latin America.
Transparency International, 2005, rated Chile 21st among the 159 nations evaluated for
fighting corruption. On a ten-point scale (a score of ten signifies “highly clean” and a score
of zero signifies “highly corrupt”), Chile’s score was 7.3, the highest score of any country in
South or Central America.
The poverty rate has dropped from 46% to 21.7% in about 10 years.
Chile’s financial institutions have a solid international reputation, earning them the highest
bond rating in South America.
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
5
Specific Situation A: Is It Working?
In Chile, unlike other Latin American countries, bureaucrats closely adhere to the laws
and regulations governing their industry. They do so partly because they know that they will be
visited by a lawyer from Contraloria, the autonomous, politically neutral national audit agency
that most feel is responsible for Chile's reputation as an honest government.
Recognizing that ensuring that public service agencies are honest and above corruption
doesn’t necessarily mean that they are efficient, Chile has also established the National
Investment System, which performs cost-benefit analyses on public programs and agencies.
Pubic agencies are urged to define goals and establish measurable performance indicators. The
Government Program Evaluation Department then does an independent assessment of the
effectiveness of each government program. Although the system may seem complicated, it has
had amazing results in determining which government programs are cost-effective and efficient.
Specific Situation B: A PR Shortfall?
Writing in Newsweek International, March 27, 2006, former Mexican foreign minister Jorge
Castaneda commented on the lack of international attention focused on Chile's economic
success:
“What is surprising is the stark contrast between Chile's record and its standing in Latin
America. Between 1989, when the current Socialist/Christian Democratic coalition reached
power and democracy returned to the country, and 2005, the Chilean economy has grown nearly
6 percent per year, more than doubling per capita income. Poverty has been drastically reduced;
education, health, housing and other social indicators have all improved significantly, and even
inequality, that terrible bane of all hemispheric societies, has finally begun to diminish, albeit
modestly. For practical purposes, Chile is on the verge of occupying the lowest rung of the
highest ladder: becoming a still poor but now developed nation, perhaps like Greece or Portugal
a few years ago in Western Europe, like Poland or South Korea more recently.
“Chileans have dealt with the past bravely and prudently, prosecuting, jailing and
stigmatizing those who deserve it, but not allowing themselves to be consumed by score-settling
and revenge. The country has gradually left behind much of the institutional legacy of the
Pinochet dictatorship, becoming a much more functional democracy today than most other
countries in the region. And it has proved able to both disagree with Washington--as over Iraq at
the United Nations Security Council in 2003--and get along with the Bush administration, not an
easy matter for any government these days. . . .
“So why does no one else really care? Why is such a success story not moving the hearts
and minds of millions of Latin Americans? In Mexico City's National University, the oldest and
largest in Latin America, Bolivarian Committees are springing up in support of Venezuela's
Hugo Chavez; at last November's Summit of the Americas in Mar del Plata, Argentina, former
soccer idol Diego Maradona rallied thousands of cheering Chavistas to denounce American
imperialism, neoliberalism, free trade and whatnot. Yet there are no Chile Study groups at the
universities; there are no Ricardo Lagos T shirts; there are no Chile groupies. Any comparison
between Chile and Venezuela over the past seven years (since Chavez took office), or between
Chile and Cuba since 1989, is a no-brainer: from any conceivable point of view, Chile comes out
miles ahead. But somehow the Chilean model has limited appeal, though the size and weight of
the three nations are quite similar.”
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
6
Sources:
 Chile: Factsheet at Economist.com, August 21, 2006.
http://www.economist.com/countries/Chile/profile.cfm?folder=Profile-FactSheet (10-31-06)
 “Corruption Perceptions Index, 2005.” Transparency International.
www.transparency.org/policy_research/surveys_indices/cpi/2005 (9-13-06)
 “GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database.,
July 1, 2006.http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
(10-4-06)
 “Table 1A - Government Consumption as a Percentage of GDP.” United Nations Online
Network in Public Administration and Finance.
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan014043.pdf#search=%22go
vernment%20consumption%20GDP%22 (10-12-06)
 The World Factbook. “Chile.” https://www.cia.gov/cia/publications/factbook/geos/ci.html
(9-13-06)
 U.S. Department of State. “Background Note: Chile.”
http://www.state.gov/r/pa/ei/bgn/1981.htm
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
7
FINLAND
General Description:












Finland’s per capita Gross National Income (PPP) is $31,170, ranking 20th in the world.
Most wages and prices are determined by the market. Only health care services and taxis are
subject to wage and price controls, and the agricultural sector is heavily subsidized. The
regulatory system is very manageable, although any activities which are considered harmful
to the environment are generally not allowed and construction permits are required.
The GDP is currently growing at a steady 3% rate. Composition of GDP clearly shows
Finland’s transition to a service economy: agriculture 3.3%; industry 30.2%; services 66.5%.
For 2006-2007, Finland was awarded second place in the World Economic Forum’s Global
Competitiveness Report.
Finland has changed dramatically in the last 40 years from a primarily agricultural economy
to a highly industrialized supplier of wood, metals, engineering, telecommunications and
electronics.
As a member of the European Union, Finland’s average tariff rate is 1.3%. Exports account
for 40% of GDP. Approximately 1/3 of GDP relies on trade, and imports supply the majority
of the nation’s energy.
The government consumes approximately 22.4% of the nation’s GDP in 2004, as compared
to the 2002 developed nations’ average of 20.1%.
Reforms are being implemented by the government, such as reducing corporate income and
capital tax rates, but The Economist Intelligence Unit suggests further adjustments will be
necessary to maintain Finland’s competitiveness. Currently, the top tax category is 33.5%,
down from 35.5% in 2005.
Property rights are respected by the government. Entrepreneurship is encouraged and 187
patents per million people were granted in 2001. Among the top 63 inventive nations of the
world, Finland ranks ninth.
Transparency International, 2005, rated Finland 2nd among the 159 nations evaluated for
fighting corruption. On a ten-point scale (a score of ten signifies “highly clean” and a score
of zero signifies “highly corrupt”), Finland’s score was 9.6.
There is no legislated minimum wage, and the market establishes wages and salaries.
However, collective bargaining agreements are required by the government.
Finland is extremely open to foreign investment. Not only do foreign investments not require
prior approval, except in national security industries, but there are no restrictions on foreign
exchange accounts, which may be held by both residents and nonresidents.
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
8
Specific Situation A: “Finnish resolve: efficient farming in extreme conditions”
“The farm families of Finland do not have it easy. They live in the northernmost farmed
areas of the world. The growing season is very short and they only have enough sunlight to raise
crops during a few months of the summer. Nevertheless they grow cereals, vegetables, berries
and grass for hay, which they use for their beef and dairy cows. Today their life is not as difficult
as their parents’ due to the automated milking system, complete with a computer program that
determines how much feed . . . [cows] . . . will receive, takes milk samples, cleans their udders
and milks them. Amazing. This gives them more flexibility in their time so they are able to
combine their farming with another resource, moving them into a more profitable situation than
their ancestors.
. . . “The resource they turn into profit is their forest. Many farms in this region
encompass a percentage of forest land. The timber is sold privately to forest companies which
convert it into paper products and lumber. These lands are not only a source of earnings for these
families, but annual replanting and clearing provide a security for the hard times and a future
investment
“During the busy planting and harvesting season, other work is outsourced. Hiring others
to help with the daily labors frees them up to concentrate on the tremendous amount of work that
must be done in the fields during the short season. Farm families are also entitled to a holiday
leave of 23 days a year, while the “municipal holiday substitute” provides labor for the farm’s
daily routines.
Korpela, Salla. “Finnish resolve: efficient farming in extreme conditions.” July, 2005. Virtual Finland
http://virtual.finland.fi/netcomm/news/showarticle.asp?intNWSAID=38956#fro (10-12-06)
Specific Situation B: “Cellphone callers talk more than landline users. . .”
“Finns talked more on mobile handsets than on landline phones in 2005 for the first time
since cell phones became popular, a government agency said Thursday.
“In the home of Nokia, the world's largest mobile phone maker, cell phone users spent 10.8
million minutes talking on their handsets, up from 9.6 million minutes in 2004, Statistics Finland
said. Landline calls fell by 35 percent to 7.4 million minutes, from 11.4 million minutes a year
earlier. The number of calls made on cell phones last year was 4 billion, up from 3.8 billion,
while those made from fixed-line phones plummeted 28 percent to 1.5 billion, the agency said.
. . . “From the start Finns have been keen on mobile gadgets, and in 1998 cell phone
subscriptions surpassed the number of land lines. Besides talking and sending text messages,
many use cell phones to check e-mails or access the Internet. Last year, Finns sent a record 2.4
billion text messages, up from 2.2 billion in 2004, the statistics agency said.”
The America's Intelligence Wire, June 1, 2006.
http://www.accessmylibrary.com/coms2/summary_0286-15469672_ITM (10-19-06)
“.. . [T]he company to which Finland owes much of its rise to new-economy stardom [is
Nokia].. Nokia's management has exerted a strong centripetal force over the Finnish high-tech
sector, drawing a vast network of suppliers into the company as partners. Likewise, most
managers recruited by Nokia have stayed with the company. That is quite different from
Sweden's Ericsson, whose management has sprouted a string of entrepreneurs eager to branch
out, frequently with unfortunate results.
“… Finland's fortunes depend on Nokia . . . . It now produces one in every three mobile
phones sold in the world. Finland may have all its eggs in one basket, but so far the basket has
proved quite sturdy.”
“Swedes chopped.” The Economist, September 6, 2001.
http://www.economist.com/finance/displaystory.cfm?story_id=E1_SSTPTQ (10-21-06)
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
9
Sources:

“Corruption Perceptions Index, 2005.” Transparency International.
www.transparency.org/policy_research/surveys_indices/cpi/2005 (9-13-06)
 “GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database.,
July 1, 2006.http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
(10-4-06)
 Heritage Foundation. 2006 Index of Economic Freedom. “Trade Policy.”
http://www.heritage.org/research/features/index/country.cfm?id=Finland
 “Table 1A - Government Consumption as a Percentage of GDP.” United Nations Online
Network in Public Administration and Finance.
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan014043.pdf#search=%22go
vernment%20consumption%20GDP%22 (10-12-06)
 The World Factbook. "Finland." https://www.cia.gov/cia/publications/factbook/geos/fi.html
(10-21-06)
 World Economic Forum. "Global Competitiveness Report, 2006 - 2007."
http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.ht
m (10-17-06)
 World Intellectual Property Organization. "WIPO Patent Report: Statistics on Worldwide
Patent Activity (2006 edition)"
http://www.wipo.int/ipstats/en/statistics/patents/patent_report_2006.html#P104_9303 (10-1706)
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
10
ISRAEL
General Description:












Israel’s per capita Gross National Income (PPP) is $25,280, 37th in the world
Israel’s market economy is heavily focused on high technology industries, such as
telecommunications, software, pharmaceuticals, and biomedical equipment. This focus
comes from two sources: Israel’s comparative advantage as a high tech producer in the
Middle East, and government programs to encourage the development of the high technology
sector. Through the 1990’s, Israel’s strong economic growth (averaging 6% percent
annually) allowed the government to step back from its encouragement as the sectors began
to flourish.
The top income tax rate is 50%, and the top corporate tax rate is 35% (2005).
Government expenditures as a share of GDP remain around 50%.
Transparency International, 2005, ranked Israel 28th (tied with Oman) among the 158 nations
evaluated for fighting corruption. On a ten-point scale (a score of ten signifies “highly clean”
and a score of zero signifies “highly corrupt”), Israel’s score was 6.3, the highest score for
Middle East countries.
Israel is a competitive international trader with fairly low trade barriers on the goods that it
imports. Free trade exists between Israel and the US and the EU. The average tariff rate in
2003 was 2%, about half the rate of the 1990s.
Barriers to trade do exist in the form of health and obscenity regulations based on religious
laws. Additionally, many labels are required to be in Hebrew.
Israel has a minimum wage and fair labor laws, and there are some price controls on items
that are produced by a monopolistic corporation or items that are deemed as vital.
The legal system has its roots in the British common law and also reflects American
influence. General international opinion of the Israeli legal system is that it is fair and
objective.
The World Bank places Israel in the 83rd percentile in controlling government corruption, but
only in the 14th percentile in governmental stability.
Foreign investment in the Israeli economy has been an important economic force. Foreign
investment has slowed since 2000, largely because of investment opportunities in growing
Asian economies. This slowdown had a measurable negative effect on Israeli economic
activity.
The Israeli government still owns much of the nation’s heavy industry, but it has been slowly
selling off shares in state owned banks and electricity. The state still owns the airline and
also 93% of the land. Most land is rented to tenants for leases as long as 49 years, but
government ownership still tends to discourage tenants from making improvements.
.
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
11
Specific Situation A: Incentives to Settle
“Israel's effort since the 1967 Mideast war to fill the West Bank and Gaza Strip with Jews
has grown from the scattered actions of zealous squatters into a network of 142 towns and
villages that house nearly 240,000 people.
[The dismantling of the Gaza settlements] . . . raises the question of how much money has
been poured into populating these biblical lands with Jews, and exactly where it came from.
“The official answer: No one knows.
“Vice Premier Shimon Peres estimates Israel has spent about $50 billion since 1977, when the
hard-line Likud government took over from his Labor party. Other former finance ministers and
government officials don't discount a price tag — commonly floated but never documented — of
$60 billion.
“. . . Calculating an exact figure is impossible because much of the building was financed
through winks and nods, an opaque state budget and secret military spending that in some cases
violated Israel's laws and undercut international peacemaking efforts, according to official Israeli
inquiries as well as Associated Press interviews with past and present officials, settlers and their
opponents.
“Among the methods used, the interviews show, were government subsidies, shadowy land
deals, loopholes in military spending, and an auditing bait-and-switch in which U.S. aid was used
to free up billions of dollars for spending on the settlements formally opposed by the United
States.
. . . “The settlements started after 1967 under Labor governments, which sought to confine
them to border areas they considered necessary for national security. But then Likud came to
power in 1977, claiming a God-given right to the whole West Bank and Gaza Strip. The chief
settlement advocate was Ariel Sharon, the former general who — now as the prime minister —
has ordered the Gaza pullback.
“Using his Cabinet posts between 1977 and 1992 . . . he doled out government grants, lowcost loans and tax breaks to settlers. . . . The state also picked up as much as half the tab for
hooking up utilities. And pro-settler lawmakers fought to control key ministries . . . so they could
direct money to settlements.”
“No One Knows Full Cost of Israel’s Settlement Ambitions.” August 14, 2005.
http://www.usatoday.com/news/world/2005-08-14-israelsettlercosts_x.htm
Specific Situation B: The Security Wall
“Israel’s Supreme Court ordered that the security wall dividing the West Bank must be
moved to be in accordance with Israeli law. Under Israeli law, property may be confiscated for
military or public purposes. However, the Court felt that the security wall’s route took on a
political purpose. . . . The Court made its ruling based on precedent, the Geneva Convention, and
the Hague Regulation of 1907. Under these international laws, land may be taken for military
purposes if compensation is paid. The Court opinion stated that the military commander in the
region had the authority to build the wall, but the route that the wall was being built along was
not in accordance with the law. The Court stated that the military must take into consideration
the local community and build the wall in the least restrictive manner so as to allow movement
for the local people. Unless armed warfare broke out, the military was instructed to respect the
private rights of the local people. In this case, the military was instructed to reroute the wall so
as to be less intrusive and divide less private property.”
Source: Sliman, Nidal. (July, 2004). [Online] “Israeli high court decision on location of West Bank barrier.” The
American Society of International Law Insights. http://www.asil.org/insights/insigh140.htm
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
12
Sources:
 “Corruption Perceptions Index, 2005.” Transparency International.
www.transparency.org/policy_research/surveys_indices/cpi/2005 (9-13-06)
 “GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database.,
July 1, 2006.http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
(10-4-06)
 “Israel: Factsheet” at Economist.com, August 21, 2006.
http://www.economist.com/countries/Israel/profile.cfm?folder=Profile-FactSheet (10-31-06)
 Miles, Marc, and Kim Holmes and Mary Anastasia O’Grady. 2006 Index of Economic
Freedom. The Heritage Foundation and Dow Jones & Company, Inc: Washington and New
York, 2006, 227-8.

“Table 1A - Government Consumption as a Percentage of GDP.” United Nations Online
Network in Public Administration and Finance.
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan014043.pdf#search=%22go
vernment%20consumption%20GDP%22 (10-12-06)
 The World Factbook. “Israel.”
https://www.cia.gov/cia/publications/factbook/geos/is.html(10-13-06)
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Updated, Fall, 06
13
UGANDA
General Description:











Uganda is committed in theory to privatization, but it has fallen behind in its timetable for
putting making its commitment a reality. Since the 1970’s, Uganda has made decisive moves
to loosen government control over property and production. Coffee, the country’s top export
and once a government monopoly, is now private. However, efforts to privatize other
agricultural products, such as sugar and tea, have met little success. The government still
enforces certain price controls.
Uganda’s economy is heavily dependent on foreign aid and borrowing from foreign
countries. Uganda’s national debt has reached a historically high level: over 70% of GDP.
Uganda’s per capita Gross National Income (PPP) is approximately $1500, placing Uganda
179th in the world.
The Ugandan government consumes approximately 14.6% of the nation’s GDP, up from
12.5% in 2001.
The Ugandan government reports its top income tax rate and its corporate tax rate as 30%. A
survey of the Ugandan private sector by the national Center for Policy Analysis indicates that
bribery slows business growth even more than the country’s business taxation.
Transparency International, 2005, rated Uganda 117th among the 159 nations evaluated for
fighting corruption (tied with 8 others). On a ten-point scale (a score of ten signifies “highly
clean” and a score of zero signifies “highly corrupt”), Uganda’s score was 2.5.
The Ugandan government consumes approximately 15.7% of the nation’s GDP, slightly
more than the average for developing countries.
The Ugandan judicial system is under-funded and not fully independent. The executive
branch has broad legal powers and the ability to greatly influence judicial outcomes.
Traditionally, the business atmosphere in Uganda has been difficult – particularly for small
enterprises. Businesses report that dealing with inefficient and mismanaged government
services is costly and that from 15-40% of management time is spent trying to comply with
government regulation. However, Uganda has recently begun moving toward lightening the
traditionally heavy regulatory environment for businesses – particularly small businesses. As
part of this plan, public-private partnerships are also taking shape.
Uganda’s average tariff rate has been slowly dropping. Currently (2006), it rests at 5.5%,
down from almost 7% in 2001. The lowering of trade barriers is part of a conscious freemarket policy intended to drive economic growth over the next two decades.
Uganda’s ability to reduce both poverty and the spread of AIDS is hampered by continuing
civil war. Attempts to negotiate cease-fire agreements between the government and the rebels
have, with a few short-term exceptions, been unsuccessful. The northern and eastern sections
lag significantly behind the rest of the country because of the rebellion.
©September, 2003, The Foundation for Teaching Economics. Revised October, 2006. Permission granted to reproduce for
educational use.
Updated, Fall, 06
14
Specific Situation A: An Amazing Turnaround
“Uganda’s emergence . . . [in the last decade of the 20th century] . . . from economic decline,
conflict, and repressive government to . . . stability, high growth, and considerable political
freedom represents a major turnaround in Africa. After the tyranny in the 1970s under Idi Amin
and the less notorious, but no less destructive, regime of Milton Obote during the first half of the
1980s, Uganda has been undergoing a major transformation . . . .
. . . First the government provided a reasonable level of internal peace where previously largescale violence had existed. Second, it rescinded predatory taxation. . . . Third, by ensuring fiscal
discipline, the government provided a currency whose value did not dramatically erode”
Source: Reinikka, Ritva and Paul Collier. Uganda’s Recovery. Washington D.C.: The World Bank, 2001.
Specific Situation B: Opening Markets to Foreign Ownership
Under General Idi Amin’s rule of the country during the 1970’s, the government took over
ownership of foreign owned land, homes, and businesses. Many Asians were expelled from the
country and their confiscated property was handed out to Ugandans. As the Ugandan
government has moved to reform its economy, it has also moved to restore much of this property
to its former owners. A former Ugandan government official estimates that 30 to 40 percent of
the Ugandan economy is owned by Asians.
The U.S. Commerce Department notes, however, that despite the move to redress Idi Amin’s
abuses, barriers to foreign involvement in Uganda’s economy remain. Wholly foreign-owned
companies may not trade on the Ugandan stock exchange, and the government’s taxing authority
often targets Asian firms in its ongoing search for revenue. Many Asian owners were given back
the land that had been taken from them, but they were not allowed to sell it for 5 years. Once the
5-year wait is over, many are selling their land and leaving the country. Many Asian-owned
firms have also closed their operations because it’s simply no longer profitable to conduct
business in Uganda.
Source: Lacey, Mark. “Once Outcasts, Asians Again Drive Uganda’s Economy.” The New York Times 20 Aug.
2003. Goanet News. 14 May 2004 <http://www.goanet.org/pipermail/goanet/2003-August/004251.html>.
Specific Situation C: This Little Piggy Went to Market
“A Ugandan villager goes to market to sell a pig.
First he has to pay for a movement permit from the local council, then a permit from the vet.
When he gets to market, he has to pay market entry, and finally – if he actually sells the pig – a
tax on its sale.
Then the cycle starts again. The person who bought the pig pays a purchase tax, as well as a
movement permit to take the pig from the market to his or her own village” Source: Ryan, Orlo.
“The Burden of Uganda’s Business Tax. BBC News Online 9 Jan. 2003. 14 May 2004
<http://news.bbc.com.uk/l/hi/business/2636437.stm>.
©September, 2003, The Foundation for Teaching Economics. Revised October, 2006. Permission granted to reproduce for
educational use.
Updated, Fall, 06
15
Sources:
 “Corruption Perceptions Index, 2005.” Transparency International.
www.transparency.org/policy_research/surveys_indices/cpi/2005 (9-13-06)
 “Dying for economic growth? Evidence of a flawed economic policy in Uganda.” The
Lancet, Oct 30, 2004, p. 1632.
http://galenet.galegroup.com/servlet/SRC?txba=Uganda_economic+aspects&vrsn=3.0&slb=
SUBDITEM&origsu=uganda&c=1&ste=14&tbst=ts_bsc&sitem=1_14 (10-16-06)
 “GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database.,
July 1, 2006.http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
(10-4-06)
 Miles, Marc, and Kim Holmes and Mary Anastasia O’Grady. 2006 Index of Economic
Freedom. The Heritage Foundation and Dow Jones & Company, Inc: Washington and New
York, 2006. (pp. 385-6)
 “Table 1A - Government Consumption as a Percentage of GDP.” United Nations Online
Network in Public Administration and Finance.
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan014043.pdf#search=%22go
vernment%20consumption%20GDP%22 (10-12-06)
©September, 2003, The Foundation for Teaching Economics. Revised October, 2006. Permission granted to reproduce for
educational use.
Appendix, Fall, 06
16
VENEZUELA
General Description:












Venezuela’s per capita Gross National Income (PPP)) is $6,440, 110th in the world.
The World Bank’s “governance indicators” rank the Venezuelan government near the bottom
(in the 13th percentile) of the rank of nations for the rule of law.
Since the discovery of oil in 1917, the economy has transitioned from dependence upon
cocoa and tobacco plantations to the exportation of petroleum. Venezuela is a member of
OPEC and is currently the world’s fifth largest oil exporter.
Nearly one quarter of the nation’s GDP, 50% of all government revenue, and 80% of revenue
from exports come from the government owned oil industry.
Estimates of poverty in Venezuela made by outside agencies identify two-thirds of the
population as living in poverty. Of those living in poverty, a little more than half are
classified as living in extreme poverty.
Transparency International, 2005, rated Venezuela 130th among the 159 nations evaluated for
fighting corruption. On a ten-point scale (a score of ten signifies “highly clean” and a score
of zero signifies “highly corrupt”), Venezuela’s score was 2.3.
Venezuela’s current inflation rate is just over 11 percent, the lowest it has been since 1988.
As recently as 2003, the inflation rate was 27%. The current administration’s primary
method for fighting inflation has been price controls.
The Venezuelan government has established price controls on over 160 different consumer
products, including more than one hundred food products, small household goods, cleaning
supplies, and personal hygiene products. The government also controls the prices of many of
the inputs used in making these products, as it moves toward fulfilling its promise that
consumer price controls are a long term policy.
Services are also subject to price controls, including telephone communication, education,
health care, public transportation, and garbage collection.
Venezuela’s judicial institutions have come under international scrutiny for their lack of
independence. Under President Chavez’s ruling party, political manipulation of the court
system is ongoing, and the president’s and legislature’s influence have been growing
throughout Chavez’s administration
The U.S. Department of Commerce reports that Venezuelan regulation of business is high in
comparison to world standards, and is made more complex by the many decrees coming from
the Chavez administration.
As reported by the World Bank in 2006, Venezuela's average tariff rate in 2004 was 11
percent. Additionally, the government applies burdensome sanitary standards to limit imports
and bans imports of such goods as used cars, buses, trucks, tires, and clothing.
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
17
Specific Situation A: Setting Up Co-operatives
To get a glimpse of what Hugo Chávez, Venezuela's president, hopes is the future of his
country, go to Catia, a gritty district to the west of the city centre of Caracas. There, a defunct
petrol-distribution depot has been transformed into what Mr Chávez calls “a nucleus of
endogenous development”. To anyone not versed in the vocabulary of Mr Chávez's “Bolivarian
revolution”, that means a series of workers' co-operatives and social programmes, all bankrolled
by Petróleos de Venezuela (PDVSA), the state oil monopoly.
Three spanking new buildings have gone up round a central meeting area. One houses a
well-equipped health clinic. In a second, the government has installed scores of sewing
machines. After eight months' training, the 180 women in the Venezuela Advances clothing coop have started out in business. Their first contract was to make red T-shirts and caps for
Venezuela's diplomats to wear on May Day. The third building is a co-operative making shoes.
The hillside above has been planted with maize by another co-op of urban market gardeners.
Some 1,200 work in the “nucleus”, which cost $6.6m. A planned second phase, costing $8m,
will include a “Bolivarian” school, a diagnostic centre and a day nursery.
Across the road stands a small supermarket, similarly new and clean. It is run by Mercal, a
state company set up by Mr. Chávez to provide cheap food for the poor. Mercal operates on
largely commercial lines, but some of its prices are subsidised, at a cost of $25m a month to the
government. Brazilian frozen chicken, for example, sells at 1,900 bolívares a kilo (90 American
cents at the official exchange rate). On a weekday afternoon, the place is thronged with
appreciative shoppers. Mercal has grabbed 40% of the market for staple foodstuffs.
Nearby is a centre for education outreach programmes set up by Mr Chávez. One
programme, officially completed, taught adult illiterates to read. Two others allow people to
finish their primary or secondary education, and a fourth is giving cramming courses—and the
promise of a place in an expanded university system—to 286,000 teenagers who failed to
complete secondary school.
Specific Situation B: Flying to and from Venezuela
The global trend may be towards relaxing the economic regulation of airlines in favor of
market forces, but Venezuela is moving in the opposite direction. Under newly adopted
legislation it plans to regulate domestic air fares and set a schedule of fines and sanctions for
airlines that fail to meet service standards. Relations between Venezuela's privately owned
airlines and the Chavez government have been tense for some time. … The government criticizes
their poor service, but it continues to impose strict currency exchange controls. The airlines
respond that delayed payment of amounts they have earned coupled with higher fuel prices are
creating a cash crunch. Under the new civil aviation law, the national institute of civil aviation
(INAC) is setting an "ideal" fare for each domestic route and aircraft type, and will allow carriers
to deviate from it only within a band -- 15% under or 30% over. Sanctions will be imposed for
fares beyond the band. Venezuela's airline association … claims … most of the fares set so far
are below their costs. Ironically, while Venezuela is tightening control over private carriers, it is
investing another $95 million in fleet expansion for Conviasa, the state-owned airline created last
year. Local airline executives complain that the government is misdirecting its efforts by failing
to take the steps needed to lift the country out of the FAA's Category 2 safety status which
prevents carriers from that country operating new services to the USA. Venezuela has languished
in that category for the past 10 years. (“Venezuela tightens state control,” Airline Business,
August 1, 2005)
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.
Appendix, Fall, 06
18
Sources:
 “2006 Index of Economic Freedom: Venezuela.” Heritage Foundation, 2006.
http://www.heritage.org/research/features/index/country.cfm?id=Venezuela (10-31-06)
 “Corruption Perceptions Index, 2005.” Transparency International.
www.transparency.org/policy_research/surveys_indices/cpi/2005 (9-13-06)
 “Country Commercial Guide, Venezuela.” U.S. Commercial Service, Department of
Commerce. http://www.buyusa.gov/venezuela/en/ccg.html (10-31-06)
 “GNI per capita, 2005 – Atlas Method and PPP.” World Development Indicators Database,
July 1, 2006.http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
(10-4-06)
 Miles, Marc, and Kim Holmes and Mary Anastasia O’Grady. 2006 Index of Economic
Freedom. The Heritage Foundation and Dow Jones & Company, Inc: Washington and New
York, 2006, pp. 401-2.
 “Table 1A - Government Consumption as a Percentage of GDP.” United Nations Online
Network in Public Administration and Finance.
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan014043.pdf#search=%22go
vernment%20consumption%20GDP%22 (10-12-06)
 U.S. Department of State. "Background Note – Venezuela."
http://www.state.gov/r/pa/ei/a2z/26411.htm (10-28-06)
 “Venezuela: Judicial Independence Under Siege.” Human Rights Watch. June 17, 2004
http://hrw.org/english/docs/2006/01/18/venezu12258.htm (10-16-06)
©October, 2006, The Foundation for Teaching Economics. Permission granted to reproduce for educational use.