notes on reading # 1

notes on reading # 1 - Good Capitalism, Bad Capitalism And...

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Good Capitalism, Bad Capitalism And The Economics Of Growths And Prosperity. By William Baumol Primary goal: accumulation of wealth Actions: 1. Increasing the size of the pie and taking one’s fair share 2. Taking more of the pie whether it grows or not HISTORIC OVERVIEW 1. Before Industrial Revolution people took what they could from the pie depending on their strength. 2. Free market economies appeared and they moved to a fairer distribution of the pie. 3. Why? - New institutions appeared that controlled the wealth grabbing options - Incentives to those who contributed to the overall growth of the economy 4. Once economies approach the technological frontier (once their living standards are among the highest in the world) they can remain at or become the frontier only by shedding state guidance and adopting some blend of entrepreneurial and big-firm capitalism. All economies need some degree of entrepreneurship to generate radical innovation, yet they also need effective big firms to refine it and commercialize it on a mass scale. Four Conditions for Maximizing Growth 1. Easy to Start and Grow a Business Goal: To encourage the formation of innovative entrepreneurial enterprises - Governments should lower the costs of “formality” (business and property registration and ease of hiring and firing workers) o Licensing requirements should be few o Minimum time and cost to fill out applications o Minimum time for approval o Preferably through internet - For developing country o Accelerate process in the appropriate registry o Low cost o It is simpler to do business without approval o Economies as a whole suffer from informality o Enormous amounts of dead capital o Operate at far less than their full potential with a lot of waste and inefficiency - Have a workable bankruptcy system in place - Facilitate the formation and growth of their formal financial sectors, which channel resources to innovative entrepreneurs. Interest fact: a. The United Nations formed a commission in 2004 on advancing entrepreneurship in the developing world
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b. For future economic research, the World Bank has begun a major effort to compile the kind of data on time and expense in business registration and property recordation c. It is more difficult and expensive to start and grow a business in poor countries than in rich ones. d. the Bank concludes that on average it takes fifty-nine days and 122 percent of per capita annual income to start a business in the poorest countries, but only twenty- seven days and 8 percent of annual per capita incomes to do so on average in countries belonging to the Organization for Economic Cooperation and Development, or OECD e. Developed economies tend to have the lowest costs of registration and hiring and firing that those lower costs are the reason (or a reason) for their higher level of economic development. f.
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This note was uploaded on 11/29/2010 for the course PSC 222 taught by Professor Jing during the Spring '10 term at Rochester.

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notes on reading # 1 - Good Capitalism, Bad Capitalism And...

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