SOLUTIONS MANUAL
** All Chapters included
** Answers to questions at end of chapter
,Table of Contents are given below
1 How Do We Compare Economies?
2 The Theory and Practice of Market Capitalism
3 The Theory and History of Marxism and Socialism
4 Islamic Economics and the Economics of Other Religions
5 The United States of America: The Market Capitalist Leader
6 Japan: Can A Former Planned New Traditional Market Economy Thrive?
7 France: State-Directed Dirigisme in a Free Market World
8 Sweden: Crisis and Reform of the Capitalist Welfare State
9 The Unification of Germany and the Unification of Europe
10 The Myth and Reality of the Soviet Command Economy and Russia’s
Economic Transition
11 Post-Soviet States: Alternative Paths of Transition and Divergent Models of
Market Economies
12 Poland: A Success Story of Economic Transition?
13 China’s Socialist Market Economy: The Sleeping Giant Wakes
14 North and South Korea: The Lingering Shadow of the Cold War
15 India: The Elephant Walks
16 Iran: The Struggle for a New Traditional Islamic Economy
17 South Africa: Systemic Choice and the Struggle for Racial Justice
18 Mexico: Revolution and Reform
19 Brazil: The Search for Sustainable Development and Socioeconomic Equality
, Chapter 1: How Do We Compare Economies?
Chapter objectives
- To introduce students to the subject of comparative economics,
- To emphasize the changing nature of the field of comparative economic studies,
- To present the classification of the economic systems,
- To explain the criteria for systems performance evaluation.
Main points to make
Comparative economics is the study of economic and institutional
arrangements that govern decisions of what, how and for whom to produce as
well as their socio-economic implications.
The collapse of command socialism in individual countries and the rise of new
traditionalism in religion-based economies prompt questions about the evolution of
economic systems and their potential convergence or divergence.
The conventional classification of systems into a bi-polar world of command
socialism and market capitalism has evolved into a more complex picture of
mixed systems where various elements are intertwined responding to individual
historical and cultural circumstances. Decisionmaking systems distinguish tradition,
market, and command. Ownership systems distinguish capitalism and socialism, with
various combinations of these possible.
A system's performance can be given a meaningful comparative evaluation when
the relative importance of internally ranked criteria is assessed.
The dichotomy of command socialism versus market capitalism is extended by
detailed discussion of the new traditional economy, the thesis of ultimate
conversion of all systems to a uniformal market capitalist paradigm is questioned,
the role of non-economic factors in determining economic outcomes is
emphasized, and the evolutionary approach is proposed and defended.
Pedagogy
Tables 1-1 and 1-2 provide a useful comparative exercise in interpreting data
and backing the classification of individual country cases, especially in relation to
the generalizations made by Bornstein presented in the subsection directly
preceding them.
Answers to questions at end of chapter
1. Q. Why does Fukuyama think that we are at "the end of history" and how is
his idea relevant to comparative economics?
A. He sees market capitalism combined with political democracy as triumphant
throughout the world as the predominant economic system as a result of the collapse
of the collapse of the Soviet bloc with the end of the Cold War, with no essential
evolution of systems occurring after this event. If he is correct then arguably there is
no reason to study comparative economics as there is only on economic system,
1
, market capitalism. However even he admits that this triumph is not complete and
that other systems such as the Islamic persist.
2. Q. Are m ark et econ o mies neces saril y “capitalist” and are comm and
econ omies n ecess aril y "socialist"? Why o r w h y n o t ?
A. No and no. Market and command are categories pertaining to decisionmaking
systems whereas capitalism and socialism refer to ownership systems. The cross
combinations of market socialism and command capitalism are quite possible and
have existed. Classic examples in the past of these were the former Yugoslavia for
the former and Nazi Germany for the latter.
3. Q. Even t h ou gh t he U. S . economy is probably the most modem and market
capitalist-oriented economy in the world, it has elements of a traditional economy
within it. What are s om e ex am pl es?
A. Obvious examples are those where laws based on religious imperatives or
strictures place limits on possible market activities. Examples might include
Sunday closing laws, laws against pornography or prostitution or gambling,
restrictions on the sale of alcohol on Sundays, laws closing or limiting business
activities on religious holidays, laws restricting abortion or birth control access, and
laws forbidding the selling of bodily organs or parts. Also relations within
families often reflect traditional customs rather than market forces, such as the
willingness of parents to support their children without any necessary expectation
of being paid back.
4. Q. Is market capitalism necessary for freedom? Why or why not?
A. The answer to this depends on how freedom is defined. If freedom is defined
strictly in terms freedom to own property and engage in economic activities, then
the answer is unequivocally yes. If freedom is defined more broadly then the
answer is probably no. However we have never observed in history a society that
had a permanent command economy and also a functioning liberal democracy,
suggesting that permanent command is probably inimical to political freedom.
5. Q. Distinguish between the Rawlsian, socialist, and pure communist views of how
income should be distributed.
A. The Rawlsian argues for maximizing the income of the poorest person in a
society, the maximin criterion. The traditional socialist criterion was "from each
according to his ability, to each according to his work," although Western
European political socialism has supported generous income redistribution programs
with extensive social safety nets. The pure communist view is "from each
according to his ability, to each according to his need." In addition the Austrian
generally argues in favor of a laissez-faire approach in which the free market
should determine the distribution of income.
6. Q. Considering Tables 1-1 and 1-2, what are some countries that exhibit
2
** All Chapters included
** Answers to questions at end of chapter
,Table of Contents are given below
1 How Do We Compare Economies?
2 The Theory and Practice of Market Capitalism
3 The Theory and History of Marxism and Socialism
4 Islamic Economics and the Economics of Other Religions
5 The United States of America: The Market Capitalist Leader
6 Japan: Can A Former Planned New Traditional Market Economy Thrive?
7 France: State-Directed Dirigisme in a Free Market World
8 Sweden: Crisis and Reform of the Capitalist Welfare State
9 The Unification of Germany and the Unification of Europe
10 The Myth and Reality of the Soviet Command Economy and Russia’s
Economic Transition
11 Post-Soviet States: Alternative Paths of Transition and Divergent Models of
Market Economies
12 Poland: A Success Story of Economic Transition?
13 China’s Socialist Market Economy: The Sleeping Giant Wakes
14 North and South Korea: The Lingering Shadow of the Cold War
15 India: The Elephant Walks
16 Iran: The Struggle for a New Traditional Islamic Economy
17 South Africa: Systemic Choice and the Struggle for Racial Justice
18 Mexico: Revolution and Reform
19 Brazil: The Search for Sustainable Development and Socioeconomic Equality
, Chapter 1: How Do We Compare Economies?
Chapter objectives
- To introduce students to the subject of comparative economics,
- To emphasize the changing nature of the field of comparative economic studies,
- To present the classification of the economic systems,
- To explain the criteria for systems performance evaluation.
Main points to make
Comparative economics is the study of economic and institutional
arrangements that govern decisions of what, how and for whom to produce as
well as their socio-economic implications.
The collapse of command socialism in individual countries and the rise of new
traditionalism in religion-based economies prompt questions about the evolution of
economic systems and their potential convergence or divergence.
The conventional classification of systems into a bi-polar world of command
socialism and market capitalism has evolved into a more complex picture of
mixed systems where various elements are intertwined responding to individual
historical and cultural circumstances. Decisionmaking systems distinguish tradition,
market, and command. Ownership systems distinguish capitalism and socialism, with
various combinations of these possible.
A system's performance can be given a meaningful comparative evaluation when
the relative importance of internally ranked criteria is assessed.
The dichotomy of command socialism versus market capitalism is extended by
detailed discussion of the new traditional economy, the thesis of ultimate
conversion of all systems to a uniformal market capitalist paradigm is questioned,
the role of non-economic factors in determining economic outcomes is
emphasized, and the evolutionary approach is proposed and defended.
Pedagogy
Tables 1-1 and 1-2 provide a useful comparative exercise in interpreting data
and backing the classification of individual country cases, especially in relation to
the generalizations made by Bornstein presented in the subsection directly
preceding them.
Answers to questions at end of chapter
1. Q. Why does Fukuyama think that we are at "the end of history" and how is
his idea relevant to comparative economics?
A. He sees market capitalism combined with political democracy as triumphant
throughout the world as the predominant economic system as a result of the collapse
of the collapse of the Soviet bloc with the end of the Cold War, with no essential
evolution of systems occurring after this event. If he is correct then arguably there is
no reason to study comparative economics as there is only on economic system,
1
, market capitalism. However even he admits that this triumph is not complete and
that other systems such as the Islamic persist.
2. Q. Are m ark et econ o mies neces saril y “capitalist” and are comm and
econ omies n ecess aril y "socialist"? Why o r w h y n o t ?
A. No and no. Market and command are categories pertaining to decisionmaking
systems whereas capitalism and socialism refer to ownership systems. The cross
combinations of market socialism and command capitalism are quite possible and
have existed. Classic examples in the past of these were the former Yugoslavia for
the former and Nazi Germany for the latter.
3. Q. Even t h ou gh t he U. S . economy is probably the most modem and market
capitalist-oriented economy in the world, it has elements of a traditional economy
within it. What are s om e ex am pl es?
A. Obvious examples are those where laws based on religious imperatives or
strictures place limits on possible market activities. Examples might include
Sunday closing laws, laws against pornography or prostitution or gambling,
restrictions on the sale of alcohol on Sundays, laws closing or limiting business
activities on religious holidays, laws restricting abortion or birth control access, and
laws forbidding the selling of bodily organs or parts. Also relations within
families often reflect traditional customs rather than market forces, such as the
willingness of parents to support their children without any necessary expectation
of being paid back.
4. Q. Is market capitalism necessary for freedom? Why or why not?
A. The answer to this depends on how freedom is defined. If freedom is defined
strictly in terms freedom to own property and engage in economic activities, then
the answer is unequivocally yes. If freedom is defined more broadly then the
answer is probably no. However we have never observed in history a society that
had a permanent command economy and also a functioning liberal democracy,
suggesting that permanent command is probably inimical to political freedom.
5. Q. Distinguish between the Rawlsian, socialist, and pure communist views of how
income should be distributed.
A. The Rawlsian argues for maximizing the income of the poorest person in a
society, the maximin criterion. The traditional socialist criterion was "from each
according to his ability, to each according to his work," although Western
European political socialism has supported generous income redistribution programs
with extensive social safety nets. The pure communist view is "from each
according to his ability, to each according to his need." In addition the Austrian
generally argues in favor of a laissez-faire approach in which the free market
should determine the distribution of income.
6. Q. Considering Tables 1-1 and 1-2, what are some countries that exhibit
2
