Production Resources, Economic Systems, and the Global Economy
Natural Resources in Production
The production procedure uses many natural resources: earth, water, air, plants, animals, minerals, and energy sources. Natural resources are non-renewable when they deplete with use and cannot be regenerated. Capital resources are not natural; they are employed by producers.
Capital Resources
Capital resources include:
- Physical: Material parts like buildings, machinery, and tools.
- Human: Employee training and experience.
- Financial: Money needed to establish and maintain a company.
Technology in Production
Technology involves a set of procedures used by producers. Production types include:
- Manual Production: Humans provide the force, tools, and management.
- Mechanized Production: Machines provide the force, while workers handle the tools.
- Technified Production: Machines provide the force, and employees control and supervise their functioning, limited by machine schedules.
Technological progress is not always advantageous. Technology can be expensive, and only larger companies can afford it, leading to economic gains. Technification depends on the type of activity and subject.
Knowledge and Economic Growth
Knowledge and know-how are primary factors in economic growth. Know-how refers to practical knowledge, techniques, tactics, and business skills necessary for an activity.
5. Organization of Economic Activity: Economic Systems
Economic systems are the modes in which goods and services are produced and distributed in society.
Livelihood Systems
Traditional or subsistence economic systems where families produce what they need to cover basic needs: land, food, and housing.
Communist System
A system of central planning that does not recognize private property of the means of production. The state controls all aspects of the economy.
Capitalist System
A free economic system, also known as a market economy, dominated by four characteristics:
- Private property of the means of production: land, machinery, and technology.
- Profit-seeking as the engine of economic activity.
- Prices of products are determined by supply and demand and free competition among firms.
- In some cases, certain characteristics are not fully met: monopolies (single seller) fix prices, and oligopolies (few sellers) control a product.
Demand: The quantity of a good or service that consumers are willing to acquire.
Offer: The quantity of a good or service that producers are willing to sell at a certain price.
9. A Globalized Economy
9.1 Globalization
Economic relationships between different places on the planet are more intense than ever. Companies operate globally.
- International trade has grown significantly: The volume of international merchandise trade surpassed 300,000 million dollars in 1970.
- A new organization of production: Production is split among several countries, and multinational companies control a significant part of world trade.
- International financial flows are increasingly intense: Trillions of dollars move daily around the world.
9.2 Services and Institutions of the Global Economy
Several international institutions and organizations influence the global economy. The main ones are:
- World Bank: Its main objective is to reduce poverty by providing loans and assistance to countries to promote economic growth and development.
- IMF: Advises governments on financial matters and can provide financial assistance to member countries.
- WTO: Establishes rules for international trade and resolves trade disputes among its members.
- G7/G8: A group of the seven (or eight, including Russia) most industrialized countries (USA, Germany, UK, France, Japan, Italy, Canada) that coordinate economic policies.
9.3 Major Economic Centers
United States
Many world-leading companies are based in the US. It has a strong entrepreneurial spirit, high investment in research, productivity, competitiveness, a skilled workforce, abundant natural resources, a flexible economy, energy investments, and the US dollar is the world’s major currency. It also has high capital consumption income.
European Union
The EU is a major global economic power, although not all member countries are in the same economic situation. Spain’s economy, for example, grows at half the EU average.
Japan and Others
Japan was one of the wealthiest countries in 1990 but suffered a crisis in the past two decades. China, once an isolated economy, has become a major engine of the world economy. India’s economy also continues to grow steadily.