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Washington Consensus

Washington Consensus

The Washington Consensus is a set of policies promulgated by many neoliberal economists as a formula for promoting economic growth in many parts of Latin America by introducing various economic reforms which are designed to make the target economy more like that of First World countries such as the United States. It was first presented in 1989 by John Williamson, an economist from the Institute for International Economics, an international economic think tank based in Washington, D.C.. It is so-called because it attempts to summarize the commonly-shared themes among policy advice by Washington-based institutions at the time, which were believed to be necessary for the recovery of Latin America from the financial crises of the 1980's.

Reforms

The consensus included reforms that should be undertaken from 1989 (these reforms were also summarized by the World Bank in its year 2000 Poverty Report):
- Fiscal policy discipline
- Redirection of public spending toward education, health and infrastructure investment
- Tax reform – Flattening the tax curve: Lowering the tax rates on proportionally high tax brackets (typically above median income), and raising the tax rates on the proportionally low tax brackets (typically below median income); lowering the marginal tax rate.
- Interest rates that are market determined and positive (but moderate) in real terms
- Competitive exchange rates
- Trade liberalization – replacement of quantitative restrictions with low and uniform tariffs
- Openness to foreign direct investment
- Privatization of state enterprises
- Deregulation – abolition of regulations that impede entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions
- Legal security for property rights

Criticisms

The Washington Consensus is the target of sharp criticism by both individuals and groups, who claim that it is a way to funnel economic productivity from less developed Latin American countries to large multinational companies and their wealthy owners in advanced First World economies. As of 2005, several Latin American countries are led by socialist governments that openly oppose the Washington Consensus, and many more are ambivalent.

Anti-Globalization Movement

Many leftist critics of trade liberalization, such as Noam Chomsky and Naomi Klein, see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies. The prescribed reductions in tariffs and other trade barriers allow the free movement of goods across borders according to market forces, but labor is not permitted to move freely due to tough visa laws. This creates an economic climate where goods are manufactured using cheap labor in underdeveloped economies and then exported to rich First World economies for sale at a huge markup, with the balance of the markup typically going to a large multinational. The criticism is that workers in the Third World economy remain poor, as any pay raises they receive over what they made before trade liberalization are offset by inflation, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy. Anti-globalization critics further argue that First World countries predatorily impose the consensus' neoliberal policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery. They argue that the Washington Consensus has not in fact led to any great economic boom in Latin America, but rather to severe economic crises and the accumulation of crippling external debts that render the target country beholden to the First World. Many of the reforms (e.g. the privatization of state industries, tax reform, and deregulation) are criticized as mechanisms for ensuring the development of a small indigenous monied elite in the Third World who will rise to political power and also have a vested interest in maintaining the local status quo of labor exploitation. Socialist political leaders in Latin America such as Venezuelan President Hugo Chavez, Cuban President Fidel Castro, and Brazilian President Luiz Inácio Lula da Silva are vocal and well-known critics of the Washington Consensus. Da Silva inherited an economy closely aligned to the principles of the Washington Consensus, and his socialist reforms have been gradual so as not to cause economic disruption. Cuba is a Communist planned economy and Venezuela implements Chavez' own brand of market socialism, powered by Venezuela's large oil reserves. In Argentina, the political will to continue implementation of the Consensus has largely evaporated since the economic collapse, which many people there blame on the Consensus' neoliberal policies (see below).

Keynesian

Neo-Keynesian and post-Keynesian critics of the Consensus argue that the underlining policies were incorrectly laid down and are too rigid to be able to succeed. For example, flexible work laws were supposed to create new jobs, but economic evidence from Latin America draws no such conclusion. In addition, they do not take into account economic and cultural differences between countries. They also point out that, should this set of policies work, it must be implemented during a period of rapid growth and not – as often is the case – during a crisis. The Washington Consensus is widely held by many economists to be a 'suicidal policy' if implemented when an economy is weak. Moises Naim, chief editor of Foreign Policy, states that there was no 'consensus' in the first place, since there are major differences between economists over what is the 'correct economic policy', hence the idea of there being a consensus was also flawed.

The case of Argentina

The Argentine economic crisis of 1999-2002 is often held out as a recent example of the economic devastation wrought by application of the Washington Consensus. Argentina's Deputy Foreign Minister Jorge Taiana, in an interview with the state news agency Télam on August 16 2005, attacked the Washington Consensus. There never was a real consensus for such policies, he said, and today "a good number of governments of the hemisphere are reviewing the assumptions with which they applied those policies in the 1990s," adding that governments are looking for a development model to guarantee productive employment and the generation of real wealth. [http://www.telam.com.ar/especial_xx04.asp] There have also been major discrepancies between the Washington Consensus and the policies themselves. For example, the Washington Consensus stated a need for investment in education, but the policies pursued by the International Monetary Fund stated the need to put up standard fees for primary education.

NAFTA and DR-CAFTA

In the early 1990s, President George H. W. Bush began to draw up a U.S.-Mexican-Canadian free-trade proposal that came to be known as the North American Free Trade Agreement (NAFTA.) NAFTA was later signed into law by Bush's successor, President Bill Clinton, and the three North American countries agreed to gradually phase out or sharply reduce tariffs on foreign goods, a policy perfectly in line with the ideals of the Consensus. Current President George W. Bush continues to support NAFTA, and his administration is currently negotiating a similar agreement known as the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the Dominican Republic and Central America. Proponents of NAFTA and DR-CAFTA claim that they promote economic growth in developing countries and are a boon to U.S. consumers, providing them with less-expensive foreign goods. Critics from left and right accuse the agreements of crippling the working class of the United States by promoting the relocation of production to cheaper labor markets in Mexico, and allege that such shifts have resulted in the exploitation of Mexican laborers. While a Democratic president, Bill Clinton, signed NAFTA and a Republican president, George W. Bush, signed CAFTA, the United States Congress's support of these agreements has been partisan. Most Republicans favor the agreements and most Democrats oppose the agreements.

Current progress

Most Latin American countries continue to struggle with high poverty, unemployment, and underemployment. Chile has been offered as an example of a Consensus success story, and countries such as El Salvador and Uruguay have shown some positive signs of economic development. However, as Joseph Stiglitz argues, the Chilean success story owes a lot to state ownership of key industries and currency interventions stabilizing capital flows.

Countries that have implemented market reforms following Washington Consensus

- Argentina
- Bolivia
- Brazil (Plano Real)
- Chile
- Colombia
- Costa Rica
- Dominican Republic
- Ecuador
- El Salvador
- Guatemala
- Honduras
- India
- Mexico
- Morocco
- Nicaragua
- Paraguay
- Peru
- Tunisia
- Uruguay
- Zambia

Countries with governments opposed to Washington Consensus

- Argentina
- Brazil
- Cuba
- Venezuela

External links

- [http://www.fondad.org/publications/diversity/contents.htm Diversity in Development: Reconsidering the Washington Consensus (Jan Joost Teunissen and Age Akkerman (eds.), December 2004, book, pdf)]
- [http://www.iie.com/publications/papers/williamson1102.htm Did the Washington Consensus Fail? (by John Williamson)]
- [http://info.worldbank.org/etools/bspan/PresentationView.asp?PID=1003&EID=328 The Washington Consensus as Policy Prescription for Development (World Bank)]
- [http://www.worldbank.org/research/journals/wbro/obsaug00/pdf/(6)Williamson.pdf What Should the World Bank Think about the Washington Consensus? (by John Williamson)]
- [http://www.fabianglobalforum.net/knowledge/article023.html Fabian Global Forum for Progressive Global Politics: The Washington Consensus (by Adam Lent)]
- [http://www.mindfully.org/WTO/2003/Economics-Of-EmpireMay03.htm The Economics of Empire - Notes on the Washington Consensus (by William Finnegan)]
- [http://www.imf.org/external/pubs/ft/seminar/1999/reforms/Naim.HTM#I Fads and Fashion in Economic Reforms: Washington Consensus or Washington Confusion? (by Moises Naim)]
- [http://multinationalmonitor.org/mm2000/00april/interview.html Unraveling the Washington Consensus, An Interview with Joseph Stiglitz] Category:Macroeconomics

Neoliberal

Neoliberalism (also called "liberventionism" or neolibertarianism) refers to political-economic policies that de-emphasize or reject government intervention in domestic economies, but favor the use of political power to open foreign nations to entry by multinational corporations. In a broader sense it is used to describe the movement towards using the market to achieve a wide range of social ends previously filled by government. Neoliberalism has had major implications for government policies beginning in the 1970s and has been increasingly prominent since 1980. It opposes protectionism, social democracy and socialism. It is at odds with laissez faire capitalism, which disapproves of government intervention in international trade, as well as fair trade and other movements that argue that labor rights and social justice should have a greater priority in international relations and economics. Many liberals consider that "neoliberalism" is just a straw man, an artificial concept created to cover several contradictory views from liberalism to conservatism, in order to form a common opposition of many socialist, nationalist and other groups that have very different ideologies. While liberalism is a philosophy defined by liberals, "neoliberalism" is an ideology defined and used by "its" antagonists, while one can hardly find people who speak of themselves as "neoliberals". Moreover, most texts on neoliberalism, including most of this article, is written by the antagonists or by people whose knowledge on "neoliberalism" is based by texts written by the antagonists. Some, not all, of the people mentioned in this article consider themselves as liberals, hardly any as "neoliberals".

Brief overview

Neoliberalism is a term used to describe a variety of movements away from state control or protection of the economy, particularly beginning in the 1970s. The term neoliberalism is not the only one for this movement, many supporters argue that it is simply "liberalism," while critics (along with some supporters) often label it "Thatcherism (United Kingdom), Reaganomics (United States of America), Rogernomics (New Zealand) or Manmohanomics (India)" Because of close association between this philosophy and neoclassical economics, and confusion with the ambiguous term "liberal," some advocate the term "neoclassical philosophy." In its most uncompromising form, neoliberalism is an economic ideology centered around the values of unregulated trade and markets, and the expanded business horizons provided by the end of the Cold War, or globalization. It argues that free markets, free trade, and the unrestricted flow of capital will produce the greatest social, political and economic good. This form advocates minimal government spending, minimal taxation, minimal regulations, and minimal direct involvement in the economy. The argument is that market forces will naturally fill many areas of jurisdiction for the highest overall gain. Detractors state that market forces are inherently not equitable. In the West, neoliberalism argues that the Welfare State should be dismantled or privatized. The thrust of this form of neoliberalism as part of globalization is to utilize the world's resources: cheap labour, raw materials, markets, in the most efficient way possible, and in doing so, to make more markets open to entrance by developed nations. However, neoliberalism is applied to a much broader range of developments, not all of which are as closely associated with conservative parties. These include the shift from regulation to deregulation, the shift from corporate benefits to privately managed benefits, the move from low trade volumes mandated by the Bretton Woods system to high trade volumes in a floating currency environment utilizing comparative advantage to increase GDP and median wages. It is argued in this broader sense that the problem with under-developed countries is corruption related to the state interfering with adjustments in the market mechanism by, for example, subsidizing prices, setting wages, or picking winners and losers in economic development. Some portray neoliberalism as the imposition of "free markets from the top-down," since it has been promoted for the benefit of multinational corporations through the largest international financial institutions of the world-economy, namely, the IMF, IMO, and World Bank and by powerful core states, in particular, the European Union and the United States government. Because these governmental institutions advocate neoliberalism, many identify the policies with exploitation by corporations and the developed nations of less developed nations. The critics argue that these institutions do not promote development, but instead insure the advantages and positions of the develped countries that dominate them. (See also Washington Consensus, Los Chicago Boys, Corporatism, Shock therapy). Critics protest the fact that neoliberal policies give multinational corporations economic power over democratically elected governments, as these corporations can use their abilities to withdraw or infuse capital (and therefore affect jobs and the economy) as a tool to have governments do as they say. Supporters of neoliberalism will state that rights over the flow of capital are essential for necessary market efficiency. They point to economic studies of the turbulence and shocks of the 1970's and argue that free markets will be more resiliant in the face of such shocks, produce higher growth, better returns on capital and therefore more investment and development. They argue that binding other nations to the developed core will promote global stability, and eventually a turn to more democratic forms of government. Contrary to what the name seems to suggest, individuals identified as "liberals" often oppose neoliberalism or do not support it entirely. Neoliberalism is not a version of the new liberalism of John Dewey, Woodrow Wilson, John Maynard Keynes, Franklin D. Roosevelt, or the British Liberal Democrats, which advocated limited intervention in the economy as a tool to benefit people. "Neoliberalism" is often used as a pejorative; in this context it usually means not the economic theory, but the implementation of global capitalism and the power of multinational corporations, as well as the effects of free trade on wages and social structures.

Brief history

Just as the drive towards liberalization of trade and laissez-faire economics justified and encouraged the "first era of globalization", which came to an end with the shocks of the First World War, the collapse of the Gold Standard, and the Great Depression, neoliberalism is associated with the contemporary "second era of globalization," the seeds of which were planted after the Second World War. In between, during the period from 1915 until the 1960s or so, different versions of more statist liberalism and economic nationalism guided the economic and social policies of many nations. In mid-1950s, a book about the theory and practice of neoliberalism, recent German liberalism and the Federal Republic of Germany was published in the German Democratic Republic. Neoliberalism's economic roots begin with the re-establishment of international monetary stability with the Bretton Woods system, which fixed currencies to the U.S. Dollar and the U.S. Dollar to gold. As an ideological movement, it became increasingly prevalent based on the work of Robert Mundell and Arthur Flemming. Neoliberalism argued that protectionism and government programs produced economic inefficiencies, and that developing nations should open their markets to the outside, and focus on exporting. Also emphasized was the liquidation of state-owned corporations, and the reduction in rules designed to hinder business. Neoliberal ideas found expression in a series of trade talks to form the General Agreement on Tariffs and Trade as well as regional free trade agreements such as the European Union and the North American Free Trade Agreement. The slow and quantitative development of neoliberalism after World War II became more rapid in the 1970s, and not always by peaceful means. One of the often-touted neoliberal success stories is General Augusto Pinochet's Chile – which began with the violent ousting of the democratically-elected government of Salvador Allende. The Allende government had pursued radical left wing policies, and has been labeled "socialist" or "Marxist." "Free market" policies, including privatization of state assets, were imposed by "los Chicago Boys," Chicago school economists inspired by Milton Friedman. These policies were later imitated by the Bretton Woods institutions operating in many other poor countries, particularly in Latin America. The rise of this wave of neoliberalism culminated with the Reagan government in the United States and that of Margaret Thatcher in Britain. The Reagan and Thatcher governments not only shifted their own countries' domestic policies toward laissez-faire but used their control of the major Bretton Woods institutions to impose their policies on the rest of the world. For this reason, some regard neoliberalism as synonymous with the "Washington Consensus," the dominant policy view at the International Monetary Fund (IMF), the World Bank, and the U.S. Treasury at the end of the 20th century and the start of the 21st. A major axiom of the neoliberal school is that (to quote Thatcher) "There Is No Alternative" to globalized capitalism. This slogan is often abbreviated as "TINA." In the late 1980s and early 1990s neoliberal policies had been embraced by the conventionally-defined center-left, as Bill Clinton of the United States backed the North American Free Trade Agreement. Free trade was seen as essential to his economic program, which promoted the creation of technology and intellectual property rights as the means by which America would be able to reduce or manage its persistent balance of trade deficit. Some center-left neoliberal economists argued that protectionism is not a left or right issue, but an issue of asymmetry, and therefore a general cause for concern. Neoliberal policies became adopted by several Third way parties, including New Labour in Britain, and the SDP in Germany. These goverments opted for a continuation of the policies of the 1980's, arguing that they could be implemented in a more equitable manner that would produce greater social good, and bind the recently liberated communist states to the developed world economy. Critics of neoliberalism in both theory and practice are numerous. This is particularly true in developing nations whose assets have been acquired by foreigners and whose underdeveloped domestic political and economic institutions had been undermined by the effects of being exposed to trade and rapid flows of capital. Even within the neoliberal movement there is intense criticism of how many developed nations have demanded that others liberalize their markets for manufactured goods, while protecting their own domestic agricultural markets. Anti-globalization advocates are the most vociferous opponents of neoliberalism, particularly its implementation as "free capital flows" but not free labour flows. They argue that neoliberal policies encourage a "race to the bottom" as capital flows to the lowest environmental and labor standards, and is merely updated "beggar thy neighbor" imperialism, dating back 200 years. In this they are in fundamental agreement with many of neoliberalism's supporters who argue that neoliberalism represents an updated version of classical liberalism. Some economists argue that neoliberal policies can create "moral hazard": governments and international financial institutions must bail out developing nations and their creditors because they are "too big to fail." This simply encourages further risk-taking and crises. They point to the string of currency melt-downs in countries such as – Mexico, Russia, Eastern Europe, East Asia and Argentina – as proof that there is a danger to allowing risk-taking without sufficient penalty or regulation.

Theory

As described by UC Berkeley economic historian and defender of neoliberalism Professor Brad DeLong, this "ism" has two main tenets: :"The first is that close economic contact between the industrial core [of the capitalist world economy] and the developing periphery is the best way to accelerate the transfer of technology which is the sine qua non for making poor economies rich (hence all barriers to international trade should be eliminated as fast as possible). The second is that governments in general lack the capacity to run large industrial and commercial enterprises. Hence, [except] for core missions of income distribution, public-good infrastructure, administration of justice, and a few others, governments should shrink and privatize." To critics of neoliberalism, these two principles represent parts of the " trickle-down theory," i.e., that under free-market capitalism, economic growth and technological change benefit even the poorest countries and people, even if that process is dominated by multinational corporations, rich domestic elites, and organizations such as the IMF dominated by rich countries' financiers. Critics also point out that these claims are contradicted by the empirical record (see Practice, below). To defenders, "Development is Freedom" (i.e., free-market capitalism). More economic growth, specialization and opportunity create chances for individuals to achieve more than rigid structures which provide only illusory protection. The concept of neoliberalism became popular among economists not only as the balance of political power changed (as discussed above), but as many decided that post-World War II national development strategies for poor countries were not having the intended effects. In particular, funding for mega-projects left poor countries with high debts but little growth to show for it. It is also a reaction to the perceived failures of populist and modern liberal economic policies, such as import-substituting industrialization. Alleged failures of the East-Asian ( Taiwanese, South Korean) policies of state-guided export-led economic growth and of the centrally-planned or "communist" economies also were interpreted as requiring neoliberal medicine. With the exception of the Chinese 'success', most centrally-planned countries fell apart economically and politically in late 1980s and early 1990s. China's market socialism has been criticized for developing towards crony capitalism, with closed markets, manipulated currency and stock prices and restrictions on imports, that has plagued many export-led economies. China has argued that as a developing nation, it should not be held to the same standard as developed nations, and it has the leverage of a huge supply of cheap skilled labor and industrial base as the means to maintain barriers that would not be tolerated from other nations. As noted, the neoliberal doctrine is linked to the so-called "Washington consensus," a set of specific policy goals designed for Latin American countries. In addition to the tenets of neoliberalism noted by Professor DeLong, the Washington consensus stipulated that a country should have stable exchange rates and a government budget in balance. While some use the terms neoliberal and libertarian or classical liberalism interchangeably there is a difference between the two philosophies. While both share a belief in market economics and free trade, neoliberal economics theory shares with neoliberal international relations theory (and liberal internationalism) a belief in international regimes and a degree of global governance as a means of negotiating and administering international agreements. Neoliberals believe that greater economic and political interdependence will lead to progress and a reduction of international tensions or at least divert states from utilizing military means to resolve conflict. Libertarians reject the neoliberal belief that global governance bodies or state negotiated treaty regimes that bind the individual are desirable. Much of neoliberalism accepts macro-economic theory that assumes full employment and rational expectations, that is, it is a modern neoclassical and free-market economic theory. Others rely on the benevolence and technical expertise of the IMF and other international financial institutions to solve the world's economic problems.

Practice

The practice of neoliberal ideas varies widely. Some proponents see transparency, development and uniformity of regulations as the most important goals, while many others see the dismantling of state regulations, as such, as the primary purpose. Many leading implementors of neoliberal policies criticize the manner in which those policies are implemented. Some blame the institutions such as the World Bank and IMF directly, while others argue that by the time the IMF and World Bank are involved, the problems have already become endemic – they blame the "shock therapy" approach which was taken in the 1980s for much of the economic damage, and argue that "big bang" marketization, such as was pursued in Russia, leads to centralized corrupt economic oligarchy, the very opposite of what neoliberalism proposes (though defenders point to the success of Estonia's and Poland's speedy reforms and the economic problems faced by slower reformers such as Moldova and Russia). There were also catastrophic failures. In particular, Nobel prize winner and former World Bank chief economist Joseph Stiglitz argues that the IMF is guilty of forcing neoliberal and Washington consensus policy goals on countries at times when it was not appropriate (i.e., the Asian financial crisis), with devastating results. The "cookie cutter" approach of applying the same policy no matter what the specificities can be seen in this crisis, as the IMF pushed for government budget cuts even though government budget deficits had nothing to do with the crisis. Neoliberalism has also been criticised by populists, social democrats, and anti-capitalists, who argue that unbridled market forces inevitably increase inequality in wealth and hence power. In a recent book, Professor Robert Pollin summarizes the neoliberal record. Excluding the People's Republic of China, which did not follow the neoliberal lead, the era of the "developmental state" (1961-80) saw a per capita growth rate of real gross domestic product that averaged 3.2 percent per year. On the other hand, during the neoliberal era (1981-99) this growth rate fell to 0.7 percent per year, slowing both absolutely and relative to the wealthier countries of the OECD. China, which shifted from pure state planning to state-guided export promotion, saw its per capita growth rate rise from 2.5 to 8.4 percent between these periods. (See Robert Pollin, Contours of Descent, p. 131. ISBN 1-85984-673-4) Pollin also shows the rapid increase in income inequality between these periods, especially when China is excluded from the sample. However, Pollin's research did include also socialist and other anti-neoliberal countries, hence it does not show the effect of neoliberalism. Professors Jeffrey Sachs and Andrew Warner studied 111 countries between 1970 and 1989. They observed that in those developing countries that pursued open economic policies the income per person grew 4,5 % per year, whereas the number in closed economies was close to zero and in the developed countries 2,3 %. These empirical results are in line with the theoretical ones, where poorer countries are shown to have the follower's advantage, being able to import capital, technology and managerial practices. However, Professors Francisco Rodriguez and Dani Rodrik have shown that Sachs and Warner's study was fundamentally flawed in its methods and analysis.[http://ideas.repec.org/p/umd/umdeco/rodriguez9901.html] In most studies on global economic inequality, it has become apparent that the inequality has decreased since the 1970s; see, e.g., Melchior, Telle & Wiig (2000), Xavier Sala-I-Martin (2002) or Surjit Bhalla (2002). Most earlier research has been considered to have used very sketchy data. If we exclude socialist countries, then the decrease in inequality is even higher. Also in China, after the economic reforms, the growth among the poorest people has been higher than before and higher than in Western countries, although not as high as among the Eastern parts of the country. It is an open question as to whether the western world continues to be dominated by neoliberal policies. Whilst the European Union and many individual countries have policies which support workers' rights, some scholars argue that these are adaptations of the core neoliberal economic model rather than a fundamental move away from it.

Who is a neoliberal?

As with many political terms, since the word is used in different ways by different groups, different people can be classified in different ways based on it. The most restrictive definition of neoliberal is "favoring government imposition of market forms in foreign nations, especially with respect to privatization and trade arrangements." Under this specific form, neoliberalism is a business-conservative policy aimed at enforcing stringent budget discipline on developed and developing nations by requiring, for all but the US, balanced budgets and trade flows. This is based on a specific interpretation of the Mundell-Fleming model and is most associated with the Washington Consensus. In these terms the prominent neoliberals are people such as Margaret Thatcher, Robert Barro, and Alan Greenspan. In the broader sense, where a neoliberal is an individual who subscribes to Prof. DeLong's formulation of neoliberalism, any advocate of government restricted to supplying public goods, and globalized free trade is a neoliberal. By this broader definition Robert Rubin, Joseph Stiglitz and Amartya Sen are "neoliberals," even though all three have been highly critical of the neoliberalism of the more restrictive form, and the way institutions such as the IMF and World Bank have been run in the post-Bretton Woods era. The key argument between these two usages can be seen from Stiglitz' criticisms of the Washington Consensus: namely, by the measures that he follows, that while globalization and global trade are good, they have been conducted in a manner that seems almost designed to impoverish poorer nations. He specifically cites agricultural subsidies and barriers, for example for sugar, the average prices paid for imports and exports between developing and core nations, and the damaging effects of "hot money" as the vehicle for foreign investment.

External links

- [http://www.j-bradford-delong.net/movable_type/archives/001275.html Brad DeLong]
- [http://www.johannorberg.net/ Johan Norberg]
- [http://index.heritage.org Index of Economic Freedom]
- [http://www.WorldSocialForum.org World Social Forum]
- [http://www.pbs.org/wgbh/commandingheights/ Commanding Heights]
- [http://www.globalexchange.org/economy/econ101/neoliberalism.html Global Exchange]
- [http://www.neoliberalismo.com/ En defensa del neoliberalismo] (spanish)
- [http://econ161.berkeley.edu/TotW/Easterly_neoliberal.html The Last Development Crusade]
- [http://www.aworldconnected.org/ A World Connected]
- [http://www.corpwatch.org/article.php?id=376 What is Neoliberalism?]
- [http://www.bookfinder.us/review5/1859846734.html Robert Pollin's book on neoliberalism]
- http://web.inter.nl.net/users/Paul.Treanor/neoliberalism.html
- [http://www.mindfully.org/WTO/Joseph-Stiglitz-IMF17apr00.htm "What I Learned at the World Economic Crisis", by Joseph Stiglitz]
- [http://www.isanet.org/noarchive/andreassonISA2002.pdf "Neoliberalism and the creation of 'virtual democracy' in the Global South" Stefan Andréasson March, 2002]
- [http://ideas.repec.org/p/umd/umdeco/rodriguez9901.html "A Skeptic's Guide to the Cross-national Evidence." D Rodrik, F Rodriguez. NBER Macroeconomics Annual, 2000.]
- [http://168.96.200.17/ar/libros/lasa98/Weyland.pdf Kurt Weyland, "The Politics of Neoliberal Reform in Latin American Democracies: Argentina, Brazil, Peru, and Venezuela," Paper for panel on Democracy and the New Market Model in Latin America XXI International Conference Latin American Studies Association Chicago, September 24-26, 1998] Category:Liberalism Category:Political theories Category:Macroeconomics ja:新自由主義

Economic growth

Economic growth is the increase in the value of goods and services produced by an economy. Generally called as an increase in the wealth of a nation. It is conventionally measured as the percent rate of increase in real gross domestic product, or GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," rather than growth of aggregate demand.

Origins of the concept of Economic Growth

In the early modern period, some people in Western European nations began conceiving of the idea that economies could "grow", that is, produce a greater economic surplus which could be expended on something other than religious or governmental projects (such as war). The previous view was that only increasing either population or tax rates could generate more surplus money for the Crown or country. During much of the "Mercantilist" period, growth was seen as involving an increase in the total amount of specie, that is circulating medium such as silver and gold, under the control of the state. This "Bullionist" theory led to policies to force trade through a particular state, the acquisition of colonies to supply cheaper raw materials which could then be manufactured and sold. Later, such trade policies were justified instead simply in terms of promoting domestic trade and industry. The post-Bullionist insight that it was the increasing capability of manufacturing which led to policies in the 1700's to encourage manufacturing in itself, and the formula of importing raw materials and exporting finished goods. Under this system high tariffs were erected to allow manufacturers to establish "factories". (The word comes from "factor", the term for someone who carried goods from one stage of production to the next.) Local markets would then pay the fixed costs of capital growth, and then allow them to export abroad, undercutting the prices of manufactured goods elsewhere. Once competition from abroad was removed, prices could then be increased to recoup the costs of establishing the business. Under this theory of growth, the road to increased national wealth was to grant monopolies, which would give an incentive for an individual to exploit a market or resource, confident that he would make all of the profits when all other extra-national competitors were driven out of business. The "Dutch East India company" and the "British East India company" were examples of such state-granted trade monopolies. It should be stressed that Mercantilism was not simply a matter of restricting trade. Within a country, it often meant breaking down trade barriers, building new roads, and abolishing local toll booths, all of which expanded markets. This corresponded to the centralization of power in the hands of the Crown (or "Absolutism"). This process helped produce the modern nation-state in Western Europe. Internationally, Mercantilism led to a contradiction: growth was gained through trade, but to trade with other nations on equal terms was disadvantageous. This – along with the rise of nation-states –encouraged several major wars. The modern conception of economic growth began with the critique of Mercantilism, especially by the physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith, and the foundation of the discipline of modern political economy. The theory of the physiocrats was that productive capacity, itself, allowed for growth, and the improving and increasing capital to allow that capacity was "the wealth of nations". Whereas they stressed the importance of agriculture and saw urban industry as "sterile", Smith extended the notion that manufacturing was central to the entire economy. David Ricardo would then argue that trade was a benefit to a country, because if one could buy a good more cheaply from abroad, it meant that there was more profitable work to be done here. This theory of "comparative advantage" would be the central basis for arguments in favor of free trade as an essential component of growth. This notion of growth as increased stocks of capital goods (means of production) was codified as the Solow-Swann Growth Model, which involved a series of equations which showed the relationship between labor-time, capital goods, output, and investment. In this modern view, the role of technological change became crucial, even more important than the accumulation of capital. The late 20th century, with its global economy of a few very wealthy nations, and many very poor nations, led to the study of how the transition from subsistence and resource-based economies, to production and consumption based economies occurred, leading to the field of Development economics, including the work of Amartya Sen and Joseph Stiglitz.

The Question of Growth

The real GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country, and economic growth is therefore often seen as indicating an increase in the average standard of living. However, there are some problems in using growth in GDP per capita to measure increasing well-being. These include:
- expenditure to offset the adverse environmental effects of economic growth such as pollution. (These are called defensive expenditure.)
- economic 'bads' such as commuting costs.
- measurement of non-marketed output such as housework. (If an individual hires a cleaner instead of cleaning their house themselves, it adds to GDP. The time spent cleaning the house before was not counted as part of GDP, while it is counted now. The house may or may not be cleaner.)
- GDP doesn’t reflect the underground or parallel economy
- Doesn’t reflect DIY activities
- some good output may not be included in GDP e.g. parents doing childcare, friends helping with home improvements, do-it-yourself, and volunteer work.
- property income unrelated to production is excluded from GDP.
- inequality (the uneven distribution of income). (If we assume diminishing marginal utility of income, extra income yields less utility for those with already-high incomes than for those with low incomes, so an increase in GDP may increase utility by different amounts depending upon individual's place in distribution. In particular, economic growth which yields savings not passed down to customers may disproportionately benefit stockholders, who are likely already wealthy) Other measures of national income, such as the Index of Sustainable Economic Welfare or the Genuine Progress Indicator, have been developed in an attempt to give a more complete picture of the level of well-being, but there is no consensus as to which, if any, is a better measure than GDP. GDP still remains by far the most often-used measure, especially since, all else equal, a rise in real GDP is correlated with an increase in the availability of jobs, which are necessary to most individuals' survival. The short-run variation of economic growth is termed the business cycle, and almost all economies experience periodic recessions. The cycle can be a misnomer as the fluctuations are not always regular. Explaining these fluctuations is one of the main focuses of macroeconomics. There are different schools of thought as to the causes of recessions but some consensus- see Keynesianism, Monetarism, New classical economics and New Keynesian economics. Oil shocks, war and harvest failure are obvious causes of recession. Short-run variation in growth has generally dampened in higher income countries since the early 90s and this has been attributed, in part, to better macroeconomic management. The long-run path of economic growth is one of the central questions of economics; despite the caveats given above, an increase in GDP of a country is generally taken as an increase in the standard of living of its inhabitants. Over long periods of time, even small rates of annual growth can have large effects through compounding. A growth rate of 2.5% per annum will lead to a doubling of GDP within 30 years, whilst a growth rate of 8% per annum (experienced by some East Asian Tigers) will lead to a doubling of GDP within 10 years. The neo-classical growth model, developed by Robert Solow in the 1950s, was the first attempt to model long-run growth analytically. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. From these two premises, the neo-classical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital. Second, poor countries with less capital per person will grow faster because each investment in capital will produce a higher return than rich countries with ample capital. Third, because of diminishing returns to capital, economies will eventually reach a point at which no new increase in capital will create economic growth. This point is called a "steady state." The model also notes that countries can overcome this steady state and continue growing by inventing new technology that allows production with fewer resources, but the model assumes technological progress, "exogenizing" technology from the model. Unsatisfied with Solow's explanation, economists worked to "endogenize" technology in the 1980s. They developed the endogenous growth theory that includes a mathematical explanation of technological advancement. This model also incorporated a new concept of human capital, the skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Therefore, overall there are constant returns to capital, and economies never reach a steady state. Growth does not slow as capital accumulates, but the rate of growth depends on the types of capital a country invests in. Research done in this area has focussed on what increases human capital (e.g. education) or technological change (e.g. innovation). Analysis of recent economic success shows a close correlation between growth and climate, though the actual linkage between the two--and possible causal mechanisms--remains a topic of hot debate. Cold states like Sweden are much more successful economically than warm countries like Nigeria. In early human history, economic as well as cultural development was concentrated in warmer parts of the world, like Egypt. Today, however, cold, Northern states have much higher GDP per capita compared to the hot, tropical states. This aspect of economics (economic geography)--and its influence on human migration and political structures--was extensively studied by Ellsworth Huntington, a professor of Economics at Yale University in the early 20th century.

The limits to growth

The 'limits to growth' debate, much of it prompted by the 1972 Club of Rome study Limits to Growth, considers the ecological impact of growth and wealth creation. Many of the activities required for economic growth use non-renewable resources. Many researchers feel these sustained environmental effects can have an effect on the whole ecosystem. They claim the accumulated effects on the ecosystem put a theoretical limit on growth. Some draw on archaeology to cite examples of cultures they claim have disappeared because they grew beyond the ability of their ecosystems to support them. The claim is that the limits to growth will eventually make growth in resource consumption impossible. Others are more optimistic and believe that, although localized environmental effects may occur, large scale ecological effects are minor. The optimists claim that if these global-scale ecological effects exist, human ingenuity will find ways of adapting to them. The rate or type of economic growth may have important consequences for the environment (the climate and natural capital of ecologies). Concerns about possible negative effects of growth on the environment and society led some to advocate lower levels of growth, from which comes the idea of uneconomic growth, and Green parties which argue that economies are part of a global society and a global ecology and cannot outstrip their natural growth without damaging them. Canadian scientist David Suzuki stated in the 1990s that ecologies can only sustain typically about 1.5-3% new growth per year, and thus any requirement for greater returns from agriculture or forestry will necessarily cannibalize the natural capital of soil or forest. Some think this argument can be applied even to more developed economies. Mainstream economists would argue that economies are driven by new technology — for instance, we have faster computers today than a year ago, but not necessarily physically more computers. We may have been able to break free from physical limitations by relying on more knowledge rather than more physical production. A concern for promoting economic growth over and above all less measurable considerations is a symptom of productivism--usually a pejorative term.

External links

- [http://www.gwagner.net/work/green_accounting.html Green Accounting Bibliography] contains a discussion and related material on green or environmental accounting, an effort to create more comprehensive measures of conventional national income statistics.
- [http://www.stanford.edu/~promer/policyop.htm Beyond Classical and Keynesian Macroeconomic Policy] is Paul Romer's plain-English explaination of Endogenous Growth Theory. Category:Macroeconomics Category:Economic indicators

First World

The terms First World, Second World, and Third World were used to divide the nations of Earth into three broad categories. The three terms did not arise simultaneously. After World War II, people began to speak of the NATO and Warsaw Pact countries as two major blocs, often using such terms as the "Western bloc" and the "Eastern bloc." The two "worlds" were not numbered. It was eventually pointed out that there were a great many countries that fit into neither category, and in the 1950s this latter group came to be called the Third World. It then began to seem that there ought to be a "First World" and a "Second World." Eventually, it became common practice to refer to nations within the Western European and United States' sphere of influence (e.g. the NATO countries) as the First World. Besides North America (USA and Canada) and Western Europe, the First World also included other industrialized capitalist countries such as Japan and some of the former British colonies, particularly Australia, New Zealand, and South Africa. There were a number of countries that did not fit comfortably into this neat definition of partition, including Switzerland, Sweden, and the Republic of Ireland, who chose to be neutral. Finland was under the Soviet Union's sphere of influence but was not communist, nor was it a member of the Warsaw Pact. Austria was under the United States' sphere of influence, but in 1955, when the country became a fully independent republic, it did so under the condition that it remain neutral. Turkey, which joined NATO in 1952, was not predominantly in Western Europe and was not industrialized. Spain did not join NATO until 1982, towards the end of the Cold War and after the death of the authoritarian dictator Francisco Franco. In recent years, as many "developing" countries have industrialized, the term Fourth World has been coined to refer to countries that have lagged behind and still lack industrial infrastructure. Category:Country classifications

United States

:For alternative meanings, see the disambiguation page for US, USA, United States, or American. The United States of America is a federal democratic republic situated primarily in central North America. It comprises 50 states and one federal district, and has several territories. It is also referred to, with varying formality, as the United States, the U.S., the U.S.A., the States, or simply and most commonly, America. The official founding date of the United States is July 4, 1776, when the Second Continental Congress—representing thirteen British colonies—adopted the Declaration of Independence. However, the structure of the government was profoundly changed in 1788, when the states replaced the Articles of Confederation with the United States Constitution. The date on which each of the fifty states adopted the Constitution is typically regarded as the date that state "entered the Union" (became part of the United States). Since the mid-20th century, following World War II, the United States has emerged as a dominant global influence in economic, political, military, scientific, technological, and cultural affairs.

Geography and climate

The United States shares land borders with Canada (to the north) and Mexico (to the south), and territorial water boundaries with Canada, Russia, the Bahamas, and numerous smaller nations. It is otherwise bounded by the Pacific Ocean and the Bering Sea, in the west; the Arctic Ocean, in the northernmost areas; and the Atlantic Ocean, the Gulf of Mexico, and the Caribbean Sea, in the eastern and southeastern areas. Forty-eight of the states are in the single region between Canada and Mexico; this group is referred to, with varying precision and formality, as the continental or contiguous United States, sometimes abbreviated CONUS, and as the Lower 48. Alaska, which is not included in the term contiguous United States, is at the northwestern end of North America, separated from the Lower 48 by Canada. The archipelago of Hawaii is in the Pacific Ocean. The capital city, Washington, District of Columbia is a federal district located on land donated by the state of Maryland. (Virginia also donated land, but it was returned in 1847.) The United States also has overseas territories with varying levels of independence and organization. When inland water is included in the total area, only Russia and Canada are larger than the United States; if inland water is excluded, China ranks third and the U.S. ranks fourth. The United States' total area is 3,718,711 square miles (9,631,418 km²), of which land makes up 3,537,438 square miles (9,161,923 km²) and water makes up 181,273 square miles (469,495 km²). The United States' landscape is one of the most varied among those of the world's nations: among its many features are temperate forestland and rolling hills, on the east coast; mangrove, in Florida; the Great Plains, in the center of the country; the Mississippi–Missouri river system; the Great Lakes, four of the five of which are shared with Canada; the Rocky Mountains, west of the Great Plains; deserts and temperate coastal zones, west of the Rocky Mountains; and temperate rain forests, in the Pacific northwest. Alaska's tundra, and the volcanic, tropical islands of Hawaii add to the geographic diversity. Hawaii The climate varies along with the landscape, from tropical in Hawaii and southern Florida to tundra in Alaska and atop some of the highest mountains. Most of the North and East experience a temperate continental climate, with warm summers and cold winters. Most of the South experiences a subtropical humid climate with mild winters and long, hot, humid summers. Rainfall decreases markedly from the humid forests of the Eastern Great Plains to the semi-arid shortgrass prairies on the high plains abutting the Rocky Mountains. Arid deserts, including the Mojave, extend through the lowlands and valleys of the southwest, from westernmost Texas to California and northward throughout much of Nevada. Some parts of California have a Mediterranean climate. Rainforests line the windward mountains of the Pacific Northwest from Oregon to Alaska.

History

American history started with the migration of people from Asia across the Bering land bridge approximately 12,000 years ago following large animals that they hunted into the Americas. These Native Americans left evidence of their presence in petroglyphs, burial mounds, and other artifacts. It is estimated that 2-9 million people lived in the territory now occupied by the U.S. before European contact, and the subsequent introduction of foreign diseases such as small pox that greatly diminished the native populations. Some advanced societies were the Anasazi of the southwest, who inhabited Chaco Canyon, and the Woodland Indians, who built Cahokia, located near present-day St Louis, a city with a population of 40,000 at its peak in AD 1200. Vikings first visited North America around 1000, but did not settle permanently. Following the discovery voyages of Christopher Columbus around 1492, other Europeans began to explore and settle there. During the 1500s and 1600s, the Spanish settled parts of the present-day Southwest and Florida, founding St. Augustine, Florida in 1565 and Santa Fe (in what is now New Mexico) in 1607. The first successful English settlement was at Jamestown, Virginia, also in 1607. Within the next two decades, several Dutch settlements, including New Amsterdam (the predecessor to New York City), were established in what are now the states of New York and New Jersey. In 1637, Sweden established a colony at Fort Christina (in what is now Delaware), but lost the settlement to the Dutch in 1655. This was followed by extensive British settlement of the east coast. The British colonists remained relatively undisturbed by their home country until after the French and Indian War, when France ceded Canada and the Great Lakes region to Britain. Britain then imposed taxes on the 13 colonies, widely regarded by the colonists as unfair because they were denied representation in the British Parliament. Tensions between Britain and the colonists increased, and the thirteen colonies eventually rebelled against British rule. British Parliament, George Washington (1789-1797).]] In 1776, the 13 colonies split from Great Britain and formed the United States, the world's first constitutional and democratic federal republic, after their Declaration of Independence of that year, and the Revolutionary War (1775 to 1783). The original political structure was a confederation in 1777, ratified in 1781 as the Articles of Confederation. After long debate, this was supplanted by the Constitution in 1789, forming a more centralized federal government. Prior to all these was the Albany Congress in 1754, in which a union was first seriously proposed. From early colonial times, there was a shortage of labor, which encouraged unfree labor, particularly indentured servitude and slavery. In the mid-19th century, a major division occurred in the United States over the issue of states' rights and the expansion of slavery. The northern states had become opposed to slavery, while the southern states saw it as necessary for the continued success of southern agriculture and wanted it expanded to the territories. Several federal laws were passed in an attempt to settle the dispute, including the Missouri Compromise and the Compromise of 1850. The dispute reached a crisis in 1861, when seven southern states seceded¹ from the Union and formed the Confederate States of America, leading to the Civil War. Soon after the war began, four more southern states seceded. During the war, Abraham Lincoln issued the Emancipation Proclamation, mandating the freedom of all slaves in states in rebellion, though full emancipation did not take place until after the end of the war in 1865, the dissolution of the Confederacy, and the Thirteenth Amendment took effect. The Civil War effectively ended the question of a state's right to secede, and is widely accepted as a major turning point after which the federal government became more powerful than state governments. Thirteenth Amendment). The title of the painting, from a 1726 poem by Bishop Berkeley, was a phrase often quoted in the era of Manifest Destiny, expressing a widely held belief that civilization had steadily moved westward throughout history. [http://americanart.si.edu/t2go/1lw/1931.6.1.html (more)] ]] During the 19th century, many new states were added to the original 13 as the nation expanded across the continent. Manifest Destiny was a philosophy that encouraged westward expansion in the United States. As the population of the Eastern states grew and as a steady increase of immigrants entered the country, settlers moved steadily westward across North America. In the process, the U.S. displaced most American Indian nations. This displacement of American Indians continues to be a matter of contention in the U.S. with many tribes attempting to assert their original claims to various lands. In some areas American Indian populations were reduced by foreign diseases contracted through contact with European settlers, and US settlers acquired those emptied lands. In other instances American Indians were removed from their traditional lands by force. Though some would say the U.S. was not a colonial power until the Spanish-American War when it acquired Puerto Rico, Guam and the Philippines, the dominion exercised over land in North America the United States claimed is essentially colonial. The Philippines became independent in 1946. During this period, the nation also became an industrial power. This continued into the 20th century, which has been termed "the American Century" because of the nation's overriding influence on the world. The US became a center for innovation and technological development; major technologies that America either developed or was greatly involved in improving include the telephone, television, computer, the Internet, nuclear weapons, nuclear power, aviation, and aeronautics. In addition to the Civil War, another major traumatic experience for the nation was the Great Depression (1929 to 1939). The nation has also taken part in several major foreign wars, including World War I and World War II (in both of which the US later joined the Allies). During the Cold War, the US was a major player in the Korean War and Vietnam War, and, along with the Soviet Union, was considered one of the world's two "superpowers". With the collapse of the Soviet Union, the US emerged as the world's leading economic and military power. Beginning in the 1990s, the United States became very involved in police actions and peacekeeping, including actions in Kosovo, Haiti, Somalia and Liberia, and the first Persian Gulf War driving Iraq out of Kuwait. After attacks on the World Trade Center and the Pentagon on September 11, 2001, the United States and other allied nations found themselves involved in what has come to be called the "War on Terrorism," which has primarily encompassed military actions in both Afghanistan and Iraq.

Government

Iraq of the United States.]]

Republic and suffrage

The United States is an example of a constitutional republic, with a government composed of and operating through a set of limited powers imposed by its design and enumerated in the United States Constitution. Specifically, the nation operates as a presidential democracy. There are three levels of government: federal, state, and local. Officials of each of these levels are either elected by eligible voters via secret ballot or appointed by other elected officials. Americans enjoy almost universal suffrage from the age of 18 regardless of race, sex, or wealth. There are some limits, however: felons are disenfranchised and in some states former felons are likewise. Furthermore, the national representation of territories and the federal district of Washington, DC in Congress is limited: residents of the District of Columbia are subject to federal laws and federal taxes but their only Congressional representative is a non-voting delegate.

Federal government

The federal government is the national government, comprising the Legislative Branch (led by Congress), the Executive Branch (led by the President), and the Judicial Branch (led by the Supreme Court). These three branches were designed to apply checks and balances on each other. The Constitution limits the powers of the federal government to defense, foreign affairs, the issuing and management of currency, the management of trade and relations between the states, and the protection of human rights. In addition to these explicitly stated powers, the federal government—with the assistance of the Supreme Court—has gradually extended these powers into such areas as welfare and education, on the basis of the "necessary and proper" clause of the Constitution.

The Congress

necessary and proper The Congress of the United States is the legislative branch of the federal government of the United States. It is bicameral, comprising the House of Representatives and the Senate. The House of Representatives consists of 435 members, each of whom represents a congressional district and serves for a two-year term. House seats are apportioned among the states by population; in contrast, each state has two Senators, regardless of population. There are a total of 100 senators, who serve six-year terms. The powers of Congress are limited to those enumerated in the Constitution; all other powers are reserved to the states and the people. The Constitution also includes the necessary-and-proper clause, which grants Congress the power to "make all laws which shall be necessary and proper for carrying into execution the foregoing powers."

The President

necessary-and-proper clause At the top level of the executive branch is the President of the United States. The President and Vice-President are elected as 'running mates' for four-year terms by the Electoral College, for which each state, as well as the District of Columbia, is allocated a number of seats based on its representation (or ostensible representation, in the case of D. C.) in both houses of Congress (see U.S. Electoral College). The relationship between the President and the Congress reflects that between the English monarchy and parliament at the time of the framing of the United States Constitution. Congress can legislate to constrain the President's executive power, even with respect to his or her command of the armed forces; however, this power is used only very rarely—a notable example was the constraint placed on President Richard Nixon's strategy of bombing Cambodia during the Vietnam War. The President cannot directly propose legislation, and must rely on supporters in Congress to promote his or her legislative agenda. The President's signature is required to turn congressional bills into law; in this respect, the President has the power—only occasionally used—to veto congressional legislation. Congress can override a presidential veto with a two-thirds majority vote in both houses. The ultimate power of Congress over the President is that of impeachment or removal of the elected President through a House vote, a Senate trial, and a Senate vote. The threat of using this power has had major political ramifications in the cases of Presidents Andrew Johnson, Richard Nixon, and Bill Clinton. The President makes around 2,000 executive appointments, including members of the Cabinet and ambassadors, which must be approved by the Senate; the President can also issue executive orders and pardons, and has other Constitutional duties, among them the requirement to give a State of the Union address to Congress once a year. Although the President's constitutional role may appear to be constrained, in practice, the office carries enormous prestige that typically eclipses the power of Congress: the Presidency has justifiably been referred to as 'the most powerful office in the world'. The Vice President is first in the line of succession, and is the President of the Senate ex officio, with the ability to cast a tie-breaking vote. The members of the President's Cabinet are responsible for administering the various departments of state, including the Department of Defense, the Justice Department, and the State Department. These departments and department heads have considerable regulatory and political power, and it is they who are responsible for executing federal laws and regulations. George W. Bush is the 43rd President, currently serving his second term.

The Courts

George W. Bush The highest court is the Supreme Court, which consists of nine justices. The court deals with federal and constitutional matters, and can declare legislation made at any level of the government as unconstitutional, nullifying the law and creating precedent for future law and decisions. Below the Supreme Court are the courts of appeals, and below them in turn are the district courts, which are the general trial courts for federal law. Separate from, but not entirely independent of, this federal court system are the individual court systems of each state, each dealing with its own laws and having its own judicial rules and procedures. A case may be appealed from a state court to a federal court only if there is a federal question; the supreme court of each state is the final authority on the interpretation of that state's laws and constitution.

State and local governments

supreme court of each state. Note that Alaska and Hawaii are shown at different scales, and that the Aleutian Islands and the uninhabited Northwestern Hawaiian Islands are omitted from this map.]] The state governments have the greatest influence over people's daily lives. Each state has its own written constitution and has different laws. There are sometimes great differences in law and procedure between the different states, concerning issues such as property, crime, health, and education. The highest elected official of each state is the Governor. Each state also has an elected legislature (bicameral in every state except Nebraska), whose members represent the different parts of the state. Of note is the New Hampshire legislature, which is the third-largest legislative body in the English-speaking world, and has one representative for every 3,000 people. Each state maintains its own judiciary, with the lowest level typically being county courts, and culminating in each state supreme court, though sometimes named differently. In some states, supreme and lower court justices are elected by the people; in others, they are appointed, as they are in the federal system. The institutions that are responsible for local government are typically town, city, or county boards, making laws that affect their particular area. These laws concern issues such as traffic, the sale of alcohol, and keeping animals. The highest elected official of a town or city is usually the mayor. In New England, towns operate directly democratically, and in some states, such as Rhode Island and Connecticut, counties have little or no power, existing only as geographic distinctions. In other areas, county governments have more power, such as to collect taxes and maintain law enforcement agencies.

Political divisions

With the Declaration of Independence, the thirteen colonies proclaimed themselves to be nation states modeled after the European states of the time. Although considered as sovereigns initially, under the Articles of Confederation of 1781 they entered into a "Perpetual Union" and created a fully sovereign federal state, delegating certain powers to the national Congress, including the right to engage in diplomatic relations and to levy war, while each retaining their individual sovereignty, freedom and independence. But the national government proved too ineffective, so the administrative structure of the government was vastly reorganized with the United States Constitution of 1789. Under this new union, the continued status of the individual states as sovereign nation states fell into dispute in 1861, as several states attempted to secede from the union; in response, then-President Abraham Lincoln claimed that such secession was illegal, and the result was the American Civil War. Since the Union victory in 1865, the independent status of the individual states has not been broached again by any state, and the status of each state within the union has been deemed by mainstream officials and academics to be settled as being subordinate to the union as a whole. In subsequent years, the number of states grew steadily due to western expansion, the purchase of lands by the national government from other nation states, and the subdivision of existing states, resulting in the current total of 50. The states are generally divided into smaller administrative regions, including counties, cities and townships. The United States–Canadian border is the longest undefended political boundary in the world. The U.S. is divided into three distinct sections:
- the "continental United States," also known as "the Lower 48" and more accurately termed the conterminous, coterminous or contiguous United States
- Alaska, which is physically connected only to Canada
- the archipelago of Hawaii, in the central Pacific Ocean. The United States also holds several other territories, districts, and possessions, notably the federal district of the District of Columbia, which is the nation's capital, and several overseas insular areas, the most significant of which are American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the United States Virgin Islands. The Palmyra Atoll is the United States' only incorporated territory; it is unorganized and uninhabited. The United States Navy has held a base at a portion of Guantanamo Bay, Cuba, since 1898. The United States government possesses a lease to this land, which only mutual agreement or United States abandonment of the area can terminate. The present Cuban government of Fidel Castro disputes this arrangement, claiming Cuba was not truly sovereign at the time of the signing. The United States argues this point moot because Cuba apparently ratified the lease post-revolution, and with full sovereignty, when it cashed one rent check in accordance with the disputed treaty.

Foreign relations and military

sovereign] The immense military and economic dominance of the United States has made foreign relations an especially important topic in its politics, with considerable concern about the image of the United States throughout the world. Reactions towards the United States by other nationalities are often strong, ranging from uninhibited admiration and mimicking of all things American to anti-Americanism. US foreign policy has swung about several times over the course of its history between the poles of strict isolationism and imperialism and everywhere in between. Three of the nation's four military branches are administered by the Department of Defense: the Army, the Navy (including the Marine Corps), and the Air Force. The Coast Guard falls under the jurisdiction of the Department of Homeland Security in peacetime, but is placed under the Department of the Navy in time of war. The combined United States armed forces consist of 1.4 million active duty personnel, along with several hundred thousand each in the Reserves and the National Guard. Military conscription ended in 1973. The United States Armed forces are considered to be the most powerful military (of any sort) on Earth and their force projection capabilities are unrivaled by any other nation. The 2005 defense budget amounted to $401.7 billion, which is an increase of 4% over 2004 and of 35% since 2001. Over 50% of that number is spent in research & development. (For comparison, in 2004 the European Union (considered as the second-largest military force) had a combined total of 1.6 million troops, and a defense budget of €160 billion, with less than 10% of that being spent on R&D.)

Largest cities

The United States has dozens of major cities, including 11 of the 55 global cities of all types — with three "alpha" global cities: New York City, Los Angeles, and Chicago. The figures expressed below are for populations within city limits. A different ranking is evident when considering U.S. metro area populations, although the top three would be unchanged. Note that some cities not listed (such as Atlanta, Boston, Las Vegas, Miami, Nashville, New Orleans, Seattle, and Washington, D.C.) are still considered important on the basis of other factors and issues, including culture, economics, heritage, and politics. The twenty largest cities, based on the United States Census Bureau's 2004 estimates, are as follows:

Economy

The United States has the largest single-country economy in the world, with a per-capita gross domestic product of $40,100. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. gross domestic product The largest industry of the U.S. is now service, which employs roughly three quarters of the U.S. work force. The United States has many natural resources, including oil and gas, metals, and such minerals as gold, soda ash, and zinc. In agriculture, the U.S. is a top producer of, among other crops, corn, soy beans, and wheat; the United States is a net exporter of food. The U.S. manufacturing sector produces goods such as, cars, airplanes, steel, and electronics, among many others. Economic activity varies greatly from one part of the country to another, with many industries being largely dependent on a certain city or region; New York City is the center of the American financial, publishing, broadcasting, and advertising industries; Silicon Valley is the country’s primary location for high-technology companies, while Los Angeles is the most important center for film production. The Midwest is known for its reliance on manufacturing and heavy industry, with Detroit, Michigan, serving as the center of the American automotive industry; the Great Plains are known as the "breadbasket" of America for their tremendous agricultural output; the intermountain region serves as a mining hub and natural gas resource; the Pacific Northwest for fish and timber, while Texas is largely associated with the oil industry; the Southeast is a major hub for both medical research and the textiles industry. Several countries continue to link their currency to the dollar or even use it as a currency (such as Ecuador), although this practice has subsided since the collapse of the Bretton Woods system. Many markets are also quoted in dollars, such as those of oil and gold. The dollar is also the predominant reserve currency in the world, and more than half of global reserves are in dollars. The largest trading partner of the United States is Canada (19%), followed by China (12%), Mexico (11%), and Japan (8%). More than 50% of total trade is with these four countries. In 2003, the United States was ranked as the third most visited tourist destination in the world; its 40,400,000 visitors ranked behind France's 75,000,000 and Spain's 52,500,000. Labor unions have existed since the 19th century, and grew large and powerful from the 1930s to the 1950s. See Labor history of the United States. Since 1970 they have shrunk in the private sector and now cover fewer than 8% of the workers. However union membership has grown rapidly in the public sector, especially among teachers, nurses, police, postal workers, and municipal clerks. There have been few strikes in recent years. The United States' imports exceed exports by 80%, leading to an annual trade deficit of $700,000,000,000, or 6% of gross domestic product. It is the largest debtor nation in the world, with total gross foreign debt of over $13,000,000,000,000 (2005 estimate); and it absorbs more than 50% of global savings annually. Since the 1980s, the U.S. has increased the use of neoliberal economic policies that reduce government intervention and reduce the size of the welfare state, backing away from the more interventionist Keynsian economic policies that had been in favor since the Great Depression. As a result, the United States provides fewer government-delivered social welfare services than most industrialized nations, choosing instead to keep its tax burden lower and relying more heavily on the free market and private charities. Sixteen states and the District of Columbia have minimum wages higher than the national level ($5.15 per-hour), including the highest, Washington State at $7.35. Twenty-six states are the same as the federal level; two--Ohio and Kansas--are below; and six do not have state laws. America's wealth is relatively highly concentrated. The average C.E.O. earns 500 times the typical amount a worker grosses, this is up from 25 times in the late 1970s. In terms of wealth the top 1% of Americans own 40% of all assets and 50.1% of the country's income goes to the top twenty percent of households. Average wages for the majority of employees have been largely stagnating since the 1970s. America's poverty line defined as a family of four earning less than $19,157 is at 12.7% of the general population. Approximately one out of every five children in the United States grows up below the official poverty line. Among racial groups; African Americans have the lowest median income while Asians had the highest. Regionally, the southern states had the lowest median incomes while the West Coast and New England had the highest. The current Federal Reserve Chairman Alan Greenspan remarked that the U.S.’s growing income inequality since the 1970s is, "not the type of thing which a democratic society - a capitalist democratic society - can really accept without addressing."[http://www.csmonitor.com/2005/0614/p01s03-usec.html?s=itm] However, Greenspan also noted, "...you can look at the system and say it's got a lot of problems to it, and sure it does. It always has. But you can't get around the fact that this is the most extraordinarily successful economy in history."

Transportation

Alan Greenspan ]] Because the United States is a relatively young nation, most of the development of U.S. cities has taken place since the invention of the automobile. To link its vast territory, the United States built a network of high-capacity, high-speed highways, of which the most important element is the Interstate Highway system, commissioned in the 1950s by President Dwight D. Eisenhower and modeled after the German