Political scientists disagree about the relationship between democratization and marketization. Mexico has moved steadily toward a market economy since the 1980s, and democratization appears to have followed. On the other hand, China has been moving toward capitalism since the late 1970s without any signs of democratization.
Questions to consider:
- Does Democratization lead to a market economy?
- How do we characterize a country’s development?
- How do we distinguish between a market economy and a command economy?
Until the Soviet Union collapsed in 1991, developed and developing countries were divided into three groups. Developed countries with market economies were known as the “first world.” Countries with communist command economies were known as the “second world.” Developing countries outside of these two groups were known as the “third world.” The economic development of a country can be measured in the following ways:
- GDP per capita – This figure is an estimate of a country’s total economic output within its boarders divided by its total population.
- PPP (Purchasing Power Parity) – This measure takes into account the actual cost of living in a particular country by figuring what it costs to buy the same bundle of goods in different countries.
- HDI (Human Development Index) – The United Nations has put together this measure based on a formula that takes into account the three factors of longevity (live expectancy at birth), knowledge (literacy and average years of schooling), and income (according to PPP).
- Economic dependency – A less developed country is often dependent on developed countries for economic support and trade. A country is said to be “developing” when it begins relying less on a stronger country to keep it afloat financially.
- Economic inequality – the economies of developing countries usually benefit the rich first, so characteristically the gap between the rich and poor widens.
| Command Economy | Market Economy |
|---|---|
| Factories, Farms and Shops are controlled by the State | Factories, Farms and Shops are privately owned |
| Most production decisions are made by the State | Most production decisions are made by individuals |
| Most people are given work by and work for the State | People are responsible for finding their own jobs |
| The State decides what to sell | Producers sell what they think people will buy |
| Prices for basic goods are subsidized by the State and kept low | Prices are set by producers, according to what the market will bear |
| Unemployment is considered unacceptable | Some unemployment is considered acceptable |
Review Questions
Total economic output divided by the total population is ______.
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GNP
_____ _______ ________ takes into account the actual cost of living in a particular country by figuring what it costs to buy the same bundle of goods in different countries.
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Purchasing Power Parity