1.
THE EUROPEAN UNION
The European Union (EU) is a supranational and intergovernmental union
of 27 democratic member states. It was established under that name in
1992 by the Maastricht Treaty.
Three countries, Switzerland, Iceland and Norway, have decided to stay
out of the European Union. In May 2004 ten applicant countries joined.
The next phase of enlargement took place in January 2007 with the
accession of Bulgaria and Romania.
The Four Freedoms
The free movement of goods, services, labour and capital forms part of
the substantive law of the EU.
The Schengen Agreement abolished passport control and customs checks
on many of the EUs internal borders, creating a single space of mobility
for EU citizens to live, travel, work and invest.
While the free movement of goods, services and capital has more or less
been implemented,
after the enlargement of 2004, only 3 old members Sweden , the UK
and Ireland allowed foreign workers to take on jobs without a work
permit. Most of the old members temporarily prohibit the inflow of
foreign workers, because they are afraid of the mass migration of cheap
labour.
The single currency
The euro has been the official currency of the European Union in several
member states since 1999, although coins and bank notes werent
introduced until 1 January 2002. Some of the old member countries
decided against joining the eurozone at that time. Most of the new
members are preparing for the adoption of the euro. The single currency
is managed by the European Central Bank.
1. Countries wishing to accede to the eurozone have to meet certain
requirements: the Maastricht criteria:
Price stability: inflation must be under the average of the three
countries with the lowest inflation, plus 1.5%
The long-term interest rates should be within 2% of the average of
the three countries with the lowest inflation
The public deficit shouldnt exceed 3 % of GDP
The national debt shouldnt exceed 60 % of GDP
2. ERM II (Exchange Rate Mechanism II)
Joining ERM II ensures that the participating countries orient their
policies towards stability and convergence, which will help them in their
efforts to adopt the euro. A central rate is determined between the euro
and each participating non-euro area currency, with a standard
fluctuation band of 15% above and below that rate, and each
participating country has to hold its currency in this band without the
intervention of the National Bank for two consecutive years. Hungary
has not joined the system yet.
3. As a result of the introduction of the euro, transaction costs and
exchange rate risks are eliminated (there is no need to exchange the
national currency) and prices become more transparent. Apart from
contributing to macroeconomic stability, it has further favourable
economic impacts by attracting foreign direct investment (FDI).
Common Agricultural Policy
The Common Agricultural Policy (CAP) is a protectionist policy
guaranteeing a minimum price to producers and also giving direct aid to
them.
Some countries in the EU have larger agricultural sectors than others,
notably Spain, Poland and Portugal, and consequently receive more
money under the CAP. They are net recipients. Overall, certain countries
make net contributions, notably Germany, the Netherlands and the UK.
The enlargement of the EU in 2004 increased the number of farmers
from 7 to 11 million, and it also increased the agricultural land area by
30% and crop production by 10-20%.
The 2004 entrants into the EU gained immediate access to price support
measures (export refunds, intervention buying). However, direct
payments to Hungary are being phased in over 10 years (2004-2013),
starting at 25% of the rate paid to old member countries in 2004.
Further enlargement
After the last enlargement (when Romania and Bulgaria joined the EU)
the union remained open, but countries wishing to join have to comply
with strict requirements. Croatia and Turkey are the official candidate
countries which have started accession negotiations with the EU.
2. GLOBALIZATION
Globalization is a process characterised by the flow of goods, services,
capital, labour, technology and information on an international scale. The
development of telecommunications - mainly the rapid growth of the
internet - contributes to the acceleration of the process of globalization
with a huge amount of money flowing through the worlds capital
markets.
There is a large number of mergers and takeovers, as it is only the big
companies that can survive on the global market. By combining their
activities with their competitors they can increase their market share
and cut costs. (e.g. R & D) Through synergy they operate more
efficiently. They can also take advantage of the economies of scale by
offering more competitive prices and a wide selection of goods to
consumers. As a result domestic SMEs are squeezed out of the market,
causing a number of bankruptcies.They can either become suppliers to
their big rivals or try to specialise in areas which are not covered by
MNCs (Multinational Corporations).
Multinationals with their subsidiaries contribute to the growth of social
welfare by locating their production in countries where the wages are
low or where they can capitalise on the favourable taxes. Besides
creating jobs they improve the infrastructure and increase state revenues
by paying taxes.
On the other hand they are powerful enough to put pressure on the
government and force them to offer favourable conditions in return for
settling in their country.
Anti-globalist movements protest against globalisation on the grounds
that it widens the gap between the poor and the rich part of the world,
and devastates national identity and sovereignty. Environmentalists
raise their voices against the increased pollution occurring mainly in
defenceless countries.
3. MARKET STRUCTURES
Market economy
The market economy is an economic system where the allocation of
resources on the market is determined primarily by supply and demand.
Private ownership enables individuals to possess factors of production.
In a market economy the state has a limited share in regulating and
intervening in the economy (e.g. providing welfare benefits).
Planned economy
The planned economy is controlled and coordinated by the state. The
production and the allocation of resources are prescribed centrally by
the state (pricing, production and distribution). In state-owned companies
there is full employment leading to unemployment on the job. There is
no competition on the market, therefore efficiency is not increased by
private entrepreneurs who are motivated by profits. The black economy
is strong because of the shortage economy.
Staple commodities are subsidised. The social net is relatively
strong
There is not a big gap between the layers of society
The 4 magic areas of economic policy
Price stability
Low level of unemployment
Balance of payments equilibrium
Economic growth
The six different models of mixed economies
Anglo-Saxon model USA, United Kingdom
The state has only a small role in the economic processes; this is a
relatively liberalised market structure.
German model Germany (Hungary)
It is characterised by dynamic market competition and a wide social
network provided by the government (social market economy).
French model
The state has a dominating role in the economy as it is not only a
regulator but a proprietor/owner as well (state capitalism).
Austrian model Austria, Denmark, Finland, Norway
The employers negotiate directly with the representatives of the
employees / trade union. The government doesnt take part in the
negotiations, but it has to approve the decisions (social partnership).
Swedish model
The state regulates/supervises the labour market/ labour relations, and
cares about the social interests of workers. The government plays an
especially important role in redistribution (the golden mean).
Japanese model
There is an excessive supply of capital, a strictly organised education
system and the utilisation of special methods in business management.
4. THE LABOUR MARKET
The labour market
There are two main features determining the labour market: the supply of
labour and the demand for labour. The quantity of labour available in a
society depends on the size of the population, the age distribution and
attitudes concerning who should work, over what period and for how
long each year. Employers, by increasing wages and offering fringe
benefits, can influence peoples willingness to enter the labour market. At
the same time low labour costs in emerging countries threaten labour
markets in the more developed part of the world. A recession in the
economy or the introduction of new technologies may also lead to a rise
in unemployment. Governments have a double task of both preserving
jobs and reducing unemployment.
Types of unemployment
There are several types of unemployment, each caused by different
circumstances: seasonal, frictional, structural, conjunctural and
voluntary unemployment.
Some ways of reducing unemployment
Providing retraining schemes for those who have been dismissed
and are willing to study in order to adapt to the changes in the labour
market
Offering tax allowances and subsidies to companies to set up
businesses and create jobs in areas of high unemployment. They can
also be attracted by investment in public infrastructure.
Improving teleworking opportunities to overcome long distances and
increase labour mobility
Lowering unemployment benefits
Giving incentives to companies which employ long-term unemployed
Establishing efficient channels for informing people about vacancies
Trade unions
These organisations of workers, especially in a particular trade or
profession, have been created to act on behalf of the employees. They
represent their interests by serving as a communication channel between
them and the management.
The black economy
People working in cash-in-hand jobs are employed illegally. The grey
economy also constitutes a substantial part of the economy.
The labour market in the EU
In certain countries of the EU the free movement of labour is temporarily
restricted for citizens of the new member countries, out of fear that cheap
labour will raise unemployment. Therefore in these countries foreign job-
takers are obliged to apply for a work permit.
In countries which have fully opened their labour market, there is a large
number of people who have chosen to work there for the sake of better
job opportunities and career prospects. The new member countries are
increasingly suffering from a brain drain i.e. the loss of highly-qualified
workers.
5. TAXATION
The main function of taxes
Tax is a payment of money legally demanded by the government. Taxes
are the most important revenue sources of the state. The main function of
taxes is to cover the governments expenditures. There is a wide range of
goods and services which are provided by the government from taxes
(e.g. national defence, security, education, welfare, basic economic
services, housing).
Types of taxes
Taxation on individuals or companies, which is made directly by them or
through their employer is called direct taxation. Direct taxes are
progressive, which means that they fall most heavily on the well-to-do.
Examples of direct taxes are: personal income tax, corporation tax,
local business tax, capital gains tax, inheritance tax and wealth tax.
Personal income tax
Personal income tax is levied on an individuals net income. This is the
sum of his total earnings reduced by the amount of exemptions and
deductions to which each taxpayer is legally entitled. In Britain
taxpayers file their tax returns to the Inland Revenue. The actual tax
liability is calculated from the appropriate tax schedules. In each
schedule there is a zero
bracket amount which means that income up to that amount is taxed at a
zero tax rate. Currently there are two tax rates in Hungary.
Indirect taxes are levied on turnover and consumption. They are
regressive, so they fall most heavily on the lower paid. Examples of
indirect taxes are VAT, excise duty, customs duty.
Tax evasion
The higher the tax rates are, the more people are tempted to cheat. Lots of
people have undeclared cash-in-hand jobs on which no one pays any tax
or national insurance.
Tax avoidance
To reduce income tax liability some companies give employees perks
instead of taxable money. Legal ways of avoiding tax are known as
loopholes in the tax laws.
Multinational companies often set up their head offices in tax havens
such as the Bahamas. Life insurance policies and pension plans are known
as tax shelters.
6. ENVIRONMENT PROTECTION
Throughout history mankind has reaped the benefits of nature. But during
the last century our earth changed more rapidly than at any other time in
history, primarily because of our careless interaction with its resources.
Today, in the wake of ever-increasing consumption and massive economic
development, the ecological crisis has gone global.
Global problems
Air pollution
People all over the world breathe smog, sulphur dioxide, acid rain,
carbon monoxide, and other toxic pollutants every day as a result of
industrial activity and the excessive use of cars, which emit exhaust
gases. The accumulation of gases in the atmosphere leads to the
greenhouse effect and the depletion of the ozone layer.
The build-up of gases may result in temperatures on earth increasing
2.25 degrees Celsius over the next century, causing global warming.
Predictions include climatic changes leading to natural disasters,
drought, floods, changes in agricultural patterns and skin cancer. One
major threat to the ozone layer is chlorofluorocarbons (CFCs).
Deforestation
The gradual reduction of forests in size is resulting in erosion, flooding,
desert formation and global warming. Rain forests, which generate
large amounts of oxygen, are being destroyed to harvest hardwood and to
gain space for growing plants and breeding animals.
Water pollution
10 percent of rivers worldwide are polluted and the oceans collect 6.5
million tonnes of litter per year. Less than 1 percent of all the water on
earth is suitable for drinking, bathing, or growing plants.
Soil pollution
Agricultural activity contributes to the pollution of soil by using
chemicals (fertilisers and pesticides) to boost yields.
Overpopulation
If the current growth rate continues, world population will double over
the next couple of decades. This process accelerates the exhaustion of
natural resources. In 2000 there were 6.3 billion people on the earth. It is
an important task to exploit renewable energy sources.
Waste accumulation
Huge amounts of hazardous waste are produced by the developed part of
the world every year, part of which is exported to the Third World.
Households and industries also create piles of non-recyclable waste
which are not able to decompose in landfill sites.
Oil shortage
With the increase in worldwide demand for oil, the price of oil products
(e.g. petrol) is rising, posing serious difficulties for oil-dependent
economies. In fact, most of the feedstock (e.g. corn) for biofuels such as
biodiesel and ethanol is grown using the high-tech, oil-powered industrial
methods of agriculture.
7. FORMS OF COMPANIES
I. There are three main types of business ownership in the private sector
of the economy.
1. Sole proprietorship
This type of firm is run by the sole trader who is responsible for the
total control and management of the business. The owner has unlimited
liability for the debts.
2. Partnership
General partnership
This is a type of business entity in which partners share with each other
the profits or losses of the business undertaking in which all have
invested. At least one partner must accept unlimited liability.
Limited partnership
In this type of business the internal member has unlimited liability. The
external/silent partner doesnt take part in the activity of the partnership.
He/she has limited liability.
3. Corporation
Limited liability company-Private limited company.
The members have limited liability. The capital of the firm is divided into
shares, but the shares are not sold on the stock exchange and they cannot
be offered to the general public.
Company limited by shares Public limited company
This business has to be founded with a certain amount of issued capital.
When an investor buys shares he/she becomes a part owner. Shareholders
have limited liability to the extent of the face value of their shares.
Special forms of private business enterprises and relationships
Holding/parent company
This is a company that owns enough voting stock in another firm to
control management and operations by influencing or electing its board
of directors.
Co-operative
This is a business society which is jointly owned and run by its
members, who work together and share the profits.
Joint venture Joint enterprise
This is a partnership in which two or more people or organisations work
together. It is usually restricted to short-term deals.
Union
This is a legal entity with a minimum of two founding partners without
the obligation of contributing a certain minimum amount of capital. It is a
non-profit organisation.
Subsidiary/affiliate
In business this is an entity controlled by another entity. The controlling
entity is called its parent. A parent and all its subsidiaries together are
called a group. When ownership is not shared and the subsidiary is wholly
owned by the parent, it is called a branch.
Franchise
This is a business selling named goods on the basis of a licence given by
a company to use its established brand name and sell its goods.
Building society
Operating on a non-profit basis, it pays interest on deposits made by the
general public, and provides mortgages.
Offshore company
This is a firm based and registered in a tax haven to avoid higher
taxation.
II. There are two main types of public enterprises.
1. Municipal undertakings
These are businesses or services operated by local authorities. They are
financed by local council tax and charges made for the use of the service
(e.g. theatres, sports centres). They may also be subsidised by grants
provided by the government.
2. State undertakings
These are businesses operated by the government on behalf of the public.
The general policy is decided by the government in consultation with the
corporation board, which is appointed by the government.
8. BANKING
The Hungarian two-tier banking system is made up of the National
Bank of Hungary and the commercial banks.
The National Bank of Hungary acts as banker to other banks. It is the
lender of last resort when there is no other source to borrow from. It is
an independent financial institution responsible for the countrys
monetary policy. Its primary target is achieving and maintaining price
stability.
The central bank of the UK is the Bank of England. The Federal Reserve
System is a decentralised institution performing central banking
functions in the United States.
Some of the functions of a central bank are to:
issue banknotes
set the long-term interest rate
make open market transactions (e.g. issues treasury bonds)
regulate the exchange rate of the national currency
regulate the amount of money in circulation
guard the gold reserves and foreign currency reserves of the country
maintain contact with international institutions
maintain the capital adequacy ratio
Commercial banks either separate the commercial function from the
investment function (Anglo-Saxon model) or handle both (universal
banking). The most important requirements for banks are liquidity and
solvency. They provide a wide range of services for private individuals
and corporate clients for which they charge a handling fee. Their major
source of profit is the interest margin.
Commercial banks perform the following services:
extend loans in the national and foreign currencies
manage current accounts: meet standing orders, issue credit cards
and debit cards, make transfers, operate cash dispensers, send
monthly statements of credits and debits
manage deposit/savings accounts
offer insurance services
provide factoring and leasing services
deal with project financing
exchange foreign currency
trade in securities
provide safe boxes and night safe
provide private banking services
offer Internet banking, SMS banking and telebanking services
The IMF the International Monetary Fund
The IMF was established to promote international monetary cooperation,
exchange stability, and orderly exchange arrangements. It fosters
economic growth and high levels of employment. It also provides short-
term financial assistance to countries to help ease balance of payments
adjustment.
Since the IMF was established, its purposes have remained unchanged but
its operations which involve surveillance, financial assistance, and
technical assistance have developed to meet the changing needs of its
member countries.
The IBRD (the International Bank for Reconstruction and Development)
The objective of the IBRD, also known as the World Bank, is to help
borrowers reduce poverty and improve the standard of living in the
developing countries. It provides cheap loans for developing countries for
major industrial development projects (like dam building, power plants)
and other long-term investment projects.
9. FINANCIAL MARKETS (the stock exchange, investment)
The way the stock exchanges operate
The stock exchange is a highly organised market where securities are
bought and sold. The issuer offers the security for sale on the primary
market. The investor can sell the security any time on the secondary
market. The over-the-counter (OTC) market has been created for
unlisted securities which are not traded on an organised exchange. The
fall and rise of prices respond to changes in supply and demand. Blue
chips are the shares of the best-performing companies regarded as safe
investments. The Hungarian index, the BUX contains the liquid shares
of companies with the biggest capital value. Fluctuations in the volume
and the price of securities traded on the stock exchange are important
indicators of the state of the economy.
Securities
A company can issue shares to institutional investors or the general
public. Buying a share through a specialist company or a broker
gives its holder a stake in the company. Shares generally entitle their
owners to vote at the companys Annual General Meeting and to
receive a dividend in proportion to their investment. Ordinary
shareholders with equities only get a dividend if there is enough
profit. Preference shareholders are entitled to get their fixed
dividends before ordinary shareholders.
Bonds represent a loan for a fixed period with a fixed interest rate.
They can be either held till maturity or sold before maturity.
Treasury bills are issued by the state and represent a safe investment
with a state guarantee. If a company wants to raise money, it issues
corporate bonds.
Portfolio
This is a set of investments made by an investor. A portfolio consisting
mainly of bonds is regarded as a low risk-level investment. The addition
of shares to a portfolio of government and corporate bonds increases the
risk-level of the investment, but at the same time returns can be higher.
Bulls and bears
Bulls are speculators who anticipating a price rise (on a bullish
market) buy shares in large quantities in order to sell them at a higher
price later. Speculators who sell their securities in the belief that prices are
about to fall (on a bearish market) are called bears.
10. INTERNATIONAL TRADE
International trade the export and import of goods, services and
intellectual property enables the countries involved to offer a wider
range of goods. A countrys trade policy involves measures to regulate
foreign trade. The balance of trade (BOT) shows a countrys trade flow.
If it is in deficit, governments often take protectionist measures to make
their own producers competitive on the world market. They can limit
free trade by imposing e.g tariffs or quotas on imports. Another barrier
to free trade is the granting of subsidies to domestic producers to boost
exports. Non-tariff measures like national standards, slow administration
and sanitary regulations are also considered protectionist tools.
Arguments for protectionism
 The main argument against free trade is definitely the defence of the
countrys economy for example new, infant industries must be
protected from foreign competition
The other major argument is the need to save jobs workers in
certain industries are in danger of losing their jobs owing to foreign
imports
A state may introduce anti-dumping measures to protect domestic
producers
Disadvantages of protectionism
It results in higher consumer prices, and so stimulates inflation
It may subsidise industries and companies that are operating
inefficiently
It reduces the competitiveness of third world countries, preventing
them from entering the world market
Liberalisation free trade
This is an economic policy which aims at the abolition or reduction of
trade restrictions. It provides free movement of goods and services so
creating the conditions of free trade between the countries involved. Free
international trade allows a country to specialise in goods in which it has
comparative advantage, because of either resources or expertise,
therefore increasing its sales on foreign markets and making a greater
variety of goods available for consumers. It results in higher revenues
and in the long run higher living standards for citizens.
The WTO the World Trade Organisation
The WTO, established in 1995, is an organisation operating a system of
trade rules. Its predecessor was GATT (the General Agreement on Tariffs
and Trade). Its major function is to dismantle the existing barriers (e.g
agricultural subsidies). It also serves as a forum for governments to
negotiate trade agreements and settle disputes. These negotiations are
called rounds.
11. MARKETING
Marketing and advertising: the difference
Marketing
Marketing is the creative process of satisfying customer needs profitably.
It deals with the following areas: advertising, after sales service, design,
delivery and distribution, packaging and presentation, pricing,
promotion, research, quality control and assurance and testing. The
marketing concept requires an organisation to be consumer-orientated
and to have an integrated marketing strategy. The marketing mix
depends on a number of decisions with regard to four major variables (the
four P-s):
- product (the product should be appropriate for the market segment it
is sold in)
- place (the product should be available through the most cost-effective
channels of
distribution)
- promotion (the product is presented to customers through advertising,
packaging, publicity, public relations and personal selling)
- price (the product must be priced so that it competes effectively with
rival products in the same market)
Advertising
Advertising is an important element of marketing which is directed at a
target audience. It reaches potential customers through several media
print media, outdoor displays (billboards, neon signs), radio, TV,
cinema, the Internet, direct mail. There are three types of advertising:
consumer advertising, trade advertising and industrial advertising.
Arguments for advertising
it informs the public about products and services
it influences the decision to purchase a good by allowing the consumer
to make a more informed choice
it plays an important role in creating new needs
Arguments against advertising
it increases costs and as a result, price
it forces customers to buy products children are especially sensitive
to advertising messages
it can be deceptive
Banned advertisements
There are certain products the advertising of which is restricted or
banned. These products, like cigarettes and alcohol, have an unhealthy
and harmful impact on people, especially on children.
Advertising techniques
Some of the most popular techniques of persuasive advertising are:
repetition of a slogan, endorsement, comparison of rival products,
presenting scientific authority, making special offers and using emotional
appeal.
12. TELECOMMUNICATIONS
Telecommunications, supported by the electronic media, enable people to
exchange information with each other. This form of communication can
take place through several media: mobile and fixed-line telephones,
television, radio, the Internet and telefax.
A good telecommunications infrastructure is widely acknowledged as an
important tool of economic success in the modern world. At the same
time there is increasing concern about the digital gap, as access to
telecommunications systems is not equally shared among the worlds
population.
The wireless telephone market
There are three mobile operators in Hungary, (T-mobile, Pannon and
Vodafone) in fiercely competing with each other for gaining new
subscribers and keeping their present customers with favourable
packages. As a result, the public benefits from both the improvement in
the quality of the services and the fall in rates.
Advantages of mobile communication
it is applicable everywhere if there is the required signal level it
can save lives as well
not only voice, but images, music and videos can be transmitted
each subscriber has his/her own individual phone number which may
be kept independently of the service provider
Disadvantages of mobile communication
there isnt an adequate signal level everywhere
the battery can go flat
the rates can be higher than those for wired telephones
it can sometimes be disturbing (e.g. in the theatre)
The wired telephone market
With the liberalisation of the wired market, T-com has lost its monopoly
with new service providers entering this market. However, for the
newcomers the process of gaining market share seems to be slow. They
also face strong competition from the wireless market, therefore they are
making constant efforts to offer more and more favourable conditions,
such as broadband Internet access.
The information society
The information society is being created by the revolution in the
information and communications technologies accelerated by
globalisation. In a knowledge-based economy, information is of key
economic and cultural importance. The Internet has become
indispensable for people and businesses, being the main source and
channel of information. It is also a tool of e-commerce, either between a
firm and the consumer: business-to-consumer trade (B2C), or between
manufacturers, wholesalers and retailers: business-to-business trade
(B2B).
Employment-related issues
The IT revolution has had both positive and negative effects on
employment. On the one hand it may bring about job cuts at a company
owing to increased efficiency in business operations as a result of an IT
investment. On the other hand it can lead to the creation of new jobs
along with the growth of IT-related businesses. There are excellent
employment opportunities in the form of telework, as employers can hire
the best experts without having to worry about distance.
13. THE HUNGARIAN ECONOMY
Macroeconomic indicators
Like most of the member countries of the EU, Hungary is also preparing
for accession to the eurozone. Before it can enter the European Economic
and Monetary Union (EMU) and adopt the euro, macro data have to be
analysed in accordance with the Maastricht criteria. The most criticised
area is the twin deficit, the parallel deficit of the current account and the
government budget.
Measures to be taken to meet the convergence criteria
Lasting budgetary equilibrium can only be achieved through structural
reform of the expenditure side, making the introduction of austerity
measures necessary.
In parallel, there is a need for an increase in budgetary revenues mainly
through the widening of the tax and contribution base and limitations in
the scope of tax avoidance. Nonetheless, the changes affect all major
components of the tax system.
In order to achieve a durable reduction in the budget deficit and to
maintain a level to underpin sustainable growth, the government has
initiated substantive structural changes in health care, and in the pension
and education systems. These reforms are aimed at attaining the deficit
targets through the modification of operational parameters.
In addition, there is also a need for an economic and social policy
turnround by promoting a more efficient performance of public tasks
through appropriate state control, and strengthening responsibility for
payment of public dues.
Black and grey employment
Many people hide their real income from the authorities, and pay less tax
and social security contribution than they are supposed to pay. This
results in a deficit in the social security system and lower tax revenues.
Illegal employment is rather common in Hungary, especially in the fields
of construction, industry and agriculture.
Ageing population
The problem of fewer and fewer active people providing for more and
more pensioners is hitting the whole of Europe. Hungarys labour force
participation rate is one of the lowest in the region. In order to ease the
social security burdens, there is a general tendency to raise the
retirement age. At the same time the desertion of young graduates to
Western Europe for better employment opportunities is on the increase.
The position of Hungary in the EU
The unfavourable macroeconomic data seriously affect Hungarian
competitiveness. The neighbouring countries such as Slovakia, Poland
and the Czech Republic are better at attracting foreign direct investments
(FDI) by offering better conditions than Hungary.
14. MAJOR AND EMERGING WORLD ECONOMIES
Multipolar world
A global power shift is taking place from a unipolar world to a
multipolar one as other emerging countries like Russia, China and even
India are stepping forward to take a bigger leadership role on the world
stage that the United States has so far dominated.
The BRIC markets
There is a group of four countries within the emerging markets called the
BRIC markets (Brazil, Russia, India, China), which are the largest of the
emerging markets. The BRIC countries are characterised by favourable
population trends (43% of the worlds population lives in these four
countries), plentiful natural resources (Russia is home to over 20% of
the worlds estimated crude oil reserves), and a cheap, well-educated
labour force (India produces 5 million university graduates per year).
Chinas growth
China has become a global power, contributing more to global growth in
2007 than the United States, the first time another country has done so
since at least the 1930s. China has also become the worlds largest
consumer, eclipsing the US in four of the five basic food, energy and
industrial commodities. China has also surpassed the US to become the
worlds largest emitter of CO2.
The 21st-century heavyweights
The world economy is increasingly powered by countries such as China
and India whose growth is far more energy- and commodity-intensive
than that of rich countries. Since 2001, China has accounted for about
half of the increase in the world's demand for metals and almost two-
fifths of the increase in oil demand.
The prices of many raw materials have surged in the past 12 months.
The Economist's dollar-based commodity-price index is up by 26% from
a year ago. The food index is up by almost 50%. The price of oil has risen
almost 80%. These jumps are the main cause of higher inflation across
the globe. They are also related, at least partially, to structural changes
in the global economy.
This shift means that the usual relationship between the USA 's business
cycle and commodity prices may change. Past American recessions have
sent the prices of oil and other resources down. That may no longer be so
as emerging economies become more resilient to an American recession
than formerly.
15. SOCIETAL ISSUES AND THE ECONOMY
The role of the state in the economy: fiscal policy
stabilisation: providing the necessary framework for the operation
of the economy and evening out fluctuations in economic activity
(i.e. stabilising the general level of prices, production, unemployment
and the value of the national currency)
redistribution: collecting taxes and paying benefits in order to
decrease income inequalities
allocation: redirecting resources
The government budget
This is the governments financial plan, which includes the estimated
revenues and expenditures for the coming year. The national budget is
drawn up every year and is presented to Parliament by the Minister of
Finance. The major source of government revenues is the income from
taxation and duties. When the revenues do not cover the expenditures, the
budget is in deficit. One way of covering the deficit is to borrow capital
by issuing and selling government bonds.
Areas of public expenditure
The government makes corrections in the income and wealth inequalities
among citizens through transfer payments, such as pensions, social
security and unemployment benefits. Transfer payments also include
interest payments on the national debt and subsidies paid to farmers and
others. It is generally accepted that a government should provide a wide
range of goods and services, such as law and order, (courts, the police)
national defence, public infrastructure and culture. There are services,
such as education and health care, which are provided by both the market
and the State.
The pension system
The government has the responsibility of taking care of retired people.
One can receive a pension from the social security authority. In the
framework of the pay-as-you-go system, the pension contribution of the
active population is paid to pensioners. Membership in a private pension
fund also ensures payment for people reaching retirement age. Their
payments are invested in safe state securities to earn interest for them. In
the advance-savings system the money accumulating in their personal
accounts will be paid in the form of an annuity or can be inherited.
Voluntary pension funds also provide security for the years after
retirement.
The ageing population
While overpopulation is one of the major causes of the problems the
third world is facing, the developed countries welfare societies have a
rapidly ageing population. The number of retired people has never been
greater than it is today, and will continue to grow in the future. The
increase in life expectancy makes disproportionate claims upon the
social safety net (pension system, health care system, social benefits,
etc.).