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Birth of Capitalism
Starting with the 11th century long distance trading flourished connecting thriving pockets of growth. However, by and large, living standards remained at subsistence levels for the majority of the world's population until the middle of the 18th century. Over the centuries as commerce grew, albeit slowly, the power of the vassals of the feudal system declined and was replaced by merchants and incipient capitalists.
The Protestant Reformation - Protestant work ethic - fostered hard work, frugality, sobriety and efficiency, virtues which facilitated capitalism. Rise of strong nation states - created conditions conducive to capitalism (uniform monetary system, contract and property laws, police and militia protection, as well as, basic transportation and communications infrastructure) The Enlightenment - during the 17th and 18th century there were great scientific and social advances. Social thought as expounded by David Hume, Adam Smith and Thomas Jefferson stressed the rights and responsibilities of the individual.
Capitalism as an economic system spread beyond Europe, mainly to North America and Australia. Descendants of the English and French colonists grew in number and with new immigrant waves, primarily from Europe. However, in Africa, the Indian Subcontinent, East Asia, and in Latin America the indigenous peoples were relatively numerous. The colonist created an administrative structure, which encouraged or more likely coerced, the indigenous peoples to produce primary products for export to the home countries. These primary products were then transformed in the production process into manufactured goods, some of which were reexported back to the colonies. Under these conditions there was little incentive to create new industries in these colonies.
Emerging Economies
Why Emerging?
Regional economic powerhouses with large populations, large resource bases, and large markets. Transitional societies that are undertaking domestic economic and political reforms by adopting open door policies to replace their traditional state interventionist policies that failed to produce sustainable economic growth. World's fastest growing economies, contributing to a great deal of the world's explosive growth of trade. Five biggest emerging markets' share of world output will double to 16.1 percent by 2020 from 7.8 percent in 1992. Critical participants in the world's major political, economic, and social affairs.
Failed to produce sustainable growth in the traditional developing countries. Failure and its tremendous negative impact pushed those countries to adopt open door policies, and to change from the state's being in charge of the economy to facilitating economic growth along market-oriented lines.
Desperately needed capital to finance their development, but the traditional government borrowing failed to fuel the development process. Borrowing either from commercial banks or from foreign governments and multilateral lenders like the IMF and the Word Bank often resulting in heavy debt overload leading to a severe economic imbalance. Inability to manage and efficiently operate the borrowed funds to support economic growth. Due to unsatisfactory results of government borrowings, developing countries began to rely on equity investment as a means of financing economic growth. To attract equity investments, a developing country has to establish the preconditions of a market economy and create a business climate that meets the expectations of foreign investors.
The change in financing sources thus became another factor leading to the rise of emerging markets.
Foreign Investment vs. Foreign Assistance Trade and capital flows are directed more toward new market opportunities, and less by political consideration. Increasing two-way trade and capital flows between emerging markets and industrialized countries reflecting the transition from dependency to global interdependency. Accelerated information exchange integrating emerging markets into the global market at a faster pace.
Trends
Projected Growth
Ref: www.pwc.com
Corruption
Delays in Courts Labor and Employment