Artur Victoria asked:


Background

The Potuguese-speaking countries

The Lusophone countries ( Portugal, Brazil, Cabo Verde, Guine – Bissau, Angola Mozambique and East Timor) are a unique group of states and regions, spread all over the world, with common language and cultural heritage and at the same time – with diverse levels of economic development and institutional capacity.

Among these States and Regions the Special Administrative Region of Macau plays an unique and important role – it offers the PRC a unique platform for global outreach, investment opportunities and developmental activities. Because of its position in the history of economic and cultural relations between China and Portugal, it can serve as a genuine bridge between cultures that are otherwise quite different.

 

The People’s Republic of China

People’s Republic of China is rapidly developing as a country of global ambitions. China is becoming an interesting – and increasingly important economic and cultural partner for many countries. Increasingly, China’s relations with the non-Chinese countries is being viewed as an integral part of the globalization process and as important element of the global commercial and cultural exchange. The amazing economic growth, the millenary traditions, the growing capacity of the China businesses and institutions makes the Chinese economic expansion inevitable. However the effectiveness of the economic relations is directly related to the degree of knowledge and understanding of the economic, political and cultural context of the given country. With this respect Macau may play a crucial role as a launch pad for Chinese economic and developmental initiatives targeting the Lusophone world. To facilitate this cultural and economic exchange, the Investment Centre for Economic and Cultural Relations between China and the Lusophone Countries was founded with the mission:

 

To stimulate and facilitate the cultural and economic cooperation between China and the Lusophone Countries by creating a permanent platform of intercultural dialogue and by supporting initiatives between China and the Portuguese speaking countries  through research, education, debate and exchange between specialists from the areas involved.

Objectives:

 

Facilitation of economic and cultural cooperation is a process and not a goal by itself; therefore the activities of the Centre have to be viewed as a series of interrelated steps that are adapting to the reality and are at the same time striving to change it – to bring about a vision of the future where China and the Lusophone world work together to achieve economic prosperity, institutional effectiveness, mutual respect and understanding.

The initial objectives of the Centre for the year 2008-2009 are the following:

Objective 1

To build an institutional framework, where it will be possible to carry out meaningful Analysis of the economic, political, governance etc. situation in a given Lusophone country, including an analysis of the current status and the perspectives before the Country/China relations.. This would require a series of Country Studies to be carried out through a unified methodology, reviewing the most important aspects f the potential China/Country relations. It would be important to have the output of these studies translated into three languages – Chinese, Portuguese and English; the country studies will be regularly updated in order to reflect the changing reality.

Objective 2

To stimulate the Exchange of practices between China and the Lusophone countries through the following vehicles:

Bilateral and multilateral conferences, seminars and workshops, designed to bring together groups of important decision makers and business people from PRC and Study visits of academics and professionals, experts, government officials, statesmen, businesspeople from PRC and the Lusophone countries on bilateral and multilateral basis Objective 3

To implement a series of standardised yet reflecting the local specificity interventions in selected Lusophone countries both as a trust-building exercise and to initiate the cultural dialogue in order to “pave the way” for further deepening of the PRC-Country relations. The projects must have attainable and realistic goals and should be able to effectively make a difference in the given country.

Organizational Structure – The Precondition

In order to achieve our mission an organizational structure must be put in place to provide backstopping, expertise and support. The existence of such structure also guarantees the long-term sustainability and consistency of the project approaches. The following organizational Structure is proposed:

 

Programs Coordinator – Macau

Program Officer, Training

Program Officer, Analyses and Governance

Program Officer, Investments

Office support staff

 

National structures / coordinators maintain contact with the Academia, the Government and the Business

Stakeholders:

TIRI / PIEN, IIUM, Governments, Academia, Business

Programs Coordinator – Lusophone

 

The Centre will have a provisional office at the Inter University Institute of Macau – IIUM; thus being supported initially by IIUM staff and donors. This will minimize the initial start-up costs and will allow for more funds to be allocated for actual programmatic activities. To guarantee professional quality of the services of the Centre, though the number of the paid staff initially will be minimal, at least the position of the Programs Coordinator has to be filled. The Program Officer positions may be initially filled on voluntary basis; with Program officers based either in or outside Macau. With the expansion of the project activities, local (national) structures will have to be established. The transitional period may envisage also the position of a National Coordinator (voluntary or paid, depending on the availability of resources).

An important element of the Centre activities will be the distribution of a Magazine and building and maintenance of a web-site.

Proposed Interventions

Project Fiche 1

 

Needs analysis and diagnostic surveys of selected Lusophone countries. This will be carried out by a team of experts – both international and local – that will initially develop a methodology and next will apply the methodology to selected Lusophone countries. The survey must address several specific issues :

The current economic/governance situation in the given country The potential for improvement of the Chinese/Country relations The potential obstacles to the improvement of the Chinese/Country relations; The economic and governance problems that may impact adversely the Chinese/Country relations Propose specific project interventions in order to remove these obstacles/problems or to mitigate their adverse effects. .

 

 

Project Fiche 2

 

Masters Program in Lusophone – China relations studies

The Inter-University Institute of Macau offers a Masters program in Lusophone studies which can be replicated in all target countries, paying due attention to customizations needed to reflect the local context. The program will include among other areas the issues of development, institutional capacity building, good governance; courses in Portuguese and Chinese; music and arts of China and Portuguese origin. This will stimulate the academic exchange between China (SAR Macau) and the Lusophone countries and will provide us with beachhead for further interventions as well as with access to a large pool of local experts.

 

 

Project Fiche 3

 

Strengthening the public administration capacity of the Relevant Lusophone Country public administration through upgrading the existing means of communication within and outside the Government.

One of the most serious problems related to the expansion of the economic and cultural contacts is the lack of reliable information regarding the different Government procedures, laws and regulations. The Goal of this project would be to improve the access to Government information of the participating country to the rest of the world by building a series of Government web-sites, connected to a Government web-portal, where all the information will be available regarding the national legislation, procedures and practices, functions of the state bodies etc. In fact such a project may also be regarded as an initial step to building an effective e-government in the specific country. At least at the initial stage of the project the maintenance of the e-infrastructure (portals, sites etc as well as their content) must be outsourced when is no local capacity; simultaneously a process of building local capacity and local ownership must be put in place. Through this project we are not simply building web sites – we are creating an information web and we generate content that allows to access Government information; we build contacts in the respective country; we enhance the transparency of the country, support the efforts of the civil society in the country and facilitate the work of the potential investors, trade and professional associations.

 



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Francis Mulenga Muma asked:

CHAPTER 1

INTRODUCTION AND THEORETICAL BACKGROUND

Economists through out the world are searching for what really are the major determinants of growth of an economy and different policies have been used in pursuit of the answers. The world as large has gone through a lot of economic problems, such as depressions of 1930s, 1970s and 1980s. The 1930 depression led to employing of the Keynesian policies of strict government intervention. However, the 1970s depression made policy makers lose faith in Keynesian economics. Nevertheless, most Third World countries continued with their central planning type of economic policies. There was strong disenchantment with this type of policies, which led growing number of economists and influential international development organisations to begin, in recent years, to advocate the increased use of the market mechanism that is to liberalise the markets, as the key instrument of promoting greater efficiency. In this regard economic liberalisation implies minimisation of government intervention in allocating economic resources and letting the market forces play the cardinal role, doing away with all forms of government distortions in running the economy. The market forces should play a leading role in financial, trade, labour, commodity markets and other sectors, increasing reliance in market forces is normally accompanied by stabilisation programs, (Krueger 1978,1985).

There has been an increasing call for the private sector to take up the challenges of national development. According to Robert Barro (1996), most empirical facts point to primacy of government choices; countries that have pursued broadly free market policies, in particular trade liberalisation and maintenance of secure property rights, have experienced higher growth, than those which pursue central planning type of policies. For this reason, there have been calls for the privatisation programs.

On the other hand Rodrik, (1992) argues that trade reforms is frequently met with scepticism on the part of the private sector and may lack support, the country implementing them suffers from terms of trade deterioration which may result into reduction of capital inflow and increase capital flights. He goes on to say that this is coupled with inflation and low zero growth. Krueger (1978) points out that to avoid this, appropriate macroeconomic policies need to accompany the increase in price of foreign exchange (devaluation), or else domestic inflation would soar and affect the intended benefits of liberalisation. That is why stabilisation programs, such as reduction in government expenditures, accompany liberalisation by cutting on government consumption, which is often negatively related to the growth of an economy.

However Wha Lee (1993)’s findings in the case of Korea are very interesting, Korea gave subsidies to some firms manufacturing exports, managed to grow faster. He argues that the theoretical predictions about the link between growth and open trade may be ambiguous and misleading. According to critics, tariffs can either enhance or decrease growth rates, depending on which sector is protected. This is the argument of infant industry. Krueger (1985) notes that LDCs have been protecting infant industries for decades, but they have still remained infants; this is an indication that there is something wrong with the economics of protectionism. Nevertheless Wha Lee (1993) notes that since the current theory of liberalisation is inconclusive, as is the empirical evidence, the link between trade policy and dynamic efficiency is vague, depending on the industry considered.

Kirkpatrick (1995) argues that the orthodox arguments concerning the role of trade policy as the determinant of industrial performance are seen in the major role of creating price incentives. This is because liberalisation and a neutral incentives structure between import substituting and export activities is expected to yield both static and dynamic effects, static in form of technical efficiency and dynamic in the form of switching process. However, many models, both for planning and explaining the development process, according to Krueger (1978), have made a foreign exchange central to determination of the growth rates. This focus is on the role of foreign exchange (forex) in complementing domestic savings needed to support domestic investment. The effect on economic growth will be via an increased volume of exports and reduced imports due to liberalisation and devaluation respectively. It is argued that if trading partners removed tariffs, we expect the market to expand which will ultimately lead to growth of exports. Exports are also viewed as a stimulus to greater capacity utilisation, greater horizontal specialisation, increased familiarity with absorption of new technologies transmitted through trade, greater learning by doing, as a result of the increased market size and output levels and stimulation effects of having to achieve international price and quality. Expanded market economies of scale enable a producer to cast or spread a “net” widely on various consumers who may be helpful by sending back comments on how to improve the quality of the products. Since tariffs tend to be reactionary, if a country adopt liberalisation policies, its trading partners will also do away with tariffs the moment one country scraps trade restrictions, so the market size will expand.

However, Trade liberalisation alone is not an answer. For this to be successful, there is a need to liberalise the financial sector, so that exporters can have ready capital for re-investment; nuisance taxes have to go, so that most of the foreign exchange earnings are retained by the exporters. This creates incentives to them. Macroeconomic stabilisation also has to be enforced so that inflation will not impede planning, and if this creates confidence in investors, exports should increase.

Pro-liberalisation economists have argued that more open economies are more efficient in absorbing exogenously generated innovations, since, without barriers, not only will this increase the volumes of essential imports, but it will also facilitate the entry of new technology which developing countries are able to absorb and assimilate easily in order to expand their manufacturing base. Edwards (1992), finds strong evidence supporting the hypothesis that, with other things being equal, more liberal economies tend to grow faster than those which are not. He calls this learning by doing type of process, “technical progress ” where more contact with new commodities and technology enhances efficiency, which result in higher production. He argues that if the rate of technical progress is positively affected by the gap between the stock of the world and domestic knowledge with respect to the foreign source of technological improvement, then the country’s ability to appropriate world technical innovations depends positively on the degree of economic trade liberalisation. Therefore more open economies have an advantage of absorbing new ideas from the rest of the world. He finds that countries with more open and less distortive trade policies have tended to grow faster than those with more restrictive commercial policies. His results are in conformity with the catch up theory effect. Wha Lee (1992), points out that international trade is perceived as a vehicle through which foreign inputs are provided to domestic production. According to him trade distortions caused by tariffs and exchange rate controls decrease the long run growth rates more significantly in a country that needs to import more.

Therefore, it can be summarised that liberalisation enhances international trade which provides comparative advantage and also provides an additional source of competition to domestic firms. Subsidies to ailing industries, no matter how much they may alleviate economic distress in the short run, represent an effort to decelerate growth, reduce incentives for mobility and lock in resources in the inefficient industries that should contract in the process of economic growth.

However, there is a problem of measuring the benefits of trade liberalisation, which even Kirkpatrick (1995) acknowledged. Kirkpatrick admits that measuring of trade liberalisation benefits is a difficult and frustrating task. It involves two considerable methodological problems; it is important to assess the extent to which the World Bank’s conditions have been adopted. This is because most of the liberalisation policies of LDCs are not unilaterally adopted, but imposed, and therefore may lack consistency. The other problem is the assessment of the reforms that were implemented. It is complicated by problems of separating causality from association. According to him, it is difficulty to establish counter factual, and separating out the effect of multiple influences on economic performance.

Larry Sjaastad (1982) noted that the economic liberalisation that swept Southern cone during the 1970s and 1980s was a clear reaction to the failures of preceding economics of protectionism. Uruguay and Argentina, once prosperous nations had fallen on hard times by the mid 1970s. Real per capita income in Uruguay had been declining at a rate of 1 percent in 20 years. Chile, though never a prosperous country, was crippled with a continuos fiscal deficit and an inflation of 1000 percent. Their economies were characterised by inefficient state enterprises, which despite massive tariff protection, regularly required subsidies to sustain their operating loses. Price controls, tariffs, subsidies and export taxes severely distorted relative prices with much of the private enterprises devoted to production of luxury goods. Regulatory bodies administered import duties and quotas, interest rates, credit allocation and wages. The monetary and financial sectors were dominated by the state banks with special rediscount privileges at the central bank. Their economies were in a bad state. Therefore all these countries introduced liberalisation programmes in the1980s, but their results were disastrous. The Southern cone experiences, according to Sjaastad (1982) are widely interpreted as evidence of the failure of economic liberalisation.

Zambia like Argentina, Uruguay and Chile had almost the same type of economic policies, with nationalised economy before the liberalisation program which swept the country in 1991. Its economy was characterised by inefficient state enterprises with massive tariff protection in order to enhance import substitution industries. Price controls, nuisance custom duties, subsidies on production and consumption, export taxes, foreign exchange controls. Private enterprises had to declare all their export earnings to the central bank, as it was illegal to hold forex. Zambia, before privatisation and liberalisation, had regulatory bodies to administer import quotas, interest rates, credit allocation and wages. All the macroeconomic factors were determined by political decree. The monetary and financial arenas were dominated by the state banks, with special rediscount privileges to the Bank of Zambia. According to the advocates of the liberal markets, poor rates of growth, massive inflation and balance of payment problems experienced by LDCs, and Zambia in particular, during the 1970s and 1980s were because of the rising burden of public spending through parastatal companies, excessive price distortion and inward looking trade policies which are the order of the day in the planned economy.

Zambia today, according to the World Bank Report (December, 1997), has the most liberal and least nationalised economy in Africa. In 1991, more than 80 percent of the economy measured as a percentage of GDP was state owned. Now, as at 1997, more than 80 percent of the economy is in private hands. The one party state, which ruled Zambia since independence in 1964 from the British, chose the path of nationalisation and centralisation. According to the World Bank report (Dec., 1997), this was ruinous. The government and international organisations such as the World Bank and IMF believe that macroeconomic stability and growth are being achieved after years of inflation and decades of stagnation. According to them, the foundation for higher growth have been laid by liberalising the markets, broad tax and tariff reforms, financial sector reforms and by privatising the state enterprises. The key element in the government’s programme has been the reduction of inflation, which has fallen from 200 percent in 1990 to 20 percent in 1997. This helped the GDP to grow by 6.4 percent in 1996/7 period.

This dissertation investigates whether there are genuine reasons behind economic liberalisation and related austerity measures, using Zambia as the case study, by describing and comparing its economic performance before and after liberalisation. We then use panel data and cross-section regression analysis on selected African countries to see if the econometric analysis results support the calls for liberalisation measures.  The dissertation is organised as follows Chapter 1 has provided introduction and theoretical background to economic liberalisation. In chapter 2, Zambia’s detailed account of its pre-liberalisation economic policies is presented. Chapter 3 looks at post-liberalisation economic policies of the country. Chapter 4 presents econometric analysis and empirical results, and Chapter 5 concludes the findings.  It should be borne in mind that this study is not about the direct measurement of the effects of liberalisation policies on economic performance. This is due to the problems cited by Kirkpatrick (1995) and the unavailability of many of the data required for undertaking a more detailed study of the country.

CHAPTER 2

THE PRE-LIBERALISATION ECONOMIC POLICIES OF ZAMBIA

Zambia’s economic history traces back to the colonial era. Zambia a former British colony was known as Northern Rhodesia. The British’s main emphasis was the mining of copper, which they exported as a raw material. Zambia obtained independence on 24 October 1964 with an economy characterised by an industrial enclave based on copper mining using British and USA capital (Hawkins, 1991). During this time there was little or no significant investment apart from the mining sector, and before independence most of the copper profits were expatriated and very little was re-invested. However, in the first years of independence 1964-69 the economy unfolded and great progress was recorded (Turok, 1979). The country had a GDP per capita that was amongst the highest in Africa; according to Turok, 1979, it was just below that of South Africa. Copper prices were high and the industry was profitable, so every indication was towards rapid growth and development. The economy was more of a capitalist than a state led.

2.1-Post-Independence Economic Reforms

Few years after independence in 1968 and 1969, President Kaunda, with the then ruling United Nation Independence Party (UNIP), initiated reforms. According to him, this was to lead state control of the whole economy to enhance growth and equal distribution of income. It was also aimed at empowering the indigenous people to control and decide the destiny of their country’s economy. This was characterised by developmentalist philosophy (command economy) and recognition of political realities (Turok, 1979).

The 1968 and 1969 Mulungushi and Matero economic reforms were meant to repossess the foreign economic and business interests, which now became under the state control. The UNIP government also introduced indigenous import substitutions in the industrial sector, this was aimed at reduction in the dependence on foreign manufactured goods. Although a small indigenous and foreign private sector was left, a large public sector was created and maintained by copper revenue and protected and supported by government controlled markets. As a result of the state controlled type of the economy, which emphasised the creation of industrial capacity, commercial agriculture perished and the private sector was crowded out.

According to Turok(1979), it is commonly accepted that the weaknesses of the economy, which levelled off in 1972 and then began declining, cannot be solely blamed on the falling copper prices, though this might have been one of the contributing factors. This is because, even by 1974 before the collapse of copper prices, foreign exchange had started posing a serious constraint on economic development. A major explanation lies in the economic policies of the day. Despite its inheritance of highly concentrated and buoyant foreign owned mining enclave, the Zambian government was determined to use the state for development. The state sector share of manufacturing output was growing almost every year. Four years after Mulungushi reforms in 1968, in which the government announced its acquisition of major companies it was 53 percent of total manufacturing output and this was concentrated on essential consumer goods required by Zambia. However, despite its size and scope, the state sector which included parastatals had not established an integrated economy with forward and backward linkages, parastatals, though they were import substitution industries (ISI) deeply depended on essential inputs from abroad. The government intervened extensively and imposed a number of restrictions on the private sector, while parastatals’ decisions were made by political leaders and ministers who sat on their boards. The parastatals were to be organised on lines of the country’s philosophy of ‘Humanism’, which was coined by the President as an African socialism. There was intervention in pricing policy, which seemed to be concerned more with social welfare than with pursuing economic development goals.

In 1970, barely two years after the Mulungushi and Matero reforms capital expenditure was only growing at a marginal increase, while consumption expenditure soared. Table 2.1 shows the higher government consumption and lower gross domestic consumption from 1964-90. Due to little emphasis which was made on capital expenditure, in 1973, value added in manufacturing recorded only a marginal increase from 106 Million Kwacha to only 107.5 Million Kwacha in 1976, compared to 480 Million Kwacha in 1965 a year after independence (GRZ Economic Report, 1977). Value added by manufacturing in 1978 real terms was 15 percent lower than 1974. Hence by the mid 1970s, the bells of economic doom were loud enough in politicians’ ears, but pretended to be deaf. They instead nurtured and guarded the inefficient parastatals and the command economy. To make the situation worse, some more parastatals were created and added to the list of inefficiency. After 1970, a substantial part of Zambia’s economy was dominated by parastatal organisation, about 60 percent of the economy in terms of GDP was now in parastatal hands. Most larger companies which had been run and owned by foreigners came under government control through Industrial Development Corporation (INDECO), an agency of a government holding company.

These newly nationalised companies were especially active in such industries as food processing, textiles, auto assembly and mining. Through large- scale capitalisation, using copper revenue, these parastatals became the pillar of the Zambian formal sector. They employed 1/3 of the workforce and maintained their employment levels even during the recession, for political reasons. For instance during recession, the number of employees in private manufacturing fell from 27,370 to 23,390 in 1977, about 14.5 percent reductions, while in the parastatals they remained constant over the same period (Turok, 1979). In these parastatal bodies there were rampant and continuing reports of corruption, inefficiency and mismanagement, but government decided to give it a deaf ear. The Kayope Commission (1976), revealed catastrophic failures in major parastatals and widespread misappropriation of funds, but still the government shelved the report, and continued to give subsidies and protection to these inefficient parastatals.  Real Gross domestic fixed investment declined as there was no significant capital formation. The emphasis was put on government consumption while the economy continued   to decline. This can be seen in the decrease in capital expenditure which fell in 1979 to its lowest since independence in 1964 as Table 2.1 shows. This shows that INDECO, on which the government relied as agency of intervention was performing poorly.

At independence, Zambia’s economy had poor foundation, domestic production supplied less than one third of the local market for manufactured goods, while total manufacturing goods accounted for only 6 percent, the same setting continued even 10 years after independence, domestic economy was not integrated lacking forward and backward linkages. In trying to enhance domestic integration the government after its 1968 Mulungushi and 1969 Matero economic reforms bought out the private share holders in INDECO which was established in 1965, but reinforced after these reforms, and obtained a larger share of profits from copper by means of higher taxation, which was then used for public investment.

TABLE 2.1: GOVERNMENT CONSUMPTION IN COMPARISON TO GROSS DOMESTIC FIXED INVESTMENT 1964-90 (IN KWACHA MILLION)

Year              Government consumption                     Gross domestic fixed

investment

1964

309.2

76.2

1965

383.4

120.4

1966

435.8

175.8

1967

558

225.8

1968

594

264.7

1969

589.4

253.6

1970

717.5

279.8

1971

801.9

264.7

1972

857.3

381.1

1973

900.7

426

1974

1083.1

560

1975

1241.8

510

1976

1337

483

1977

1547.8

437

1978

1789.3

450

1979

2045.6

65.8

1980

2473.5

566

Kansieo.com

Drvsrs asked:


A) PSYCHO- ECONOMICS.

In fact individual (with psychological impetus), cumulatively form a society. The society functions and formulates certain needs, disciplines and way of life (motivating sociology). Many societies with diverse  social motivations are enclosed by a nation with certain and regulations (welfare, law and order = Internal economics ). All the nations in the north, east, west and south (NEWS) on this earth is this World (international form attempting to be in peace or in war (International economics

Hypothesis#1 – Psychology of the individuals are cumulating towards the Economic stability components of the world, upwards. Psychology is “micro” and Economics is a “macro”

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B) PHYSO-ECOMONIC IMPACTS. 

If the psychology of individuals in a nation are disturbed, then the impact at the national and international level is unpredictable. A   productive disturbance could leads to welfare and economic development. A destructive disturbance could result in destruction, Chaos and  economic destruction. But the chances for these 2 disturbances exist in 50 : 50 probability.

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1. POSITIVE PSYCHO IMPACTS

a).If the individuals in a rural area, psychologically start feeling that a large family (with many children) is not suitable for their family income, they will sacrifice their natural motivations and reduce the number of children per house hold. Cumulatively, his will bring good for the national economy (less demand for the  essential and other needs, due to controlled population).

b) If the farmers in a village, psychologically start feeling that joint farming is profitable than cultivating pieces of lands, they will pool their lands, forgetting the family and group differences. There will be more production and quality of agricultural produce at lower costs. Ultimately the national economy develops with this type of motivation.

c) If the urban people (in cities)  psychologically start feeling (both at home and office) that we should switch off  the lights and  fans, when there is nobody in the room,  then they will get an automatic urge  to follow this habit. Ultimately it will lead to the conservation of  power at the national level, seeding an essential component in economic development.   

d) These could be extended to an unending list of positive psychology in multi areas leading to the Socio-Economic development of every nation.

e) EXAMPLES. 

** Mahathma Gandhi (1869 – 1948), won the Indian freedom, by pooling the positive psychological feeling to have “Swaraj” (From 1915 to 1947) among the Indians that “We Indians should not be ruled by a foreigner – British”.. He was attempting a similar psychological feeling against “apartheid” for (Africans + Indians), in South Africa, from 1893 to 1914, where he was a practicing lawyer !! But failed because all the local + expatriates do not want to antagonize the Britishers. (See at www.drvsrs.com/sedjr.htm).

** Indira Gandhi (1917 to 1984. Former PM of India.) implemented a 20 point economic program during the period 1974 to 1976, to satisfy   the basic needs of the people (food, shelter and clothing) and tools to take faster economic decisions. This provided a psychological satisfaction to the public and helped the nation to be more disciplined and economically developed during that period (See at www.drvsrs.com/igandhi.htm) 

Hypothesis#2 – Psychological support of the people is a crucial factor to attain any economic, political and social targets.

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2. NEGATIVE PSYCHO IMPACTS.

a) If all the people in a location psychologically start feeling that the banks are unsafe to keep their money, there will be a rush to with draw mass money. All the bank’s  fiscal position will shatter. This will crate a direct impact in weakening the national economy.

b) If all the people in a location psychologically start feeling that there are indication of famine in the year, they will start hoarding all the  food grains and other needs, expected to be affected by the famine. This will offset the whole economic plans of the nation. In addition, it will offset the demand and supply position of  agricultural and affiliated fields leading to an economic chaos !!! 

c)  The list of economic failure due to deserting villages, discontinuing agriculture, closure of business houses and many more economic failure can happen, if the psychological attitude of the domestic people starts degrading.

d) EXAMPLES. 

** In early July 2008, IndyMac Bank, a California-based institution, failed. News images showing customers lined up outside the bank’s branches to make withdrawals evoked scenes from the Great Depression, the last time in American history when bank failures played a significant role in the country’s economic landscape. Unfortunately, the worry IndyMac’s failure caused may have left many people unclear about what it means for a bank to fail – and whether or not they should be worried about their own financial institutions. As more and more people make large withdrawals, the bank loses even more cash and becomes less likely to survive the crisis. In extreme cases, even a false rumor that a bank is struggling could lead to a bank run and ultimately a bank failure.

** Psychological impact of  Foot ball loss deserted FORNEY on Saturday the December 11, 1966  at 3 p.m.. “Forney, Texas., USA, became a ghost town. The reason for it all, strangely enough, was a football game 200 miles away in Austin. That is where Forney’s beloved Jackrabbits played Sonora in the Class A state semifinals Saturday night – and that is where the mass exodus of Forney citizens converged.. But alas, Forney’s football faithfuls were souls of heart breaking disappointment before the day was through. Forney’s fine team lost to Sonora 39-28”. This had a high negative impact on the business, productive and economic sectors of Forney. It tilted the country planning of Texas in particular and U in general.

** Mahathma Gandhi (1869 – 1948) removed the “Jewel in the crown” of the British empire by winning the freedom to India only by  directing the psychological will power against the British rulers. He propagated the concept of “Swadeshi” to use domestically made items (cottage industry) and boycott british goods. This shattered the british  supplies by drastically reducing the Indian demand for many  essential commodities.  

Hypothesis#3 – Psychological eruption of the people can shatter  any stable economic, political and social infrastructure. .

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C) PSYCHO-ECONOMICS – AN UNIFIED FORCE

Cumulative Psychology (P) of the individuals and the Economic status (E)  of a nation go together.

E is proportional to K X P. Where K is the constant of  proportionality.

K varies from country to country, changes with time (T) and attitudes (A) of  persons for a selected location.

Or for a nation K is proportional to (A, T). Or psychological status of the people in a nation is unified with the economic development status.

a) Developed nations (UK, USA) are surviving with the positive psychological support of their domestic population. But Americans have started loosing their psychological support to the Federal  government, after the activities of past president George Bush, during his tenure .

b) Developing and Under developed nation are never reaching a developed status, because the psychological force in the  domestic population is weak It is due to inadequacy in the basic needs – Food, Clothing and Shelter. Also the  promotion of “Apartheid” among the people by caste, community, se x, income etc.. and promotion of illiteracy, by the elected parliamentarians to keep them in power).

c) After the end of second world war in 1949, the Germany was divided into East Germany following the principles of communism and East Germany on American Republic socialism (In May 1949 divided by the Berlin wall). The people in both partitions were psychologically subjected to the politico-economic impact in their respective shelters. On 9th November 1969, the East germans  broke the Berlin wall and joined with their Eastern partners. (Survival for about 20 years). Similarly the communist forces in Europe built an empire called “Union of Soviet Socialist Republic (USSR)” in 1922. It was an equal and opposing force to USA in the West. But, it started dwindling and officially dissolved on 31st December 1991 (Survival for about 69 years). The amazing feature is the exclusive state oriented communists sacrificed their principles and adopting the diametrically opposite Capitalism with US assistance and collaborations. !!

Both were due to the “state oriented rule of communism, without any care or incentive for the individuals and their psychological urges”. 

 Hypothesis#4 – Psychology and Economics are unified,   functioning and keeping the international balance as  “Psycho-Economic Force”

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D) FURTHER THOUGHTS & REFERENCES.

Economics embraces all faculty and any subject

(See at  www.drvsrs.com/smart.htm)

“SOMA BY DRVSRS” at  http:/drvsrs.com/store/page1.html#10

(SOMA = Social Management)

“SED BY DRVSRS” at  http:/drvsrs.com/store/page1.html#9

(SED = Socio-economic Development

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