(IEESEA) The Impact of the Environment and Economy of Southern and Eastern Asia Production, Distribution, & Consumption Lesson

The Impact of the Environment and Economy of Southern and Eastern Asia Production, Distribution, & Consumption

Southern and Eastern Asia have been active traders on a global scale since the beginning of time. The understanding of how the production, distribution, and consumption of goods increases, and economies in this region are prospering is affecting the region not only on a local level; but, globally as well. As we dive into the different countries that make up the region, you will see that they each have a diverse take on economic policies. India and China greatly differ; yet, they are both considered prosperous economic countries in the world.

The Guide to Economic Reasoning

The National Council on Economic Education has created a list of principles to guide students as they study economics. They call this list "The Guide to Economic Reasoning." We are going to use their list to guide us through our study of Asian economies.

The principles on this list are straightforward and can be applied to lots of things, not just economics. Before we apply them to economics and Asia, let's apply the principles to you. This will help you fully understand and apply them.

• "People choose." You are making a choice right now. You are choosing to read this chapter.
• "People's choices involve costs." Someone paid for you to take this class so that you could read this chapter. Not all costs involve money - there is such a thing as an opportunity cost. By reading this right now, you are not doing something else. You are not cleaning your room, catching up with a friend, or completing an assignment for another class. Your choice to read this lesson has cost you the chance to do something else right now.
• "People respond to incentives in predictable ways." An incentive is defined as a thing that urges a person on. What urged you on to read this chapter right now? Did someone tell you to sit down and read or did you decide that by reading this chapter you would improve your knowledge and your grade? Either way, an incentive was present that made it pretty predictable that you would read this.
• "People create economic systems that influence individual choices and incentives." In the American economy, in many cases, the more education a person has, the higher their paycheck will be. Do you think that might influence you to stay in school? Economic systems do not just happen, people make them. Depending on the type of economic system you live in, you will make certain choices. An economic system that rewards education will, in turn, influence you to get an education.
• "People gain when they trade voluntarily." In reading this lesson, you are trading your time in return for gaining something. Hopefully, in this case, it is knowledge. Have you noticed that when you do something voluntarily- meaning you choose to do it- you get more out of it than when you are forced to do something? For example, if someone said to you "Give me your money or else!" and you handed the money over, you would not be trading voluntarily. You would have been forced into the trade and probably would feel resentful. But if someone said "Give me some money and I'll give you a carnival ticket" and you chose to participate in that trade, you would have gained something by doing so.
• "People's choices have consequences that lie in the future." By reading this lesson, you are planning to reap rewards in the future. The plan is you will do well in your class and will have learned information that will help you make decisions about your future.

Let's look at the list again. This time, instead of applying the principles on a personal note, let's apply them to the different economic systems in the world.

People Choose:

• Traditional Market Economy
  • A Traditional Economy is one where personal traditions and cultures decide what to produce and how much. Therefore, a family or small community is responsible for making the decisions regarding production. Subsistence Farming is associated with the Traditional Market. As such, the individual's or community's needs and means influence the decision-making process as much as traditions and cultures. There are not many examples of Traditional Market Economies left in the world, but small, local ones can be found in some rural areas.
• Command Market Economy
  • A Command Economy is one where the government makes all of the decisions regarding what will be produced and how it will be distributed. Socialism is associated with a Command Market Economy. The government determines what each citizen's share will be from its resources and, in some cases. may even determine what the citizen's role will be in the market. China, during the years of Mao Zedong's Great Leap Forward, was an example of a pure Command Economy.
• Free Market Economy
  • This type of economy is the exact opposite of a Command Economy. A Free Market Economy is one that is dominated by the laws of supply and demand. Capitalism is associated with a Free Market Economy which relies on the behavior of the individuals who demand a product and the individuals who supply that product in the marketplace. The best example of a true Free Market Economy existed in the United States near the end of the 19th century.

People's Choices Involve Costs

People Respond to Incentives in Predictable Ways

Review the following to learn more about Economic Incentives in Southern and Eastern Asia.

• Hunger - When many people of a region are going hungry, through no fault of their own, they need help. A new economic system might help bring food to the region.
• Poverty - When many people of a region live in abject poverty, they might look to create a new economic system to help them rise out of poverty.
• Unemployment - When the current economic system cannot provide enough jobs for the people of a region, they might look towards a new economic system that will grow and provide jobs for the unemployed.
• Building of Infrastructure - When a region needs to be developed, someone has to pay for it; sometimes people will choose an economic system in the hopes that new money will flow in and development will take off.
• Health - This is similar to hunger. When enough people are looking to improve their health and life expectancy, they might turn to a new economic system to help them in their quest.
• Education - This is a topic that does not come cheaply, but is one that is connected with a nation's development and an individual's achievements. People might look to form an economic system in order to increase their incomes so as to provide an education for their children.
• The Future - Essentially, everything that was mentioned prior to this page stresses a desire to improve the future (whether for self or later generations). People will choose to stay with the old or create a new economic system that they believe will provide the best future.

People Create Economic Systems that Influence Individual Choices and Incentives 

 

 

People Gain When They Trade Voluntarily

Click on each tab to learn more about Economic Trade Gains

 

People's Choices Have Consequences that Lie in the Future

 

Notice how the decisions made during China's economic reforms following Mao Zedong's death in the mid-1970s have affected China's economic growth in later decades. Choices were made and the future was affected.

 

Notice how the decisions made during the Great Depression in the United (the time is highlighted in pink on the chart) affected the United States' growth in later decades. Choices were made and the future was affected.

Personal wealth and life expectancy rose around the world following World War II. As you learned in the previous chapter, this was the time when many nations in Southern and Eastern Asia experienced great changes in their forms of government. New governments will often bring in new economic systems. Now that you have a broad understanding of the economic systems that most people choose to implement in their nations, let's learn which nations in Southern and Eastern Asia chose what form of the economic system to use and how that impacted each nation.

Neighboring Nations

 

Read the information below to learn about the economies of the nations neighboring China, North Korea, Japan, and India.

Roughly two-thirds of Southern and Eastern Asians earn their living from farming. In the most fertile areas, every bit of usable land is put to agricultural use. But agriculture isn’t the most efficient way to make an economy grow-so most nations in Southern and Eastern Asia are trying to improve their industrial markets.

Examples of every form of economy can be found among the nations of Southern and Eastern Asia - ranging from the Command Market side of the economic spectrum to the Free Market side. But in the last two decades, most nations have spent a lot of time and energy on economic reforms that have moved away from the purely Command Market. It is the intent of most of the nations of Southern and Eastern Asia to experience economic booms without experiencing economic busts.

Japan experienced, what is referred to as, the “Japanese Economic Miracle” from 1950 to 1990. Their success inspired those nations with leanings toward the Command Market to revise their economies towards a more Mixed Economy. But Japan wasn’t the only source of inspiration for Asian nations looking to improve their economic standing. The “Four Asian Tigers” have also encouraged reforms through their example. The “Four Asian Tigers” consist of Hong Kong, Singapore, Taiwan, and South Korea. They have highly developed economies that lean more towards the Free Market style and are known for their success with industrialization and economic growth. Interestingly, Hong Kong is part of the People’s Republic of China but is located in a special economic zone.

As an example of the Four Asian Tigers’ economic influence on Southern and Eastern Asia, you can look at the economies of the “Four Asian Cubs.” They consist of Indonesia, Malaysia, the Philippines, and Thailand; and are so named because they have copied the “Four Asian Tigers” economic formula to focus on exports and free trade. The “Four Asian Cubs” have adopted Free Market principles that have allowed for economic growth. But they also have adopted another strategy that has drawn international businesses to their borders.

Outsourcing is contracting out of business to a third party and offshoring is the relocation by a company of a business process from one country to another. Around the world, the most highly developed economies exist in nations with labor laws that include minimum wages, benefits for employees, and maximum work hours. Employing people in those nations can be costly for a company-at least more costly than employing people who live outside of those nations. The European and American companies find it cheaper to employ Asians than to employ Europeans or Americans. Therefore, many European and American businesses have started outsourcing or offshoring some of their jobs to the people living in Southern and Eastern Asia.

As of right now, three of the top ten nations with the highest Gross Domestic Product numbers come from Southern and Eastern Asia, but if you divide the GDP by population only one nation from Southern and Eastern Asia is in the top ten. What does this mean for Asia? It means that the nations of Southern and Eastern Asia and the 60% of the world’s population that live in those nations have a long road to travel.

Challenge

Take Away

Economics understanding in Southern and Eastern Asia goes beyond knowing whom they trade with and what they are trading. Economics is the driving force of countries and establishes the standard of living for their populations. Literacy rates, the number of people in a country who can read and write, even have an impact on the economy. Places where more people can read often have a higher Gross Domestic Product (GDP), the total value of goods and services produced in a country. The higher the GDP of the country the higher the average income of the people in the country. As we have looked through the region, we have seen that China, India, and Japan have some of the highest GDPs in the world. This shows that Asia’s economic prosperity is influencing not only their region of the world but those with who they trade as well.

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