Archive for March, 2010

Some Ideas for the Seminar

Seminar Question: : Is capitalism so deeply flawed that all attempts to ensure the public good are doomed to failure?

Definitions:

Capitalism: An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

Public Good: A good that is non-rivalrous and non-excludable. A good or service that is provided without profit for society collectively.

Examples of Public Good:

  • Health Care System
  • Military
  • Police
  • High Road

Health Care System in North Korea

N Korea healthcare ‘near collapse’: Click Here

Main Point: North Korea’s healthcare system has failed. It does not have medicines in hospitals to cure its patients. Also, it lacks sufficient medical instruments.

North Korea’s health care system charges their people no fees. It is totally free. It is surely a great contrast from United States, which only started to debate whether they should have laws related to health care passed or not. However, there’s a big flaw in North Korea’s medical system. It simply does not have enough medicine and medical instruments to take care of the patients. Virtually, there is no point in going to the hospital because there simply are anything to cure with.

Health Care System in Cuba

Wikipedia: Click Here

Unlike North Korea, Cuba’s health care system is well-developed. It has advanced medical support for its people free of charge. Cuban hospitals are advanced as any other hospitals in United States or Europe. But, they provide medical surgeries with low fee compared to the hospitals in United States or Europe. So it attracted many health tourists for 20 years.

Sum: The example of North Korea’s medical system seems to imply that communist countries cannot provide medical service. However, looking at Cuba’s example, it contradicts to this idea that communism cannot support medical system.

<Pure Capitalism-Mixed System-Pure Communism>

There aren’t countries with pure capitalism or communism in the world. Even North Korea isn’t a pure communist country because it allows South Korean factories to do business in their ‘special economic district.’ Most countries are in the middle part where they mix a little bit of capitalism and little bits of communism.

US, which is the closest to pure capitalism, has failed to support medical services. Its citizens have to pay medical fee on their own. Pure capitalisms always fail to ensure public goods. Socialist (a capitalism but has some aspects of communism) countries such as France has successful medical system. It takes 40% tax on its citizens and use that tax on the public goods. Capitalist countries often have low taxation on its citizens to ensure their economic freedom. However, it makes it difficult for the country to establish a good medical system. As it has low taxation, it’ll be hard to provide government-owned hospitals. Instead, privatized hospitals dominate the medical market of the country and charge extremely high price for its medical service. Even though North Korea would have 100% tax on its people, as its economy is extremely feeble, it does not have any money to do anything. It’ll virtually have no money to establish hospitals and buy medicine even though it taxes its citizens 100%. So public goods can only be supplied when the economy has a firm foundation. However, even though the economy is strong, like US, the tax rate is so low that it cannot support medical services. So it is very important for countries to be communistic when it comes to public goods. However, not so communistic that you end up being like North Korea.

Capitalism is the best thing out there for growing markets ands economy. However, it does not ensure public good to be provided to the people. It is wise for countries to change their economic system to socialist system as soon as they achieved the goal of well found economy by capitalism.

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Pollution in Kobe, Japan – Taxation, Subsidization, and Tradable Permits

Voice Thread Presentation: Click Here

Although Kobe, Japan is not on the list of world’s top 10 polluted cities, southern part of the city is heavily polluted.  Southern part of this city have over 15 factories producing ships, steel, electronics and cars. It is surely a heart of Kobe’s economy and finance, however, it is causing a negative externality of air pollution.

Factories are concentrated on the southern part of Kobe, Japan.

These heavily-industrial factories release unknown chemicals into the air and pollutes the city severely. As a result of pollution, the inhabitants living around the area can suffer from several sever health problems such as respiratory problem, cancer, nausea and etc.

Then, how could we possible solve this problem? There are three solutions to solve the problem. They are taxation, subsidization, and tradable permits.

First solution to Kobe’s pollution is taxation. As you see in the graph, the pollution in Kobe is the negative externality caused by manufacturing of ships, electronics, and so on. Originally, this was not considered as a ‘cost’ to society, so this cost was not reflected. So the supply curve is on MPC initially, however, we can tax the producers to move the quantity supplied back to the optimum point of Q. The supply curve will go up to the curve of MSC which rightfully reflects the social cost of pollution. This way, the government can expect the effect of reduced pollution in the city of Kobe.

However, there is one draw back to this solution. The consumers would have to buy the product at much higher price from P1 to P2 compared to before.

The second solution is to subsidize firms that are employing more environmentally-friendly method of manufacturing their products or the firms that are developing eco-friendly technology. By subsidizing these kind of firms, the level of pollution in Kobe could decrease significantly. As you see in the graph, by subsidizing these firms, the price of these firm’s products will decrease from P to P1, and the quantity demanded will increase from Q to Q optimum. Increased demand of these products will increase the positive externality of reduced pollution in Kobe. However, this method is uncertain because we cannot quantify how much positive externality it will cause.

The last solution is issuing tradable permits. Tradable permits are permits issued by governments allowing how much of pollution firms can create. If a firm exceeds the pollution rate it is suppose to create, the firm much buy a tradable permit from other firms. If a firm succeeds in reducing pollution and they have extra permits, these firms can sell the leftover permits to other firms that exceeded the pollution level. By issuing tradable permits, we can lower the pollution level significantly. Also, it encourages the firms to be efficient and lower the pollution level. If they lower the pollution level, they can sell their extra permits and gain profit. Many countries are told to be using this system to reduce pollution.

In conclusion, taxation, subsidization, and tradable permits are possible solutions to the pollution in Kobe, Japan. The local government should now take action to reduce pollution in Kobe and make it a pollution-free city.

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