The Future of Currency
In the present day, the world’s economy is ever-changing and adjusting. Many different reasons control the reasons for this. The future of currency is something that can only be predicted and is not guaranteed. However, there are many determing factors behind the changes that can take place. Asia and North America are two continents that have economies that have recently changed or are in the midst of change.
World War 2 drew a hard blow and left a serious and lasting effect to many Asian countries. This however, did not hamper the growth of countries such as China, Japan and Vietnam as their governments were taking serious steps to recover economically. Thus, the global market cannot deny a place for these ‘Asian Dragons’, because these countries are growing at a tremendous pace to the extent of being capable in emerging as global market leaders.
China’s capitalism and boom was born when their president, Deng Xiaoping permitted the provinces to dismantle their communes and collective farms. This led China to venture into free-market economics, although they were still under the communist political system. When President Deng announced that they needed Western money and expertise, China flung their trade doors wide open and China went on a capitalist drive without ever looking back. By mid 1960’s, the Chinese Revolution settled down to the job of ruling China. Its main goal was essentially nationalist: a prosperous modern economy. While there continued to exist substantially economic inequalities, distribution of wealth was probably a bit more equal than in most Western countries.
While there were great variations in income between different villages, and between different jobs in the urban sector, the overall averages showed a clear pattern: the cities were much richer than the countryside. Most capital investments were going into urban industries. The urban workers, using considerable amount of heavy machinery, had a much higher average level of productivity compared to the rural workers. The natural consequence was, for the city people, an average income level twice as high as that of the people in the countryside. The most obvious way to attack this poverty problem was to increase production, in all sectors of the economy. Though the easiest way to increase production was to increase capital inputs, China could only afford a limited amount of capital construction. In accordance to this, China went on a construction binge. Whole factories were purchased from abroad while others were built with local resources. By 1978, the frenzy for new projects reached a level that reminded some people of the Great Leap Forward. In an effort to promote agricultural production, the government released many of the restrictions on the ‘spontaneous capitalist tendencies’ of the peasantry. (173) In the late 1980’s, the government decided to expand the scope of private marketing. The next step was to increase the amount land assigned to the peasants. The peasants were now not responsible to the government for the use they made to the private plots. They simply could grow what they wished, for the sale to the government or to private markets. This led to furious rebuilding and inflow of foreign investments. All this enabled China to remake itself into Asian’s hub of finance, trade and culture.
By 1984, they were producing more than $1 million worth of rice and a range of side products, including rice wine. Their residential earning was up to about $200 a year. (Prager 52 ) This meant that they could begin replacing their mud-and-straw hats with solid brick houses. Shanghai today is a vast construction site with more than 20,000 projects, with 27,000 companies building bridges, tunnels, flyovers, ring roads, hotels, villas, golf courses and also public housing. This sparked national growth of about 10% a year.( 53 ) The Chinese now are going home with fat wallets, stocks, bonds and large bank accounts. Banks are reporting that savings have increased sixty-fold and is still growing. This has led China to join the world economic community and has become the globe’s third largest economy. China is now ranked 11th in the world in exports of trade goods. (54)
Off the coast of China, there was another growing country. Japan recovered tremendously well after the bombing of Hiroshima in World War 2. Under post war conservative governments, Japan made a remarkable economic recovery. American aid of $2 billion gave an initial boost and then the Korean War acted as a further stimulant by creating a demand for military hardware. (Rich 191) By the early 1970’s, Japan was the world’s third biggest steel producer, one of the biggest ship builders, and ranked very high as a manufacturer of general engineering and chemical goods. Japan’s motorcycles were winning import races in Europe, and Japanese cameras, transistor radios, cars, sewing machines, TV sets and optical goods competed successfully in the global market.
Japan’s economy is second only to the U.S in absolute terms with a G.D.P of $3,385 billion dollars. By 1987, the Japanese were richer than the Americans with per capita income of almost $20,000. ( World 247 )This was because the Japanese saved five times as much from their paychecks as did the Americans. Lower military spending, a consequence of the Yoshida doctrine, was an essential contributor to Japan’s economic advancement. Japan net assets rose to about $1 trillion and thus making Japan effectively the world’s banker. In the 50’s through to the 70’s, the Japanese economy was averaging 11% of growth. (250) The Bank of Japan backed commercial banks in providing capital for investments.
Economic growth rates were the highest in the world based on high levels of savings and investments, rapid productivity growth and remarkable social consensus.
Japan was willing to forego immediate reward for long term benefits. Therefore, in large sections of world manufacturing, notably electronics, Japanese producers had no rivals. Manufacturing was the mainstay of the economy, improving quality and price. Japan has continually upgraded its economy and shifted from heavy industry with high-energy requirements to high technology, high value added industries such as semi-conductors, industrial robots and computers. Japanese manufactures than began investing heavily in foreign countries because of it’s own rising yen. This massive outflow of money pushed many Japanese financial institutions to the top of the global financial markets. Japan was also the world largest importer of agricultural products where 60% of its food is imported. (Rich 192). If counted based on efficiency however, per unit of land, Japan is the most efficient in the world.
Greater prosperity lead to a big demand for consumer goods. Western style clothing became very common and wheat products, meat and vegetables took the place of rice in many Japanese dishes. Scotch whiskey was now drunk in place of the traditional sake. The Japanese people now wanted to acquire more twentieth century gadgets – color televisions, electric sewing machine, washing machines, motor cars and so on. Western sports became very popular – in the 70’s, there were already about 7,000 golf courses. By September 1986, the Japanese had a massive current account surplus of $10 billion U.S dollars. ( World 251). All this was a result of deep government planning, growth with high depreciation allowance, cheap loans, subsidies and light taxes. The Japanese recovery from its defeat in the Second War presents a truly remarkable story of persistence, determination and hard work by an entire population, and considerable financial and diplomatic skill.
Vietnam was the latest among these countries to emerge as a ‘gold mine’. This was set back by the Vietnam War in the 60’s and the 70’s. The war practically crippled the country’s economy. Vietnam’s economy grew based on a five-year plan system. This has brought moderate success in repairing of three decades of war on infrastructure, forest and farmland. By the mid-1980’s, the government began to liberalize in an attempt to encourage new resources. In 1987, businesses were given tax breaks in their first year, some companies were allowed to obtain bank loan and set their own prices while exporters were authorized to borrow foreign currency to import raw materials. There were higher cash incentives for peasants and workers. This lead farmers to earn almost 40% profits. ( Gibney 47). The government too began awarding bonuses and piece-rate wages to reward hard workers. In 1988, there were new investment laws that attracted overseas capital. The main investors were Taiwan, Australia, France, Hong Kong, the United States and also, Malaysia.
In 1989, as communism seemed to be collapsing elsewhere in the world, Vietnam flung open its doors to foreign investment. The economy has been growing at an annual rate of 7% to 8% over the past three years. In February 1994, when the U.S. dropped its 19-year trade embargo, aid and investment began to flood in. (49). This led jetstreams of investors into Vietnam. Western companies such as Coca-Cola, AT;T, and Motorola all invested heavily in the country. This lead Vietnam to grow very fast. Population continued to grow by about 1 million a year. By the 1990, the country’s exports were up to about $800 million U.S dollars while imports totaled nearly $1 billion.( World 157). Vietnam’s most lucrative business were oil and gas. In addition, it is in this sector of the industry that attracted the most attention of foreign investors. British Petroleum was the first western firm to make a significant contribution to Vietnam’s growing economy.
Tourism has helped Vietnam grow too. The Vietnamese government were promoting tourism in an effort to earn more hard currency. In addition, Vietnam succeeded in exporting 1.69 million tons of rice making it the third largest exporters of rice in the world. (Moise 49).
From the border with China in the north to the rice mills of the Mekong Delta in the south, Vietnam is humming with activity. Hong Kong investors have been allowed to open a casino near Haiphong, and Westerners are bidding to develop tourist sites along the scenic coast of Vietnam. Hanoi, long a city of bicycles and moldy old colonial edifices, is now rich in motorcycles and office buildings. In Ho Chi Minh City, as Saigon is now called, the April 30 parade marking the end of the war will be set against a landscape bristling with billboards and construction cranes. ( World 159). All this has brought Vietnam to grow at a tremendous rate and there is no denying that soon Vietnam will become a distinctive force in Asia. The country’s recovery after the Vietnam War shows a truly dedicated nation determined to wealth, success and most all, a better life for all the Vietnamese.
This research has shown that these ‘Growing Asian Dragons’ are a force to be reckoned with in the near future as these countries are developing at
breakneck speed. China, even before the merging with Hong Kong, is currently the center of attraction in the business world. Japan has already established itself and become the most influential partner in the business world. The ‘youngest’ of them all, Vietnam, is already beginning to stamp its mark in South East Asia and soon, without doubt, throughout the world. The free trade argument states that, if each nation produces what it does best and permits trade, over the long run all will enjoy lower prices and higher levels of output, income, and consumption that could be achieved in isolation.
On the Western Continent of North America, money has begun to drastically change as well. The North American Free Trade Agreement (NAFTA), implemented in January of 1994, created a situation in North America in which there are no taxes on most products imported and exported between the three countries. Ideally, the governments of Canada, the U.S. and Mexico believed that breaking the trading barriers would increase jobs and other things as it bettered each of their economies. NAFTA, however, has not necessarily helped the economies in the way in which the governments had projected.
There was much speculation before the signing of the treaty that NAFTA would not work out the way it was projected to. Some economists believed that one major problem which NAFTA would create, as opposed to what the governments thought, is loss of jobs. “In Canada and the United States, much of the political opinions against NAFTA has centered around the low wage rates in Mexico and the possibility of jobs being moved south of the Rio Grande River.” It had seemed obvious for some that many wealthy factory owners would move to or expand in Mexico, resulting in thousands of lost jobs. As well, this would clearly create more exports for Mexico, and less exports for Canada and the United States. However, in the eight months after the implementation of the agreement, Canada had exported 33.2% more to Mexico and imported 31% more from Mexico than usual. This may show that Canada still exported more to Mexico then it imported from them, but, one must think that when the agreement!
was first implemented, exports to Mexico may have included factors of production, businesses, etc. If so, these exports will have soon leveled off and jobs would be lost in Canada as businesses moved to Mexico. This has been seen to be case with the United States. “Although U.S. exports to Mexico have grown since NAFTA went into effect, the Administration’s Clinton’s own numbers show that imports from Mexico have gone through the roof; a U.S. trade surplus of $1.7 billion in 1993 spiraled downward into a deficit of $15.4 billion by 1995.”
Not only has NAFTA caused a loss in jobs in all three countries, but it has also caused a decrease in job benefits for workers in Canada and the United States. Before NAFTA went into effect, the corporate group USA*NAFTA claimed that “NAFTA itself will improve working conditions by generating economic growth, which will enable all three countries to provide more jobs with higher pay in a better working environment.” However, this proved not to be the case. In actuality, NAFTA has given corporations more power to lower wages and decrease working conditions. “The most direct method is through ‘whipsaw bargaining,’ or threatening to shift production to Mexico unless workers agreed to concessions.” In a situation where one’s job is at risk, one must accept wage and benefit cuts. It seems as though since the implementation of NAFTA, workers rights have diminished. Even though productivity growth has occurred in many corporations, “In Canada, as well as in the U.S., real wages are stagnating and the proportion of full-time workers living in poverty continues to grow.” There should never be any workers, let alone full-time workers, living in poverty. In Canada as in any country, poverty should not exist among the working class. This is definitely not the case in Mexico where NAFTA has slammed the middle class back into poverty.
Another thing which NAFTA affects is the environment. NAFTA supporters promised that the agreement would lead to increased investment in environmental cleanup and less maquiladoras along the U.S.-Mexico border. However, many communities still lack access to both water and sewage systems. “Today, only 10 percent of Mexico’s yearly output of 7 million tons of hazardous waste receives adequate treatment, with the rest poured into clandestine waste dumps or municipal sewers.” Maquiladoras are plants owned by foreign companies which send raw materials to Mexico for assembly. NAFTA has eliminated the duty on the importation of those goods back to Canada and the United States. NAFTA has caused an increase in the amount of maquiladoras. This has caused an increase in the amount of pollution in Mexico. NAFTA has taken emphasis away from the global environment as it puts the production of goods and exportation first. If workers aren’t healthy, are we not headed for lower levels of
production? This is without even mentioning the possibilities of a continent-wide epidemic. How can our economy be healthy if our people aren’t even healthy?
Now, we shall look at the benefits of the North American Free Trade Agreement to the Canadian economy, as well as those of the other two countries. First of all, NAFTA has eased the creation of new coalitions which cross borders and political party lines, “and embrace constituencies as diverse as workers, farmers, environmentalists, consumers and religious groups.”
“Canada’s Bank of Montreal has launched the first mutual fund, to be marketed in all three countries, targeting companies poised to cash in on the North American Free Trade Agreement.” Companies such as Bombardier who have constructed plants in Mexico are prime candidates of this mutual fund.
Mexico’s economy has gotten a little better. Canadian and U.S. companies invested $2.4 billion in Mexico in the first eight months of 1994, accounting for 55% of Mexico’s total foreign direct investment. This is good for the Mexican economy in the long-term as well as in the short-term. In the long-term, these investments will lead to more exports. Corporations from Canada and the U.S. build plants in Mexico, and export those goods from Mexico back into the Canadian and United States economy.
Another thing NAFTA does is as it creates a “trinational superpower;” it becomes appealing to foreign investors. For example, Toyota Motor Co. built a $450 million expansion in Ontario to make Corollas for the North American market. Foreign countries want to invest and build plants in North America to get in on the North American market with less angst. It not only costs less for Canada, the U.S. and Mexico to trade, but it costs less for any foreign corporation with a factory in North America. As well, these new plants in Canada mean more jobs available for Canadian citizens.
Another advantage NAFTA gives to the Canadian economy is higher productivity levels. Canadian corporations with plants in Mexico produce goods at lower costs. Canadian corporations benefit with these low production costs, due to low hourly work wages in Mexico. Canadian corporations had not been so eager to build factories in Mexico prior to the implementation of the agreement due to the tariffs which must be paid when the goods crossed the border.
In the future, NAFTA will continue to hurt the North American continent while the countries China, Japan, and Vietnam will continue to flourish economically and socially. The advent of NAFTA not only proved to be ineffective, but also detrimental to the three North American countries. The money that the Untied States spent on the economies of the Asian continent has helped them thrive and exist as a global economic power. The future of the economies of all the countries rests on the ability to make the changes necessary to promote self gratification.
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