Jessica Ng asks,

Hi Mr. Welker,
I was just wondering whether the business cycle pertains to ALL economies, including both market and command economies?

Great question, Jessica. I thought I’d put this one out there for everyone to discuss. What do you think, readers? Based on what we’ve learned about the business cycle, would you think that this pattern of economic expansion, contraction, recession and recovery would be likely to happen in a command economy, where all economic decisions are made by a central planning agency? In other words, are business cycles unique to market economies, or can an economy run by the government also experience these patterns of instability? Post your thoughts in a comment below.

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Managing Globalization: To reduce poverty, money isn’t everything - International Herald Tribune

Another great article on Economic Development; this one compares development in Venezuela and Brazil over the last decade:

Overall income is moving upward in both countries, if for different reasons. Venezuela is riding the black tide of high-priced oil, while Brazil’s relatively firm economic policies have built confidence in its business prospects among both locals and foreigners.

In Venezuela, president Chavez’s socialist inspired, oil financed command policies have provided access to benefits to citizens in exchange for political loyalty. This has skewed the motives of service providers and recipients, who often realize that improving peoples’ lives is secondary in importance to making the government think that peoples’ lives are improving:

One example of this problem was a program intended to improve literacy. “The government had no system of accountability to monitor performance other than the reports of its own administrators,” Rodríguez said. “When program administrators learned that it was more important to show loyalty to the regime than to effectively run the program, any incentives that they had to administer resources efficiently, from a social point of view, disappeared.”

In Brazil, where monetary benefits for families are linked not to political affiliation but to “actions like attendance in school, prenatal care and childhood vaccinations”, development policies have proved more effective:

Figures compiled last year by Rômulo Paes de Sousa of the Ministry of Social Development and Fight Against Hunger, covering the period from 1999 through 2004, painted a rosy picture: School attendance was up, while illiteracy was down. Life expectancy was up, but hospital visits were down. Employment was up, and child labor was down.

The lesson here? When politics and economics are wed, it appears that development policies may take a back seat to political allegiance and thus prove less effective. Evidently, the top-down command system in Venezuela, where access to benefits requires utter loyalty to the all-powerful Chavez, has proven to achieve less than noteworthy improvements in the main indicators of human development (such as infant mortality, literacy and life expectancy). On the other hand, Brazil’s market-based system, where monetary incentives lead results in citizens gaining access more a wider variety of efficiently run development programs, have proven relatively successful in actually alleviating poverty.

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