The "pure" laissez-faire economy is where the government has no participation at all. Individuals and companies buy, produce, and sell as they wish, and the outcomes are a result of countless individual decisions. Supporters of free market systems argue that they encourage efficiency, because an inefficient producer will be driven out by better competitors, and that the consumers have great power because businesses will respond to their demands. Prices will adjust themselves automatically as supply and demand fluctuates. Laissez-faire has problems too, however. It can be demonstrated that inefficiencies can and do exist. Without government involvement there can be many injustices, and it is a feature of laissez-faire that there are recurrent episodes of unemployment and inflation. Although most economists agree that some government intervention is desirable, there is a perennial debate about how, and how far, it should go (see Chapter 8).

WAYS OF CLASSIFYING ECONOMIES

There are nearly 200 sovereign states in the world, each with its own economy. The International Monetary Fund (IMF), the United Nations (UN), and the World Bank all have different ways of classifying the world's economies, reflecting these organizations' own agendas. The most widely used system in business is the IMF's, which classifies nations into three groups:
» industrial economies: the 23 most industrialized countries, including the US, Canada, Japan, Western Europe, Australia, and New Zealand;
» developing countries: some 130 nations in Latin America, Asia, the Middle East, and Africa. Some countries in this group have enjoyed substantial growth in recent years, so there is now a subcategory of "newly industrializing countries" (NICs) including such powerhouses as Hong Kong, Singapore, South Korea, and Taiwan;
» transitional economies: 28 countries of the former Soviet bloc that are now trying to develop market economies.

INTERNATIONAL BUSINESS

International trade had always been important, but during the last 20 years countries have become markedly more interdependent. A widespread restructuring of economies to adapt to freer trade and capital movements, and in response to the collapse of the USSR, is occurring. While this presents many new opportunities for business, it is by no means certain that the process is irreversible.

As we will see throughout this book, there are many forces and issues that are directly or indirectly resistant to globalization. Although some believe that multinational companies (MNCs) are a major factor in driving further globalization, others argue that MNCs are actually much more closely tied to their countries of origin than is generally appreciated, and that they tend to pursue national, rather than global, objectives (see Chapter 9, The Myth of the Global Corporation). There are also worries that globalization could increase the wealth gap between rich and poor nations.