Introduction
Performance measurement is that area where development of economic is weak because it becomes difficult to establish direct linkages between cause and effect between economic developer’s work and creation of jobs by different sectors in the economies. Ther e is a wider
spectrum that is developed by economists to strengthen their economics and intensify their structures. The performance measures analyzed in order to measure performance of different economies are Per Capita GDP, Inflation and Unemployment. We need to compare the performance of countries under the three different economic systems. The three economic systems are (Becker, 2005):
The Free-market Free-market Economy “Capitalism”: Here,
all economic decisions are made by
individuals and companies. Within this approach, the supply forces and demand are used to solve the problems on what to produce, how to produce etc. The Government has no control over the economy. The United States of America is the best example of a free market economy.
The Command Economy “Communism”: “Communism”:
Here, all resources are owned by the
government. The government decides the ways in resource allocation and lets know its people that what has to be produces, how production production has to take place and who this produced material has to be send to. Cuba is an ideal example of a command economy.
The Mixed Economy “Socialism”: Here,
resources are owned both privately and by the
government .It is the combination of the above mentioned economies. Critical sectors such as health, medical, education are within the control of the government and less important ones are under private ownership. Markets are used to solve the economic problem to an extent and then the government intervenes when the market does not produce the desired results, India is an
example of a mixed economy (Becker, 2005).
The following three are considered for measuring performance in order to analyze the performance of countries under the system of economics:
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Per Capita GDP Gross Domestic Product is the measure of economic activity in the country. The calculation of GDP is done by adding total value of annual output of goods of the country and its services. GDP is considered
the broadest indicator of economic output and growth. Real GDP takes inflation into account, allowing to compare against other times periods in history. Per capita GDP is obtained by dividing the GDP of a year by the average or midyear population of the same year. Per capita income is often used as average income and it is a measure of the wealth of the nation’s population , especially when comparing the same to other economies. Per capita income is an important indicator of a country's standard of living. In order to facilitate comparisons, per capita income is calculated at purchasing power parity and is expressed expressed in terms of US dollars. Therefore, Therefore, it is an ideal measure for for the purpose of performance comparison between countries under different economic systems (Deaten, 2009).
Inflation Inflation is another significant indicator of the economic health of a country. The consumer price index is usually used as a comprehensive measure in most countries to calculate inflation. CPI measures inflation by calculating the change change in cost on a bundle of consumer goods and services. The consumer price index gauges the overall rate of price change for a fixed basket of goods and services bought by households. As the prices of the same items each month, the inflation measure along with reflection of deflation depicts the cost of maintaining the same purchases over time. Increasing inflation usually translates to a decrease in purchasing power and can signal significant problems for future economic periods. Thus, by comparing the inflation figures of countries under different economic systems, we can get a fair idea about their economic health.
Unemployment One of the major factors influencing a country’s economy is the labor market. The population of a
country that is already working represents the employed, while those who look for work actively but are not able to find work are the ones unemployed. The rate of unemployment is not inclusive of jobless people such as students, ones who have taken retirement r etirement or those who are discouraged and
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have given up trying to find job. Unemployment is closely linked to poverty levels of a country and it serves as a significant source of information on the strength in the business environment. Unemployment rate measures the labor force utilization and is an indicator of productivity level and general economic activity. Therefore, unemployment rate can be used as an important performance measure to compare the economic health of different countries (Deveci et al, 2008). Following is a comparison of US company’s performance with India and Cuba and thus, representing
3 different systems of economics. There per capital GDP, Inflation and Unemployment rates over 10 year’s period are studies for analyzing the data:
Per capita GDP
GDP per capita, PPP (current international international $)
In terms of US dollars Countr
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
37600
3780
4010
4160
4400
4580
4690
4600
4720
4900
0
0
0
0
0
0
0
0
0
2900
3000
3500
4000
1100
9500
9700
9900
1010
y US
Cuba
2300
0 India
2540
2900
3100
3400
3800
0
2600
2900
3200
3500
3700
(Source: Cowell, 2000)
The above table on per capita GDP at purchasing power parity is an important tool that helps us compare the economic performance of the 3 countries under different economic systems. On
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analysis, we find that the per capita GDP has increased by 30.31% over the last decade for US while the same figures for Cuba and India are 339.13% and 45.67% (Cowell, 2000). Thus we see from these figures that the US which is based on a free market economic system has not fared so well in terms of growth in per capita GDP when compared to Cuba which has seen a phenomenal growth over the last decade in terms of increase in per capita GDP. India has also performed a little better than US in terms of growth but it is again very low when compared to Cuba which is a command economy. If we analyze the per capita GDP of US, we see that it declined by almost 2% from year 2008 to 2009, but since then it has revived and is growing at 2.5% pa. The main reason for this was the massive slowdown in i n order of manufacturing, manufacturing , prices of property to fall along with sales, and a dropoff in business investment that US experienced in 2008. This created a downward spiral in manufacturing and increased layoffs leading to declining sales and rising unemployment. The main reason for this recession was the irrational excitement regarding housing prices in the US which made people buy houses that they couldn’t afford. The burden of housing loans finally led to
bankruptcy of many banks banks and finally the US government had to intervene to bailout bailout the banks. Thus this analysis shows that a free market capitalistic economy may not always be efficient and sometimes it may lead to an economic crisis. So government intervention is needed from time to time to ensure healthy functioning of the economy (Deaten, ( Deaten, 2005). The Cuban economy suffered a major bankruptcy from the years 1986 to 1993, however, due to a centrally planned economy, economy, it has recovered drastically over the last decade which is well reflected in the growth of per capita GDP. The government has undertaken many reforms including food subsidies, rationing of food, growth in tourism etc. Cuba is always slowing moving towards a socialism model of economy and many economic reforms have been undertaken by the Cuban government in the post Fidel Castro era which has helped it to recover at a tremendous pace. These reforms include giving more autonomy to state owned firms, legalizing private ownership in some sectors like homes and cars and so on. All these have led to faster economic growth although corruption levels in Cuba are at an undesirable level at present.
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India follows a socialist pattern of economic system. India has seen a decent economic growth in recent years. In the late 2000s, India's growth reached 7.5%, which will lead the average income to double. The driving force behind India’s growth in economy is by the expansion of services that have been growing consistently faster than other sectors. Service industry employs employs English-speaking Indian workers and demand for outsourcing operations to India has increased significantly in recent years. The government has intervened from time to time in the free market economy with structural and economic reforms which has endured long term and steady growth in the Indian economy (Becker, 2005).
Inflation Rate
(Consumer prices) (%) Countr
200
200
200
200
200
200
200
200
201
201
y
2
3
4
5
6
7
8
9
0
1
US
1.6
2.3
2.5
3.2
2.5
2.9
3.8
-0.3
1.4
3.1
Cuba
7.1
4.1
3.1
7
5
3.1
3.4
-0.5
0.7
4.7
India
5.4
3.8
4.2
4.2
5.3
6.4
8.3
10.9 11.7 8.9
(Source: Atkinson et al, 2005)
The above table for the inflation rate in consumer prices over the last decade gives us an idea about the price stability in the 3 countries operating under different economic systems. The inflation levels have remained at a relatively low level in the US as can be seen from the table. The year 2008 has seen the highest inflation rate because of the economic crises but since then the inflation rate has come down. On other hand, Cuba experienced a very high inflation in the early 2000’s but due to effective monetary policies by
government to curb inflation, the prices are declining steadily over the years and both US and Cuba experienced deflation in the year 2009 due to effective economic policies. India which follows a mixed economic system has seen a high rate of inflation since the year 2008 which was the year of
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the global meltdown. Inflation is a situation which is risky no matter which economy it persists in since it has caused the country’s to face crisis in terms of supply of products being scanty along with demands for goods and services to be on the rise leading to currency devaluation. In India, the high inflation rate mainly due to pressure in demand side in terms of oil bill rising and complete energy costs along with government failure to appropriately appropriately intervene into pressures of correct inflation. It is experienced that fiscal deficits being widened and in spite of intervention of the government, the result of real interest rates is still negative that has still led to inflation rise (Atkinson et al, 2008).
Unemployment Rate (In terms of %) Countr
200
200
200
200
200
200
200
200
201
201
y
2
3
4
5
6
7
8
9
0
1
US
5.8
6
5.5
5.1
4.8
4.6
7.2
9.3
9.7
9
Cuba
4.1
2.6
2.5
1.9
1.9
1.8
1.6
1.7
2
1.4
India
8.8
9.5
9.2
8.9
7.8
7.2
6.8
10.7 10.8 9.8
(Source: Atkinson et al, 2005)
The unemployment figures for US over the last decade show that US has seen a rapid decrease in employment since the economic crises and meltdown in 2008. The unemployment rate has risen from 5.8% in 2002 to 9% in the year 2011. The US job market at present is facing a hopeless situation mainly because of government sector layoffs, lack of real growth, high tax rates, fewer new job openings and also because of the booming Chinese economy which is taking many job opportunities away from the US. Cuba on other hand operates on a communist economic system and due to favorable government policies to create more jobs, unemployment rate has remained at a relatively low levels especially in the latter part of the decade. India however, faces a chronic unemployment
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problem and as can be judges from the table, unemployment rate continues to be above 10% in the recent years. This is mainly due to unprecedented increase in population, illiteracy and lack of jobs due to slow economic growth (Accardo et al, 2009).
Conclusion This report provides an analysis of performance measures that help in measuring the success of an economy. These indicators are Per Capita GDP, Inflation and Unemployment analyzed by comparing the economies of U.S, India and Cuba. It is seen from the figures that U.S which is based on a free market
economic system has not fared so well in terms of growth in per capita GDP when compared to Cuba which has seen a phenomenal growth over the last decade in terms of increase in per capita GDP. India has also performed a little better than US in terms of growth but it is again very low when compared to Cuba which is a command economy. By measuring performance, it becomes evident that Indian and Cuban economies are weak in comparison to U.S (Abraham et al, 2005).
References
Abraham, K. G. and Ch. Mackie (eds.) (2005); Beyond the Market: Designing Nonmarket Accounts for the United States; Panel to Study the Design of Nonmarket Accounts; The National Academies Press, Washington D.C.; http://www.nap.edu/openbook.php?record_id=11181 Accardo J., Balmy V., Consalès G., Fesseau M., Le Laidier S., Raynaud É. (2009), "Les inégalités entre ménages dans les comptes nationaux. Une décomposition du compte des ménages.", INSEE - L'Économie française Atkinson Review (2005) Measurement of Government Output and Productivity for the NationalAccounts. Final Report, Palgrave Macmillan. Atkinson A. B. (2007) “On the measurement of inequality”; Journal of Economic Theory; 2; pp. 244-263.
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Atkinson A. B. and J. E. Stiglitz (2008), Lectures on Public Economics, McGraw-Hill, New York. Becker, G. S. (2005); “A Theory of Performance Measures”; The Economic Journal, Vol. 75,
No. 299 pp. 493-517. Cowell, F. A. (2000); “Measurement of Inequality”; in A. B. Atk inson inson and F. Bourgignon
(eds.),Handbook of Income Distribution, Volume 1, Elsevier, Amsterdam, pp. 87-166. Cutler, D., A. Deaton and A. Lleras-Muney (2006); “The Determinants of Mortality”; Journal ofEconomic Perspectives; Volume 20, Number 3; Summer 2006; pp. 97 – 120. 120. Deaton, A. S. (2005); “Measuring poverty in a growing world” (or “Measuring growth in a poorworld”), Review of Economics and Statistics, vol 87: pp.1-19.
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