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The Economist Newspaper Ltd
Industry: Economy; Printing & publishing
Number of terms: 15233
Number of blossaries: 1
Company Profile:
Selling state-owned businesses to private investors. This policy was associated initially with Margaret Thatcher’s government in the 1980s, which privatized numerous companies, including public utility businesses such as British Telecom, British Gas, and electricity and water companies. During the 1990s, privatization became a favorite policy of governments all over the world. There were several reasons for the popularity of privatization. In some instances, the aim was to improve the performance of publicly owned companies. Often nationalization had failed to achieve its goals and had become increasingly associated with poor service to customers. Sometimes privatization was part of transforming a state-owned monopoly into a competitive market, by combining ownership transfer with deregulation and liberalization. Sometimes privatization offered a way to raise new capital for the firm to invest in improving its service, money that was not available in the public sector because of constraints on public spending. Indeed, perhaps the main attraction of privatization to many politicians was that the proceeds from it could ease the pressure on the public purse. As a result, they could avoid (in the short-term) doing the more painful things necessary to improve the fiscal position, such as raising taxes or cutting public spending.
Industry:Economy
Broadly speaking, a period of slow or negative economic growth, usually accompanied by rising unemployment. Economists have two more precise definitions of a recession. The first, which can be hard to prove, is when an economy is growing at less than its long-term trend rate of growth and has spare capacity. The second is two consecutive quarters of falling GDP.
Industry:Economy
The interest rate less the rate of inflation.
Industry:Economy
An exchange rate that has been adjusted to take account of any difference in the rate of inflation in the two countries whose currency is being exchanged.
Industry:Economy
An approach to regulation often used for a public utility to stop it exploiting monopoly power. A public utility is forbidden to earn above a certain rate of return decided by the regulator. In practice, this often encourages the utility to be inefficient, slow to innovate and quick to spend money on such things as big offices and executive jets, to keep down its profit and thus the rate of return. Contrast with price regulation.
Industry:Economy
A way to measure economic success, albeit one that can be manipulated quite easily. It is calculated by expressing the economic gain (usually profit) as a percentage of the capital used to produce it. Deciding what number to use for profit is rarely simple. Likewise, totaling up how much capital was used can be tricky, especially if it is expanded to include intangible assets and human capital. When firms are evaluating a project to decide whether to go ahead with it, they estimate the project’s expected rate of return and compare it with their cost of capital. (See net present value and discount rate. )
Industry:Economy
Things that can be consumed by everybody in a society, or nobody at all. They have three characteristics. They are: * non-rival – one person consuming them does not stop another person consuming them; * non-excludable – if one person can consume them, it is impossible to stop another person consuming them; * non-rejectable – people cannot choose not to consume them even if they want to. Examples include clean air, a national defense system and the judiciary. The combination of non-rivalry and non-excludability means that it can be hard to get people to pay to consume them, so they might not be provided at all if left to market forces. Thus public goods are regarded as an example of market failure, and in most countries they are provided at least in part by government and paid for through compulsory taxation. (See also global public goods. )
Industry:Economy
Opposition to free trade. Although intended to protect a country’s economy from foreign competitors, it usually makes the protected country worse off than if it allowed international trade to proceed without hindrance from trade barriers such as quotas and tariffs.
Industry:Economy
In equilibrium, what balances supply and demand. The price charged for something depends on the tastes, income and elasticity of demand of customers. It depends on the amount of competition in the market. Under perfect competition, all firms are price takers. Where there is a monopoly, or firms have some market power, the seller has some control over the price, which will probably be higher than in a perfectly competitive market. By how much more will depend on how much market power there is, and on whether the firm(s) with the market power are committed to profit maximization. In some cases, firms may charge less than the profit-maximizing price for strategic or other reasons (see predatory pricing).
Industry:Economy
The state of being poor, which depends on how you define it. One approach is to use some absolute measure. For instance, the poverty rate refers to the number of households whose income is less than three times what is needed to provide an adequate diet. (Though what constitutes adequate may change over time. ) Another is to measure relative poverty. For instance, the number of people in poverty can be defined as all households with an income of less than, say, half the average household income. Or the (relative) poverty line may be defined as the level of income below which are, say, the poorest 10% of households. In each case, the dividing line between poverty and not-quite poverty is somewhat arbitrary. As countries get richer, the number of people in absolute poverty usually gets smaller. This is not necessarily true of the numbers in relative poverty. The way that relative poverty is defined means that it is always likely to identify a large number of impoverished households. However rich a country becomes, there will always be 10% of households poorer than the rest, even though they may live in mansions and eat caviar (albeit smaller mansions and less caviar than the other 90% of households).
Industry:Economy
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