Instability in international markets – Some reasons

A new era in Mexico’s economic and social history began when President Fox assumed office. President Fox was relatively successful in stabilizing the Mexican economy during his tenure in office. As the run up to the 2006 election began, GDP growth, foreign investment, and inflation all were going in good directions. However, other problems persist. The economic turmoil that erupted during past changes of government must be avoided, an entrenched bureaucracy with allegiance to an opposing political party must be won over or replaced, an escalating crime have (estimated to cost at last 6.2 per cent of Mexico’s gross domestic product) must be controlled, and a favorable relationship must be maintained with members of the North American Free Trade Association (NAFTA)

Some African countries are unstable, with seemingly unending civil wars, boundary disputes and oppressive military regimes. Sierra Leone has three changes in government in five years; the most recent coup d’etat (1997) ended the country’s brief experiment with democracy. Shortly after the coup, a civil war erupted, and (UN peacekeeping forces have had to maintain peace. Central Africa where ethnic wars have embroiled seven nations is one of the most politically unstable regions in the world. Africa is trapped in a vicious cycle. For its nations to prosper hey need foreign investment. But investment is leery of unstable nations, which is the status of most of Africa. A recent World Bank study showed that the 47 nations of sub Saharan Africa were attracting less than $ 2 billion annually in direct foreign investment – about one tenth of what a developing nation such as Mexico attracts.

If there is potential for profit and if permitted to operate within a country, multinational companies can function under any type of government as long as there is some long run predictability and stability. PepsiCo, for examples, operated profitably in the Soviet Union when it had of the World’s most extreme political systems. Years before the disintegration of the USSR Communist Party, PepsiCo established a very profitable business with the USSR by exchanging Pepsi syrup or Russian vodka.

Socioeconomic and political environments invariably change, as they have in the Soviet Union and Mexico. There are five main political causes of instability in international markets: (1) some forms of government seem to be inherently unstable; (2) changes in political parties during lections can have major effects on trade conditions; (3) nationalism; (4) animosity targeted toward specific countries; and (5) trade disputes.

Forms of Government:

Circa 500 BC the ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by the few, and rule by the many. The common terms for these in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy. About the same time in history Cyrus the great monarch of Persia, declared that the purpose of government was to serve the people, not vice versa. Cyrus’s notion is embedded in the constitutions of most modern nations. Following the collapse of communism circa1990 the world seemed to have agreed that free enterprise democracy was the best solution to all the criticisms of government since the time of Aristotle, Cyrus and the others.

Thus of the more than 200 sovereign states on the planet almost all have at least nominally representative governments with universal suffrage for those 18 years and over. In about 10 percent of the states voting is required; in the rest it is voluntary. A few have some unusual for suffrage: In Bolivia you can vote at 18 if you are married and at 21 if single; in Peru police and military personnel cannot vote; in Croatia you can vote at 16 if employed; in Lebanon only women with at least an elementary education can vote; in Croatia you can vote at 16 if employed; in Lebanon only women with at least a elementary education can vote (although all men can vote) and Saudi Arabia precludes women from voting. The last appears to be the only state still completely in the dark ages with regards to suffrage.

The Central Intelligence Agency claims to have taken a look beyond the faced of constitutions in their descriptors. For example, Iran (modern Persia) is defined as a theocratic republic recognizing that the constitution codifies Islamic principles of government as interpreted for the Koran. Although political parties are allowed to function, they hold little political power. Instead, the Supreme Leader controls all important decisions of the government including who is allowed to run for president in Iran.

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