Ex. 12. Read and discuss the text. Single out the mam facts and present them in a short review.

Economic System

 

The functions of an economic system may be defined as follows:

a) to match supply to the effective demand for goods and services in an efficient manner;

b) to determine what goods and services are to be produced, and in what quantities;

c) to distribute scarce resources among the industries producing goods and services;

d) to distribute the products of industry among members of the community;

e) to provide for maintenance and expansion of fixed capital investment;

f) to fully utilize the resources of society.

Depending on how decisions are made and how the above functions are fulfilled different economic systems can be singled out. Many countries like Britain, Sweden, and France operate a mixed system (mixed economy) splitting the economy into public and private sectors.

In Britain, for example, about two-thirds of the economy and about five-sixths of commerce is conducted by private firms. The remainder of the activities of the economy are conducted by socially-owned enterprises. Some, like the Army, Navy, and Air Force, are clearly the sort of institutions that the state itself should control. Others have tended to be performed by the state because they are non-profitmaking, and as such are unlikely to be attractive to businessmen. Such activities as education and medical care are best operated as socially provided amenities for the benefit of all citizens.

In the commercial field certain goods and services are by their nature monopolies. Among these natural monopolies are gas, electricity, and water supply. The capital costs of such enterprises are too great for competition to be possible.

Transport is another natural monopoly. It would be uneconomic to run two railway lines from one place to another, or two different sets of half-empty buses along a country road.

These natural monopolies have, for economic, political, or social reasons, come to be run in the United Kingdom by nationalized institutions, or the municipal authorities, who provide the services required at reasonable prices.

Words you may need:

match v приводить в соответствие, выравнивать

effective demand действительный (фактический) спрос

maintenance n поддержание

fixed capital investment вложенияв основной капитал

depending on prep в зависимости от

to single out выделять, выбирать

mixed adj смешанный

to split (into) v делить, дробить

non-profitnmking некоммерческий

amenities удобства; обслуживание

natural monopoly естественнаямонополия

capital costs капитальные затраты

Ex. 13. Read the dialogue below, sum up its content and act it out:

Foreigner. Western businessmen used to complain that they couldn't work widely in the Russian market first of all because the forms of business organization were not developed. How do things stand these days?

Russian: The situation is different now. The ongoing reforms have drastically altered the environment in which Russia's enterprises are operating now.

F.: True. The massive shift you are making now from a command to a market economy is really unprecedented.

R.: You are right. Liberalization of economy, restructuring of production sectors, an extensive privatization programme have brought about real changes and led to the creation of types of business unit accepted throughout the world.

F.: You mean that now your businesses operate as partnerships, cooperative societies, and joint-stock companies.

R.: Yes, let me give you just one example. Like in the West, we have now two types of partnership. General partnerships with partners bearing joint and several liability for debts and wrongdoing and limited partnerships that include one or more general partners who bear full liability and run the business, plus one or more limited partners, who bear limited liability. They do not have a voice in the firm's day-to-day management, they are in much the same position as shareholders in a corporation.

F.: Now that you've mentioned corporations, do they play an important role in your economy?

R.: Yes. Like in the West, they exist as independent legal entities with the capital divided into shares. The liability of shareholders is limited.

F.: Your practice here fully coincides with Western principles. Creditors or people bringing lawsuits against corporations can make claims against the assets of the corporation only.

R.: Yes, limited liability is the biggest advantage of this form of business organisation.

F.: Our businessmen when floating a company, sign a memorandum of association, then they draw up articles of association and submit them to the registrar of companies issuing a certificate of incorporation. Is the procedure of registration complicated here?

R.: No, the procedure is similar to what you've said, and after the registration our companies can also do all the legal things like own property, employ people, sue and be sued in the courts and so on.

F.: All businesses seek profits. But in any market economy there is a certain number of business units which are non-profitmaking and are formed to confer certain benefits upon their members.

R.: You mean cooperative societies, don't you? Yes, we have such voluntary associations based on membership.

F.: Well, another point... In market economies such activities as supplying gas, electricity, and water are conducted by state-owned enterprises. How about Russia?

R.: Natural monopolies including transport are controlled by the state in Russia, too. Besides, many other activities are conducted by socially-owned enterprises. For example, we have introduced a new form of unitary state enterprises.

F.: What's the idea?

R.: Such enterprises have no right of ownership of the assets. Assets are assigned to such enterprises to be used for economic activity.

F.: It's an interesting form. And how can foreign firms participate in Russian business?

R.: Oh, now it can be done in many ways which are stipulated by our legislation.

F.: If I'm not mistaken, in spite of all your reforms your legislation is still rather complicated.

R.: Yes, that's true, foreigners wishing to enter our market often have to take advice on legal matters.

Words you may need:

complain v жаловаться

forms of business organization формы организации бизнеса

alter v изменять, переделывать

command economy командная экономика

partnership n товарищество

cooperative society кооператив

joint-stock company акционерная компания

general partnership полное товарищество

liability n ответственность, обязательство

to bear joint and several liability нести солидарную ответственность

wrongdoing n незаконные действия

limited partnership коммандитное товарищество (товарищество с ограниченной ответственностью)

general partner главный партнер (с неограниченной ответственностью)

limited partner коммандитный (пассивный) партнер (с ограниченной ответственностью)

shareholder n акционер

share n (зд.) акция

legal entity экономический субъект

coincide v совпадать

to bring a lawsuit against smb возбудить судебный процесс против кого-л.

to make a claim предъявить претензию

assets n активы

to float a company образовывать акционерную компанию

memorandum of association учредительский договор

registrar n регистратор

certificate of incorporation разрешение на создание корпорации

to sue and be sued in the courts искать и отвечать в суде

confer v присуждать, передавать

Ex. 14. Give extensive answers to these discussion questions:

 

1. Name the most important economic resources and explain the problems any economic system has to solve with regard to them.

2. Describe the economic systems existing in the world today. Which is the most effective system from your point of view (mention the economic agents and their relationships)?

3. What is a market? How does the market mechanism function?

4. Do you agree that competition is an important force of the market?

5. What is entrepreneurial activity?

6. What are natural monopolies?

7. What characterizes the transition to market economy in Russia?

8. Is Russia attractive to foreign businessmen and investors? Why?

9. What are the most typical forms of business organization in market economies in the West and in Russia?

10. What liability is borne by different forms of business unit (joint-stock companies, partnerships)?

11. Does the state regulate business and economy?

In order to get prepared for participation in the class discussion of the above questions, write several paragraphs on the following:

 

a) The market mechanism;

Use: to make contact; to do business; to choose; to solve; to buy; to sell; to compete; to produce; price; allocation of resources

b) Competition;

Use: to benefit from; to keep to cost; to utilize; economically; consumer preferences; prices; to protect; production costs

c) Favourable/unfavourable economic situation in a country;

debt; prices; export; import

d) An enterprise;

e) A branch of industry;

f) Forms of business organization: sole traders, partnerships (general, limited), private limited companies, public limited companies, cooperative societies.

Ex. 15. Prepare a short talk on the following:

 

a) Have you ever applied for or been offered a job? If so, describe the recruitment and selection process used by your employer.

b) If you have worked, what jobs have you held? For each job describe your boss's attitude to employees and your attitude to the people you have worked with.

c) The variety of jobs and careers among which to choose is enormous.

Are you going to work in private business, in government agencies or in the not-for-profit sector?

d) Russia is moving towards market economy, but not every one is happy about it. Say why you think some people are opposed to market economy.

Ex. 16. Go to the library and try to find the latest figures for the rate of inflation, the unemployment rate, interest rates, and the industrial output in Russia. Compare the figures with the information you got from the exercises in Unit 1.

READING PRACTICE

Ex. 17. a) Read the article below quickly to find out what economic indicators are mentioned in the text.

b) Compare the situation in 1992 with the present-day situation.

 

In 1992 the economic situation in the Russian Federation continued to be very difficult, owing to large macroeconomic imbalances and to the unavoidable difficulties arising in the initial stages of the transition to a market economy. Nevertheless, significant progress was achieved in implementing structural adjustment policies in some areas.

Real GDP and industrial production are estimated to have dropped by 19 percent in 1992. Oil extraction fell by 15 percent, while the output of natural gas remained unchanged; agricultural output fell by 8 percent. The fall in output reflected a number of factors, including the decline in demand associated with the drop in real incomes following the liberalization of prices in January 1992; the short-run effects of the economic transformation; the interruption of traditional trade links with the countries of the former Council for Mutual Economic Assistance (CMEA) and the states of the former Soviet Union; and cutbacks in investment and military spending.

Monthly inflation rates began to decline after the jump in prices associated with price liberalization in January 1992. However, this trend was reversed around midyear and between October 1992 and March 1993, monthly inflation rates were between 20 percent and 30 percent. Between the end of 1991 and end of 1992, consumer prices increased by over 2,300 percent. The acceleration of inflation after midyear reflected a substantial loosening of financial policies. Real wages dropped sharply in connection with the liberalization of prices, but recovered somewhat in the course of the year and at year-end stood at 90 percent of their 1987 level. Registered unemployment remained low.

Words you may need:

macroeconomic imbalances макроэкономические диспропорции

are estimated to have dropped по предварительным подсчетам, сократились

oil extraction добыча нефти

short-run adj краткосрочный

cutback n снижение, уменьшение, сокращение

spending n расходы

reverse v поворачиваться в противоположном направлении

acceleration n ускорение

loosen v ослаблять

recover v (зд.) восстанавливаться