1.

THE EUROPEAN UNION with a huge amount of money flowing through the worlds capital
The European Union (EU) is a supranational and intergovernmental union markets.
of 27 democratic member states. It was established under that name in There is a large number of mergers and takeovers, as it is only the big
1992 by the Maastricht Treaty. companies that can survive on the global market. By combining their
Three countries, Switzerland, Iceland and Norway, have decided to stay activities with their competitors they can increase their market share
out of the European Union. In May 2004 ten applicant countries joined. and cut costs. (e.g. R & D) Through synergy they operate more
The next phase of enlargement took place in January 2007 with the efficiently. They can also take advantage of the economies of scale by
accession of Bulgaria and Romania. offering more competitive prices and a wide selection of goods to
The Four Freedoms consumers. As a result domestic SMEs are squeezed out of the market,
The free movement of goods, services, labour and capital forms part of causing a number of bankruptcies.They can either become suppliers to
the substantive law of the EU. their big rivals or try to specialise in areas which are not covered by
The Schengen Agreement abolished passport control and customs checks MNCs (Multinational Corporations).
on many of the EUs internal borders, creating a single space of mobility Multinationals with their subsidiaries contribute to the growth of social
for EU citizens to live, travel, work and invest. welfare by locating their production in countries where the wages are
While the free movement of goods, services and capital has more or less low or where they can capitalise on the favourable taxes. Besides
been implemented, creating jobs they improve the infrastructure and increase state revenues
after the enlargement of 2004, only 3 old members Sweden , the UK by paying taxes.
and Ireland allowed foreign workers to take on jobs without a work On the other hand they are powerful enough to put pressure on the
permit. Most of the old members temporarily prohibit the inflow of government and force them to offer favourable conditions in return for
foreign workers, because they are afraid of the mass migration of cheap settling in their country.
labour. Anti-globalist movements protest against globalisation on the grounds
The single currency that it widens the gap between the poor and the rich part of the world,
The euro has been the official currency of the European Union in several and devastates national identity and sovereignty. Environmentalists
member states since 1999, although coins and bank notes werent raise their voices against the increased pollution occurring mainly in
introduced until 1 January 2002. Some of the old member countries defenceless countries.
decided against joining the eurozone at that time. Most of the new
members are preparing for the adoption of the euro. The single currency 3. MARKET STRUCTURES
is managed by the European Central Bank. Market economy
1. Countries wishing to accede to the eurozone have to meet certain The market economy is an economic system where the allocation of
requirements: the Maastricht criteria: resources on the market is determined primarily by supply and demand.
Price stability: inflation must be under the average of the three Private ownership enables individuals to possess factors of production.
countries with the lowest inflation, plus 1.5% In a market economy the state has a limited share in regulating and
The long-term interest rates should be within 2% of the average of intervening in the economy (e.g. providing welfare benefits).
the three countries with the lowest inflation Planned economy
The public deficit shouldnt exceed 3 % of GDP The planned economy is controlled and coordinated by the state. The
The national debt shouldnt exceed 60 % of GDP production and the allocation of resources are prescribed centrally by
2. ERM II (Exchange Rate Mechanism II) the state (pricing, production and distribution). In state-owned companies
Joining ERM II ensures that the participating countries orient their there is full employment leading to unemployment on the job. There is
policies towards stability and convergence, which will help them in their no competition on the market, therefore efficiency is not increased by
efforts to adopt the euro. A central rate is determined between the euro private entrepreneurs who are motivated by profits. The black economy
and each participating non-euro area currency, with a standard is strong because of the shortage economy.
fluctuation band of 15% above and below that rate, and each Staple commodities are subsidised. The social net is relatively
participating country has to hold its currency in this band without the strong
intervention of the National Bank for two consecutive years. Hungary There is not a big gap between the layers of society
has not joined the system yet. The 4 magic areas of economic policy
3. As a result of the introduction of the euro, transaction costs and Price stability
exchange rate risks are eliminated (there is no need to exchange the Low level of unemployment
national currency) and prices become more transparent. Apart from Balance of payments equilibrium
contributing to macroeconomic stability, it has further favourable Economic growth
economic impacts by attracting foreign direct investment (FDI). The six different models of mixed economies
Common Agricultural Policy Anglo-Saxon model USA, United Kingdom
The Common Agricultural Policy (CAP) is a protectionist policy The state has only a small role in the economic processes; this is a
guaranteeing a minimum price to producers and also giving direct aid to relatively liberalised market structure.
them. German model Germany (Hungary)
Some countries in the EU have larger agricultural sectors than others, It is characterised by dynamic market competition and a wide social
notably Spain, Poland and Portugal, and consequently receive more network provided by the government (social market economy).
money under the CAP. They are net recipients. Overall, certain countries French model
make net contributions, notably Germany, the Netherlands and the UK. The state has a dominating role in the economy as it is not only a
The enlargement of the EU in 2004 increased the number of farmers regulator but a proprietor/owner as well (state capitalism).
from 7 to 11 million, and it also increased the agricultural land area by Austrian model Austria, Denmark, Finland, Norway
30% and crop production by 10-20%. The employers negotiate directly with the representatives of the
The 2004 entrants into the EU gained immediate access to price support employees / trade union. The government doesnt take part in the
measures (export refunds, intervention buying). However, direct negotiations, but it has to approve the decisions (social partnership).
payments to Hungary are being phased in over 10 years (2004-2013), Swedish model
starting at 25% of the rate paid to old member countries in 2004. The state regulates/supervises the labour market/ labour relations, and
Further enlargement cares about the social interests of workers. The government plays an
After the last enlargement (when Romania and Bulgaria joined the EU) especially important role in redistribution (the golden mean).
the union remained open, but countries wishing to join have to comply Japanese model
with strict requirements. Croatia and Turkey are the official candidate There is an excessive supply of capital, a strictly organised education
countries which have started accession negotiations with the EU. system and the utilisation of special methods in business management.

2. GLOBALIZATION 4. THE LABOUR MARKET

Globalization is a process characterised by the flow of goods, services, The labour market
capital, labour, technology and information on an international scale. The There are two main features determining the labour market: the supply of
development of telecommunications - mainly the rapid growth of the labour and the demand for labour. The quantity of labour available in a
internet - contributes to the acceleration of the process of globalization society depends on the size of the population, the age distribution and
attitudes concerning who should work, over what period and for how To reduce income tax liability some companies give employees perks
long each year. Employers, by increasing wages and offering fringe instead of taxable money. Legal ways of avoiding tax are known as
benefits, can influence peoples willingness to enter the labour market. At loopholes in the tax laws.
the same time low labour costs in emerging countries threaten labour Multinational companies often set up their head offices in tax havens
markets in the more developed part of the world. A recession in the such as the Bahamas. Life insurance policies and pension plans are known
economy or the introduction of new technologies may also lead to a rise as tax shelters.
in unemployment. Governments have a double task of both preserving
jobs and reducing unemployment. 6. ENVIRONMENT PROTECTION
Types of unemployment Throughout history mankind has reaped the benefits of nature. But during
There are several types of unemployment, each caused by different the last century our earth changed more rapidly than at any other time in
circumstances: seasonal, frictional, structural, conjunctural and history, primarily because of our careless interaction with its resources.
voluntary unemployment. Today, in the wake of ever-increasing consumption and massive economic
Some ways of reducing unemployment development, the ecological crisis has gone global.
Providing retraining schemes for those who have been dismissed Global problems
and are willing to study in order to adapt to the changes in the labour Air pollution
market People all over the world breathe smog, sulphur dioxide, acid rain,
Offering tax allowances and subsidies to companies to set up carbon monoxide, and other toxic pollutants every day as a result of
businesses and create jobs in areas of high unemployment. They can industrial activity and the excessive use of cars, which emit exhaust
also be attracted by investment in public infrastructure. gases. The accumulation of gases in the atmosphere leads to the
Improving teleworking opportunities to overcome long distances and greenhouse effect and the depletion of the ozone layer.
increase labour mobility The build-up of gases may result in temperatures on earth increasing
Lowering unemployment benefits 2.25 degrees Celsius over the next century, causing global warming.
Giving incentives to companies which employ long-term unemployed Predictions include climatic changes leading to natural disasters,
Establishing efficient channels for informing people about vacancies drought, floods, changes in agricultural patterns and skin cancer. One
Trade unions major threat to the ozone layer is chlorofluorocarbons (CFCs).
These organisations of workers, especially in a particular trade or Deforestation
profession, have been created to act on behalf of the employees. They The gradual reduction of forests in size is resulting in erosion, flooding,
represent their interests by serving as a communication channel between desert formation and global warming. Rain forests, which generate
them and the management. large amounts of oxygen, are being destroyed to harvest hardwood and to
The black economy gain space for growing plants and breeding animals.
People working in cash-in-hand jobs are employed illegally. The grey Water pollution
economy also constitutes a substantial part of the economy. 10 percent of rivers worldwide are polluted and the oceans collect 6.5
The labour market in the EU million tonnes of litter per year. Less than 1 percent of all the water on
In certain countries of the EU the free movement of labour is temporarily earth is suitable for drinking, bathing, or growing plants.
restricted for citizens of the new member countries, out of fear that cheap Soil pollution
labour will raise unemployment. Therefore in these countries foreign job- Agricultural activity contributes to the pollution of soil by using
takers are obliged to apply for a work permit. chemicals (fertilisers and pesticides) to boost yields.
In countries which have fully opened their labour market, there is a large Overpopulation
number of people who have chosen to work there for the sake of better If the current growth rate continues, world population will double over
job opportunities and career prospects. The new member countries are the next couple of decades. This process accelerates the exhaustion of
increasingly suffering from a brain drain i.e. the loss of highly-qualified natural resources. In 2000 there were 6.3 billion people on the earth. It is
workers. an important task to exploit renewable energy sources.
Waste accumulation
5. TAXATION Huge amounts of hazardous waste are produced by the developed part of
The main function of taxes the world every year, part of which is exported to the Third World.
Tax is a payment of money legally demanded by the government. Taxes Households and industries also create piles of non-recyclable waste
are the most important revenue sources of the state. The main function of which are not able to decompose in landfill sites.
taxes is to cover the governments expenditures. There is a wide range of Oil shortage
goods and services which are provided by the government from taxes With the increase in worldwide demand for oil, the price of oil products
(e.g. national defence, security, education, welfare, basic economic (e.g. petrol) is rising, posing serious difficulties for oil-dependent
services, housing). economies. In fact, most of the feedstock (e.g. corn) for biofuels such as
Types of taxes biodiesel and ethanol is grown using the high-tech, oil-powered industrial
Taxation on individuals or companies, which is made directly by them or methods of agriculture.
through their employer is called direct taxation. Direct taxes are
progressive, which means that they fall most heavily on the well-to-do. 7. FORMS OF COMPANIES
Examples of direct taxes are: personal income tax, corporation tax, I. There are three main types of business ownership in the private sector
local business tax, capital gains tax, inheritance tax and wealth tax. of the economy.
Personal income tax 1. Sole proprietorship
Personal income tax is levied on an individuals net income. This is the This type of firm is run by the sole trader who is responsible for the
sum of his total earnings reduced by the amount of exemptions and total control and management of the business. The owner has unlimited
deductions to which each taxpayer is legally entitled. In Britain liability for the debts.
taxpayers file their tax returns to the Inland Revenue. The actual tax 2. Partnership
liability is calculated from the appropriate tax schedules. In each General partnership
schedule there is a zero This is a type of business entity in which partners share with each other
bracket amount which means that income up to that amount is taxed at a the profits or losses of the business undertaking in which all have
zero tax rate. Currently there are two tax rates in Hungary. invested. At least one partner must accept unlimited liability.
Indirect taxes are levied on turnover and consumption. They are Limited partnership
regressive, so they fall most heavily on the lower paid. Examples of In this type of business the internal member has unlimited liability. The
indirect taxes are VAT, excise duty, customs duty. external/silent partner doesnt take part in the activity of the partnership.
Tax evasion He/she has limited liability.
The higher the tax rates are, the more people are tempted to cheat. Lots of 3. Corporation
people have undeclared cash-in-hand jobs on which no one pays any tax Limited liability company-Private limited company.
or national insurance. The members have limited liability. The capital of the firm is divided into
Tax avoidance shares, but the shares are not sold on the stock exchange and they cannot
be offered to the general public.
Company limited by shares Public limited company
This business has to be founded with a certain amount of issued capital. offer insurance services
When an investor buys shares he/she becomes a part owner. Shareholders provide factoring and leasing services
have limited liability to the extent of the face value of their shares. deal with project financing
Special forms of private business enterprises and relationships exchange foreign currency
Holding/parent company trade in securities
This is a company that owns enough voting stock in another firm to provide safe boxes and night safe
control management and operations by influencing or electing its board provide private banking services
of directors.
offer Internet banking, SMS banking and telebanking services
Co-operative The IMF the International Monetary Fund
This is a business society which is jointly owned and run by its The IMF was established to promote international monetary cooperation,
members, who work together and share the profits. exchange stability, and orderly exchange arrangements. It fosters
Joint venture Joint enterprise economic growth and high levels of employment. It also provides short-
This is a partnership in which two or more people or organisations work term financial assistance to countries to help ease balance of payments
together. It is usually restricted to short-term deals. adjustment.
Union Since the IMF was established, its purposes have remained unchanged but
This is a legal entity with a minimum of two founding partners without its operations which involve surveillance, financial assistance, and
the obligation of contributing a certain minimum amount of capital. It is a technical assistance have developed to meet the changing needs of its
non-profit organisation. member countries.
Subsidiary/affiliate The IBRD (the International Bank for Reconstruction and Development)
In business this is an entity controlled by another entity. The controlling The objective of the IBRD, also known as the World Bank, is to help
entity is called its parent. A parent and all its subsidiaries together are borrowers reduce poverty and improve the standard of living in the
called a group. When ownership is not shared and the subsidiary is wholly developing countries. It provides cheap loans for developing countries for
owned by the parent, it is called a branch. major industrial development projects (like dam building, power plants)
Franchise and other long-term investment projects.
This is a business selling named goods on the basis of a licence given by 9. FINANCIAL MARKETS (the stock exchange, investment)
a company to use its established brand name and sell its goods. The way the stock exchanges operate
Building society The stock exchange is a highly organised market where securities are
Operating on a non-profit basis, it pays interest on deposits made by the bought and sold. The issuer offers the security for sale on the primary
general public, and provides mortgages. market. The investor can sell the security any time on the secondary
Offshore company market. The over-the-counter (OTC) market has been created for
This is a firm based and registered in a tax haven to avoid higher unlisted securities which are not traded on an organised exchange. The
taxation. fall and rise of prices respond to changes in supply and demand. Blue
II. There are two main types of public enterprises. chips are the shares of the best-performing companies regarded as safe
1. Municipal undertakings investments. The Hungarian index, the BUX contains the liquid shares
These are businesses or services operated by local authorities. They are of companies with the biggest capital value. Fluctuations in the volume
financed by local council tax and charges made for the use of the service and the price of securities traded on the stock exchange are important
(e.g. theatres, sports centres). They may also be subsidised by grants indicators of the state of the economy.
provided by the government. Securities
2. State undertakings A company can issue shares to institutional investors or the general
These are businesses operated by the government on behalf of the public. public. Buying a share through a specialist company or a broker
The general policy is decided by the government in consultation with the gives its holder a stake in the company. Shares generally entitle their
corporation board, which is appointed by the government. owners to vote at the companys Annual General Meeting and to
receive a dividend in proportion to their investment. Ordinary
8. BANKING shareholders with equities only get a dividend if there is enough
The Hungarian two-tier banking system is made up of the National profit. Preference shareholders are entitled to get their fixed
Bank of Hungary and the commercial banks. dividends before ordinary shareholders.
The National Bank of Hungary acts as banker to other banks. It is the Bonds represent a loan for a fixed period with a fixed interest rate.
lender of last resort when there is no other source to borrow from. It is They can be either held till maturity or sold before maturity.
an independent financial institution responsible for the countrys Treasury bills are issued by the state and represent a safe investment
monetary policy. Its primary target is achieving and maintaining price with a state guarantee. If a company wants to raise money, it issues
stability. corporate bonds.
The central bank of the UK is the Bank of England. The Federal Reserve Portfolio
System is a decentralised institution performing central banking This is a set of investments made by an investor. A portfolio consisting
functions in the United States. mainly of bonds is regarded as a low risk-level investment. The addition
Some of the functions of a central bank are to: of shares to a portfolio of government and corporate bonds increases the
issue banknotes risk-level of the investment, but at the same time returns can be higher.
set the long-term interest rate Bulls and bears
make open market transactions (e.g. issues treasury bonds) Bulls are speculators who anticipating a price rise (on a bullish
regulate the exchange rate of the national currency market) buy shares in large quantities in order to sell them at a higher
regulate the amount of money in circulation price later. Speculators who sell their securities in the belief that prices are
guard the gold reserves and foreign currency reserves of the country about to fall (on a bearish market) are called bears.
maintain contact with international institutions
maintain the capital adequacy ratio 10. INTERNATIONAL TRADE
Commercial banks either separate the commercial function from the International trade the export and import of goods, services and
investment function (Anglo-Saxon model) or handle both (universal intellectual property enables the countries involved to offer a wider
banking). The most important requirements for banks are liquidity and range of goods. A countrys trade policy involves measures to regulate
solvency. They provide a wide range of services for private individuals foreign trade. The balance of trade (BOT) shows a countrys trade flow.
and corporate clients for which they charge a handling fee. Their major If it is in deficit, governments often take protectionist measures to make
source of profit is the interest margin. their own producers competitive on the world market. They can limit
Commercial banks perform the following services: free trade by imposing e.g tariffs or quotas on imports. Another barrier
to free trade is the granting of subsidies to domestic producers to boost
extend loans in the national and foreign currencies
exports. Non-tariff measures like national standards, slow administration
manage current accounts: meet standing orders, issue credit cards
and sanitary regulations are also considered protectionist tools.
and debit cards, make transfers, operate cash dispensers, send
Arguments for protectionism
monthly statements of credits and debits
manage deposit/savings accounts
 The main argument against free trade is definitely the defence of the
countrys economy for example new, infant industries must be 12. TELECOMMUNICATIONS
protected from foreign competition Telecommunications, supported by the electronic media, enable people to
The other major argument is the need to save jobs workers in exchange information with each other. This form of communication can
certain industries are in danger of losing their jobs owing to foreign take place through several media: mobile and fixed-line telephones,
imports television, radio, the Internet and telefax.
A state may introduce anti-dumping measures to protect domestic A good telecommunications infrastructure is widely acknowledged as an
producers important tool of economic success in the modern world. At the same
Disadvantages of protectionism time there is increasing concern about the digital gap, as access to
It results in higher consumer prices, and so stimulates inflation telecommunications systems is not equally shared among the worlds
It may subsidise industries and companies that are operating population.
inefficiently The wireless telephone market
It reduces the competitiveness of third world countries, preventing There are three mobile operators in Hungary, (T-mobile, Pannon and
them from entering the world market Vodafone) in fiercely competing with each other for gaining new
Liberalisation free trade subscribers and keeping their present customers with favourable
This is an economic policy which aims at the abolition or reduction of packages. As a result, the public benefits from both the improvement in
trade restrictions. It provides free movement of goods and services so the quality of the services and the fall in rates.
creating the conditions of free trade between the countries involved. Free Advantages of mobile communication
international trade allows a country to specialise in goods in which it has it is applicable everywhere if there is the required signal level it
comparative advantage, because of either resources or expertise, can save lives as well
therefore increasing its sales on foreign markets and making a greater not only voice, but images, music and videos can be transmitted
variety of goods available for consumers. It results in higher revenues each subscriber has his/her own individual phone number which may
and in the long run higher living standards for citizens. be kept independently of the service provider
The WTO the World Trade Organisation Disadvantages of mobile communication
The WTO, established in 1995, is an organisation operating a system of there isnt an adequate signal level everywhere
trade rules. Its predecessor was GATT (the General Agreement on Tariffs the battery can go flat
and Trade). Its major function is to dismantle the existing barriers (e.g the rates can be higher than those for wired telephones
agricultural subsidies). It also serves as a forum for governments to it can sometimes be disturbing (e.g. in the theatre)
negotiate trade agreements and settle disputes. These negotiations are The wired telephone market
called rounds. With the liberalisation of the wired market, T-com has lost its monopoly
with new service providers entering this market. However, for the
11. MARKETING newcomers the process of gaining market share seems to be slow. They
Marketing and advertising: the difference also face strong competition from the wireless market, therefore they are
Marketing making constant efforts to offer more and more favourable conditions,
Marketing is the creative process of satisfying customer needs profitably. such as broadband Internet access.
It deals with the following areas: advertising, after sales service, design, The information society
delivery and distribution, packaging and presentation, pricing, The information society is being created by the revolution in the
promotion, research, quality control and assurance and testing. The information and communications technologies accelerated by
marketing concept requires an organisation to be consumer-orientated globalisation. In a knowledge-based economy, information is of key
and to have an integrated marketing strategy. The marketing mix economic and cultural importance. The Internet has become
depends on a number of decisions with regard to four major variables (the indispensable for people and businesses, being the main source and
four P-s): channel of information. It is also a tool of e-commerce, either between a
- product (the product should be appropriate for the market segment it firm and the consumer: business-to-consumer trade (B2C), or between
is sold in) manufacturers, wholesalers and retailers: business-to-business trade
- place (the product should be available through the most cost-effective (B2B).
channels of Employment-related issues
distribution) The IT revolution has had both positive and negative effects on
- promotion (the product is presented to customers through advertising, employment. On the one hand it may bring about job cuts at a company
packaging, publicity, public relations and personal selling) owing to increased efficiency in business operations as a result of an IT
- price (the product must be priced so that it competes effectively with investment. On the other hand it can lead to the creation of new jobs
rival products in the same market) along with the growth of IT-related businesses. There are excellent
Advertising employment opportunities in the form of telework, as employers can hire
Advertising is an important element of marketing which is directed at a the best experts without having to worry about distance.
target audience. It reaches potential customers through several media
print media, outdoor displays (billboards, neon signs), radio, TV, 13. THE HUNGARIAN ECONOMY
cinema, the Internet, direct mail. There are three types of advertising: Macroeconomic indicators
consumer advertising, trade advertising and industrial advertising. Like most of the member countries of the EU, Hungary is also preparing
Arguments for advertising for accession to the eurozone. Before it can enter the European Economic
it informs the public about products and services and Monetary Union (EMU) and adopt the euro, macro data have to be
it influences the decision to purchase a good by allowing the consumer analysed in accordance with the Maastricht criteria. The most criticised
to make a more informed choice area is the twin deficit, the parallel deficit of the current account and the
it plays an important role in creating new needs government budget.
Arguments against advertising Measures to be taken to meet the convergence criteria
it increases costs and as a result, price Lasting budgetary equilibrium can only be achieved through structural
it forces customers to buy products children are especially sensitive reform of the expenditure side, making the introduction of austerity
to advertising messages measures necessary.
it can be deceptive In parallel, there is a need for an increase in budgetary revenues mainly
Banned advertisements through the widening of the tax and contribution base and limitations in
There are certain products the advertising of which is restricted or the scope of tax avoidance. Nonetheless, the changes affect all major
banned. These products, like cigarettes and alcohol, have an unhealthy components of the tax system.
and harmful impact on people, especially on children. In order to achieve a durable reduction in the budget deficit and to
Advertising techniques maintain a level to underpin sustainable growth, the government has
Some of the most popular techniques of persuasive advertising are: initiated substantive structural changes in health care, and in the pension
repetition of a slogan, endorsement, comparison of rival products, and education systems. These reforms are aimed at attaining the deficit
presenting scientific authority, making special offers and using emotional targets through the modification of operational parameters.
appeal.
In addition, there is also a need for an economic and social policy 15. SOCIETAL ISSUES AND THE ECONOMY
turnround by promoting a more efficient performance of public tasks The role of the state in the economy: fiscal policy
through appropriate state control, and strengthening responsibility for stabilisation: providing the necessary framework for the operation
payment of public dues. of the economy and evening out fluctuations in economic activity
Black and grey employment (i.e. stabilising the general level of prices, production, unemployment
Many people hide their real income from the authorities, and pay less tax and the value of the national currency)
and social security contribution than they are supposed to pay. This redistribution: collecting taxes and paying benefits in order to
results in a deficit in the social security system and lower tax revenues. decrease income inequalities
Illegal employment is rather common in Hungary, especially in the fields allocation: redirecting resources
of construction, industry and agriculture. The government budget
Ageing population This is the governments financial plan, which includes the estimated
The problem of fewer and fewer active people providing for more and revenues and expenditures for the coming year. The national budget is
more pensioners is hitting the whole of Europe. Hungarys labour force drawn up every year and is presented to Parliament by the Minister of
participation rate is one of the lowest in the region. In order to ease the Finance. The major source of government revenues is the income from
social security burdens, there is a general tendency to raise the taxation and duties. When the revenues do not cover the expenditures, the
retirement age. At the same time the desertion of young graduates to budget is in deficit. One way of covering the deficit is to borrow capital
Western Europe for better employment opportunities is on the increase. by issuing and selling government bonds.
The position of Hungary in the EU Areas of public expenditure
The unfavourable macroeconomic data seriously affect Hungarian The government makes corrections in the income and wealth inequalities
competitiveness. The neighbouring countries such as Slovakia, Poland among citizens through transfer payments, such as pensions, social
and the Czech Republic are better at attracting foreign direct investments security and unemployment benefits. Transfer payments also include
(FDI) by offering better conditions than Hungary. interest payments on the national debt and subsidies paid to farmers and
others. It is generally accepted that a government should provide a wide
14. MAJOR AND EMERGING WORLD ECONOMIES range of goods and services, such as law and order, (courts, the police)
Multipolar world national defence, public infrastructure and culture. There are services,
A global power shift is taking place from a unipolar world to a such as education and health care, which are provided by both the market
multipolar one as other emerging countries like Russia, China and even and the State.
India are stepping forward to take a bigger leadership role on the world The pension system
stage that the United States has so far dominated. The government has the responsibility of taking care of retired people.
The BRIC markets One can receive a pension from the social security authority. In the
There is a group of four countries within the emerging markets called the framework of the pay-as-you-go system, the pension contribution of the
BRIC markets (Brazil, Russia, India, China), which are the largest of the active population is paid to pensioners. Membership in a private pension
emerging markets. The BRIC countries are characterised by favourable fund also ensures payment for people reaching retirement age. Their
population trends (43% of the worlds population lives in these four payments are invested in safe state securities to earn interest for them. In
countries), plentiful natural resources (Russia is home to over 20% of the advance-savings system the money accumulating in their personal
the worlds estimated crude oil reserves), and a cheap, well-educated accounts will be paid in the form of an annuity or can be inherited.
labour force (India produces 5 million university graduates per year). Voluntary pension funds also provide security for the years after
Chinas growth retirement.
China has become a global power, contributing more to global growth in The ageing population
2007 than the United States, the first time another country has done so While overpopulation is one of the major causes of the problems the
since at least the 1930s. China has also become the worlds largest third world is facing, the developed countries welfare societies have a
consumer, eclipsing the US in four of the five basic food, energy and rapidly ageing population. The number of retired people has never been
industrial commodities. China has also surpassed the US to become the greater than it is today, and will continue to grow in the future. The
worlds largest emitter of CO2. increase in life expectancy makes disproportionate claims upon the
The 21st-century heavyweights social safety net (pension system, health care system, social benefits,
The world economy is increasingly powered by countries such as China etc.).
and India whose growth is far more energy- and commodity-intensive
than that of rich countries. Since 2001, China has accounted for about
half of the increase in the world's demand for metals and almost two-
fifths of the increase in oil demand.
The prices of many raw materials have surged in the past 12 months.
The Economist's dollar-based commodity-price index is up by 26% from
a year ago. The food index is up by almost 50%. The price of oil has risen
almost 80%. These jumps are the main cause of higher inflation across
the globe. They are also related, at least partially, to structural changes
in the global economy.
This shift means that the usual relationship between the USA 's business
cycle and commodity prices may change. Past American recessions have
sent the prices of oil and other resources down. That may no longer be so
as emerging economies become more resilient to an American recession
than formerly.