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TEXT 1. WHAT ARE THE WORLD BANK AND THE IMF?
While reforming Poland's debt-ridden centrally planned economy at the end of the 1980s, the Solidarity government received many large loans from the West, including development loans and assistance from the World Bank and the International Monetary Fund. These "sister" institutions, located across the street from each other in Washington, D.C., serve many roles, including supervising the world economy and providing “last resort” assistance to economies in need.
The International Bank for Reconstruction and Development (IBRD), referred to as the World Bank, provides development aid to the world's poor and underdeveloped countries. The International Monetary Fund (IMF), concentrates on providing advice and temporary funds for countries with economic difficulties.
The major role of the World Bank, the world's biggest development bank, is to provide a helping hand to countries in need. Its first activity, after being set up in Washington, D.C., in 1945, was to channel funds from the United States and other nations into rebuilding Europe after World War II. For example, its first loans were used to rebuild war-torn Holland, Denmark, and France. The World Bank now provides most of its loans to countries in the Third World, and receives a significant portion of its funding from the now wealthy nations it was initially designed to assist.
Like the regional development banks, the World Bank receives its funds from its rich member countries, which in turn provide it with the credit to borrow cheaply on the world's capital markets. This allows the World Bank to provide these funds at extremely favorable rates to needy countries.
In order to address the underlying causes of poverty in many developing nations, the World Bank often relies on the International Monetary Fund to encourage debtor countries to make difficult economic reforms. The IMF is also funded by wealthy member countries such as Japan, France, and the United States. It serves to supervise the international monetary system and acts as a safety net for economies in trouble.
Like a doctor called in at the last minute, the IMF is often asked to resuscitate ailing economies. This "structural adjustment" process is a crucial first step before receiving development assistance from other sources. Acceptance of an IMF plan is usually seen as a sign that a nation is prepared to seriously address its economic ills, paving the way to long-term funding from the World Bank and other sources.
The economic medicine prescribed by the IMF is often painful. For example, it often calls for debtor governments to reduce subsidies to failing state industries and insists on strict anti-inflationary measures such as increasing the prices of basic goods and services. During the difficult restructuring processes, the IMF often provides temporary “standby” loans to keep the country afloat until more long-term funding can be arranged.
TEXT 2. WHAT IS FRANCHISING?
When you hear the word 'franchise' you probably think of fast food restaurants like McDonald's, Burger King and Wendy's. But there are many more types of franchise businesses.
One out of every three dollars spent by Americans for goods and services is spent in a franchised business. Homes are bought and sold through franchised real estate companies. These same homes can be cleaned, painted and carpeted through a franchised business. Cars can be purchased, tuned and washed through franchises. We can have our hair cut, clothes cleaned, pets cared for all in franchised businesses. We can travel from one area of the world to another through franchised businesses.
Franchising is a method of doing business. It is a method of marketing a product and/or service, which has been adopted and used in a wide variety of industries and businesses. The word "franchise" literally means to be free. In this sense, franchising offers people the freedom to own, manage and direct their own business. However, as with any freedom, there are responsibilities. In franchising, these responsibilities have to do with the franchisee's commitments and obligations – usually spelled out in a franchise agreement or contract – to the franchiser. The franchiser is the one who owns the right to the name or trademark of the business. The franchisee is the one who purchases the right to use the trademark and system of business.
There are two different types of franchise arrangements: product distribution arrangements in which the dealer is to some degree, but not entirely identified with the manufacturer/supplier; and business format franchises in which there is complete identification of the dealer with the buyer.
Business format franchises offer the franchisee not only a trademark and logo, but a complete system of doing business. Indeed the word 'system' is the key concept to franchising. A franchisee receives assistance with site selection of the business, personnel training, business setup, advertising and product supply. For these services the franchisee pays an up-front fee and an on-going royalty, which enables the franchisor to provide training, research and development and support for the entire business. In a nutshell, the franchisee purchases someone else's expertise, experience and method of doing business.
TEXT 3. COMPETITION IN A FREE MARKET SYSTEM
Competition is a cornerstone of a free market system. However, competition exists in different degrees ranging, from being perfect to nonexistent. Economists generally agree that four different degrees of competition exist. They are called (1) perfect competition, (2) monopolistic competition, (3) oligopoly, and (4) monopoly.
Perfect competition exists when there are many buyers and sellers in a market and no seller is large enough to dictate the price of a product. Under perfect competition, sellers produce products that appear to be identical. Agricultural products are often considered to be the closest examples of perfect competition at work. For example, a buyer would be content to buy wheat from either farm A or farm B since there is little or no difference between the wheat and because the prices would be the same. Why are the prices the same? Remember, no seller is 14
large enough to dictate the price of a product. Price is determined according to the principles of supply and demand. Under perfect competition, the market is guided by Adam Smith’s invisible hand theory.
Now that you know what perfect competition is, you should also know that there are no true examples of perfect competition. Today, government price supports and drastic reductions in the number of farms make it hard to argue that even farming is an example of perfect competition.
Monopolistic competition exists when a large number of sellers produce products that are very similar but are perceived by buyers as different. Under monopolistic competition, product differentiation (the attempt to make buyers think similar products are different in some way) is a key to success. Think about what that means for just a moment. Through tactics such as advertising, branding, packaging, sellers try to convince buyers that their product is different from competitors'. Actually, the competitive products may be similar or interchangeable. Motor oil is a good example of this. One seller may inform consumers its product contains a super cleaning additive, a competitor promises more gas mileage, still another competitor offers faster acceleration. The buyer selects a particular brand as superior even though any of the three products would work in the car. Under monopolistic competition, limited barriers (such as a start-up capital) exist for new firms wanting to enter the market. Prices are set by individual sellers.
An oligopoly is a form of competition in which a market is dominated by just a few sellers. Generally, oligopolies exist in industries such as steel, automobiles, aluminum and aircraft. One reason some industries remain in the hands of a few sellers is that the initial investment to enter an oligopolistic industry is tremendous. Think what it would cost to build a steel mill or an automobile assembly plant. In an oligopoly, prices are generally similar rather than competitive. The reason for this is simple. Intense price competition would lower profits for all the competitors, since a price cut on the part of one producer would most likely be matched by the others. Product differentiation rather than price differences is usually the major factor in market success.
A monopoly occurs when there is only one seller for a product or service. Obviously, in a monopoly situation, both the price and supply of a product are controlled by the single seller. In the United States, laws prohibit the creation of monopolies. However, the legal system does permit approved monopolies such as public utilities that sell gas and electric power. These utilities’ prices and profits are usually monitored carefully by public service commissions that protect the interest of buyers.