Introduction to economics and business

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STUDENT: Hello, Teacher. Yes, I know what's coming up now! For several coming Modules you are going to lecture me about "Microeconomics"!

And I also know that "Macroeconomics is the study of how the economy functions in broad outline", because you lectured me on that one before. You have also told me before that "Microeconomics is the part of economics dealing with the activities of individual markets and firms".

TEACHER:. Good for you. I see that you remember my previous lecture on the subject of economics very well.

STUDENT: Yes, and I also remember having asked you "why should I, as a business person, be interested in macroeconomics"? Now, I will ask you this... why should I, as a business person, be interested in microeconomics?

TEACHER: Simply because economics is a very relevant subject if a business person is to understand the environment in which he or she operates. A skill that may help the business to be successful, of course.

STUDENT: You mean to say that to be a good business person I need to be a good economist?

TEACHER: Not exactly. A deep knowledge of economics is neither necessary nor sufficient for being successful in business. However, a good grounding in economics will help you to analyze business situations much better. Now let me ask you something? Do you know what kind of science economics is?

STUDENT: I remember something like "the dismal science".

TEACHER: That was ages ago, when Malthus made very negative forecasts about what would happen as population increased faster than food production. No, the answer I was hoping for was "economics is a social or behavioral science". And this is so because basically economics deals with how people behave in different circumstances. By the way, you know who Malthus was, don't you?

STUDENT: Thomas Robert Malthus (1766-1834) was an English economist, sociologist, clergyman and pioneer in modern population study. Malthus argued that poverty and distress were unavoidable because population, when left unchecked, increased faster than the means of subsistence.

And getting back to your definition of economics, what it means is that what economists do is theorize on behavior. Is that all?

TEACHER: After congratulating you for your encyclopedic knowledge, let me tell you that economics is a social science that tries to explain the behavior of the economy; more exactly, the behavior of the economic agents which are, after all, people. Naturally since economics is not an exact science, economists develop theories which are sometimes called economic models.

STUDENT: And why and when are these models useful to a business manager?

TEACHER: Economic models are simplifications of the real world. They may be useful in explaining how the world works. Of course, the ultimate test of how useful economics is to business is... does it really explain or accurately predict what is going on in the real world?

STUDENT: Fine. And so which is the subject we will discuss in this first Module of microeconomics?

TEACHER: We will outline some of the key topics that are of interest to both economists and business persons. Later you and I will discuss them in greater detail.

To begin with, let me state that all business firms operate within a market. Would you attempt to define what a market is?

STUDENT: Sure. A market is the environment in which suppliers and demanders of a given product or service interact. And let me add that this interaction determines what is produced and consumed and in what quantities.

TEACHER: A very good "economic" definition. Obviously you mean that this "determination of what is produced and consumed and in what quantities" is reached via the price mechanism, the result of the interaction of suppliers and demanders in the market.

STUDENT: Sure. And I may add that this is why any business person must have a very good understanding of the markets in which he or she operates. But I have a question. Do all activities of a firm actually take place in a market?

TEACHER: Not necessarily. A key question for managers of firms to be asking all the time is: should we be doing activity X within the firm, or should we buy it the market from another firm? In other words... should we make it or purchase it?

STUDENT: So, an activity conducted within a firm is an alternative to a transaction in the market.

TEACHER: Exactly. While firms always operate in some market, they also perform internal activities, and one of the key economic issues managers face is to decide which transactions should be internal to the firm and which ones should be left to the market.

STUDENT: I see; and it seems to me that lately there has been a strong tendency towards "farming out" functions.

TEACHER: True. From administrative tasks to manufacturing, more and more functions are contracted in the market. EDS and IBM have dramatically increased their taking over of IS activities from firms; and farming out manufacturing to "toll producers" has also increased very much.

The theory of the firm

But allow me to expand on the subject of markets, and mention "the theory of the firm". When we discuss how markets work, we are primarily interested on the determination of the price and quantity sold of specific products.

* The theory of the firm will be used to study the supply decisions of firms.

* Consumer demand theory will help us to generate predictions about how demand will change in response to changes in key economic variables, such as the price of the product and the incomes of consumers.

The Economics Of The Firm

While in a large economy decisions are made by an enormous number of participants, many of which are individuals, one of the key economic decision-making units is the business firm. Can you imagine why this is so?

STUDENT: Well, the business firm is an economic actor that hires workers, buys inputs, and produces some product that it then sells in the market. Of course, a firm may be organized in many different ways from a legal point of view; sole proprietorships, partnerships, corporations, etc.

TEACHER: True, but from the economics point of view the firm is an entity in itself that is conceptually separate from its owners and workers.

STUDENT: And what is the conceptual difference between the word 'firm', and others such as 'business', 'enterprise', 'company', 'corporation', etc. ?

TEACHER: Conceptually, there is no difference at all, according to the broad definition given above. When I use the word 'firm' I will be referring to this broad definition. Obviously, sometimes I will refer to specific types of firms, since in fact there are important legal (although not economical) differences between a partnership and a corporation, for instance.

Now please allow me to discuss...

The elementary theory of the firm

We call it the elementary theory of the firm because in order to simplify the "model", we discuss a single-product firm; usually the product is assumed to be a manufactured one.

STUDENT: Is this not an over-simplification?

TEACHER: No, because the principles involved can be applied to any firm. What is it that any firm typically needs in order to manufacture any product?

STUDENT: I'm sure it needs plant and equipment, and workers to operate the equipment and for ancillary tasks. It must also buy inputs, such as components, raw materials, energy, etc.

TEACHER: Right. How would you, in general, call the plant and machinery a firm employs?

STUDENT: You are obviously referring to land, buildings, machines, tools, vehicles, etc. This is often referred to as capital or capital goods. But I am a bit confused. There is no question that land, buildings, etc., are capital. But we also often speak of capital when we talk about money in the bank and other financial assets.

TEACHER: Good point. In the theory of the firm "capital" will generally be used to refer to physical capital, such as plant and equipment. Of course the word capital is also validly used to mean financial assets, such as "working capital", which is not invested in physical capital. But again, in the theory of the firm we will in general use it meaning physical capital

STUDENT: Fine, now I understand. But I have another question. Since the theory of the firm is based on a single-product firm, does this mean that economics can not deal with multi-product firms?

TEACHER: Economics can deal perfectly well with multi-product firms. As a matter of fact, these firms are an important topic in the branch of economics known as Industrial Organization. Don't worry, we will discuss this matter in one of the following Modules of this Subject.

STUDENT: Would you please summarize what exactly the theory of the firm is about, in practical terms?

TEACHER: Sure. In the theory of the firm, we analyze how the technology used in production, combined with input prices, affects unit costs as the volume of output is changed. We also discuss how the demand for the firm's product changes at various prices.

STUDENT: Sounds great. And what is the usefulness of all this analyzing?

TEACHER: The importance of all this is that, given the cost structure at different levels of output and the market demand at different prices we can conclude what level of output will maximize the firm's profit.

STUDENT: A precise way to put it, Teacher.

TEACHER: Thanks. And since I mentioned "market demand", let me tell you that the choices available to firms in the markets they sell to are very much influenced by the competition in those markets.

STUDENT: Easy to agree with; and I'd add that, to some extent, the firms may also be constrained by the competition in the markets where they purchase their inputs.

TEACHER: True. Competition in the market a firm sell in may be more or less intense depending upon the availability of similar or superior products, potential substitutes, and the number and characteristics of competing firms. There are basically three types of markets from the point of view of the structure of the competition.

Perfect competition

Under perfect competition, there are many firms in the market producing an identical product and none of the firms is sufficiently large to influence the market price. Can you think of an example?

STUDENT: I guess they are not too many examples for manufactured products, but in general producers of commodities such as those of grains, crude oil, etc. operate under perfect competition. An let me add that you forget one conditions, which is that for a market to operate under perfect competition all buyers and sellers must be constantly informed of the prevailing price at which transactions are taking place.

TEACHER: Good observation. Not let's describe...

Imperfect Competition

The most common structure in which firms operate is imperfect competition. In this type of market there are a finite number of competing suppliers, each selling differentiated products that can, to varying degrees, be substitutes for each other. What type of situation do you think firms face in these types of markets?

STUDENT: I guess most firms will have to make decisions about how much to produce and at what price to sell.

TEACHER: Correct. And also of course they have to worry in varying degrees about what the competition is doing. Now let me ask you ... what type of competition do you think would be in extreme contrast to perfect competition?

STUDENT: This is the M word: monopoly!

Monopoly

TEACHER: Right, monopoly. This is a situation where there is only one producer of a product; the single producer faces no competition from other local producers and the product can not be imported.

A monopolist has the power to set not just output but also the price of the product.

STUDENT: Nice situation for any business to be in!

TEACHER: Sure. No other suppliers can take market share from a monopolist. But while monopoly may be good for the firm involved, it will generally be bad for consumers, because the monopolist will tend to charge higher prices than those that would prevail under a competitive situation.

STUDENT: Naturally, I'm sure this is why most countries have regulations to prohibit monopolies, or to control them when they can not be avoided -cases like water, electricity or local telephone service.

TEACHER: The latter are examples of "natural" monopolies, where under prevailing technologies consumers would have to pay more if several firms were competing in the market, than they pay if a well regulated monopoly is allowed. The key word is "prevailing technologies"; long-distance phone service used to be a natural monopoly years ago, but this is no longer so due to modern communications technology.

The basic condition for a monopoly to operate is the existence of some barriers to entry, like those given by patent protection.

But let's return to the commonest type of market, imperfect competition. This type of market lies between the two extremes of perfect competition and monopoly, and involves a range of different cases. In general, imperfectly competitive markets involve products that, actually or in the mind of the buyers, are similar but not identical. Can you think of another condition?

STUDENT: There are a limited number of potential producers, each of which can influence the others by its own behavior; changing output, prices, advertising, etc.

TEACHER: True. The most common cases of imperfect competition are oligopoly and monopolistic competition.

Oligopoly

Oligopoly exists where the market is dominated by a small group of competing firms. Most large firms operate in this type of markets. Just as an example, let me mention the PC (Personal Computer) industry. Here each firm is greatly affected by what its close rivals do in terms of product prices and innovations.

Monopolistic competition

In this type of markets there are many firms but in general their products or services are differentiated. The restaurant business is a good example, especially if we exclude large chains. Each individual restaurant not belonging to a chain, has a small share of the market as in perfect competition; but the difference is that the restaurant has some discretionary power on the prices it charges. Why do you think this is so?

STUDENT: Because, in contrast to perfect competition markets, here the products are not exactly alike. Restaurants are differentiated by physical location, the type of food they offer, the quality of food and service, ambience, prestige, etc. I am sure this is why they have some price fixing power, but it certainly is a limited one. At some point customers will be willing to travel farther for a meal and/or accept other types and qualities of food and service.

TEACHER: Exactly. Now let's discuss the following theme: What determines the behavior of the business firm?

Motivation Of The Firm

What do you think is the best answer to that question?

STUDENT: I'd say, as a first approximation, that a firm attempts to maximize profits. Let me add that profits are defined as the difference between the firm's revenue (or gross income) and its costs.

TEACHER: That all firms attempt to maximize profits is not an unreasonable assumption indeed, since most businesses appear to be interested in making money. The decisions a firm should make in order to maximize its profits are determined by the current state of technology.

Technology, Inputs, And The Production Function

Technology is the total knowledge available concerning the production of certain goods or services. Firms are limited by the current state of technology. In making its decisions, the firm must take this into account.

Input is anything the firm uses in its production process; machines, energy, raw materials, labor, etc.

The Production Function

For any final product, the production function is the relationship between the quantities of various inputs used per period of time and the maximum quantity of the product that can be produced per period of time.

Now, Student, in analyzing production processes we suppose that all inputs can be classified into two categories. Can you guess what these two categories are?

STUDENT: I sure can try. Some inputs are fixed (such as the machines available at a certain point in time) and other inputs are variable; those whose quantity can be changed during the relevant period. In the latter category we may mention, with natural limitations, labor and raw materials.

TEACHER: Good. Whether an input is considered variable or fixed depends on the length of the period under consideration. The longer the period, the more inputs are variable, not fixed. In general we can define two time periods: the short run and the long run.

The short run is defined as the period of time in which at least one of the firms inputs is fixed. Since the firm's plant and equipment are among the most difficult inputs to change quickly, the short run is generally understood to mean the length of time during which the firm's land and equipment are fixed.

The long run is that period of time in which all inputs are variable. In the long run, it is assumed that the firm can make a complete adjustment to any change in its environment.

Average Product Of An Input

In order to determine which production technique -that is, which combination of inputs- a firm should use, it is necessary to define the average product and marginal product of an input.

The average product of an input is the total output divided by the amount of input used to produce this amount of output. Example: In an eight hour shift a machine can produce 800 units of product; the average product of the machine is 100 units per hour.

The marginal product of an input is the addition to total output due to the addition of the last unit of input while other inputs used being held constant. Example: assume that a machine makes chocolate tablets which are then put into cases by hand. With the same machine and ten workers putting tablets into cases we can produce 1000 filled cases per hour, an average of 100 cases per worker. If we add one worker, we can produce 1090 cases per hour. The marginal product of a worker is 90 boxes per hour.

STUDENT: Why is it that the additional worker only adds 90 cases of product, while the average of the first ten workers was 100 cases each?

TEACHER: Ah, this is because you have the infamous law of diminishing marginal returns working against you! Which is perhaps the best-known, and certainly one of the least-understood, laws of economics

In short, the idea is that if equal increments of an input are added, the quantities of other inputs being held constant, beyond some point the resulting increments of product will decrease. That is, the marginal product of the input will diminish. The reasons for that general law to apply are different in different situations. In our example we can assume that the chocolate tablets coming out of the machine move on a conveyor belt from which the workers take them to put them into cases. As you put one more person to work on the same conveyor belt, the workers will possibly have less space to work efficiently. It is also possible that the 11th. worker is less trained and efficient than the first ten. By the same token, if you add a twelfth worker it is likely that the marginal product of this additional person will be less than 90 cases per hour, an so on.

THE OPTIMAL INPUT DECISION

Now we are in a position to answer a very important question; what is the optimal input combination to maximize profits? In other words, assuming that the firm is going to produce a particular quantity of output, what combination of inputs should it choose to maximize profits? Any comment?

STUDENT: Well, obviously to maximize its profits the firm must minimize the cost of its output.

TEACHER: Yes, this seems obvious enough. OK, the let me tell you now that "the firm will minimize cost by combining inputs in such a way that the marginal product of a dollar's worth of any one input equals the marginal product of a dollars worth of any other input used".

STUDENT: Now is does not sound so obvious. Can you explain what this means?

TEACHER: Sure. Going back to our chocolate tablets example, let's assume that the firm could either change the speed of the machine -consuming more or less energy per hour- and/or change the number of workers operating the packing line.

Within the practical limits of the machine and the space available for workers, the firm will combine speed of the machine and workers in such way that the additional cost of producing one more case is the same whether machine speed is increased or a worker is added.

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The free economic zone of transition in Georgia

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There are a lot of free economical zones in the world. What priorities will it have to form free industrial zone in Georgia, and what will make it successive?

We may consider geographical location of the country, also closeness with Azerbaijan, Armenia, Russia, Turkey, Ukraine, and markets of Middle Asia to be prior for forming free industrial zone. It must also be foreseen, that direct neighbor of Georgia on the Black Sea is Euro Union.

It must be mentioned, that Sea port of Poti is the larges in the Black Sea. It is the largest port servicing dry Caucasian cargo, it is situated on the TRASECA corridor and it the most important part of Caucasian transit transporting web. The port is connected by direct sea directions with Europe and Asian largest ports, has direct ferry connection with Ukraine, Russia, Bulgaria. The port is connected with the railway web of the country, it is connected with every Georgian city with the automobile road, has relations with Poti airport and international airport of Batumi. The seaport serves all kinds of cargo. It has received ISO-9001-2000.

Poti port can widen conductivity and serving more then 25 million tones of cargo annually.Together with geographical location, closeness with international transit arteries and cheap working force also are considered to be prior.

They are going to open free industrial zone on 400 hectares, it borders to the seaport from the north and followed the sea beach line.

Exactly advantage location of free economical zone and extremely liberal legislation system must provoke attracting foreign investments, as investment environment in Georgia is not very attractive from the various points of view. First defining factor of the investment environment is the size of a market. Larger is the market size, the more attractive it is. Georgian market doesn't differ with large scales.

Second factor is legislation. Georgian legislation is liberal. Heritage Foundation considers us to be attractive country in this direction. According to the index of economical independence, Georgia occupies 32nd place. This means, that there are quite liberal barrier for displaying providing business and industrial initiatives in Georgia.

An interrupting factor is political instability. It is known, that inventors pay large attention to the political stability and investment guarantees. A problem of territorial integrity of our country, what puts Georgia under the permanent danger of war is also added to all, mentioned above.

There are some problems from the point of executing law. Fixed facts suppressing private property influenced negatively upon investment surrounding. It is important to provide profitable activities and creation of the mechanisms of legislative protection.

Qualification of working forces is also a serious problem. it is very low in Georgia. Intellectual resource is also reduced.

Main reason of creating free industrial zone is attracting investments, growth of business activity in the region and achieving employment. For this the country must form advantage financial conditions to the investors, for making their choice for the benefit of Georgia among many others. We'll see in the future how much successful the functioning of free industrial zone is, and if inflow of investments take place.

They call free industrial zones off-shore ones. These are the territories, which are under the doubtful sight of everyone, because of being uncontrolled. Its creation in Georgia has been followed by opposition and critical dependence. Most of Georgian experts have negative dependence upon free industrial zones, because it is considered to be the sphere of unreduced actions of private interests of definite persons, for whitening "black money", selling capital in the way of avoiding rules and taxation, perspective of which in Georgia is very doubtful. To their mind, it is incomprehensible, why is there any need of founding free economical zone in such country in which there have been made important steps towards liberalization of economical and industrial surrounding. Complete liberalization of foreign trade took place in the 90s. This meant that export was released from taxation. Tariff-free reductions, as quoting and licensing were abolished. Since 1998, currency operations have complete independence. In 2006 they reduced high custom tariffs. Today custom tariff on agricultural production is 12%, on building materials - 5%, others are zeroed. They simplified licensing and rights on beginning industrial activities and their realization. A professor, economical expert Vladimir Papava exclaims: "creating free economical zone under the conditions of free economy is the most ineffective step. Exactly for this I consider creation of free economical zone in Georgia to be nonsense".

He finds following explanation to his point of view. There are countries of two kinds in the worlds - those, which have surplus investments and which suffer lack of them. Countries having surplus investments strengthen inner investor in its free economical zone. I.e. the country forms such conditions, that the investor invests money in the free zone at the territory of his/her country and doesn't take it out of it. Creation of free economical zones in the country being in hunger of investments hardens the situation, as the investor doesn't come in the country itself, but in the zone. Local investor will try to do same. Georgian economy is not firm and creation of free economical zone will ruin economy of whole country.

The expert Temur Giorkhelidze writes: "the fact, that something will be done in one town and whole country will be raised is illusion. One zone will not stand international capacity. Development of insufficient industrial surrounding at whole territory of the country will cause chaos in this zone!"

Authors of the project and supporters of founding of FIZ estimate its foundation to be positive and consider that Georgia will be better developed and will overcome poverty easier if the economy is more open and liberal.

The author of the bill Kakha Benduqidze considers such zone to be necessary for increasing business-activity in Georgian regions. This will be industrial zone with high technologies and processing industry, in which industrial persons will work in the zeroed regime, which will make additional stimuli for providing their business.

Deputy Minister of economics Vakhtang Lezhava writes: "there is quite liberal regime of business regulation in Georgia. Main goal of making free industrial zone is to create more liberal industrial surrounding in the definite territory of the country to be oriented towards real employment". Lezhava exclaims, that "Georgia will not turn into the off-shore zone, there is no preconditions for this". According to the governmental statement, free economical zone will bring economical raise to the country.

Thus, creation of free industrial zone has been followed by various points of view. There is a permanent question - "What will foundations of free industrial zone bring to Georgia?" in such situation they often say, that "a stick has two ends" or there are as positive, so negative sided of it. They must provide analyzing, which side surpluses another and make advantage decision, is it positive or not to found FIZ in Georgia.

Let's discuss expected dangers and problems of founding free economical zone:

foundation of FIZ is followed by expenses, at the first stage because of tax payments, and this reduces budgetary incomes.

Attractive legislative regime of free industrial zone will give rise to the inflecting investments to one concrete region of the country at the expense of other ones. This will ruin less interesting regions from the point pf investments. This may give rise to the opposition among various regions, as people living in this or that region may say that they are oppressed and have no opportunity for being developed.

It is defined by the law, that free economical zone may be founded at any territory of the country, i.e. it is possible to open it in every region. This is exactly where the experts see the danger, as foundation of FIZ is possible on those border territories, in which there is ethnical variety, as free industrial zone comes out of economical domain of our country and it becomes possible to be completely integrated for the territories of neighbor country from the economical point of view.

it is negative as there will be another uncontrolled territory in the country, in which trade may also not be controlled, as on the sections of Roki - Down Zaramaga and Adler - Gantiadi. It will be very difficult to realize custom control

it is necessary to foresee special measures of security, for not letting production provided on the territory of the zone to get to the inner market by the illegal ways. They must reduce entering and outgoing ways maximally and their strict controlling. There is a danger of contraband in the free economical zone. They see danger in the existence of fictive firms, which will pull amounts. Though the authors of the project exclaim that there are levers in the law for avoiding this danger.

Free industrial zone will give rise to the danger of "whitening" money. There are a lot of methods of "whitening" money. Operations related with cash money, illegal usage of banking and other financial institutions, operations related with expensive movable and unmovable property, gambling games are considered to be classical mechanisms. The simplest way of "whitening" money is in the process of privatization and in the free zones. A free zone is the best way for entering commodity in the contraband way.

It's well-known axiom, that, in those countries, in which liberalization of economy, opening borders, transit development, entering foreign investments, increasing movement of physical persons are in progress, in the countries, where quite large part of the population is abroad and which is surrounded by ill-disposed countries, possibility of "whitening" "black" money is very high.

Georgia "satisfies" almost every condition named above and it may be considered one of the zones for "whitening" money. The fact that so-called off-shore companies, which represent symbols of "whitening" money provide activities in Georgia, strengthens this danger.

To my mind, danger of "whitening" money is higher in FIZ, than at whole territory of Georgia, foreseeing the fact, that registration of such enterprises, as banks is prohibited in FIZ. To my mind, this process is in progress in Georgia today anyway, because foreign investors, placing their sources in Georgia do not belong to the number of transparent capital owners. In fact, there is no civilized capital flowing in Georgia. Invested capital is entered by the firms registered in off-shore zones (for example, from Marshal and Virginia isles), and this, of course, means, that they are doubtful.

Free industrial zone, to my mind, will support growth of inflation. Foreign investments will enter FIZ. This will give rise to the growth of masses of foreign currency in the country, which devaluates it in relation with Lari, and this is bad for export.

There is no political stability in Georgia, rights of the owners are abolished, and working force is not qualified. Permanent changing of legislative system is still continuing. According to this, there is a danger, that foreseeing disadvantage business environment, short termed foreign capital of doubtful appear will enter FIZ, which will run out of the country as soon as the conjuncture worsens a little and thus provoke finance-economical destabilization.

There is danger in selecting an operator. FIZ wouldn't b successive, if it operator were not recognized worldwide and a successful investor in this business. For being successive, it is also necessary to make Georgian FIZ a part of industrial infrastructure of the world and integrated chain.

Creation of free industrial zone has its positive sides. There are large possibilities for business development and growing business activity. It is possible to develop backward region, and zeroed taxation regime will be additional stimuli for providing business.

A positive side of free industrial zone also is the fact, that leading technologies and Know-How will enter the country.

It will increase inflow of foreign currency, because, the capital is objective in its nature it moves towards the place, where there is low payment. Inflow of investments gives the possibilities for economical and social development. Investments will give rise to the creation of working places, relatively - employment.

Creation of free industrial zone in Georgia, as a they say, is not calculated for fiscal effect, it is necessary to provide investments and create attractive surrounding for new business and new working places.

With free industrial zone export potential may be increases. The largest part of manufactured production will be for export that will definitely be successive for Georgia, as firming Lari in the country gave rise to the rise the price of export and worsening taxation balance. For example, data of covering import with export was 32% in 1995; in 2000 it grew up to 46%, for today it is reduced till 23%. From 1995, till 2007 the volume of export has been increased 8 times, and 11 times - of import. Nominal WIP at the same period has been increased from 3.9 Billion Laris to 17 billions i.e. 4.36 times, while real WIP has been increased only per 2.1. Exchange rate of the currency gave rise to the worsening of taxation balance. Only 10% of the production manufactured in FIZ will be permitted in Georgia, others will be exported to other countries. This will provoke improvement of taxation balance.

Free industrial zone - from the point of territorial integrity. FIZ is directed towards territorial expansion. Its territory duels in 5-10 years. if FIZ of Guria-Samegrelo works successfully, Guria-Sukhumi-Ochamchire will join it. Separatists will not be able to block all good of FIZ. For example, Turkish separatists of North Cyprus requested themselves to join economically successful Cyprus.

To the experts' mind, economical integration is necessary. They must make joint investment projects with Abkhazians and Alanians. Founding such zones will give rise to the centralized lob in the conflict regions, which will play positive role in the affair of regulating conflicts. Though, this is only a dream today, as it is known, that they need very good control and stability. If realization of good administration is possible in the conflict regions and the investors have feeling of stability, it will be really possible to create FIZ there. In the modern reality it is utopia, though we can not exclude anything in the future.

Creation of free industrial zone is already decided and it will be activated very soon. FIZ is expected to be an impulse for economical development of Georgia, though opening of free industrial zone is not a miracle, there mustn't be surplus expectation, it is a permanent process, which will bring first results in 5-10 years.

Modern century is of globalization. A process of economical globalization in the world will not be avoided by Georgia and it will be progressively integrated into the world economical system. The process, to our mind, has already begun. Foundation of free industrial zone speaks for this.

Georgian government passed the law "about global competition abilities of financial sector", which foresees foundation of financial center. Main goal of the law is integration of Georgia to the world financial system. Articles involved in the processed "revolution legislative" package touches upon founding off-shore zone in Georgia. We mean foreign banks and assets per ten million dollars. According to the articles put in the law, the banks' profit up to 100 million dollars will not be taxed. They also touch upon providing the rule of taxing banking-financial operations, capital movement and so on.

How much does it matter to found financial center in Georgia on the background, when financial centers of London, Milan and Hong-Kong are on the highest level of development and need no representatives in Poti. In case, if we offer them taxation oasis and really advantage conditions, they may stop their choice on Georgia. Though it will not be enough, as foreign investors pay large attention to the countries distinguished with economical-political stability, to the category of which Georgia doesn't belong. There is no institutional, technical-economical infrastructure and a mechanism of protecting property is very weak in Georgia.

Notwithstanding everything, integration of Georgia in the world economical domain is inevitable and this is only matter of time, because under the conditions of total globalization no national state may exist without total financial economical space.

Major Economics Business

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Jesli chcesz, mozesz mial znany bardziej przed trafien to recesja gospodarcza i znajdziesz samodzielnie sposobów burzy mózgów out to MES, nastepnie byc moze pursing ekonomii Business glównych jest dla Ciebie! College ekonomii, uzytkownik pozna wielu aspektów dzialalnosci, zarzadzanie, finansowanie, gospodarczego i korporacyjnych planowania, oprócz kwestii zarzadzania pieniedzy dzisiaj. Wiekszosc osób pracujacych w ekonomii stosowanej zajmuja stanowiska jako osrodków prognostycznych, analitycy, rynku naukowców, rzad pracowników i personel pomocy technicznej klienta.

Jak slyszales moze, wybór szkoly i dazenie do pewnego stopnia sa niezwykle wazne dla okreslenia sukcesu w ekonomii. Prawie kazda szkola oferuje makro ekonomii i Mikroekonomia kursy, ale naprawde uzyskac naprzód, warto pobrac do absolwentów szkoly z najlepszych wydziale ekonomii mozna znalezc. Najlepsze szkól moze oferowac bardziej Namietne nauczycieli, better praktyk opcje, bardziej rozlegle obszary badan i sortowania prestiz bedziesz musial patrzac rozpoczac swoje kariery na rynku konkurencyjnego robocizne.

Przy wyborze klas z szkoly wydzialu ekonomii, najlepszym rozwiazaniem jest podjecie wiecej kursów matematyczne! Mozna go latwo zepchnieta w studiów, jesli nie jestes krysztalowo na statystyki, rachunku calkowego i pojecia matematyczne. Podczas którego próbowano uzyskac swój licencjat z ekonomii, byly prawdopodobnie skanowanie opcje kurs dla "latwe electives" i sposobów ciagniecie Twój GPA w góre. Jednakze absolwent Szkoly opieki wiekszosc o jakie klas twarde zostaly podjete i jak równiez zostala w nich, zamiast Twojego GPA jako calosci. Nalezy sie upewnic, podjecie analizy rzeczywistej, rachunku calkowego i ekonometria, jak klasy te beda zywotnie istotne dla wyrozumialosc.

Aby uzyskac stopien undergrad w ekonomii Business, studenci uczestniczacy akredytowanych ekonomii Uniwersytetu beda musialy podjac kursy jak makro ekonomii, Mikroekonomia, Ksiegowosc finansowa i sprawozdawczosci, calculus, statystyki ekonomii, ekonometria, pieniedzy/bankowosc/kredytu, dzialalnosci pisania, gieldzie, ekonomii pracy, pienieznej ekonomii, teorii miedzynarodowego handlu, prawa i ekonomii, organizacji przemyslowych, ekonomii i strategii biznesowej, organizacyjnej psychologii, formalnymi organizacjami i polityka i gospodarki.

Srednia poczawszy od wynagrodzenia dla ekonomistów jest $38,000 dla zdobyl dyplom, $48,000 dla kapitana i $70.000 tytul doktora, zgodnie z badania krajowe stowarzyszenia przedsiebiorstw ekonomii 2002. Mediana dochodów dla glównych ekonomii jest wyzsza niz inne glówne, ekspertów powiedziec. Ekonomia badania sugeruja, ze ekonomii glówne kierunki studiów zarobic 20% wiecej niz administracji biznesowej glówne kierunki studiów, 19% wiecej niz rachunkowosci glówne kierunki studiów, 18% wiecej niz handlowe glówne kierunki studiów i 15% wiecej niz finansów glówne kierunki studiów. Gdy potencjalnemu pracodawcy widzi to glówne na zyciorysu, on lub ona niezwlocznie rozumie, ze uzytkownik musi solidna podstawe matematyczne, polityka, biznesu i teorii ekonomicznej. Twój stopien wskazuje równiez, ze masz zdolnosc przetwarzania zlozonych zagadnien i rozwiazac problemu, który jest cennym w dowolnym polu.

Zgodnie z US News & World Report, Harvard University w Bostonie Massachusetts jest najwyzej oceniane szkoly dla przedsiebiorstw ekonomii. Uniwersytet drugie najlepsze w tej dziedzinie jest Stanford w Kalifornii i Northwestern University w stanie Illinois. Po górnej trzy inne opcje Kolegium ekonomii obejmuja na Uniwersytecie Pensylwanii (Wharton) w Filadelfii, w Massachusetts Institute of Technology (Sloan) w Cambridge, University of Chicago, UC-Berkeley w Kalifornii, Dartmouth College w stanie New Hampshire, Columbia University w Nowym Jorku i na Uniwersytecie Yale w stanie Connecticut. Jest to wysoce zalecane osób szukajacych aby pozostac konkurencyjnym w ich dzialan pole zaawansowane edukacji z kapitana lub PhD firmy.

W przeciwienstwie do undergrad wydziale ekonomii w szkolach grad wyglada pielegnowac talent najlepsze i najjasniejsza. Wiekszosc studentów sa przyznane druzyna, assistantship, grant, stypendium by stworzyl czesne umorzenie lub miesiecznych szkolenia na pokrycie kosztów programu i koszty utrzymania. Nalezy pamietac, ze bedziesz mozna wymagac duzo pracy dirty za Twoje pieniadze, podobnie jak klasyfikowania, nauczania, wyklady, prowadzac pobran posiedzenia sekcji, badania i pisania. Jezeli wiele studentów sa dopuszczone, nastepnie moze nadal trzeba placic lub poszukiwania NSF dotacji na wlasne. Dobra wiadomoscia jest to, ze po wszystkich ich ciezkiej pracy, 99% absolwentów szkól uzyskac umieszczone na pozycje ekonomii stosowanej right out of grad szkoly.

Spotlight on the courses of Economics

Economics is one of the busiest periods, which are widely used in nearly every industry. According to the dictionary, which means that you can set up as a branch of social science, which essentially deals with the production, supply and consumption of goods and services and their efficient management. Today the term is more than the usual fields of science and primarily defines the bold approach to solving the multidimensional, which usually faces the nation. These days the test economics is most often used to develop plans, which may help in the fight against unemployment, poverty and raise problems, such as recession, inflation and the adverse balance of payments, etc.

Knowledge of Economics is commonly used to accelerate the growth of the economy in the world. It is used to achieve and maintain growth with stability. In fact, the best benefits of studying economics is that it provides for a right of knowledge on the impact of developments in society, business and the world economy. In the past few years economics has produced some of the most attractive career fields like Business Economics, Industrial Economics, labour economics, with agricultural economics, and many more. As a result, the ratio of universities offering courses in economics, phenomenally increased over the past few years. Courses in economics are among the most prestigious and many students are logging programs Bachelor's or master's specialization in different highlighting areas of the economy.

Economic courses that a student generally differ depending on the College or degree that you can choose. For a master's degree, the course covers subjects such as advanced economic theory, econometrics, and labour economics, undergraduate level, on the other hand, includes, in principle, Macroeconomics, Microeconomics and Econometrics. Although the course is of universal application, but jobs are open to all sectors of the economy.

Today, students who have completed a course in economics are in high demand in financial institutions. Many of the bodies of the international trade, investment planning, organization, together with leading management consultants are hiring graduates of economics. Due to the increase in his career after completing a course in economics, you can hold some of the most prestigious jobs such as senior analyst, senior economists, economic advisor or associate in economics. In addition, you can also start their career in investment firms, newspapers and business magazines. Some of the other classes, which provide for the possibility of Economics academicians are urban development and planning resources. In addition, those who have deep interest in research higher degree courses and optional in this fashion in order to take a position higher.

Today, the ratio of pupils opting for the economic courses is increasing and will continue in the coming years. So if you have interest in and the necessary skills or thinking, his career in the field of Economics would be the perfect choice.

Poverty reduction: the objective of Islamic Economics

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Poverty is treated as WMD (weapon of mass destruction) of modern world. Eradication of it bears very importance. The economic systems like capitalism and communism have presented number of instruments for the alleviation of the poverty from the world. But, these extreme ideologies failed to satisfy the need of the people. Private ownership of property, laissez-faire policy of capitalism and class war, dialectical materialism, state ownership of property of communism didn't touch the real cause of poverty. This situation necessitates seeking the possibilities of Islamic economics in alleviating poverty. The aim of poverty alleviation can be attained, in an Islamic Economic system through reducing the inequality. It never means attaining equality but equity and justice in the income and wealth distribution. Islam eliminates the absolute inequality which arises from unequal distribution of income, but relative inequality emerges from equitable distribution of income and wealth.

First part of this article has given a small introduction to both conventional economics and Islamic economics. Then it provides a picture of poverty of current world and Islamic perspective of poverty. Then Islamic economics instruments to alleviate poverty such as zakat, sadaqa, qard hasan, ganima, khums, fay, jizya, mudaraba, musharaka, prohibition of interest, abolition of extravaganza, prohibition of speculation and hoarding have been mentioned in briefly. Influence of Islamic economic instruments on marginal propensity to consume, multiplier, price investment and production have been dealt with.

The books and articles I referred for this article are Dr. Dr.Sabahuddin Azmi's Islamic Economics, S. M. Hasanuzzaman's Economic function of an Islamic state (The early experience), Towards understanding the economic system of Islam written by Dr.P Ibrahim and Introduction to the economic system by Moulavi.M.V.Saleem.

Introduction

Nobody can undermine the importance of economics which is a social science that studies the production, distribution, trade and consumption of goods and services. This very importance of economics resulted in emergence of different economic systems in the world and all of those economic systems claim that they will fetch economic welfare. Those dominating and prominent economic system's failure to accomplish economic justice, prosperity, the eradiation of the inequality and poverty make necessary an alternative economic system which can successfully make a starvation free and poverty free world.

Definition of Economics

Social scientists have developed various definitions of economics. Lionel Robinson's scarcity definition of economics is most accepted amongst them. According to Robinson "economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses" This definition is based on two points which are scarcity of resources and the never ending needs. But in reality former is a myth. The survey conducted by UNO shows that are enough resources for 20000 million people on earth we have only 6000 million people on earth residing now. Latter point 'never ending needs' is also incorrect as the desire and greed of the man is unlimited but the need is countable and controllable.

Definition of Islamic Economics

As a system of life Islam has not left any area of human life without guidance. Whether it is spiritual, individual, social, economical or political Islam gives clear cut guidelines. By considering the economic guidelines of Islamic sources, Islamic economists have developed plethora of definitions. Derivation of each definition of Islamic economics is based on guidance given in the basic sources of Islamic shariah which are Quran and hadith.

According to Yusuf Ibrahim, professor of Islamic economics, Qatar University "Islamic economics is a science studying the guidance of the human behavior towards the use of resources to satisfy the needs". This definition is based upon the following facts.

1. The resources are enough for satisfying the needs.

2. But the resources should be protected from the waste, and improper use.

3. The human behavior towards the resources should be controlled by divine injunctions.

4. Only legal needs, needs that build life on the earth, should be satisfied.

5. Illegal needs (desires), which destroy life on earth, should not be satisfied; they are never ending and never satisfied.

Islamic economic system, a normative economic system, has been built upon certain fundamental Islamic philosophies. According to Quranic teachings real and absolute ownership of the wealth belongs to the creator of the same, Almighty God. Quran says "To Allah belongs to everything in the sky and on the earth" (2:284).Role of the man is considered as trustee who is to manage the trust, i.e. wealth according to the directives of the real owner; God. Quran clearly states "And spend of that where of hath made you trustees" (57:7). So man has been granted

conditioned and limited ownership.

Another Islamic philosophy is universal brotherhood and equality of men as their creator is one and parents are same. Hence distinction based on color, caste, creed, races do not suffer at any cost. This concept induces the people for cooperation and participation in their all efforts instead of cheating, exploiting and making fraud each other. Another aspect of Islamic philosophy is the faith in the Day of Judgment after death. In the life after death man is accountable for his deeds on earth. The implication of this faith is that economic choices one makes in world are to be judged according to the norms Allah has laid down.

These are the revolutionary points which differentiate Islamic economics from the liberal, capitalistic, imperialistic, mainstream, usurious economic system and communist, class war, state dictatorship economic system. Islam constructs a just world on the spirit of everlasting divine concepts.

Poverty

Evil of any economy is poverty. The presence of begging hands in an economy pulls that economy into decades back. Poverty midst plenty is the challenge faced in the modern world. Impact of the poverty cannot confine into starvation only, but poor people, apart from starvation, suffering limited income which leads to inaccessibility of good education it disables them for challenging careers which requires number of years long education. Absence of nutritious food results in more child morality among deprived sections. Since limited access for information and knowledge those are prevented from market and opportunities.

Every country and international organizations like World Trade Organization, World Bank and Asian Development Bank hard work to construct the countries and world on the foots of self sufficiency respectively. Mission of the World Bank is described as global poverty reduction and improvement of living standards. General Council of UN has declared October 17 as International day for the eradication of poverty. It shows how seriously they took poverty as a problem

But, it is wondering that out of 6.1 billion world population more than 1 billion are finding their livelihood in less than $1 per day and almost 3 billion on less than $2 per day. You might be provoked that 74% of total income of world is shared by the 20% of the elite class of the world. It is heartening you that there are countries whose national income is less $800 and morality of below five years age children is about 26%.It is worrying that 110 million primary school age children are out of school and 60 percent of them are girls.

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Poverty and Islamic Economics

Below Poverty Line (BPL) fixes in Islamic economics system on the basis of ownership of nisab, which limit makes one eligible for the payment of zakat Whosoever wealth on or over the nisab is responsible for the payment of zakat. Those wealth is below nisab are zakat recipients and they are treated as poor. Hence, in Islamic economics, the size of deprived come under BPL will be large. Starvation and inaccessibility of food, shelter, cloths and education could not suffer in an Islamic economy which aims human falah, i.e. human welfare. It does not support any economic instrument that leads to the deprivation of the man. Since poverty emerges in an economy as a result of various causes so wiping out of these causes is primarily important.

Limited income, unequal distribution of income and wealth, misdistribution of resources, regional disparities, unemployment, social injustice, and decreased investments ...etc are some of the obstacles in the way of attainment of self-sufficiency and welfare. Islam considers the fulfillment of basic needs of every member of society is economic, moral as well as religious obligation of the ruler. List of the basic goods extends from traditional food, clothing and shelter to seasonal clothing, personal attendant to disabled person, and expenditure on marriage of poor and expenditure on entire family of poor, which are intensified by scholars from time to time and likely to extend the list time to time for the welfare of the citizen. Islamic economic system introduces a bunch of divinely guided instruments which bring to an end of poverty and build

poverty less world.

Islamic Economic Instruments to eliminate poverty

It is advised to Muslim citizens in an Islamic county, as the part of believe, to practice certain things in their life, some of them are compulsory nature and the rest are voluntary nature. The practice of these will have vast economic implications apart from the reward of God. Non Muslim citizens also have to make certain compulsory payments, which have economic impacts, as the part of their citizenship in the Islamic country. Compulsory duties and agreements of citizens are governed by the Islamic country and violation of any part would not suffer Islamic state. In addition to these functions there are other things the Islamic state has to carry out similar to any nation does for the welfare of citizens. Both positive and negative measures have recommended by Islam for wiping out the reason of poverty.

Positive Measures

There are numerous Islamic orders and injunction to perform certain things which have immense influence on economies justice, prosperity and growth. Important divine injunctions amongst them and their influence upon the economy are briefed below.

Zakat

Zakat is the yearly obligation of wealthy Muslims to poor and it is the share of have-nots in the property and wealth of the rich. Quran commends "establish worship and pay the poor his due (zakat) and obey the messenger". Technically we can call it as spiritual tax. It is imposed on those forms of wealth which have the capacity to grow in value or otherwise produce further, is having the custody of whole year and have exceed a certain minimum value called 'nisab'. Quran has stated the eight specific heads for the distribution of zakat.

Due to the divine spirit for the performance of zakat, chances for evasion are less. The imposition of zakat on idle wealth urges the owners for the productive and profitable employment of idle wealth which increases the wealth of economy and again the share of zakat.

Donations

Sadaqa is the one of the voluntary economic instrument. No limit and eligibility criteria for performing contributions to needy. It can be divert, apart from the eight heads mentioned for the distribution of zakat, to any needy. and it will strengthen what economic implications emerged by zakat.

Qard hasan

It is an arrangement of interest free loans for unproductive purposes or for the needy to meet the expenses like hospital expenses, home expenses and education expenses etc which are do not make any earnings. So it is not able to charge any material benefit, like profit share, from qurd hasan. These are provided as the part of kindness to human beings. In an Islamic economy individuals and institutions like Islamic banks will offer this type of loans expecting the reward of Allah. Availability of qard hasan reduces the financial burdens like interest, of deprived.

Profit and loss sharing

Islam formulates profit and loss sharing as the tool of trade contracts instesd of interest. The motivation behind it is the cooperation amongst the people. In profit sharing there are different types of financing such as mudaraba (profit and loss sharing) and musharaka (participation) ...etc

Mudaraba is the agreement between both capital owner and entrepreneur to share the profit arises from the business and in case of loss capital owner's capital reduces and entrepreneur's time and effort loose. Musharaka is the agreement to share profit and loss where all contributors participate in management of business. Both mudaraba and musharaka help the people, who have inadequacy of capital, to engage in business, production and contribute their share into the welfare nation and earn for their own.

Ganima (war booty), Khums (one fifth) and Fay

Ganima is the property Muslims seize from the enemy. Four fifth of the ganima is divided among the fighting army and one fifth (khums) of the entire ganima move to state fund, which is earmarked for the special beneficiaries mentioned in Quran. Fay is the property receives from the enemy without actual fighting. This source of state revenue is generalized for the common good of the entire population and public welfare.

Kharaj (Land- Tax)

Land-Tax, a source of revenue of state, is the levy imposed on land produce. This is actually the rent for the use of value of agricultural land. The rate of kharaj and method of collection can be declared by state from time to time as there is no direction of Quran and tradition of prophet in this regard.

Jizya (Poll tax)

Jizya (poll-tax) imposed on the non-Muslim citizens of Islamic country for securing their wealth, property and lives from damage. It helps them to contribute their skill, talent, health, wealth and property for the prosperity of the country

Waqf (Endowment)

Waqf (endowment) is regular source of revenue which is earmarked and dedicated fund of Muslim for supporting charitable and welfare activities

State ownership on uncultivated land:

Any economic instrument that hinders productivity is harmful to economies prosperous. According to Islamic shariah, if a land is remained uncultivated three consecutive years lead to moving of ownership of that land from current owner to other who is ready for cultivate the land and produce. Prophet (pbuh) said "The original rights of ownership in land are God's and the prophets and then yours afterwards. But he who revives any dead land acquires the right of ownership to it". There is an another institution, iqta, boost the circulation and tax revenue of the state by transferring the uncultivated/dead land to someone in return for ushr or khraj.

Combined ownership of natural resources:

Individual ownership of natural resources like fire, water, pasture and salt are restricted by the Islamic shariah. People have combined ownership in these natural resources which should be accessible to anyone. This rule allow anyone to use the benefit derives from the natural goods and ensure that nobody is away from the natural goods which are easy to get to without any hard work.. List of natural goods, in addition to mentioned goods, can be extended into more goods in time to time. Prophet (pbuh) said "people are joint owners in water, pasture and fire".

There are other sources of revenues like property of deceased with no legal heir, lost and found with no claimants and additional taxations.

Negative Measures

There are some prohibitions of God which has influence on the economies prosperity and welfare of every men of country.

Prohibition of interest

Interest, whatever form, has been contemned by Allah and His messenger. Quran says "Allah has permitted trade and hath prohibited riba" (interest). Islam doesn't support interest but profit and loss sharing. Every financial transactions of Islamic economy should be free of Interest. But absence of interest in an Islamic economy doesn't create any hindrance to prosperity but flourish the prosperity.

Prohibition of speculative instruments

Instruments which don't have any advantage to real economy such as futures and option are not permitted in Islamic economy. Stock market instruments like day trading, marginal trading are prohibited, either. Absence of these instruments in the economy reduces speculation which is harm to the entire economy.

Implications

The implementation of shariah guidelines we discussed above in an economy lead to number of positive fruits which make the state free from every form of poverty.

Increased redistribution of income and wealth will result in, when the people perform the religious obligations like zakat, donation, waqf, inheritances, fithr zakat and kaffarath etc... It leads to flow of wealth and money from rich to poor. Thus the concentration and accumulation of wealth in a few hands come down. Poor and needy spend approximately eighty percent of their earnings to fulfill their basic needs. Economically Marginal Propensity to Consume (MPC) of the poor is larger than middle and high class. A large portion of whatever comes into handy of poor will flow to economy for consumption of basic goods; it lead to more demand for primary goods and then it result in the increased production of basic goods. It is difficult to restrict luxurious consumption and production completely by law and force. But the increased rate of redistribution of wealth and income increase the demand for basic goods and decrease the demand for luxurious goods. Automatically it reduces the utilization of resources for the production of luxuries. Consequently, natural resources use for the production of basic goods and for the benefit of public welfare

This increased redistribution of wealth to poor enables them to get the accessibility of good education and nutritious food. Increased knowledge and skills help the poor to get good jobs and earn. This raises the entire poor family and dependence to heights. In turn, increase of income more than a certain limit make them capable for performing zakat and other voluntary donations for the sake of the benefit of have-nots. Rise in the redistribution help to reduce the gap between haves and have-nots and bring economic justice to all citizens.

Increased MPC of poor as the redistribution of income results in more multiplier effect in economy that fuels more income to the overall income of economy that help the poor section of people to raise their per capita income and living standards.

According to Professor Keynes, investment depends on two variables which are current rare of interest and the marginal efficiency of capital or expected profit rate. Investment would take place only if the expected rate of profit exceeds of interest. Due to the absence of interest, in an Islamic economy, only the size of expected rate of profit of profit will be the determinant of investment.

Speculative motive of money and liquidity theory of money will have no place in an interest free economy which reduces investment. But the presence of only expected rate of profit will result in investments, even in low rate of expected rate of profit to increase their principle amount and to avoid the deterioration of principal through zakat. The increased investment raises the production, employment, wages and overall national income of economy. It flows wealth to poor and raises their economic status.

Fisher's quantity theory which states that quantity of money affects the price and value of money. It means that increase in the supply of money will proportionately increase the price in economy but the output will not increase. But in the case of Islamic economy money should not be supplied without making increase in the output. The central bank and commercial banks of Islamic state increase the money supply through making investment contracts on the basis of profit and loss sharing. So every flow of money into economy results in output growth without making proportionate hike in price. It is helpful to the poor to get need things at reasonable price

Conclusion

Way of eliminating poverty in Islamic economy is simple. Faith in the oneness of God (tawheed) motivates to the performance of zakat and profit and loss sharing and avoiding interest and extravaganza. Increased redistribution and productivity are the outcome of these instruments which helps finally to attain alleviation of poverty.

*-*-*-*-THE END*-*-*-*

Writer's Address& Phone Number:

Nabeel.K.N

92 Mimson House

L T Marg, Mumbai

India

Ph.022-2347 2118

Email.nabeel_kn@rediffmail.com

Finance, credit, investment-economic categories

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Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.

The definition of totality of the economical relations formed in the process of formation, distribution and usage of finances, as money sources is widely spread. For example, in "the general theory of finances" there are two definitions of finances:

1) "...Finances reflect economical relations, formation of the funds of money sources, in the process of distribution and redistribution of national receipts according to the distribution and usage". This definition is given relatively to the conditions of Capitalism, when cash-commodity relations gain universal character;

2) "Finances represent the formation of centralized ad decentralized money sources, economical relations relatively with the distribution and usage, which serve for fulfillment of the state functions and obligations and also provision of the conditions of the widened further production". This definition is brought without showing the environment of its action. We share partly such explanation of finances and think expedient to make some specification.

First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances. Also, formation and usage of the depreciation fund which is the part of financial domain, belongs not to the distribution and redistribution of the national income (of newly formed value during a year), but to the distribution of already developed value.

This latest first appears to be a part of value of main industrial funds, later it is moved to the cost price of a ready product (that is to the value too) and after its realization, and it is set the depression fund. Its source is taken into account before hand as a depression kind in the consistence of the ready products cost price.

Second, main goal of finances is much wider then "fulfillment of the state functions and obligations and provision of conditions for the widened further production". Finances exist on the state level and also on the manufactures and branches' level too, and in such conditions, when the most part of the manufactures are not state.

V. M. Rodionova has a different position about this subject: "real formation of the financial resources begins on the stage of distribution, when the value is realized and concrete economical forms of the realized value are separated from the consistence of the profit". V. M. Rodionova makes an accent of finances, as distributing relations, when D. S. Moliakov underlines industrial foundation of finances. Though both of them give quite substantiate discussion of finances, as a system of formation, distribution and usage of the funds of money sources, that comes out of the following definition of the finances: "financial cash relations, which forms in the process of distribution and redistribution of the partial value of the national wealth and total social product, is related with the subjects of the economy and formation and usage of the state cash incomes and savings in the widened further production, in the material stimulation of the workers for satisfaction of the society social and other requests".

In the manuals of the political economy we meet with the following definitions of finances:

"Finances of the socialistic state represent economical (cash) relations, with the help of which, in the way of planned distribution of the incomes and savings the funds of money sources of the state and socialistic manufactures are formed for guaranteeing the growth of the production, rising the material and cultural level of the people and for satisfying other general society requests".

"The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society. And the totality of economical relations arisen between state, manufactures and organizations, branches, regions and separate citizen according to the movement of cash funds make financial relations".

As we've seen, definitions of finances made by financiers and political economists do not differ greatly.

In every discussed position there are:

1) expression of essence and phenomenon in the definition of finances;

2) the definition of finances, as the system of the creation and usage of funds of cash sources on the level of phenomenon.

3) Distribution of finances as social product and the value of national income, definition of the distributions planned character, main goals of the economy and economical relations, for servicing of which it is used.

If refuse the preposition "socialistic" in the definition of finances, we may say, that it still keeps actuality. We meet with such traditional definitions of finances, without an adjective "socialistic", in the modern economical literature. We may give such an elucidation: "finances represent cash resources of production and usage, also cash relations appeared in the process of distributing values of formed economical product and national wealth for formation and further production of the cash incomes and savings of the economical subjects and state, rewarding of the workers and satisfaction of the social requests". in this elucidation of finances like D. S. Moliakov and V. M. Rodionov's definitions, following the traditional inheritance, we meet with the widening of the financial foundation. They concern "distribution and redistribution of the value of created economical product, also the partial distribution of the value of national wealth". This latest is very actual, relatively to the process of privatization and the transition to privacy and is periodically used in practice in different countries, for example, Great Britain and France.

"Finances - are cash sources, financial resources, their creation and movement, distribution and redistribution, usage, also economical relations, which are conditioned by intercalculations between the economical subjects, movement of cash sources, money circulation and usage".

"Finances are the system of economical relations, which are connected with firm creation, distribution and usage of financial resources".

We meet with absolutely innovational definitions of finances in Z. Body and R. Merton's basis manuals. "Finance - it is the science about how the people lead spending `the deficit cash resources and incomes in the definite period of time. The financial decisions are characterized by the expenses and incomes which are 1) separated in time, and 2) as a rule, it is impossible to take them into account beforehand neither by those who get decisions nor any other person" . "Financial theory consists of numbers of the conceptions... which learns systematically the subjects of distribution of the cash resources relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decisions take place" .

These basic conceptions and quantitative models are used at every level of getting financial decisions, but in the latest definition of finances, we meet with the following doctrine of the financial foundation: main function of the finances is in the satisfaction of the people's requests; the subjects of economical activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function.

For the goals of our monograph, it is important to compare well-known definitions about finances, credit and investment, to decide how and how much it is possible to integrate the finances, investments and credit into the one total part.

Some researcher thing that credit is the consisting part of finances, if it is discussed from the position of essence and category. The other, more numerous group proves, that an economical category of credit exists parallel to the economical category of finances, by which it underlines impossibility of the credit's existence in the consistence of finances.

N. K. Kuchukova underlined the independence of the category of credit and notes that it is only its "characteristic feature the turned movement of the value, which is not related with transmission of the loan opportunities together with the owners' rights".

N. D. Barkovski replies that functioning of money created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit, as the science about finances has business with the research of such economical relations, which lean upon cash flow and credit.

Let's discuss the most spread definitions of credit. in the modern publications credit appeared to be "luckier", then finances. For example, we meet with the following definition of credit in the finance-economical dictionary: "credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit represents a form of movement of the loan capital and expresses economical relations between the creditor and borrower".

This is the traditional definition of credit. In the earlier dictionary of the economy we read: "credit is the system of economical relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of returning and paying percent".

In the manual of the political economy published under reduction of V. A. Medvedev the following definition is given: "credit, as an economical category, expresses the created relations between the society, labour collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation".

Credit is discussed in the following way in the earlier education-methodological manuals of political economy: "credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Credit has an objective character. It is used for providing widened further production of the state and other needs. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition".

We meet with the following definition if "the course of economy": "credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation".

Following scientists give slightly different definitions of credit:

"Credit - is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of returning and paying the percentage rate by the borrower".

Credit is giving the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is the loan in the form of money or commodity. In the process of this loan's movement, a definite relations are formed between a creditor (the loan is given by a juridical of physical person, who gives certain cash as a debt) and the debtor.

Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. It expresses definite economical relations between the participants of the process of capital formation. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

Though, at the same time we must distinguish two resembling concepts: loan and credit. Loan is characterized by:

o Here, the discussion may touch upon transmission of money and also things form one side (loaner) to another (borrower): a)under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

o The loaning of money may bear no interest;

o Any person may take part in it.

With the difference with loan, credit, which is somehow a private occasion of the loan, represents:

o One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage;

o It may not bear no interest (if the assignment doesn't foresee something);

o In it creditor is not any person, but a credit organization (at the first place, banks).

So, a credit is the bank credit. To our mind, it is not correct to use "credit" and "loan" as the synonyms.

Banking crediting is the union of relations between bank (as a creditor) and its borrower. These relations touch upon:

a) Giving a certain amount of money to the borrower for definite purpose (though, we meet with the so-called free credits, aims and objects of crediting are not appointed in the assignment);

b) Its opportune returning;

c) Getting percentage rate from the borrower for using the sources under his/her disposal.

The essential foundation of the credit essence and its important element is existence of trust between the two sides (in Latin "credo", from which comes the word "credit", means "trust").

From the position of circulation of money forms (in the abstraction, historical process of formation economical relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Very often such movements are fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs. Also, when a manufacture or corporations use their cash funds and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others, but even in this occasion, it is the element of financial system of the manufacture and corporation.

From the point of cash means movement, main character of credit is the process of formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value-percentage. If gating the credit value doesn't take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, by the appearance form, credit is discussed to be financial modification.

From the historical point of view, finances (especially in the sort of the state budget) and credit (beginning with usury, later commercial and banking) were developing differently for considering credit to be the part of finances. Though, from the genetic-historical point of view, previous loaners, before giving loan, needed gathering the permanent capital not returning, that is the net financial foundation. The banks analogously needed concentration of the important own capital for influxing the consumers' means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund) part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not loan. So notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

From the essential position of expressing economical relations of finances and credit, we meet with cardinal distinctions between these two categories. Which mostly expressed by the distinction of the movement forms notwithstanding they are returnable or not. Finances express relations in the aspects of distribution and redistribution of social product and part of the national wealth. Credit expresses distribution of the appropriate value only in the section of percentage given for loan, while according to the loan itself, a only a temporal distribution of money sources takes place.

Herewith, there is a lot of common between the finances and credit as from the essential point of view, so according to the form of movement. At the same time, there is a significant distinction between finances and credit as in the essence, so in the form too. According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

Funding of the cash means is common to the researched economical categories. It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit. Word combination "funding of the cash sources (fund formation)" reflects and defines exactly essence and form of economical category of more general character, those of finances and credit categories. Though in the in economical texts and practice, it is very uncomfortable to use a termini, which consists of three words. Also, "unloading" with an information hardens greatly its influxing into the circulation even in the conditions of its strict substantiation and thoroughness.

In the discussing context we consider:

1) wide and narrow understanding of economical category of the finances;

2) discussing finances in narrow understanding under general traditional meaning;

3) discussing finances, as funding of the cash means, in wide understanding, which concerns finances - in narrow meaning and credit - in complete meaning.

Termini "funding" and its equivalent "fund formation" are used by us as the purposeful structuring of cash means, which is based on two poles - accumulation of money sources (gathering) and its usage for definite purpose in the way of financing and crediting.

We have established a new termini - "finance-investment sphere" (FIS). Analyses about interrelation of finances and credit made by us give us an opportunity of proving, that in the given termini, the word "financial" is used with the meaning of funding cash sources, its purposeful structuring. In this process we consider at the same time financial, credit and investments' economical categories.

Let's sum up middle results of discussing new concept - "finance-investment sphere" and discuss its investment consisting parts.

The concept "investments" was brought into the native economical science from the West. In the Soviet economical science they for a long time used in the place "investments" the termini "capital placement", which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. From one glance, this termini in its concept is identical to the "investments", consequently it is possible to use them as synonyms. Though the termini "investments" and "investing" have the advantage towards the termini "capital placement" from linguistic and philological points of view, because they are expressed with one word. This is not only economical and comfortable in the process of working with the termini "investment" itself, but also it gives an opportunity of termini formation. More concretely: "investment process", "investment domain", "finance-investment sphere" - all these termini are much more acceptable.

Changing native economical termini with foreign ones is purposeful, if it really matters (by keeping parallel usage of the native termini for the inheritance). Though we must not change native economical termini into foreign ones all together, when by ordinal traditional language easy to explain private and narrow concrete processes and elements get their own termini. The "movement" of these termini is approved in the narrow professional bounds, but their "spitting out" into the economical science may turn economical language into the tangled slang.

Let's discuss termini - "investment" and "capital placement's" usage in the economical literature.

Investments are placement of funds into the main and circulation capital for the purpose of getting profit. "Investments in material assets - are the placements of funds into the mobile and real estate (land, buildings, furniture and so on). Investments in financial assets are the placements of funds into the securities bank accounts and other financial instruments".

We don't meet with the termini "investments" in the earlier economical dictionary, but we meet the combined termini "investment policy" - the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble". For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial, but also the investment of natural, material-technical and informational resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

A positive side of the discussed definitions is that they connect investment policy and capital placements (investments):

- economical development according to the key directions to the concentration;

- providing high rates of economical growth;

- raising an economical effectiveness, which is expressed:

a) by growing the throw off of the production and national income for every lost Ruble;

b) by fulfilling the branch structure of the investments;

c) by improving their technological structure;

d) by optimization of their further production structure.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the "Economics" seems to be unimproved: "investments - the expenses of gathering production and industrial means and increasing material reserve". In this definition current expenses (production expenses) are mixed with the investment (capital) expense. Also, not the investment expenses but (though the investments are followed by the appropriate expenses) exactly advancing. It differs from the expenses by that the means (means) are put by returning the advanced values, also, under the conditions of growth, to which the concept-advanced capital is corresponding. the advancing may be realized in the money, natural-material and informational forms.

Except the termini "investments", there are two more termini related with the investment. They are shown below.

"Human capital investment" - any activity provided for rising the workers labour productivity (in the way of growing their qualification and developing their abilities); at the expenses of improving the workers' education, health and raising the mobility of the working forces". It is very useful to use the mentioned termini, though it needs one correction: the human capital investments do not concern only workers, but also the servants, representatives of every kind of labour.

"Investment commodity, capital goods - a capital."

In the official manuals of political economy of the reformation time the capital investments are discussed as "expenses for creating new main funds and widening, reconstruction and renewing the active ones". In this definition the investments (capital placements) during separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves):

a) creating new ones;

b) widening;

c) reconstruction;

d) renewing.

Also, the concept of the industrial gathering appears, at the expenses of widening of basic, circulation funds and also insurance reserves takes place".

You'll meet below the definitions of investments from "the course of economy": the investments are called "placements of fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request long-termed influxing of material and cash means. "According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments".

They apportion investment commodity, to which belong industrial and nonindustrial building objects, vehicles purposed for changing or widened technical park and the furniture, increasing reserves and others.

"They call the total investments of production an investment product, which is directed towards keeping and increasing the basic capital (basic means) and reserve. Total investments consist of two parts. One of them is called the depreciation; it represents important investment resources for compensation of renewal till the level of before industrial usage, wearing out and repairing of the basic means. Second consisting part of the total investments is represented by net investments - capital investments for the purpose of increasing basic means". Depreciation is not a compensation resource of wearing the basic funds out, but it is the purposeful financial source of such resources.

Human capital investment is "a specific kind of investments, mostly in education and health protection".

"Real investments are the investments in the economical branches and also, they are kinds of economical activities, which provide influxing the increases of real capital, that is increasing material values of the industrial means". We can agree with such definition with one specification that material and nonmaterial values too belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of he workers and others. Such service as organization of the excitable games, also the service of redistribution social wealth from one private person to another (except charity).

"Financial investments represent placement of funds into the shares, obligations, promissory notes, other securities and instruments. Such investments, of course, do not give increases of the real material capital, but they help getting profit, consequently at the expenses of changing the course of the securities in the time of speculation, or distinguishing the course in different places of sell and purchasing". We share wholly such definition, hence it follows that financial investments (if it is not followed by real investments as a result) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is very important: "we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital."

In the "economical course" quoted before long and short-termed investments are separated. Recognizing the existence of the bounds between them, the authors ascribe short-termed investments to "one month or more" investments. If we get such conditioned criteria, that we can call the investments which overcome the terms of some months, long-termed ones, which is very doubtful and we don't agree with it. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn't combine with the concept of investments). Principally, it would be better to point out quick compensative, middle termed compensative and long-termed compensative investments:

- less then 6 months - quick compensative;

- from 6 months up to the year and a half - middle termed compensative;

- more then the year and a half - long termed compensative.

We stopped at the definition of the investments in the capital work "economical course" for the special purpose, as, in it the author tried to discuss the concept of investments systemically and quite completely, herewith the book is published just now.

We'll return to the discussion the definition economical category of "investments" in different publications in the following chapter. The definitions given here are quite enough for having a notion of the level of lighting up the given category in the economical literature.

What conclusions may be made according the definition of the mentioned economical category in the published works, except the made notions and specifications?

There is quite deeply, concretely and thoroughly defined the concept of "investments", different definitions in the economical literature; but mostly in every works about the investments discussed by us until now, there is not opened the essence of investments as an economical category. In every monograph , even if it has a title investment, as an economical category , there is given only the definition, concept of investments. But, as the Academician Vasil Chantladze explains, "a concept is a discussion, which proves something about the distinguishing feature of the researched object. A concept out of much essential characteristic features represents only one, and essential in it is only - definition".

But the categories are much wider; it is "a key, the most fundamental concept of every science". Economical categories theoretically represent real, objectively existed productive relations. A category is the defining of occasions of existed characters, connections, relations of the objective world. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the processes and occasions semantically, for expressing the definitions of a subject and realize their specific peculiarities and economical relations of a material world.

Our goal is exactly to substantiate investments - as an economical category and also, as a financial category in the narrow understanding.

Here we apply for another manual thesis made by the academician Vasil Chantladze: "every financial relation is an economical one and every financial category is and economical one, but not every economical relation and economical category is financial relation and financial category".

In the process of defining the investments, it is important to take in mind the sides of resources, expenses and incomes, because investment, from one side, is the result of the manufacture's activity, and, from another one, - a part of income, which, in this case, is not used for usage.

Another occasion: it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between "placement of funds" and "investments".

As we've mentioned above, not long ago, in the well-known Soviet literature the concepts of "the placement of funds" and "investments" were accepted to be the synonyms and concerned to be investment of sources for further production of the main funds and formation of the turnover funds. We meet with such understanding of the concept of "investment" (here, they separate three types of the investment expenses: investments in the basic capital of investments, investments in the house building and investments in the reserves) in the modern economical publications and it is mostly used on the macro level during a statistical analyze of economical processes. In this concrete occasion investment is the category of reserve.