In 1958, Britain proposed that the Common Market be expanded into a transatlantic free-trade area. After the proposal was vetoed by France, Britain engineered the formation (1960) of the European Free Trade Association (EFTA) and was joined by other European nations that did not belong to the Common Market. Beginning in 1973, EFTA and the EEC negotiated a series of agreements that would insure uniformity between the two organizations in many areas of economic policy, and by 1995, all but four of EFTA's members had transferred their memberships from EFTA to the European Union.

One of the first important accomplishments of the EEC was the establishment (1962) of common price levels for agricultural products. In 1968, internal tariffs (tariffs on trade between member nations) were eliminated and a common external tariff was fixed. For subsequent developments, see European Union.

Use of economic measures by governments engaged in international conflict. These may include export and import controls, shipping controls, trade agreements with neutral nations, and so on. Economic warfare among belligerents began with the blockade and interception of contraband. In World War II it was broadened to include economic pressure applied to neutral countries from which the enemy obtained its supplies. In the Cold War it often involved using measures such as an embargo to deny potential enemies goods that might contribute to their war-making ability.

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Set of principles and techniques by which a society decides and organizes the ownership and allocation of economic resources. At one extreme, usually called a free-enterprise system, all resources are privately owned. This system, following Adam Smith, is based on the belief that the common good is maximized when all members of society are allowed to pursue their rational self-interest. At the other extreme, usually called a pure-communist system, all resources are publicly owned. This system, following Karl Marx and Vladimir Ilich Lenin, is based on the belief that public ownership of the means of production and government control of every aspect of the economy are necessary to minimize inequalities of wealth and achieve other agreed-upon social objectives. No nation exemplifies either extreme. As one moves from capitalism through socialism to communism, a greater share of a nation's productive resources is publicly owned and a greater reliance is placed on economic planning. Fascism, more a political than an economic system, is a hybrid; privately owned resources are combined into syndicates and placed at the disposal of a centrally planned state.

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In common usage, payment made in return for the right to use property belonging to another. In classical economics, rent was the income gained from cultivated or improved land after the deduction of all production costs. In modern economic usage, rent is the difference between the total return to a factor of production (land, labour, capital) and its supply price, the minimum amount necessary to attain its services. Rent plus opportunity cost make up the total income paid to a productive resource. Efforts made by a resource owner to obtain monopoly profit is considered rent-seeking behaviour.

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Use of government to make economic decisions with respect to the use of resources. In communist countries with a state planning apparatus, detailed and rigid planning results in a command economy; land, capital, and the means of production are publicly owned and centrally allocated, and the government makes both micro- and macroeconomic decisions. Microeconomic decisions include what goods and services to produce, the quantities to produce, the prices to charge, and the wages to pay. Macroeconomic decisions include the rate of investment and the extent of foreign trade. In most industrialized countries, governments influence their economies indirectly through monetary and fiscal policies. A few key economic sectors may be publicly owned, but the trend has been toward the privatization of industries that were socialized in the aftermath of the Great Depression and World War II. Japan is the most notable example of economic planning in a capitalist framework; government and industry cooperate closely in planning patterns of capital investment, research and development, and export strategies. Seealso capitalism, communism, socialism, zaibatsu.

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Statistic used to determine the state of general economic activity or to predict it in the future. A leading indicator is one that tends to turn up or down before the general economy does (e.g., building permits, common stock prices, and business inventories). Coincident indicators move in line with the economy; lagging indicators change direction after the economy does.

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Process by which a nation's wealth increases over time. The most widely used measure of economic growth is the real rate of growth in a country's total output of goods and services (gauged by the gross domestic product adjusted for inflation, or “real GDP”). Other measures (e.g., national income per capita, consumption per capita) are also used. The rate of economic growth is influenced by natural resources, human resources, capital resources, and technological development in the economy along with institutional structure and stability. Other factors include the level of world economic activity and the terms of trade. Seealso economic development.

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Scientific discipline concerned with the distribution of mineral deposits, the economic considerations involved in their recovery, and assessment of the reserves available. Economic geology deals with metal ores, fossil fuels, and other materials of commercial value, such as salt, gypsum, and building stone. It applies the principles and methods of various other fields, especially geophysics, structural geology, and stratigraphy.

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Prediction of future economic activity and developments. Economic forecasts, which range from a few weeks to many years, are widely used in business and government to help formulate policy and strategy. Macroeconomic forecasts predict the course of the aggregate economy and concentrate on variables such as interest rates, the rate of inflation, and the rate of unemployment. Forecasts of private consumption and investment, government expenditures, and net exports help government policymakers responsible for fiscal policy. For example, part of the justification for a change in taxes is a forecast of its economic effects. Microeconomic forecasts are designed to project the effects of change at the level of an industry or a firm. Most microeconomic forecasts begin with assumptions about the aggregate economy before focusing on the projected effects in the specific sector that is of interest. Manufacturers and retailers use such forecasts to formulate business plans such as those involving inventory, production levels, or hiring.

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Periodic fluctuation in the rate of economic activity, as measured by levels of employment, prices, and production. Economists have long debated why periods of prosperity are eventually followed by economic crises (stock-market crashes, bankruptcies, unemployment, etc.). Some have identified recurring 8-to-10-year cycles in market economies; longer cycles have also been proposed, notably by Nikolay Kondratev. Apart from random shocks to the economy, such as wars and technological changes, the main influences on the level of economic activity are investment and consumption. An increase in investment, as when a factory is built, leads to consumption because the workers employed to build the factory have wages to spend. Conversely, increases in consumer demand cause new factories to be built to satisfy the demand. Eventually the economy reaches its full capacity, and, with little free capital and no new demand, the process reverses itself and contraction ensues. Natural fluctuations in agricultural markets, psychological factors such as a bandwagon mentality, and changes in the money supply have all been proposed as explanations for initial changes in investment and consumption. After World War II many governments used monetary policy to moderate the business cycle, aiming to prevent the extremes of inflation and depression by stimulating the national economy in slack times and restraining it during expansions. Seealso productivity.

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Process whereby simple, low-income national economies are transformed into modern industrial economies. Theories of economic development—the evolution of poor countries dependent on agriculture or resource extraction into prosperous countries with diversified economies—are of critical importance to Third World nations. Economic development projects have typically involved large capital investments in infrastructure (roads, irrigation networks, etc.), industry, education, and financial institutions. More recently, the realization that creating capital-intensive industrial sectors provides only limited employment and can disrupt the rest of the economy has led to smaller-scale economic development programs that aim to utilize the specific resources and natural advantages of developing countries and to avoid disruption of their social and economic structures. Seealso economic growth.

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Political ideology that advocates a peaceful, evolutionary transition of society from capitalism to socialism, using established political processes. It rejects Marxism's advocacy of social revolution. Social democracy began as a political movement in Germany in the 1870s. Eduard Bernstein argued (1899) that capitalism was overcoming many of the weaknesses Karl Marx had seen in it (including unemployment and overproduction) and that universal suffrage would lead peacefully to a socialist government. After 1945, social-democratic governments came to power in West Germany (see Social Democratic Party), Sweden, and Britain (under the Labour Party). Social-democratic thought gradually came to regard state regulation (without state ownership) as sufficient to ensure economic growth and a fair distribution of income.

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Economic policy of the Soviet Union (1921–28). A temporary retreat from the failed War Communism policy of extreme centralization and doctrinaire socialism, the new measures included the return of most agriculture, retail trade, and light industry to private ownership (though the state retained control of heavy industry, banking, transport, and foreign trade) and the reintroduction of money into the economy. The policy allowed the economy to recover from years of war. In 1928 chronic grain shortages prompted Joseph Stalin to begin to eliminate private ownership of farmland and to collectivize agriculture under state control, effectively ending the NEP. By 1931 state control was reimposed over all industry and commerce.

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Association of European countries designed to promote European economic unity. It was established by the Treaty of Rome in 1957 to develop the economies of the member states into a single common market and to build a political union of the states of western Europe. The EEC also sought to establish a single commercial policy toward nonmember countries, to coordinate transportation systems, agricultural policies, and general economic policies, to remove measures restricting free competition, and to assure the mobility of labour, capital, and entrepreneurship among member states. The liberalized trade policies it sponsored from the 1950s were highly successful in increasing trade and economic prosperity in western Europe. In 1967 its governing bodies were merged into the European Community. In 1993 the EEC was renamed the European Community (EC); it is now the principal organization within the European Union.

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International organization founded in 1961 to stimulate economic progress and world trade. Based in Paris, the OECD serves as a consultative assembly and a clearinghouse for economic data, and it also coordinates economic aid to developing countries. Its members include Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Spain, Sweden, Switzerland, Turkey, the U.K., and the U.S.

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Organization founded in 1949 to facilitate and coordinate the economic development of Soviet-bloc countries. Its original members were the Soviet Union, Bulgaria, Czechoslovakia, Hungary, Poland, and Romania; other members joined later, including Albania (1949) and the German Democratic Republic (1950). Its accomplishments included the organization of Eastern Europe's railroad grid, the creation of the International Bank for Economic Cooperation, and the construction of the “Friendship” oil pipeline. After the political upheavals in Eastern Europe in the late 1980s, it largely lost its purpose and power. In 1991 it was renamed the Organization for International Economic Cooperation.

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Economic union of Belgium, the Netherlands, and Luxembourg. The three countries formed a customs union in 1948, and in 1958 they signed the Treaty of the Benelux Economic Union, which became operative in 1960. Benelux became the first completely free international labor market and contributed to the establishment of the European Economic Community.

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Trade group established in 1989 in response to the growing interdependence of Asia-Pacific economies and the advent of regional economic blocs (such as the European Union and the North American Free Trade Area) in other parts of the world. APEC works to raise living standards and education levels through sustainable economic growth and to foster a sense of community and an appreciation of shared interests among Asia-Pacific countries. At the end of the 1990s APEC's membership included its 12 founding members—Australia, Brunei, Canada, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and the United States—as well as Chile, China (including Hong Kong), Mexico, Papua New Guinea, Peru, Russia, and Vietnam; Taiwan also participates as “Chinese Taipei.” The Pacific Economic Cooperation Council, the South Pacific Forum, and the secretariat of the Association of Southeast Asian Nations maintain observer status. The APEC group represents about 40percnt of the world's population, 40percnt of global trade, and 50percnt of the world's gross national product. Seealso NAFTA; trade agreement; World Trade Organization.

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