Pure Capitalism Pure Market Capitalism – Operates on the basis of the three P’s: Prices ...
-
Upload
james-carter -
Category
Documents
-
view
215 -
download
0
Transcript of Pure Capitalism Pure Market Capitalism – Operates on the basis of the three P’s: Prices ...
CH. 19, 20, 21 – DIFFERENT ECONOMIC SYSTEMS, DEVELOPING NATIONS, GLOBALIZATION
Pure Capitalism Pure Market Capitalism – Operates
on the basis of the three P’s: Prices Profits Private Property
Gov’t in pure capitalism provides only public goods such as national defense and police protection
Pure Socialism
Economic System with little private property Virtually all factors of production are
owned and controlled by gov’t Karl Marx – Father of Communism
Believed history was a struggle between capitalists and proletariat (working man)
Predicted the fall of Capitalism and the evolution of socialism into Communism
Communist economies today are very different than Marx’s theory
Socialism and 20th Century
Splits into two trends:
Democratic – Gov’t controls only part of the economy
Authoritarian – Central gov’t controls the entire economy
Present day Communism is Authoritarian
Benefits of Capitalism Individual values play a major role Capitalism allows more freedom and
personal initiative Provides for more efficiency in economy
and greater rates of growth Both require planning, the difference
is who does the planning Capitalism can lead to inequality. Communism does not provide enough
social programs such as schools and museums
China’s Economic System Communists won Chinese Civil War following
WWII Created a state-run economic system Citizens held little power
1970s and 1980s – Reforms allowed for more independent control of economy Pure Capitalism cannot be achieved b/c the gov’t
owns most major industries and farmland. Citizens hold no property rights Leads to corruption
China admitted to the WTO (World Trade Organization) in 2000 Opened to the world market China is a large market for many businesses.
Russian Economy Privatization – Change from state
ownership of business, land, and buildings to private ownership Leads to increased unemployment and
other economic difficulties, many protest the change
Prices in Russia now determined by Supply and Demand Russian factories still run inefficiently Gov’t owned businesses sold to “friends of
gov’t” People barter b/c they have no faith in the
Russian currency and to avoid taxes
Changes in Sweden Welfare State – Blends capitalism with
socialism Combines private ownership of the means of
production and competitive allocation of resources w/ the goal of social equality
Highest per-capita incomes in the world Sweden’s gov’t almost guarantees life-
long employment Gov’t spending and taxes represents about
54% of country’s annual economic activity Gov’t is cutting taxes and removing some
gov’t jobs, easing regulations on business, and privatizing some gov’t owned businesses.
Latin American Changes
Many countries are capitalist but have large government sectors
1985 – Many gov’t ventures are being privatized
Many countries follow the example of Mexico but are frequently stopped by political disputes
Chile, Argentina, and Brazil have successfully privatized many sectors
Developed Nations v. Developing Nations
Developed vs. Developing
Only 35 of more than 192 world nations are considered developed nations
The rest are developing Only common factors of undeveloped
nations are that they have less industrial development and relatively low standards of living
Economic Characteristics
Very low GDP Not enough capital or knowledge to
use resources to full potential Agricultural economies Poor health conditions Low literacy rates Rapid population growth
Weak Property Rights
Less well-defined, government-protected private property rights EX: Peru – 80% of land has no private
owner No large scale farming since people
cannot afford land Peasant farmers have little incentive to
improve value of property
Economic Development Basic problem for many developing
nations is how to finance the equipment and training necessary for growth Foreign corporations set up branch offices or
companies in developing nations Several forms of foreign aid:
Economic Assistance: Providing loans and money/capital donations
Technical Assistance: Providing professionals to train and teach skills to local population
Military Assistance: Providing the nation’s armed forces with money or people who teach and train.
Who supplies foreign aid?
US channels most of its aid through the Agency for International Development (AID)
United Nations has agencies that distribute funds to developing nations
International Monetary Fund (IMF) has recently become a major foreign aid supplier
Many developing nations are unable to repay loans they receive as foreign aid
Reasons for giving Foreign Aid Humanitarianism – Desire to relieve
human suffering Best interest of developed nations to
help, since it will create more trading partners
Political Objectives – Create allies Develop military alliance
Four Obstacles of Growth
People don’t trust new technology Population growing faster than the
GDP Corrupt gov’ts Trade restrictions
Example: Indonesia Large population, rich natural resources Received $2 billion dollars in aid, but
economy remained a disaster No identity – People identified with their
religion, politics, or tribe Bad leadership
Suharto, leader, improved some economic reforms but relied much to heavily on oil
Depending on only one or two products leads to only a temporary economic growth
Problems w/ Rapid Industrialization Unwise investments
No time for citizens to adapt to new living and working patterns
Countries need to use technology that’s best suited for their culture
Economy itself needs time to adapt to change
Economic Development Many factors influence economic
development Trade w/ outside world Gov’t structure that provides for
economic incentives Natural resources Entrepreneurship Private Property Rights
Lack of one of these factors does not necessarily mean the country will fall into poverty
The Power of Information
Media and Internet transport info to developing nations
Developing nations can see the benefit of working together
Alone, one developing nation has little power, but as a group they can influence the world
Developing nations now partner with developed nations
Globalization: Good or Bad?
Cause and Effect of Globalization
Cause Improved Telecommunications
Effect Countries more economically
interdependent World is one big financial market
Spending habits changed Isolated cultures exposed to new ideas
Globalization
Began in 1970s and 1980s when US banks created worldwide branches
US stock crashes now effect other economies
One nation’s financial panic is everybody’s financial panic.
Foreign Investment
Direct Foreign Investment (DFI) – Purchase of real estate and businesses by foreigners EX: China
Foreign investors subject to US law and policy
Can indirectly effect the gov’t, since the gov’t does not want to lose the business.
Americanization?
6% of American industries owned by foreigners
40% of foreign industries controlled by American industries
Americanization – Spread of American culture People are concerned about spread of
American culture in their traditional culture EX: McDonalds, Burger King, Coca-Cola,
US sports
Multinationals
Multinationals – Companies operating in several countries 2003 – 60,000 multinationals w/ about
620,000 foreign branches Largest 500 multinationals = $9 trillion
in sales Most are based in US, Japan,
Germany, Switzerland, Taiwan, Malaysia, and South Korea.
Cross-Border Investments
Most MNs invest in regions that are close to home The separation of sales from home and
abroad is becoming less important
Alliances
Multinational firms are creating alliances Might be in the forms of joint ventures or
licensing deals with national companies Companies lack certain financial,
technological, or geographical strengths and find partners that have those strengths
Global Village and Tolerance Increased Immigration
Diversity in Public Schools Diversity shows the need for tolerance
and open-mindedness