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2. ECONOMIC SYSTEMS DEFINITIONS &
CLASSIFICATIONS This is a testThis is a test
3. What is an economic system? is a set of institutional arrangements use to allocate scarce resources.
The more limited the resources are (land, labor, capital, & entrepreneurship) the more scarce they are and a higher price is commanded.
Because of scarcity, society has to answer:
What?
How?
And For Whom?
If there is not a system (arrangement) anarchy and chaos may prevail
4. Economic system: is the institutional structure through which individuals in a society coordinate their diverse wants and desires.
is the means by which a society is organized.
is an institutional arraignment use to allocate the scarce resources .
is a set of mechanisms and institutions for decision making and for implementation of decisions concerning production, consumption, distribution, standard of living, technology, etc., within a given sovereign geographic area and consists of mechanisms, organizational arraignments, and decision making rules.
5. ECONOMICS Economics is the study of how society chooses to allocate efficiently its limited economics resources and
how productive, consumption, and distributive aspects of life are allocated
and organized efficiently with technology
through the price system
in order to satisfy unlimited human material wants/needs/desires.
6. Economics is “coordination.”
Individuals (business/governments) make decisions.
Society and economics take actions.
7. Economics vs. Cultural Economics Economics deals with allocation (production, distribution, consumption) efficiently through exchange to maximize utility and accumulation of surplus.
Cultural economics deals with the provision of goods, services, and resources for the sustenance or subsistence.
Subsistence: the minimum amount necessary (of resources, food) that a person or society needs to survive.
Sociological/ psychological/ cultural subsistence: takes into consideration or account differences in culture (customs), the nature of society and time to make decisions.
Modern cultural economics emphasize that subsistence must include sufficient income or purchasing power to function in that society.
8. The productive aspects include the activities …(society’s/economy’s actions): that result from the transformation of the limited economic resources into goods and services that satisfy our day to day demands as human beings for automobiles, CD’s, cereal, clothes, movies, legal service, etc.
9. The consumption aspects are (society’s/economy’s actions): The using up of goods and services by consumers.
Consumers exchange purchasing power (income) for goods and services.
10. The distributive aspects are (society’s/economy’s actions) : the ways a society makes these goods and services available to people in the society who are willing and able to pay for them.
the paths by which goods and services move from the manufacturers to the ultimate users.
11. BASIC ECONOMMIC QUESTIONS: 1. What and how much to produce?
2. How to produce?
3. For Whom to produce?
4. How should flexibility be maintain through changes over time?
12. What Economics Is Any economic system must solve three central coordination problems:
13. Scarcity of resources are limited to wants Decisions are necessary to determine how a given volume of resources are going to be allocated to production, how income is going to be derived, and production is going to be distributed among the members of society.
The price system is the allocating mechanism in any economic system.
14. EFFICIENCY Efficiency means achieving a goal as cheaply as possible.
Efficiency: the value of the output exceeds the value of the inputs in a production process.
15. An economic system has to solve four coordination problems when making choices:
What, and how much, to produce (allocation).
How to produce it (production).
For whom to produce it (distribution).
Maintain flexibility to changes over time. Society’s (producers’) Decisions:
16. Efficiency: Dynamic Vs. Static (Society’s/economy’s actions) 1. Allocative (What) efficiency.
2. Productive (How) efficiency.
3. Distributive (Who) efficiency.
4. Economic or allocative efficiency.
5. Technologic efficiency.
17. Are sets of mechanisms and institutions for decision making and for implementation of decisions concerning production, consumption, and distribution (income, resources, and commodities), technology within a given geographic area with sovereignty.
Consists of mechanisms and organizational arrangements and decision making rules. ECONOMIC SYSTEMS:
18. Economic Systems Scarcity implies choice and making choices implies the existence of benefit/cost analysis.
Given scarce resources, how large and complex, societies go about answering the basic economic questions and production choices involving consumption and exchange.
Any economic system must coordinate individuals’ wants and desires and it must answer the basic economic questions regarding coordination.
19. Economics systems… must exist whether the country/market/sovereignty is large or small;
developed or underdeveloped
First world, second world or third world countries;
Rich on human resources, capital resources, or natural resources:
factor endowment = MPPK/PK (i) = MPPL/P L(w/s);
The more cultural, political, legal differences exist, the more difficult it is to determine how the economic system will affect the economic outcomes of the country/society/ market/ sovereignty.
20. Differences among countries, cultures, and factors of production endowment have different impact on the system through their institutional arrangements (systems) and cultures.
21. Allocation apportionment of (scarce) resources (labor, capital, time, etc.) between (alternative) uses.
is the central preoccupation of economic analysis anti the central task of all societies, capitalist, socialist, communist, syndicalist or corporative.
The task can, in theory, be performed by markets with private ownership of resources, markets with government ownership of resources, direction by governments with private ownership of resources, or direction by governments with government ownership of resources.
22. Allocation Economists differ on the relative efficiency of these methods.
The first is used mainly by capitalist countries in peacetime,
the second has been attempted on occasion by some communist countries (Yugoslavia, Hungary, etc.),
the third by capitalist countries in wartime or other emergencies,
while the fourth is used by most communist countries. Socialist, syndicalist and corporative societies have used mixtures.
23. Allocation The effectiveness of the methods of allocation depends on the consistency with which they are employed:
markets are commonly restricted in operation for political,
social or military reasons;
while the larger the country the more difficult it is to enforce government directives.
The results vary:
some yield rising output with political and civil liberties,
others faster economic growth with fewer liberties,
some cultural cohesion or social stability with relatively slow growth and minimal liberties.
24. Allocative Efficiency the effectiveness with which (scarce) resources are apportioned between (alternative) uses.
In a market system rules have been evolved for defining maximum conceivable efficiency (which is not in practice necessarily attainable).
The maximum conceivable situation is when total output would not be enlarged if the resources were rearranged between the uses; in this situation they are yielding equal marginal products in all uses.
25. Allocative Efficiency Another measure is named after pareto ("Pareto optimality"):
the allocative efficiency is not maximized if reallocation would make some people better off (because they prefer the new to the original arrangement) but no one worse off.
The analysis of allocative efficiency has been described as Welfare Economics.
26. COMPARATIVE CULTURAL ECONOMIC SYSTEMS focus on identifying and analyzing different economic and cultural system and
their impact on allocation of resources by looking at scarcity and choice.
Identify and analyze basic economic questions, relative and absolute price, and efficiency within the context of culture.
27. COMPARATIVE ECONOMICS focus on basic issues of economic systems and organizational arrangements.
combines different economic policies in different cultural, historical settings to influence resource allocation or the outcome observe in each country' settings.
If different economic systems and/or cultural components influence resource then we can think in terms of optimal set of organizational arrangements to achieve desire objectives and goals.
For example, YF (no inflation and unemployment: Business cycles) from endowed scare resources, economic growth, and economic development.
28. Classification of Economic Systems Basic characteristics for classification of countries:
Ownership of resources: Private vs. Public.
Information mechanism: market vs. plan.
Level of decision making, authority responsibility: centralized vs. decentralized.
Incentive arrangements: material vs. moral.
Utility Maximization: self interest (individualism) vs. altruism (communitarianism).
29. Spectrum Arrangement of Economic Systems Economic systems are construct based on spectrum ranging from:
Decentralized market driven incentive based capitalist system.
Centralized plan directed socialism
This dichotomy changes over time, therefore spectrum changes:
Market capitalism, centrally plan capitalism, market socialism, vs. centrally plan socialism.
Individualism capitalism vs. communitarian capitalism. internationalism vs. globalism.
East vs. West.
North vs. South.
Economic integration vs. non integration.
The events of 1980s, 90s, and 2000s have created much diversity that simple models and labels are less relevant.
30. Historical Classification of Economic systems: Nomadic societies
Sedentary societies
Slave societies
Feudalism – Serf/Lord
Mercantilism
Colonialism
Agricultural societies
Capitalism/Imperialism
Socialism/Marxism
Technological societies – service – information
globalization.
31. Ancient Slave Mode production was characterized by unique relationships to the means of production, social class owned the means of production (land) privately and also people who worked on the land.
These people are both deprived of the means of production and are themselves the property of the dominant slave-holding class.
Forces of production to which the means of production are part, includes labor, land and raw materials, and the instruments of labor such as tools and technology.
Political and cultural economy view human labor as the main force of production which economics characterized as the extraction of surplus (surplus value of labor).
Technology, they argue, is a human creation and it is always applied in association with some form of human labor, mental labor.
Political and cultural economics do not offer a technological explanation of the economy.
32. Nomadic Societies No political boundaries.
deplete the resources, and then move.
The stronger the tribe, the more they engage in trade.
Non-farming and non-planning society.
Survival system based on very basic needs.
No specialization, maximization of utility, nor surplus accumulation.
Basic economic questions and coordination never addressed.
A very basic and simple approach and orientation to cultural economics -man’s interchange with natural and social environment which supplies man with the means to satisfy his/her “basic” material wants/needs.
33. Hunter – Gather Societies Depletion and over exploitation of renewable natural resources.
Hunting techniques and tools were primitive.
Population enjoyed living standards of subsistence.
Depletion of environment causes productivity to fall below subsistence and therefore making people to migrated to pother regions.
Fights ensued, population decreases, survival of fittest.
Cycles of growth and contraction of human and animal population was the rule.
34. Pastoral and Agrarian Societies Hunting start to switch to settled basic farming.
Scratching a cultivable garden within the forest and tending edible plants.
Primitive domestication of animals.
Enterprise provided living only barely above subsistence.
Enable survival in the face of increase demands on natural resources.
Learning from experience led to improved techniques and development of better seed and livestock which increase productivity and accumulation of small surpluses.
Excess surplus supported artisans, priests, soldiers, lawyers, and doctors.
35. Sedentary Societies: Realized that they do not have to deplete resources, stay where they have the advantage, trade, and surpluses.
Specialization and bartering begins, exchanging goods for goods or services.
Non-farming society and national borders started to appear; for example, tribes from Africa took dates and clothing to Assyria, and Chinese traders exported silks and jade to India and Europe.
a basic an approach and orientation to cultural economics.
36. Sedentary Societies Absolute Advantage: certain countries or groups can produce some goods more efficiently than other countries or groups can; they should specialize on and trade those things they can produce more efficiently (cheaply) and trade for other things that they need (Adam Smith).
Comparative Advantage: efficient gains from trade if a group or country specializes in those products that it can produce more efficiently than other products, lowest opportunity cost specialization (David Ricardo).
No formal markets.
“man’s economy” was neither monetized nor commoditized with regards to its factors of production.
37. Sedentarism Economic and legal systems within which it operated bacame more complex.
Better surplus accumulation created by settled agricultural system.
Property was largely communal and resources open to all but they become more important.
Permanence on land tenure becomes important between planting season and harvest.
Authority to adjudicate property rights and disputes appeared.
Greater surplus accumulation creates a nobility, professional, and artisan classes that provided consumer goods and services.
Religion establishment and permanent military.
38. Oriental Despotism Pressure for ownership of resources increased as population became agrarian.
Water and irrigation systems become important.
Water rights, irrigation projects, massive labor is required for large economies of scale.
Systems divided into highly populous and productive community and sparsely inhabited and precarious subsistence economy.
Large public works and bureaucracy emerged with resources and expertise to develop and maintain the water and system.
Social investment appears.
Military and bureaucracy held a monopoly on organizational and expertise as well as military power, and confiscatory rates of taxation are enforced.
39. Slave Economic System Humans are bound in servitude as an instrument of labor.
Necessity for agricultural irrigation.
Slave labor system was use in plantation systems, labor supplying in mining, construction, and later, in manufacturing as well as services within a household.
Objective was to obtain labor at rates below those that would pertain under a market system.
Flourished because labor was in short supply relative to capital and land, therefore MPPL> wage (high marginal product).
Cost of labor was: purchase, supervision, and maintenance.
Slavery was very centralized.
40. Feudalism Dominant system of political and economic organization for a period of more than a 1,000 years.
Hierarchical personal obligation, in exchange for protection from the Lord, serf was required to pay rent in goods and services.
All land and resources were owned by the lord.
Lords extracted income and surplus by appropriating goods in kind, as rent, and in return for services, especially milling grain, and by labor service provided as work on aristocrat’s land.
41. Feudalism further developed the private property as means of production.
The peasant obtains some means of production enough for the sustenance and the labor is no longer slave but it is transformed into a serf.
The Lord (aristocracy, king, and Church) or dominant class does not take the entire production but only the surplus.
The surplus here is larger than under slavery and slave masters are transformed into landlords.
Labor is exploited and extracted in separate place and time on manor land as distinct from the peasant plot, in various forms of forced labor service, in the form of commuted rent.
42. Feudalism Lands held in fee.
Learned they could enslave people.
Strong political groups evolve.
rent and trade begins.
The Church prescribes rules for economic conduct that were compatible with its religious doctrines.
Farmers were frequently deprived of their harvest as a result of incursions by foreign tribes; they decided to band together and provide their own protection.
By delivering a certain portion of their earnings to a protector, they could assure the retaining of some of their gains and trade; however, this ultimately resulted in the Feudal system.
43. Feudalism is an economic/agricultural system divided into small communities in which a few powerful people protect those who are royal to them.
The life of the serf was difficult and feudalism benefited mainly the Lord.
People left to the cities and became merchants and lived out of trade.
As cities and markets grew in size and power relative to feudal manors, the cities evolved and the guilds started to appeared.
The guilds were unions which financed and supported the king.
44. Feudalism As feudalism developed, several new economic activities and trends emerged which created the preconditions for new order.
These preconditions were changes in technology, urbanization, mediaeval merchants, the Crusades and exploration, creation of nation-state, decline of the manor, breakdown of guilds, and the rise of Protestantism and individualism.
These factors change international economics and eventually led to the destruction of the feudal system, which was replaced by capitalism
45. Decline of Feudalism Monarchs sought to consolidate power and to increase their own wealth and control more fully territories nominally under their own rule.
Growth of market economies challenging the system.
Gun powder devalued to advantages of monarch/lord and its centralization of power.
Appearance of nation-states with establishment of currencies, standardized weights and measures, and uniform laws.
Lesser obstacles to trade.
Costly transportation posed a problem, but more effective division of labor appeared .
Appearance of fire arms.
Growth of town (life) with surged in demand for labor force.
46. Mercantilism Accumulation of wealth gives political, military, and economic power.
The accumulation of bullion surpluses in the balance of payments became important.
It was a justification for tariffs and other barriers of trade, as a rent seeking policy, then a major source of government revenue.
Mercantilism was an economic system in which the government determined what, how, and for whom to produce, and controlled trade decisions by doling out the rights to undertake certain economic activities.
Mercantilism increased the role of the government, which encouraged growth and also limited it. The government legitimized finance transactions, encouraged growth, and protected few through monopolies, and therefore, decreased growth.
47. Mercantilism The government allowed the markets to operate but kept them under control. Therefore, the market could not respond freely to the laws of demand and supply. A good example was the amount of monopolies in trade created by the kings of Spain.
The creation of an integrated economic system greater than the size of the microeconomics of feudalism.
Removal of fiscal and physical barriers to trade.
Acceptance of common legal codes.
A movement towards a common currency.
The use of common language.
Development of national economies.
48. Mercantilism Establishment of industries
Granting of subsidies and monopolies to key industries by the monarch.
Desirable positive balance of trade, difference between value of exports and imports.
Adam Smith’s derision/scorn in the Wealth of Nations accusing mercantilists of confusing money with national wealth.
Two schools appear:
Bullionists – wealth of a nation measure in term of real sock of precious metals rather than the productive capacity.
Cameralists – fiscal possession, accumulation of fiscal surplus, and ability to tax.
49. Mercantilists Positive balance of payments.
Positive balance of employment: the labor content of exports should be greater than that of imports.
Growth maximization and utility maximization measure in terms of control in the direction of trade and the means by which trade was to be conducted.
Classes effectively control society and the economy and the day to day economic activity.
50. Colonialism Colonies could provide both fields to invest capital at a higher rates than applied at home.
A source of demand for finished products.
Good supply of raw materials.
Can enslave other territories as well as people.
Serves the purpose of promoting the balance of trade.
Columbus routes gave Europe colonial power and open new avenues to trade.
51. Colonialism Rules were passed to promote a prosperous and productive agricultural sector, create variety of domestically manufactured goods, and further the exploitation of the colonial resources.
Colonies were a ready export market, coerced the colonies into purchasing manufactured goods from the home country, where the home companies had monopoly power on the right to trade.
Settlers in the colonies provided raw materials, precious metals, and grains to Europe in exchange for tea and manufactured commodities.
52. Specialized Agricultural Society Take advantage of climate, geography, and materials.
90% of all nations are still in this system today.
Countries followed the theories of Absolute Advantage (Adam Smith) and Comparative Advantage (David Ricardo).
Improvement in techniques and innovation.
Systems specialized based on natural advantages.
53. Industrial and Manufacturing Capitalist Industrial revolution, monetary system gave rise to commercial capitalism.
Governments created limitations to exclude craft unions and new businesses which were called Industrialists or Capitalists.
These were business people who had acquired large amounts of money or capital and use it to invest in business.
Dominant wealth-creating activity was commerce conducted by entrepreneurs who controlled capital and were interest in its accumulation.
Two innovations: practice of incorporation of business and the emergence of banks as true financial intermediaries.
54. Industrial Capitalism Capitalism is the art of business by devising machines to replace hand production, and therefore, decrease the price of wages and increase the supply of labor.
Industrialists were outsiders with vested interest.
Capitalism is an economic system in which individuals decide what, how, and for whom to produce and which machine production should replace hand production.
This period gave rise to Imperialism and the growth of foreign direct investment and the multinationals.
The Industrial revolution contributed to convenience on international business.
55. Industrial Capitalism Growth of mass production.
Rise of industrialized manufacturing.
Explosive burst , extended, and evolutionary series of innovations and institutional changes.
Shifts in productive techniques.
Developments in the factory system as know today.
Product was close to totally homogeneous.
Market included many buyers and many producers.
Labor was largely undifferentiated.
Decisions were made by the entrepreneur who both managed the firm and put substantial part of personal capital at risk.
56. Industrial Capitalist Government policy of “laissez faire, laissez passer” (let it do - let it pass).
Four changes in the Industrialization process:
Replacement of muscle power (whether animal or human) by machine power, first water power and then steam.
Replacement of skill and craftsmanship by the artificial and repetitive precision of the machine.
Replacement of organic sources of raw material by inorganic ones.
Replacement of natural time by the clock. This development was especially important for the creation of workforce discipline in the factory system.
57. Capitalism Shifts in the economic regulation.
Political power remained in the hands of landholding and commercial class, who favored comprehensive trade regulation.
Sharp changes in the economic system such as the outcome of the popular and parliamentary debate over the reform of the corn laws – tariffs that restricted the importation of cereal grains.
Unacceptable workplace dangers and the creation of child labor laws.
Government became involved in the development of human capital, in the form of education for less privileged classes which increased labor productivity.
Labor organized and Unions began to spring up and were the first resolutely opposed by manufacturers and government.
58. Industrial Revolution (1750 - 1900's) is a period where technology and machines rapidly modernized industrial production and inventions changed all aspects of life:
Watt’s steam engine (1769),
James Hargreaves’ spinning wheel (1765),
Eli Whitney’s cotton gin (1793),
Arkwughts’ looms (1769), and
James Kay’s flying shuttle (1733).
Rudolf Hilferding (Austrian) finance capitalism: close relationship between banks and business.
Main goal was tendency towards accumulation of capital.
Monopolization of production and elimination of competition
59. Socialism and Communism Marx believed that capitalism would face repeated crises caused by the long run decline in the rate of profit and ever increasing problems of excess supply as demand failed to keep pace with production.
These economic problems would be played out against a backdrop of growing worker alienation.
These forces would present the crucial limitation on capitalist production and the means by which the system would change.
Like other systems before it, it would be swept away.
The system that would replace it would be socialism, a transitional stage on the way to communism
60. Socialism and Communism socialism first appeared in writings in France and Britain in the early nineteenth century.
Today, it covers a wide range of positions from total public ownership at one extreme to social democracy at the other.
Socialists believes that the community as a whole should own and control the means of production, distribution, and exchange to ensure a more equitable division of a nation's wealth, either in the form of state ownership of industry or in the form of ownership by the workers themselves.
In Marxian terms, the advent of socialism is characterized by a dictatorship of the proletariat and the continued existence of scarcity (which would be not be a characteristic of communism).
Other conceptions: Utopian socialists in Britain, for example, saw a much more limited shift in society. The economic organization they envisaged held much in common with worker-owned cooperatives.
61. Socialism and Communism Marx saw socialism as another stage to be passed through on the way to communism.
Prior to Marx, this social and political ideology advocated that authority and property be vested in the community, each member working for the common benefit according to capacity and receiving according to needs.
Numerous thinkers embraced the ideal of communism, including Plato, Jesus and the early Christians, and the sixteenth-century humanist Thomas More, who saw it as expressing man's social nature to the highest degree.
Communism was to be the final culmination of Marx’s successive revolutions. In such a society, class would vanish and the state as such would largely be unnecessary.
Each would contribute according to his or her ability and each would take according to need.
62. Socialism and Communism Under Lenin and his successors, Stalin, Soviet communism contained two main elements:
The first was the leading role of the Communist Party.
The second major element in communist doctrine was the social ownership of property and central planning of the economy.
63. Socialism and Communism The Communist Party:
represents the true interests of the working class.
was to control the organs of the state, and was itself to be organized according to the principles of "democratic centralism” in which a narrow group of individuals controlled all its of political, economic, social, and cultural life.
Thus, in effect communism became one variant of totalitarianism, with a narrow elite enjoying control.
64. Socialism and Communism The social ownership of property and central planning of the economy:
The achievements of Soviet communism inspired revolutionary movements in many other countries, and in some developing countries, such as China, Vietnam, North Korea, Yemen, Cambodia, Angola, Peru, Chad, and Cuba.
Communist parties came to power and established regimes based more or less closely on the Soviet model.
In Eastern Europe, communist governments were installed under Soviet influence at the end of World War Il.
65. Socialism and Communism The ideal communist state never materialized and support for communist regimes in the West fell, even among left thinking intellectuals, as the inefficiency of the system and its lack democratic base became more apparent.
66. Socialism and Communism The Growth of Welfare State Although Marx was confident that the successive crises of capitalism would lead to socialist revolution in the most advanced capitalist societies, these expectations failed to materialize.
Britain, the United States, and Germany with the large manufacturing workforces at the end of the nineteenth century, appeared the prime candidates for revolution.
However, all escaped Marxist revolution.
Rather than a violent shift to total public ownership and dictatorship of the proletariat, these states instead evolved into societies that generally carry the label of welfare states.
67. Socialism and Communism The Growth of Welfare State Evolution is perhaps a mild word for a metamorphosis in Germany, which throughout the 1920s teetered on the brink of revolution before falling to the fascists in 1930s.
After World War II, the occupying powers were highly influential in restructuring the economic system by decree.
Only after his point can the German development of the welfare state be regarded as gradual evolution.
68. Socialism and Communism The Growth of Welfare State In these nations, the governments assumed a much greater range of responsibilities for management of the economy and the creation of a the social safety net.
Labor got to share to a much greater degree in the increase in productivity that followed technical change, and consequently the revolutionary potential of working class discontent was diffused.
These shifts were gradual; Britain started before WWI, accelerated between the world wars, and culminated with a far reaching social program immediately following World War II.
This program included: creation of a comprehensive social security, nationalized health care, and the assumption of public ownership of large swath of industry.
69. Socialism and Communism The Growth of Welfare State In the United States the key program were the creations of the New Deal by the Roosevelt administration after 1933 and the Great Society program by Lyndon Johnson in the late 1960s.
In the 1030s, Sweden became particularly aggressive in the pursuit of income equality.
In the 1980s with Margaret Thatcher, Britain retreated from socialism, followed by Mulroney in Canada, Reagan in USA, and other European nations in privatization of public enterprises.
70. Socialism and Communism Corporatism and Fascism Corporatism economic systems is one where the interest groups, bound together by duty and obligation, triumph over individualism.
The logic of corporatism dictate that such groups are not in conflict with each other, but seek non confrontational relationships.
In practical terms, the various institutions of both labor and capital are licensed by, and operated under the close supervision and coordination of the state.
Thus, corporatism combines the market institutions of private property and ownership of the means of production with the idea that the government is responsible for the shaping and steering the actions of both labor and capital for the good of the society.
71. Socialism and Communism Corporatism and Fascism Corporatism has also been closely associated with the political system of fascism.
Fascism is represented the state being dominant in all aspects of life.
The essence of fascism is that the government should be the master not the servant of the people.
The economic embodiment of fascism was the model of the corporate state.
Pioneered by Mussolini in Italy’s interwar regime.
72. Socialism and Communism Corporatism and Fascism In Fascism: all industries in the country were organized under state aegis (auspices) into twelve corporations, controlled by boards on which representatives of labor, business, and the Fascist Party served.
In reality, they were government sponsored trade associations or cartels with the responsibility for allocating output among members, fixing prices, and regulating wages.
Although the objective was to promote state control of the industry and rapid growth, in fact the monopolistic organization resulted in corruption and a loss of efficiency.
73. Socialism and Communism Corporatism and Fascism In Germany a less structure system gave the government the high degree of control over business and replace free unions with the National Labor Front.
Businesspeople were coerced into cooperation by the prospect of relief from the labor strife characteristic of previous decade.
In both cases, the objective of system was the triumph of the collective interest over the individual, both at the level of the corporation and at the level of the state.
It is, consequently unfavorable to the liberal capitalism because of the required trampling of individual rights and to socialists because of the nominal prevalence of private property.
74. Socialism and Communism Corporatism and Fascism Although corporatism is usually associated with past dictators such as Mussolini, Perón in Argentina, and Salazar in Portugal, corporatism is a word also used to describe Sweden, where the government brings together labor unions and employers' federations to determine national wage settlements.
Others used it to characterize Japan, where a triumvirate of politicians, bureaucrats, and industrialists jointly forge a national industrial policy.
In its most extreme form it takes on the rather pejorative label of "Japan Inc."
75. Socialism and Communism Corporatism and Fascism Confusion between corporatism as political and economic system in fascism and political and economic system in dominated by corporations in the current American sense of the word is.
A company such as General Motors is not at all the same institution as the Italian corporations organized by Mussolini.
Mussolini famously remarked that "Fascism should be more correctly referred to as Corporatism," is an attempt to represent his politics as promoting the collective good and the general rights of the individual through requiring incorporation in government.
76. Socialism and Communism Corporatism and Fascism The fascism concept of life stresses the importance of the state and accepts the individual only in so far as his interests coincide with the state which is opposed to classical liberalism which denies the state in the name of the individual.
Fascism reasserts the rights of the state as expressing the real essence of the individual.
It is too frequently used in suggesting no distinction lies between today's corporate world and its links to government, and the political system of fascism with all its evils.
Clearly many flaws can be associated with contemporary capitalism, but eliding the distinction between today's corporations and Mussolini's corporatism blocks sincere efforts to critically address them.
77. Socialism and Communism Maoism and Central Planning Private industry and commerce were nationalized in 1949 after the Communist party led by Mao Zedong defeated the Nationalists (Kuomitang – KMT) led by Chiang Kai-Shek to Taiwan.
Compared to Soviet Stalinism.
Places greater emphasis on rural development, egalitarianism, moral incentives, and decentralization of industry, The Great Proletarian Cultural Revolution.
Sweeping agricultural reforms took land and resources away from landlords and placed it under peasant control communes, complete communalization of agriculture.
Defended Stalin against destalinizing Soviet critics after 1956.
Emphasized decentralization of industry throughout the country, The Great Leap Forward of 1957-1959.
78. Socialism and Communism Titoism A practice rather than ideology led by Josip Broz (Marshall Tito) who led Communist partisans throwing the Nazis out of Yugoslavia during WW II.
Broke with Stalin in 1948 and declared the political independence of Yugoslavia from Soviet influence.
The distinctive economic system was the worker-managed market economy (quasi sindicalist) which consisted of state-owned enterprises in a one party state operating with little central planning according to market forces and with managements appointed by worker-selected boards.
After Tito’s death (1981) the economic system deteriorated which culminated in the complete disintegration of the country.
Tito’s ideologies have continue to influence even the capitalist economies, the only difference being that current systems advocate workers’ ownership rather than state ownership and multiparty democracy rather than one party state.
79. Economic Systems and Islam Growing conflict between a section of the global Islamic community and the capitalist West is increasing interest in, among other things, Islamic economics.
Timur Kuran tried to clarify the issues surrounding Islamic economics:
The purpose of Islamic economics is to identify and establish an economic order that conforms to Islamic scripture and traditions.
Its core positions took shape in the 1940s, and three decades later efforts to implement them were under way in dozens of countries.
In Pakistan, Malaysia, and elsewhere, governments are now running centralized Islamic redistribution systems known as zakat.
More than sixty countries have Islamic banks that claim to offer an interest free alternative to conventional banking.
80. Economic Systems and Islam Invoking religious principles, several countries, among them Pakistan and Iran, have gone so far as to outlaw every form of interest; they are forcing all banks, including foreign subsidiaries, to adopt, at least formally, ostensibly Islamic methods of deposit taking and loan making.
Attempts are also under way to disseminate religious norms of price setting, bargaining, and wage determination, and for every such initiative, others are on the drawing board. Timur Kuran, “The Genesis of Islamic Economics”, Social Research 64, no. 2 (summer 1997).
Kuran is skeptical about the role that Islamic economics might play. He goes on to point out that "of all economists of the Muslim faith, only a small minority ... identify with some variant of this new doctrine. Yet the doctrine is socially significant, if only because it advances the sprawling and headline-grabbing movement known as 'political Islam,' 'Islamic fundamentalism,' or simply 'Islamism."'
81. Economic Systems and Islam However, its proponents argue that the practice of Islamic economics could unite the strengths of both capitalism and socialism.
It is based on three fundamental precepts:
(1) an opposition to the use of interest, based on an interpretation of the Qur'an;
(2) the adoption of the zakat, a form of voluntary redistribution, and
(3) the filtering of all economic decisions through Islamic moral norms.
The most important of these ideas in practice is the prohibition on interest. Other societies attempted to do without the use of interest but none very successfully. Similar restrictions on “usury” were placed by the Roman Catholic Church and also US laws.
The Islamic economist’ solution is to rely on the sharing of risk through equity, rather than a secure lender advancing investment funds to a borrower.
82. Economic Systems and Islam Kuran argues that the prohibition of interest, so key to the theory of Islamic economics, is due to a misinterpretation of the Qur'an, which sought only to outlaw a particularly grievous practice, whereby the principle was doubled in the event of a default.
Fundamentalists insist on the notion that it is immoral to earn income from capital without assuming risk.
Instead of the use of loans, therefore, business finance must be placed exclusively on a basis of shares or "equity" participation.
83. Economic Systems and Islam The Islamic Development Bank, founded in 1974 by the Organization of the Islamic Conference to promote Qur'anic principles in the economies of member states, makes no loans but finances development projects only in return for a share of the profits, or for a "commission rate."
This practice is not unknown, of course, in Western economies.
Indeed, the entire venture capital industry, which financed much of the high-tech small company growth in the United States, relies on equity participation rather than loans.
84. Economic Systems and Islam modern economics tends to stress the role of interest as "the price of capital," considered necessary for the efficient operation of an economy, especially in the intertemporal context.
In some ways the problem for Islamic systems is parallel to that experienced by centrally planned economies, which, too, eschewed interest rates on principle.
Without a market for finance, both, the savings/ investment decision and the choice of technique decision become more complex and prone to an inefficient outcome.
85. Service/Information System Leading to technology.
United States becomes middleman and coordinates activities worldwide.
Credit society, advanced countries, and
De-industrialization.
86. Multinationalism and Globalism The 1980s and 1990s saw a strong economic expansion of economic systems of internationalism and expanding role of the multinational corporations.
Europe established a united European Union and now has one currency: Euro.
United States, Canada, and Mexico established a barrier free NAFTA in 1994.
Move towards economic integration has raised the issue of multinationalist economic system versus national economic systems.
Criticism: threatens national identity and weakens sovereign control over economic destiny and system.
87. Multinationalism and Globalism Globalism is the increased integration of the world economic systems.
Major industrial firms of the West are no longer constrained by national boundaries.
No longer national companies but multinational and global corporations.
Globalistic economic system is the increasing interconnectness of peoples, societies, and sovereignties and the interdependence of economies, governments, environments, and international organizations.
Globalization implies standardization and homogeneity of products, production, financial markets, management, practices and markets, with relatively low costs.
88. Economic Systems in the 21th. Century Changes from 1990s which rose new and challenging issues:
End of Cold War.
German Unification
Fall of communist political and economic systems in Eastern Europe
Dissolution of the Soviet Union.
Dominance of market capitalism in North America, Australasia, Europe, Latin America, and Japan.
In 2002, Russia, the most populous country of Europe, was officially declared a market economy.
Five Tigers of Southeast Asia experienced phenomenal economic growth.
Efficient of USA economic performance in this century is attributed to efficient capital, flexible labor, and technology advances.
89. Economic Systems in the 21th. Century History shows that we do not have choice of economic systems.
The FSU, Eastern European countries, and many economies in transition are actively searching for their economic systems.
Industrialized West has operated with fairly stable economic systems for decades, if not centuries.
Emerging world of Asia and Latin America must make crucial choices concerning the economic systems that will bring appropriate level of affluence.
Just as individuals learn from the successes and failures of others, so do countries.
Ultimate goals is to learn what works, what influences, and in what settings
90. Economic Systems in The New World Changes in economic systems will occur by using elements of the market system to improve exiting systems.
However, changes could be as drastically as changing from one economic system to another.
Recent systematic changes have become important but there are still more, new and complicated avenues of exploration.
All countries have forces beyond their economic system’s control such as culture, historical developments, foreign relations and trade, levels of technology, and cultural identities which affect the nature and outcome of their transition.
91. Economic Systems in The New World Economic systems and components are not neutral to the settings in which they arise.
Economists prefer to study general principles rather than to become historical, political, or sociological experts of each country/economy.
Cultural economists study the social and economic life of individuals and groups.
Preconditions affect the pattern and pace of transition, therefore, cultural economics try to avoid generalizations and deals with special circumstances, mostly cultural motivated.
92. Economic Forces: are necessary reactions to scarcity.
use the price mechanism as rationing mechanism.
are similar everywhere but are always operating differently from country to country.
change and differentiate from country to country because every country has different culture (values, beliefs, norms, and traditions) and cultural elements and characteristics.
Economic forces and problems are the same but cultures, policies, and institutions are different.
May operate freely or may be restraint.
93. Economic Forces Are economic forces which allow to freely work through the market.
Economic reality is composed of three forces:
Invisible hand: the price mechanism guides the actions in a market, cost/benefit.
invisible handshake: Social, cultural, and historical forces which play a role in the economy; Social forces such as culture, environment, geography, anthropology, religion, social class and choices.
Invisible foot: Political and legal forces such as government types, roles and their philosophies and politics.
94. Summary Comparative cultural economic systems traditionally study may be too narrow.
Combining economics, culture, history, growth and development models may be necessary to understand system changes mainly through culture.
For example, China is a large poorly planned social economic systems attempting to slowly introduce market forces, therefore, comparative cultural economics is fine.
Comparative cultural economics is a subfield of economics, therefore, it must combine all those branches of economics that speak to the issues of an economic system such as: performance, where they come from (origin), and which system perform best, that is, how different economic systems influence the resource allocation and culture.
95. ECONOMIC SYSTEMS DEFINITIONS &
CLASSIFICATIONS This is a testThis is a test
