Political and Economic Philosophies

Objectives Identify and explain different economic and political philosophies.

As you learned earlier, all economies in the world today are mixed. However there are ways to distinguish between them Three political philosophies have shaped the world’s economic systems are Capitalism Communism Socialism

Capitalism Characterized by marketplace competition and private ownership of businesses Same as free enterprise or private enterprise An advantage is that successful employers & employees prosper

Characteristics Government is concerned about its people and cares for those who cannot care for themselves The gov’t also has some involvement in the free market Policies and laws that affect the market Must keep a balance between too much and too little regulation

Political Foundations of Capitalism The political system most frequently associated is democracy These nations believe that political power should be in the hands of the people Usually more than one political party from which to choose representatives to run the gov’t People are free to elect those candidates who agree with their philosophy on how the gov’t & economy should be run

Political Foundations of Capitalism The US and Japan are 2 examples of countries that are classified as capitalist and have a democratic form of government

Communism The gov’t, usually authoritarian, controls the factors of production No private ownership of property or capital The theory is that goods owned in common are available to a classless society on an as needed basis People are given jobs based on their abilities They are given the goods that fit their needs

Characteristics All people who are able to work are assigned jobs Theoretically, there is no unemployment Employees who do not go to work continue to get paid The gov’t decides the type of schooling everyone gets and tells people where to live Housing accommodations are assigned according to need

Characteristics Food & housing subsidies (aids) keep prices low so everyone has a place to live and food to eat Medical care is free Little or no economic freedom No financial incentive for people to increase productivity Want to be entrepreneurs cannot start their own business

Examples of Communist Countries Very few left today Cuba and North Korea China is still dominated by communism but is allowing more free enterprise practices Vietnam & Laos are also following this path

Socialism Originally referred to a system on its way to the communist ideal of a classless society Today, most countries that are defined as this, have democratic political institutions They differ from capitalist nations because of the increased amount of gov’t involvement Main goal is to meet basic needs for all & to provide employment for many

Characteristics Tend to have more social services to ensure a certain standard of living for everyone Medical care & education are free or inexpensive Systems for pensions and elderly care Businesses & individuals pay much higher taxes than those in capitalist countries Taxes contribute to financing the gov’t

Examples of Socialist Countries The gov’t runs key industries & makes economic decisions State-controlled, noncompetitive companies are often found in industries such as: telecommunications, natural resources (such as gas, water, & power), transportation, & banking Canada, Germany, & Sweden are generally characterized have having socialist elements in their economies

Economies in Transition Prior to the Soviet Union breakup, Poland owned approx 80% of the country’s productive assets After the breakup, it owned only 55% Poland welcomed private investors that wanted to buy its state-run factories, which were inefficient & non productive

Privatization vs. Nationalization Privatization – the processes of gov’t selling gov’t-owned businesses to private individuals/businesses Generates much needed revenue Demonstrates a high level of commitment to making the transition to a market system Can help balance budgets

Privatization vs. Nationalization Nationalization – the gov’t takes over private-held companies Transfer of ownership may be due to an economic crisis, a political upheaval, or a change in gov’t policy

Developing Economies Mostly poor countries with little industrialization Trying to become more prosperous & develop infrastructure Success depends on the education of the labor force Chad, an African Country, is a developing country Traditional economy based on agriculture & livestock farming Cotton, cattle, & gum arabic are its primary exports An oilfield & pipeline project paid by foreign investors has helped Chad develop its oil reserves for export This will help Chad with much needed funds for this poor nation

Political & Economic Philosophies Capitalism 1. Marketplace competition 2. Private ownership of business 3. Successful employers & employees prosper 4. Some social services 5. Some gov’t regulations 1. Usually authoritarian 2. Controls factors of production 3. Assigned jobs 4. Goods given according to need 5. No financial incentive to increase productivity Communism 1. More gov’t involvement in economy & social services 2. Tax rates high 3. gov’t may run key industries 4. gov’t makes many economic decisions Socialism