Economic Systems Different Approaches to Economics in Comparative Government & Politics

Economic Systems Economic System Economic System – an organized way of providing for the wants and needs of a people. Three Major Forms 1)Command Economy 2)Market Economy 3)Mixed Economy

Economic System Economic Systems Economic Systems – an organized way of providing for the wants and needs of a people.

Command Economy Command (Planned) Economy Command (Planned) Economy – a central government determines the price of goods and services using a fixed price system. ADVANTAGES ADVANTAGES 1.Can change economic direction drastically 2.Stability; no ‘market downturns’ 3.Eliminates individual profit motives 4.Can provide public services/goods at a low cost

Command Economy Command (Planned) Economy Command (Planned) Economy – a central government determines the price of goods and services using a fixed price system. DISADVANTAGES DISADVANTAGES 1.Ignore the basic wants & needs of consumers 2.Incentives based on quotas, not necessarily quality 3.Large decision-making bureaucracy, inefficient 4.No rewards for individual initiative

Market Economy Market Economy Market Economy – goods and services are determined in a free price system set by supply and demand. ADVANTAGES ADVANTAGES 1.High degree of individual freedom & consumer satisfaction 2.Lack of government interference 3.Variety of goods and services 4.Able to adjust to change gradually

Market Economy Market Economy Market Economy – goods and services are determined in a free price system set by supply and demand. DISADVANTAGES DISADVANTAGES 1.High degree of uncertainty  Market Adjustments, Recessions, Depressions 2.Does not provide for everyone; basic goods & services 3.Produces class division

Mixed Economy Mixed Economy Mixed Economy – economic system that combines free market elements with an active governmental role. ADVANTAGES ADVANTAGES 1.Compromise of two extremes (market & command) 2.Provides assistance to those in need 3.Provide stability, while encouraging innovation DISADVANTAGES DISADVANTAGES 1.Higher costs (taxes) for citizens 2.Role of Government? – difficult to balance 3.Somewhat less efficient

Measuring Economic Success 1.Gross Domestic Product (GDP) 1.Gross Domestic Product (GDP) – all the goods and services produced by a country’s economy in a given year (excluding income earned outside the country). CountryGross Domestic Product (2009) United States$14.25 trillion United Kingdom (Britain)$2.165 trillion Russia$2.103 trillion China$8.767 trillion Iran$876 billion Mexico$1.473 trillion Nigeria$353.2 billion

Measuring Economic Success 2.Gross National Product (GNP) 2.Gross National Product (GNP) – like GDP, but also includes income earned outside the country by individuals and/or companies. 3.GDP/GNP per capita 3.GDP/GNP per capita – divides GNP by the population of the country CountryGDP per capita (2009) United States$46,400 United Kingdom (Britain)$35,400 Russia$15,200 China$6,500 Iran$12,900 Mexico$13,200 Nigeria$2,400

Measuring Economic Success 1.Gross Domestic Product (GDP) 1.Gross Domestic Product (GDP) – all the goods and services produced by a country’s economy in a given year (excluding income earned outside the country). 2.Gross National Product (GNP) 2.Gross National Product (GNP) – like GDP, but also includes income eared outside the country by individuals and/or companies. 3.GNP per capita 3.GNP per capita – divides GNP by the population of the country 4.Purchasing Power Parity (PPP) 4.Purchasing Power Parity (PPP) – like GNP, however it also takes into consideration what people can buy using their income in their local economy. 5.The Gini Index 5.The Gini Index – a formula that measures the amount of economic inequality in a society.

Measuring Economic Success 4.Purchasing Power Parity (PPP) 4.Purchasing Power Parity (PPP) – like GNP, however it also takes into consideration what people can buy using their income in their local economy as compared to prices in the U.S. 5.Human Development Index (HDI) 5.Human Development Index (HDI)– a formula that measures the well-being of a country’s people by factoring adult literacy, life expectancy, and educational levels in addition to the GDP. 6.The Gini Index 6.The Gini Index – a formula that measures the amount of economic inequality in a society.

Trends of Global Economics 1)Economic Liberalization – the general trend/movement of global economies toward market economies. – WHY? – ( 1) Belief that government is too big (2) Lack of success of command economies.

Trends of Global Economics 2)Globalization – the increasing interdependence of economies, political systems, and societies on a global scale through the utilization of technological innovations.ADVANTAGES o Rapid overall economic growth o ‘Global Access’ to information, technology, capital o Spread of democracy and human rights o Sense of global citizenship

Trends of Global Economics 2)Globalization – the increasing interdependence of economies, political systems, and societies on a global scale through the utilization of technological innovations.DISADVANTAGES o Exploitation of poorer countries – Multinational Corporations (MNCs) o MNC account for 1/3 world’s exports; top 10 MNCs have sales greater than GDP of 170 countries; Pakistan nuclear test & Coke o Erosion of state sovereignty o Actions in one nation now affect all nations o SARS outbreak in China or Swine Flu in Mexico o Negative environmental impact o “Americanization” – spread of American culture – backlash?

Trends of Global Economics 3)Industrial vs. Post Industrial Value Shift – – Modernism – Modernism – a set of values that comes along with industrialization Secularism Emphasis on reasoning Materialism Technology Emphasis on freedom rather than collective equality – Worker Distribution Small Service Sector (technology, health care, finance, education) Large Industrial Sector (factories, industry creating tangible goods) Shrinking Agricultural Sector (farming, food creation)

Trends of Global Economics 4) Industrial vs. Post Industrial Value Shift – – Post-Modernism – Post-Modernism – a set of values that that comes along with post-industrialism Quality of life over material gain Preservation of the environment Promotion of health care & education – Worker Distribution Large Service Sector (technology, health care, finance, education) Shrinking Industrial Sector (factories, industry creating tangible goods) Very Small Agricultural Sector (farming, food creation)

Trends of Global Economics