Capitalism and the Economy Chapter 10 Lecture PowerPoint © W. W. Norton & Company, 2008

Economic Systems  Production and distribution of goods and services  Capitalism – based on private property, competition, and profit  Socialism – based on public ownership, public control, and social welfare  These are supported by and interconnected with political systems and culture

Comparison of two types of economies CapitalismSocialism Who owns property? Private individuals and corporations. Citizens, represented by the state How does it benefit society? Working for self interest causes competition, which results in better products at lower prices More equal distribution of wealth, fair pay and benefits for workers What are some deficiencies? Imperfect competition; control by monopolies and oligopolies; concentration of wealth among elite. Imperfect distribution, lower wages than in capitalist systems, lower productivity, bureaucracy What is role of government? “Hands off,” but some monetary policy, tax & tariff, fiscal policy interventions acceptable Control over production and distribution, exists for benefit of workers

A Brief History of Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 4  Feudal system preceded capitalism in Europe Everyone owned some property or products produced on others’ property. Most could support selves  15th century: enclosure movement, forced people off what had been public land sent them looking for work in cities. Provided labor force needed for industrialization

A Brief History of Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 5  18th century - agricultural revolution – new technology: Increased population growth (nutrition, lower mortality) Increased value of land Created manufacturing and transportation technology - need for tools, equipment, transportation, labor pool to fill new jobs Transition from barter to legal currency Transition from agreements between individuals to contracts between corporations

A Brief History of Capitalism  20 th century – shifts in producers, products: International trade: manufactured goods to capital to information Dominant actors: powerful families to individuals to corporations (esp. banks) Management: top down to “flat” org., “family wage” system to nonstandard work, lifelong “vertical” career to horizontal movement Demand for labor: physical ability to “creative class”

Creative Class You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 7  Creative Class workers for whom creativity and knowledge are central to their productive work In high demand by companies May change jobs often, experience insecurity, work longer and harder than in past.

Theorizing the Transition to Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 8  Adam Smith Argued that competition, driven by people’s inherent self-interest and drive to trade, helps maintain a cohesive society Stated that specialization is a key to increased productivity and innovation, and that the use of money, as opposed to barter, makes trading more efficient

Theorizing the Transition to Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 9  Georg Simmel Evolution of monetary payment systems as force to depersonalize exchange  Piecework  Wage labor  Salary Saw as positive change separated public and private spheres gave workers more freedom to enjoy leisure

Theorizing the Transition to Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 10  Karl Marx Argued that capitalism created alienation from  the products  the production process  one another  themselves and their creative tendencies capitalism would ultimately destroy itself working class would rise against the capitalist class, leading to socialism and then communism

Theorizing the Transition to Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 11  Max Weber Linked rise of capitalism to ideas, specifically ideas and beliefs connected to Protestant Reformation Saw capitalism negatively because he thought people became obsessed with working and making money that they could never enjoy

Recent Trends in Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 12  Recognizing the family  The Ford Motor Company’s “ family wage” Favored married men with children over single men or married men without children reinforced notion that women should not work. wage structure was one factor that made women see marriage as way to have financial security; did not see work as lifelong choice.

Recent Trends in Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 13  Work hours and policies  Americans work longer hours  have fewer vacation benefits  less generous family leave policies.  more American companies are offering family friendly policies such as flextime and “flexspace,”  employees are not taking advantage of them in great numbers.

Recent Trends in Capitalism You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 14  Women’s employment  employed mothers are less depressed and have higher self- esteem than  they are also more likely to feel tired and anxious and  they have higher divorce rates.

Recent Trends in Capitalism Globalization – global economic interdependence  Globalization is not new, but has some new elements Dominance by corporations, not individuals or countries Communication and technology allow wider outsourcing of jobs, more worker awareness of lifestyles in IAC’s Labor purchased from DC’s includes skilled and educated International trade, exchange rates, are more important to national economies; more influenced by speculation

The Reign of the Corporation You May Ask Yourself Copyright © 2008 W.W. Norton & Company, Inc. 16  corporation is a “juristic person”  has legal rights, duties, and responsibilities of a person  Is owned by shareholders  Usually overseen by board of directors  Individual members are not held liable for corporation’s behavior or debts This gives corporations great power

Importance of corporations  More powerful than some countries  In U.S., top 100 corporations control 9% of assets Top 100 are only.1% of all corporations in U.S.  Political influence corporate officers become politicians, politicians own stock in corporations Corporations contribute to campaigns and interest groups  Interlocking directorates – same individuals on multiple boards of directors

Interlocking Directorates Involving Citigroup Corporation, 2005

Multinational Corporations  Extremely wealthy and powerful  Usually based in industrially advanced country (IAC)  Purchase labor and raw materials from developing countries (DC’s) Provide jobs in DC’s Slow economic growth in DC’s by keeping wages low and suppressing competition May move jobs out of IAC’s

How Rich are Multinationals? Corporate Assets, 2005GDP, 2005 Walmart, $259 billionBangladesh, $259 billion Exxon Mobil, $213 billionGreece, $212 billion General Electric, $134 billion Israel, $121 billion IBM, $89 billionNew Zealand, $85 billion Home Depot, $65 billionSyria, $58 billion Bank of America, $48 billionEthiopia, $48 billion

Importance of Banks and Financial Institutions  Economic production and investment depend on credit and finance.  Lending = creating money  Banks & financial institutions own most corporate stock; concentration is increasing.  Corporations’ and banks’ directorates interlock  If one bank fails, others may follow, then entire industries

Work in the Capitalist Economy  Occupations often divided among sectors  Primary sector – direct involvement with natural environment (agriculture, timber, mining)  Secondary sector – manufactured products  Tertiary sector – services  Today most jobs are in tertiary sector More white collar employment More lower paying jobs

Work in the Capitalist Economy  Industries also divided into sectors  Core – large dominant firms – higher pay and benefits, advancement, security, more white males employed in these positions  Periphery – smaller competitive firms – lower pay and benefits, less opportunity for advancement, less security, more women and minorities  Today, not even core jobs are secure, real wages have dropped, fewer “good” jobs

Work in the Capitalist Economy  Downsizing - reduction in a company’s workforce Believe this will cut costs and increase profits Believe fewer people can do more work  Contingent employment – part time, short term, or contract Includes outsourcing and offshoring over 1/3 of employees are contingent More minorities, women, youth, elderly

Predictions for the future  Companies continue to be lean, adaptable, flexible  Employer-employee relationship no longer based on trust or loyalty (“implied social contract” is gone)  Greater polarization between those with capital and those without, growing sense of injustice  Higher stress, lower satisfaction  Some new opportunities for creative entrepreneurship  More career changing over life cycle