1. Mr. Jason Cargile Mission Hills High School Mr. Jason Cargile Mission Hills High School

2. Comparative Economic Systems C H A P T E R 23 Comparative Economic Systems SECTION 1 Capitalism SECTION 2 Socialism SECTION 3 Communism Chapter 23 2222 3333 1111

3. Chapter 23, Section 1 Capitalism S E C T I O N 1 Capitalism What are the factors of production? How can we describe the free enterprise system and the laissez-faire theory? What is the role of government in a mixed economy? How are business organizations classified? What role do profit and loss have in a free enterprise system? 2222 3333

4. Factors of Production Chapter 23, Section 1 2222 3333 factors of production The factors of production are the basic resources which are used to make all goods and services. Land One factor of production is land, which in economic terms includes all natural resources. Labor Labor is the work done by men and women to produce goods and services. Capital Capital capitalistCapital includes all the human-made resources that are used to produce goods and services. Someone who owns capital and puts it to productive use is called a capitalist. The Role of the Entrepreneur entrepreneurAn entrepreneur—literally, an “enterpriser”—is an individual with the drive and ambition to combine land, labor, and capital resources to produce goods or offer services. NOTE: In addition, a capitalist economy called a market economy. That is, private individuals & companies decide what products to Manufacture and what price to charge.

5. Chapter 23, Section 1 2222 3333 free enterprise system The free enterprise system is an economic system characterized by private or corporate ownership of capital goods and investments that are determined by private decision rather than by state control.

6. Chapter 23, Section 1 2222 3333 Laissez-Faire Theory and Mixed Economies Laissez-Faire Theory Laissez-faire theory holds that government should play a very limited, hands-off role in society.Laissez-faire theory holds that government should play a very limited, hands-off role in society. The proper role of government in economic affairs should be restricted to functions intended to promote and protect the free play of competition and the operation of the laws of supply and demand.The proper role of government in economic affairs should be restricted to functions intended to promote and protect the free play of competition and the operation of the laws of supply and demand. A Mixed Economy Economists usually describe an economy in which private enterprise and governmental participation coexist as a mixed economy.Economists usually describe an economy in which private enterprise and governmental participation coexist as a mixed economy. The American economy is a mixed economy.The American economy is a mixed economy. Government at all levels in American society has some influence on the economy.Government at all levels in American society has some influence on the economy.

7. Types of Business Organizations Sole Proprietorships Businesses owned by a single individual are sole proprietorships. Partnerships Businesses owned by two or more individuals, called partners, are partnerships. Corporations A corporation has many owners, called shareholders. A share is a fraction of ownership in the corporation. Corporations have the advantage of being able to draw from large pools of investor capital, but also have the disadvantage of having their earnings taxed twice. Chapter 23, Section 1 2222 3333

8. Profit and Loss Profit is the amount of money you earn from the business once costs incurred running the business have been subtracted. If earnings are less than the costs, the business has not made a profit; instead, it has taken a loss. Taking risks and making investments are an essential part of the capitalist system. Chapter 23, Section 1 2222 3333

9. 1. A distinctive feature of capitalism is that (a) the goods and services produced by capital become public property (b) private individuals are prohibited from owning property (c) most property is owned and operated by private individuals (d) only public officials can decide how property is to be used 2. Which of the following is NOT one of the factors of production? (a) land (b) labor (c) government (d) capital 3. Laissez-faire theory promotes the idea that (a) government should regulate every level of the economy. (b) government should have the least amount of involvement in society and the economy as possible. (c) a mix of government and free enterprise is best for society. (d) absolute control of the economy by government. Chapter 23, Section 1 2222 3333

10. Socialism S E C T I O N 2 Socialism What is socialism? What are some important characteristics of socialist economies? How can we describe socialism in developing countries? What are the pros and cons of socialism? Chapter 23, Section 2 3333 1111

11. 3333 1111 What is Socialism? SocialismSocialism is an economic and political philosophy based on the idea that the benefits of economic activity—wealth— should be equitably distributed throughout a society. Socialists emphasize cooperation and social responsibility as ways to achieve a more equitable distribution of both income and opportunity, thus reducing great differences between rich and poor. NOTE: The ideas of socialism developed in large part as a major reaction to poverty and hardships caused by the Industrial Revolution. NOTE: The ideas of socialism developed in large part as a major reaction to poverty and hardships caused by the Industrial Revolution.

12. Chapter 23, Section 2 3333 1111 Karl Marx Karl Marx’s theories, mostly worked on with Friedrich Engels, criticized capitalism. market economy.To Marx, the proletariat—the workers—were being so badly abused by the bourgeoisie— the capitalists—that they were certain to rise up and overthrow the capitalistic system. A capitalist economy is also called a market economy. Socialists and Communists The socialist movement was split during the nineteenth century: those who believed socialism could only be attained by a violent revolution became communists, and those who believed democratic processes could be used became today’s modern socialists. Socialism developed largely in reaction to the poverty and other hardships that accompanied the Industrial Revolution.

13. Karl Marx Thousands left the British countryside in the 1800s to live and work in dirty, overcrowded cities like Newcastle (as seen in the background). Their experiences inspired Karl Marx (left) and Friedrich Engels to write of a new “working class.” According to Marx, how would workers eventually react to their working conditions? Share your responses with your proximity partner and be prepared to respond to the rest of the class Chapter 23, Section 2 3333 1111

14. Political Cartoon Interpretation Chapter 23, Section 2 3333 1111 Unite!!! 1. Why “Never mind”? Possible Answer: To cancel out Marx’s Actions? 2. When do you think this cartoon was drawn? Answer: At the fall of Communism 3. What is the point of the political cartoon? Possible Answer: His ideas didn’t work?

15. Characteristics of Socialist Economies Nationalization Placing enterprises under government control, often by taking over privately owned industries, is called nationalization. Public Welfare (welfare state).Socialists aim to guarantee the public welfare by providing for the equal distribution of necessities and services. (welfare state). Taxation Because social welfare services are quite expensive, taxes in socialist countries tend to be high. Centrally Planned Economy centrally planned economyIn a centrally planned economy, government officials plan how an economy will develop over a period of years. A democratic socialist economy may or may not have strict central planning. Chapter 23, Section 2 3333 1111

16. Socialism in Developing Countries Chapter 23, Section 2 3333 1111 Socialism has won a large following in developing countries. One reason for socialism’s appeal is that most developing nations are starting from scratch at building industry, often having no local tradition for large-scale industry. However, social unrest and political instability are persistent problems in developing nations, and socialist governments often become authoritarian in nature.

17. Pros and Cons of Socialism Chapter 23, Section 2 3333 1111Cons Critics say socialistic countries have a tendency to develop too many layers of bureaucracy. In the eyes of socialism’s critics, the smooth running of an economy is too complex to be directed by central planners. Another criticism is that socialism deprives people of the freedom to decide for themselves how to use their income.Pros Socialists say that it is fairer to supply everyone with basic needs, such as medical care. Socialists argue that it is morally superior to capitalism because it evens out inequalities. Defenders of socialism also argue that it gives workers and ordinary citizens greater control of their everyday lives.

18. 1. Modern socialism began as a response to –(a) the French Revolution. –(b) the American Revolution. –(c) the Industrial Revolution. –(d) the New England Revolution. 2. Critics of socialism support all of the following themes EXCEPT –(a) that socialism takes away an individual’s freedom to make economic choices. –(b) that socialism creates a more equitable society. –(c) that an economy is too complex to be run by government officials. –(d) that socialism takes away from individual initiative and is slower to take advantage of new technologies. Chapter 23, Section 2 3333 1111

19. Chapter 23, Section 3 S E C T I O N 3 What do the theories of Karl Marx describe? What characteristics do communist economies have? How did communism operate in the Soviet Union, China, and other nations? 2222 1111

20. Chapter 23, Section 3 2222 1111 1. Marx’s view of history To Marx, all of history was a struggle between social classes competing for control of productive property. 2. The Labor Theory of Value In Marx’s view, the value of a commodity was set by the amount of labor put into it. 3. The Nature of the State Marx saw the state and its government as tools by which the capitalists maintained their order and privileges. 4. The Dictatorship of the Proletariat Marx did not believe a “free, classless society” would initially be formed, but rather, in the transition an authoritarian state would represent and enforce the interest of the masses. Communism Communism is often called a collectivist ideology, which calls for the collective, or state, ownership of land and other productive property. Karl Marx wrote The Communist Manifesto as a call to all oppressed workers to free themselves from "capitalistic enslavement."

21. Characteristics of Communist Economies Chapter 23, Section 3 2222 1111

22. 2222 1111 The Five-Year Plans Gosplan.A series of five-year plans were used to organize and run the Soviet economy, all under the supervision of one large economic planning agency called Gosplan. Gorbachev’s Reforms perestroikaMikhail Gorbachev initiated perestroika, a reform which placed more authority in local management, linked salaries to performance, loosened price controls, and allowed some profit incentives. Transition to a Free Market privatization,With the fall of the Soviet Union in 1991, Russia has been in a constant transition to a free market. A key component of this transition has been privatization, or the return of nationalized enterprises to private ownership.

23. China and Other Communist Nations Chapter 23, Section 3 2222 1111 China When Mao Zedong took control of China in 1949, the country developed its own version of central planning. NOTE: Mao’s patriotic movement appealed to the Chinese peasantry. The Chinese economy today, however, has evolved into a mix of state- controlled enterprises and a growing class of private enterprises. Cuba Fidel Castro led a revolution in Cuba in 1959 to overthrow a corrupt government. In 1961, Castro declared himself a Marxist and the country became communist in nature. Asia North Korea is one of the few remaining communist countries in the world. Communism also spread in the Southeast Asian countries of Vietnam, Laos, and Cambodia during the mid- 1970s.

24. 1. In a communist system, the government (a) owns all the factors of production. (b) plays a minimal role in the economy. (c) favors laissez-faire policies. (d) permits individuals to make independent economic decisions. Chapter 23, Section 3 2222 1111 2.One of the key aspects of Russia’s transition to a free market economy has been (a)the nationalization of privately owned businesses. (b) the regulation of all economic sectors by the government. (c) the privatization of state-owned enterprises. (d) none of the above.