1. Chapter 2 Wealth and Power: The Bias of the System
II. Capitalism and Socialism

2. Theorists Adam Smith (1723-1790) A Scottish Economist
Godfather of Laissez Faire Capitalism:
“Inquiry into the Nature and Causes of
The Wealth of Nations,”
written in 1776, presented a logical vision of how society was shaped by the private decisions of entrepreneurs and consumers alike.

3. Adam Smith
Some of the basic premises of his philosophy follow:
1.The marketplace helps society hang together even though people are pursuing their own personal interests.
2.Each person will produce what is in demand because it will fetch a price in the marketplace.

4. 3.Competition ensures that entrepreneurs will not take advantage of consumers.
4.Competition will keep prices fair and product quality high.

5. Cont.
5. Competition also ensures that wages are not too high (or low).
If wages are too high for a particular kind of work, workers will rush in and bring down high wages. If wages are too low, workers will quit their jobs for work that pays higher wages.
6.Competition also reduces the amount of surplus for a particular item.
Producers are aware that too much supply means declining profit, so they move to more profitable sectors of the economy.

7. A. Capitalism
Capitalism is one of two methods that industrial societies use to organize their economic activities.
It is an economic system in which the means of production and distribution are privately owned.
Personal profits are derived through market competition and without government intervention Capitalism is based on the following assumptions.

8. Capitalism 1. An economic system in
which private individuals own the means of production.
They compete with one another using the hired labor of other persons, to produce goods and services for profit:
the characteristic feature of modern capitalism is mass production of goods destined for mass consumption (Newsweek)
2. The concentration of wealth with its power and influence in the hands of a few.
3. A system which favors the existence of capitalists or the concentration of wealth in the hands of a few.

9. 1. Private Ownership of Property 2. Pursuit of Maximum Profit
Characteristics
1. Private Ownership of Property
Individuals are encouraged to own not only private possessions, but the capital to buy more possessions.
2. Pursuit of Maximum Profit
Individuals are encouraged to maximize their personal gains. Seeking personal gain is morally and socially appropriate. It's the position of Adam Smith that this has many beneficial consequences for Americans.

10. 3. Free Competition
This is the element that keeps out profit seeking in check.
In a competitive society, if one agent raises prices too high, then others will step in to sell goods more cheaply. (Supply and Demand)

11. Invisible Hand Theory
Supply and demand will ensure that capitalist will produce the goods and service wanted by the public, that the good and services Will be high in quality, and that they will be sold at the lowest possible prices and will keep potential abuses (fraud, faulty products, and high prices) in check.

12. The existence of competitors will soon take business away from those who violate good business judgment.
Inefficiency is minimized as market forces cause the inept to fail and the efficient to succeed.
Fraud is thus weeded out and the market is stabilized.

13. Therefore…
Competition acts as an economic regulator. Competition not only regulates the supply of desirable commodities, it also ensures that prices remain fair and product quality remains high

14. 4. Laissez-faire Government
Laissez-faire government is a government that does not intervene in the economy
The involvement of the government in Smith’s self-regulating economy is not required and is, in fact, discouraged.
Regulation = Bad!

15. Benefits Individual freedom freedom of choice Incentive
Chance to excel
Political and religious freedom
Small government involvement

16. Criticisms Monopolies / Interlocking Directorates
Concentration of Wealth
Monopolies / Interlocking Directorates
Lack of representation in government
Inequality
Poverty
Waste of resources, both natural and human

17. How does a society hang together in a scenario where everyone is pursuing their own interest?
Adam Smith argues the capitalist economy maintains integrity because someone will provide whatever is needed.
As demand increases for a product, the potential to make profit will increase.
The potential of earning profit will encourage someone to produce those commodities that are in demand.

18. Supply and Demand…
Capitalism regulates wage levels in much the same way as it regulates production and prices.
If wages are too high, someone else will rush in to work for a lower wage.
If wages, on the other hand, are too low, employees will seek better jobs.
The law of the marketplace ensures a self-regulating economy. This is the philosophy behind free enterprise.

19. The economic system of Adam Smith is not egalitarian, because through competition someone wins and someone loses. Grass roots capitalism is, however, fair when all competitors have essentially the same economic base.
The capitalist economy, however, is not a static phenomenon. It undergoes continual transformation and has done so since the end of the 15th century (see Wallerstein, 1974).

21. Socialism
1. A theory or system of social organization by which the or groups of individuals own land, factories, and other major means of production and distribution are owned, managed, or controlled by the government (state Socialism), by associations of workers, (guild socialism), Or by the community as a whole (syn. Collectivism)
2. A political system advocating or associated with this system.
3. The practice of such a system.

22. Marx  (1818- 1883) Social Theorist
1. Elaboration of Conflict Model of society
2. Social change is based on antagonisms
(Conflict) between the social classes.
3. The insight that power originates
primarily in economic production.
4. Concern with the social origins of
Alienation

23. B. Socialism
Socialism is an economic system in which the means of production are owned by the people for their collective benefit. There are five principles of socialism.

24. 1. Democracy
representatives of a socialist state must be answerable and responsive to the wishes of the public they serve.
The test: Who is making the decisions and whose Interests are being served.

25. 2. Egalitarianism
equality of opportunity for self-fulfillment of all.
Equality instead of Hierarchy in decision making, and equality in sharing in the benefits of society.
(Each according to ability, according to need.)
OR Everyone contributes what they can, and gets what they need…Equally VALUED.

26. 3. Public Ownership
The People own the basic industries Financial institutions, utilities, transportation, and communication companies.
The goal is serving the public
Not making a profit.

27. 4. Efficiency-
requires central planning to provide, at the least possible individual and collective cost, the best conditions to meet the material needs of its citizens.
Planning also Aims to achieve societal goals (i.e. protecting the environment, combating pollution, saving natural resources, and developing new technologies)
Policy is decided on the needs of the public and the economy is organized to achieve them (i.e. regulation)

28. Benefits Everyone gets what they need Everyone benefits Equality
Everyone has a say
Everyone gets what they need
Everyone benefits
Equality
All members are valued
No exploitation

29. Criticisms
Little incentive to invest
Large Bureaucracy
Too much government control
Needs of the many outweigh
Needs or freedom of individual
Too dependent on government
Holds the individual back

31. The Social Welfare State: A Mixture of Capitalism and Socialism
Modern industrial states incorporate a mixture of socialism and capitalism.
Social democracy describes the economy of many western industrial states. Eitzen (2000:25) points out that the nations of Western Europe, Scandinavia, and Canada are capitalistic in that they permit private property and privately own businesses. On the other hand, they also have publicly owned operations in the areas of transportation and utilities.
Social democracies provide an array of social services as well compared with the United States. They subsidize the arts more, they have more public facilities (e.g., libraries, parks), universal preschool, universal health insurance, housing subsidies, and child care.

32. These services are expensive also
These services are expensive also. Taxes are almost double the rates in the United States. (Note, however, that when one considers the cost of private health plans and private social services, costs are nearly equal.)
There are advantages associated with the policies of the social welfare states: Longer life, lower infant mortality, greater literacy, less poverty, less homelessness, and a larger middle class.
On the downside social democracy: they are not immune from economic cycles (unemployment, recession, taxpayer unrest).

33. III. The U.S. Economy: The Concentration of Corporate Wealth
A. Monopolistic Capitalism
Competition is a primary ingredient of capitalism that is disappearing from modern capitalism. The economy is no longer based on competition among more-or-less equal private capitalists (Eitzen et a. 2009:30).
The economy is dominated by huge corporations that, contrary to classical economic theory, control demand rather than respond to the demands of the market place (Eitzen et a. 2009:30).

34. Eitzen et al. (2009:30) argues that the most significant of the inherent contradictions found within capitalism is the inevitability of monopolies.
Marx predicted that firms would grow in size as they out-competed one another. The ultimate outcome is the existence of monopolies.
Monopolies are antithetical to the capitalist system. The monopolies, and not supply and demand, ends up determining price and quality of products.

35. A. Monopolistic Capitalism
Competition is a primary ingredient of capitalism that is disappearing from modern capitalism. The economy is no longer based on competition among more-or-less equal private capitalists (Eitzen et a. 2009:30).
The economy is dominated by huge corporations that, contrary to classical economic theory, control demand rather than respond to the demands of the market place (Eitzen et a. 2009:30).

36. Eitzen et al. (2009:30) argues that the most significant of the inherent contradictions found within capitalism is the inevitability of monopolies. Marx predicted that firms would grow in size as they out-competed one another. The ultimate outcome is the existence of monopolies.
Monopolies are antithetical to the capitalist system. The monopolies, and not supply and demand, ends up determining price and quality of products.

37. B. Shared Monopoly
In the U.S. one percent of corporations produce 80 percent of private sector output. Instead of one industry controlling everything is a given economic sector, the typical situation is domination by a small number of large firms. Eitzen et al. (2009:30) argues that when four or fewer firms supply 50 percent or more of a particular market, a shared monopoly results. They perform much as a true monopoly would.

38. Eitzen et al. (2009:30) quotes government data that show a number of industries are highly concentrated.
light bulbs
breakfast cereals
turbines and generators
aluminum
cigarettes
beer
chocolate
photography equipment
trucks, cosmetics
soft drinks
snack food
guided missiles
coffee

39. C. Megamergers
The trend to ever-greater competition has accelerated because of two activities: mergers and interlocking directorates (Eitzen et al. 2009:30).
The ten largest mergers in US history have occurred in the last fifteen years. Examples or recent mergers are:
Procter & Gamble bought out Gillette Corporation
Time, INC and AOL joined with Warner
Disney joined with Capital Cities/ABC
Wells Fargo and First Interstate Bank
Nations Banks and Bank of America
Phillip Morris and Miller Brewing
Texaco and Getty Oil
Exxon and Mobil Oil
MCI World.Com and Sprint

40. Too Big to Fail… Megamergers generate the following problems:
They increase the centralization of capital which reduces competition for consumers (Eitzen et al. 2009:32).
It increases the power of large corporations over workers, unions, politicians, and governments (Eitzen et al. 2009:32).
They eliminate jobs (Eitzen et a. 2009:32).
They increase corporate debt. (US corporations spend about half their earnings on interest payments) (Eitzen et al. 2009:32).
Merging is non-productive activity. Mergers take over existing facilities and do not create new jobs or build new plants. The do increase the wealth of CEO, bankers and lawyers who handle the transactions (Eitzen et al. 2009:32).

41. D. Interlocking Directorates
Eitzen (2000:29) describes interlocking directorates as another mechanism that promotes ever-increasing concentration of the size and power of large corporations.
An interlock occurs when one individual serves on the board of directors of two companies (a direct interlock)
or when two board members of competing companies serves on the board of a third company (an indirect interlock).
When interlocks occur, there is the potential for cohesiveness, common action, and unified power.

42. In 1969, of the 8632 individuals who sat as directors on 797 of the largest corporation, 1572 sat on at least two boards of directors.
In 1978, of 123 corporations studied, each had an average of 62 interlocks.
Interlocking is important because it reduces competition. It also allows "insiders" to more efficiently influence other corporations. Top corporate officials share information.
This in turn helps create a sense of unity among those who control corporate America (see Mintz and Schwartz, 1981).

43. The chart (associated with the link below) shows the companies that are interlocked with the Mellow Corporation.
The numbers on the fringe of the graph show the number of interlocks the interlocked corporation has.
For example, Mellow is interlocked with Penn Central. Penn Central, in turn, is interlocked with 34 other corporations.
Click here to see Chart by Mintz and Schwartz (1981)

45. E. Multinational Corporations (Transnational Corporations)
There is a trend for corporations to increase in size to the point where they form effective monopolies.
They experience an ever-increasing centralization of power.
They do more of their business in the global arena.
Multinational corporations are economic entities whose existence is transnational.
They may be based in specific countries (e.g., Exxon in the United States, Shell in Holland), but production and sales occur in the international sphere.

46. The flow of goods and services recognize few boundaries Eitzen & Baca-Zinn's (2003:33) presentation entitled "Corporate Cash" shows that several giant corporations wield more economic power than most of the nation-states on earth. Eitzen & Baca-Zinn (2003:31-33) argue that Exxon-Mobile, General Motors, and Ford have larger economies than all, but seven, of the 191 countries on earth.
Click here to see "The World's Top 100 Economic Entities"

47. 1. Why Do Corporations Move Overseas?
The rate of profit is higher
Resources need for production are cheaper
Production shifts from high-wage to low wage countries
Safety laws and environment regulations are more lax than they are in the United States

48. 2.The Consequences: As corporations shift production off-shore
there are fewer semi-skilled and unskilled jobs domestically (Eitzen et al. 2009:35).
they control the world economy. Their decisions impact the lives of ordinary citizens in both the developed and developing world (Eitzen et a. 2009:35)
tremendous power (financial & other) resides in the hands of a few corporations.
This power and influences allows multinationals to meddle in the internal affairs of other nations (Eitzen et al. 2009:36).

50. IV. The Political System: The Links Between Wealth and Power
A. Oligarchy
Oligarchy is a political system that is ruled by a few.
Eitzen et al. (2009:41) quote Bernard Sanders as saying "Oligarchy refers ... to the fact that decisions that shape our consciousness and effect our lives are made by a very small and powerful group of people." In the opinion of Rep. Sanders, the U.S. is increasingly an oligarchy.
Plutocracy
Eitzen et al. (2009:41) contend that the United States is a Plutocracy which is a government by or in the interests of the rich

51. A. Oligarchy Oligarchy is a political system that is ruled by a few.
Eitzen et al. (2009:41) quote Bernard Sanders as saying "Oligarchy refers ... to the fact that decisions that shape our consciousness and effect our lives are made by a very small and powerful group of people." In the opinion of Rep. Sanders, the U.S. is increasingly an oligarchy.
Plutocracy
Eitzen et al. (2009:41) contend that the United States is a Plutocracy which is a government by or in the interests of the rich

52. B. Government by Interest Groups
Democracy
Democracy is a political system in which the majority will prevail if there is equality before law and if decisions are made to maximize the common good (Eitzen et al. 2009:41).
The Financing of Political Campaigns
Contributors of large sums of money to political campaigns receive access to politicians and they, therefore, have influence over the positions of politicians on important issues (Eitzen et al. 2009:42-43).
The Candidate Selection Process
(Eitzen et al. 2009:45-47)

53. V. The Bias of the Political System

54. A. Power
Power is the ability to achieve goals despite opposition from others (Eitzen et al. 2009:47).
Power in the U.S. is concentrated in the hands of people who control the government and large corporations.
Power resides in organizations. The elite occupy key positions in the economy and the government.

55. B. Systemic Imperatives: Who sets the Agenda?
Some political positions become entrenched in social culture to the point that few people question them.
The process of creating systemic imperatives is often directed by and certainly favors the powerful in society.
Eitzen et al. (2009:46) begin from a position that the wealthy have significant advantages in society. Some advantages are obvious (e.g., their financial power, Laws that favor business, etc.). Other advantages are more subtle. The powerful are able to set the agenda. Literally, they decide what others view as important..
Choices people make are limited by systemic imperatives. Systemic imperatives are economic and social constraints placed on political decision makers. They promote the status quo. Culture will develop norms and expectations that what exists is no doubt good because it has existed for a long time.
Expectations can become so fixed that few people even see a need to question them. The character of these social institutions is to a large extend shaped by those who wield power within the political economy. They are also the beneficiary of these social arrangements.
Example: People who protest against war in Iraq are seen as supporting terrorism and as un-American.
Example: "If a policy is good for business, then it's good policy."
Example: Another example of a systemic imperative is the argument that all government regulation is bad for the economy.
Example: Taxes are bad, especially taxes that are levied on the rich.

56. C. Who Rules America?:
C. Wright Mills and the Structure of Power in America
Who controls the giant corporations. C. Wright Mills in The Power Elite (1956) defines three social structures where he feels power is rooted. The first of these structures is the economy. Boards of directors of transnational corporations dictate policy to the capitalist world. The second seat of power lies in the political apparatus of the United States, which primarily consists of the President and his close advisors (who Mills calls the "men of higher immorality"). The third seat of power rests in the hands of the United States military (who Mills called "the warlords.")
Power associated with these three social structures is telescoped by the linking of major institutions, which have become dominated by two or three hundred giant corporations (Mills, 1956:5). Power and control continually experience centralization. Other social institutions like the church, the family, and education are shaped by decisions of the executive, the economy, and the military.
For Mills, those who make up the power elite are not necessarily those with the most wealth. Power and wealth accumulates and is protected as a result of structural (institutional) positions held by the wealthy. Members do, however, have a similar social origin, but according to Mills there is not a strict class distinction. "There is more of a mutual attraction among these members" (1956:11).
This model rejects the notion that a conspiracy exists among those people who rule. The ruling class does not control the course of capitalism. The position in the economy occupied by the power elite merely determines that they are better able to act on their interests.

57. 2. G. William Domhoff and the Social Origins of the Power Elite
William Domhoff investigates the social origins (social class) of those who rule America. While acknowledging the importance of social structure in bestowing power in America, notes that the particular individuals who rule tend to have similar social backgrounds. In the U.S. Republican presidents replace Democratic ones and vice versa. Domhoff contends that regardless of who is president, whether Republican or Democrat, the same moderate conservative families are in control of America year after year. These families include the Mellons, Rockefellers, duPonts, and the Carnegies. Social class is, therefore, very important in determining who occupies positions that determine policy in the United States.
The ruling class model, described by Domhoff (1983), argues that there is a cohesive ruling class in America and their power resides in large corporations and banks. Those who rule, the upper-class, have a distinctive lifestyle that sharply differentiates it from the rest of society. Domhoff (1983) argues that social elites are able to maintain their status, in part, because they are in a position where they can sponsor their own to fill structural positions of power.
William Domhoff (1974) says Yes. The ruling class represents only about 1 percent of the population, they "own 25 to 30 percent of all privately held wealth in America, own 60 to 70 percent of the privately held corporate wealth, receive 20 to 25 percent of the yearly income, direct the largest corporations and foundations, and dominate the federal government in Washington" (Domhoff 1974).
The ruling class is able to play a major role in shaping the social and political climate because it dominates the federal government through a variety of organizations and methods. It controls the corporate community where power is further enhanced as a result of large corporations being linked to form a corporate community. The American ruling class is linked through joint ownership of stock, joint ventures, and common sources of bank loans. Large corporations have similar legal, accounting, and consulting firms. They share similar values and goals. They also have common enemies like labor movements and middle-class reformers (Domhoff 1974).
The ruling class is able to influence the non-elite population by providing funding for policy groups, foundations, think tanks, and university research institutes. It influences public schools, churches, and voluntary organizations by providing them with movies, television programs, books, pamphlets, speakers, advice, and financial support.

59. The Super Power Elite
People who make up the power elite are not on equal terms even within the ruling class. Some members of the "ruling class" have much greater power than others. Michael Parenti in Democracy for The Few (1983:14-15) presents some characteristics of two families (the duPonts and the Rockefellers) that might be included in the super power elite. According to Parenti
The duPonts control ten corporations, each with more than $1 billion in assets, including Penn Central, General Motors, Coca Cola, Boeing and United Brands. The duPonts control scores of smaller firms. They serve as trustees in scores of colleges, including some of the country's elite schools. They own about forty estates and private museums in Delaware alone, and, in an attempt to keep the money in the family, have set up thirty-one tax exempt foundations.
Another powerful family enterprise, that of the Rockefellers, holds more than $300 billion in corporate wealth, extending into just about every industry, in every state of the Union and every nation of the nonsocialist world. The Rockefellers control five of the twelve largest oil companies and four of the largest banks in the world. They finance universities, churches, "cultural centers," museums and youth organizations. At one time or another, they or their close associates have occupied the offices of the president, vice president, secretaries of state, commerce, defense, and other cabinet posts, the Federal Reserve Board, the governorships of several states, key positions in the Central Intelligence Agency (CIA), the US Senate and House, and the Council of Foreign Relations.

60. 3. Elite Models vs. Pluralist Models
Pluralism (see Robert Dahl) is the philosophy most often presented as a rebuttal to the power elite view. Pluralism interprets power relations in terms of competing interest groups. Pluralists see power as something that is not centralized. Interest groups create diversity within society rather than a similar united elite. Many groups, each with different agendas, compete within the political process and exercise power and influence. The goal of these groups is to defend their interests, not to dominate society.
David Riesman (in Robertson, 1989:324), however, points out that even within a pluralist arrangement, some interest groups have more influence than others. Riesman calls these groups "veto groups," because they are able to block or accommodate powerful groups. Despite the existence of veto groups, the relationship between powerful and less powerful groups is not so much one of domination, as one in which the powerful seek out the less powerful as allies in the political process.

61. D. The Consequence of Concentrated Power
Today's economy shows little similarity to the one Adam Smith described 200 years ago. The primary ingredient that is missing from modern capitalism is competition. During the 200 years since Smith, individual capitalists have faithfully engaged in competition. A few succeeded, but many failed. Throughout the competitive process, wealth and power became more concentrated. The capitalist economy today is "now dominated by huge corporations that, contrary to classical economic theory, control demand rather than respond to the demands of the market."

62. E. Subsidies to Big Business
Subsidies by the government to big business include all of the following.
1. government subsidies, such as tax breaks and low-interest loans, to private corporations (Eitzen et al. 2009:50).
2. government's funding of development of new technology that is turned over to private companies (Eitzen et al. 2009:50).
3. government's system of legal loopholes on federal income taxes available to businesses (Eitzen et al. 2009:51).

63. F. The Powerless Bear the Burden
The authors produce all of the following as evidence to support their argument that the powerless bear the burden of carrying the cost of the system that benefits the powerful.
1. When threatened by war the government institutes a military draft through which a much greater proportion of the poor is drafted than the well-to-do (Eitzen et al. 2009:52).
2. The poor absorb the costs of societal changes by doing the back-breaking work on government projects that most benefit the wealthy (Eitzen et al. 2009:53).
3. A certain level of unemployment of the poor is maintained continuously, not just during economic downturns (Eitzen et al. 2009:53).

64. G. Foreign Policy for Corporate Benefit
The relationship between U.S. foreign policy and corporate interests is demonstrated by all of the following.
1. The government peddles military goods overseas for the profit of arms merchants (Eitzen et al. 2009:53).
2. The government supports tyrannical governments if they support U.S. multi-national corporations (Eitzen et al. 2009:53).
3. The government directly intervenes in the domestic affairs of foreign governments in order to protect U.S. corporate interests (Eitzen et al. 2009:53).

65. Bibliography Domhoff, G. William
1974 The Bohemian Grove and Other Retreats. New York: Harper & Row.
1983 Who Rules America Now? New York: Simon and Schuster.
Eitzen, D. Stanley and Maxine Baca-Zinn
1998 In Order and Conflict: Understanding Society. (8th Ed.) Boston: Allyn and Bacon.