Chapter 10
Capitalism
and the
Economy
Lecture PowerPoint
© W. W. Norton & Company, 2008
Economic Systems
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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
Capitalism
Socialism
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
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Feudal system preceded capitalism in Europe
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15th century: enclosure movement, forced people
off what had been public land
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Everyone owned some property or products produced on
others’ property. Most could support selves
sent them looking for work in cities.
Provided labor force needed for industrialization
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A Brief History of Capitalism
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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
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A Brief History of Capitalism
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20th century – shifts in producers, products:
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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
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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.
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Theorizing the Transition to Capitalism
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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
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Theorizing the Transition to Capitalism
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Georg Simmel
 Evolution of monetary payment systems as force
to depersonalize exchange
 Piecework
 Wage
labor
 Salary
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Saw as positive change
separated public and private spheres
gave workers more freedom to enjoy leisure
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Theorizing the Transition to Capitalism
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Karl Marx
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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
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Theorizing the Transition to Capitalism
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Max Weber
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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
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Recent Trends in Capitalism
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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.
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Recent Trends in Capitalism
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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.
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Recent Trends in Capitalism
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Women’s employment
employed mothers are less depressed and have higher selfesteem than
they are also more likely to feel tired and anxious and
they have higher divorce rates.
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Recent Trends in Capitalism
Globalization – global economic interdependence
 Globalization is not new, but has some new elements
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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
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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
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This gives corporations great power
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Importance of corporations
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More powerful than some countries
In U.S., top 100 corporations control 9% of assets
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Political influence
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Top 100 are only .1% of all corporations in U.S.
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
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Extremely wealthy and powerful
Usually based in industrially advanced
country (IAC)
Purchase labor and raw materials from
developing countries (DC’s)
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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, 2005
GDP, 2005
Walmart, $259 billion
Bangladesh, $259 billion
Exxon Mobil, $213 billion
Greece, $212 billion
General Electric, $134
billion
IBM, $89 billion
Israel, $121 billion
Home Depot, $65 billion
Syria, $58 billion
New Zealand, $85 billion
Bank of America, $48 billion Ethiopia, $48 billion
Importance of Banks and Financial
Institutions
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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
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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
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More white collar employment
More lower paying jobs
Work in the Capitalist Economy
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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
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Downsizing - reduction in a company’s
workforce
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Believe this will cut costs and increase profits
Believe fewer people can do more work
Contingent employment – part time, short
term, or contract
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Includes outsourcing and offshoring
over 1/3 of employees are contingent
More minorities, women, youth, elderly
Predictions for the future
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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