CHAPTER 16
Comparing
Economic Systems
SECTION 1: Development Models
SECTION 2: Capitalism
SECTION 3: Socialism
SECTION 4: Communism
1
SECTION 1
Development Models
Objectives:
 How can ownership of capital be used to
identify an economic system?
 How do command systems and market
systems differ?
2
SECTION 1
Development Models
Ways ownership of capital can be
used to identify an economic system:
 when most capital is owned by the
government—socialist system
 when most capital is privately owned—
capitalist system
3
SECTION 1
Development Models
Differences between command
systems and market systems:
 Command systems—when use of capital
and other factors of production are decided
by individuals and businesses
 Market systems—when use of capital and
other factors of production are decided by
the government
4
SECTION 2
Capitalism
Objectives:
 What factors contributed to the development
of capitalism?
 How does the U.S. free-enterprise system
compare to capitalist systems in Japan,
Germany, France, and South Korea?
5
SECTION 2
Capitalism
Factors that contributed to the
development of capitalism:
 decline of manorialism—the system in which landowning nobles granted peasants the chance to work
the land for fixed payments
 mercantilism—the system in which a nation’s
wealth determines its power
 influence of Adam Smith—argued that economies
would prosper with profit motives, competition,
and lack of government interference
6
SECTION 2
Capitalism
Comparing the U.S. capitalist system
to non-U.S. economic systems
 Japan:
 similarity—private control of capital
 difference—more government influence in
allocation
7
SECTION 2
Capitalism
Comparing the U.S. capitalist system
to non-U.S. economic systems
 Germany:
 similarities—little government interference, and
dependence on same types of fiscal and
monetary policies as U.S.
 difference—different coordination of economic
regulation
8
SECTION 2
Capitalism
Comparing the U.S. capitalist system
to non-U.S. economic systems
 France:
 similarity— increased privatization of industry
 difference—creation of five-year plans
9
SECTION 2
Capitalism
Comparing the U.S. capitalist system
to non-U.S. economic systems
 South Korea:
 similarity—private control of capital
 difference—high government involvement in
allocation
10
SECTION 3
Socialism
Objectives:
 What conditions led to the development of
socialism?
 How has high taxation affected Sweden’s
economy?
11
SECTION 3
Socialism
Conditions that led to the birth of socialism
 Harsh working conditions during the Industrial
Revolution:




hazardous working environment
low wages
long working hours
child labor
 Decline in workers’ quality of life:
 overcrowded housing
 industrial pollution
 lack of sanitation and medical facilities
12
SECTION 3
Socialism
Effects of high taxation on Sweden’s
economy:
 workers demanded higher wages to meet their tax
burden
 prices went up as wages increased
 higher prices made Swedish goods less competitive
in the marketplace
 the government’s deficit and borrowing increased
to meet economic and social goals as taxes were
inadequate to fund them
13
SECTION 3
Socialism
Effects of high taxation on Sweden’s
economy: (continued)
 the country fell into recession
 government limited welfare benefits to reduce the
deficit
 government services were ultimately privatized
14
SECTION 4
Communism
Objectives:
 How did Karl Marx use history to develop
the theories of communism?
 What economic factors contributed to the
fall of the Soviet Union?
 How did centralization affect the economy
of the People’s Republic of China?
15
SECTION 4
Communism
Karl Marx based the theories of
communism on his view of history: a
series of class struggles between
owners of production resources and
laborers.
16
SECTION 4
Communism
Economic factors that contributed to
the fall of the Soviet Union:
 production decisions made by central planners
rather than by the forces of supply and demand
 no incentives for producers to increase production
 shortages of capital, which led to scarcity of goods
and services
 inability to compete in the marketplace because of
outdated technology
 Gorbachev’s economic reforms
17
SECTION 4
Communism
Effects of centralization on the economy of
the People’s Republic of China
 Great Leap Forward:
 decline in industrial output
 low agricultural productivity from misuse of
resources
 Cultural Revolution:
 closure of factories and schools
 increase in manual labor force in rural areas
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SECTION 4
Communism
Effects of centralization on the economy of
the People’s Republic of China (continued)
 Four Modernizations:
 better balanced the production of consumer
goods and capital goods
 more market-responsive policies
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CHAPTER 16
Wrap-Up
1. What are the characteristics of a market system?
Give an example of such a system.
2. How do U.S. and German fiscal policies differ?
3. How does the value Swedish citizens place on
social services influence their economy?
4. How did Karl Marx’s ideas influence the
economies in the Soviet Union and the People’s
Republic of China?
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CHAPTER 16
Wrap-Up
5. How did Mikhail Gorbachev contribute to
economic reform in the Soviet Union?
6. What was the Great Leap Forward, and why did it
fail?
21