ECONOMIC
INSTITUTIONS
W3-Q2
Learning Competency:
• 1. Analyze economic organizations and it’s impacts on the
lives of people in the society.
Economic institutions
• are those that are involved in the production and
distribution of the goods and services that members of a
society need. Economic exchanges, which are an
important part of a functioning economy, happen for
different reasons and through different ways. Because
societies greatly differ from each other in terms of culture,
their systems of economic exchange may also vary
Reciprocity
• Refers to the voluntary giving or taking of objects without
the use of money in the hopes that, in the future, they
could be given back. Reciprocity could take the form of
barter, hospitality, gift-giving, and sharing. You might not
realize it, but people engage in reciprocity most of the
time. Simple activities like borrowing and returning a pen
could be categorized as reciprocity.
• In societies, however, reciprocity means more than just a
simple social activity. The aim of engaging in reciprocity is
to build and strengthen social relationships as well as
acquire more means or favors. As you may recall from
earlier lessons, social relationships are needed to expand
personal and cultural development at the macro and
micro level. Gaining more favors through reciprocity
contributes to this development by allowing people to
maximize their options in times of need
• A good example of reciprocity is the Filipino culture of
utang na loob. This is an act of kindness or favor that is
expected to be given in return. For instance, Filipinos who
seek help from their acquaintances in accomplishing any
specific task, such as looking for a job or securing a
personal loan for the family, would see themselves
indebted to their friends.
• When the time comes that the friend asks for a favor, it is
common practice to help him out in return. In our country,
utang na loob is not mandated by any law or legal
document.
• It is, however, part of our unique culture and identity as
Filipinos. In the same way, exchanges at the larger-scale
could be facilitated through reciprocity. For example, it is
common nowadays to see big companies partnering up
with each other in hosting big events and promotions.
These partnerships allow companies to gain favors from
each other and at the same time, benefit from each other.
Among national governments and states, the same
process also occurs. T
• This could be seen especially in times of calamities or
disasters. For instance, the disastrous effects of Typhoon
Yolanda in 2013 that took hundreds of lives and destroyed
thousands of properties in the Samar and Leyte region
caught the attention of many countries, private
institutions, non-government organizations, and even
individual donors.
• All of them helped the Philippines through different
means. While the Philippines was able to survive the
heavy impact of Typhoon Yolanda, our country is still
indebted to those who helped us survive the unfortunate
event. As such, when other countries are facing risk and
disaster, the Philippines is also expected to return the
favor by helping out.
Forms of Reciprocity
• While reciprocity is a simple concept, societies still use it
differently. Thus, various forms of reciprocity have been
developed over time. The three forms of reciprocity were
identified by anthropologist Marshall Sahlins; thus, these
forms of reciprocity are collectively known as Sahlins’
Typology.
Generalized Reciprocity
• The main feature of generalized reciprocity is the
exchange of goods and services without a definite time
frame of when the favor should be returned. In this form of
reciprocity, individuals giving out the favors do not expect
to receive anything back. Such activity is commonly done
among small groups or societies. A good example of this
is your relationship with your family and closest friends.
• When you are given food by your parents, for instance, do
they expect you to buy them food in return? Parents
usually do not ask their children to repay them for what
they are given. At the sametime, children are not obliged
or pressured to return the favor as well. The same
situation goes for close friends. While they may expect
more, close friends who do favors for one another usually
do it out of love, concern, or camaraderie, and not for any
economic gain.
• Among societies, generalized reciprocity occurs in smaller
groups like bands or tribes where high importance is
placed upon the culture of sharing. Nevertheless, all
human populations experience this form of reciprocity.
Balanced reciprocity
• In balanced reciprocity, exchange occurs between groups
or individuals with the donor expecting to receive
something of equal or similar value. In this form, no
haggling occurs between two parties, and the exchange
of goods occurs at a particular rate set upon by the
groups. There is pressure to give back the favors at a
specific point in time. Unlike generalized reciprocity,
balanced reciprocity demands timely reciprocation that
when favors are not received by the donor, they could
refuse to continue giving out the favors. Among groups,
the effects of noncompliance could result in gossiping,
refusal to commit to any other transaction, forced
reciprocation, or strained relationships
• In pre-industrial societies, balanced reciprocity is usually
organized through trade agreements. This would mean
that one member of a group has a designated partner in
another whom he or she chooses to trade goods with. The
pair is responsible for organizing the terms of their
exchange, but no bargaining would still occur
Negative Reciprocity
• In negative reciprocity, groups try to maximize their gains
while giving as little as possible. This form is usually
motivated by the desire to acquire a large number of
goods using minimal resources. Negative reciprocity is
similar to market exchange; however, in negative
reciprocity,no monetary exchange occurs among groups.
• . In pre-industrial societies, therefore, negative reciprocity
is important, especially when groups need to acquire
products that are not easily accessible to them. In
common terms, groups could “import” products that they
need from other groups, and in order to reduce the favor,
barters and bargaining occur. Groups would maximize
their resources to gain favorable outcomes and products
from their goods.
Transfers and the Government
• The government plays a crucial role in ensuring that
transfer payments are collected successfully from
participating citizens and institutions. In the government’s
case, public goods are provided to people through various
programs and activities that benefit its citizens. Among the
different allocations of transfer payments, governments
usually give priority to retirement and disability benefits,
medical benefits, unemployment insurance, and
education and training.
Redistribution
• It occurs when individuals’ goods or services are pooled
together by a central authority to be used at a later time.
The central authority may refer to a regional collection
point, a storehouse, or the national capital. Note that the
main difference between redistribution and reciprocity is
that the latter refers to an exchange where goods are
passed back and forth from one group to another.
• Redistribution, on the other hand, focuses on the
collection of goods from individuals in a community to be
kept by a central authority. These goods are collected to
be used in the future by the same group. Products often
move along the hierarchy, where one official transfers the
goods into the care of another until they reach storage.
While in storage, it is possible for members of the central
authority to consume some of the goods that are kept for
the future. However, because the primary aim of
redistribution is to allocate such goods back to the people,
the central authority should do so. Doing such requires a
reversal of processes—from the storage area to the
central authority, and ultimately back to the common
people.
• A good example showing redistribution is the lifestyle of
the Cherokees in Tennessee. Cherokees typically
harvested corn, squash, and beans, but they also fished
and hunted on the side. Every Cherokee family had an
area of land to harvest, and they were required by their
chief to give a portion of their annual harvests.
• These were pooled together at the central plaza where
redistributive feasts and council meetings also take place.
The products pooled together by the chief are reserved
for the needy and for travelers. Commoners could also
acquire some of the products with permission from the
chief, while recognizing that the chief still owned such
goods. At times, the chief holds redistributive feasts where
he distributes the accumulated goods to his people
Understanding Market Transactions
• Over a long period, many societies have evolved and
have adopted a capitalist economy where the market
principle dominates. This principle implies that the market
is responsible for the sale and distribution of goods and
services. A prominent concept in discussing market
transactions is market exchange which refers to the
organized process of sale and distribution at money price.
This would imply that for all forms of transactions within a
market, money is heavily utilized. Note, however, that a
market, in this sense, does not just refer to a physical
structure (such as a public market) where local goods are
sold to consumers
• A market, in economic terms, refers to a bigger setting
where buyers or sellers simultaneously trade or exchange
goods or services. Markets could imply a global setting
where states engage in market transactions to exchange
goods or services.
• In a market exchange, at least two people should be
involved: one who has a product and another who has the
money. Using a system of barters and bargaining, the two
individuals agree upon a specific price for a specific
quantity of the product. To further understand this
concept, let us use your personal experience as an
example. Dining out at restaurants by yourself or with
your family is an example of market exchange.
• When you eat out, you allot a specific amount of money to
buy food. The same amount of money you have allotted
could buy specific quantities of products from the menu.
When you pay for your food at the cashier, you are
already engaging in a market transaction because you
gave up your money in exchange for goods or services,
which in this case, is food. Thus, all forms of market
exchange would require the following: a medium of
exchange, a rate at which products are exchanged for
money, and parties who are involved in the exchange(i.e.,
buyers or sellers).
Elements of Market Transactions
• In understanding market transactions, it is important to
also familiarize yourself with the elements that make up
market exchanges. Note that these elements are also
important in balancing the economy
• Element Description
•
Money-It consists of objects that serve as means of
exchange for goods and services.
•
Prices-It is the amount required or agreed upon by the
exchanging parties. It is the amount of money usedin
exchange for a certain product.
•
Supply-It refers to the quantity of goods or services
that are available to sell at a given price and period of
time.
•
Demand-It refers to the quantity of goods or services
that consumers are willing to purchase at a given price
and time period.
The Interaction of States and Markets
• Providing an in-depth concept of the state requires a look
at markets and vice versa. States need to foster economic
growth to provide a good standard of living to its citizens.
At the same time, markets exist because of the economic
activities done by the state. As such, we could easily
conclude that markets and states are dependent on each
other. This interaction between states and markets opens
up the field of international political economy. This
phenomenon also drives changes to the holistic
development of a nation.
• One prominent example of the effects of the interactions
between states and markets is the case of China where
developments on both their market and state needs were
emphasized and utilized in their reform programs.
• As an effect, the country developed societal and
economic growth over the past two decades. The marketbased and state-based reforms and developments that
China implemented rested highly upon the transformation
of people’s communes, state-owned enterprises,
decentralization, price reform, and capital market
development.
• Reviewing the steps that China did to achieve economic
and societal growth and progress, we could easily
conclude that the best way to uplift the economy and the
state itself is for the two entities to complement each other
in their respective political and economic processes. For
instance, to ensure the successful market transactions,
states need to be positive catalysts in ensuring an
environment that is highly beneficial for market activities.
Conflicts between Market and State
Functions
• While some societies can move past the different focus of
markets and states, there are still ongoing debates about
their theoretical and practical components. For instance,
the abrupt rise of globalization has led academicians to
suggest the end of the dominance of states in exchange
for the emergence of global markets. A widely-supported
belief on states and markets is their inability to
complement each other in macro-functions. According to
supporters of the contractualist notion and liberal views,
states are unnatural entities occurring within societies
because they are primarily built by strict delegations of
power by citizens.
Types of State According to Market Roles
• Laissez-Faire State
• Laissez-faire is derived from French words that mean “to
leave alone.” According to the principle of laissez-faire,
the economy functions best when the government does
not intervene through regulations, subsidies, privileges,
and other types of intervention. The laissez-faire state,
therefore, completely does not have any role in managing
the market.
Interventionist or Developmental State
• The developmental or interventionist state is a state that
intervenes in the market and sets the direction and pace
of economic development. To bring about economic
development, developmental states implement policies,
such as subsidies, protection of tariffs and local industries,
and prioritization of some industries over others. In these
types of states, the state and the market are closely
intertwined, and their relationship is managed by a special
bureau or department that coordinates the developmental
efforts of the state on the economy.
Welfare State
• The welfare state is one that plays an important role in the
achievement and protection of the economic and social
well-being of its citizens. In contrast to the developmental
state, the welfare state’s involvement is aimed at
achieving a good quality of life for the citizens, rather than
merely driving economic development
• Examples of programs of the welfare state are the
provision of health services, low-cost housing, and basic
education. Within the welfare state, the government itself
is not the only actor tasked with providing welfare.
Businesses and organizations may also contribute to
providing welfare services. Various forms of state-market
relationships can bring about different effects on the lives
of the citizens in a country. Some states are a
combination of these types
Activity.
• Activity 1. Direction: Answer the following questions. 1. What is the importance of Economic
institutions in society?
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2. If you will be given a chance to be part of an economic institution, What would it be and
why?
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3. Is the existence of economic institutions essential? Why?
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Thank you