AMERICAN GOVERNMENT
CHAPTER 23: COMPARATIVE
ECONOMIC SYSTEMS
I. Capitalism
Bellringer
A) Factors of Production
 Factors of Production – basic resources needed for a
nation’s economy which are used to make all goods and
services
1) Land – agriculture, mining and forestry
2) Capital – all the human made resources that are used to
produce goods and services. Buildings, machines,
computers.
3) Labor – individuals “own” their labor and sell it to an
employer
Entrepreneur – an individual with the drive and ambition
to combine land, labor, and capital resources to product
goods or offer services.
Willing to risk losses and failures.
B) Free Enterprise System
 Free Enterprise System – an economic system
characterized by private ownership of capital and
by investments that are determined by private
decisions, not by public authorities.
 Free market – a market in which buyers and sellers
are free to buy and sell as they wish
 Usually in a democratic nation
a) Private Ownership
 In a free market – private individuals and
companies own most of the factors of production
 They decide – build, invest, what to produce
b) Individual Initiative
 Entrepreneurs
 People are free to start and run their own
businesses – to sell them
 Lead to new scientific and technological
discoveries – improve everyday life
c) Profit
 People are entitled to benefit from whatever their
investment or enterprise earns or gains in value
 “profit motive”
 Why we risk
d) Competition
 A number of companies offer similar products or services
 Holds down prices and keeps quality high
 Competition promotes efficiency
 Laws of supply and demand – determine the market price for
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goods or services
Monopoly – a firm that is the only source of a product or service
They can charge as much as they want for a product – no
competition
Trust – when several corporations work together to eliminate
competition and regulate prices – can you name some?
Sherman Anti-Trust Act of 1890 – forbids trusts
Anti-Trust Division in the Department of Justice enforces this –
cans top sale or merger of companies and can break them up.
AT&T and Standard Oil.
Wine Processing/bottling/Retail Sales
Wine Tasting
Vineyard/Winery Tours
Parking across the road
Events: Up to 150 People Per Day (Outdoors/Indoors)
C) Laissez-Faire Theory
Wine Industry Meetings
Food & Wine Pairings
Educational seminars relating to the wine industry
Fund Raiser
Reunions
Meetings/Classes
Events: up to 200 People Per Day (Outdoors/Indoors)
 French for “to let alone”
 Belief that the government should not interfere – at all.
 Adam Smith – the invisible hand – helps promote the
general welfare
 Laissez-Faire says government should only:
Festival (Indoor/Outdoor)
1) Wine
Foreign
relations and national defense
Music:
Unplugged, acoustic music that allows for microphone and a
2) Indoor:
Maintenance
of police and courts to protect property,
couple of speakers
Outdoor:
Non Amplified
Acousticand
music. morals
No Bands, No DJ’s allowed
health,
safety,
26
3) Functions that cannot be performed by private enterprise
Hours of Public Operation:
profit
– example?
10:00at
am a
to 8:00
pm, Sunday
– Thursday
10:00 am to 10:00 pm, Friday and Saturday
- In
economy
– should
be to promote and protect free
Withthe
the following
conditions/standards
to be met:
New Processing Structure to be located behind current processing building
play
Site distance at the road entrance to remain cleared
Weddings/Receptions - up to 10 events per calendar year
Events: 2 annually (up to 2 consecutive days each)
Parking, lighting, signage in accordance with the Zoning Ordinance
Conform to all JDC Environmental Health Dept. regulations
Run off control and drainage of parking lot, if parking is made on the north side
of Ford Road, will be provided if needed
D) A Mixed Economy
 An economy in which private enterprise and
governmental participation coexist.
 Is the US mixed?
 Prohibits trusts, protects the environment,
inspects our food, builds roads, social security,
subsidies farms, loans money, postal system,
public education, water, electric.
E) Types of Business Organizations
 Over 95% of businesses employ fewer than 20 people.
Sole proprietorships – hair salons, auto repair shops,
dentist office – 75% of all business.
2) Partnerships – Lawyers, architects – one usually
provides capital, other provides knowledge
3) Corporations – shareholders – people who own a
share or fraction of the business
- Can be public or private
- Income is taxed twice – income tax on the
corporation and income tax on the dividends.
1)
F) Profit and Loss
 Profit drives the economy
 Taking risks and making investments are an
essential part of the capitalist system
 Many businesses fail every year because they do
not produce a profit
 Survivors learn how to make the most efficient use
of the factors of production.
Review
CHAPTER 23:
II. Socialism and Communism
Bellringer
 Do you think that history is a series of class struggle
and that al conflicts are based on economics? Why or
why not?
 Do you think that laborers should receive the full value
of the goods they produce? What about the role of the
entrepreneur and the profit motive in this system?
 Do you think that the US government is controlled by
capitalists?
 What might be the drawback of the proletarian
dictatorship, even if it is a transitional phase?
A). Karl Marx’s Theory
 Karl Marx (1818-1883) – the father of modern
socialism and communism
 Critical of capitalism and the Industrial revolution
 Him and Friedrich Engel wanted social and
economic reform – crazy reform
 The Communist Manifesto (1848) – written by
Marx and Engel, political document that created
communism and socialism calling on workers to
unite and free themselves from “capitalist
enslavement”.
Four Concepts of Communism
History – story of class struggle – fought over control
of labor and productive property
- Bourgeoisie – the capitalists (rich owners)
- Proletariat – the workers (poor, powerless)
- The masses will unite and bring down the
Bourgeoisie.
2) Labor Theory – value of things was based not on how
much it cost to build, but how much labor was used
to build it – workers deserved that value
3) Role of Institution – two fold – rich use government to
stay in power. Religion is a drug that helps workers
tolerate bad life for hope at a “fictional afterlife”
1)
4) Dictatorship of the Proletariat
 Goal is a utopia
 To get there you need to “force” the people
 Starts with a revolution
 Proletariat rises up and takes control of productivity and
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enforces the interests of the masses
Need a dictatorship to do this
Once true equality was achieved – dictatorship would disappear
In reality – dictatorship never disappeared.
Socialism – process of peaceful democratic movement to the
Utopia
Communism = the violent revolution movement to create the
Utopia
B) Characteristics of Socialist Economies
 1) nationalization – taking over and running privately owned
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industries
Usually important ones – utilities, transportation and steel.
Small businesses privately owned
2) Public Welfare – provide for welfare services – retirement
pensions, healthcare, education and housing
Called a welfare state (page 687)
3) taxation – high – around 50 – 60% - mostly on rich for
equalization of taxes
4) A Command Economy – government decide what is produced,
who produces it, how much is produced, and what cost (if any).
Economic decision making is not private but public and
centralized
C) Socialism Today
 Recently in Britain, France, and Germany – most
socialist parties have lost power or had to abandon
their projects to expense and unpopularity.
 Countries in Africa and Latin America
 Venezuela and Hugo Chavez – nationalized oil and
used it to pay for education, healthcare, and lowcost housing – poor love him
D) Characteristics of Communist Economies
 Communism more totalitarian then socialism. Usually
leads to dictators.
1) Communist party – run everything, government and
economy – control over social, intellectual and
religious life.
2) Central Planning – set 5 year plans to develop
industry and agriculture growth – also set prices and
where products will be distributed.
3) Collectivization – all private land ownership will be
taken over by the government - usually merge small
farms into big collective farms – by force
4) State ownership – all industry and transportation are
taken over by the state.
E) The Soviet Union
 Lenin created the first communist state in Russia in 1917 –
complete control of social, political, and economic
institutions.
 Several 5 year plans allowed the USSR to achieve heavy
industry and industrialization but at a cost – no consumer
goods, housing, and urban services.
 Did provide free education and medical care - all poor quality
 Mikhail Gorbachev – Last General Secretary of the USSR –
started dismantling communism – collapsed peacefully in
1991.
 Glasnost – Openness
 Perestroika – restructuring
 Privatization – process of returning nationalized enterprise to
private ownership.
F) China
 Mao Zedong took control of China from the
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nationalists in 1949.
Assigned workers to jobs
Great Leap Forward – a 5 year plan to modernize China
quickly
All free enterprise and land ownership were gone
Failed horrible – famine
Deng Xiaoping – took over in 1977 and began to move
China from a command economy to a market economy
and opened up the country to foreign investors.
G) Other Communist Nations
 Cuba dependent on USSR aid. When that fell,
Cuba in trouble. Still poor today.
 Vietnam and Laos have instituted free market
reforms to promote growth and investments.
 North Korea – severe food shortages and complete
control of economy – poorest place on earth
H) Evaluating Command Economies
 Layers of government in socialism hurt initiative
 Central planning is too slow to react
 No freedom, paid low, no incentive to work harder
 Why work hard when your basic needs will be taken
care of anyway.
 Defenders of socialism and communism say it’s a fairer
system
 There are inequalities in capitalism – medical care,
housing and education – wealth and power
 Owners can abruptly close a factory leaving workforce
and community in trouble – can’t under socialism.
Review
AMERICAN GOVERNMENT
CHAPTER 23: COMPARATIVE
ECONOMIC SYSTEMS
III. The U.S. in a Global Economy
Bellringer
 Read these two quote – then answer this question.
 To what extent should government participate in
the economy?
A) The Domestic Economy
 First 120 years, no government involvement
 Great Depression changed that.
 A vital free enterprise system fosters competition and
entrepreneurship – the Government tries to support it by trying
to make it fair
 The Federal Reserve System (the Fed) – established in 1913 it is
the central banking system of the US – monetary policy – adjusts
the discount rate
 SEC – Securities and Exchange Commission – police of the stock
market – stops insider trading and makes corporations disclose
their finances
 Department of Labor – OSHA has decreased deaths at work by
60%, ESA (Employment Standards Administration) monitors
fair contracts and the Bureau of Labor Statistics tracks
unemployment and the consumer price index.
B) The Global Economy
 Globalization – economic interdependence among
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nations of the world.
Because of jets and internet, the world is smaller place.
(bigger boats)
The purpose of trade is to sell your goods and buy
goods that you can’t produce. Food for oil.
Canada number one, then China, then Mexico.
US largest exporter (1.2 trillion) and importer (2.1
trillion)
Oil biggest import – 12% of world market
NAFTA – free trade agreement with Mexico and
Canada
C) US Trade Policies
 US needs to protect its interest and workers and
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balance them with its trade partners
Protectionism – protect native industries from foreign
competition
Tariff – tax on imported goods (steel)
Import quota – limit put on the amount of a
commodity that can be imported into a country
(cotton, sugar, and milk) (TV shows)
Trade embargo – ban on trade with a particular
country or countries (usually used for foreign policy)
NAFTA
 North America Free Trade Agreement
 Free trade (no tariffs) between Mexico, Canada,
and US – common tariff.
 Thought it would lead to huge job loss – supports
said it will increase exports costing new jobs – also
help stabilize Mexico and stop illegal immigration.
 US did lose manufacturing jobs but farm exports
to Mexico quadrupled from 1993 to 2008.
D) International Organization
 US tries to strengthen foreign ties to help trade.
 WTO – World Trade Organization – intention is to
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increase trade with its 151 members. It spells out rules,
creates a forum for new agreements, and place to
resolve trade agreements (copyright)
GATT – General Agreement on Tariffs and Trade
World Bank – loans money to developing nations
IMF – International Monetary Fund – helps countries
whose banking or financial institutions are in trouble
G8 – annual meetings of the leaders of eight wealthy
nations and industrialized nations. (US, Canada,
France, Germany, Italy, Japan, Russia, and UK)
Other Trade Alliances
 EU (European Union)
 1957 established the European Common market – 6
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countries coordinate economic policies and trade
1986 created the EEC (European economic
Community) – free trade
1993 – Formed the EU – own parliament, flag – can
travel as tourists or workers without passport.
202 – created the EURO – own currency
Now 27 nations including former USSR states.
APEC – 21 Pacific Rim countries for trade
MERCOSUR – trade bloc in South America
F) Impact of Trade
 Globalization leads to
more good available
 Helps poor nations
expand economies and
grow
 Cheaper prices leads to
growth – more jobs
 Economic
interdependence lead to
fewer conflicts
 Issues in Iraq and Nigeria
raise oil prices here
 Might need “permission”
from trade partners to
legalize gay marriage for
example.
 US now a service
industry instead of
manufacturing (too
expensive)
 Trade deficits to China is
financed by China – own
a portion of US economy.
G) Tomorrow’s Marketplace
 We will increased globalization with new members
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to NAFTA and the EU – expand free trade
US will try to lower its trade deficit with China
Increase service exports
More loss of manufactured jobs
Need to rely on intellectual property as much as on
exported goods
Protect copyrights and patents
Promote stability in oil producing nations
Review
 Is the growth of free trade a positive or negative
development?
 For the US?
 For the World?