Ch. 13 Sections 3-5

Economic Systems

• The production and distribution of goods and services

• Capitalism – an economic system based on private ownership of property and the pursuit of profit– 2 basic premises: the sanctity of

private property, & the right of individual to profit from their labors

– Believe in unrestricted competition w/ minimum government interference

– Argue that private ownership benefits society

• How does capitalism benefit society?– Adam Smith (the founder of Economics) believed that a

combination of private ownership of property and the pursuit of profit brings advantages to society• Competition motivates capitalists to provide the goods and services

desired by the public at prices the public is willing and able to pay• The public receives high-quality goods and services at reasonable

prices• Company’s continually search for new products and technologies to

reduce their costs• There are no pure capitalist economies in the world

– One reason is the tendency to form monopolies and oligopolies

• Monopolies – companies that have control over the production or distribution of a product or service

• Oligopolies – combinations of companies that control the production or distribution of a product or service– New organizations find it difficult

to enter these markets, where there is little chance to compete on a equal basis

– These permit price fixing – consumers must decide to buy at the price set by the sellers or not buy

– A recent example of a monopoly is Microsoft

The role of government in Capitalism• The government has always been involved in the

workings of the economy• The government regulates commerce,

development of currency, creation of uniform standards for commerce

Socialism – an economic system founded on the belief that the means of production should be controlled by the people as a whole

• Government controls the means of production• The state is expected to ensure all members of society a share in

the monetary benefits• Pure socialism is as rare as capitalismMixed Economic Systems• Most nations fall b/w nationalism and capitalism

The Modern corporation• Corporations are of great importance in modern

economic systems• American companies not only influence our economy,

but those around the world• Corporation – an organization owned by shareholders,

who have limited liability and limited control

Corporate influence• Top corporate officials

have tremendous influence on government decisions– One reason is there

control over jobs• Interlocking directorates

– directorates that result when heads of corporations sit on one another’s boards

• Conglomerates – networks of unrelated businesses operation under one corporate umbrella

Multinational Corporations• Multinationals – firms based in highly industrialized societies with

operating facilities throughout the world• If you combined all the political and economic units in the world

and chose the 100 largest units, 51 would be multinational corporations

• ExxonMobil, IBM, GM, Ford, AT&T, Wal-Mart, and GE have annual sales greater than the economic output of some industrialized nations

• There is debate on if multinational are good or bad for foreign countries

Work in the Modern Economy• 3 basic economic sectors– Primary – producing goods form the natural

environment• Dominated preindustrial economy

– Secondary – manufacturing• Industrial revolution

– Tertiary – services• Modern America• Today about 70% of Americas population are white-collar

workers

Occupational Structure• Occupations – categories of jobs that involve similar

activities at different work locations• America has a two-tier occupational structure– The Core – jobs w/ large firms holding dominant

positions w/in their industries• Ex. – computer technology, pharmaceutical, and aerospace

firms• About 35% of U.S. workers are in the core

– Peripheral tier – jobs in smaller firms that either are competing for business left over from the core firms or are engaged in less profitable industries such as agriculture, textiles, and small-scale retail trade• About 65% of U.S. workers are employed in the peripheral tier

– Historically jobs in the core paid more, offered better benefits, and provided longer-term employment

– Downwaging – 30 years ago one American worker alone could support a family, now the dual-employed married couple has become the norm

Downsizing and Contingent Employment• Downsizing - the process by which companies reduce their

workforces• Contingent employment – the hiring of part-time, short-term

workers• Part of the motivation for downsizing is based on top

management’s belief that their companies employ a surplus of people and that, thanks to computers and other labor-saving technology, work can be done by fewer employees w/o reductions in efficiency and effectiveness