session ii

Session-IIUnit-I

By: Ruturaj Baber

Definition of Capitalism

Capitalism is…

• an economic system

• investment in and ownership of the means of production, distribution, and

exchange of wealth is made and maintained chiefly by private individuals or corporations

Ruturaj Baber MBA-I 2

Pros and Cons of Capitalism

Pros

• Competition to provide goods and services keeps prices low

• Rewards hard work

• Provides choice

• Allows for the building up of wealth and possessions

• Consumers regulate the market

Cons

• Exploits people who cannot compete

• Uneven distribution of wealth

• Creates a money-oriented society

• Constant economic growth may deplete the earth’s resources


CAPITALISM

1. Private Ownership: Capital belongs to individuals who are FREE to do what they wish with it. For this reason, capitalism is also called the “free-enterprise” system


CAPITALISM

2. Profit Motive: based on the economic laws of supply and demand, when enough people want something, producers make it because they want a PROFIT


CAPITALISM

• 3. Market Economy: a money value can be placed on everything in the marketplace: land, goods, time, and labor. Buyers and sellers are free to exchange goods and services at prices determined by…..”SUPPLY and DEMAND”


Types of capitalism

• Mercantilism

• Free-market economy

• Social-market economy

• State capitalism

• Corporate capitalism


Mercantilism

• It is characterized by the intertwining of national business interests to state-interest and imperialism.

• Mercantilism holds that the wealth of a nation is increased through a positive balance of trade with other nations.


Free-market economy

• Free-market economy refers to a capitalist economic system where prices forgoods and services are set freely by the forces of supply and demand and areallowed to reach their point of equilibrium without intervention by governmentpolicy.

• It typically entails support for highly competitive markets, private ownership ofproductive enterprises.

• Laissez-faire is a more extensive form of free-market economy where the role ofthe state is limited to protecting property rights.


Social-market economy

• A social-market economy is a nominally free-market system wheregovernment intervention in price formation is kept to a minimum butthe state provides significant services in the area of social security,unemployment benefits and recognition of labour rights throughnational collective bargaining arrangements.

• This model is prominent in Western and Northern Europeancountries, and Japan, albeit in slightly different configurations. Thevast majority of enterprises are privately owned in this economicmodel.


State capitalism

• It consists of state ownership of the means of production within astate, and the organization of state enterprises as commercial, profit-seeking businesses.

• The debate between proponents of private versus state capitalism iscentred around questions of managerial efficacy, productiveefficiency, and fair distribution of wealth.


Corporate capitalism

• Corporate capitalism is a free or mixed-market economy characterizedby the dominance of hierarchical, bureaucratic corporations.

• Corporations are usually called public entities or publicly tradedentities when parts of their business can be bought in the form ofshares on the stock market.


Definition of Socialism

According to Merriam-Webster, Socialism is…

• Government ownership and administration of the means of production and distribution of goods

• A system of society or group living in which there is not private property

• A system or condition of society in which the means of production are owned and controlled by the state


Pros and Cons of Socialism

Pros

• All members share benefits

• Those who cannot contribute may still participate (disabled, elderly)

• Each member’s survival needs are met

• Equal distribution of wealth

• No socioeconomic classes

Cons

• No incentive to work harder

• No competition means no reward to be innovative

• New members to the community (immigrants) are seen as competition for limited goods and services

• Higher taxes


Types of Socialist Economy

• Socialist planned economy

• Market socialism


Socialist planned economy• State-directed economy

• A state-directed economy is asystem where either the stateor worker cooperatives own themeans of production, buteconomic activity is directed tosome degree by a governmentagency or planning ministrythrough mechanisms

• the state will plan long-termstrategic investment and someaspect of production.

• It is possible for a state-directed economy to haveelements of both a market andplanned economy

• De-centralized planned economy• A de-centralized planned

economy is one where ownershipof enterprises is accomplishedthrough various forms of workercooperatives and planning ofproduction and distribution isdone from the bottom-up bylocal worker councils in ademocratic manner.

• This form of socialist economy isrelated to the politicalphilosophies of LibertarianSocialism, Syndicalism andvarious forms of communalUtopian socialism.


Market socialism

• Market socialism refers to various economic systems that involveeither public ownership and management or worker cooperativeownership over the means of production, or a combination of both,and the market mechanism for allocating economic output, decidingwhat to produce and in what quantity.

• In state-oriented forms of market socialism where state enterprisesattempt to maximize profit, the profits can fund governmentprograms and services eliminating or greatly diminishing the need forvarious forms of taxation that exist in capitalist systems.


Mixed Economy

According to dictionary.com, a Mixed economy is:

• An economy in which some industries are privately owned and others are publicly owned or nationalized

• Many capitalist economies are mixed economies (some capitalism and some socialism)


Mixed economy

• Private: mobiles, cars, computers

• Essential services: police, fire service, defence, social services. Goods and services which can benefit both consumer and society(merit goods)

• Taxes to the government

• Government places limits on the nature of business activity: restricting monopoly, control pollution from factories


Government subsidized programs

• Postal service

• Rail lines

• Libraries

• Health care

• Social programs

• Roads

• Infrastructure (bridges, freeways, etc.)

• Can you think of any others?


Pros and Cons of Mixed Economy

• Pros• State provides the essential

services

• Private sector encouraged for profits

• Competition keeps prices low

• Consumer choice

• Inefficient business behaviorcontrolled

• Cons• Heavy taxes reduce incentives to

work hard or make profits

• Less efficient than private sector

• Excessive control over business activity can add costs and discourage enterprise


Capitalism vs. Socialism Vs. Mixed

Capitalist countries:

• America

• Canada

• Brazil

• Japan

• Mexico

Socialist countries:

• Cuba

• Saudi Arabia

• Iran

• North Korea

• Burma

Mixed Economies:

• India

• China

• Malaysia


Which is best: Capitalist economy, Socialist economy, or a Mixed economy?

• A free market exists with some regulation by the government

• People can create their own businesses and make a profit

• All businesses pay taxes, which benefit everyone


THANK YOU


session ii

Business

corporationsruturaj

demandruturaj baber

stateruturaj baber mba

profit ruturaj baber

means of production

distribution of wealthcreates

limited goods

private ownership