Institutions 2 - Institutions 2 The Mystery of Missing...

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Institutions 2 The Mystery of Missing Information Alternative economic systems o Economic systems are classified according to the ownership of resources and means of production. o Two “pure” systems exist: Communism: resources and means of production are owned by the state. Capitalism: resources and means of production are owned by private individuals or corporate entities – themselves owned by private individuals. o Mixed, or “third way” systems are typically a mix: The state owns some important resources. The state heavily influences or restricts the economic activities of individuals or corporations. The scorecard so far – communism o Communist systems have consistently failed to produce sustained economic growth, and have been largely rejected by societies around the world. o The increased equality delivered by communism has not been enough to overcome its growth deficit and its restrictions of personal liberty. Inequality at the top has also done much to damage communist systems. o China is the only large country where communism still survives in name. But in reality, it has only managed to grow by adopting a managed transition to capitalism. o Capitalist systems have brought rapid growth and prosperity to Western countries. o However, with the exception of Japan, capitalism has failed to take root outside the West. o This hasn’t been for lack of trying. Latin America has implemented at least four waves of capitalist reforms since its independence in the 19th century. o Disillusionment with capitalism has generated a renewed push for “third way” experiments. Chavist Venezuela, Kirchner’s Argentina, Correa’s Ecuador are all attempts by the state to exert a stronger control over the economy. They enjoyed huge popular support for a long time De Soto’s question o Why does capitalism triumph in the West, and fails everywhere else? o We have already ruled out race as an explanation. o We will address cultural differences in the last portion of the course – they have some explanatory power, but not to the point of leading to economic failure. Entrepreneurship? o Maybe the people of the Third World lack the entrepreneurial spirit or abilities of those in the West?
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o Not at all – witness the incredibly entrepreneurial bazaar merchants, street vendors, and taxi drivers of any developing country.
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