Chapter Eleven - Globalization and Economic Systems

Chapter Eleven - Globalization and Economic Systems -...

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Unformatted text preview: Chapter Eleven Globalization and Economic Systems Images of Capitalism Images of Communism Capitalism or the market economy Capitalism is an economic system in which private individuals control the factors of production. Workers decide for whom to work banks and financiers decide in whom to invest and the owners of the means of production decide what to produce and where the market (i.e. the cumulative actions of individual buyers and sellers) determines what goods and services are to be offered, in what quantity and at what prices. through Adam Smiths so-called invisible hand. Economic and political systems often operate hand-in-glove. Market economies, for example, are mostly associated with democracy and individuals rights. Characteristics of capitalism Capitalism leads to the most efficient use of a nations resources. Capitalist economies are driven by consumers (the buyers) and entrepreneurs (the sellers). The role of government is to ensure that the efficient use of resources is in keeping with social needs. i.e. a balancing act between efficiency and fairness. e.g. worker safety and rights, pollution and the community, etc. In a free market economy, government has a limited role in the economy (next slide) and government spending is the lesser component of GDP. e.g. government spending accounts for about a third of U.S. GDP while consumers account for two-thirds. Specific roles of government in a market economy According to Milton Friedman, the economist and great proponent of free market capitalism, the role of government intervention should be limited to protecting (weak) consumers from (strong) suppliers by: 1. Protecting individuals from coercion e.g. by ensuring workers rights, by legislating a safe work environment, safe products, etc. 1. Enforcing contracts to ensure that commitments are met. 2. Preventing monopoly action by powerful or colluding suppliers. 3. Mitigating neighborhood effects e.g. the impact of pollution on a local community. The centrally planned or command economy This type of economy is characteristic of communist societies (and an absence of individual democracy). The means of production are owned by the state and planners (bureaucrats) plan out every single aspect of economic activity, i.e. who produces what, how, when, where including who works where ..who supplies what and what prices are charged. This system ultimately fails because of inflexibility and a lack of accountability Planners replace consumers and market competition in determining what should be produced....
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Chapter Eleven - Globalization and Economic Systems -...

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