Chapter 4 The Systems 3 major types of economic systems that states classify themselves as. The world Economic Spectrum Communism (extreme left) is communal ownership of all resources and properties and the means of production. Everyone has equal piece of the pie. All services are also free (no doctor bills, etc.) The state owns everything. The state is simply there to manage everything and distribute everything. It is supposed to be viewed as a utopia, but it never really works out that way. Individuals get greedy, which is why communism is easily corrupted. Therefore, communism as a practice becomes stagnant. Capitalism (extreme right) is all resources and all means of production are in private ownership by individuals. Ownership is by the few. The state government does nothing. Simple market principals such as supply and demand will run the market on it’s own. People also sell their services for a price, instead of bartering for other services. This is a polar opposite of a communist system. Stores like Walmart and people who grow their businesses consolidate their wealth. A PURE capitalist system is NO WHERE in the world. In a pure capitalist society, there is too much consolidation of wealth in too little hands, which also makes for a stagnant situation as well. Therefore, big corporations and companies become very greedy and corrupt as well. Socialism (in the center, where most economic systems fall) is when the government owns some of the means of production, or some of the resources, or perhaps a little of both and the rest is privately held by individuals. Economic systems account for at least some needs of society at large, and the amount of needs provided varies by the state. The US would fall into the “capitalist leaning society.” Nationalization vs. Privatization All governments do something. The government controls things like government and roads, things that are necessary that even the most liberal people agree we need. So how does the government make money for all of this? One is taxes, in the form of income tax and sales tax. The second way they make money is when the government controls a resource, so when an industry makes money, the money goes right into the government account. A state government sometimes may have to nationalize or privatize a resource. Nationalization is when the state government takes over a resource or industry from private individuals and the private sector, and begins making a profit off of it. Most free market capitalists and rich western countries hate nationalization. Why might a state nationalize industry in times of war/emergency, when the social good far out weighs the cost of running that resource, and to save a flailing
business (if a big or important company is going to go bankrupt, such as right now in the US economy).