■ Today, elements of totalitarianism are employed by some states in Africa, Asia, and the Middle East. ■ Socialism: capital and wealth should be vested in the state and used primarily as a means of production rather than for profit. ■ Based on a collectivist ideology where group welfare outweighs individual welfare ■ Socialism has manifested itself in much of the world as social democracy, and has been most successful in Western Europe but is also playing a role in Brazil and India. Democracy: Is the prevailing political system in much of the world’s advanced economies. Two key features: ■ Private property rights: The ability to own property and assets and to increase one’s asset base by accumulating private wealth ■ Property includes tangibles: land and buildings, and intangibles: stocks, contracts, patent rights, and intellectual assets. ■ Democratic governments devise laws that protect property rights. People and firms can acquire property, use it, buy or sell it, and bequeath it to whomever they want. These rights are important because they encourage individual initiative, ambition, and innovation, as well as thrift and the desire to accumulate wealth. People are less likely to
have these qualities if there is any uncertainty about whether they can control their property or profit from it. ■ Limited government: The government performs only essential functions that serve all citizens, such as ensuring national defense, maintaining law and order, conducting diplomatic relations, and constructing/maintaining infrastructure such as roads, schools, and public works. ■ State control and intervention in the economic activities of private individuals or firms is minimal. By allowing market forces to determine economic activity, resources are allocated with maximal efficiency. ■ Differences in personal and financial resources lead to inequities. ■ Balancing individual freedoms with broader societal goals is the struggle that societies must address. In democracies such as Japan and Sweden, democratic rights and freedoms are interpreted in societal rather than individual terms. ■ Social democracy: virtually all democracies include elements of socialism, such as government intervention in the affairs of individuals and firms. Socialistic tendencies emerge because of abuses or negative externalities that occur in purely democratic or capitalistic systems. ■ Mixed Political System: Many countries, including Australia, Canada, the United States, and those in Europe, are best described as having a mixed political system— characterized by a strong private sector and a strong public sector with considerable government regulation and control. Democracy’s Link to Economic Freedom and Openness ■ Democracy: greater economic freedom and higher economic living standards ■ Economic freedom flourishes in free market and rule of law systems.
- Fall '11