Class Notes
Professor Henry Schissler
Chapter 8 – Part B

The Economy

A society’s economic system for producing, distributing, and consuming goods and services will depend on both its level of development and its political ideology.

Capitalism is an economic system in which the means of production are held largely in private hands and the main incentive for economic activity is the accumulation of profits. Capitalist systems vary in the degree to which the government regulates private ownership & economic activity

The prevailing form of capitalism during the Industrial Revolution was what is termed laissez-faire (“let them do”). Under this principle, businesses could compete freely with minimal government intervention.

Private ownership and maximization of profits still remain the most significant characteristics of capitalism. But contemporary capitalism features extensive government regulation of economic relations. Examples are monitoring prices, setting safety standards for industries, protecting the rights of consumers, and regulating collective bargaining between labor unions and management.

Contemporary capitalism tolerates monopolistic practices. A pure monopoly exists when a single business firm dominates an industry. Buyers have little choice but to yield to the firm’s decisions about pricing, standards of quality, and availability.

Partial monopolies exist when a few businesses control an entire industry and, often, keep other companies from entering the marketplace. Media, for example, is controlled by fewer and fewer businesses. Cable television, wireless communications, and personal computer operating systems are other examples.

The United States attempts to outlaw monopolies through antitrust laws. They are meant to prevent a business from gaining control of a particular market. The government intervenes to attempt to preserve competition in the marketplace.

Socialism is an economic system where the means of production and distribution are collectively rather than privately owned. The basic objective of the economic system is to meet people’s needs rather than to maximize profits. Competition, they believe, does not help the general public. The central government, acting as the representative of the people, should therefore make basic economic decisions.

Communism (commune) is an economic system under which all property is communally owned and no social distinctions are made on the basis of people’s ability to produce for the collective. It eliminates class systems, hierarchy, and any strong governmental role in people’s lives. Because there are no social distinctions, there is an equality among people that eliminates status as a part of career or any other public endeavor (the arts, for example).

Clearly, this communist ideal was not the societal and governmental system in the many communist countries that fell during the late 1980’s and 1990’s. Further, current communist countries (China, Cuba, and Vietnam) remain socialist economic systems ruled by a strong often repressive central government (dictatorship). They refer to themselves as communists.

Industrial Democracies

Private ownership and free market competition coexist with some democratic controls over business (including possible regulation) and the public provision of basic social services. These are called Industrial Democracies. In most, health care is available to all citizens. Also, housing support, education, and other key services are available for each individual and family.

In the United States, these examples of available services are limited. Social Welfare Policy would, therefore, not be considered socialist per se. However, the Social Security system, Medicare and Medicaid programs would qualify as limited socialist policy for segments of the U.S. population.

Formal Economy – all work-related activities that provide income and are regulated (taxed, subject to minimum wage, worker safety laws, etc) by government agencies.

Underground Economy – those income-generating activities that are not reported to the government; some are illegal, others are overtly criminal.

Informal Economy – those income-generating activities that escape regulation by the governmental institutions which ordinarily regulate similar activities; examples are restaurant employees, vendors, tag sales, babysitters.

Economic Changes

• There is more concentration of ownership by giant corporations, especially multinational ones, in the U.S.

• The U.S. economy is increasingly intertwined with & dependent upon the global economy as more foreign companies acquire U.S. firms.

• The workforce is increasingly more diverse with over 60% of women and increasing numbers of minorities employed.

• More women and minorities are securing managerial positions. White males continue to dominate upper management in all industries.

• Over 75% of businesses have instituted some type of cultural diversity training program because of relationships between workers are more and more likely to cross gender, racial, and ethnic lines.

• Deindustrialization, the systematic withdrawal of investment in basic aspects of productivity (such as factories and plants), has become more widespread throughout the U.S. As businesses relocate, more and more are building new facilities outside the country. Some are moving part of their operations outside the country (General Motors, for example).

• Downsizing, reductions in a company’s workforce, has been occurring for over a decade in the U.S. New technologies, “restructuring”, and decreasing profits are all reasons for downsizing

• E-Commerce, the numerous ways that people can do business from their computers, continues to grow. Internet-based businesses continue to chip away at traditional “bricks-and-mortar” establishments. This new marketplace continues to be viewed as “volatile.”

• A “contingency workforce”, workers who are hired only for as long as they are needed, has emerged in the U.S. This is a direct result of downsizing and cost cutting practices, and includes a growing number of part-time employees. One problem for this workforce is the lack of healthcare benefits.

Globalization – process by which the lives of all people around the planet become increasingly interconnected in economic, political, cultural, and environmental terms, along with the awareness of such interconnections.