Transcript Chapter 23, Section 3

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Magruder’s
American Government
C H A P T E R 23
Comparative Economic Systems
© 2001 by Prentice Hall, Inc.
C H A P T E R 23
Comparative Economic Systems
SECTION 1
Capitalism
SECTION 2
Socialism
SECTION 3
Communism
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Chapter 23
~Isms
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Nazism: If you have two cows, the government shoots
you and keeps the cows.
Facism: If you have two cows, you keep the cows and
give the milk to the government; then the government
sells you the milk.
Communism: If you have two cows, you give them to the
government and the government gives you some milk.
Socialism: If you have two cows, give one to your
neighbor.
Capitalism: If you have two cows, you sell one and buy a
bull.
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SECTION 1
Capitalism
• What are the factors of production?
• How can we describe the free enterprise
system and the laissez-faire theory?
• What is the role of government in a mixed
economy?
• How are business organizations classified?
• What role do profit and loss have in a free
enterprise system?
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Chapter 23, Section 1
Factors of Production
The factors of production are the basic resources which
are used to make all goods and services.
Land
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in economic terms, “land” includes all natural resources.
Labor
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Labor is the work done by men and women to
produce goods and services.
Capital
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Capital includes all the human-made resources
that are used to produce goods and services.
Someone who owns capital and puts it to productive
use is called a capitalist.
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Chapter 23, Section 1
Profit and Loss
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Entrepreneurs - individuals who combine land, labor, and
capital resources to produce goods or services with the
goal of making a profit.
Profit = money earned > business costs.
Loss = business costs > money earned
Taking risks and making
investments are an essential part
of the capitalist system.
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Chapter 23, Section 1
Free Enterprise System
Free enterprise system is an economic system in which
private individuals own capital goods and make investment
decisions.
Private Ownership
The resources used to produce goods or services are owned by private
individuals or corporations.
Profit motive
The desire to gain from business
dealings.
Individual Initiative
All individuals are free to start and
run their own businesses.
Competition
When a number of companies offer the same product or service and
compete for customers. Under competitive conditions, prices are
determined by the laws of supply and demand.
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Chapter 23, Section 1
Laissez-Faire Theory & Mixed Economies
Laissez-Faire Theory
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Laissez-faire theory holds
that government should play
a very limited, hands-off role
in society.
government should promote
and protect the free play of
competition and the laws of
supply and demand.
A Mixed Economy
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Economists usually describe
an economy in which private
enterprise and governmental
participation coexist as a
mixed economy.
The American economy is a
mixed economy.
Bill Gates testifying
before Congress
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Chapter 23, Section 1
Types of Business Organizations
Sole Proprietorships
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Businesses owned by a single individual are sole proprietorships.
Partnerships
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Businesses owned by two or more individuals, called partners, are
partnerships.
Corporations
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A corporation has many owners, called shareholders. A share is a
fraction of ownership in the corporation.
Corporations have the advantage of being able to draw from large pools
of investor capital, but also have the disadvantage of having their
earnings taxed twice.
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Chapter 23, Section 1
Section 1 Review
1. Which of the following is NOT one of the factors of production?
(a) land
(b) labor
(c) government
(d) capital
2. Laissez-faire theory promotes the idea that
(a) government should regulate every level of the economy.
(b) government should have the least amount of involvement in society and the
economy as possible.
(c) a mix of government and free enterprise is best for society.
(d) absolute control of the economy by government.
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Chapter 23, Section 1
SECTION 2
Socialism
• What is socialism?
• What are some important characteristics of
socialist economies?
• How can we describe socialism in
developing countries?
• What are the pros and cons of socialism?
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Chapter 23, Section 2
What is Socialism?
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Socialism is an economic and political philosophy
based on the idea that the benefits of economic activity
(wealth) should be equitably distributed throughout a
society.
According to Socialists, cooperation and social
responsibility . . .
1) help achieve a more equitable distribution of both income
and opportunity;
2) reduces major differences between rich and poor.
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Chapter 23, Section 2
The Industrial Revolution
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Socialism developed largely in
reaction to the poverty and other
hardships that accompanied the
Industrial Revolution.
Socialists and Communists
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Socialists favor more social
equality and government
involvement, but generally prefer
that change be brought about by
democratic processes.
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• Communists believe in a more
radical form of change – total
social equality - brought about by
violent revolution.
Chapter 23, Section 2
Characteristics of Socialist Economies
Nationalization
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Placing enterprises under government control
often by taking over privately owned industries.
Public Welfare
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Socialists aim to guarantee the public welfare
through equal distribution of necessities and services.
Taxation
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Because social welfare services are
quite expensive, taxes tend to be high.
Centrally Planned Economy
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government officials plan how an economy will develop over a period of
years. A democratic socialist economy may or may not have strict
central planning.
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Chapter 23, Section 2
Pros and Cons of Socialism
Cons
Pros
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Socialists say that it is fairer to
supply everyone with basic needs,
such as medical care.
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Socialists argue that it evens out
inequalities.
Socialists also argue that it gives
workers and ordinary citizens
greater control of their everyday
lives.
Socialism has won a large following
in developing countries.
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Critics say socialistic countries tend to
have too many layers of bureaucracy.
Critics argue the smooth running of an
economy is too complex to be directed
by central planners.
They also say socialism deprives
people of the freedom to decide for
themselves how to use their income.
Socialist governments in developing
countries often become authoritarian
because of social unrest and political
instability.
Chapter 23, Section 2
Section 2 Review
1. Modern socialism began as a response to
(a) the French Revolution.
(b) the American Revolution.
(c) the Industrial Revolution.
(d) the New England Revolution.
2. Critics of socialism support all of the following themes EXCEPT
(a) that socialism takes away an individual’s freedom to make economic choices.
(b) that socialism creates a more equitable society.
(c) that an economy is too complex to be run by government officials.
(d) that socialism takes away from individual initiative and is slower to take
advantage of new technologies.
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Chapter 23, Section 2
SECTION 3
Communism
• What do the theories of Karl Marx describe?
• What characteristics do communist
economies have?
• How did communism operate in the Soviet
Union, China, and other nations?
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Chapter 23, Section 3
Communism and Karl Marx
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Karl Marx’s theories, mostly worked on
with Friedrich Engels, criticized capitalism.
To Marx, the proletariat—the workers—were so badly abused
by the bourgeoisie— the capitalists—that they would rise up
and overthrow the capitalistic system.
proletariat
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bourgeoisie
Communism calls for the collective, or state, ownership of land
and other productive property.
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Chapter 23, Section 3
Karl Marx’s Theory
1. Marx’s view of history - all of history is a struggle between
social classes competing for control of productive property.
2. The Labor Theory of Value - the value of a commodity is set by
the amount of labor put into it.
3. The Nature of the State - government is a tool by which the
capitalists maintained their order and privileges.
4. The Dictatorship of the Proletariat An authoritarian state would represent
and enforce the interest of the masses
until a “free, classless society” emerged.
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Chapter 23, Section 3
Characteristics of Communist Economies
Role of the Communist Party
Central Planning
The Communist Party holds all the power
in both the government and the economy.
Government officials plan and supervise
production in factories, farms, and stores.
Collectivization
State Ownership
Merging small private farms into large
Industry, transportation, and other parts of
government-owned agricultural enterprises. the economy are state-owned.
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Chapter 23, Section 3
Fall of the Soviet Union
The disintegration of the world’s most powerful communist
nation was caused in part by . . .
• Mikhail Gorbachev initiating perestroika in the 1980s,
which reformed the economy on capitalistic
lines such as profit incentives;
• privatization, or the return of nationalized
enterprises to private ownership;.
• the USSR’s inability to keep up with the
USA in defense spending;
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the collapse of Soviet-controlled Communist
governments in Eastern Europe.
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Chapter 23, Section 3
Five Remaining Communist Countries
China
North Korea
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Cuba
Vietnam
Laos
Chapter 23, Section 3
China
Communist-controlled Capitalism?
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Chinese communists, led by Mao Dedong, took
control of China in 1949 made several serious blunders
that led to poverty, starvation, and isolation
In 1979, Deng Xiaoping introduced perestroika-style
reforms that has developed officially into “Socialism
with Chinese Characteristics.”
“Socialism with Chinese Characteristics”
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Deng Xiaoping
The Chinese economy can best be described
as state-controlled capitalism: a relatively free
market economy but with strict monitoring and
regulation by the Communist Party.
The government can regulate, censor,
or seize land or industry whenever it wants.
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Chapter 23, Section 3
Section 3 Review
1. In a communist system, the government
(a) owns all the factors of production.
(b) plays a minimal role in the economy.
(c) favors laissez-faire policies.
(d) permits individuals to make independent economic decisions.
2. One of the key aspects of Russia’s transition to a free market
economy has been
(a) the nationalization of privately owned businesses.
(b) the regulation of all economic sectors by the government.
(c) the privatization of state-owned enterprises.
(d) none of the above.
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Chapter 23, Section 3