The Economy and Politics Chapter 13

Objectives Compare and contrast the characteristics of the capitalist and the socialist economic systems Discuss developments that have transformed the American economic system Explain how the exercise of power varies by type of government Describe the major characteristics of the U.S. political system

The Economic Institution To satisfy people’s needs and wants, every society develops a system of roles and norms that governs the production, distribution, and consumption of goods and services. The need for these economic institutions is rooted in the problem of scarcity

Three Essential Questions What goods and services should be produced? How should these goods and services be produced? For whom should these goods and services be produced?

Factors of Production Resources needed to produce goods and services Land Labor Capital Entrepreneurship

Economic Systems Primary Sector- deals with the extraction of raw materials from the environment Secondary Sector- concentrates on the use of raw materials to manufacture goods. Tertiary Sector- provides services

Economic Systems cont. Preindustrial- labor is heavily concentrated in the primary sector What are the four types again? Hunting and gathering, pastoral, horticultural, and agricultural Industrial- shifts to the secondary sector Postindustrial- the tertiary sector becomes the most important

Economic Models Capitalism- the factors of production are owned by individuals rather than by the government The forces of profit and competition regulate economic activity Socialism- the factors of production are owned by the government which regulates economic activity.

Capitalism The economy is regulated by self-interest and market competition. Self-interest regulates the economy by guiding the actions of consumers and producers. It leads consumers to try and purchase the goods and services they desire at the lowest prices possible.

Capitalism cont. Law of supply- states that producers will supply more products when they can charge higher prices and fewer products when they must charge lower prices. Law of demand- consumers will demand more of a product as the price of the product decreases, consumer demand for a product decreases as the price increases.

Capitalism cont. Laissez-faire capitalism- where the government does not interfere with competition within the economy. Free-enterprise capitalism- limited government control of business operations

Socialism Economic activity is controlled by social need and by the government through central planning Supporters of the socialist system claim that equal access to goods and services cannot be guaranteed if the means of production are owned by individuals

Socialism cont. Communism- a political and economic system in which property is communally owned. Social classes cease to exist The role of the government declines as individuals learn to work together peacefully and willingly for the good of all. The goal of communism has never been achieved in practice.

Socialism cont. In practice, countries that adopted strong socialist economic models have also adopted totalitarian forms of government. Totalitarianism- those in power exercise complete authority over the lives of individual citizens.

Compare and Contrast Capitalism Socialism

The American Economy By the late 1800’s corporations had become the moving forces behind the economy. Corporation- a business organization that is owned by stockholders and is treated by law as if they were an individual person. Corporations account for only 20% of the businesses in the United States, yet they dominate the economy

Oligopoly-where a few large corporations control an industry. One of the consequences of corporate capitalism is the growth of oligopoly. Oligopoly-where a few large corporations control an industry. Ex. Auto, oil, and cell providers.

The Political Institution Political institution- the system of roles and norms that governs the distribution and exercise of power in society. Power- the ability to control the behavior of others with or without their consent. State- the primary political authority in society.

The Legitimacy of Power Legitimacy- refers to whether those in power are viewed as having the right to control, or govern, others. Power is considered illegitimate when it is exercised against the will or without the approval of the people.

Authority Traditional authority- is power based on long standing custom. Rational-legal authority- where the power rests with the office or position not the person. Charismatic authority- based on the personal characteristics of the individual exercising the power. Mao Zedong, Adolf Hitler, Reverend Martin Luther King, Mohandas Gandhi

Coercion Power that is illegitimate by the people being governed. Exercised through force or the threat of force and is based on fear. Ex. Cuba

Types of Government Democratic systems Democracy- power is exercised through the people. For a democracy to survive four conditions must be met. Industrialization Access to information Limits on power Shared values Monarchy- one person rules Constitutional monarchy- unlimited power rests with elected officials but there is a symbolic head of state.

Types of Government cont. Authoritarian systems-power rests firmly with the state Absolute monarchy- the hereditary ruler holds absolute power Dictatorship-power is in the hands of one individual Junta- where a small group has seized power from the previous government by force.

The American Political System Political Parties- an organization that seeks to gain power through legitimate means. In the U.S. there are two main parties Democrat Republican There are also several third parties that run in local, state, and national elections. What party do you belong to?

Stat. 1 Stat. 2 1 + - 14 2 15 3 16 4 17 5 18 6 19 7 20 8 21 9 22 10 23 11 24 12 25 13

Liberal/Conservative Scoring 21 to 52= Very Conservative 6 to 20= Conservative -5 to 5= Moderate -20 to -6= Liberal -52 to -21= Very Liberal

The American Political System Interest Groups- an organization that attempts to influence the political decision-making process There are thousands of interest groups in the United States. They represent a variety of interests.

Political Participation U.S. has one of the lowest rates of voter participation among democratic countries in the world. 38% of voting-age Americans are registered voters 2008 General Election almost 60% of voters turned out to vote in the election, it was the highest since the 1960’s.

Sociological Models Power-elite model- presented by C. Wright Mills, states that political power is exercised by and for the privileged few in society. Pluralist model- states that the political process is controlled by interest groups that compete with one another for power.

The Economic Institution Pure Capitalism Pure Socialism Individuals, rather than government, own factors of production Economy regulated by self-interest and market competition Laws of supply and demand regulate prices Unrestricted competition Consumers determine what is produced Government owns factors of production Government controls economic activity according to needs of society as determined by central planners Central planners determine how to produce Market competition not a factor in regulating supply and demand For whom to produce determined by need rather than by ability to pay.