Chapter 23: Comparative Economic Systems Section 2

Objectives Summarize the theories of Karl Marx and their roots. Identify important characteristics of socialist economies. Outline the characteristics of communist economies. Describe socialism and communism in action today. Evaluate the effects of socialism and communism.

Key Terms The Communist Manifesto: a political document written by Karl Marx and Friedrich Engels in 1848 socialism: a political system that seeks economic equality through peaceful and democratic means communism: a political system that supports violent revolution and class struggle as a way of achieving economic equality welfare state: a country that provides extensive social services at little or no cost to consumers

Key Terms, cont. command economy: a state in which government officials plan all economic development five-year plan: an economic plan outlining how the government wants the economy to develop collectivization: the process of merging private farms into large state-owned agricultural enterprises privatization: the process of returning state-owned enterprises to private ownership Great Leap Forward: a failed 1958 plan to modernize China by eliminating all free enterprise

Introduction What is the role of government in socialism and communism? The government runs a command economy, making long-term economic plans and guiding development. The state owns many or all industries. The state provides extensive public welfare services. Government acts to limit the role of free markets and competition.

Karl Marx Checkpoint: Why was Karl Marx important? Marx was the founder of modern socialism and communism. In The Communist Manifesto, Marx called for the working class to overthrow all capitalist governments. His theory, Marxism, advanced four key concepts: a theory of history, the labor theory of value, the role of institutions, and the dictatorship of the proletariat. Checkpoint Answer: Marx was the founder of modern socialism and communism, co-wrote the Communist Manifesto with Friedrich Engels, and created an influential economic/social theory, Marxism. 6

Marx’s Theory History: Marx believed that all history is the story of wealthy social classes oppressing poor social classes as they compete for labor and property. Labor: Marx believed that goods are worth only as much as the labor put into them, and the worker should receive that full value. Institutions: Marx claimed that the state and other social institutions kept capitalists in power.

Marx’s Theory, cont. Proletariat: After the revolution, Marx said a state representing the people would pave the way for a free society without social classes in which the people own all property in common. Those who believed that Marx’s goals of economic quality could be achieved through democracy became known as socialists. Those who argued that class struggle and violent revolution were needed became known as communists.

Socialism Checkpoint: What defines a socialist economy? The nationalization, or government takeover, of large private companies in key industries. The provision of free public welfare services such as pensions, healthcare, housing, and university educations. High levels of taxation on income and consumer goods. A command economy with many economic decisions made by the government. Checkpoint Answer: In a socialist economy, the government makes many economic decisions, takes control of many major companies in key industries and provides many free public welfare services paid for by high taxation 9

Feature Question Answer: It suggests that the demand for free health care is likely to outpace the supply, because as the price of a service to the consumer goes down, the demand for that service increases.

Socialism Today Socialist parties remain influential in Europe. However, these parties have had to give up some socialist goals that proved too expensive or unpopular. Socialist parties are growing in influence in Africa and Latin America. Governments in these areas can gain popular support by nationalizing foreign-owned industries, redistributing land from the wealthy to the poor, and promising more social services.

Communism Checkpoint: What defines a communist economy? The Communist Party officially controls the government and the economy and effectively controls much of society. All production for factories, farms, and stores is centrally planned, as are the prices and distribution of goods. The state owns all agriculture and industry. Checkpoint Answer: The Communist Party controls the economy and the government, which owns all agriculture and industry and whose central planners create long term development plans and sets prices and distribution patterns for goods. 12

Marxist Economies

The Soviet Union Russia staged the first communist revolution in 1917, creating the Soviet Union. Communist leaders collectivized farms and promoted heavy industries. Communist Party members had an elite status. NOTE TO TEACHER: This image is a piece of Communist artwork celebrating workers in industry and agriculture.

The Soviet Union, cont. Free government services such as education and health care were provided but were of poor quality. There was little housing and few consumer goods.

The Soviet Union, cont. In 1991 the Soviet Union dissolved as a result of political and economic reforms. Many state-owned companies were privatized. Today, Russia has a mixed economy.

China The Communist Party’s efforts to get rid of free enterprise and modernize China’s economy had little success. The Communist Party remains in power but now allows much private enterprise and a market economy, with better results.

Other Communist Nations There are few other communist economies today. Cuba has struggled without Soviet economic aid. Vietnam and Laos have both adopted some free market reforms to promote economic growth, similar to China. North Korea’s communist economy functions very poorly, with large food shortages and little economic growth.

Command Economies Checkpoint: How successful have command economies been? Critics say that command economies are inefficient and stifle initiative and innovation by taking away freedom of choice and not rewarding hard work. Supporters say that these systems are fairer to workers and communities, have fewer inequalities of wealth and power, and do a better job of providing basic needs for everyone. Checkpoint Answer: It depends upon the perspective, but one can say in addition to the views of supporters and critics that there are few communist command economies still in existence and that they enjoy much more economic growth once free market reforms are introduced. 19

Review Now that you have learned about the role of government under socialism and communism, go back and answer the Chapter Essential Question. To what extent should governments participate in the economy?