Classroom Activity – Lesson 1: “Defining Terms”

“Capitalism” is identified by its characteristic institutions Institutions: the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction. Private Property Rights Rule of law Open, competitive markets Entrepreneurship and innovation

Present ?Evidence? markets private property rule of law entrepreneurship ECONOMIC ANALYSIS clearly present – the component is present in the economy with few exceptions generally present – the component is present in the economy, but with many or significant exceptions generally absent – the component is only present in the economy in some limited forms clearly absent – the component is almost entirely excluded from the economy not enough information

United States General Description: The U.S. economy is the largest in the world, and most products are sold in private markets in which prices reflect the interaction of supply and demand. However, government influence on market prices, resulting from subsidies and/or regulation, is felt in some sectors. The prices of agricultural products, for example, are strongly influenced by over $100 billion in annual subsidies and by trade policies that restrict agricultural imports.

United States It is relatively easy and affordable to start a business in the United States. Procedures — for incorporation or obtaining a tax ID, for example — are relatively uncomplicated and inexpensive. Over 6.25 million business establishments exist in the United States and the number grows by about 50,000 annually. From , approximately 725,000 new businesses were started and 675,000 establishments went out of business for various reasons. The World Bank’s “governance indicators” ranks the United States in the 91st percentile (out of 100) for rule of law and 92nd percentile for control of corruption.

The MP3 file-sharing system invented by Northwestern University students Shawn Fanning and Sean Parker, converts popular music into digital files that can be easily sent over the Internet and downloaded into personal computers.... Instead of purchasing a pre-packaged set of songs from a music store, millions downloaded music from Napster and burned their personal favorites onto CDs. On December 7, 1999, the Recording Industry Association of America (RIAA), representing a number of record labels and recording artists, sued Napster in federal court, claiming it was violating musicians’ and producers’ intellectual property rights by infringing on copyright protections. Specific Situation: Napster

On May 5, 2000, the San Francisco federal district court ruled that Napster was in violation of the Digital Millennium Copyright Act of Although Napster was eventually unsuccessful in converting to a distribution-for-pay system in the United States (Napster filed for bankruptcy protection in June, 2002 and liquidation of the company began in September), other entrepreneurs stepped into the breach. Today, pay-per-song download sites are proliferating, and the ensuing competition has made hundreds of thousands of songs available at less than $1 apiece. Napster

Present ?Evidence? markets private property rule of law entrepreneurship clearly present Prices and products determined in markets Even ideas, words, and music can be owned Courts act and decisions are enforced Millions of companies operate in every sector ECONOMIC ANALYSIS clearly present – the component is present in the economy with few exceptions generally present – the component is present in the economy, but with many or significant exceptions generally absent – the component is only present in the economy in some limited forms clearly absent – the component is almost entirely excluded from the economy not enough information

Capitalism is best thought of not as “a system,” but as a continuum of institutional combinations.... Some institutional forms confer benefits on the poor... and others do NOT. Less capitalist More capitalist

Fraser Institute Index of Economic Freedom data

Fraser Institute Index of Economic Freedom data Most Free: Hong Kong 8.9 Least Free: Zimbabwe 2.9 Note scale change

Fraser Institute Index of Economic Freedom data Most Free: Hong Kong 8.9 Least Free: Zimbabwe 2.9 Note scale change

Fraser Institute Index of Economic Freedom data Most Free: Hong Kong 9.01 Least Free: Zimbabwe 4.08 Note scale change

2011 Rankings* (Out of 141) Hong Kong 1 Singapore 2 NZ 3 Switzerland 4 Australia 5 Canada 6 Chile 7 United Kingdom 8 Muaritius 9 U.S. 10 (down from 3 in 2006) Ireland 25 (10 in 2010) UAE 14 Peru 33 Jordan 62 (42 in 2010) Czech Rep. 46 Uganda 52 (67 in 2010, 51 in 2001, 113/113 in 1990 Poland 53 (88 in 1990) Mexico 75 (69 in 2010) Egypt 93 (from high of 46, 80 in 2010) Israel 83 (44 in 2007) China 92 (82 in 2010) Indonesia 90 (down from 73) Venezuela 139 Angola 138 Myanmar 140 Zimbabwe 141 *2009 Data

more Becoming more free: which institutions?

less Becoming less free: which institutions?