Chapter Key Points Explore the interrelationship of markets and government Evaluate capitalism in theory and practice Evaluate socialism in theory and practice Take a closer look at capitalism at home and abroad 1 Capitalism and the Role of Government

Purpose of This Text: Our purpose is to consider two questions: 1. What is the proper role of business in American and global society? 2. How much, if any, government regulation of business is necessary to secure that role? McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Full Range of the Economic Spectrum  Free market approach on the extreme right.  Mixed economy, a combination of markets and rules in the center.  Command Economy principles on the far left. What combination of capitalism and government best serve the worlds needs? McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved. Command Mixed Free Economy Economy Market

Capitalism in America—Part I Q. How well does America’s version of capitalism work? A. “With Enron, Tyco, WorldCom and more to come, Wall Street’s glorious decade collapses into a rotten parade of unsupervised greed, its famed “deregulation” exposed as pure piracy.” Source: Polly Toynbee, “Comment & Analysis: Yesterday’s Model: WorldCom Scandal the End for Deregulated Markets, or a Necessary Byproduct of Any U.S. Boom?” The Guardian (London), June 28, 2002, p. 15 McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Capitalism in America—Part II Q. How well does America’s version of capitalism work? A. Millions around the globe see the advance of capitalist, American, Western values on all fronts as a direct assault on their way of life. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Privatization—Part I Definition: 1. Contracting out, where government turns over a portion of its duties, such as garbage collection, to a private firm. 2. The sale of public assets, such as an airport, to a private purchaser. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Privatization—Part II EXAMPLES OF PRIVATIZATION:  Welfare Systems  Prisons  Schools REVERSE PRIVATIZATION:  Aviation Security McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Collectivism  An economic philosophy that features economic cooperation  Includes both communism and socialism  Communist countries include China, Cuba and North Korea  Socialist countries include Norway, France and Austria McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Socialist Goals  Liberty  Social Welfare  Fulfilling Work  Community  Equality  Rationality McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

A Third Way: The Mixed Economy  Some middle ground in free market and welfare state principles seems to be the next step, but the appropriate mixture is proving elusive.  This middle ground would:  Recognize and encourage the proven economic power of the market, while providing extensive welfare protections  Openly acknowledge and embrace the power of the market and of globalization, while recognizing that an active government is necessary to bring a reasonable quality of life to all. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Current Status of the U.S.—Part I Overall Quality of Life  In overall quality of life, the United States ranked sixth in the world behind Norway, Australia, Canada, Sweden and Belgium.  On the other hand, the U. S. ranked first among industrial nations (excluding China and Russia) in percentage of population living below the poverty line; more then double the rates in Sweden and Norway. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Current Status of the U.S.—Part II Crime  About 2 million Americans are behind bars (or about 500,000 more people in jail than China has).  46% of those behind bars are African-American, 36% are white and 16% are Hispanic. What is it about America that produces so many criminals? McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Current Status of the U.S.—Part III Poverty  Only Mexico, among 29 industrial nations, has a higher rate of children's poverty than the United States.  Many of those who work are nevertheless poor.  The United States has the highest levels of both wealth and poverty among the industrial nations. Extravagant wealth, side by side with punishing poverty, is perhaps the greatest disappointment and injustice, from the critics’ point of view, in the great, global victory of the free market. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Too Much Capitalism?  Are poverty, inequality, crime and corporate scandal such as the Enron case inevitable by-products of a “selfish, greedy” market?  “Capitalism is more efficient… But it is not more fair.” Source: Associated Press, “A Threat to Castro,” Des Moines Register, August 30, 1994, p. 8A  How can we “have a society that fills us up again and makes us feel that we are part of something bigger than ourselves”? Source: Clarence Page, “First Couple Leaves Us Stranded,” Des Moines Register, May 29, 1993, p. 9A McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.