4. Classroom Activity – Lesson 1: “Defining Terms”

5. “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

6. 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

7. 2012 Country Scenario Updates

8. United States With a population of 310m, the US has the largest and most technologically powerful economy in the world, with a GDP of $14.6t and per capita GDP of $48,500. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, lay off surplus workers, and develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, and consistently rank in the top three countries in the world for patent applications, along with China and Japan. The economic downturn of 2008 has seen economic growth slow to 2.8% in 2010, un-employment rise to 9% nationally (103 rd in the world), government spending as a percentage of GDP increase to 42.2% and gross public debt surpass 100% of GDP.

9. United States The judiciary functions independently and predictably although serious constitutional questions have arisen regarding the government mandated health insurance decision. Corruption and cronyism is on the increase and is undermining the institutional integrity of the rule of law, resulting in an 86 th percentile ranking in control of corruption and a corruption perception index of 7.1 (out of 10) by Transparency International and a decrease of 4 points in the heritage Foundation score to 71 from a previous 75 in 2010. Property rights are guaranteed, although affected by increasing regulations, ranking the US 19 th in the world, with a score of 85 out of 100 by the Heritage Fndn.

10. Specific Situation: Apple Patent Victory Aug. 25, 2012 SAN JOSE, Calif.—Nine jurors delivered a sweeping victory to Apple Inc. in a high-stakes court battle against Samsung Electronics Co., awarding the Silicon Valley company $1.05 billion in damages and providing ammunition for more legal attacks on its mobile-device rivals. Jurors Friday found that Samsung infringed all but one of the seven patents at issue in the case—a patent covering the physical design of the iPad. They found all seven of Apple's patents valid—despite Samsung's attempts to have them thrown out. They also decided Apple didn't violate any of the five patents Samsung asserted in the case.

11. Present ?Evidence? markets private property rule of law entrepreneurship clearly present Prices and products determined in markets Patents upheld 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

12. 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

13. Fraser Institute Index of Economic Freedom 2009 10 9 8 7 6 5 2007 data Most Free: Hong Kong 8.9 Least Free: Zimbabwe 2.9 Note scale change

14. Fraser Institute Index of Economic Freedom 2012 (Released Sept. 2012) 10 9 8 7 6 5 2010 data Most Free: Hong Kong 8.9 Least Free: Venezuela 4.07 Note scale change

15. 2012 Rankings* (Out of 144) Hong Kong 1 Singapore 2 NZ 3 Switzerland 4 Australia 5 Canada 6 Bahrain 7 Mauritius 8 Finland 9 Chile 10 United Kingdom 12 Ireland 12 U.S. 18 (down from 3 in 2006) Japan 20 Poland 48 (88 in 1990) Uganda 50 (67 in 2010, 51 in 2001, 113/113 in 1990) Jordan 62 (42 in 2010) Greece 81 Mexico 91 (69 in 2010) Egypt 99 (from high of 46, 80 in 2010) Israel 52 (44 in 2007, 83 in 2011) Russia 95 China 107 (82 in 2010) India 111 Iran 111 Zimbabwe 142 Myanmar 143 Venezuela 144 *2010 Data * 2010 data

16. more Becoming more free: which institutions?

17. less Becoming less free: which institutions?

18. Country Scenarios: Updated summer 2012