2. Pure Capitalism  Pure Market Capitalism – Operates on the basis of the three P’s:  Prices  Profits  Private Property  Gov’t in pure capitalism provides only public goods such as national defense and police protection

3. Pure Socialism  Economic System with little private property  Virtually all factors of production are owned and controlled by gov’t  Karl Marx – Father of Communism  Believed history was a struggle between capitalists and proletariat (working man)  Predicted the fall of Capitalism and the evolution of socialism into Communism  Communist economies today are very different than Marx’s theory

4. Socialism and 20 th Century  Splits into two trends:  Democratic – Gov’t controls only part of the economy  Authoritarian – Central gov’t controls the entire economy  Present day Communism is Authoritarian

5. Benefits of Capitalism  Individual values play a major role  Capitalism allows more freedom and personal initiative  Provides for more efficiency in economy and greater rates of growth  Both require planning, the difference is who does the planning  Capitalism can lead to inequality.  Communism does not provide enough social programs such as schools and museums

6. China’s Economic System  Communists won Chinese Civil War following WWII  Created a state-run economic system  Citizens held little power  1970s and 1980s – Reforms allowed for more independent control of economy  Pure Capitalism cannot be achieved b/c the gov’t owns most major industries and farmland.  Citizens hold no property rights  Leads to corruption  China admitted to the WTO (World Trade Organization) in 2000  Opened to the world market  China is a large market for many businesses.

7. Russian Economy  Privatization – Change from state ownership of business, land, and buildings to private ownership  Leads to increased unemployment and other economic difficulties, many protest the change  Prices in Russia now determined by Supply and Demand  Russian factories still run inefficiently  Gov’t owned businesses sold to “friends of gov’t”  People barter b/c they have no faith in the Russian currency and to avoid taxes

8. Changes in Sweden  Welfare State – Blends capitalism with socialism  Combines private ownership of the means of production and competitive allocation of resources w/ the goal of social equality  Highest per-capita incomes in the world  Sweden’s gov’t almost guarantees life-long employment  Gov’t spending and taxes represents about 54% of country’s annual economic activity  Gov’t is cutting taxes and removing some gov’t jobs, easing regulations on business, and privatizing some gov’t owned businesses.

9. Latin American Changes  Many countries are capitalist but have large government sectors  1985 – Many gov’t ventures are being privatized  Many countries follow the example of Mexico but are frequently stopped by political disputes  Chile, Argentina, and Brazil have successfully privatized many sectors

10. Developed Nations v. Developing Nations

11. Developed vs. Developing  Only 35 of more than 192 world nations are considered developed nations  The rest are developing  Only common factors of undeveloped nations are that they have less industrial development and relatively low standards of living

12. Economic Characteristics  Very low GDP  Not enough capital or knowledge to use resources to full potential  Agricultural economies  Poor health conditions  Low literacy rates  Rapid population growth

13. Weak Property Rights  Less well-defined, government-protected private property rights  EX: Peru – 80% of land has no private owner  No large scale farming since people cannot afford land  Peasant farmers have little incentive to improve value of property

14. Economic Development  Basic problem for many developing nations is how to finance the equipment and training necessary for growth  Foreign corporations set up branch offices or companies in developing nations  Several forms of foreign aid:  Economic Assistance: Providing loans and money/capital donations  Technical Assistance: Providing professionals to train and teach skills to local population  Military Assistance: Providing the nation’s armed forces with money or people who teach and train.

15. Who supplies foreign aid?  US channels most of its aid through the Agency for International Development (AID)  United Nations has agencies that distribute funds to developing nations  International Monetary Fund (IMF) has recently become a major foreign aid supplier  Many developing nations are unable to repay loans they receive as foreign aid

16. Reasons for giving Foreign Aid  Humanitarianism – Desire to relieve human suffering  Best interest of developed nations to help, since it will create more trading partners  Political Objectives – Create allies  Develop military alliance

17. Four Obstacles of Growth  People don’t trust new technology  Population growing faster than the GDP  Corrupt gov’ts  Trade restrictions

18. Example: Indonesia  Large population, rich natural resources  Received $2 billion dollars in aid, but economy remained a disaster  No identity – People identified with their religion, politics, or tribe  Bad leadership  Suharto, leader, improved some economic reforms but relied much to heavily on oil  Depending on only one or two products leads to only a temporary economic growth

19. Problems w/ Rapid Industrialization  Unwise investments  No time for citizens to adapt to new living and working patterns  Countries need to use technology that’s best suited for their culture  Economy itself needs time to adapt to change

20. Economic Development  Many factors influence economic development  Trade w/ outside world  Gov’t structure that provides for economic incentives  Natural resources  Entrepreneurship  Private Property Rights  Lack of one of these factors does not necessarily mean the country will fall into poverty

21. The Power of Information  Media and Internet transport info to developing nations  Developing nations can see the benefit of working together  Alone, one developing nation has little power, but as a group they can influence the world  Developing nations now partner with developed nations

22. Globalization: Good or Bad?

23. Cause and Effect of Globalization  Cause  Improved Telecommunications  Effect  Countries more economically interdependent  World is one big financial market  Spending habits changed  Isolated cultures exposed to new ideas

24. Globalization  Began in 1970s and 1980s when US banks created worldwide branches  US stock crashes now effect other economies  One nation’s financial panic is everybody’s financial panic.

25. Foreign Investment  Direct Foreign Investment (DFI) – Purchase of real estate and businesses by foreigners  EX: China  Foreign investors subject to US law and policy  Can indirectly effect the gov’t, since the gov’t does not want to lose the business.

26. Americanization?  6% of American industries owned by foreigners  40% of foreign industries controlled by American industries  Americanization – Spread of American culture  People are concerned about spread of American culture in their traditional culture  EX: McDonalds, Burger King, Coca-Cola, US sports

28. Multinationals  Multinationals – Companies operating in several countries  2003 – 60,000 multinationals w/ about 620,000 foreign branches  Largest 500 multinationals = $9 trillion in sales  Most are based in US, Japan, Germany, Switzerland, Taiwan, Malaysia, and South Korea.

29. Cross-Border Investments  Most MNs invest in regions that are close to home  The separation of sales from home and abroad is becoming less important

30. Alliances  Multinational firms are creating alliances  Might be in the forms of joint ventures or licensing deals with national companies  Companies lack certain financial, technological, or geographical strengths and find partners that have those strengths

31. Global Village and Tolerance  Increased Immigration  Diversity in Public Schools  Diversity shows the need for tolerance and open- mindedness