Download Principles of Capitalism

Principles of Capitalism
Illustrations by Tony Biddle
Please Note
• This curriculum material has been developed by the
Canadian Centre for Policy Alternatives and is provided
to support union, community, and non-profit
organizations to undertake popular economics training.
• Non-commercial use and reproduction, with appropriate
citation, is authorized.
• Commercial or professional use is prohibited without
approval from the Canadian Centre for Policy
Alternatives, Ottawa, Canada.
• This material has been edited by the NYC Virtual
Enterprises Office for educational purposes. Some of the
original slides may have been removed and replaced with
other slides.
www.economicsforeveryone.com
© Canadian Centre for Policy Alternatives, 2009
Key Topics Covered
• Defining features of capitalism
• Changes in capitalism
– “Post-Industrial” or “Services” Economy
– “Information” or “Knowledge” Economy
– “Shareholder” Economy
• Types of capitalism
–
–
–
–
Anglo-Saxon
Continental
Asian
Nordic
Capitalism:
One Kind of Economy
• All economies require work to be done to
produce the goods and services we need.
• But they organize that work (and the
distribution and use of output) differently.
• Our economy today does that in a particular
way.
– It’s called “capitalism.”
• Strange irony: mainstream economics almost
never mentions the word “capitalism.”
– They assume that it’s a “natural state of affairs.”
– But that’s wrong: capitalism is a historical stage.
How Capitalism Functions
• Wealth-seeking individuals choose to
invest in different business ventures and
modes of production, this concept sets
the entire economy in motion.
– Capital is initially invested to create a
business, more capital is generated by the
created business and then reinvested to
increase capital production capability of the
business
The Two Defining
Features of Capitalism
1. Most production is initiated & undertaken by
private companies who aim to generate profit
from this activity.
•
“Production for profit.”
2. Most work is performed by individuals who
work for someone else in return for money
(wages or salaries).
•
•
“Wage labor.”
We call this type of work “employment.”
How Capitalism Works
•
•
Most of the world economy today is capitalist.
The key features of capitalism tend to produce &
reproduce key behaviors over time, including:
–
–
–
–
–
–
Competition between private companies for markets, sales,
and profit.
Innovation, as companies constantly experiment with new
technologies, new products, and new forms of organization.
An inherent tendency to growth, resulting from the desire of
each individual company to make more profit.
Deep inequality between those who own successful companies
and the rest of society who do not own companies.
General conflict of interest between those who work for wages
and the employers who hire them.
Economic cycles or “rollercoasters,” with periods of strong
growth followed by periods of stagnation or depression.
Changes in Capitalism
Some aspects of capitalism have evolved.
• The “post-industrial” or “service” economy
– Shrinking importance of goods and increasing
importance of services
• The “information” or “knowledge” economy
– Economy centered on information rather than
commodities
• The “shareholder” economy
– Individuals can own shares or other forms of financial
wealth
– Fixated on maximizing interest of the shareholder
Labor Force by Sector
1840-2010
1950–2010: Bureau of Economic Analysis, National Income and Product Accounts.
Output by Sector
1840-2010
1950–2010: Bureau of Economic Analysis, National Income and Product Accounts.
Has it changed?
• But the core “logic” of capitalism (production
for profit and wage labor) is still present.
The system has not fundamentally changed.
• Some argue that the problems associated
with “older” versions of capitalism
(inequality, poverty, or social conflict) have
been “solved.
Varieties of Capitalism
•
•
The core common features (production for profit
& wage labor) are visible in every capitalist
economy.
But there are important differences between
versions or “models” of capitalism.
•
•
•
•
Anglo-Saxon: The most unequal, deregulated,
and financialized type of capitalism.
Continental: Larger state, more regulation.
Asian: State plays leading role in economic and
industrial development.
Nordic: Very large public sector, most equal
income distribution.
Anglo-Saxon Model
• Associated with the United Kingdom, the
United States, Canada, New Zealand,
Australia and Ireland
• Patterned after the classical economics of
Adam Smith – “invisible hand”
• Based on principle that government
intervention in the economy should be
limited
• Heightened free-market tendencies
• Less regulated financial and labor markets
Continental or European Model
• Usually associated with France, Germany,
and Italy
• Places less faith in the “invisible hand”
• Calls for increase government intervention
in economic activity
• More state ownership
East Asian Model
•
•
•
•
Currently associated with Japan, South Korea,
China, and Taiwan
Varying degree of government ownership and
control
Government decides which industries are
important and invest in those sectors
Exists in several different forms
Nordic or Scandinavian Model
• Usually associated with Denmark, Norway,
Finland, Sweden, and Iceland
• Large public sector
• Citizens have a high degree of trust in the
government
• Strong focus on wealth distribution and less
income inequality
• Variety of social benefits (free healthcare
and free education)
Types of Capitalism
(in the advanced countries)
Type of
Capitalism
Role of
government:
taxes as
share of
GDP
Role of
government:
economic
regulation
Financial
sector
(banks,
stock
market)
Income
distribution
Managing
income
distribution
Union
coverage as
% workforce
AngloSaxon
30-35%
Weak
Very large
Very unequal
Market power
10-30%
Continental
35-45%
Moderate
Moderate
Somewhat
equal
Mild
corporatist^
50-90%
Asian
25-35%
Strong*
Relatively
small
Somewhat
equal
Paternalist
corporatist^
10-20%
Nordic
45-55%
Strong
Relatively
small
Very equal
Strong
corporatist^
50-80%
* The state is especially active in the Asian model in stimulating capital investment and managing the sectoral make-up of the
economy.
^ Corporatism refers to a system of centralized negotiations between business, labor, and government.
Homework Assignment
In a short paragraph (consisting of 4-5
sentences) explain what the different capitalist
models indicate about the social values that
exist within that model.
Example: The Scandinavian model shows how the
people and government of the countries that follow the
model care for the well-being of every citizen.