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Political and Economic
Philosophies
Objectives
Identify and explain different
economic and political philosophies.
 As you learned earlier, all economies in
the world today are mixed.
 However there are ways to distinguish between
them
 Three political philosophies have shaped
the world’s economic systems are
 Capitalism
 Communism
 Socialism
Capitalism
Characterized by marketplace
competition and private ownership
of businesses
Same as free enterprise or private
enterprise
An advantage is that successful
employers & employees prosper
Characteristics
Government is concerned about its
people and cares for those who
cannot care for themselves
The gov’t also has some
involvement in the free market
Policies and laws that affect the market
Must keep a balance between too much
and too little regulation
Political Foundations of
Capitalism
 The political system most frequently
associated is democracy
 These nations believe that political power
should be in the hands of the people
 Usually more than one political party from
which to choose representatives to run the
gov’t
 People are free to elect those candidates
who agree with their philosophy on how
the gov’t & economy should be run
Political Foundations of
Capitalism
The US and Japan are 2 examples of
countries that are classified as
capitalist and have a democratic
form of government
Communism
 The gov’t, usually authoritarian, controls
the factors of production
 No private ownership of property or
capital
 The theory is that goods owned in common are
available to a classless society on an as needed
basis
 People are given jobs based on their
abilities
 They are given the goods that fit their
needs
Characteristics
 All people who are able to work are
assigned jobs
 Theoretically, there is no unemployment
 Employees who do not go to work continue to
get paid
 The gov’t decides the type of schooling
everyone gets and tells people where to
live
 Housing accommodations are assigned
according to need
Characteristics
 Food & housing subsidies (aids) keep
prices low so everyone has a place to live
and food to eat
 Medical care is free
 Little or no economic freedom
 No financial incentive for people to
increase productivity
 Want to be entrepreneurs cannot start
their own business
Examples of Communist
Countries
Very few left today
Cuba and North Korea
China is still dominated by
communism but is allowing more
free enterprise practices
Vietnam & Laos are also following this
path
Socialism
 Originally referred to a system on its way
to the communist ideal of a classless
society
 Today, most countries that are defined as
this, have democratic political institutions
 They differ from capitalist nations because
of the increased amount of gov’t
involvement
 Main goal is to meet basic needs for all &
to provide employment for many
Characteristics
 Tend to have more social services to
ensure a certain standard of living for
everyone
 Medical care & education are free or
inexpensive
 Systems for pensions and elderly care
 Businesses & individuals pay much higher
taxes than those in capitalist countries
 Taxes contribute to financing the gov’t
Examples of Socialist
Countries
 The gov’t runs key industries & makes
economic decisions
 State-controlled, noncompetitive
companies are often found in industries
such as:
 telecommunications, natural resources (such as
gas, water, & power), transportation, & banking
 Canada, Germany, & Sweden are generally
characterized have having socialist
elements in their economies
Economies in Transition
 Prior to the Soviet Union breakup, Poland
owned approx 80% of the country’s
productive assets
 After the breakup, it owned only 55%
 Poland welcomed private investors that
wanted to buy its state-run factories,
which were inefficient & non productive
Privatization vs. Nationalization
Privatization – the processes of
gov’t selling gov’t-owned businesses
to private individuals/businesses
Generates much needed revenue
Demonstrates a high level of
commitment to making the transition to
a market system
Can help balance budgets
Privatization vs. Nationalization
Nationalization – the gov’t takes
over private-held companies
Transfer of ownership may be due to an
economic crisis, a political upheaval, or
a change in gov’t policy
Developing Economies
 Mostly poor countries with little industrialization
 Trying to become more prosperous & develop
infrastructure
 Success depends on the education of the labor
force
 Chad, an African Country, is a developing country
 Traditional economy based on agriculture & livestock
farming
 Cotton, cattle, & gum arabic are its primary exports
 An oilfield & pipeline project paid by foreign investors
has helped Chad develop its oil reserves for export
 This will help Chad with much needed funds for this
poor nation
Political & Economic
Philosophies
Capitalism
1. Marketplace
competition
2. Private
ownership of
business
3. Successful
employers &
employees prosper
4. Some social
services
5. Some gov’t
regulations
Communism
1. Usually
authoritarian
2. Controls factors
of production
3. Assigned jobs
4. Goods given
according to need
5. No financial
incentive to
increase
productivity
Socialism
1. More gov’t
involvement in
economy & social
services
2. Tax rates high
3. gov’t may run
key industries
4. gov’t makes
many economic
decisions