Download 3. Mixed Economies

Capitalism (Laissez Faire)
Laissez faire (Adam Smith) was used to
describe the belief that the government
should keep their hands off the
economy.
• Supported by liberals who believed
“there were bound to be poor people in
society”.
• Typical laissez faire factory…
– Means of production owned by capitalists
– Owners want to maximize production
• Low wages
• Expensive product
• If there is an excess of labor people are
fired
– Workers are seen as a piece of
machinery
Ideas to Battle the Evils of the
Industrial Revolution
Democratic Socialism
• Turned against Laissez Faire policies and urged
government reform to help the long suffering workers.
• Typical factory run by the beliefs of a democratic
socialist…
–
–
–
–
–
Means of production still owned by capitalists
Minimum wage laws would be passed to create higher wages
Reduction in working hours
Safety conditions in factories
Labor unions allowed to operate in the interest of the workers,
etc.
• They believe that while everyone may not be born with
equal abilities, all are equal as human beings and
should therefore be guaranteed the basic necessities of
life.
Ideas to Battle the Evils of the
Industrial Revolution
Communism
• Communists believe that the inequality capitalism should
be overthrown by workers (proletariat) in a violent
revolution.
• Ultimately capitalists are out to exploit the “proletariat” to
make a profit.
• Factory run by the beliefs of a Communist…
– Workers would overthrow the bourgeoisie (owner)
– Temporary dictatorship is set up to create stability
– Once the stability exists the government “withers away” and
society becomes a workers paradise.
• State owns the factory
• No profits simply make what you need
• Workers are all paid equally. (From each according to their ability, to
each according to their need – Karl Marx)
• Karl Marx : The Communist Manifesto
SWEDEN
• Both private & public enterprise
• Wealth to be distributed evenly
• Goal is that every person has a high
standard of living
PRIVATE OWNERSHIP
• Almost 100% of agriculture
• Private enterprise employs 90% of all
industrial workers
• Produce 95% of manufactured goods
• Many multinationals (IKEA, Saab,
Electrolux, Volvo)
• Exporter of technology
GOVERNMENT CONTROLS
• Controls some essential services
– Natural resources, transportation, energy, railway,
water, power, etc.)
• Atomic energy state monopoly
• Some control because of social policy to prevent
company bankruptcies and to maintain high
employment.
• Use fiscal and monetary policies (loans, interest
rates, subsidies, taxes.)
GOVERNMENT PLANNING
• Purpose of regulations is the desire for the free
enterprise to run smoothly
• Use five year plans (not official govt. policy)
– Forecast and project for economic growth
– Communicate to private firms
– guidance
• Methods of indirect planning (Indicative Planning)
– The use of government targets to coordinate private and public
economic decision making.
• Methods of direct planning
– Full employment/freedom from poverty
– Social welfare programs
THE ROLE OF UNIONS IN THE
SWEDISH ECONOMY
• Cooperation of Swedish leaders in business,
labour and government.
• 80% of workforce is unionized
• Role of unions is to abolish the negativity of
capitalism.
• Co-determination Act of 1977
– Gave unions a role in industrial decision making. (i.e.
wage earner funds)
– All decisions are negotiated
THE CRADLE TO GRAVE
WELFARE STATE
(Womb to Tomb)
• Jobs, housing, adequate income, medical care
• Free pre-natal care, family allowance,
maternity/paternity allowance
• Free nursery, low cost daycare, funded higher
education
• 5 week vacations, old age pensions
• Goal is that every person has a high standard of
living
Economic Equality in Sweden
Health:
• 90% if workers are sick
• Free health care
• Dental care free for under 19 (40% over
19)
• Travel to and from doctor covered
• Patients pay only 4% of all medical fees.
Education:
• Free to secondary (lunches included)
• Grants & loans to post secondary
Pensions:
• Receive pension 65+ (65% of highest income years.)
Housing:
• Housing subsidies for families with children.
• Construction regulated by government to ensure
safety.
Unions:
• Operates U.I.
• Government paid scholarships
• Training
• Relocation (travel expenses)
Unemployment Rates
• Sweden (2004) 3-4 %
• Canada (2004) 7.5 %
BUT….
• Sweden’s tax rate is considerably higher
than any other country in the world.
THE ECONOMIC CRISIS IN
SWEDEN
• 1970 deficit was increasing, high inflation, high
unemployment
• 1982 the Social Democratic Party is elected
– Depression
– Persuaded Swedes to save
– Produced more goods, decreased consumption of consumer
goods.
– Invest surplus money in countries economy.
– Reduce govt. $, lower interest rates
• Used capitalist policies to maximize production and
socialist policies to redistribute wealth.
• RESULT= economic growth
• Probably the closest Canada has come to
a pure market system was during the
1920s.
– During that decade governments followed
Adam Smith's advice, and left the privately
owned economy alone.
– Because government did little, taxes were
low.
– Then came the "crash of '29" followed by the
Great Depression. Most Canadians
experienced major economic hardships
throughout the 1930s.
• Business owners and workers began to
feel that the government should do
something to prevent such a national
collapse again and to provide help to
helpless individuals.
• Since then, the Canadian government's
role in the economy has grown steadily so
that in the 1990s, Canada has become
very much a mixed economy.
MIXED ECONOMIES
(CANADA)
Look at some of the programs run
by governments in Canada today:
• stabilization of the
economy to prevent
booms and busts
(Monetary Policy)
– control of bank interest rates
– Control $ supply
(Fiscal Policy)
– increase or decrease taxes
– increase or decrease
government spending
BANK OF CANADA
Government Laws &
Regulations
Agriculture
Govt. marketing boards
•
•
•
•
•
Influence prices
Crop controls
Quotas to limit production
Food inspection
Negotiate sales of wheat to
foreign nations
Regulation of the market
•
•
quality controls
some price controls
•
prevention of monopolies to
preserve competition
Deregulation
•
A reduction of govt. restrictions
on business enterprises. (neoconservatives)
Redistribution of wealth to
provide security
•
•
•
•
old age pension
unemployment insurance
child tax credit
welfare
Provision of financial
support to businesses
• subsidies to failing businesses
Provision of public services
(universality)
•
•
•
•
•
schools
Police
fire control
Hospitals
parks
Transfer Programs
Progressive tax systems
Government Owned Business
Crown Corporations (nationalized
industry)
•
•
•
CBC Radio and TV
Royal Canadian Mint
Canada Post Corporation
Reasons…
•
•
•
•
•
Control an area of the economy which is vital
to general welfare of nation.
To provide goods/services private
entrepreneurs are unable to provide.
Earn income for the government.
To rescue companies from bankruptcy.
Help stabilize economy.
Privatization
• Keynesian Methods (deficit financing) created a $580 billion
dollar deficit by 1996.
• Canadian govt. began cutting social programs.
• Selling of state owned companies to private industry.
(Thatcherism/Reaganomics)
• Create more efficiency in govt.
• Cut bureaucracy in govt.
Mulroney 1984-1992
• Privatized 39 crown corps.
Prov. Govt. Alberta
• Liquor
• Licensing
• Telephone
Direct Taxes:
those paid by citizens. (GST/Income tax)
Indirect Taxes:
hidden in the price of goods. (excise tax)
• There are many direct and indirect
controls over our economic system.
• The good news is that these many
government programs and regulations
have provided us with increased stability,
security, and equality.
• The bad news is that we have lost some
individual freedoms and that the cost to
taxpayers is high.
Canada's debt is the sum our federal government owes in
total. As you can see from the graph below, Canada has
continued to have annual deficits that add to our
accumulated national debt every year.
What role(s) should the
government play in the
Canadian economy?