Economics and Politics PDF

Chapter 13 Economics and Politics Learning Objectives 13.1 Summarize historical changes to the 13.4 Examine various types of political systems economy. around the world. 13.2 Analyze patterns of employment and 13.5 Analyze the op...

Chapter 13 Economics and Politics Learning Objectives 13.1 Summarize historical changes to the 13.4 Examine various types of political systems economy. around the world. 13.2 Analyze patterns of employment and 13.5 Analyze the operation of the U.S. political unemployment in the United States. system. 13.3 Discuss the importance of corporations to 13.6 Explore global patterns involving the U.S. economy. revolution, terrorism, war, and peace. 368  CHAPTER 13 Economics and Politics 369 The Power of Society to shape our choices in jobs 100% Non-Hispanic Whites Percentage of People Employed in Selected Occupations 85% African Americans 90% Hispanic Americans 80% 67% 70% 60% 48% 50% 43% 40% 30% 29% 30% 18% 20% 13% 8% 6% 6% 4% 10% 0% Lawyer Physician Security Taxi Guard Driver SOURCE: U.S. Department of Labor (2017). Will the jobs you take throughout your life reflect choices you make based on your personal abilities and interests? To some extent, yes. But the work we have has a lot to do with our position in a society that distributes opportunity unequally. Look at the “high-prestige” jobs such as lawyer and physician— notice how these jobs are overwhelmingly filled by people born with the rela- tive advantages that go with being white. By contrast, “low-prestige” jobs are far more likely to be filled by people born into a disadvantaged racial or ethnic category. Society has a lot to say about the type of work we all do. 370 CHAPTER 13 Economics and Politics Chapter Overview This chapter begins a survey of the major social institutions. We begin with the economy, which is widely regarded as having the greatest impact on society as a whole. The chapter explores the operation of the economy and explains how changes in economic production have reshaped society. The chapter then con- tinues by examining politics, a second major social institution, with attention to the character and causes of war and terrorism. Here’s a quick quiz about the U.S. economy. (Hint: All six questions have the same correct answer.) Which U.S. business do more than 260 million people in the world visit each week? Which business sells the products of more than 100,000 compa- nies? Which U.S. company opened 167 stores around the world in 2016? Which U.S. company has bought about $50 billion worth of goods annually from China, making it a larger trading partner for China than the United Kingdom? Which U.S. company employs 2.3 million people worldwide, including approximately 1.5 million in the United States? Which single company actually grew in size during the recent economic downturn? Which company operates a website visited by more than 100 million different shoppers every month? The answer, of course, is Walmart, the global discount chain founded by Sam Walton, who opened his first store in Arkansas in 1962. In 2017, Walmart announced revenues of $486 billion from almost 5,000 stores in the United States and 6,363 stores in 27 other countries from Brazil to China, making it the largest corporation in the nation. But not everyone is pleased with the expansion of Walmart. Critics claim that Walmart’s sales of products imported from China is responsible for the loss of more than 400,000 manu- facturing jobs in the United States. In addition, across the United States, many people have joined a social movement to keep Walmart out of their local communities, fearing the loss of local businesses and, in some cases, local culture. Critics claim that the merchandising gi- ant pays low wages, keeps out unions, and sells many products made in sweatshops abroad. Since 2010, Walmart also has defended itself in the courts against claims of sex discrimination (Saporito, 2003; Walsh, 2007; Schell, 2011; Walmart, 2012; Tabuchi, 2015). This chapter explores the economy and the closely re- lated institution of politics. A number of very large cor- The Economy: An Overview porations, including Walmart, are at the center of the U.S. 13.1 Summarize historical changes to the economy. economy, raising questions about just how the economy op- erates, whose interests it ought to serve, and to what extent The economy is the social institution that organizes a society’s big business shapes the political life of the United States. production, distribution, and consumption of goods and services. Economics and politics are social institutions, major The economy operates, for better or worse, in a generally spheres of social life or societal subsystems organized to meet predictable manner. Goods are commodities ranging from human needs. The two chapters that follow consider other necessities (such as food, clothing, and shelter) to luxury social institutions: Chapter 14 focuses on family and re- items (such as cars, swimming pools, and yachts). Services ligion, and Chapter 15 highlights education, health, and are activities that benefit people (including the work of medicine. These discussions explain how social institu- priests, physicians, teachers, and computer software spe- tions have changed over the course of history, describe cialists). Three times in the past, technological revolutions how they operate today, and point out controversies that reorganized the economy and, in the process, transformed are likely to shape them tomorrow. social life.  CHAPTER 13 Economics and Politics 371 The Agricultural Revolution As Chapter 2 (“Culture”) explained, the ear- liest societies were made up of hunters and gatherers living off the land. In these tech- nologically simple societies, there was no distinct economy; producing and consuming were part of family life. Harnessing animals to plows around 5,000 years ago permitted the develop- ment of agriculture, which was fifty times more productive than hunting and gathering. The resulting surpluses meant that not every- one had to produce food, so many people took on other specialized work: making tools, raising animals, and building dwellings. Soon As societies industrialize, a smaller share of the labor force works in agriculture. In the towns sprang up, linked by networks of trad- United States, much of the agricultural work that remains is performed by immigrants from lower-income nations. These farm workers from Mexico travel throughout Florida ers dealing in food, animals, and other goods. during the tomato harvest. These four factors—agricultural technology, specialized work, permanent settlements, and trade—made the economy a distinct social institution. marketplace. Yet the benefits of industrial technology were shared very unequally, especially at the beginning. Some fac- tory owners made huge fortunes, while the majority of indus- The Industrial Revolution trial workers lived close to poverty. Children, too, worked in By the mid-eighteenth century, a second technological factories or in coal mines for pennies a day. Women work- revolution was under way, starting in England and spread- ing in factories were among the lowest paid, and their rigid ing to the United States and elsewhere. Industrialization supervision left them with little personal freedom. As time changed the economy in five fundamental ways: went on, workers formed labor unions to represent their 1. New sources of energy. Throughout history, “energy” interests collectively to factory owners. In the twentieth cen- had meant the muscle power of people or animals. tury, new laws banned child labor, set minimum wage lev- Then, in 1765, the English inventor James Watt intro- els, improved workplace safety, and extended schooling and duced the steam engine. One hundred times more political rights to a larger segment of the population. powerful than animal muscles, early steam engines soon drove heavy machinery. The Information Revolution and 2. Centralization of work in factories. Steam-powered machinery moved work from homes to factories, cen- Postindustrial Society tralized workplaces that housed the machines. By about 1950, the nature of production was changing once 3. Manufacturing and mass production. Before the again. The United States was creating a postindustrial Industrial Revolution, most people grew or gathered economy, a productive system based on service work and com- raw materials such as grain, wood, or wool. In an in- puter technology. Automated machinery (and later, robot- dustrial economy, the focus shifts so that most people ics) reduced the role of human labor in factory production turn raw materials into a wide range of finished prod- and expanded the ranks of clerical workers and managers. ucts such as processed foods, furniture, and clothing. The postindustrial era is marked by a shift from industrial 4. Specialization. Centuries ago, people worked at home work to service work. making products from start to finish. In the factory, Driving this economic change is a third technologi- a laborer repeats a single task over and over, making cal breakthrough: the computer. Just as the Industrial only a small contribution to the finished product. Revolution did two-and-a-half centuries ago, the Informa- 5. Wage labor. Instead of working for themselves, factory tion Revolution has introduced new kinds of products and workers became wage laborers working for strangers, new forms of communication and has changed the charac- who often cared less for them than for the machines ter of work. There have been three significant changes: they operated. 1. From tangible products to ideas. The industrial era The Industrial Revolution gradually raised the standard was defined by the production of goods, or material of living as countless new products fueled an expanding things. In the postindustrial era, people work with 372 CHAPTER 13 Economics and Politics Global Snapshot sources, but computer technology allows people to work almost anywhere. Laptop and wireless comput- In high-income nations such as the United ers and cell phones now turn the home, car, or even States, three out of four jobs are in the an airplane into a “virtual office.” What this means for tertiary or service sector of the economy. everyday life is that new information technology blurs 80% the line between our lives at work and at home. 74% 70% Sectors of the Economy 58% Percentage of Economic Output 60% The three revolutions just described reflect a shifting bal- 48% ance among the three sectors of a society’s economy. The 50% primary sector is the part of the economy that draws raw 40% materials from the natural environment. The primary sector— 21% 33% agriculture, raising animals, fishing, forestry, and mining— 31% 30% is largest in low-income nations. Figure 13–1 shows that 25% 31 percent of the economic output of low-income countries 20% is in the primary sector, compared with 9 percent of eco- nomic activity among middle-income nations and about 9% 10% 1 percent in high-income countries like the United States. 1% The secondary sector is the part of the economy that 0% transforms raw materials into manufactured goods. This sec- Low- Middle- High- tor expands quickly as societies industrialize. It includes Income Income Income Countries Countries Countries operations such as refining petroleum into gasoline and turning metals into tools and automobiles. The globaliza- Primary Secondary Service sector sector sector tion of industry means that just about all the world’s coun- tries have a significant share of workers employed in the Figure 13-1 The Size of Economic Sectors, by Income secondary sector. Figure 13-1 shows that, in low-income Level of Country countries, the secondary sector now accounts for almost As countries become richer, the primary sector becomes a smaller the same share of economic output in low-income nations part of the economy and the tertiary or service sector becomes as it does in high-income countries. larger. The tertiary sector is the part of the economy that involves SOURCE: Estimates based on World Bank (2017). services rather than goods. The tertiary sector grows with industrialization, accounting for 47.8 percent of economic symbols to create nonmaterial products that exist output in low-income countries, 57.5 percent in middle- primarily in cyberspace. Computer programmers, income countries, and 74.0 percent in high-income coun- writers, financial analysts, advertising executives, ar- tries. About 81 percent of the U.S. labor force is in service chitects, editors, and various types of consultants make work, including secretarial and clerical jobs and work in up more of the labor force in the information age. food service, sales, law, health care, advertising, and teach- 2. From mechanical skills to literacy skills. The ing (U.S. Department of Labor, 2017; World Bank, 2017). Industrial Revolution required mechanical skills, but the Information Revolution requires literacy skills: effective speaking and compelling writing and, of The Global Economy course, knowing how to use computer technology. New information technology is drawing people around the People able to engage and communicate with others world together and creating a global economy, economic are likely to do well; people without these skills face activity that crosses national borders. The development of a fewer opportunities in the job market. global economy has five major consequences. 3. From factories to almost anywhere. Industrial tech- First, we see a global division of labor: Different nology drew workers to factories located near power regions of the world specialize in one sector of economic Sectors of the Economy primary sector the part of the secondary sector the part of tertiary sector the part of the economy that draws raw materials the economy that transforms raw economy that involves services from the natural environment materials into manufactured goods rather than goods  CHAPTER 13 Economics and Politics 373 Window on the World Sandra Johanson is a hygiene technician on a large corporate-owned farm in Kansas. She is one of the relatively few people in the United States working in agriculture. Greenland (Den.) Area of inset U.S. RUSSIA CANADA GEORGIA KAZAKHSTAN MONGOLIA UNITED UZBEKISTAN NORTH ARMENIA KYRGYZSTAN STATES AZERBAIJAN TURKMENISTAN TAJIKISTAN KOREA TUNISIA LEBANON SYRIA CHINA SOUTH IRAN AFGHANISTAN KOREA OCCUPIED PALESTINIAN TERRITORY IRAQ JAPAN MOROCCO ISRAEL KUWAIT BHUTAN 30° PAKISTAN NEPAL 30° ALGERIA LIBYAWest Bank JORDAN BAHRAIN Hong BAHAMAS Western Sahara EGYPT QATAR Kong DOM. REP. (Mor.) SAUDI U.A.E. INDIA MYANMAR U.S. BELIZE Puerto Rico (U.S.) ARABIA Taiwan MEXICO CUBA ST. KITTS & NEVIS OMAN (BURMA) Macao LAOS ANTIGUA & BARBUDA MAURITANIA MALI BANGLADESH JAMAICA U.S.VIRGIN DOMINICA CAPE NIGER ERITREA ST. LUCIA VERDE SENEGAL THAILAND PHILIPPINES HAITI ISLANDS CHAD SUDAN YEMEN VIETNAM GUAM GUATEMALA GRENADA BARBADOS BURKINA ST. VINCENT & THE GRENADINES GAMBIA FASO NIGERIA DJIBOUTI EL SALVADOR TRINIDAD & TOBAGO MARSHALL GUINEA-BISSAU CAMBODIA ISLANDS HONDURAS VENEZUELA GUYANA GUINEA GHANA CENT. S. ETHIOPIA PALAU NICARAGUA French Guiana SIERRA LEONE BENIN AFR. REP. SUDAN BRUNEI FEDERATED STATES SRI OF MICRONESIA COSTA RICA COLOMBIA (Fr.) LIBERIA TOGO CAM. SOMALIA LANKA MALAYSIA UGANDA MALDIVES PANAMA CÔTE D’IVOIRE EQ. GUINEA RWANDA Singapore 0° KENYA 0° ECUADOR SURINAME SAO TOME & PRINCIPE GABON NAURU DEM. REP. KIRIBATI OF THE BURUNDI REP. OF THE CONGO CONGO TANZANIA I N D O N E S I A PAPUA SOLOMON PERU BRAZIL COMOROS TIMOR-LESTE NEW GUINEA ISLANDS TUVALU FRENCH POLYNESIA ANGOLA MALAWI SEYCHELLES SAMOA ZAMBIA VANUATU FIJI BOLIVIA MADAGASCAR ZIMBABWE NAMIBIA MAURITIUS TONGA BOTSWANA New PARAGUAY Caledonia 150° 120° CHILE MOZAMBIQUE AUSTRALIA (Fr.) SWAZILAND 30° SOUTH 30° AFRICA LESOTHO URUGUAY 20° 0° 20° 40° NEW 0 500 Km ARGENTINA ZEALAND EUROPE ICELAND SWEDEN NORWAY FINLAND 90° 60° 30° 0° 30° 60° 90° 60° ESTONIA RUSSIA 120° 150° UNITED DENMARK KINGDOM LATVIA LITHUANIA Percentage of Labor IRELAND NETH. POLAND BELARUS A NTA RCTICA Force in Primary Sector BEL. GERMANY CZECH UKRAINE LUX. LIECH. AUS. SLVK.REP. MOLDOVA 50.0% and over SWITZ. HUNG. ROMANIA MONACO SLO. FRANCE CROATIA SERBIA 25.0% to 49.9% ANDORRA BOS. & HERZ. BULGARIA MONT. 40° SPAIN ITALY KOS. MAC. ALB. 10.0% to 24.9% GREECE TURKEY PORTUGAL MALTA Below 10.0% CYPRUS No data Global Map 13–1 Agricultural Employment in Global Perspective The primary sector of the economy is largest in the nations that are least developed. Thus, in the poor countries of Africa and Asia, up to half of all workers are farmers. This picture is altogether different in the world’s most economically developed countries—including the United States, Canada, Great Britain, and Australia—which have only about 2 percent of their labor force in agriculture. SOURCE: Data from International Labour Organization (2017). activity. As Global Map 13–1 shows, about half the labor A fourth consequence of the global economy is that a force is engaged in agriculture in the poorest nations of the small number of businesses operating internationally now world. Global Map 13–2 shows that most of the labor force control a vast share of the world’s economic activity. Using in the world’s richest countries works in the service sector. the latest available data, the 2,000 largest multinational com- This pattern means that the world’s poorest nations spe- panies (with sales of about $35 trillion) account for almost cialize in producing raw materials, and the richest nations half the world’s economic output (World Bank, 2017). specialize in the production of services. Fifth and finally, the globalization of the economy Second, an increasing number of products pass raises concerns about the rights and opportunities of work- through more than one nation. Look no further than ers. Critics of this trend claim that the United States is los- your morning coffee: The beans may have been grown ing jobs—especially factory jobs—to low-income nations. in Colombia, transported to New Orleans on a Liberian- This means that workers here face lower wages and higher registered freighter made in a shipyard in Japan using steel unemployment. At the same time, many workers abroad from Korea, and fueled by oil from Venezuela. are paid extremely low wages. As a result, say critics, the Third, national governments no longer control the eco- global expansion of capitalism threatens the well-being of nomic activity that takes place within their borders. In fact, workers throughout the world. governments cannot even accurately regulate the value of The world is still divided into 194 politically distinct their national currencies because dollars, euros, pounds nations. But the rising level of international economic sterling, and yen are traded around the clock in the finan- activity makes nationhood less significant than it was even cial markets of New York, London, and Tokyo. a decade ago. 374 CHAPTER 13 Economics and Politics Window on the World Greenland (Den.) Area of inset U.S. RUSSIA CANADA GEORGIA KAZAKHSTAN MONGOLIA UZBEKISTAN UNITED ARMENIA NORTH KYRGYZSTAN KOREA AZERBAIJAN TURKMENISTAN TAJIKISTAN STATES CHINA SOUTH TUNISIA LEBANON SYRIA IRAN AFGHANISTAN KOREA OCCU. PALESTINIAN TERR. IRAQ JAPAN MOROCCO ISRAEL KUWAIT BHUTAN 30° PAKISTAN NEPAL 30° ALGERIA LIBYA WEST BANK JORDAN BAHRAIN Hong BAHAMAS Western Sahara EGYPT QATAR Kong DOM. REP. (Mor.) SAUDI U.A.E. INDIA MYANMAR U.S. BELIZE Puerto Rico (U.S.) ARABIA Taiwan MEXICO CUBA UNITED STATES VIRGIN ISLANDS OMAN (BURMA) Macao LAOS ST. KITTS & NEVIS MAURITANIA MALI BANGLADESH JAMAICA HAITI ANTIGUA & BARBUDA CAPE NIGER ERITREA GUAM DOMINICA VERDE SENEGAL THAILAND PHILIPPINES CHAD SUDAN YEMEN VIETNAM GUATEMALA GRENADA ST. LUCIA BURKINA BARBADOS GAMBIA FASO NIGERIA DJIBOUTI EL SALVADOR ST. VINCENT & THE GRENADINES MARSHALL HONDURAS TRINIDAD & TOBAGO GUINEA-BISSAU CAMBODIA ISLANDS VENEZUELA GUINEA GHANA CENT. S. GUYANA ETHIOPIA PALAU NICARAGUA French Guiana SIERRA LEONE BENIN AFR. REP. SUDAN BRUNEI FEDERATED STATES SRI OF MICRONESIA COSTA RICA COLOMBIA (Fr.) LIBERIA TOGO CAM. SOMALIA LANKA MALAYSIA UGANDA MALDIVES PANAMA CÔTE D’IVOIRE EQ. GUINEA RWANDA Singapore 0° KENYA 0° ECUADOR SURINAME SAO TOME & PRINCIPE GABON NAURU DEM. REP. KIRIBATI OF THE BURUNDI REP. OF THE CONGO CONGO TANZANIA I N D O N E S I A PAPUA SOLOMON PERU BRAZIL COMOROS TIMOR-LESTE NEW GUINEA ISLANDS TUVALU ANGOLA MALAWI SEYCHELLES SAMOA FRENCH POLYNESIA ZAMBIA VANUATU FIJI BOLIVIA MADAGASCAR ZIMBABWE NAMIBIA MAURITIUS TONGA BOTSWANA New PARAGUAY Caledonia 150° 120° CHILE MOZAMBIQUE AUSTRALIA (Fr.) SWAZILAND 30° SOUTH 30° AFRICA LESOTHO URUGUAY 20° 0° 20° 40° NEW 0 500 Km ARGENTINA ZEALAND EUROPE ICELAND SWEDEN NORWAY FINLAND 90° 60° 30° 0° 30° 60° 90° 60° ESTONIA RUSSIA 120° 150° Percentage of Labor LATVIA UNITED DENMARK LITHUANIA KINGDOM IRELAND NETH. GERMANY POLAND BELARUS A NTA RCTICA Force in Service Sector BEL. CZECH UKRAINE CHANNEL ISLANDS LUX. LIECH. AUS. REP. SLVK. MOLDOVA 70.0% and over SWITZ. HUNG. ROMANIA SLO. FRANCE MONACO CROATIA SERBIA 55.0% to 69.9% ANDORRA BOS. & HERZ. MONT. BULGARIA KOS. MAC. Lily May Vale is an investment analyst in Sydney, 40° ALB. 40.0% to 54.9% PORTUGAL SPAIN ITALY GREECE TURKEY Australia. Like most people in high-income Below 40.0% MALTA CYPRUS nations, she works in the service sector. No data Global Map 13–2 Service-Sector Employment in Global Perspective The tertiary sector of the economy becomes ever larger as a nation’s income level rises. In the United States, Canada, the countries of Western Europe, much of South America, Australia, and South Korea, about three-quarters of the labor force performs service work. SOURCE: Data from International Labour Organization (2017). Capitalism the natural way of economic life. Just as important, the Scottish philosopher Adam Smith (1723–1790) claimed Every society’s economic system makes a statement about that as individuals pursue their self-interest, the entire justice by determining who is entitled to what. Two general society prospers (1937, orig. 1776). economic models are capitalism and socialism. No nation 3. Competition and consumer choice. A purely capitalist anywhere in the world has an economy that is completely economy is a free-market system with no government one or the other; rather, capitalism and socialism are two interference (sometimes called a laissez-faire economy, ends of a continuum along which all real-world economies from the French words meaning “leave it alone”). can be located. We will look at each of these models in turn. Smith stated that a freely competitive economy regu- Capitalism is an economic system in which natural lates itself by the “invisible hand” of the law of supply resources and the means of producing goods and services are pri- and demand. vately owned. An ideal capitalist economy has three distinc- tive features: Consumers regulate a market economy, Smith 1. Private ownership of property. In a capitalist econ- explained, by selecting the goods and services offering the omy, individuals can own almost anything. The more greatest value. As producers compete for the customer’s capitalist an economy is, the more private ownership business, they provide the highest-quality goods at the there is of wealth-producing property such as facto- lowest possible prices. In Smith’s time-honored phrase, ries, real estate, and natural resources. from narrow self-interest comes “the greatest good for 2. Pursuit of personal profit. A capitalist society seeks the greatest number of people.” Government control of to create profit and wealth. The profit motive is the an economy, on the other hand, distorts market forces by reason people take new jobs, open new businesses, or reducing the quantity and quality of goods, shortchanging try to improve products. Making money is considered consumers in the process.  CHAPTER 13 Economics and Politics 375 Capitalism still thrives in Hong Kong (left), evident in streets choked with advertising and shoppers. Socialism is more the rule in China’s capital, Beijing (right), a city dominated by government buildings rather than a downtown business district. Justice in a capitalist system amounts to freedom of 1. Collective ownership of property. A socialist economy the marketplace, where anyone can produce, invest, buy, limits rights to private property, especially property and sell according to individual self-interest. The increas- used to generate income. Government controls such ing popularity of Walmart, described in the opening to property and makes housing and other goods available this chapter, reflects the fact that the company’s customers to all, not just to the people with the most money. think they get a lot for their money when shopping there. 2. Pursuit of collective goals. The individualistic pur- The United States is considered a capitalist nation suit of profit goes against the collective orientation of because most businesses are privately owned. However, socialism. What capitalism celebrates as the “entrepre- it is not completely capitalist because the government neurial spirit,” socialism condemns as greed; individuals plays a large role in the economy. The government owns are urged to work for the common good of all. and operates a number of businesses, including almost all 3. Government control of the economy. Socialism re- of this country’s schools, roads, parks, museums, the U.S. jects capitalism’s laissez-faire approach in favor of a Postal Service, the Amtrak railroad system, and the entire centrally controlled or command economy operated by the U.S. military. The U.S. government also had a major hand government. Commercial advertising thus plays little in building the Internet. In addition, governments use role in socialist economies. taxation and other forms of regulation to influence what Justice in a socialist context means not competing companies produce, to control the quality and cost of mer- to gain wealth but meeting everyone’s basic needs in a chandise, and to motivate consumers to conserve natural roughly equal manner. From a socialist point of view, the resources. common capitalist practice of giving workers as little in The U.S. government also sets minimum wage lev- wages and benefits as possible to boost company earnings els, enforces workplace safety standards, regulates cor- is unjust because it puts profits before people. porate mergers, provides farm price supports, taxes Venezuela, Cuba, North Korea, the People’s Republic everyone on what they earn, and also supplements the of China, and nineteen other nations in Asia, Africa, and income of a majority of its people in the form of Social Latin America model their economies on socialism, placing Security, public assistance, student loans, and veterans’ almost all wealth-generating property under state control benefits. In 2017, local, state, and federal governments (Wall Street Journal/Heritage Foundation, 2017). The extent combined were the nation’s biggest employer, with 16 of world socialism declined during the 1990s as countries percent of the nonfarm labor force on their payrolls (U.S. in Eastern Europe and the former Soviet Union geared Department of Labor, 2017). their economies toward a market system. More recently, however, voters in Bolivia, Venezuela, Ecuador, and other Socialism Socialism is an economic system in which natural resources capitalism an economic socialism an economic and the means of producing goods and services are collectively system in which natural system in which natural owned. In its ideal form, a socialist economy rejects each resources and the means resources and the means of of the three characteristics of capitalism just described in of producing goods and producing goods and services favor of three opposite features: services are privately owned are collectively owned 376 CHAPTER 13 Economics and Politics nations in South America have elected leaders who are moving the national economies in a socialist direction. welfare capitalism an state capitalism an economic and political system economic and political that combines a mostly system in which companies Welfare Capitalism and State market-based economy with are privately owned but Capitalism extensive social welfare cooperate closely with the programs government Most of the nations in Western Europe—especially Sweden, Denmark, and Italy—have market-based economies but also offer broad social welfare programs. Analysts call this Relative Advantages third type of economic system welfare capitalism, an eco- nomic and political system that combines a mostly market-based of Capitalism and Socialism economy with extensive social welfare programs. Which economic system works best? Comparing economic Under welfare capitalism, the government owns some models is difficult because all nations mix capitalism and of the largest industries and services, such as transporta- socialism to varying degrees. In addition, nations differ in tion, the mass media, and health care. In Greece, France, and cultural attitudes toward work, access to natural resources, Sweden, more than half of economic production is “nation- levels of technological development, and patterns of trade. alized,” or state-controlled. The industry that remains in Despite such complicating factors, some crude compari- private hands is subject to extensive government regula- sons are revealing. tion. High taxation (aimed especially at the rich) funds a ECONOMIC PRODUCTIVITY One key dimension of wide range of social welfare programs, including universal economic performance is productivity. A commonly used health care and child care. In Sweden, for example, govern- measure of economic output is gross domestic product (GDP), ment provided social services represent 27 percent of all the total value of all goods and services produced within economic output, much higher than the 19 percent share in the nation’s borders each year. Per capita (per-person) GDP the United States (OECD, 2017). allows us to compare the economic performance of nations Another blend of capitalism and socialism is state of different population sizes. capitalism, an economic and political system in which compa- The output of mostly capitalist countries in the late nies are privately owned but cooperate closely with the govern- 1980s—before the end of socialist economies in the Soviet ment. State capitalism is the rule in the nations along the Union and Eastern Europe—varied somewhat but aver- Pacific Rim. Japan, South Korea, and Singapore are all cap- aged about $13,500 per person. The comparable figure for italist countries, but their governments work in partner- the mostly socialist former Soviet Union and nations of ship with large companies, supplying financial assistance Eastern Europe was about $5,000. This means that the capi- and controlling foreign imports to help their businesses talist countries outproduced the socialist nations by a ratio compete in world markets. of 2.7 to 1 (United Nations Development Programme, 1990). A recent comparison of socialist North Korea (estimated per capita GDP of $1,800) and capi- talist South Korea ($27,221) pro- vides an even sharper contrast (Central Intelligence Agency, 2017; World Bank, 2017). North Korea ECONOMIC EQUALITY The distribution of resources within the population is another im- portant measure of how well an economic system works. A comparative study of Europe South Korea in the mid-1970s, when that re- gion was split between mostly capitalist and mostly social- ist countries, compared the earnings of the richest 5 per- Directly comparing the economic performance of capitalism and socialism is difficult because nations differ in many ways. But a satellite image of socialist North Korea and capitalist South cent of the population and Korea at night shows the dramatically different electrical output of the two nations, one indication the poorest 5 percent (Wiles, of economic activity and standard of living. 1977). Societies with mostly  CHAPTER 13 Economics and Politics 377 capitalist economies had an income ratio of about of oil and natural gas, did well during the recent global 10 to 1; the figure for socialist countries was 5 to 1. recession, although recent declines in the price of oil In other words, capitalist economies support a higher have shaken their economies. Other nations, including overall standard of living but with greater income inequal- Lithuania, Latvia, and Azerbaijan, saw their economies ity. Said another way, socialist economies create more eco- shrink and have faced rising unemployment. In just about nomic equality but with a lower overall living standard. every formerly socialist nation, the introduction of a mar- ket economy has brought with it economic growth coupled PERSONAL FREEDOM One additional consideration in with an increase in economic inequality (Ignatius, 2007; evaluating capitalism and socialism is the personal free- Pew Research Center, 2011; World Bank, 2017). dom each system gives its people. Capitalism emphasizes A number of countries, primarily in South America, the freedom to pursue self-interest and depends on the abil- have recently been heading in a more socialist direction. ity of producers and consumers to interact with little in- Since 2005, Evo Morales, a former farmer, union leader, terference by the state. Socialism, by contrast, emphasizes and activist, has served as president of Bolivia. His election freedom from basic want. The goal of equality requires the has placed Bolivia in a group of South American nations— state to regulate the economy, which in turn limits personal including Ecuador, Venezuela, Brazil, Chile, and Uruguay— choices and opportunities for citizens. that are moving toward more socialist economies. The Can a single society offer both political freedom and reasons for this shift toward socialism vary from country economic equality? In the capitalist United States, our to country, but the common element is a desire to reduce political system offers many personal freedoms, but the economic inequality. In Bolivia, for example, the economy economy generates a lot of inequality, and freedom is not has grown in recent decades, but most of the benefits have worth as much to a poor person as to a rich one. By contrast, gone to a wealthy business elite. By contrast, more than half North Korea or Cuba has considerable economic equality, the country’s people remain very poor (Howden, 2005). In but people cannot speak out or travel freely within or out- recent years, Venezuela experienced a national crisis due side of the country. Perhaps the closest any country comes to low oil prices and the overall poor performance of their to “having it all” is Denmark, where welfare capitalism economy, which has left most of the population struggling combines a market economy with broad government pro- to get by (Gillespie, 2017). grams that provide for the welfare of all citizens. CHANGES IN SOCIALIST AND CAPITALIST COUNTRIES In 1989 and 1990, the nations of Eastern Work in the Postindustrial Europe, which had been seized by the former Soviet Union at the end of World War II, overthrew their so- U.S. Economy cialist regimes. These nations—including the former 13.2 Analyze patterns of employment German Democratic Republic (East Germany), the Czech and unemployment in the United States. Republic, Slovakia, Hungary, Romania, and Bulgaria—all Economic change is occurring not just in the socialist world moved toward capitalist market systems after decades of but also in the United States. In 2017, a total of 153 mil- state-controlled economies. At the end of 1991, the Soviet lion people in this country—60 percent of those age six- Union itself formally dissolved, and many of its former teen and older—were working for income. A larger share republics introduced some free-market principles into of men (66 percent) than women (55 percent) had jobs, a their economies. Within a decade, three-fourths of former gap that is holding steady over time. Among men, 62 per- Soviet government enterprises were partly or entirely in cent of African Americans were employed, compared with private hands (Montaigne, 2001). 69 percent of whites and 77 percent of Hispanics. Among There were many reasons for these sweeping changes. women, 59 percent of African Americans were employed, First, the capitalist economies were far more productive compared with 56 percent of whites and 57 percent of than their socialist counterparts. The socialist economies Hispanics; 62 percent of Asian men and women were em- were successful in achieving economic equality, but liv- ployed (U.S. Department of Labor, 2017). ing standards were low compared with those of Western Europe. Second, Soviet socialism was heavy-handed, rig- idly controlling the media and restricting individual free- The Changing Workplace doms. In other words, socialism did away with economic In 1900, roughly 40 percent of U.S. workers were farmers. elites, as Karl Marx predicted, but as Max Weber foresaw, In 2016, only 1.6 percent of U.S. workers were employed socialism increased the power of political elites. in agriculture. The family farm of yesterday has been re- So far, the market reforms in Eastern Europe have placed by corporate agribusinesses. Land is now more pro- proceeded unevenly. Some nations, such as Kazakhstan, ductive, but this change has caused painful adjustments Uzbekistan, and Turkmenistan, all with extensive reserves across the country as a way of life is lost (Dudley, 2000). 378 CHAPTER 13 Economics and Politics 90% reached more than one-third of nonfarm workers. Union membership peaked around 1970 at al