CHAPTER 2: ECONOMIC SYSTEMS AND DECISION MAKING. Lesson 3: The Global Transition to Capitalism

Transcription

1 CHAPTER 2: ECONOMIC SYSTEMS AND DECISION MAKING Lessn 3: The Glbal Transitin t Capitalism

2 PROBLEMS OF TRANSITION The dminant ecnmic trend f ur lifetime has been the transitin f cmmunist and scialist ecnmic systems t capitalism. Why Capitalism? Capitalism is the mst pwerful engine fr generating wealth the wrld has ever seen. This grwth has imprved nearly everyne s standard f living, the quality f life based n the wnership f necessities and luxuries that make life easier. There is n guarantee that cuntries attempting a transitin t capitalism will be able t d it smthly, r that they can d it at all.

3 PROBLEMS OF TRANSITION Privatizatin f State-Owned Prperty: A key feature f capitalism is the wnership f private prperty. In rder fr the transitin t capitalism t take place, privatizatin, must be accmplished peple take better care f prperty they actually wn. In Pland, Hungary, and the Czech Republic, this transitin was accmplished by using vuchers, certificates that culd be used t purchase gvernment-wned prperty. Vuchers were either given t the citizens f a cuntry r sld at very lw prices.

4 PROBLEMS OF TRANSITION Lss f Plitical Pwer: Under cmmunism, the Cmmunist Party was the ruling class. In cuntries such as Czechslvakia, Hungary, and Pland, the Cmmunist Party leaders wh were usted frm ffice lst their pwer befre their cuntry s industry was privatized. In these cuntries, the vucher system wrked reasnably well t redistribute wealth t new leaders.

5 PROBLEMS OF TRANSITION Lss f Plitical Pwer (cn t): In ther cuntries, Cmmunist leaders grabbed a large share f vuchers and thus a large prtin f wnership in many privatized cmpanies. As a result, frmer plitical leaders traded their plitical pwer fr ecnmic pwer in the frm f resurce wnership, and s the ld ruling grup simply became the new ruling grup.

6 PROBLEMS OF TRANSITION Respnding t New Incentives: Peple in cuntries that transitin t capitalism have t adjust t a whle new set f incentives. They have t learn hw t make decisins n their wn, take initiative, interpret prices, and fend fr themselves in free markets. Fr example, wrkers used t getting the same salary regardless f hw hard r hw ften they cme t wrk have t learn that they will get fired if they d a pr jb.

7 PROBLEMS OF TRANSITION Underestimating the Csts: The csts f capitalism during the Great Depressin, fr example, included instability, unemplyment, and scial unrest. At that time, the United States did nt have the ecnmic plicies and scial welfare prgrams needed t lessen the devastatin.

8 Despite the transitinal prblems, mst natins and regins all ver the glbe are mving tward capitalism. Russia: During Russia s transitin t capitalism, the gvernment cntrlled ecnmic activity with Five-Year Plans. The first Five-Year Plan a cmprehensive, centralized ecnmic plan designed t achieve rapid industrializatin was intrduced by Jseph Stalin in 1927.

9 Russia (cn t): The Gsplan was the central authrity that devised the plans and directed verall ecnmic activity. Central planning als extended t agriculture with the intrductin f cllectivizatin the frced cmmn wnership f all agricultural and industrial enterprises. Despite its effrts, central planning eventually failed. Shrtages appeared everywhere, wrkers were ften unpaid, and many peple lacked the incentives t wrk. After Mikhail Grbachev assumed pwer in 1985, he intrduced perestrika, the restructuring f the Sviet ecnmy where small business was encuraged.

10 Russia (cn t): Grbachev s successr, Russian president Bris Yeltsin, accelerated privatizatin after the fall f the Sviet Unin thru vuchers s that citizens culd purchase wnership shares in cmpanies. Under the secnd presidency f Putin, the cuntry can be described as having a market-based ecnmy with the exceptin f energy, natural resurce, and defense-related industries, which the gvernment cntrls.

11 China: The Peple s Republic f China became a cmmunist ecnmy in That year the Chinese Cmmunist Party, under the leadership f Ma Zedng, gained cntrl f the cuntry. Over the next few decades, China mdeled itself after the Sviet Unin, adpting a series f Five-Year Plans t manage its grwth. In 1958 Chinese leaders instituted the Great Leap Frward, an attempt t revlutinize industrial and agricultural prductin almst vernight.

12 China (cn t): The Great Leap Frward was a disaster. By the late 1970s, China finally decided t abandn the Sviet mdel. By the early 1980s, the influence f ther successful market ecnmies in Asia especially in Hng Kng was t much fr China t ignre. Tday China is privatizing sme industries, intrducing market refrms, and therwise acting in a capitalistic manner. The prgress made s far is remarkable as it nw is the wrld s secnd-largest ecnmy.

13 China (cn t): China s transitin t capitalism is nt yet cmplete; it has implemented the refrms n a gradual basis and still has a lng way t g. China s ppulatin is aging, which will eventually leave the cuntry with a shrtage f yunger wrkers. Pllutin f the air and water is anther majr prblem, and was s severe that China had t take drastic steps t reduce air pllutin during the Beijing Olympic Games in 2008.

14 Latin America: Chile tk majr steps t fster the grwth f capitalism when it privatized airlines, telephne services, and utilities. Tday Chile has ne f the strngest market-riented ecnmies in the regin. It is extensively engaged in freign trade and has sme f the strngest financial institutins in the regin. The cnversin t a free market ecnmy is nw cmplete and has been a resunding success.

15 Latin America (cn t): Argentina has similarly embarked n a prgram t remve gvernment frm the everyday business f running the ecnmy. The cuntry is rich in natural resurces, and it has a highly literate ppulatin and a diversified industrial base. Instability in the plitical sectr has halted the full transitin t capitalism. Finally, ne cuntry clearly resisting the transitin t capitalism is Venezuela. Under President Hug Chavez, wh ruled as president until his death in March 2013, the ecnmy was being transfrmed int a scialist state and the private sectr is in turmil.

16 Eastern Eurpe: The natins f Eastern Eurpe, were eager t shed cmmunism and embrace capitalism. The struggle fr freedm began in Pland with Slidarity, the independent and smetimes illegal labr unin established in In 2004 Pland jined the Eurpean Unin (EU), the assciatin f Eurpean natins created in 1993 t develp a single market with full ecnmic and plitical cperatin.

17 Eastern Eurpe (cn t): Hungary als made a successful transitin t a market ecnmy. It was cnsidered the mst Western Cmmunist cuntry with a thriving black market a market in which merchants sell gds illegally. It t became a full member f the Eurpean Unin in Finally, the Czech and Slvak Republics, alng with Estnia, Latvia, Lithuania, and Slvenia, were all granted admissin t the EU in These cuntries, alng with Bulgaria and Rmania, which jined in 2007, made great strides tward capitalism after the cllapse f the Sviet Unin.

18 Other Faces f Capitalism: Sme frmer scialist r cmmunist cuntries are still making the transitin t capitalism. Many ther cuntries have had successful capitalist ecnmic scieties fr sme time. Japan: Japan, like the United States, has a capitalist ecnmy based n markets, prices, and the private wnership f capital. There are several reasns fr Japan s success. One is that Japan has a lyal and dedicated wrkfrce.

19 Japan (cn t): Anther reasn is the ability and willingness f the Japanese t develp new technlgies. Because f its small and aging ppulatin, Japan has wrked t bst prductivity by develping methds that are capital-intensive it uses large amunts f capital fr every persn emplyed rather than labr-intensive. The feature that really sets Japan apart frm the United States is the cuntry s Ministry f Internatinal Trade and Industry (MITI)-- a gvernment bdy that identifies prmising exprt markets. The ministry then prvides subsidies t industries t make them cmpetitive in thse areas.

20 Japan (cn t): Despite Japan s successes, it experienced ecnmic stagnatin that began in the 1990s. The rle f the keiretsu is t ensure that cmpetitin des nt threaten individual firms. Mdest ecnmic grwth returned in 2003 and cntinued until 2008, when Japan entered the glbal ecnmic slump f Befre it culd fully recver, in 2011 a massive tsunami hit Japan and destryed a majr nuclear reactr.

21 Suth Krea: One f the mst successful natins in Asia is Suth Krea. In the mid-1950s, after it became divided frm Nrth Krea, Suth Krea was ne f the prest cuntries in Asia. The Suth Krean gvernment began by pening its markets t wrld trade. At first, the gvernment fcused n nly a few industries which allwed its peple t gain experience prducing and exprting. Businesses in the Suth Krean ecnmy began t prduce inexpensive tys and cnsumer gds. As they became skilled in prductin and exprts, businesses mved int ther industries such as shipbuilding, steel manufacturing and mre.

22 Singapre: Despite its small size, it has a per capita incme almst 20 percent higher than that f the United States. The lure f generus tax breaks, gvernment subsidies, and gvernmentspnsred training f emplyees has attracted thusands f multinatinal firms t Singapre. The gvernment f Singapre has fcused n a few select industries, including telecmmunicatins services, sftware, and bitechnlgy. The gvernment has spent millins n labratries, attracting tp scientists frm all ver the wrld.

23 Taiwan: Planning has always been a feature f the Taiwanese ecnmy, with the gvernment trying t identify thse industries mst likely t grw in the future. Gvernment guidance f investment and freign trade is decreasing, and the cuntry has signed a number f internatinal trade agreements with capitalist natins, which shuld help bst grwth.

24 Sweden: Sweden is nw a mature industrial natin even thugh it was nce knwn fr its brad range f scial welfare prgrams. The Swedish ecnmy with its generus maternity, educatin, disability, and ld-age benefits was thught t be the mdel f Eurpean scialism. Scial benefits were expensive, hwever, and t pay fr them, the highest tax brackets reached 80 percent. This meant that a persn wh earned an additinal $100 wuld keep nly $20.

25 Sweden (cn t): Tday Sweden features a mix f high-tech capitalism and liberal welfare benefits. The welfare system attracts ther residents f the EU because f the liberal benefits they can cllect, smething that cntributes t a relatively high unemplyment rate.