Economic Systems, 1900 to Present Flashcards
~Capitalism
● Typically paired with electoral democracy
● Could be modified to varying degrees
~Free-market capitalism
● Could be left mostly unregulated, or it couldbe more heavily regulated by means of government intervention
● Proponents of minial regulation favor the laissez-fiare spirit of the 1800s classical economists and argue that reliance ont he unfettered operation of the market forces of supply and demand is the surest way tot generate wealth for hte greatest number of people
●THose favoring more regulation warned about dangerous levels of poverty and formation of pmonopolies
~Semi-capitalist/semi-socialist middle or third way
● Adopted by many regimes at certain junctures can be viewed as either a mild form of socialist centralization or an example of capitalism at its most heavily-regulated
~John Maynard Keynes
● Author of (1936)
● Advisor/influence on many governments from the 1920s onward, including FDR
● Argued that booms and busts proceed from the waxing na dwaning of consumer confidence
● In times of crisis, governments should invest in public works, relief efforts, and sitmulus programs to keep confidence high
~Austrian School
● Most famously Friedrich Hayek
● Maintained that only market forces properly measure value and allocate resources and that any state intervention, however minimal, leads to malinvestment and fatally distorts the workings of the economy
~Milton Freidman
● Opponent of Keynesian theory
● Influence on govenrments in the 1980s and 1990s
● Advocate of austerity and privatization, he proposed that governemtns should intervene as little as possible in the workings of hte free market
● Followed by Ronald Reagan, Margaret Thatcher and dictator Augusto Pinochet in Chile
~State-directed capitalism
● Fascists and authoritarian regimes generally relied on some form of this to regulate their economies, with varying degrees of heavy-handedness
● Based on partnerships between political elites and economic elites
● Minimized/outlawed trade-union activity and limited workers’ rights and added benefit for economic elites
● Pursued by Nazi Germany, fascist Italy and Japan
~Economic elites in state-directed capitalism
● Allowed to own their enterprises and pursue profits as long as they accepted dictates and priorities set for them by the state
● In exchange for obedience, the state refrained from outright nationalization or centralization
- Cooperative parties were rewarded with preferential treatment and state contracts
~Communist/socialist economies
● Emphasized central planning, the nationalization of some or all sectors of the economy and less concern for private property
~Socialist or social democratic systems
● Tended to be milk, and to have been put into place by means of electoral politics, and most of them have injected enough elements of capitalism that hey can be categorized as middle or third way economics
~Quasi-socialist/temporarily socialist
● Nationalization of certain economic assets or certain sectors of the economy have often been carried out by governmetns in the less-developed world as a way to encourage development or build wealth quickly
● Ex) PEMEX by Lazaro Cardenas in 1938, follwing his nationalization of Mexico’s oil industry
● Ex) Gamal Nasser’s nationalization of the Suez Canal in 1956
~Communism
● Extent of centralization is greatest, with communism explicitly aiming to eradicate the profit motive, to eliminate private property and private trade and to nationalize the economy as completely as possible
● Nearly always come to power by means of revolution and keep themselves in place by means of dictatorship
● Pursue ambitious modernization projects including state-sponsored industrialization and collectiviation of agriculture
~Boom-and-bust business cycle
● The Long Depression of the early 1870s through the mid-1890s, complete with protectionist trade policies
● Economic recovery and the resumption of free trade caused a rebound between the late 1890s and WWI
● WWI weakened hte economies of Europe but enriched North America (Roaring twenties)
● Great Depression
~Great Depression
● Caused by wild overvaluation of stocks in the US and the resulting crash of the New York Stock Exchange in October 1929
● Agricultural downturn caused at hte same time by the dust bowl crisis
~Smoot-Hawley Tariff Act of 1930
● Attempted to shield US industries and farms by imposing high tariffs on other nations’ goods but almost immediately destroyed the ability of Europe, Latin America and Asia to export their products
● In effect spreading the Depression
~New Deal
● Franklin Roosevelt’s idea that begun in 1933
● Attempted public work projects and social welfare
~World Bank and International Monetary Fund (IMF)
● In the belief that free trade was the key to economic prosperity and lasting world peace
● In July 1944, FDR met with Allied delegates at Bretton Woods, New Hampshire and establish the two institutions
● Both purposes were to rebuild Europe and lend assistance to countries in Asia, Africa and Latin America
~General Agreement on Tariffs and Trade (GATT)
● Signed by 23 countries in 1947 and met regularly until 1994, when it became hte World Trad Organization
~Gold standard
● US measured its value ont he gold standard
●Most currencies measured themselves against the US dollars
~Bretton Woods system (USSR)
● The Soviet Union and its East European bloc refused to join the Bretton Woods system
● Their economies would be less integrated with much fo the rest of the world’s during the Cold War
~Economic union
● Forming the precursors to the present-day European Union
● The six-nation European Coal and Steel Community in 1952
● The European Economic Community/Common Market in 1957
~Social welfare system
● Most European antions, along with Canada, began to invest heavily in the systems that provided for some combination of universal health care, cheap or free higher education for those who qualified academically, generous pensions and unemployment insurance
~Marshall Plan (1948)
● The reconstruction of Western Europe, was assisted at the outset by the Marshall Plan
~Organization of Petroleum Exporting Countries (OPEC)
● The Middle East benefited from its dominance of oil production
● Formed in 1960 and still one of the most influential cartel sin economic history
● Consists largely of Middle Eastern countries
~Little tigers
● Taiwan, South Korea, Hong Kong and Singapore
~Association of Southeast Asian Nations
● Many Asian nations joined togehter in regional economic associations
● Japan and the little tiges were quick to adapt to global capitalism and industrialization
● Formed in 1967 to promote regional security, tightened economic ties among its member states
~Postindustrial production
● Based less on manufacturing and more on service, high-tech fields, and computers
●By the 1970s, Western economies began a long transition from industrial production to this
~Oil embargo in 1973
● OPEC’s 1973 oil embargo severely affected the energy-dependent economies of the West
● Staglfation resulted
~Stagflation
● A combination of recession and inflation (which generally occurs in times of economic growth)
● Plagued North America and Western Europe
● Inefficiency, food shortages, the cost of the arms race and governmental corruption sapped the economies of the East European bloc
~Group of Seven (G-7)
● The countries with the seven largest non-communist economies in the mid-1970s
● Coordinate economic policies when mutually beneficial
● original members were Great Britain, West Germany, France, Italy, Japan, and the US in 1975 with Canada joining soon after
~Free-market reforms
● Involved privatization of previously nationalized sectors of the economy (most typically transport and energy), trimming or elimination of social-welfare benefits and austerity
~Austerity
● Reduction of government spending in general
~Economic globalization
● 1990s brough about a high tide of economic globalization which ahs shown no signs of receding in the 2000s
● A major factor was hte growing influence of multinational corporations
~Multinational corporations
● Starting in the 1980s and continuing to the present
● Technically from a single country, maintain factories and subsidiaries aound the world nad employ many foreign workers
● Ex) Coca-Cola and McDonalds, originally from the US
● Ex) Royal Dutch Shell, with fossil-fuel interests worlwide
● Ex) Nestle (Swiss-based, the largest food company in the world)
● Ex) Electronics and computer giants such as Sony and Microsoft and Apple
~Tax-sheltering
● Shifting assets out of a home country to places with lower tax rates or no tax at all
● Multinationals engage in this
~Relocate/outsource jobs
● FCuasing suddn layoff or firings
● In search for the most lenient environemntal regulations, the most favorable tax breaks, and the cheapest labor
~International economic organizations/regional economic associations
● Foster economic cooperation and provide for freer trade
● meetings of the Group of Seven (G-7), later remaned hte Group of Eight (G-8) after Russia’s accession in 1997 have become more frequent and more formal
~World Trade Organization (WTO)
● Upgraded and strengthened from the GATT in 1994-1995
● Purpose is to regulate the economic interactions of the more than 100 nations that belong to it
~North American Free Trade Agreement (NAFTA)
● In 1994, the US, Mexico and Canada created a zone of free movement of moeny, goods, services, and labor
~Asia-Pacific Economic Cooperation Group (APEC)
● In 1989, Pacific Rim nations formed it
● No includes more than 20 members
~Mercosur/Southern Comon Market
● In 1991, several Latin American nations established this, consisting of Argentina, Brazil, Paraguay, Uruguay, Venezuela and Bolivia
~African Free Trade Zone (AFTZ)
● A number of free-trade zones formed in Africa during the 1980s and 1990s, all joining together in 2008
~European Union (EU)
● Formerly the European Economic Community
● Signed the Maastricht Treay in 1991 which provided for hte creation fo the euro as a single currency, and also for the free movement of money, goods and labor
● The euro went into circulation in 2002 and was adpted by most EU nations
● Currently includes 27 nations
~2007 Global economic crisis
● The vaibility of hte euro was questioned
● Eurozone appears to have survived
● Began in the US and emanated outward
~North-south split
● Continues to divide the developed world from the nondeveloped nad developing nations located near or south of the equator
● Globalization has not healed this
~When do capitalists favoring more government regulation think it’s necessary for intervention?
● A stronger government hand is necessary to correct downward fluctuations in the market
● Provide enough of a social safety net to shield citizens form the harshest effects of capitalist competition
● ensure that a sufficient infrastrucutre exists for the good of the state and hte smooth functioning of the economy
~When did the approach of laissez-faire prevail?
● It prevailed in most of the West before WWI and in the US during the 1920s
● Pursued aggressively iin the US and much of Europe during the 1980s
~When did the approach of more intervention prevail?
● Exemplified by the US New Deal of the 1930s and also by the approach taken by most European democracies, with their highly developed social welfare systems
~What countries committed communism during the 1900s?
● Soviet Union ● Most of Eastern Europe ● Mainland China ● North Korea ● Cuba ● Vietnam
~What were examples of state-sponsored industrialization and collectiviztaion of agriculture?
● Stalin’s First Five-Yearn Plan (1928-1932)
● Mao’s Great Leap Forward (1958-1961)
● Each of them causing astounding levels of social and economic stress, each relying heavily on prison-camp labor, and each linked to notorious famines htat killed millions
~What were examples of communism capable of effective reform and economic liberalization
● China under Deng Xiaoping, following Mao’s death in 1976
● Vietnam with its doi moi (renovation) reforms in the mid-1980s
● They remain politically authoritarian
~What were the initial reaction of the US government to the Great Depression?
● Institute austerity measures which depressed consumer confidence, caused runs on banks and led to mass unemployment
~Why was the Soviet Union untouched by the Great Depression?
● Its economic connections with the West were limited
● Stalin’s five-year plans created virtually 100% employment and propaganda hid their unpleasant realities from public view
● Many in the West became convinced that Stalinist communism was superior to democratic capitalism
~What were economic reactions to the Depression?
● Public works projects: large scale construction, dam- or highway-uilding, electrification
● Social welfare: soup kitchens, farm relief, unemployment insurance
● Military conscription and arms buildup
~What do many governments in Latin America nad Africa rely on?
● Export of small assortments of natural resourcs or crops, just as they had done in the 1800s
~What did Nixon do in 1971?
● he took the US dollars off the gold standard
~What did Milton Friedman’s policies result in?
● Seem to have led to an overall rise in economic growth ● Caused great social stress in the form of layoffs and the weakening of unions ● Began a 30-year trend of shifting the distribution of wealth upward from the middle class and toward corporate elite
~What were the impacts of multinationals?
● They provide jobs and invest in local infrastructure
● Often exploit labor (in some cases turning a blind eye to dreadful sweatshop conditions)
● Harm local ecoystems
● Put homegrown industries and craft production out of business
~What are hte benefits of economic globalization?
● Generated great wealth, at least in a broad sense and in certain parts of hte world
● Proponents of globalization argue that free trade helps to preserve peace
~What are the costs of economic globalization?
● Practices of multinational corporations may lead to a constant state of economic instability, and agriculture has been greatly affected by globalization, as farmers in one country find themselves competing with cheap food imported from other parts of the world
