What is capitalism? Flashcards
capitalism
an economic system that allows for private ownership of the means of production. Assumes that economic decision making is in the hands of individuals who make decisions to earn a profit.
Three central features of capitalism
wage labour, private ownership of the means of production, production for exchange and profit
assumptions of capitalism
private property, individualism, economic freedom, equality of opportunity, competition, profit maximization, work ethic, customer sovereignty, role of govt
what is private property?
the legal right to own and use economic goods (means of production)
what are the 3 means of production?
land, capital, labour
what is individualism?
the individual, and not society or a collective, is the paramount decision maker in society
what does individualism assume?
that the individual is inherently rational and that individuals seek to maximize self interest
what is economic freedom?
few restrictions on business activity
ie voluntarily enter business, enter contracts, locate anywhere
what is equality of opportunity?
the assumption that all individuals or groups have an even chance at responding to some condition in society
what is equality of results/outcome
when affirmative action is taken to ensure people who are disadvantaged are making gains. Tries to make up for systemic issues
what is competition
when many rival sellers seek to provide goods and services to many buyers
what is profit maximization
“the profit motive is when companies act to maximize profit margin, there is usually pressure for growth
what is the assumption fo work ethic?
a code of values that claim that work is desirable and a natural activity
what is consumer sovereignty
the assumption that consumers have and exercise the power over producers through the decisions they make in purchasing goods and services
what is the assumption of the role of government in capitalism?
in perfect capitalist market, govt intervention would be virtually non-existing
Laissez-faire capitalism
“pure capitalism”
minimum govt intervention
govt strictly limited to police and fire protection
state capitalism
the state (govt) undertakes commercial (for profit) activities
govt owned enterprises, but means of production are still owned by enterprises
stakeholder capitalism
balances the needs of shareholders with stakeholder (ie employees, suppliers, customers, local communities)
Clean capitalism
incorporates social, economic and ecological costs into the marketplace/prices we pay
ie: Canadian carbon tax
US Style Capitalism
-shareholder
-closer to pure capitalism
-limited govt involvement
-less worker representation in corporate world
-lower union density
Chinese Capitalism
-state capitalism
-govt organized economic activities
-govt owned enterprises
-political over economic incentives
German Capitalism
-stakeholder capitalism
-stronger govt involvement in corporate policy
-worker representation thru co-determination
Japanese capitalism
-collective capitalism
-strong govt involvement in business
-interlocking business groups
-lifetime employment norm
Canadian Capitalism
-more state involvement than US, less than Germany/Japan
-stable and cooperative relationship btwn business and govt
higher union density than US
Corporations:
A company/group of people authorized to act as a single entity (legally a person) and recognized as such in law
Freedom of association:
guarantees the right of employees to meaningfully associate in the pursuit of collective workplace goals. Assumed to be fundamental to forming a corporation
Privately owned corporation (advantage and disadvantage)
Owned privately (founders, founding family)
Advantage: no shareholders to answer to
Disadvantage: have to raise capital privately
ie IKEA
Publicly traded Corporation (advantage and dis)
Traded on the stock market (anyone can buy shares)
Advantage: can raise capital on stock market
Disadvantage: must answer to shareholders
ie Apple
crown corporation (advantage and dis)
Wholly-owned federal or provincial organizations that function like independent companies
Advantage: greater freedom that govt arranges, proviedes services that could not be provided by private industries
Disadvantage: still subject to constraints of govt
ie CBC, MB Hydro
2 types of owners in a corporation
direct, indirect
direct corporation owner
shareholder
(your name is directly on your share)
indirect corporation owner
mutual fund holder
(have a share thru your portfolio)
corporation board director
ultimate governing body of corporation
elected by shareholders
must fufill many obligations (hiring/firing officers), oversee operations
corporation officers
top managers hired by board of directors
oversee operations of corporation
non profit organization
An organization that uses it’s surplus revenues to further achieve purpose or mission, rather than distributing it’s surplus income to the organization’s shareholders as profit/dividends
ie Humane Society, Winnipeg Harvest
cooperative
Businesses owned and operated by a group of individuals
types of cooperative
worker, consumer, mixed
3 technological breakthroughs in the early 1900s
electrical power, automobiles, gasoline engine
results of the automobile industry
effects of the technology (urbanization, interdependence), mass production, rise of big business, rise of antitrust legislation, bureaucracy
bureaucracy
Max Weber features of ideal bureaucracy:
-division of labour
-rules and regulations on roles
-hierarchy of authority
-technical qualifications for jobs
-impersonality
precipitating factors of Wpg general strike
Large pop returning from WWI
Large influx of European immigrants
Low wages, high unemployment
what was good in the roaring 20s?
increasing pop, growth of cities, low unemployment, increasing wages
stock market crash and the great depression
-GDP reduced by half btwn 1929 and 1933
-unemployment soared ~ 1/4 without job
causes of the great depression
Speculative boom from 1920s
stock market boom
Weakness on the farm (inelastic demand….prices down, demand down)
Weakness in the factory (tech and unemployment)
Income inequality (low demand and high unemployment…the middle class was seen as stabilizing but now gone)
what helped the great depression come to an end?
the new deal and the rise of the public sector, WWII
the new deal and rise of the public sector
FDR is president
government began to intervene in markets
rise of national banks and start of the federal reserve
monetary policy (public spending, adjusting interest rates)
WWII
-led to increase in govt role in economy
-Employment act of 1946
-Govts role in the market was focused not on if they should intervene, but how
-Emergence of fiscal policy
——Taxation and expenditure to boost economy
employment act of 1946
as soldiers return home from war, they are nervous about finding jobs as economy transitioned from making wartime goods and the great depression still fresh in minds.
This bill made the general goals full employment, full production, and stable prices. Citizens have a “right” to a job
after wwII
-US and CAN not devastated like many Euro cities
-Productive capacity of US rapidly expanded as a response of the war effort
-Tech efficiency increased
-post war demand drop never came
The Golden Age of Capitalism
-Business was boomin
-Workers and managers kind of got along
-Active role for govt in the economy
why did workers and managers get along in the golden age?
-Capital-labour accord
-Key role of unions
-Wages tracked productivity (if productivity increases, wage should too)
-Management/labour cooperation
govts active roles during the golden age in the economy
-GI Bill (education/training when coming home from military)
- military spending
-Highway production
-Other social spending
Demise of the golden age causes
OPEC oil shocks
Inflation
Stagflation and unemployment
when did income inequality begin to widen?
the end of the golden age
when was the golden age
1950-1970
what happened to the economy in the 1970s?
Stagflation in the 1970s combined high inflation with uneven economic growth.
-Biz had lost some of it’s power to workers and the emerging social movements that had emerged in the 1960s (ie environmental)
precipitating factors of globalization
collapse of the Bretton Woods system, flexible exchange rates
Globalization of Production and Finance
-increased mobility of capital,
-the emergence of China,
-the rise of BRICS (Brazil, Russia, India, China, South Africa. More manufacturing going to these countries bc of cheap labour, outsourcing to here huge growth in international trade)
what is neoliberalism
A modern politico-economic theory favouring free trade, privatization, minimal govt intervention in business, reduced public expenditure on social services etc
ie… lassiez-faire capitalism returns
when did neoliberalism emerge?
1980s
the 1980s
-neoliberalism
-Globalization and the neoliberal reforms gave business more power than it had seen since early 1900s
-Economic growth was strong. GDP was growing. Corporate profits were increasing
-wages were going down and the gap btwn the rich and the poor was increasing
-seems like capitalism is good!
the great recession effects in the short term
Collapse of housing bubble
Value of mortgage-backed securities collapsed
Large investment banks were heavily invested in these securities
Lehman Brothers goes out of business
Stock market fell by 44% btwn May 8 and Mar 9
Credit markets froze
the great recession effects in the long term
Wage stagnation and household debt
Housing bubble
Financial deregulation
effects of the great recession
Unemployment doubled and peaked at 10.1%
World tade flows decreased 38% in 9 months
Govt bailout of other financial institutions
$780 billion in spending to stimulate economy
It became okay to talk about capitalism in biz school
how did canada avoid the worst of the great depression?
CAN integrated regulation of banks, insurance companies, and large investment dealers
Financial institutions were less highly leveraged
Canadian capital requirements are above international requirements
Incentives not to lend in high risk scenarios
the economy in the past 3 years
-Right-wing Backlash to Globalization and neoliberalism
-The “Gig” Economy
-COVID-19
Right-wing Backlash to Globalization and neoliberalism
Rise of nationalism
-tho there has recently been major pushback by parties that traditionally have championed such policies
-Starting to see more nationalistic policies that challenge existing forms of globalization
-People on all sides of the political spectrum are starting to speak out against the negative aspects of globalization and neoliberalism
the gig economy
-The introduction of new technologies has created a new economy and shaped many occupations
-“Side hustles” emerge
-Massive shift has major implications for working conditions, worker power, consumer choice
covid and capitalism
Role of govt: deeming things “essential” regardless of how much they get compensated
Role of business in society: shut down of lots of businesses leads to weak downtown and has lots of implications
Consumer culture: conservative spending, shift to ecommerce
