1

ComparingComparingEconomic SystemsEconomic SystemsSECTION 1: Development Models

SECTION 2: Capitalism

SECTION 3: Socialism

SECTION 4: Communism

CHAPTER 16

2

Objectives:Objectives:How can ownership of capital be used to

identify an economic system?How do command systems and market

systems differ?

Development ModelsDevelopment ModelsSECTION 1

3

Ways ownership of capital can be Ways ownership of capital can be used to identify an economic system:used to identify an economic system:when most capital is owned by the

government—socialist systemwhen most capital is privately owned—

capitalist system

Development ModelsDevelopment ModelsSECTION 1

4

Differences between command Differences between command systems and market systems:systems and market systems:Command systems—when use of capital

and other factors of production are decided by individuals and businesses

Market systems—when use of capital and other factors of production are decided by the government

Development ModelsDevelopment ModelsSECTION 1

5

Objectives:Objectives:What factors contributed to the development

of capitalism?How does the U.S. free-enterprise system

compare to capitalist systems in Japan, Germany, France, and South Korea?

CapitalismCapitalismSECTION 2

6

Factors that contributed to the Factors that contributed to the development of capitalism:development of capitalism: decline of manorialism—the system in which land-

owning nobles granted peasants the chance to work the land for fixed payments

mercantilism—the system in which a nation’s wealth determines its power

influence of Adam Smith—argued that economies would prosper with profit motives, competition, and lack of government interference

CapitalismCapitalismSECTION 2

7

Comparing the U.S. capitalist system Comparing the U.S. capitalist system to non-U.S. economic systemsto non-U.S. economic systems Japan:

similarity—private control of capital difference—more government influence in

allocation

CapitalismCapitalismSECTION 2

8

Comparing the U.S. capitalist system Comparing the U.S. capitalist system to non-U.S. economic systemsto non-U.S. economic systemsGermany:

similarities—little government interference, and dependence on same types of fiscal and monetary policies as U.S.

difference—different coordination of economic regulation

CapitalismCapitalismSECTION 2

9

Comparing the U.S. capitalist system Comparing the U.S. capitalist system to non-U.S. economic systemsto non-U.S. economic systemsFrance:

similarity— increased privatization of industry difference—creation of five-year plans

CapitalismCapitalismSECTION 2

10

Comparing the U.S. capitalist system Comparing the U.S. capitalist system to non-U.S. economic systemsto non-U.S. economic systemsSouth Korea:

similarity—private control of capital difference—high government involvement in

allocation

CapitalismCapitalismSECTION 2

11

Objectives:Objectives:What conditions led to the development of

socialism?How has high taxation affected Sweden’s

economy?

SocialismSocialismSECTION 3

12

Conditions that led to the birth of socialismConditions that led to the birth of socialism Harsh working conditions during the Industrial

Revolution: hazardous working environment low wages long working hours child labor

Decline in workers’ quality of life: overcrowded housing industrial pollution lack of sanitation and medical facilities

SocialismSocialismSECTION 3

13

Effects of high taxation on Sweden’s Effects of high taxation on Sweden’s economy:economy: workers demanded higher wages to meet their tax

burden prices went up as wages increased higher prices made Swedish goods less competitive

in the marketplace the government’s deficit and borrowing increased

to meet economic and social goals as taxes were inadequate to fund them

SocialismSocialismSECTION 3

14

Effects of high taxation on Sweden’s Effects of high taxation on Sweden’s economy: economy: (continued)(continued) the country fell into recession government limited welfare benefits to reduce the

deficit government services were ultimately privatized

SocialismSocialismSECTION 3

15

Objectives:Objectives:How did Karl Marx use history to develop

the theories of communism?What economic factors contributed to the

fall of the Soviet Union?How did centralization affect the economy

of the People’s Republic of China?

CommunismCommunismSECTION 4

16

Karl Marx based the theories of Karl Marx based the theories of communism on his view of history: a communism on his view of history: a series of class struggles between series of class struggles between owners of production resources and owners of production resources and laborers. laborers.

CommunismCommunismSECTION 4

17

Economic factors that contributed to Economic factors that contributed to the fall of the Soviet Union:the fall of the Soviet Union: production decisions made by central planners

rather than by the forces of supply and demand no incentives for producers to increase production shortages of capital, which led to scarcity of goods

and services inability to compete in the marketplace because of

outdated technology Gorbachev’s economic reforms

CommunismCommunismSECTION 4

18

Effects of centralization on the economy of Effects of centralization on the economy of the People’s Republic of Chinathe People’s Republic of ChinaGreat Leap Forward:

decline in industrial output low agricultural productivity from misuse of

resources

Cultural Revolution: closure of factories and schools increase in manual labor force in rural areas

CommunismCommunismSECTION 4

19

Effects of centralization on the economy of Effects of centralization on the economy of the People’s Republic of China the People’s Republic of China (continued)(continued)Four Modernizations:

better balanced the production of consumer goods and capital goods

more market-responsive policies

CommunismCommunismSECTION 4

20

1.1. What are the characteristics of a market system? Give an example of such a system.

2.2. How do U.S. and German fiscal policies differ?

3.3. How does the value Swedish citizens place on social services influence their economy?

4.4. How did Karl Marx’s ideas influence the economies in the Soviet Union and the People’s Republic of China?

Wrap-UpWrap-Up

CHAPTER 16

21

5.5. How did Mikhail Gorbachev contribute to economic reform in the Soviet Union?

6.6. What was the Great Leap Forward, and why did it fail?

Wrap-UpWrap-Up

CHAPTER 16