Chapter 18:Chapter 18: The Economy and Work The Economy and Work

By World-Renowned EconomistBy World-Renowned Economist

Mr. Yuriy SukhorukovMr. Yuriy Sukhorukov

What is an economic system?What is an economic system? Economic System:Economic System: - refers to the social institution through - refers to the social institution through

which goods and services are produced, distributed and which goods and services are produced, distributed and consumed. consumed.

What has been the cause of our current economic What has been the cause of our current economic system?system?

The The industrial revolutionindustrial revolution (which took place in England during (which took place in England during the period of 1760 – 1830) brought about radical changes in the period of 1760 – 1830) brought about radical changes in the social organization of the workplace.the social organization of the workplace.

People left their homes and began working in centralized People left their homes and began working in centralized locations like the factory.locations like the factory.

As the industrial revolution continued, a new from of social As the industrial revolution continued, a new from of social structure emerged: the structure emerged: the industrial societyindustrial society

Industrial Society:Industrial Society: - a society that depends on mechanization - a society that depends on mechanization to produce its goods and services. to produce its goods and services.

LEFT versus RIGHTLEFT versus RIGHT Two basic types of economic systems exist in contemporary Two basic types of economic systems exist in contemporary

industrial societies: Capitalism and Socialism.industrial societies: Capitalism and Socialism. No nation in the entire world precisely fits either model!!!No nation in the entire world precisely fits either model!!! The economy of each individual state represents a mixture of The economy of each individual state represents a mixture of

both capitalism and socialism, although one type is generally both capitalism and socialism, although one type is generally more useful in describing a society’s economic structure.more useful in describing a society’s economic structure.

Question #1:Question #1: Can you think of any examples where the United Can you think of any examples where the United

States adopted some socialistic policies?States adopted some socialistic policies?

CapitalismCapitalism

Capitalism:Capitalism: - is an economic system in which the means of - is an economic system in which the means of production are largely held in private hands and the main production are largely held in private hands and the main incentive for economic activity is the accumulation of wealth. incentive for economic activity is the accumulation of wealth.

Immediately following the Industrial Revolution, the Immediately following the Industrial Revolution, the prevailing form of capitalism was what is termed laissez-faire prevailing form of capitalism was what is termed laissez-faire (also known as “hands off”). (also known as “hands off”).

Under the principle of laissez-faire, as expounded by the Under the principle of laissez-faire, as expounded by the British economist Adam Smith (1723–1790) people could British economist Adam Smith (1723–1790) people could complete freely, with almost no government intervention in complete freely, with almost no government intervention in the economy.the economy.

Capitalism (continued)Capitalism (continued) Two centuries later, capitalism has taken on a somewhat Two centuries later, capitalism has taken on a somewhat

different form. Private ownership and maximization of profits different form. Private ownership and maximization of profits still remain the most significant characteristics of capitalist still remain the most significant characteristics of capitalist economic systems.economic systems.

However, in contrast to the era of laissez-faire economics, the However, in contrast to the era of laissez-faire economics, the capitalism of today features government regulation of the capitalism of today features government regulation of the economic sector.economic sector.

SocialismSocialism Socialist Theory was fist introduced in the writings of Karl Socialist Theory was fist introduced in the writings of Karl

Marx and Friedrich Engels. These European radicals were Marx and Friedrich Engels. These European radicals were very disturbed by the increased exploitation of the working very disturbed by the increased exploitation of the working class that emerged during the industrial revolution. class that emerged during the industrial revolution.

They believed that the capitalism forced large numbers of They believed that the capitalism forced large numbers of people to exchange hard labor for extremely low wages.people to exchange hard labor for extremely low wages.

The owners of the industry profit from the labor of workers by The owners of the industry profit from the labor of workers by primarily because they pay the workers much less than the primarily because they pay the workers much less than the actual value of the goods produced.actual value of the goods produced.

SocialismSocialism A Socialist economic system seeks to eliminate such economic A Socialist economic system seeks to eliminate such economic

exploitation. exploitation. Under Under socialismsocialism, the means of production and distribution in , the means of production and distribution in

society are collectively rather than privately owned. society are collectively rather than privately owned. The basic objective of this system is not just to maximize The basic objective of this system is not just to maximize

profits, but rather to meet the needs of the people.profits, but rather to meet the needs of the people. Socialists reject the idea that the laissez-faire policy of free Socialists reject the idea that the laissez-faire policy of free

competition benefits the general public. competition benefits the general public.

SocialismSocialism Socialists believe that the central government, acting as the Socialists believe that the central government, acting as the

representative of the people, should make the basic economic representative of the people, should make the basic economic decisions. decisions.

Therefore, government ownership of all major industries – Therefore, government ownership of all major industries – including steel production, automobile manufacturing, and including steel production, automobile manufacturing, and agriculture - are the primary goals of a socialist economy. agriculture - are the primary goals of a socialist economy.

Socialist Societies versus Socialist Societies versus Capitalist Nations Capitalist Nations

Socialist societies differ from capitalist nations in their Socialist societies differ from capitalist nations in their commitment to commitment to social service programssocial service programs..

For example, the US government provides free health For example, the US government provides free health insurance to its elderly and poor through the Medicare and insurance to its elderly and poor through the Medicare and Medicaid programs. But socialist countries typically offer Medicaid programs. But socialist countries typically offer government-funded healthcare to government-funded healthcare to all all of their citizens. of their citizens.

Communism!Communism! Karl Marx believed that socialist states would eventually Karl Marx believed that socialist states would eventually

“wither away” and evolve into “wither away” and evolve into communist communist societies.societies. Communism:Communism: - an economic system under which all property - an economic system under which all property

is communally owned and no social distinctions are made on is communally owned and no social distinctions are made on the basis of people’s ability to produce. the basis of people’s ability to produce.

CommunismCommunism In recent decades, the Soviet Union (USSR/CCCP), the People’s Republic In recent decades, the Soviet Union (USSR/CCCP), the People’s Republic

of China, Vietnam, Cuba and various European nations were popularly of China, Vietnam, Cuba and various European nations were popularly thought of as examples of communist economic systems.thought of as examples of communist economic systems.

However, this usage is an incorrect application of the term However, this usage is an incorrect application of the term - Communism- Communism All nations known as communist in the 20All nations known as communist in the 20 thth Century actually fell far short Century actually fell far short

of the ideal type…of the ideal type… As of 2007, the countries of China, Cuba, and Vietnam have remained As of 2007, the countries of China, Cuba, and Vietnam have remained

socialist societies ruled by Communist parties. socialist societies ruled by Communist parties. China’s increased embracing of capitalism has caused many political China’s increased embracing of capitalism has caused many political

theorists to label it as the theorists to label it as the “New Fascist Superpower on the Rise”“New Fascist Superpower on the Rise”

Overview ComparisonOverview Comparison

Economic Economic SystemSystem

Main Main CharacteristicsCharacteristics

Contemporary Contemporary ExamplesExamples

CapitalismCapitalism

Private ownership of the Private ownership of the means of productionmeans of production

Main Objective: Main Objective: Accumulation of ProfitsAccumulation of Profits

CanadaCanada

Great BritainGreat Britain

United StatesUnited States

SocialismSocialism

Collective ownership of Collective ownership of the means of productionthe means of production

Main Objective: Meeting Main Objective: Meeting people’s basic needspeople’s basic needs

GermanyGermany

RussiaRussia

SwedenSweden

YugoslaviaYugoslavia

CommunismCommunism Communal Ownership of Communal Ownership of all Propertyall Property

ChinaChina

CubaCuba

North KoreaNorth Korea

VietnamVietnam

Work and AlienationWork and Alienation All pioneers of sociological thought were concerned about the negative All pioneers of sociological thought were concerned about the negative

impact on workers brought about by the changes caused by the industrial impact on workers brought about by the changes caused by the industrial revolution.revolution.

World renowned sociologist and best-selling author Jeremy Rifkin, has World renowned sociologist and best-selling author Jeremy Rifkin, has stated, stated, “As work becomes more and more automated, human skills become “As work becomes more and more automated, human skills become obsolete and workers lose their jobs altogether, or are forced into low-obsolete and workers lose their jobs altogether, or are forced into low-skills service jobs.”skills service jobs.”

Emile Durkheim (1893-1933) argued that as labor becomes more and more Emile Durkheim (1893-1933) argued that as labor becomes more and more differentiated, individuals begin to experience differentiated, individuals begin to experience anomie – anomie – a loss of direction.a loss of direction.

Workers can’t feel as much fulfillment from performing one specialized Workers can’t feel as much fulfillment from performing one specialized task in a factory as they did when they were totally responsible for creating task in a factory as they did when they were totally responsible for creating a product.a product.

Clearly, the impersonality of bureaucratic organizations can produce a cold Clearly, the impersonality of bureaucratic organizations can produce a cold and uncaring work place – often causing the workers to experience systems and uncaring work place – often causing the workers to experience systems of stress, depression and other health risks. In turn, all of the factors of stress, depression and other health risks. In turn, all of the factors contribute to a decreased productivity rate.contribute to a decreased productivity rate.

But the most penetrating analysis of the dehumanization aspects of But the most penetrating analysis of the dehumanization aspects of industrialization was offered by Marx.industrialization was offered by Marx.

Marx’s ViewMarx’s View Mark believed that as the process of industrialization advanced, workers Mark believed that as the process of industrialization advanced, workers

were robbed of any meaningful relationship to their work. were robbed of any meaningful relationship to their work. The term The term alienation alienation refers to a condition of dissociation from surrounding refers to a condition of dissociation from surrounding

society.society. In Marx’s view, the deeper cause of alienation was the In Marx’s view, the deeper cause of alienation was the powerlessnesspowerlessness of of

workers in any capitalist economic system. workers in any capitalist economic system. They were constantly producing property that was owned by others (the They were constantly producing property that was owned by others (the

members of the capitalist class)members of the capitalist class) The solution to the problem of the worker’s alienation was to give them The solution to the problem of the worker’s alienation was to give them

greater control over the workplace and the products of their labor.greater control over the workplace and the products of their labor. Marx didn’t just focus on limited reform of factory life. Instead, he Marx didn’t just focus on limited reform of factory life. Instead, he

envisioned a revolutionary overthrow of capitalist oppression.envisioned a revolutionary overthrow of capitalist oppression. After a transition to collective ownership of the means of production After a transition to collective ownership of the means of production

(Socialism), the ideal of communism would eventually be achieved.(Socialism), the ideal of communism would eventually be achieved.

What actually ended up happening...What actually ended up happening... Yet the trend in capitalist societies has been toward the concentration of Yet the trend in capitalist societies has been toward the concentration of

ownership by giant corporations.ownership by giant corporations. Currently, about 49 percent of the paid U.S. labor force is employed by Currently, about 49 percent of the paid U.S. labor force is employed by

business firms with an employee count of over 500 workersbusiness firms with an employee count of over 500 workers As a result of various mergers and acquisitions, corporations become even As a result of various mergers and acquisitions, corporations become even

larger and individual workers find themselves dwarfed by companies of larger and individual workers find themselves dwarfed by companies of overwhelming size and power. overwhelming size and power.

In fact, the growth in the size of businesses, the emergence of huge In fact, the growth in the size of businesses, the emergence of huge franchise chains, and the dominance of multi-national corporations has franchise chains, and the dominance of multi-national corporations has become larger. become larger.

GlobalizationGlobalization As proponents of the power elite model have pointed out, the As proponents of the power elite model have pointed out, the

trend in modern-day capitalist societies has been towards trend in modern-day capitalist societies has been towards concentration of ownership by a few giant corporations – concentration of ownership by a few giant corporations – especially the multinationals.especially the multinationals.

Economic Globalization:Economic Globalization: - the integration of national - the integration of national economies into the international economy through trade, economies into the international economy through trade, foreign investment, migration and spread of technology.foreign investment, migration and spread of technology.

Question #2:Question #2: Do you think that multinational conglomerates hold Do you think that multinational conglomerates hold

any allegiance to their home country?any allegiance to their home country?

DeindustrializationDeindustrialization Deindustrialization:Deindustrialization: - a process of social and economic - a process of social and economic

change caused by the removal or reduction of industrial change caused by the removal or reduction of industrial capacity in a country or region, especially heavy industry or capacity in a country or region, especially heavy industry or the manufacturing industry.the manufacturing industry.

This in turn, makes the national economy much weaker while This in turn, makes the national economy much weaker while giving the multinational conglomerates much more power and giving the multinational conglomerates much more power and versatility in terms of business opportunity. versatility in terms of business opportunity.

Outsourcing American JobsOutsourcing American Jobs Offshoring:Offshoring: - the transfer of work to foreign contractors, has - the transfer of work to foreign contractors, has

become a recent global phenomenon involving both developed become a recent global phenomenon involving both developed and developing nations (Industrial versus and developing nations (Industrial versus Third WorldThird World nations) nations)

Goods and tangible products are not the only things that are Goods and tangible products are not the only things that are being outsourced oversees to foreign nations.being outsourced oversees to foreign nations.

Even professional services can be outsourced to nations like Even professional services can be outsourced to nations like India, which possess a large, English speaking population that India, which possess a large, English speaking population that will work for comparatively low wages.will work for comparatively low wages.

Question #3:Question #3: Do you think it is the government’s responsibility to Do you think it is the government’s responsibility to

make sure that American jobs stay in the US?make sure that American jobs stay in the US?

Beyond Left & RightBeyond Left & Right Third Postionism:Third Postionism: - a recent political phenomenon that emphasizes its - a recent political phenomenon that emphasizes its

opposition to both communism and capitalism.opposition to both communism and capitalism. The name “Third Position” is derived from the school of thought The name “Third Position” is derived from the school of thought

presenting itself as being “beyond Capitalism and Communism” and presenting itself as being “beyond Capitalism and Communism” and “neither left not right.” – viewing the left-right dichotomy as a rather “neither left not right.” – viewing the left-right dichotomy as a rather outdated concept with almost no practical use in the modern day.outdated concept with almost no practical use in the modern day.

This philosophy has been increasingly gaining ground in Europe, where This philosophy has been increasingly gaining ground in Europe, where many fledgling political parties have called for a new movement expousing many fledgling political parties have called for a new movement expousing both social traditionalism and economic nationalism.both social traditionalism and economic nationalism.