Classroom Activity – Lesson 1:

“Defining Terms”

“Capitalism” is identified by its characteristic institutions

Institutions: the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction.

• Private Property Rights• Rule of law• Open, competitive markets• Entrepreneurship and innovation

Present ? Evidence?

markets

private property

rule of law

entrepreneurship

ECONOMIC ANALYSISclearly present – the component is present in the economy with few exceptionsgenerally present – the component is present in the economy, but with many or significant exceptionsgenerally absent – the component is only present in the economy in some limited formsclearly absent – the component is almost entirely excluded from the economynot enough information

2012 Country Scenario Updates

United States•With a population of 310m, the US has the largest and most technologically powerful economy in the world, with a GDP of $14.6t and per capita GDP of $48,500. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, lay off surplus workers, and develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, and consistently rank in the top three countries in the world for patent applications, along with China and Japan. •The economic downturn of 2008 has seen economic growth slow to 2.8% in 2010, un-employment rise to 9% nationally (103rd in the world), government spending as a percentage of GDP increase to 42.2% and gross public debt surpass 100% of GDP.

United States•The judiciary functions independently and predictably although serious constitutional questions have arisen regarding the government mandated health insurance decision. •Corruption and cronyism is on the increase and is undermining the institutional integrity of the rule of law, resulting in an 86th percentile ranking in control of corruption and a corruption perception index of 7.1 (out of 10) by Transparency International and a decrease of 4 points in the heritage Foundation score to 71 from a previous 75 in 2010. •Property rights are guaranteed, although affected by increasing regulations, ranking the US 19th in the world, with a score of 85 out of 100 by the Heritage Fndn.

Specific Situation: Apple Patent Victory

Aug. 25, 2012 SAN JOSE, Calif.—Nine jurors delivered a sweeping victory to Apple Inc. in a high-stakes court battle against Samsung Electronics Co., awarding the Silicon Valley company $1.05 billion in damages and providing ammunition for more legal attacks on its mobile-device rivals.

Jurors Friday found that Samsung infringed all but one of the seven patents at issue in the case—a patent covering the physical design of the iPad. They found all seven of Apple's patents valid—despite Samsung's attempts to have them thrown out. They also decided Apple didn't violate any of the five patents Samsung asserted in the case.

Present ? Evidence?

markets

private property

rule of law

entrepreneurship

clearly present

clearly present

clearly present

clearly present

Prices and products determined in markets

Patents upheld

Courts act and decisions are enforced

Millions of companies operate in every sector

ECONOMIC ANALYSISclearly present – the component is present in the economy with few exceptionsgenerally present – the component is present in the economy, but with many or significant exceptionsgenerally absent – the component is only present in the economy in some limited formsclearly absent – the component is almost entirely excluded from the economynot enough information

Capitalism is best thought of not as “a system,” but as a

continuum of institutional combinations . . . .

Some institutional forms confer benefits on the poor . . . and others do NOT.

Less

capitalist

More

capitalist

Fraser Institute Index of Economic Freedom 2009

10 9 8 7 6 5

2007 data

Most Free: Hong Kong 8.9 Least Free: Zimbabwe 2.9

Note scale

change

Fraser Institute Index of Economic Freedom 2012

(Released Sept. 2012)

10 9 8 7 6 5

2010 data

Most Free: Hong Kong 8.9 Least Free: Venezuela 4.07

Note scale

change

2012 Rankings* (Out of 144)

• Hong Kong 1• Singapore 2• NZ 3• Switzerland 4• Australia 5• Canada 6• Bahrain 7• Mauritius 8• Finland 9• Chile 10• United Kingdom 12• Ireland 12• U.S. 18 (down from 3 in 2006)• Japan 20• Poland 48 (88 in 1990)

• Uganda 50 (67 in 2010, 51 in 2001, 113/113 in 1990)

• Jordan 62 (42 in 2010)• Greece 81• Mexico 91 (69 in 2010)• Egypt 99 (from high of 46, 80 in 2010)• Israel 52 (44 in 2007, 83 in 2011)• Russia 95• China 107 (82 in 2010)• India 111• Iran 111• Zimbabwe 142• Myanmar 143• Venezuela 144

*2010 Data* 2010 data

Becoming moremore free: which institutions?

Becoming lessless free: which institutions?

Country Scenarios: Updated summer 2012

Country Scenarios: Updated summer 2012