Capitalism, Socialism, Mixed Economy

Presenter-Jyoti Dadlani

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Introduction to Capitalism

• Capitalism

• Capitalism is an economic system that is based on private ownership of the means of production and the production of goods or services for profit

Examples of capitalists countries: U.S.A, Brazil, Japan, Sudan, Sweden, Colombia

http://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Socialism

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Capitalism - The Features

• Private Property

• Price Mechanism

• Freedom Of Enterprise

• Competition

• Profit Motive

• Sovereignty of the Consumer

• Labour – As a Commodity

http://www.thegeminigeek.com/what-is-capitalism

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Capitalism - Pros

• The Rich Variety Of Goods And Services

• Proper Use Of Resources

• Inducement To Work

• Efficient Production

• Increase In Standard Of Living

• Automatic

• Growth Of Entrepreneurship

• Economic Freedom

http://www.thegeminigeek.com/what-is-capitalism

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Capitalism - Cons

• Unequal Distribution Of Wealth

• Class Struggle

• Exploitation Of Labour

• Wasteful Competition

• Business Fluctuations & Unemployment

• Disregard Of Public Welfare

• Lack Of Coordination

http://www.thegeminigeek.com/what-is-capitalism/

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Case Study - Switzerland

• Swiss History -Prehistoric times

• Alamans to the Holy Roman Empire

• Middle Ages-The birth of the Swiss Association

• The Reformation

• The 18th century

• The federal state-19th century

• The 20th century

www.swissworld.org

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Rhenish Capitalism

1. World Rank-5

2. Population-7.95million

3. GDP-$399.9 Billion

4. Unemplyment-4.2 %

5. Inflation (CPI)-o.2 %

6. FDI inflow-22.7% of the resident population

7. Rule Of Law, Limited Govt, Regulatory Efficiency ,Open Market, Dependence on trade

www.heritage.org/index/country

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• Switzerland’s economy is based on a highly qualified labour force performing highly skilled work.

• Swiss financial centre is a central pillar of the Swiss economy, generating over 11% of GDP

• Close to 70% of their global premium income-overseas, indicating a high degree of internationalisation- re-insurer.

www.heritage.org/index/country

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Introduction to Socialism

• An economic and political system based on public or collective ownership of the means of production. Examples of capitalists countries: Vietnam, North Korea, USSR, Poland.

• There are varieties of socialism which differ based on the type of ownership each advocates.

• Early advocates 1: Had a scientific approach wanting to create a meritocratic society. Key focus being administrative efficiency & industrialism.

• Early advocates 2: Had based their idea on David Ricardo’s economic theory. The central beliefs of Ricardian socialism are that all exchange value is created from labour, and that labour is entitled to all it produces.

• After advent of Capitalism (Karl Marx), socialism came to refer to ownership and administration of means of production by working class, either through the state apparatus or independent co-operatives.

http://en.wikipedia.org/wiki/Socialism#Philosophyhttp://en.wikipedia.org/wiki/Socialism#Economics

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Socialism - Advantages

• Public Ownership: Means of production are collectively and socially owned and are not the property of private individuals.

• Planned Economy: Decisions regarding allocation of resources to various end, goods and methods of productions are taken by a Central Authority and not left to individuals which happens in Capitalist economies.

• Pricing Mechanism: Pricing process does not operate on markets dynamics, but works under the control of central planning authority.

• Classless Society: Aims at increasing the material and cultural standards of the people by ensuring full employment and achieving equality of income.

• Basic necessities: Needs like food, shelter, clothing, health, education and employment are fulfilled by the central authority or the State without any discrimination.

• Equal opportunity: Guarantees equal opportunity, since individuals talent, skill will determine success. Economic rights are automatically protected by their duties and no one deprived of basic necessities.

• No competition: State has full control over the production of goods and services. Moreover the focus is confined to essentials than consumers’ choice.

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Socialism - Disadvantages

• Elimination of individualism: Lack of economic freedom since individuals are not allowed to own any assets. Cannot change jobs without authority’s consent.

• Red tapism and inefficiency: Lot of bureaucracy as they are the drivers of economy. Civil servants/employees are more duty-bound hence the inefficiency.

• Artificial system: Every aspect of the economy is planned and controlled and determined by the government. Forces of supply and demand do not apply which would otherwise make an economy prosper.

• Consumer suffers: Sovereignty of consumer does not apply in a socialist economy. Consumers do not enjoy the status of a consumer as in a capitalist economy. Choices of goods and services are able to maximize their total satisfaction.

• No economic or political freedom: Freedom of enterprise, choice is compromised. Basic needs are fulfilled at the cost of economic and political freedom.

• No competition: With everything controlled by the central authority, competition does not exist. The competition between producers and consumers leads to the production of a good quality product which may even be relatively cheap here it is one the disadvantages of socialism.

Presenter- Manasi Telang

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Democratic People’s Republic of Korea

• The Democratic People's Republic of Korea, abbreviated as DPRK, and commonly referred to as North Korea with Pyongyang as its capital. It is a single-party state under a united front led by the Korean Workers' Party (KWP).

• The country's government follows the Juche ideology of self-reliance, initiated by the country's first President, Kim Il-sung. After his death, Kim Il-sung was declared the country's Eternal President.

• Juche became the official state ideology, replacing Marxism–Leninism, when the country adopted a new constitution in 1972.

• This ideology is based on 3 fundamental principles:

• Political independence

• Economic self-sustenance

• Self-reliance in defence

• Songun or the "Military First" policy, prioritizes the Korean People's Army in the affairs of state and allocates national resources to the army first. This is the guiding principle of the Korean economic system.

http://en.wikipedia.org/wiki/North_Korean#Economy

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Democratic People’s Republic of Korea

• North Korea remains an unreformed and essentially closed dictatorial state.

• Despite experimenting with a few market reforms over the past decade, the world’s most repressed economy adheres firmly to a system of state command and control that upholds the regime’s long-standing songun (“military first”) policy. The Workers’ Party tightly controls every aspect of economic activity.

• The impoverished population is heavily dependent on government subsidies in housing and food rations, and the state-run rationing system has deteriorated significantly in recent years.

2013 Index of Economic Freedomhttp://www.heritage.org/index/country/northkorea

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Democratic People’s Republic of Korea

RULE OF LAW:

• Property rights are not guaranteed. Almost all property belongs to the state, and government control extends even to chattel property (domestically produced goods and all imports and exports).

• A functioning modern judicial system does not exist. Corruption in the government and security forces is rampant. The ruling Workers’ Party, the Korean People’s Army, and members of the cabinet run companies that compete to earn foreign exchange.

LIMITED GOVERNMENT:

• No effective tax system is in place. The government commands and dictates almost every part of the economy. The government sets production levels for most products, and state-owned industries account for nearly all GDP. The state directs all significant economic activity. Large military spending further drains scarce resources. Despite the state’s attempts to crack down on them, black markets have grown.

2013 Index of Economic Freedomhttp://www.heritage.org/index/country/northkorea

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Democratic People’s Republic of KoreaREGULATORY EFFICIENCY:

• The state continues to regulate the economy heavily through central planning and control. Entrepreneurial activity remains virtually impossible. As the main source of employment, the state determines wages. It also tightly controls the labour market and the movement of people.

• The botched currency reform in late 2009 resulted in increased inflation and confiscation of operational capital and savings earned by private traders.

OPEN MARKETS:

• Formal trade is minimal. Most legitimate trade is de facto aid, mainly from North Korea’s two main trading partners, China and South Korea. Inter-Korean trade remains constrained by North Korea’s unwillingness to implement needed reforms. Limited foreign participation is allowed in the economy through special economic zones where investment is approved on a case-by-case basis. The financial sector is firmly controlled by the state.

2013 Index of Economic Freedomhttp://www.heritage.org/index/country/northkorea

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Democratic People’s Republic of Korea• World Rank-177

• Population-24.5 million

• GDP- Figure unavailable

• Unemployment- Figure unavailable

• Inflation (CPI)- Figure unavailable

• FDI inflow- $55.0 million

North Korea is largely isolated and disengaged from the world’s economy. Data collection is extremely challenging, and reported statistics on the economy remain largely speculative, requiring careful evaluation. North Korea’s economic freedom score is 1.5, making its economy the .least free in the 2013 Index.

2013 Index of Economic Freedomhttp://www.heritage.org/index/country/northkorea

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