THE SOCIAL INSTITUTION RESPONSIBLE FORORGANIZING THE PRODUCTION, DISTRIBUTION,AND CONSUMPTION OF GOODS AND SERVICES

Social Institution• A stable and widely accepted cluster of values,

norms, statuses, roles and groups that develops around a basic need in society. As such, an institution is a complex phenomenon, much more complicated than the mere sum of its parts.

• Major Social Institutions:– The economy

– The political system

– Religious systems

– The educational system

– The health system

– The family

Social Institutions Are the Environment which Influence, and Give Meaning to, the Individual

Social Institutions• INSTITUTIONS• Organized patterns of beliefs and behaviors centered

on basic social needs, adapting to a specific segment of society in question--rural doctor vs. urban specialist.

• Functionalism:• Interrelated and interdependent, resist change,

integrated, promote stability. Focus: How they fulfill essential system requirements, Self-correcting;– Replacing personnel – Teaching new recruits – Producing and distributing goods and services – Preserving Order – Providing and maintaining a sense of purpose

Social Institutions• INSTITUTIONS

• Conflict:

• The outcome and functioning of institutional structures is not necessarily efficient nor desirable.

• Order is negotiated, but not all groups have equal footing.

• Organization of major institutions is built upon the interests and control of dominant groups. Preserve status quo, inhibit change by maintaining relationships of inequality in Schools, Politics, Economics. (Source of Social Problems)

Social Institutions• INSTITUTIONS

• Symbolic Interaction:Workers engage in informal interactions to structure

their work environment reality

Communication: formal vs. informal: a remark by corporate executive becomes viewed as an order, nurses making decisions for doctors.

Real and varied negotiations over roles and status

Historical Review of the Economy

• Agricultural Revolution (roughly 5,000 years ago)– Four factors gave rise to the economy as a social institution

• Agricultural technology - surplus of food

• Specialized work – Artisans and tradespersons; not everyone needed to produce food

• Permanent settlements- people could lead more stable lives

• Trade – the exchange of surpluses, or other valuables could occur between settlements

• Industrial Revolution– New sources of energy

– Centralization of work in factories

– Mass production

– Over-specialization – artisans used to make entire product at home; now a worker only one small part

– Wage labor

• Post Industrial Economy– From tangible products to ideas

– From mechanical skills to literacy skills

– From factories to ……………….. anywhere

The Transformation of the Medium of Exchange

• The Medium of Exchange - the means by which people value and exchange goods and services.

• Mediums of exchange have progressed over time:– Barter - direct exchange– Money - places a value on items.– Debit cards and E-cash - digital currency.

ECONOMIC EXPANSION

• AGRICULTURAL TECHNOLOGY• PRODUCTIVE SPECIALIZATION• PERMANENT SETTLEMENTS• EXPANDED TRAVEL AND TRADE• WORK WORLD BECAME SEPARATE FROM

THE WORLD OF THE FAMILY• COTTAGE INDUSTRIES FLOURISHED AS

PERSONS WORKED AT JOBS AND IN HOMES PRODUCING MARKET GOODS

KEY FACTORS:

Preindustrial Societies• The earliest human groups had a subsistence economy,

living off of the land.

• Horticultural societies began breeding animals and cultivating plants.

– This allowed them to settle in one area.

• Agricultural societies formed after the invention of the plow, and individuals created more than what was needed for survival.

– This surplus led to a division of labor and social stratification; class and caste.

TERMINOLOGY• SOCIAL STRATIFICATION

– THE DIVISION OF SOCIETY INTO RANKED CATEGORIES OF PEOPLE

• EACH ENJOYING DIFFERENT LEVELS OF ACCESS TO SCARCE AND VALUED RESOURCES

– CHIEFLY PROPERTY, PRESTIGE, AND SOCIAL POWER

• SOCIAL CLASS– A CATEORY OF PEOPLE WHO SHARE A

COMMON POSITION IN A VERTICAL HIERARCHY OF DIFFERENTIAL SOCIAL REWARD

• STRUCTURED SOCIAL STRATIFICATION– WHEN STRATIFICATION IS BUILT INTO

SOCIETY• AS WITH THE AMERICAN CLASS SYSTEM

CLIMBING SOMECLIMBING SOMELADDERS IS MORELADDERS IS MOREEASILY DONE THANEASILY DONE THANCLIMBING THE CLIMBING THE LADDER OF SOCIAL LADDER OF SOCIAL SUCCESS!SUCCESS!

INDUSTRIALIZATION INTRODUCED FIVE NOTABLE CHANGES TO WESTERN SOCIETIES

• NEW FORMS OF ENERGIES– STEAM-FUELED MACHINE OPERATION

• CENTRALIZATION OF WORK– IMPERSONAL FACTORIES REPLACED COTTAGE INDUSTRIES

• MANUFACTURING AND MASS PRODUCTION– TURNING RAW MATERIALS INTO A WIDE RANGE OF

PRODUCTS

• SPECIALIZATION– DIVERSE DIVISION OF LABOR AND LOWER OVERALL SKILL

REQUIREMENTS

• WAGE LABOR– WORKING FOR STRANGERS WITH INTENSE SUPERVISION

• POSTINDUSTRIAL ECONOMY– BASED ON SERVICE WORK AND HIGH-TECH

• FROM THE TANGIBLE TO THE INTANGIBLE– CREATING AND MANIPULATING SYMBOLS IN

MODERN SOCIETY

• MECHANICAL TO LITERACY SKILLS– SPEAKING, WRITING, AND COMPUTER

KNOWLEDGE

• DECENTRALIZATION OF WORK– FLEX-TIME, FAX MACHINES, “OFFICE ON THE

GO”

SECTORS OF THE ECONOMY

• PRIMARY SECTOR– GENERATION OF RAW MATERIALS FROM THE

ENVIRONMENT• LOW INCOME COUNTRIES = 63% OF ECONOMY

• HIGH INCOME COUNTRIES = 4% OF ECONOMY

• SECONDARY SECTOR– TRANSFORMATION OF RAW MATERIALS INTO

MANUFACTURED GOODS• GROWTH RAPID IN ALL INDUSTRIALIZED NATIONS OR THOSE

ENTERING THE PHASE

• TERTIARY SECTOR– ECONOMY GENERATES SERVICES RATHER THAN GOODS

• LOW INCOME COUNTRIES = 22% OF ECONOMY

• HIGH INCOME COUNTRIES = 70% OF ECONOMY

SUCH EVOLUTION ALSO IMPACTED ECONOMIC SECTORS

0

10

20

30

40

50

60

70

Low-Income Middle-Income High-Income

63

32

415

28 2822

40

68

PRIMARY SECTOR SECONDARY SECTOR TERTIARY SECTOR

SIZE OF ECONOMIC SECTORSby Income Level of Country and Percent of Economic Output

Estimates based on The World Bank, 1995

Economy and Society

• Economy – the organization of the means by which necessary and/or desired goods and services are produced and distributed among the members of a society or a group within that society

• Capitalism – an economic system in which the means of production are privately owned and market forces determine production and distribution

• Socialism – an economic system in which the means of production are collectively owned and the state directs production and distribution

CAPITALISMCAPITALISM• PRIVATE OWNERSHIP OF

PROPERTY– KEY CONCEPT OF CAPITALISM

• PURSUIT OF PERSONAL PROFIT– SIMPLY A “MATTER OF DOING

BUSINESS”

• FREE COMPETITION– THE “INVISIBLE HAND” IS AT WORK

SO LEAVE THE MARKET ALONE

Economy and Society

• The Spirit of Capitalism• Adam Smith – “The Wealth of Nations “ Every individual

endeavors to employ his capital so that its produce may be of the greatest value. He generally neither intends to promote the public interest nor knows how much he is promoting it. He intends only his own security, only his own gain, and he is thus led by an invisible hand to promote an end which was no part of his intentions.” Which hand is it?

Economy and Society

• The Spirit of Capitalism• “Rational Choice” an individual’s choice, if unfettered by

external forces, will be rational, and based upon their perceptions of what is best for themselves. Adam Smith introduced this concept when arguing for capitalism. Acceptance of the rational choice model requires additional assumptions that are macro in nature, as they claim influence upon most of the social institutions which make up any society.

How does one make a “rational choice”?

Who decides what choices we have?

How does the process occur?

What is rational?

Economy and Society• The Spirit of Capitalism• Capitalism rests on principles that are supported by rational

choice theory. These principles include:– Free-Market Competition – economic forces will guarantee the

greatest good for the greatest number of people (utility) within a society, provided that the government does not compete with , or hinder, private enterprise; laissez-faire *

– Private Ownership – private individuals, alone or in groups, own the means of production

– Pursuit of Profit – the pursuit of profit will produce the greatest good for the greatest number of people because it ensures that successful risk takers earn profit, the consumer saves money, and the society becomes more efficient and vigorous

– * Marx asserted that un-regulated capitalism contained the forces which would be self-destructive; greed and power.

• COLLECTIVE OWNERSHIP– LIMITS THE RIGHT TO OWN

PROPERTY

– FORM A CLASSLESS SOCIETY

• PURSUIT OF COLLECTIVE GOALS– PURSUIT OF PROFITS STANDS AT

ODDS WITH COLLECTIVE GOOD

• GOVERNMENT CONTROL OF THE ECONOMY– CENTRALLY CONTROLLED

ECONOMY

– CONSUMERS SHOULD NOT DRIVE ECONOMY (WHY?)

Economy and Society• Socialism• Under socialism the government plays a direct role in the

economy by assuming ownership of a society’s strategic businesses, industries, and resources

• In theory, the means of production are held in trust by the government for the benefit of all citizens

• An item’s value is based upon the work that goes into it; profit is excess value withheld from the worker (Marx)

• Criticisms of Socialism– Socialism merely replaces the forces of competition with the

forces of vast bureaucracies in order to control the economy– Socialism leads to a lack of incentive and creativeness– Socialism tends to be more resistant to adaptation and change

than capitalism

• ECONOMIC PRODUCTIVITY– GDP IS $13,500.00

• ECONOMIC EQUALITY– MORE INCOME DISPARITY

• OVERALL WELL-BEING– A HIGH QUALITY OF LIFE,

BUT GREATER DISPARITIES

• PERSONAL FREEDOMS– ARE THE HEART OF A

CAPITALISTIC SYSTEM; THE NEED CREATIVE FORCES

• ECONOMIC PRODUCTIVITY– GDP IS $5,000.00

• ECONOMIC EQUALITY– LESS INCOME DISPARITY

• OVERALL WELL-BEING– LOWER STANDARDS OF

LIVING, BUT LESS DISPARITY

• PERSONAL FREEDOM– STRESS IS PLACED UPON

FREEDOM FROM BASIC NEEDS

CAPITALISM SOCIALISM

MANY SOCIALIST ECONOMIES HAVE FAILED DUE TOUNDERPRODUCTION, LOW LIVING STANDARDS, LARGELY

INEFFECTIVE CENTRAL GOVERNMENTS, AND OVERLY RIGID CONTROL OF INFORMATION AND PERSONAL MOVEMENT.

Economy and Society• Unemployment and Profits• Case study, last page of handout

• What are the social costs of profit achieved by the elimination of jobs?

• What are the corporation’s responsibility to society for the social consequences of downsizing?

• How does the fact that businesses create jobs, generate income, pay taxes, and infuse the culture with new technology answer some of the above questions?

• How does the anxiety of job loss, either real or imagined, affect the individual worker, the social interaction between workers (competition), and the relationships between management and line employees?

• Are unions a means for the workers to eliminate some of the negative aspects of competitive capitalism? Are they functional, even to those who own the majority of the assets of our society?

The Future

• Trade among nations will increase greatly.

• Not all nations will benefit equally.

• Computer driven production will continue to reduce the number of workers needed.

• Technology also creates new jobs.

• Our future will consist of a divided society; a small affluent group and a larger less affluent group. (What do you think?)

THE WORKFORCE• THE DUAL LABOR MARKET

– PRIMARY LABOR MARKET• EXTENSIVE BENEFITS TO WORKERS

– SECONDARY LABOR MARKET• MINIMAL BENEFITS TO WORKERS

• LABOR UNIONS– ORGANIZED LABOR SEEKING BETTER WAGES

AND BENEFITS FOR MEMBERS

– DECLINE OF UNIONS• LOSS OF HIGHLY UNIONIZED JOBS

• CONCESSIONS HAVE INCLUDED DISSOLUTION OF UNIONS

• MANY TEMPORARY WORKERS THESE DAYS

• TRAITS OF PROFESSIONALS:– THEORETICAL KNOWLEDGE

• EXTENSIVE SCHOOLING

– SELF-REGULATED TRAINING• PARTICIPATION IN ASSOCIATIONS

– AUTHORITY OVER CLIENTS• FOLLOW MY SUGGESTIONS

– ORIENTATION TO COMMUNITY• NOT THE PAY, BUT THE HELP

• PARAPROFESSIONALS– NOT ABLE TO CLAIM FULL

PROFESSIONAL STATUS

• SELF-EMPLOYMENT– EARNING A LIVING WITHOUT WORKING

FOR A LARGE CORPORATION• WOMEN FIND FREEDOM AND OPPORTUNITY

Work in U.S. Society

• Today, farmers make up just over 2% of the work force.

• The Quiet Revolution - the many women who have joined the ranks of paid labor.

• The Underground Economy - activities that people do not report to the government.

• Teleworking - our current technology has allowed several million workers to return home.

TO HAVE OR NOT HAVE TECHNICAL EXPERTISE…THAT WILL BE THE QUESTION IN THE FUTURE

• “DE-SKILLING” LABOR– MACHINES MAKE DECISION-

MAKERS OBSOLETE

• MAKING WORK MORE ABSTRACT– UNDERSTANDING RATHER

THAN “DOING”

• LIMITING WORKSPACE INTERACTION– ISOLATES WORKERS

• INCREASING CONTROL OVER WORKERS– ELECTRONIC MONITORS

COMPUTERS ARE: “Conflict model”

AN ORGANIZATION WITH A LEGAL EXISTENCE, INCLUDING RIGHTS AND LIABILITIES, APART FROM THOSE OF ITS MEMBERS

• ECONOMIC CONCENTRATION– IN 2002, WAL-MART WAS THE LARGEST

• $214 BILLION IN REVENUE

• 700,000 EMPLOYEES

• CONGLOMERATES - SEVERAL SMALLER CORPORATIONS– STRATEGY FOR DIVERSIFYING

– INTERLOCKING DIRECTORATES

• COMPETITION IS A GREY AREA– MONOPOLY: DOMINATION OF A MARKET BY ONE CORPORATION

– OLIGOPOLY: DOMINATION OF A MARKET BY A FEW CORPORATIONS

– Globalization????

Economy and Society• Sociological Analysis of the Economy• Functionalism

• Social stability is achieved by an efficient distribution of goods and services, the production of wealth and power on a large scale, and, innovation and change which obviates the necessity of a revolution.

• Conflict

• Capitalism creates an inequity of wealth and power that benefits an elite. This elite not only controls the corporate world, but also uses their resources to influence the political order for their own interests, at the expense of others.

• Symbolic Interaction

• Career socialization can lead to multiple outcomes for the individual, and businesses and the media create role models and ideas about work and what that means to individuals. Governments also work to create loyalty to specific economic systems for both idealistic and pragmatic reasons.

• CEO Cash and Stock-Based Compensation Changes, Layoff Decisions, and Shareholder Value (2007)

•Jeffrey T. Brookman University of Nevada, Las Vegas

Saeyoung Chang University of Nevada, Las Vegas - Department of Finance

Craig G. Rennie University of Arkansas - Sam M. Walton College of Business

Financial Review, Forthcoming

•Abstract:      The CEOs of firms announcing layoffs receive 22.8% more total pay in the subsequent year than other CEOs. These pay increases result almost entirely from increases in stock-based compensation and are found to persist. In addition, layoff announcements are accompanied by shareholder value increases averaging $40 million to $95 million. One-time labor cost savings from layoffs average $65 million. We conclude CEOs receive pay increases following layoffs as rewards for past decisions and to motivate value-enhancing decisions in the future.

• Keywords: Corporate Governance, Compensation, Layoffs

• JEL Classifications: G34, J33, J63

• Accepted Paper Series