the united states and the world unit 8. chapter 26 comparing economic systems

THE UNITED STATES AND THE WORLD

Unit 8

Chapter 26

Comparing Economic Systems

International Trade and Its Benefits

More goods imported into US than exported (trade deficit)

Basic economic problem is called scarcity, people do not have enough resources to meet all of their wants

Problem solved by trade with other nationsWhy nations tradeA. Trade for goods and services they do not

haveB. Comparative advantage, some countries

can produce goods at a lower cost Allows nations to specialize in things they

produce more efficiently than other countries

Can result in overproduction, so they sell items on international market

C. Trade creates jobs

International Trade and Its BenefitsBarriers to International Trade Tariffs- a tax on imported goods Makes the price of the imported good

higher than domestically produced goods, goal is to get customers to buy domestic product

Quotas- blocking trade by limiting imports Trade barriers often do not work, causes

customers to pay higher prices Movement toward free trade, reduction of

trade barriers internationally


Regional Trade Agreements

Countries join together in zones of free trade

Trade barriers removed and trade increases among those countries

European Union (EU) organization of independent European nations

Combined value of all goods and services rival US

No trade barriers among nations

2002 began to use common currency called the euro (not all countries agreed)


North American Free Trade Agreement (NAFTA)- Early 1990’s US, Canada, Mexico signed free trade pact

Since signing trade has grown twice as fast as economy

Many criticize deal saying jobs in US will be lost to lower work costs in Mexico

Supporters argue that it stimulates growth and puts more low cost goods on the market

World Trade Organization (WTO) oversees trade among nations

Negotiates trade rules, helps countries trying to develop their economies, settles trade disputes

Critics say their policies favor major corporations at the expense of workers, environment and poor countries


Financing Trade Different countries use different currency Exchange rate determines price of

certain nations currency Flexible system where forces of supply

and demand set price of different currencies, price may change from day to day

Exchange rate can have an effect on the balance of trade (difference of value between imports and exports for a country)

Weak currency means more exports because goods from that country are cheaper

Strong currency means fewer imports


Trade deficits and surpluses

Deficit- when imports value exceeds value of exports

Surplus- exports exceeds value of imports

*Increase in supply of countries currency around the world because of trade deficit causes currency to become devalued (weak), causes imports to become more expensive and system self corrects*

Economic Systems

Basic economic question is how to deal with scarcity (how to manage resources to meet needs of all, when there is never enough)

All economic systems must answer three basic questions:

What goods and services should be produced? How should these goods and services be

produced? Who consumes these goods and services? Different economic systems answer these

questions in different ways Three different types- market, command,

mixed economic systems

Scarce Resources

All goods and services are scarce because land, labor and capital are limited

What goes into making French fries?

Economic Systems

Market Economy (aka capitalism)

Business decisions made by private individuals based on supply and demand, ability to make a profit

Private citizens own factors of production -natural resources, capital (money, education, tools), labor and entrepreneurship

Supply and demand interact to set prices

Market economy is decentralized, economy runs itself

Economic Systems

Command Economies Direct contrast to free market

economy Central government answers

key economic questions Government owns factors of

production, set quotas on what to produce

Self interest and competition absent from system

People have less economic freedom, fewer choices than market economy

Type of economy can be very inefficient

Economic Systems

Socialism and Communism Socialism political and social philosophy

based on belief that democratic means should be used to distribute the wealth

Public controls centers of economic power Government owns major industries Communism economic and political power

in the hands of the central government Society can only change after a violent

revolution and all government is authoritarian

Economic Systems

Mixed Economies Most contemporary economies are mixed economies

that blend the market and government intervention United States (and most countries) are mixed

economies Private individuals make decisions and the

government regulates activity Government provides defense, system of justice,

makes sure markets stay competitive Government plays a role with externalities Externalities are unintended consequences of

government or individual action Takes steps to reduce pollution (negative

externality) or to provide funding for scientific research that can be used to develop new products (space program- positive)

Government also provides public goods- good or service which it would be impractical to make consumers pay for individually and is available to all (streetlights)

Economies in Transition Many nations today are switching from

traditional or command economies to market based economy

Command economies unable to achieve economic growth, meet needs of consumers

By 1991 many economies in Eastern Europe transitioned their political and economic systems

Russia 1991 USSR collapsed Economy had been planned by central

government (decision on what to make and sell decided by government)

Focused on industry, military and not on consumer goods

Caused shortages State owned businesses were sold to private

investors Private investors now make government

decisions, transition has been slow and filled with corruption

Economies in Transition

China Moving from a command economy to a

market economy Economy used to be modeled on Soviet

model During 1990’s fell behind neighboring

countries and introduced reforms to catch up

Converted state owned factories to private hands, set up stock market in Shanghai

1997 reunified with Hong Kong the ultimate free market where the private sector rules

Over the past 20 years economy has experienced phenomenal growth

Many in China have lost land and become displaced because of economic transition


Developing Countries Many countries making

transition to market based economy

Many are developing countries

Development is based on how well a nation provides food, education, shelter, and levels of economic production


Characteristics of Developing Countries

1. Low per capita GDP2. Low energy usage, because no

infrastructure or manufacturing3. Most of population in agriculture

(subsistence farming)4. Unemployment rates high5. Education system inadequate, children

needed to work on farms; literacy rates low

6. Most of population is rural (not always)7. Poor diet, access to health care lead to

high infant mortality and lower life expectancy

8. Physical geography makes development difficult

9. Uneven distributions of resources, arable land


Political Factors Colonial legacy Many were former colonies with economies based on

extraction of raw materials Shipped to colonizers, turned into finished products,

rely on colonies for manufactured goods After WWII many became independent, turned to

central planning, many are now turning to free enterprise

Corruption in government Policies and political decisions to only benefit a small

minority, leaving many with needs unmet Civil wars and social unrest have plagued many

countries Military leaders spend huge sums of money at the

expense of other societal needs


Debt and Helping Developing Countries Some countries foreign debt is greater than

annual GDP Building infrastructure, developing education,

healthcare and creating industry require large sums of money

International institutions promote development World Bank- largest provider of development

assistance, raises money in financial markets and takes contributions from member nations

International Monetary Fund (IMF)- facilitates development through policy advice, technical assistance

Often viewed as the last resort for struggling LDCs Stabilization programs have negative impact on

poor; cuts in government services, cutting wages while prices rise, country tries to export more to make money


Foreign direct investment- business established in country by foreign firm

Often formed by Multi-National Corporations (MNCs)

MNCs large corporations that produce and sell goods across the globe

Attracted because of profit, take advantage of cheap labor and natural resources

Money not reinvested in country, goes to foreign owners

Potential for unethical treatment (low wages for workers)

Positive effects provide jobs, introduce technology, opportunity for related services to develop

Chapter 27

Comparing Systems of Government

Types of Government

Two major types Democracy- majority

rule, individual liberty, free elections

Authoritarian- rule by one person (dictatorship), or a small group of people (oligarchy), not accountable to people

Types of Government

Authoritarian Government Absolute Monarchy- rule by king or queen Have unlimited authority, rule is hereditary Dictatorships- exercise complete control

over the state Usually take power by force Rely on police and military, limit elections,

freedom of speech and press Totalitarianism- government control over

peoples lives Ban political opposition, dictate economic

activity Suppress individual freedom To enforce ideology they control press, use

scare tactics, strong police presence and propaganda

Types of Government

Democratic Governments Constitutional monarchy-

hereditary ruler limited by constitution and laws

Usually follow democratic practices Elected officials do day to day

business of country, monarch head of state only

Republic- representative government where leaders are elected to office and people (electors) are the source of governmental power

Types of Government Expansion of Democracy Number of democratic states grew after WWII Many countries became democratic sine the 1970’s Most are representative democracies Some have presidential democracies Leader is head of state and government (ceremonial and political

leader) Three branches of government are separated Most countries have parliamentary democracy Most call their legislature a parliament, head of the government is

called a prime minister Top government officials have executive and legislative functions Fewer checks and balances on government leaders Leader is in charge of carrying out laws and a member of the

legislative body Prime ministers elected by parliament rather than a national election In parliamentary democracy head of state is somebody else (king,

president)

Profile of Great Britain

Parliamentary Democracy Constitutional monarchy-

ruled by queen with limited power Constitution not a single

document but a collection of written and unwritten guides to the law

Important documents- Magna Carta (1215), English Bill of Rights (1689) limited rights of monarchs, gave real power to parliament


Parliament Divided into House of Commons and House of Lords House of Commons 650 members Main lawmakers Represent districts, elected directly by voters More power than House of Lords Any member can introduce legislation Bills sent to committees and majority vote needed to pass them


House of Lords 700 members Little power Most members are appointed

as reward for achievements Some are those with Nobel

titles and leading church officials

Cannot stop measures that House of Commons stands behind


Two major political parties Labour and Conservatives

Conservatives support minimal government, private enterprise, upper class support

Labour more active government, working class support

Party that wins majority of seats in House of Commons selects prime minister

No limits on how long prime minister can serve, no fixed dates for parliamentary election as long as they are held every five years

Prime minister usually calls for elections when party has strongest support


Great Britain made up of England, Scotland, Wales and Northern Ireland

Each has separate legal system

Highest court is House of Lords British judges appointed for life

terms Great Britain has unitary

system of government (power is centralized), political decisions for whole country are made from London

Role of local governments is to provide services paid fro by central government

Profile of Great Britain Late 1990’s Britain began policy of

devolution (transferring power to local governments)

Elected assemblies created in other parts of Great Britain, rule on local issues

Northern Ireland Majority Catholic Northern Ireland taken

over by Protestant British in 1600’s Tension, violence and terrorism between

the British and Irish through the 20th century until a peace agreement was signed in 1998

Many in Northern Ireland oppose Protestant government of Great Britain and want independence

Economic Role Great Britain had huge empire until early

20th century Still an economic power London world financial center Close US ally and member of EU

Profile of China

Largest population of any country (1.3 billion)

Population gives China power as potential market and trading partner

Government is communist and huge military- makes rest of world wary

Collapse of USSR left China as last major communist country in the world

Profile of China

1949 Communist China established Founded by Mao Zedong after a

twenty year civil war Government seized farms and

redistributed land to peasants Established collective farms that

worked together to increase agricultural output

Government took over control of industry, assigned jobs to workers, developed 5 year plans for growth

Strict control on freedom of expression and young taught to not question government

Profile of China

Late 1970’s economic development began to lag behind Asian neighbors, government began to loosen grip on economy

New leader Deng Xiaoping welcomed foreign trade, investment, encouraged limited free enterprise

Still resisted efforts to become more democratic Economic reforms continue with government

involved in directing economy Government regulates many aspects of private life

although size of country makes social control difficult

Profile of China

Government tries to control population growth with one child policy

Uses force and intimidation to quiet political dissent

Put down pro democracy demonstration in Tiananmen Square in 1989, imprisons many who criticize government, limits freedom of speech and the press

Officially recognizes human rights and tolerance of religion many basic civil liberties are not allowed

Profile of China

Structure of Government Chinese Communist Party dominant Minor parties have little influence Leader of government called

secretary-general, also holds office of president

Premiere next most powerful, head of State Council (executive body of China)

Council handles day to day running of government (defense, education, health, etc.)

National People’s Congress is elected, has 3,000 members with little power

National policy made by politburo, 20 top party leaders

Makes economic and social policy

Profile of China

Judicial System Independent of

government Judges often corrupt, and

little training No search warrants needed Relations with US Not recognized by US until

1979 Relations often strained

over economic, human rights and military matters

Chapter 28

An Interdependent World

Global Developments

Global Interdependence- nations across world depend on each other for goods and services

What happens in one region affects another

Major part is trade Trade includes cooperation

and competition, many countries are now part of international trade agreements

Question: What is the height of globalization?

Answer: Princess Diana's death. Question: How come? Answer: An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was high on Scottish whiskey, followed closely by Italian Paparazzi, on Japanese motorcycles, treated by an American doctor, using Brazilian medicines! And this is sent to you, using Bill Gates' technology, which he stole from the Japanese. And you are probably reading this on one of the IBM clones that use Philippine-made chips, and Korean made monitors, assembled by Bangladeshi workers in a Singapore plant, transported by lorries driven by Malaysians, hijacked by Indonesians and finally sold to you by a Chinese!

Global Developments

Growing Economic Inequality Growing split between wealthy and poor nations of the world 25 rich, industrialized countries 165 less developed nations Most less developed nations located in Southern Hemisphere

Global Developments

Developed and developing nations need each other

Trade, source of raw materials (for developed countries), technology, food, development money (for developing countries)

US aids in international development through financial, technical aid, investing in businesses and sending volunteers to teach skills (Peace Corps)

Global Developments

Foreign Aid Questions face developed

countries when deciding to give aid

Do they give aid without question, or do they rely on private sources?

Is aid given equally to all countries or is it only to countries that agree with and support our policies?

Global Developments

Environmental Destruction Global problem caused by industry Degrades quality of air, water Coal burning causes acid rain that

damages forests Many countries have developed

national policies of conservation, a position that promotes long term gains over short term problems

Some argue that conservation curbs economic growth

Developing countries think environmental regulation is unfair because it makes it more difficult to develop their own industries

The United Nations

Internationalism – idea that nations should cooperate to promote common aims (economic development, cooperation between countries)

1945- United Nations established to maintain international peace, promote justice and cooperation, seek solutions to global problems, economic inequality, environment- all under umbrella of globalization

UN Peacekeeping Missions

The United Nations

Structure of the UN 191 members with main headquarters in NYC1. General Assembly- all members belong, each

nation has a single vote Debates international issues and recommends

courses of action2. Security Council- UN peacekeeping arm 5 permanent members (US, Russia, Great Britain,

China, France) 10 non permanent members that serve two year terms

Decisions require 9 yes votes, can be vetoed by any permanent member

Can send in troops to stop or prevent armed conflict Lack of cooperation among members makes it less

than effective

The United Nations

3. Secretariat- carries out day to day business under direction of Secretary-general (executive officer of the UN)

Secretary-General- serves five year term with a two term limit

4. International Court of Justice- World Court, judicial arm of UN

Issues decisions based on international law, has no power to enforce laws

The United Nations

5. Economics and Social Council-promote higher standard of living , improvements in health, education and human rights

6. Trusteeship Council- ensured rights of territories as they take steps toward independence (not active since 1994)

UN Agencies

Special Agencies do most of the work for the UN1. World Health Organization (WHO)- directs and

coordinates international health work, provides access to healthcare

2. United Nations Children’s Fund (UNICEF)- help children in developing countries, provides education, health care and resources to needy

Promotes policies in the best interest of children3. World Bank- makes loans to developing

countries4. International Monetary Fund- promotes

financial and technical cooperation, encourages economic growth in developing countries

Democracy and Human Rights

Human rights are the basic freedoms that all should have

Right to safety, food, shelter

Right to participate freely in elections and freedom of speech

Human rights abuses are more carefully monitored by international agencies that investigate abuses of governments and called out individuals to account for war crimes


Universal Declaration of Human Rights 1948- adopted by UN Addresses social, economic and political rights 30 different articles Articles 1 and 2 “all humans born equal” Articles 3-21 state civil and political rights of all human

beings Examples- right to free movement, to seek asylum, right

to a nationality, right to marry and found a family, right to own property

Articles 22-27- state economic, social, cultural rights Examples- right to social security, right to work, to receive

equal pay for equal work, right to adequate health care and standard of living

Articles 28-30- state that all people should be free to enjoy these rights


Protecting Human Rights UN High Commission of Human

Rights directs the organizations human rights activities

1. Promotes and protects human rights

2. Monitors and reports violations of abuses from around the world

3. Security Council punishes human rights violators through international tribunals

Tribunals have authority to hear cases of human rights abuses that violate international law

Democracy and Human Rights Spread of Democracy Over 60% of world’s countries live under conditions

of democracy These countries choose leaders freely among

competing groups who were not chosen by the government

Fully free- 86 countries offer the broadest range of human rights as stated in the Universal Declaration of Human Rights

Partly free- 58 offer minimal standard of democracy

Hold free and fair elections, but offer minimal individual liberties

Not free- 48 countries (35% of worlds population) no political, economic or social freedom and governments permitted violations of human rights

Free, Partly free and Not free countries in the world 2009

the united states and the world unit 8. chapter 26 comparing economic systems

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