Economyan social institution

• Presented by

Umar farooq

Economy

• Definition:

• The economy is the social institution that organizes a society’s production, distribution, and consumption of goods and services.

Historical overview

• As an institution, it operates in predictable manner

• Goods are commodities

• Services are activities

• We value goods and services

• The economic structures are result of thousand of years of social change

• There are three basic revolutions that have transformed the social life

• The Agricultural Revolution

• The Industrial Revolution

• The Information Revolution and Postindustrial Society

The Agricultural Revolution

• Simple society• Hunting and gathering together• No distinct economy• Producing and consuming

• About 5000 years ago a new agricultural eonomy was created• 50 times more productive• Specialized workers• Barter system

• With the passage of time four factors developed which made economy a distinct social institution.

The Agricultural Revolution

• Four factors are

• agricultural technology

• specialized work

• permanent settlements

• trade

The Industrial Revolution

• Second technological revolution

• Started in 18 century

• Industry was developed 1st in England then in north America

• It bring more powerful change in economy than rise of agriculture

Industrial revolution

• Industrialization changed the economy in five fundamental ways:

» 1. New sources of energy» 2. Centralization of work in factories. » 3. Manufacturing and mass production. » 4. Specialization. » 5. Wage labor.

• It raised the living standards• Expand the market• But the benefits were unequally

• At beginning , factory owners made vast fortunes

• Workers were living close to poverty

• Laboure worked even for peny/day in mines

• Women were amongst most lowest paid

The Information Revolution and Postindustrial Society• In 1950 nature of productivity started changed• Post industrial economy was created in U.S.A• It is a productive system based on service work and high technology• Automated machines were started to use, which

– Reduce the role of human labour in production– Expand the ranks of clericale workers and managers– Shift the industrial work to service work

• Driving this change is a third technological breakthrough: the• Computer

• New kinds of products and new forms of communications have altered the character of work

• In general, there have been three significant changes:1. From tangible products to ideas.

2. From mechanical skills to literacy skills

3. From factories to almost anywhere.

Sectors of the Economy

• The three revolutions shifted balance among the three sectors of a society’s economy.

– Primary sector

– Secondary sector

– Tertiary sector

Primary sector

• draws raw materials from the natural environment

• it is of greatest importance (26% of the economy) in low-income nations

• 10 percent of economic activity in middle-income nations

• just 2 percent in high-income countries such as the United States

• Examples: agriculture, raising animals, fishing, mining and forestry

Secondary sector

• transforms raw materials into manufactured goods

• Grow quickly as societies industrialized

• It includes operations such as refining petroleum into gasoline and turning metals into tools and automobiles.

• • is a significant share (25%–35%) of the economy in low-, middle-, and high-income nations

• Examples: automobile and clothing manufacturing

Tertiary sector

• is the part of the economy that involves services rather than goods

• • is the largest sector (49%–73%) in low-, middle-, and high-income countries

• About 85 percent of the U.S. labor force is in service work which include

1. secretarial and clerical work

2. positions in food service , sales, law, health care, law enforcement, advertising, and teaching.

Economic sector of Pakistan

19.4

53.4

27.2

Pakistani economic sector

Primary Secondary

Tertiary

0

10

20

30

40

50

60

Category 1

19.4

27.2

53.4

Preindustrial vs industrial vs post industrial

Economic institution can be breakdown based on level of economic progress achieve….

Preindustrial society: focus on primary sector

Industrial society : focus on secondary sector

Postindustrial society: focus on tertiary sector

Global economy

• economic activity that crosses national borders

• The development of a global economy has five major consequences.1. dvision of labour

2. Increased no of products

3. No longer control of national governments

4. small number of businesses, operating internationally, now control a vast share of the world’s economic activity

5. raises concerns about the rights and opportunities of workers.

Economic systems:

• Every society’s economic system makes a statement about justice by determining who is entitled to what.

• There are two basic models

– Capitalism

– Socialism

Capitalism

• Capitalism is an economic system in which natural resources and the

• means of producing goods and services are privately owned.

• . An ideal capitalist economy has three distinctive features:

1. Private ownership of property

2. Pursuit of personal profit.

3. Competition and consumer choice

• Consumers regulate a free-market economy

• Justice in a capitalist system amounts to freedom of the marketplace

Capitalism results in

• greater productivity

• higher overall standard of living

• greater income inequality

• freedom to act according to self-interest

• Example: The United States has a mostly capitalist economy.

socialism

• an economic system in which natural resources and the

• means of producing goods and services are collectively owned

• In its ideal form, it has three opposite features to capitalism

1. Collective ownership of property

2. Pursuit of collective goals

3. Government control of the economy

• Justice in a socialist context means not competing to gain wealth

• but meeting everyone’s basic needs in a roughly equal manner

Socialism results in

• less productivity

• lower overall standard of living

• less income inequality

• freedom from basic want

• Examples: The People’s Republic of China and Venezuela have mostly socialist economies

Socialism and Communism

• socialism and communism are not same

• Communism is a hypothetical economic and political system in which all members of a society are socially equal.

• Karl Marx viewed socialism as one important step on the path toward the ideal of a communist society that abolishes all class divisions.

• But this communist goal has not been achieved in any country

• Marx might have agreed that a communist society is a utopia

• (from Greek words meaning “no place”

Welfare Capitalism and State Capitalism

These are the blends of capitalism and socialism1. Welfare Capitalisman economic and political system that combines a mostly market-based economy with extensive social welfare programs. Under welfare capitalism,

government may own some large industries such as transportation and the mass media

most industry is privately owned but highly regulated by government high taxation of the rich helps pay for extensive government services for all

Examples: Sweden and Italy have welfare capitalist economies.

Welfare Capitalism and State Capitalism

2. State Capitalism

an economic and political system in which companies are privately owned but cooperate closely with the government

Under state capitalism,

government works in partnership with large companies by

supplying financial assistance

controlling foreign imports

• Examples: Japan and Singapore have state capitalist economies.

Relative Advantages of Capitalismand Socialism

• Comparing economic models is difficult because all countries mix capitalism and socialism to varying degrees

• nations differ in cultural attitudes toward work, access to natural resources, levels of technological development,and patterns of trade.

• Despite such complicating factors, some crude comparisons are revealing.

Capitalism vs. Socialism

• Economic productivity– GDP is $13,500

• Economic equality– More income disparity

• Personal freedom– Emphasizes freedom to pursue

personal self-interest

• Economic productivity– GDP is $5,000

• Economic equality– Less income disparity

• Personal freedom– Emphasizes freedom from

basic want

No system has yet been able to offer both political

freedom and economic equality

Work in postindustrial economy• The Decline of Agricultural Work• From Factory Work to Service Work• The Dual Labor Market:

1. primary labor market2. secondary labor market,

• Labor Unions:• Organizations of workers that seek to improve wages and working conditions through various

strategies

• Decline of unions• Shrinking industrial sector• Service jobs are unlikely to be unionized

Professions

• A profession is a prestigious white-collar occupation that requires extensive formal education

• Jobs:

– Agricultural work represents only 1.7% of jobs.

– Blue-collar, industrial work has declined to 13% of jobs.

– White-collar, service work has increased to 85% of jobs.

Characteristics of professions

• An occupation is considered a profession to the extent that it demonstrates the following four basic characteristics

1. Theoretical knowledge.

2. Self-regulating practice.

3. Authority over clients.

4. Community orientation rather than self-interest.

Self-Employment

• earning a living without being on the payroll of a large organization

• Lawyers, physicians, and other professionals are well represented

• among the ranks of the self-employed

• most self-employed workers are small business owners, plumbers, carpenters, freelance writers,

• editors, artists, and long-distance truck drivers.

Unemployment and Underemployment

• Every society has some unemployment.

• Jobs disappear as:

1. occupations become obsolete.

2. businesses change the way they do business.

3. companies downsize or close

• In early 2011, 8.9% of the country’s labor force was unemployed.

• At highest risk for unemployment are young people and African Americans.

Unemployment, and Underemployment

• Underemployment: Lower salaries, fewer benefits, and reduced/no pensions

• Many workers agree to cuts in pay and/or benefits.

underground economy

• economic activity involving income not reported to the government as required by law

• Most of us occasionally participate in the underground economy in small ways.

• Much of the underground economy is due to criminal activity.

• The largest segment is people who fail to report legally earned income on their tax returns.

Race and Gender in the Workplace

• In the past, white men have been the mainstay of the US labor force.

• In the future, more workers will be women and minorities.

• The workplace must develop programs and policies that meet the needs of a socially diverse workforce and encourage everyone to work together effectively and respectfully.

Information Technology and Work

1. Computers are deskilling labor.

2. Computers are making work more abstract

3. Computers limit workplace interaction.

4. Computers increase employers’ control of workers.

5. Computers allow companies to relocate work.

Corporations

• An organization with a legal existence, including rights and liabilities,

separate from that of its members.

• it makes an organization a legal entity

• shields owners’ wealth from lawsuits brought against the company

• can result in a lower tax rate on the company’s profits

Economic concentration

• A few large corporations dominate the US economy

• 2,848 corporations with assets exceeding $2.5 billion, representing 81 percent of all corporate assets

• The largest U.S. corporation in terms of sales is Walmart.

• Its annual sales ($419 billion in 2011) equal the combined tax revenues of forty-four of the states

Conglomerates and Corporate Linkages

• Economic concentration has created the conglomerate– a giant corporation composed of many smaller corporations.

• enter new markets• spin off new companies• merge with other companies.• Example is PepsiCo• Many conglomerates are linked because they own each other’sStockExample is General Motors

• Corporations are also linked through interlocking directorates,

– networks of people who serve as directors of many corporations

• These boardroom connections give corporations access to valuable information about other companies’ products and marketing strategies.

• These linkages are perfectly legal

• such linkages may encourage illegal activity, such as price fixing,

•

Corporations: Are They Competitive?

• According to the capitalist model, businesses operate independently

in a competitive market.

• large corporations do not operate independently.

• Few corporations dominate others

• They are not truly competitive

• Monopoly:• the domination of a market by a single producer,

• such a company could simply charge whatever it wanted for its products.

• Laws forbids of any monopoly

• Oligopoly:

– the domination of a market by a few producers

– It is legal and common

– arises because the huge investment needed to enter a major market

– Competition means risk, oligopoly lessened the risk

– Example is auto-industry

Corporations and the Global Economy

• Many large corporations operate as multinationals, producing and

distributing products in nations around the world.

• Modernization theorists claim that multinationals raise living standards in poor countries by offering them more jobs and advanced technology.

• Dependency theorists claim that multinationals make global inequality worse by pushing poor countries to produce goods for export and making them more dependent on rich nations

The economy looking ahead

• Social institutions are a society’s way of meeting people’s needs

• the U.S. economy only partly succeeds in accomplishing this goal

• Economy experiences expansion and recession

• shift from industrial work to jobs created by the Information Revolution.

• the postindustrial economy has brought rising unemployment and declining wages for industrial workers

• A second transformation of recent years is the expansion of the

global economy

A new model of economy

• analysts around the world are rethinking conventional economic models• socialism is less productive than capitalism

– Which is a reason collapse of the socialist regimes in Eastern Europe and the Soviet Union

• capitalism has its own problems,– high levels of inequality and a steady stream of corporate scandal

• First,the economic future of the United States and other nations will be played out in a global arena

• Second, it is imperative that we address the related issues of global inequality and population increase.

• Whether the world reduces or enlarges the gap between rich and poor societies may well steer our planet toward peace or war.

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