core unit 1 - the capitalist revolution

there have been dramatic changes in living standards in different countries in the last ........... years

1,000

in many countries, why have living standards began to rise rapidly?

the capitalist revolution

what factors have contributed to this revolution?

- advances in technology

- a distinctive economic system

define capitalism

an economic system in which private property, markets and firms play a major role

the rise in living standards has been accompanied by changes in population and the way people live by what impacts?

- environmental impacts

- changes in inequality between countries and within countries

on average, people in the UK are ... times better off than in India by the measure of GDP per capita

6 times

whose work used scarce data to find comparisons of how people lived across more than 1,000 years?

Angus Maddison

History's Hockey stick- growth in income: what is the ratio scale?

shows GDP per capita doubling as we move up the vertical axis. It is best used for comparisng growth rates across countries

History's Hockey stick- growth in income: what is the equation for growth rate?

growth rate = change in GDP / original level of GDP

History's Hockey stick- growth in income: ratio scales make it possible to compare growth rates across ........ and at different .........

countries

periods

History's Hockey stick- growth in income: when a ratio scale is used, a series that grows at a constant rate looks like a ........

straight line

History's Hockey stick- growth in income: why is it a straight line?

the percentage (proportional growth rate) is constant

History's Hockey stick- growth in income: what does a steeper line in the ratio scale chart mean?

faster growth rate

History's Hockey stick- growth in income: what does a growth rate of 100% mean?

the level doubles

History's Hockey stick- growth in income: when did living standards begin to rise in a sustained way?

18th century

History's Hockey stick- growth in income: what is the hockey-stick kink of Britain like? when did growth begin?

less abrupt

1650

History's Hockey stick- growth in income: what is the kink of Japan like? when did growth begin?

more defined

1870

History's Hockey stick- growth in income: when did the kink in China begin?

1980

History's Hockey stick- growth in income: when did GDP per capita fall in India?

during British colonial rule

History's Hockey stick- growth in income: why did GDP per capita fall during the same period as India in China?

European nations dominated Chinese politics and economics

History's Hockey stick- growth in income: the ratio scale shows us what about growth rates in Japan and China?

were higher than elsewhere

History's Hockey stick- growth in income: In some economies, substantial improvements in people's living standards did not occur until they gained what?

independence from colonial rule or interference by European nations:

History's Hockey stick- growth in income:when did 300 years of British rule of India end? (according to Angus Deaton)

1947

History's Hockey stick- growth in income: which country had once been richer than Britain but by the mid-20th century had a GDP per capita 1/15 that of Britain?

China

History's Hockey stick- growth in income: how did living standards grow for a long time?

did not grow in a sustained way

History's Hockey stick- growth in income: when sustained growth occurred it happened at different times in different countries, leading to what?

differences in living standards

History's Hockey stick- growth in income: Understanding how this occurred has been among the most important questions that economists have asked, starting with the founder of the field, .............., who gave his most important book the title ......................

Adam Smith

An Inquiry into the Nature and Causes of the Wealth of Nations.

History's Hockey stick- growth in income: what is Adam Smith's most famous metaphor?

the invisible hand of the market

History's Hockey stick- growth in income: who did Adam smith specifically target in Britain in the context of market failure and monopolies?

British East India Company (protected by government)

measuring income and living standards: what is the difference between GDP per capita and disposable income?

disposable income is a measure of living standards and omits important aspects of wellbeing

measuring income and living standards: define disposable income

amount of wages or salaries, profit, rent, interest and transfer payments from the government (such as unemployment or disability benefit) or from others (for example, gifts) received over a given period such as a year, minus any transfers the individual made to others including taxes paid to the government.

measuring income and living standards: why is disposable income thought to be a good measure of living standards?

it is the maximum amount of food, housing, clothing and other goods and services that the person can buy without having to borrow—that is, without going into debt or selling possessions.

measuring income and living standards: what are the main weaknesses of disposable income as a measure? (3)

it leaves out:

1. The quality of our social and physical environment such as friendships and clean air.

2. Goods and services that we do not buy, such as healthcare and education if they are provided by a government.

3. Goods and services that are produced within the household, such as meals or childcare (predominantly provided by women).

measuring income and living standards: absolute income matters for wellbeing. However, people also care about what?

their relative position in income distribution

measuring income and living standards: why can average income fail to reflect how well off a group of people is by comparison to some other group?

income distribution affects wellbeing and the same average income may result from very different distributions of income

measuring income and living standards: what factors included in GDP are not included in disposable income? (therefore, making GDP per capita a better measure)

- goods and services produced by government

measuring income and living standards: for goods and services people buy, what do we take as a rough measure of value?

price

measuring income and living standards: for government goods and services, what is the only measure of value?

the cost to produce them

the permanent technological revolution: scientific and technological advances occurred more or less at the same time as what?

as the upward kink in the hockey stock in Britain in the middle of the 18th century

the permanent technological revolution: important new technologies were introduced in what?

the cumulative character led to it being called what?

- textiles

- energy

- transportation

the industrial revolution

the permanent technological revolution: as late as ........., traditional craft-based techniques were still used in most production processes

1800

the permanent technological revolution: in economics, technology refers to what process?

a process that takes a set of materials and other inputs (work of people and machines) and creates an output

the permanent technological revolution: the process of innovation did not end with the industrial revolution and has continued with the application of new technologies. Give 4 examples

1. steam engine

2. electricity

3. transportation

4. information processing and communication

the permanent technological revolution: why do these technological innovations give a particularly strong impetus to growth in living standards?

they change the way large parts of the economy work

the permanent technological revolution: why does technological change allow significant increases in living standards?

reduces the amount of work time it takes to produce the things we need

A connected world: what provide more evidence of the novelty of the permanent technological revolution?

the speed at which information travels

the growth of population and cities: for most of the last ....... years, the population of the world grew slowly

12,000 years

the growth of population and cities: in a few countries, population started to grow rapidly ..... years ago

200

the growth of population and cities: when did the world's population take off? why?

20th century

- development and spread of a) improved sewerage b) clean water c) other public health measures

the growth of population and cities: what is happening to the pace of growth from its peak in the 1970s?

slowing

the growth of population and cities: what does the demographic transition refer to?

the slowdown in population growth as the fall in death rates is balanced by the fall in birth rates associated with

a) desire for fewer children

b) public policies discouraging larger families

the growth of population and cities: what main factor ultimately resulted in the growth of cities?

- increased productivity of labour in agriculture meant fewer farmers were required to feed the non-farming population

- higher productivity meant that, on a given piece of land, more output could be produced by each farmer

- people left farming to pursue other occupations, resulting in the growth of cities

the growth of population and cities: city living is a drastic change and in some cases has challenged people's personal .......... and has required new ways of maintaining ...........

security

social order

the growth of population and cities: what is a relatively new feature of human society that has dated from the emergence of large urban areas?

police forces

the growth of population and cities: in 1850 there were only .... cities with populations exceeding 1 million

what were they?

3

- London

- Paris

- Beijing

the growth of population and cities: by 2013, there were more than .... cities of this size

500 cities

impacts on the environment: as produced has soared, so too have both the use of our ......... and degradation of our ..........

- natural resources

- natural environment

impacts on the environment: what elements of ecological system have been altered by humans?

- air

- water

- soil

- weather

impacts on the environment: many researches think there is a ..... shaped relationship between a country's income and environmental degradation

hump-shaped

impacts on the environment: the relationship between a country's income and environmental degradation is often referred to as what?

the Environmental Kuznets curve

impacts on the environment: our use of what has profoundly affected the natural environment?

fossil fuels

impacts on the environment: what has resulted in measurably larger amounts of C02 in the earth's atmosphere and brought about perceptible increases in the northern hemisphere's average temperatures?

increasing emissions of carbon dioxide in the 20th century

impacts on the environment: the economy is part of a larger social system which is itself part of the .........

biosphere (collection of all forms of life on earth)

impacts on the environment: the affects of global climate change and local resource exhaustion are results of what two things?

1. expansion of the economy

2. the way the economy is organised

impacts on the environment: the permanent technological revolution brought about dependence on fossil fuels, but is also part of what?

the solution

impacts on the environment: how might advances in technology today also be the solution to climate change?

allow greater reliance on renewable sources of energy

capitalism defined: what is the capitalist revolution?

introduced a new economic system called capitalism which is characterised by a new combination of institutions

capitalism defined: what is an economic system?

a way of organising the production and distribution of goods and services in an entire economy

capitalism defined: capitalism is an economic system in which 3 key institutions play an important role. What are they?

1. private property

2. markets

3. firms

capitalism defined: when did a centrally planned economic system exist?

soviet union, east germany and other eastern european countries prior to the end of the Communist party rule in early 1990s

private property, markets and firms: in a capitalist economy, an important form of private property is what type of goods?

capital goods

private property, markets and firms: what are markets?

- a way of connecting people who mutually benefit

- by exchanging goods and services

- through a process of buying and selling

private property, markets and firms: what are the two main characteristics of markets?

1. they are reciprocated

2. they are voluntary

private property, markets and firms: firms became the predominant organisations for the production of goods and services. this created a boom in what other market which had once played a limited role in earlier systems?

labour market

private property, markets and firms: markets and private property are essential parts of how firms function for what two main reasons?

1. inputs and outputs are private property

2. firms use markets to sell outputs

capitalism as an economic system: prior to 1600, a great many of the economies of the world were like what system?

a system in which production takes place either by individuals or in families

capitalism as an economic system: capitalism is an economic system which combines decentralisation with centralisation. explain the two

decentralisation = limits the power of governments and of other individuals in the process of owning, buying and selling

centralisation = concentrates power in the hands of owners and managers of firms who are then able to secure the cooperation of large numbers of employees in the production process

capitalism as an economic system: China was a centrally planned economy from ...... until economic reforms began in .......

1953

1978

capitalism as an economic system: although capitalism is dominant in China, there is still a centrally organised ............... plan

five year

capitalism, causation and history's hockey stick: we can observe that capitalism emerged at the same time or just before both the ............. and the ...........

1. industrial revolution

2. upward turn in our hockey sticks

capitalism, causation and history's hockey stick: the emergence of a free-thinking cultural environment known as ............. predated or coincided with the upturn in the hockey sticks

the enlightenment

capitalism, causation and history's hockey stick: explain what 'natural experiment' is

a situation in which there are differences in something or interest that are not associated with differences in other possible causes

capitalism, causation and history's hockey stick: what is the 'iron curtain'

the division between east germany (centrally planned) and west germany (capitalist)

capitalism, causation and history's hockey stick: what two conditions contribute to the dynamism of the capitalist economic system?

1. economic conditions

2. political conditions

capitalism, causation and history's hockey stick: when is capitalism less dynamic?

a) when property rights are insecure

b) when there is limited competition in markets

c) when the leadership of firms is in the hands of those who have not been tested by competition

capitalism, causation and history's hockey stick: for innovators to take the risk of introducing a new product or production process, their ownership of the resulting profits must be protected from theft by what?

a well-functioning legal system

capitalism, causation and history's hockey stick: when can governments compromise competition?

by creating monopolies

capitalism, causation and history's hockey stick: capitalism can be a dynamic economic system when it combines what 3 things?

1. private incentives for cost reducing innovation deriving from market competition and secure private property

2. firms led by those with proven ability to produce goods at low cost

3. public policy supporting these conditions and supplying other essential goods and services

varieties of capitalism- divergence among latecomers: in Africa, the success of Botswana in achieving sustained growth contrasts sharply with Nigeria's relative failure. Both are rich in natural resources. What factors help to explain their contrasting trajectories?

differences in the quality of their institutions (the extent of corruption and misdirection of government funds)

varieties of capitalism- divergence among latecomers: which country is the star performer in terms of GDP per capita?

South Korea

varieties of capitalism- divergence among latecomers: South Korea's takeoff occurred under institutions and policies sharply difference from those prevailing in ......... in the 18th and 19th centuries

Britain

varieties of capitalism- divergence among latecomers: what is the most important difference between South Korea and Britain?

the government of South Korea played a leading role in directing the process of development, promoting industries, requiring firms to compete in foreign markets and providing high quality education for its workforce

varieties of capitalism- divergence among latecomers: what term has been applied to the leading role of the South Korean Government in its economic takeoff?

developmental state

varieties of capitalism- divergence among latecomers: give two other examples of developmental states

Japan

China

varieties of capitalism- divergence among latecomers: in 1928 the Soviet Union adopted its first 5 year plan. What was GDP per capita like in comparison to Argentina and South Korea

one-tenth of Argentina

considerably higher than in South Korea

varieties of capitalism- divergence among latecomers: in the last quarter of the 20th century, central planning failed to deliver what?

improvements in living standards

varieties of capitalism- divergence among latecomers: what was GDP per capita like for the ex-Soviet union after 1990?

pronounced dip

varieties of capitalism- divergence among latecomers: what are the problems with capitalist economies? (3)

1. private property may not be secure

2. markets may not be competitive and may fail

3. firms may be owned and managed by people who survive because of their connections to government or their privileged birth

varieties of capitalism- divergence among latecomers: the failures of the 3 basic institutions mean that individuals and groups often have more to gain by doing what things to shift the distribution of income in their favour?

1. spending time and resources in lobbying

2. criminal activities

Varieties of capitalism - government and the economy: governments establish enforce and change the ...... and ........ that influence how the economy works

laws

regulations