Economic Systems and Their Influence

Sociocultural Evolution Approach and Economic Systems

• Developed by Gerhard Lenski
• Categorizes pre-industrial societies based on economic organization
  • Types of Pre-Industrial Societies:
  • Hunting and Gathering
  • Horticultural
  • Agrarian

Industrial Revolution

• Occurred in England (1760-1830)
• Shift in workplace social organization
  • People transitioned from homesteads to factories
• Emergence of the Industrial Society:
  • Relies on mechanization for goods and services
• Massive economic growth over the last three centuries
  • Example: China's growth from the 11th to the 2nd largest economy

Economic Systems in Industrial Societies

• Two primary types: Capitalism and Socialism

Capitalism

• Transition from land as the main wealth source to capital investment
• Characteristics:
  • Means of production largely privately owned
  • Profit accumulation as the main incentive
• Historical form: Laissez Faire Capitalism
  • Minimal government intervention (Adam Smith)
  • Businesses operate freely with little regulation
• Modern capitalism includes:
  • Government regulations for consumer protection, safety, and fair competition
  • Outlawing monopolistic practices, although some exist (e.g., utilities)
  • Case: Legal battles between the US government and Microsoft
• Recent shifts due to economic crises:
  • 2008 financial crisis led to government bailouts of major institutions
  • Contrast with responses during Covid-19 pandemic, where financial sectors received priority

Socialism

• Refined by Karl Marx and Friedrich Engels in response to industrial exploitation
• Characteristics:
  • Collective ownership of means of production
  • Focus on meeting people's needs instead of profit maximization
  • Central government making key economic decisions
• In practice, varies by nation:
  • Example: Great Britain allowed some private airlines to compete with government-owned British Airways
• Social services:
  • Government-provided healthcare in socialist nations vs. limited programs (Medicare/Medicaid) in the US
• Marx's perspective on progression towards Communism:
  • All property communally owned, no social distinctions
• Historical reference: Eastern Europe, China, and modern misinterpretations of communism

Informal Economy

• Transactions not reported to the government
• Activities include:
  • Bartering services (e.g., haircuts for lessons)
  • Street sales and illegal transactions
• Percentage of informal economy:
  • US: ~10% of economic activity
  • Varies globally; up to 88% in some developing nations
• Factors contributing to the informal economy:
  • Bureaucratic regulations and delays push legitimate businesses underground
• Issues:
  • Limited protections for workers, unsafe conditions, potential hindrance to transitioning to formal employment

Summary of Economic Systems

• Economic systems significantly influence societal behavior and institutions
• Industrial society emerged with new social structures post-Industrial Revolution
• Capitalism emphasizes profit motive but varies in government regulation; Socialism aims to eliminate exploitation and prioritize needs
• The Informal Economy plays a critical role, especially in developing nations but often underappreciated.

Key Terms

• Capitalism
• Communism
• Industrial Society
• Informal Economy
• Laissez Faire
• Monopoly
• Socialism

Critical Questions

• What factors encourage informal economy growth in the US?
• How do these relate to the economic system?
• Why have so-called communist countries fallen short of Marx's definition of communism?
• Which aspects of the US economy reflect capitalist or socialistic principles?