McGraw Hill



III. Socialism and Communism

Learning objective 4

UNDERSTAND THE DIFFERENCES BETWEEN SOCIALISM AND CAPITALISM. (TEXT PAGES 50-55)

A. Socialism

1. SOCIALISM is an economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be distributed among the people.

a. Entrepreneurs can own small businesses, but their profits are steeply taxed to pay for social programs.

b. Advocates of socialism acknowledge the major benefits of capitalism, but believe that wealth should be more evenly distributed.

c. Socialism is the guiding economic principle for many countries in Europe.

2. The benefits of socialism

a. The major benefit of socialism is social equality.

b. Income is taken from the wealthier people and redistributed to the poorer members of the population.

c. Workers in socialist countries are given free education, free health care, free child care, and more employee benefits.

3. The negative consequences of socialism

a. Socialism may create equality, but it takes away some work incentives.

b. Tax rates in some nations once reached 85%.

c. Because wealthy professionals have very high tax rates, many of them leave socialist countries for countries with lower taxes.

d. The loss of the best and brightest people to other countries is called BRAIN DRAIN.

e. Socialist systems can result in fewer inventions and less innovation.

4. Consequences

a. Capitalism creates freedom of opportunity, which in turn creates incentives to work hard.

b. However, it also creates an unequal distribution of outcomes.

c. Socialist systems tend to discourage workers from working harder and discourage innovation.

d. Most socialist systems have not kept pace with the U.S. economically.

B. Communism

1. German political philosopher Karl Marx felt that workers should take over ownership of businesses and share the wealth.

a. His 1848 work, The Communist Manifesto, established his reputation as the founder of communism.

b. COMMUNISM is an economic and political system in which the state (the government) makes almost all economic decisions and owns almost all the major factors of production.

2. Problems with communism

a. The government has no way of knowing what to produce because prices don’t reflect supply and demand.

b. Shortages of many items may develop.

c. Communism doesn’t inspire businesspeople to work hard, and is slowly disappearing as an alternative economic form.

3. Most communism countries today are suffering severe economic depression, including North Korea and Cuba.

a. The former Soviet Union is moving toward free markets.

b. Russia now has a flat tax of 13%, a much lower tax rate than the U.S. has.

C. The Trend Toward Mixed Economies

1. There are dominant two economic systems:

a. Free market economies

i. Free market economies exist when the market largely determines what goods and services get produced, who gets them, and how the economy grows.

ii. This system is commonly known as capitalism.

b. Command economies

i. Command economies are economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow.

ii. These economies are known as socialism and communism.

2. No one economic system is perfect by itself.

a. Free-market mechanisms haven’t been responsive enough to a nation’s social and economic needs and haven’t adequately protected the environment.

b. Socialism and communism haven’t always created enough jobs or wealth to keep economies growing fast enough.

c. Socialist and communist countries have moved toward capitalism.

d. The trend for so-called capitalist countries to move toward socialism.

e. No country is purely capitalist or purely communist; rather some mix of the two systems.

f. The result has been a blend of capitalism and communism, called a mixed economy.

3. MIXED ECONOMIES are economies where the market and some by government.

4. The U.S. has a mixed economy.

a. The role of government in many parts of the economy is a matter of some debate.

b. For instance, the government has become the largest employer in the U.S.

Self check Questions (Text page 54)

1. What is the difference between socialism and communism? How are they the same? Which system, in your opinion, is the best and why?

2. Compare free market economies with socialism. What are the advantages and disadvantages of each?

3. What is a mixed economy?

4. Why is the trend going toward mixed economies? Do you think at some point the balance will likely change to one of the pure types? Why or why not? |

PowerPoint 2-8

Socialism and Communism

(Refers to text pages 50-52)

critical thinking

exercise 2-2

Standard of Living

Comparison: Better/Same/ Worse?

This exercise asks students to research key economic indicators for a capitalist country, a socialist country, and a communist country. (See complete exercise on page 2.34 of this manual.)

PowerPoint 2-9

Socialism and Communism

(Refers to text pages 52-54)

lecture link 2-3

Capitalism in Crisis

The worldwide business slump of the 1930s ranked as the worst and longest period of high unemployment and low business activity in modern times. The U.S. economic system seemed inadequate to deal with massive economic disruptions. John Maynard Keynes suggested changing the role of central government to ease the crisis. (See complete lecture link on page 2.26 of this manual.)

critical thinking

exercise 2-3

How Businesses Help Nonprofits

Choosing a career at a nonprofit organization is not the only way for students to help society. The for-profit sector creates the wealth that nonprofits use to do good. (See complete exercise on page 2.36 of this manual.)

TEXT Figure 2.5

Comparisons of Key

Economic Systems (Box in text on page 55)

TEXT REFERENCE

Study Skills: Keys to Good Study Habits.

(Box in text on page 53)

Gives students suggestions for improving their study skills. An additional exercise and discussion is available in this chapter on page 2.24 of this manual.

TEXT REFERENCE

Thinking Critically: The Threat of Global Poverty

(Box in text on page 56)

When Americans see televised images of malnourished children in other countries, they often don’t see a threat to their way of life. This box discusses how global poverty can breed civil conflict, infectious diseases, crime and drug enterprises, and environmental degradation.

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