• Capitalism refers to a system where:
Professor David M. Long
[email protected]
• Communism refers to economies in which:
– all goods are communally owned
– people would not work for wages but would give
according to their abilities
– and there would be no scarcity of goods and services
– the state would become less important and its role
would dwindle
• Mixed economies are where there is a strong
element of both capitalism and socialism.
– Most industry is privately owned and oriented toward
profit making; however many important industries may
be state owned.
• Monopolies
• Multinationals
• Oligopolies
• Global
corporations
• Conglomerates
– the means of production and distribution are privately
held
– the profit motive is the primary force guiding people’s
economic behavior
– and there is free competition among both producers and
consumers of goods
• Socialism refers to economies in which:
– the means of production and distribution are collectively
held so that the goods and services that people need
are provided and equitably distributed
• Factors that distinguish corporations from
individually owned businesses
– Corporations have access to much broader source of
capital than do individuals
– Stockholders, who own the corporation, have only
limited liability should the corporation be sued or go
bankrupt
– The ownership of corporations is separate from the
control of its policies and daily affairs
• The number and size of unions has grown over
the past century, but they have declined some
over the last few decades.
• The decline in unionization is due:
– to a decline in the number of blue-collar jobs
– to many companies relocating to states with weak
unions
– to active opposition to unionization by employers
– to unions facing increasing hostility from the public
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• Power Elite Model
– Argues that there exists a small group of very powerful
people who make just about all the important decisions
in the U. S.
– The power elite is a cohesive group, and the interests of
its various members in the government, military, and
corporate sectors tend to coincide
• Pluralist Model
– Views power as pluralistic, or spread over a large
number of groups with divergent values, interests and
goals
– With the vote, the public can exercise some constraint
over the behavior of those in power
In 1979 the richest
1% of the population
earned 9% of all U.S.
income, whereas
now they earn 24%
of all U.S. income
2
• The 400 highest tax
payers in the nation
had gross annual
household incomes
exceeding $87,000,000.
– Household incomes for
this group have risen
more dramatically than
for any other, resulting in a gap between those who
make less than one and half million dollars annually
(99.9% of households) and those who make more
(0.1%) has been steadily increasing.
• In the United States, less than 2.6% of households
own assets (excluding home equity) of more than
one-million dollars.
– The richest 1% of the American population owns over
70% of all financial assets
• Trend in the ratio
of the wealthiest
1% of U.S.
households
compared to the
wealth of the
median household
for that same year
• Wealth in the U.S.
is much more
unevenly
distributed than is
income
RANK NAME
1
Bill Gates
2
Warren Buffett
3
Larry Ellison
4
Charles Koch
5
David Koch
NET
AGE RESIDENCE
WORTH
Medina,
$59 B
55
Washington
Omaha,
$39 B
81
Nebraska
Woodside,
$33 B
67
California
Wichita,
$25 B
75
Kansas
New York,
$25 B
71
New York
3
RANK NAME
6
Christy Walton
7
George Soros
8
Sheldon
Adelson
9
Jim Walton
10
Alice Walton
NET
AGE RESIDENCE
WORTH
Jackson,
$24.5 B
56
Wyoming
Katonah,
$22 B
81
New York
Las Vegas,
$21.5 B
78
Nevada
Bentonville,
$21.1 B
63
Arkansas
Fort Worth,
$20.9 B
61
Texas
• From 1990 to 2005 the minimum wage decreased
9 percent and production workers' pay increased
only 4.3 percent (adjusted for inflation)
• In 2008, during the first full year of the crisis,
workers lost an average of 25% off their 401k.
• In 2008, the wealth of the 400 richest Americans
increased by $30 billion, bringing their total
combined wealth to $1.57 trillion, which is more
than the combined net worth of 50% of the US
population (approximately 155 million Americans)
• In 2009, Wall Streets firms issued a record $150
billion in bonuses to their executives.
– All of these bonuses were a direct result of U.S. tax
dollars.
– If this money were used to create jobs, instead of giving
them to a handful of top executives, we could have paid
an annual salary of $30,000 to 5 million people.
– The S&P 500 is still up 141.4 percent since 1990.
– CEO compensation is up 282 percent.
– Corporate profits are up 106.7 percent.
• In 1970, CEOs made $25 for every $1 the average
worker made.
– Due to technological advancements, production and profit
levels exploded from 1970 to 2000, causing the pay ratio
to dramatically increase to $90 for CEOs compared to $1
for the average worker.
– In 2009, the average CEO income was $185 for every $1
earned by the average worker.
– If compensation packages for CEOs (i.e., stock options
and other benefits) are calculated into their pay, CEOs
make more accurately $500 to $1
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COMPANY
CHIEF
EXECUTIVE
John
McKesson
Hammergren
Ralph
Ralph Lauren
Lauren
Vornado
Michael
Realty
Fascitelli
Kinder
Richard
Morgan
Kinder
Honeywell
David Cote
1-YEAR PAY
STOCK OWN
($ MILLIONS)
($ MILLIONS)
COMPANY
CHIEF
EXECUTIVE
1-YEAR PAY
STOCK OWN
($ MILLIONS)
($ MILLIONS)
Express
Scripts
George Paz
$51.52
$47.3
Jeffrey Boyd
$50.18
$128.2
$48.83
$155.8
$43.71
$30.3
$43.19
$90.9
$131.19
$51.9
$66.65
$5,010.4
Priceline
$64.4
$171.7
UnitedHealth
Group
$60.94
$8,582.3
$55.79
$21.5
• Some primary causes contributing to the creation
and persistence of wealth inequality include:
– Financial Resources
– Money Allocation
– Higher rate of savings and hence asset accumulation by
the wealthy
– Higher net rate of return to assets owned by the rich
• The wealthy may have special knowledge
• The level of fees and other charges on their savings will
be less than those with small investments
– Lower credit costs and credit constraints for the wealthy
– Inflation
• Those that are not wealthy do not have the
resources to enhance their opportunities and
improve their economic position.
– Members of the middle and working classes are more
likely to have their money in savings accounts and
home ownership.
– This difference comprises the largest reason for the
continuation of wealth inequality in America: the rich are
accumulating more assets while the middle and working
classes are just getting by.
Stephen
Hemsley
Clarence
Marathon Oil
Cazalot, Jr.
Gilead
John Martin
Sciences
• The rich use their money to earn larger returns and
the poor have no savings with which to produce
returns or eliminate debt. Wealthy families pass down
their assets allowing future generations to develop
even more wealth.
• Corresponding to financial resources, the wealthy
strategically organize their money so that it will
produce profit.
• Affluent people are more likely to allocate their money
to financial assets such as stocks, bonds, and other
investments which hold the possibility of capital
appreciation.
• Over time, the sum that is invested becomes
progressively more substantial.
• Currently, the bottom 90% of Americans hold 73% of
all debt
– As the price of commodities increases because of inflation, the
poor must spend a larger percentage of their money on things they
need to survive , such as food and gasoline.
– Most of the working poor are paid fixed hourly wages that do not
keep up with rises in prices, so every year an increasing
percentage of their income is consumed until they have to go into
debt just to survive.
– Net indebtedness generally prevents the poor from having any
opportunity to accumulate wealth and better their conditions.
– After debt payments, poor families are constrained to spend the
remaining income on items that will not produce wealth and will
depreciate over time.
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• The concentration of power creates many
problems for society including:
– a reduction in economic competition
– the dominance of corporate profit-making goals over
societal goals
– threats to democratic institutions
– the dwindling of unions
– worker dislocation and unemployment
– abuse of government authority
• World Systems Theory: Posits that the world’s
nations have become increasingly interdependent
and are now linked in a worldwide system in
which certain industrialized nations and
multinational corporations dominate the world’s
economic system.
– The world system is arranged according to influence:
core (most dominant), to semiperiphery, to periphery
(least dominant).
– The distinction, core-semiperiphery-periphery, is used to
describe a worldwide division of labor and capital
ownership
– The spread of industrialization and overconsumption
has taken place from the core to the periphery.
• Core: Consists of the strongest and most powerful nations in
which technologically advanced, capital-intensive products are
produced and exported to the semiperiphery and the periphery.
• Semiperiphery: Consists
of industrialized Third World
nations that lack the power
and economic dominance of
the core nations.
• Periphery: Consists of
nations whose economic
activities are less mechanized
and are primarily concerned
with exporting raw materials
and agricultural goods to the
core and semiperiphery.
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CAPITAL FLIGHT: PERIPHERY
• Alleviating problems related to power include:
– Reducing the size of the government and budget
deficits
– Reorganizing government so that abuses are less likely
– Encouraging action by citizens that serve as a
counterbalance to government and corporate power
– Globalizing the labor force and establishing labor rights
– Reorganizing the economy to reduce worker
exploitation and unemployment
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