Student Activity Will the Real Capitalism Please Stand Up? Concepts



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Student Activity

Will the Real Capitalism Please Stand Up?
Concepts:

markets

rule of law

capitalism

property rights

entrepreneurship

institutions


Content Standards:

Standard 3: Different methods can be used to allocate goods and services. People, acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.



  • There are essential differences between a market economy, in which allocations result from individuals making decisions as buyers and sellers, and a command economy, in which resources are allocated according to central authority.

  • National economies vary in the extent to which they rely on government directives (central planning) and signals from private markets to allocate scarce goods, services, and productive resources.

Standard 10: Institutions evolve in market economies to help individuals and groups accomplish their goals. . . . A different kind of institution, clearly defined and well-enforced property rights, is essential to a market economy.


Standard 16: There is an economic role for government to play in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.
Lesson Overview: The traditional, “comparative systems” approach to categorizing national economies proves less than useful in a world of mixed economies. No nation has a pure market economy and none has a pure command economy. Instead of trying to fit messy reality into conveniently labeled packages, it makes more sense to describe economies in terms of a continuum, from those with a preponderance of strong capitalist institutions to those with few or none. In this exercise, students analyze descriptions from five different countries to determine which institutional components of capitalism are present and, if so, to what extent. Students then place each on a continuum depending upon the number and strength of its capitalist institutions.

Materials:


  • Copies or slides of U.S. description, pp. 4-5

  • Copies of blank analysis chart, p. 8 (one per participant)

  • Copies of country descriptions: Updated descriptions for countries are available on the FTE website →Teacher Resources→Lesson Plans→Is Capitalism Good for the Poor? →Will The Real Capitalism Please Stand Up. (Number of copies depends on how many countries each group will be considering)

  • Visuals, pp. 7-10


Time: 1-1.5 class periods
Procedures:

Reading-based Strategy


  1. Discuss with students the definition of “institutions” and engage them in identifying common institutions in their daily lives:

  • Institutions are the established behavior practices and patterns that form the foundation for community life.

  • (An example for students to consider is education. Have them list “established practices and patterns” such as going to a school building, one teacher in a classroom of students, homework, public schooling paid for by government, the persistence of the summer vacation model even though few work in agriculture, etc.)




  1. Introduce or review with students the 4 key institutions of capitalism: markets, private property, the rule of law, and entrepreneurship. (See teacher background outline for Lesson 1, Part 2: What is Capitalism?) Important points to review or emphasize:




  • Markets: A market exists where-, when-, and however buyers and sellers interact to exchange goods, services, or resources. However, not everything we might refer to in everyday conversation as a “market” meets the criteria for the economic definition of the term.

  • Competitive markets are based on voluntary exchange. Exchanges that exploit people who do not participate voluntarily – selling slave labor, for example – do not fit our definition of a competitive market. Likewise, the illegal drug trade, in which violence is commonly used to force involuntary exchange, is not a market in the economic sense.

  • Markets are also characterized by flexible prices that change in response to changes in supply and demand. It is important to remember that “price tags” are not always “market prices.” Prices in state stores in the former Soviet Union or in North Korea today are administered prices rather than market prices. Market prices emerge from the un-orchestrated interaction of supply and demand; administered prices are generated by government officials.



  • Private property: Property rights are the rights of people to themselves (including the value of their labor), and their possessions.




  • Rule of law: Societies may have laws, stable governments, and even benevolent rulers, and still be without the rule of law. The key requirement of the rule of law is that both the governed and the governors are subject to the law.




  • Entrepreneurship: Not all business people are entrepreneurs. Entrepreneurs are motivated by profit to assume the risk of production. One important tool in this endeavor is innovation.




  1. Distribute copies of the “United States” handout and chart (or display visual). Explain the chart, pointing out what students will be looking for in the reading. Demonstrate the activity by reading through the U.S. example and filling in the chart in response to students’ suggestions.




  1. Divide the class into small discussion groups. Distribute handouts so that each group has one country description and a blank chart. Instruct students to read their group’s country description individually, and then discuss as a group and fill in the chart. Use information from the reading to reach consensus on whether the listed institutions are present or absent and to what degree. After completing the chart, the group must decide where to place their country on the continuum (both the continuum at the bottom of the chart handout, and the class copy posted on the wall or on an overhead transparency). Remind students that the data on the U.S. handout may provide helpful comparisons.


Alternate procedure: Give each discussion group several country descriptions. Instruct them to fill out all 5 charts and to place all countries on the continuum. It’s good for subsequent discussion purposes to assign each country to more than one group and compare the ratings by different groups.


  • Depending on students’ reading skills, teachers may find it valuable to reconvene the class after groups have completed the first country scenario to assess students’ success in interpreting the descriptions and filling out the chart. If students continue to struggle with the activity, debrief each scenario separately instead of allowing the small groups to complete all the remaining scenarios on their own.




  1. Reconvene the full class. Using the visual on p. 18, conduct a discussion in which students must reach consensus on the placement of all countries on the continuum.




  1. Optional Extension: Using the sources listed below for the web-based strategy, add nations that are featured in other lessons in the capitalism and poverty lessons – India, China, Brazil, Kenya, etc. – either by writing additional scenarios or by assigning student groups to research the various countries.


  1. Suggested debriefing question:

  • How has your understanding of the label “capitalist” changed as a result of this exercise? (The desirable outcome is that students understand “capitalist” as the description of a set of institutions rather than a definitive label for a country’s economic system. They should recognize that there is a range of capitalist practice and that “capitalist” institutions are rarely present in their purest form. This will set the stage for later lessons in which students investigate how those institutions can be shaped to work to advantage or disadvantage poor people in different parts of the world.)


Web-based Strategy

  1. Instead of giving students the scenario handouts, give them only copies of the chart and continuum, and a list of countries. Make students responsible for researching the data necessary to complete the charts and place the countries on the continuum.




  • World Bank Governance Indicators: http://info.worldbank.org/governance/wgi/index.asp

  • The CIA World FactBook:

https://www.cia.gov/library/publications/the-world-factbook/

  • Index of Economic Freedom (Heritage Foundation) – Country Rankings: http://www.heritage.org/index/ranking

  • Transparency International’s Corruption Perceptions Index: http://www.transparency.org/research/cpi/overview

  • World Economic Forum: Global Competitiveness Reports

http://www.weforum.org/reports

  • Organization for Economic Cooperation and Development: Countries

http://www.oecd.org/

  • U.S. Department of State, “Background Notes,” country list: http://www.state.gov/r/pa/ei/bgn/

  • Fraser Institute, Economic Freedom of the World, Annual Reports

http://www.freetheworld.com/

NOTE: The websites listed above are the source of the material included in the updated country scenarios available on the FTE website www.fte.org.



United States

  • With a population of 310m, the US has the largest and most technologically powerful economy in the world, with a GDP of $14.6t and per capita GDP of $48,500. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, lay off surplus workers, and develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, and consistently rank in the top three countries in the world for patent applications, along with China and Japan.

  • The economic downturn of 2008 has seen economic growth slow to 2.8% in 2010, un-employment rise to 9% nationally (103rd in the world), government spending as a percentage of GDP increase to 42.2% and gross public debt surpass 100% of GDP.

  • Failure to pass a budget since fiscal year 2009 and lack of restraint in government spending and borrowing caused the previously consistent AAA credit rating to be downgraded to AAA-, resulting in a 7.9 reduction in the government spending score of 2010 to 46.7 or 127th in the world, according to Heritage Foundation.

  • The pending implementation of the health insurance reform law is expected to place additional strains on business. Total spending on health care rose from 9.0% of GDP in 1980 to 17.9% in 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act, is designed to improve accountability and transparency in financial markets and address the 5 point drop in investment freedom score from 2010 to 70 out of 100, and a rank of 36th in the world .

  • Long-term problems include inadequate investment in deteriorating infrastructure, rapidly rising medical and pension costs of an aging population, sizable current account and budget deficits - including significant budget shortages for state governments, energy shortages, and stagnation of wages in lower-income families.

  • Business start-up procedures are efficient although business operation has been impeded by more than 70 new regulations since 2009, at a cost of $38b to the business community, resulting in a 2 point decrease in the Heritage Foundation’s Economic Freedom Index from that of 2010 to 76.3, and a world rank of 10 down from 9 in 2010.

  • The judiciary functions independently and predictably although serious constitutional questions have arisen regarding the government mandated health insurance decision. Corruption and cronyism is on the increase and is undermining the institutional integrity of the rule of law, resulting in an 86th percentile ranking in control of corruption and a corruption perception index of 7.1 (out of 10) by Transparency International and a decrease of 4 points in the heritage Foundation score to 71 from a previous 75. In 2010.

  • Property rights are guaranteed, although affected by increasing regulations, ranking the US 19th in the world, with a score of 85 out of 100 by the Heritage Foundation.

Apple Wins Big in Patent Case, By Jessica E Vascellaro, Aug. 25, 2012
SAN JOSE, Calif.—Nine jurors delivered a sweeping victory to Apple Inc. in a high-stakes court battle against Samsung Electronics Co., awarding the Silicon Valley company $1.05 billion in damages and providing ammunition for more legal attacks on its mobile-device rivals.

Jurors Friday found that Samsung infringed all but one of the seven patents at issue in the case—a patent covering the physical design of the iPad. They found all seven of Apple's patents valid—despite Samsung's attempts to have them thrown out. They also decided Apple didn't violate any of the five patents Samsung asserted in the case.

The damage award is shy of Apple's request for more than $2.5 billion, but much larger than Samsung's estimates and still ranking among the largest intellectual-property awards on record.

"Today's verdict should not be viewed as a win for Apple, but as a loss for the American consumer," Samsung said. "It will lead to fewer choices, less innovation, and potentially higher prices."

…While the ruling won't affect the companies' latest products, it could shape how smartphones and tablets are designed and the fortunes of companies that make them.

Apple's legal campaign is partly aimed at trying to beat back the gangbuster growth of Android, the operating system created by Google Inc. that is used by Samsung and other device makers. In the second quarter, Android phones—which are made by many phone makers—represented 68% of smartphone shipments, while Apple's represented 17%, according to market research firm IDC.

…Friday's jury decision that the six infringed Apple patents—including three covering the shape of the iPhone and on-screen icons—are valid may make it harder for handset makers to enter markets with gadgets that look and work too much like a market leader's.

That means that Apple could find it easier to defend its market position and lofty profit margins, while consumers may see a bit less choice and higher prices—as fewer competitors court buyers with me-too models and pass along costs of damage awards in price their products.

…The trial has already shaped the debate about reform of U.S. intellectual-property law. Critics complain the U.S. Patent and Trademark Office grants too many patents and say patent litigation is clogging the courts.

Many have questioned whether such complex cases can be decided by juries, while a federal judge recently threw out a high-profile case between Apple and Motorola, saying the patent system was in "chaos." Lawyers and judges warn that mounting patent litigation—including cases that encompass everything from smartphones to videogame consoles, will mean mounting costs for consumers.

"Software patents are clogging the system at every possible point," says Christal Sheppard, an assistant professor of law at the University of Nebraska College of Law. "This could be the bellwether case that goes to the Supreme Court to decide what invention in the 21st century really means for software." http://online.wsj.com/article/SB10000872396390444358404577609810658082898.html
OUR ECONOMIC ANALYSIS

clearly present – the component is present in the economy with few exceptions

generally present – the component is present in the economy, but with many or significant exceptions

generally absent – the component is only present in the economy in some limited

forms


clearly absent – the component is almost entirely excluded from the economy

not enough information


Institution

Present / Absent

Evidence


markets



clearly present

Only a limited number of corporations are government owned. Most products are sold in markets. Little, and mostly indirect, government influence on markets.


private property



clearly present

Property rights protections established in the Constitution are intact. Courts even enforce rights to ownership of ideas, words, and music.


rule of law



clearly present

Some delays in overloaded court system, but generally functions impartially.




entrepreneurship



clearly present

Relatively easy to start a business. New regulations make it more costly to do business. Businesses are allowed to fail.

Where would you place the United States economy along the spectrum?






more capitalist less capitalist

Country _________________________

YOUR ECONOMIC ANALYSIS

clearly present – the component is present in the economy with few exceptions

generally present – the component is present in the economy, but with many or significant exceptions

generally absent – the component is only present in the economy in some limited

forms


clearly absent – the component is almost entirely excluded from the economy

not enough information

Institution

Present / Absent

Evidence


markets









private property









rule of law









entrepreneurship







Place the country on the spectrum.



US




more capitalist less capitalist


less capitalist

more capitalist

A suggested ordering of selected nations, as of mid-year, 2012, can be seen on the continuum below. Given the relatively small amount of information available to students, expect some variation. Also allow for changes based on current events. Accept any reasonable arguments for placement.


Copyright © Foundation for Teaching Economics, 2004. Updated 2012

Permission granted to reproduce for instructional purposes.






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