definitions of economic systems- capitalism, socialism, communism , mixed economies Primary, secondary , tertiary sectors of economy Factors of production

1. Economic organization of
society
SESSION 7
FACULTY - AR MAHIMA J

2. LEARNING OBJECTIVES
1) Different economic systems: capitalism; socialism, communism, mixed-economies.
2) Primary, secondary and tertiary sectors of economy: agriculture, mining, manufacturing,
banking, marketing, transport and service sectors.
3) Factors of production: land, labour, capital and entrepreneurship.
4) Relevance of factors of production to architecture and construction practice.

3. Different economic systems
ECONOMIC
SYSTEMS
CAPITALISM
SOCIALISM
COMMUNISM
MIXED ECONOMIES

4. Capitalism is an economic system where the means of production are owned by private individuals. "Means of
production" refers to resources including money and other forms of capital. Under a capitalist economy, the economy
runs through individuals who own and operate private companies. Decisions over the use of resources are made by the
individual or individuals who own the company.
In a capitalist society, companies that incorporate are typically treated by the same laws as
individuals. Corporations can sue and be sued. They can buy and sell property. They can perform many of the same
actions as individuals
Under capitalism, companies live by the profit motive. They exist to make money. All companies have owners and
managers. Sometimes, especially in small businesses, the owners and managers are the same people. As the business
gets larger, the owners may hire managers who may or may not have any ownership stake in the firm. In this case, the
managers are called the owner's agents.
The job of the management is more complex than just making a profit. In a capitalist society, the goal of the
corporation is maximizing shareholder wealth.
Under capitalism, it is the government's job by enforcing laws and regulations, to make sure there is a level playing
field for privately-run companies. The amount of governing laws and regulations in a particular industry generally
depends on the potential for abuse in that industry.
CAPITALISM

5. SOCIALISM
Socialism is an economic system where the means of production, such as
money and other forms of capital, are owned by the state or public. Under
a socialist system, everyone works for wealth that is in turn distributed to
everyone. BUT, Under capitalism, you work for your own wealth.
A socialist economic system operates on the premise that what is good for
one is good for all. Everyone works for their own good and for the good of
everyone else. The government decides how wealth is distributed among
the people
In a pure socialist economy, the government provides for the people. The
taxes are usually higher than in a capitalist system. There may be
government-run health care and a complete system of government-
operated education. It is a misconception that people do not pay for these
services. They do pay for them through higher taxes. Socialist systems
emphasize equal distribution of wealth among the people.

7. COMMUNISM
Communism is a political and economic ideology that positions itself in opposition to liberal
democracy and capitalism, advocating instead a classless system in which the means of
production are owned communally and private property is nonexistent or severely curtailed.
Though the term "communism" can refer to specific political parties, at its core, communism is
an ideology of economic equality through the elimination of private property.
The beliefs of communism, most famously expressed by Karl Marx, center on the idea that
inequality and suffering result from capitalism.
Under capitalism, private business people and corporations own all the factories, equipment
and other resources called "the means of production." These owners, according to communist
doctrine, can then exploit workers, who are forced sell their labor for wages.
The working class — or "proletariat" — must rise up against the capitalist owners, or
"bourgeoisie," according to the ideals of communism, and institute a new society with no
private property, no economic classes and no profits.

8. DIFFERENCE BETWEEN
SOCIALIST & COMMUNIST
Communism differs from socialism, though the two have
similarities. Both philosophies advocate economic equality
and state ownership of various goods and services.
 However, socialism usually works through the existing
democratic structures of capitalist countries. Almost all
capitalist countries, in fact, have some socialist characteristics,
like the public schools and Social Security program in the
United States.
In contrast, communists state that capitalist economic and
political systems must be completely overthrown through
revolution.

9. Mixed Economies
Many countries have mixed economic
systems with elements of both capitalism
and socialism. In the U.S., predominantly
a capitalist system, there are many
government-run programs, notably
Social Security, Medicaid, and Medicare.
In many socialist countries, as in
Sweden, there are also still private
businesses.
In practice, "mixed economy" generally
refers to market economies with
substantial state interventionism and/or
sizable public sector alongside a
dominant private sector.

10. mining, manufacturing, banking, marketing, transport,
agriculture, and service sectors.

13. Factors of production:
1) Land,
2) Labour,
3) Capital
4) Entrepreneurship

14. LAND
It refers to all natural resources which are free
gifts of nature. Land, therefore, includes all gifts
of nature available to mankind—both on the
surface and under the surface, e.g., soil, rivers,
waters, forests, mountains, mines, deserts, seas,
climate, rains, air, sun, etc.
In the words of Dr Marshall, “ By land is meant…
materials and forces which nature gives freely
for man’s aid, in land, water, air, light and heat.
Land is thus an important factor of production
which helps in the production of goods &
services in one way or the other.

15. Labour
Human efforts done mentally or physically with the aim of earning income is
known as labour. Thus, labour is a physical or mental effort of human being in
the process of production.
The compensation given to labourers in return for their productive work is called
wages (or compensation of employees).
Land is a passive factor whereas labour is an active factor of production. Actually,
it is labour which in cooperation with land makes production possible.
Land and labour are also known as primary factors of production as their
supplies are determined more or less outside the economic system itself

16. Capital
Capital means all man-made resources. It comprises all wealth other than land which is
used for further production of wealth.
It includes tools, implements, machinery, seeds, raw materials and means of transport
such as roads, railways, canals etc.
In modern usage , capital not only refers to physical capital but also to human capital
which is the process of increasing knowledge, the skills and capacities of all people of the
country.
It is this human capital which is regarded more important than physical capital in
production these days.
As pointed out by Professor Galbraith -- ‘ we now get the larger part of our industrial
growth not from more capital investment but from the investment in men and improvements
brought about by improved men.

17. Entrepreneurship
Land, labour and capital are respectively natural, human and material means of production.
No production is possible without bringing together these three factors of production and
employing them in right proportions.
So there must be somebody to hire them from their owners by paying rent, wages and
interest and to decide the quantities of each needed for production. This is known as
“Entrepreneurship or Organization.
It refers to all the services of an entrepreneur who controls, organizes and manages the policy
of a firm , innovates and undertakes all risks.

18. Relevance of factors of production to architecture and
construction practice.
Land is defined as ‘land comprises all naturally occurring
resources whose supply is inherently fixed’. Land is a fixed resource
as there is a limited amount, and price can vary depending on
location. There are four main types of land:
Agricultural land denotes the land suitable for agricultural
production, both crops and livestock.
Brownfield Site/Land are abandoned or underused industrial and
commercial facilities available for re-use. Expansion or
redevelopment of such a facility may be complicated by real or
perceived environmental contaminations.
A green belt or greenbelt is a policy and land use designation used
in land use planning to retain areas of largely undeveloped, wild, or
agricultural land surrounding or neighboring urban areas.
An Investment land is purchased at ones own desire, he/she may
want to sell it in the near future or to give it to someone as a gift.
Land Value is also affected by:
i. Supply and demand, the supply of land is fixed
although it use can always be altered.
ii. The permitted of land use to which it can be put
under planning regulations.
iii. The location of the land, the more versatile the
land the higher price it has.
iv. Physical characteristics of land may alter the
cost of development.
Land is a factor that can immensely affect a
construction project as there are many ‘sub-factors’
which can make one bit of land more attractive to the
buyer than the other as each type of land has its own
advantages and disadvantages. Therefore if the
correct decisions are made when purchasing land, it
should minimize delays on a construction project.

19. Labour
Large construction companies only tend to employ labourers from larger agencies.
Due to the fact that agencies are making labourers terminated, therefore there is a fewer
number of labourers for construction companies to employ. This can be a large influence on the
overall production of a construction.
Relevance of factors of production to architecture and
construction practice.

20. Capital costs are costs incurred on the purchase of land, buildings, construction and
equipment to be used in the production of goods or the rendering of services. In other words, the
total cost needed to bring a project to a commercially operable status. However, capital costs are not
limited to the initial construction of a factory or other business. For example, the purchase of a new
machine that will increase production and last for years is a capital cost.
Capital costs do not include labour costs except for the labour used for construction. Unlike
operating, capital costs are one-time expenses, although payment may be spread out over many
years in financial reports and tax returns. Capital costs are fixed and are therefore independent of
the level of output.
In the construction industry it is very important to look out for capital costs, as some items may
have a high capital, but they may have little return. For example purchasing a crane for a
construction project would have a high capital but it is a very efficient plant therefore giving a high
return. Thus, looking at capital costs can increase the production of a construction project.
Relevance of factors of production to architecture and
construction practice.

21. Entrepreneurs are vital to economic growth
and, consequently, to higher living standards. Thus,
legislators and other leaders who create economic
policies should strive to encourage the innovation
and risk taking of entrepreneurs.
Enforcing property rights through contract, patent
and copyright laws; encouraging competition
through free trade, and promoting a healthy
economic climate through Federal Reserve anti-
inflation initiatives-these are all examples of
policies that empower entrepreneurs to be creative
and take risks.
Relevance of factors of production to architecture and
construction practice.
. History has shown time and again that economies that
appreciate the benefits created by entrepreneurs flourish,
while those that devise laws and regulations aimed at seizing
the entrepreneurs’ rewards founder.
An entrepreneur takes risk and only sometimes does it pay
off. Without any risk takers, the construction industry would
not move forward.
An entrepreneur would perhaps buy a plot of land, and
develop it, not only to they boost the construction industry
they also employ people to work for them. Therefore,
entrepreneurs can enhance the production of a construction
project.

22. Thank you