an social institution
• Presented by
• The economy is the social institution that organizes a society’s
production, distribution, and consumption of goods and services.
• As an institution, it operates in predictable manner
• Goods are commodities
• Services are activities
• We value goods and services
• The economic structures are result of thousand of years of social change
• There are three basic revolutions that have transformed the social life
• The Agricultural Revolution
• The Industrial Revolution
• The Information Revolution and Postindustrial Society
The Agricultural Revolution
• Simple society
• Hunting and gathering together
• No distinct economy
• Producing and consuming
• About 5000 years ago a new agricultural eonomy was created
• 50 times more productive
• Specialized workers
• Barter system
• With the passage of time four factors developed which made economy a distinct
The Agricultural Revolution
• Four factors are
• agricultural technology
• specialized work
• permanent settlements
The Industrial Revolution
• Second technological revolution
• Started in 18 century
• Industry was developed 1st in England then in north America
• It bring more powerful change in economy than rise of agriculture
• Industrialization changed the economy in five fundamental ways:
» 1. New sources of energy
» 2. Centralization of work in factories.
» 3. Manufacturing and mass production.
» 4. Specialization.
» 5. Wage labor.
• It raised the living standards
• Expand the market
• But the benefits were unequally
• At beginning , factory owners made vast fortunes
• Workers were living close to poverty
• Laboure worked even for peny/day in mines
• Women were amongst most lowest paid
The Information Revolution and Postindustrial Society
• In 1950 nature of productivity started changed
• Post industrial economy was created in U.S.A
• It is a productive system based on service work and high technology
• Automated machines were started to use, which
– Reduce the role of human labour in production
– Expand the ranks of clericale workers and managers
– Shift the industrial work to service work
• Driving this change is a third technological breakthrough: the
• New kinds of products and new forms of communications have altered
the character of work
• In general, there have been three significant changes:
1. From tangible products to ideas.
2. From mechanical skills to literacy skills
3. From factories to almost anywhere.
Sectors of the Economy
• The three revolutions shifted balance among the three sectors of a
– Primary sector
– Secondary sector
– Tertiary sector
• draws raw materials from the natural environment
• it is of greatest importance (26% of the economy) in low-income nations
• 10 percent of economic activity in middle-income nations
• just 2 percent in high-income countries such as the United States
• Examples: agriculture, raising animals, fishing, mining and forestry
• transforms raw materials into manufactured goods
• Grow quickly as societies industrialized
• It includes operations such as refining petroleum into gasoline and
turning metals into tools and automobiles.
• • is a significant share (25%–35%) of the economy in low-, middle-, and
• Examples: automobile and clothing manufacturing
• is the part of the economy that involves services rather than goods
• • is the largest sector (49%–73%) in low-, middle-, and high-income
• About 85 percent of the U.S. labor force is in service work which include
1. secretarial and clerical work
2. positions in food service , sales, law, health care, law enforcement,
advertising, and teaching.
Preindustrial vs industrial vs post industrial
Economic institution can be breakdown based on level of
economic progress achieve….
Preindustrial society: focus on primary sector
Industrial society : focus on secondary sector
Postindustrial society: focus on tertiary sector
• economic activity that crosses national borders
• The development of a global economy has five major consequences.
1. dvision of labour
2. Increased no of products
3. No longer control of national governments
4. small number of businesses, operating internationally, now control a vast share of the
world’s economic activity
5. raises concerns about the rights and opportunities of workers.
• Every society’s economic system makes a statement about justice by
determining who is entitled to what.
• There are two basic models
• Capitalism is an economic system in which natural resources and the
• means of producing goods and services are privately owned.
• . An ideal capitalist economy has three distinctive features:
1. Private ownership of property
2. Pursuit of personal profit.
3. Competition and consumer choice
• Consumers regulate a free-market economy
• Justice in a capitalist system amounts to freedom of the marketplace
Capitalism results in
• greater productivity
• higher overall standard of living
• greater income inequality
• freedom to act according to self-interest
• Example: The United States has a mostly capitalist economy.
• an economic system in which natural resources and the
• means of producing goods and services are collectively owned
• In its ideal form, it has three opposite features to capitalism
1. Collective ownership of property
2. Pursuit of collective goals
3. Government control of the economy
• Justice in a socialist context means not competing to gain wealth
• but meeting everyone’s basic needs in a roughly equal manner
Socialism results in
• less productivity
• lower overall standard of living
• less income inequality
• freedom from basic want
• Examples: The People’s Republic of China and Venezuela have mostly
Socialism and Communism
• socialism and communism are not same
• Communism is a hypothetical economic and political system in which all
members of a society are socially equal.
• Karl Marx viewed socialism as one important step on the path toward
the ideal of a communist society that abolishes all class divisions.
• But this communist goal has not been achieved in any country
• Marx might have agreed that a communist society is a utopia
• (from Greek words meaning “no place”
Welfare Capitalism and State Capitalism
These are the blends of capitalism and socialism
1. Welfare Capitalism
an economic and political system that combines a mostly market-based
economy with extensive social welfare programs.
Under welfare capitalism,
government may own some large industries such as transportation and the mass
most industry is privately owned but highly regulated by government
high taxation of the rich helps pay for extensive government services for all
Examples: Sweden and Italy have welfare capitalist economies.
Welfare Capitalism and State Capitalism
2. State Capitalism
an economic and political system in which companies are privately
owned but cooperate closely with the government
Under state capitalism,
government works in partnership with large companies by
supplying financial assistance
controlling foreign imports
• Examples: Japan and Singapore have state capitalist economies.
Relative Advantages of Capitalism
• Comparing economic models is difficult because all countries mix
capitalism and socialism to varying degrees
• nations differ in cultural attitudes toward work, access to natural
resources, levels of technological development,and patterns of trade.
• Despite such complicating factors, some crude comparisons are
Capitalism vs. Socialism
• Economic productivity
– GDP is $13,500
• Economic equality
– More income disparity
• Personal freedom
– Emphasizes freedom to pursue
• Economic productivity
– GDP is $5,000
• Economic equality
– Less income disparity
• Personal freedom
– Emphasizes freedom from
No system has yet been able to offer both political
freedom and economic equality
Work in postindustrial economy
• The Decline of Agricultural Work
• From Factory Work to Service Work
• The Dual Labor Market:
1. primary labor market
2. secondary labor market,
• Labor Unions:
• Organizations of workers that seek to improve wages and working conditions through various
• Decline of unions
• Shrinking industrial sector
• Service jobs are unlikely to be unionized
• A profession is a prestigious white-collar occupation that requires
extensive formal education
– Agricultural work represents only 1.7% of jobs.
– Blue-collar, industrial work has declined to 13% of jobs.
– White-collar, service work has increased to 85% of jobs.
Characteristics of professions
• An occupation is considered a profession to the extent that it
demonstrates the following four basic characteristics
1. Theoretical knowledge.
2. Self-regulating practice.
3. Authority over clients.
4. Community orientation rather than self-interest.
• earning a living without being on the payroll of a large organization
• Lawyers, physicians, and other professionals are well represented
• among the ranks of the self-employed
• most self-employed workers are small business owners, plumbers,
carpenters, freelance writers,
• editors, artists, and long-distance truck drivers.
Unemployment and Underemployment
• Every society has some unemployment.
• Jobs disappear as:
1. occupations become obsolete.
2. businesses change the way they do business.
3. companies downsize or close
• In early 2011, 8.9% of the country’s labor force was unemployed.
• At highest risk for unemployment are young people and African Americans.
Unemployment, and Underemployment
• Underemployment: Lower salaries, fewer benefits, and reduced/no
• Many workers agree to cuts in pay and/or benefits.
• economic activity involving income not reported to the government as
required by law
• Most of us occasionally participate in the underground economy in
• Much of the underground economy is due to criminal activity.
• The largest segment is people who fail to report legally earned income
on their tax returns.
Race and Gender in the Workplace
• In the past, white men have been the mainstay of the US labor force.
• In the future, more workers will be women and minorities.
• The workplace must develop programs and policies that meet the needs
of a socially diverse workforce and encourage everyone to work
together effectively and respectfully.
Information Technology and Work
1. Computers are deskilling labor.
2. Computers are making work more abstract
3. Computers limit workplace interaction.
4. Computers increase employers’ control of workers.
5. Computers allow companies to relocate work.
• An organization with a legal existence, including rights and liabilities,
separate from that of its members.
• it makes an organization a legal entity
• shields owners’ wealth from lawsuits brought against the company
• can result in a lower tax rate on the company’s profits
• A few large corporations dominate the US economy
• 2,848 corporations with assets exceeding $2.5 billion, representing 81
percent of all corporate assets
• The largest U.S. corporation in terms of sales is Walmart.
• Its annual sales ($419 billion in 2011) equal the combined tax revenues
of forty-four of the states
Conglomerates and Corporate Linkages
• Economic concentration has created the conglomerate
– a giant corporation composed of many smaller corporations.
• enter new markets
• spin off new companies
• merge with other companies.
• Example is PepsiCo
• Many conglomerates are linked because they own each other’s
Example is General Motors
• Corporations are also linked through interlocking directorates,
– networks of people who serve as directors of many corporations
• These boardroom connections give corporations access to valuable
information about other companies’ products and marketing strategies.
• These linkages are perfectly legal
• such linkages may encourage illegal activity, such as price fixing,
Corporations: Are They Competitive?
• According to the capitalist model, businesses operate independently
in a competitive market.
• large corporations do not operate independently.
• Few corporations dominate others
• They are not truly competitive
• the domination of a market by a single producer,
• such a company could simply charge whatever it wanted for its products.
• Laws forbids of any monopoly
– the domination of a market by a few producers
– It is legal and common
– arises because the huge investment needed to enter a major market
– Competition means risk, oligopoly lessened the risk
– Example is auto-industry
Corporations and the Global Economy
• Many large corporations operate as multinationals, producing and
distributing products in nations around the world.
• Modernization theorists claim that multinationals raise living standards
in poor countries by offering them more jobs and advanced technology.
• Dependency theorists claim that multinationals make global inequality
worse by pushing poor countries to produce goods for export and making
them more dependent on rich nations
The economy looking ahead
• Social institutions are a society’s way of meeting people’s needs
• the U.S. economy only partly succeeds in accomplishing this goal
• Economy experiences expansion and recession
• shift from industrial work to jobs created by the Information Revolution.
• the postindustrial economy has brought rising unemployment and
declining wages for industrial workers
• A second transformation of recent years is the expansion of the
A new model of economy
• analysts around the world are rethinking conventional economic models
• socialism is less productive than capitalism
– Which is a reason collapse of the socialist regimes in Eastern Europe and
the Soviet Union
• capitalism has its own problems,
– high levels of inequality and a steady stream of corporate scandal
• First,the economic future of the United States and other nations will be
played out in a global arena
• Second, it is imperative that we address the related issues of global inequality
and population increase.
• Whether the world reduces or enlarges the gap between rich and poor
societies may well steer our planet toward peace or war.