Amity Business School

Amity Business School
MBA 2013, 3rd Semester

INTERNATIONAL ECONOMICS AND POLICY

Amanpreet Kang

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Amity Business School

Conceptualization of Economic Systems
The role and significance of nation states – Adam Smith and Ricardo Karl Marx (1818 to 1883) • History of economic thought and philosophy • Paradise on earth, brotherhood, sharing talents and wealth – Social Man • Power originates in economic production • Social classes • Theory of social change based on antagonism between social classes
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After meeting basic needs. there is creation of new needs. 3 • .Amity Business School Conceptualization of Economic Systems • • Basis of social order is production of economic goods What is produced. how is it produced and how is it exchanged is the basis of differences in people’s: – Wealth – Power – Social status • The quest to meeting basic needs is central to understanding social life.

4 • • • . Hence every society is built on an economic base.Amity Business School Conceptualization of Economic Systems • Evolution of new needs when we find means to satisfy the older ones Humans organize the activities to meet the needs. Organisation of economic activities leads to division of labor. which causes formation of classes. Exact form of social organisation varies from society to society and era to era.

Forces of production as a powerful variable in influencing the rest of the social system. We must examine the parts in relation to one another and in relation to the whole. Analysis of society will reveal its underlying economic arrangements.Amity Business School Conceptualization of Economic Systems • With time. • • • 5 . All phenomena are dependent upon the economic base. these classes develop different material interests and they become antagonistic.

Forces of production Relations of production Superstructure of society • • • • 6 .Amity Business School Conceptualization of Economic Systems • The forces of production are the technology and work patterns that men and women use to exploit their environment to meet their needs. The relations of production are the relations men (and women) establish with each other when they utilize existing raw materials and technologies in the pursuit of their production goals.

the ruling ideas…” Ruling class.Give rise to social classes "The ideas of the ruling class are. Revolution • 7 .Amity Business School Conceptualization of Economic Systems • • Property relations . Oppressed. in every age.

is the amount of labor it has within itself. 8 . determines the price of goods. • • Proper price determined by Value Value of a commodity. overhead labor . no special advantages for anyone.everything is eventually reducible to labor and it is the true source of value. says Marx. no unions. that they contain. Every commodity sells at exactly its proper price.Amity Business School Conceptualization of Economic Systems • • Perfect capitalism – no monopolies. – Machines. • The commodities will be priced according to the amount of labor. direct or indirect.

– strives for accumulation.labor power. – competitive environment. The capitalist is an owner-entrepreneur – engaged in an endless race against his fellow ownerentrepreneurs. one accumulates or one gets accumulated.Amity Business School Conceptualization of Economic Systems • • Labor power – the worker enters the market to dispose of the one commodity he commands -. what is the source of profits – How do profits accumulate – Price cannot be higher than the competitor – How can there be profit in the whole system if everything exchanges for its honest worth? 9 . • If everyone gets the exact value.

• • • • Labor as a commodity Capitalists sell commodities and labor. labor time in commodities 10 . labor power Subsistence wage – is the money that the worker needs to exist Labor time (work hours). wage rate.Amity Business School Conceptualization of Economic Systems • Profits are easy to explain if we assume – existence of monopolies – if capitalists may pay labor less than it is worth.

The capitalists monopolize access to the means of production themselves. • 11 . But the capitalist gets the full value of his workers' whole working day. This is longer than the hours for which he paid the worker. They own the machines and equipment without which men and women cannot work.“ • • The worker is entitled only to the value of his labor-power (enough only for subsistence).Amity Business School Conceptualization of Economic Systems • • Profits – excess hours worked for the capitalists for which the labor is not paid Marx called this layer of unpaid work "surplus value.

surplus value Improve technology Labor saving machinery 12 .Amity Business School Conceptualization of Economic Systems • • • • • • • Profits Competition Accumulation Expand the scale of output Expansion. wage rate. need more labor.

Amity Business School Conceptualization of Economic Systems • • • • • • • Labor saving machinery Industrial reserve army Fall in wage value to subsistence level Unemployment Machines true value is paid Only one source of profit – unpaid wages for the extra time for which the workers worked By reducing workers. reduces the chance of earning profit 13 .

Amity Business School Conceptualization of Economic Systems • • • • • • • • • • Commoditization Profits shrink Competition rises More cost cutting machinery by all The rate of profit falls Profits cut to point at which production is no longer profitable Consumption dwindles Scramble to dump goods on the market Smaller firms go under Capitalist crisis is at hand. 14 .

or recession.Amity Business School Conceptualization of Economic Systems • • • • • • Crisis is not end of the game. the stronger capitalists can acquire machines for less than their true value.is therefore the way the system works. Workers accept sub-value wages. Thus each crisis serves to renew the capacity of the system to expand. surplus value reappears. not the way it fails. 15 . Crisis -. Machinery is dumped. After a time. in modern terminology -.

the damage is far greater than when the small enterprises fall.worse than the preceding one. and when the big organization eventually go down. Each renewal leads to the same ending: – competition for workers. labor-displacing machinery. the bigger firms absorb the smaller ones. still more frenzied competition. • For during each period of crisis. another crisis -. a smaller base for surplus value.Amity Business School Conceptualization of Economic Systems • • But the working of capitalist system is very peculiar. 16 . higher wages.

Amity Business School Conceptualization of Economic Systems Feudalism Capitalism Imperialism/socialism at it’s highest Transition Socialism Transition 17 .

18 . not much discussed by Marx 5 features are: 1) There should be development of monopolies and concentration of capital to such a high stage that monopolies are created and they start playing a decisive role in economic life.Amity Business School Conceptualization of Economic Systems Imperialism – highest stage of capitalism Identified by Lenin. 2) Merging of bank capital with the industrial capital to create finance capital 3) The export of capital becomes more important than the export of commodities.

5) Territorial division of the world by greatest capitalist powers is complete based on bilateral and Multilateral relationships 19 .Amity Business School Conceptualization of Economic Systems 4) International monopoly combines of capitalists are formed that divide the world.

The nature of reorganization is different for different economies. noticeable and may take time. Bourgeois Deliberate 20 . Proletariat revolution/ vanguard of the working class Capture of power by working class under leadership of the proletariat.Amity Business School Transition • • • • • • • • Transition State – period in which there is a shift from one economic system to the other. Reorganization may be painful. Changes in means of production/ features of production.

Amity Business School Transition • – Nature of the socialist state Case of China and USSR • – – – – – Dictatorship of the proletariat Rule by majority on minority Nobody can live on the labour of the other State provides employment Representatives of the people They can be called or recalled • • – – Communist Party of China (Mao) Bourgeois democracy Class dominating and controlling the state Under this system only heads are counted and not the quality of heads (Bernard Shaw) 21 .

Amity Business School Economic Systems 4 main types of economic systems • • • • Market Capitalism Centrally planned socialism Centrally planned capitalism Market socialism 22 .

Economic Systems • Amity Business School This classification is based on the dominant method of resource allocation (market versus command) and the dominant form of resource ownership (private versus state). Resource Allocation Market Command Private Resource Ownership Market Capitalism Centrally Planned Capitalism Centrally Planned Socialism 23 State Market Socialism .

most notably in Western Europe and North America.Amity Business School Market Capitalism • • • • Individuals and firms allocate resources Production resources are privately owned Driven by consumers Government should promote competition among firms and ensure consumer protection • Market capitalism is practiced most around the world. 24 .

Amity Business School Centrally-Planned Capitalism • Economic system in which command resource allocation is used extensively in an environment of private resource ownership Examples: – Sweden. – Japan 25 .

Amity Business School Market Socialism • Economic system in which market allocation policies are permitted within an overall environment of state ownership Examples: • • China India 26 .

pricing strategy For decades China. advertising. decides what goods and services are produced and in what quantities Consumers can spend on what is available Government owns entire industries Demand typically exceeds supply • • Little reliance on product differentiation.Amity Business School Centrally Planned Socialism • • • • • Opposite of market capitalism State holds broad powers to serve the public interest. the Former Soviet Union used this economic system. 27 .

civil law and theocratic 28 . right-wing Home country Host country Embargoes Sanctions Government structure Terrorism • Legal systems – common law.representative Totalitarian .Communist.Amity Business School Political and Legal Environment • • • • • • • • • System of government in a nation Democracy . theocratic. tribal.

Economics. International Economics. BO Sodersten and Geoffrey Reed (3rd Edition).Amity Business School References 1. Paul Krugman and Maurice Obstfeld (6th Edition). Tata Mc Graw Hill 29 . International Economics. International Economics. Francis Cherunilam (4th Edition). Samuelson & Nordhaus (18th Edition). Macmillan 3. Pearson Education 4. Mc Graw Hill 2.

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