ECONOMIC

INSTITUTIONS
Challenges in any Society
Produce
Convert raw materials from nature
into finished products
Transform human capital and
talent into services that we provide
for comfort and convenience.
Distribute
Consume Goods and Service
• As individuals interacting in a social
community, the process of production,
distribution, and consumption is
manifested in Economic Institution.

• Economic Institutions – refers to the

processes where we engage with each
other as producers and consumers of
goods and services.
Overarching Questions
1. How do we interact with each
other in domain of production
and the exchange of goods and
services?
2. What are the impacts of these
on our lives as members of
society?
Sociological Point of View:

Two ways to look at the value and

purpose of economic institution in the
society

Functionalist Perspective
Conflict Perspective
Functionalist Perspective:
Views economic institutions as
vital components of society
because they are involve in the
production, distribution, and
purchasing of goods and services
that are essential for survival.
May refer to systems, agencies
and organizations, both in the
public and private sector.
Functionalist Perspective:

Involved in the production of food,

clothing and other material items
that people need and want.
 Economic system that provides
the institutional arrangement and
coordinating mechanism of the
different activities that takes place
in the economy.
Conflict Perspective
Karl Marx

Argues that economic institutions emerged in

order to benefit the ruling classes or groups.
Asserts that economic institutions are
established by the ruling class in order to
benefit their group at the expense of ordinary
laborers.
Identifies the capitalists as the one who
perpetuate income inequality and deprive the
proletariats or the working class access to a
descent quality of life
Generalization:
While there is some truth to the Marxist
perspective that economic institutions provide
more benefits to the powerful, there is also a
need to recognize the necessity of these same
economic institutions to provide the needs of
all members of society, regardless of their
classes.
Societies needs guidance and organizations to
all their economic activities.
Two Kinds of Economic Institutions:

1. Nonmarket Institutions
a. Reciprocity
b. Transfer
c. Redistribution

2. Market System
Nonmarket Institutions:
 Reciprocity
 Exist when there is an exchange of goods and labor between
individuals in a community.
 Include direct barter or simultaneous exchange of goods, or gift
exchange where the return for goods given or rendered is
delayed
o Gift Exchange is different from true gift-giving where no
return is expected.

Example of Reciprocity:
• Neighbors exchange food for labor rendered
• Farmers rotate among their farms to help in cultivating the
land.
(no money changes hands in these interaction)
 Transfer
Entails a redistribution of income that is not matched
by actual exchange of goods and services
Example: donation or financial assistance from a
richer relative, or farm subsidies given to farmers by
the government.
Transfer of productive assets due to inheritance could
also qualify as transfer payments.
Redistribution
Combination of the features of transfer and
reciprocity, where the economic exchange involves
the collection of goods from members, the pooling of
these goods, and then the redistribution of these
good among the same members.
Market Institutions:
Market System:
Type of economic system that allows the free flow of
goods between and among private individuals and firms
with very limited participation from the government
Also referred to as capitalism
Key features:
1. Private property
2. Freedom of enterprise and choice
3. Self-interest
4. Competition
5. Markets and prices
6. Reliance on technology and capital goods
7. Specialization
8. Use of money
9. Active but limited government
State-Market Relationships
• State plays an important role in the market.
• Correct the imbalance in the access of goods and
services through the process of income redistribution.
(Tax)
• Government intervention in economic institutions is
warranted to protect the interest of consumers and
workers.
Advocated to correct the tendency of the private
sector to make decisions that are detrimental to the
economy (Keynesian Theorist in economics)
Government intervention is warranted during crisis.
• Interest of Consumers:
Basic commodities such as food are subject
to price ceilings or maximum prices. (DTI)
Prices of electricity and of mobile services are
subject to government regulation. (ERC)
• Interest of Workers:
Payment of minimum wage which is
determined by regional wage boards.