US Democratic Capitalism

US Democratic Capitalism

1. Globalization

   • Globalization has two competing ideas: increasing homogenization or increasing interdependence.  I, like Bill Clinton, favor the definition of increasing interdependence.
   • All the subsequent branches about Globalization came from one class lecture. Dan Fogel.  "Globalization and Multinational Organizations" July 29, 2013.
   • Measures
     • Index of Economic Freedom
       • This measure is preferred to others because increased economic freedom best predicts a country's ability to participate in the global economy.  
       • This Index is produced by the Heritage Foundation.
   • Outcomes
     • Transforming of Identity
       • Multiple Identities
         • By understanding the identity is more than nationality, it may be easier to become more tolerant in the globalizing world.  Some violence that has occurred due to globalization could be as a result of people feeling defensive about other identities.
     • Increased Competition
       • Decreased Costs and Prices
         • Race to the Bottom
           • When companies enter foreign markets looking for cheaper labor prices, the demand increases with no similar increase in supply.  Therefore, labor wages rise and companies must seek the new "best" country to invest in to find cheap labor
       • New Innovative Products
     • Better governance
     • Comparative Advantage
       • The opportunity costs of countries' to specialize in certain industries or others.
     • Increased Wealth and Health
       • In the last 30 years poverty has decreased from 30% to 15%.
     • Individuals can participate
       • The Internet has made it easier for individuals to participate in the global economy.
   • Causes
     • Technology
       • The reduced cost of both communication and transportation has enabled people to live a global life.  Calling around the world or flying there has never been easier.
     • Growing Markets
     • Companies conduct business across borders
       • These components are ranked in order of significance and prevalence of the companies themselves.
       • Trade
       • Foreign Direct Investment
         • Companies invest directly in a foreign country by building subsidiaries and conducting business within that country.
       • Passive Investments
         • Passive investments are less important to this factor as this involves investors and shareholders either buying stocks or the products/services of businesses.
     • Trade barriers decreased
       • Tariffs
         • Tariffs normally help domestic industries and businesses by making the equivalent foreign imports more expensive.  Organizations like the WTO have removed tariffs between participating countries to encourage free trade and competition.

2. Fundamental Characteristics

   • I have ordered these fundamental characteristics in what I believe to be most important to important to democratic capitalism.
   • Competition
     • "The effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms."      
     • Hayek, F. (1944).  The Road to Serfdom.  Chicago, IL: University of Chicago Press
   • Private Property
     • Private Property:the ownership of productive resources
     • “Ethics and Capitalism: A Guide to the Issues.”  In J.D. Bishop (ed). Ethics and Capitalism.   Toronto, Canada: University of Toronto Press: 4.
     • Individualism
     • Innovation and Entrepreneurship
       • Dan Fogel.  "Entrepreneurship" Class Lecture July 31, 2013.
   • Free Market Trade
     • The free market must come first to facilitate transactions, but it is not enough just to have this.  The other fundamental characteristics of capitalism are also significant. 
   • Economic Framework
     • Other societies and forms of capitalism may choose to have an overarching political or economic framework.  
     • Dan Fogel.  "Introduction to Business"  July 22, 2013.
   • Limited Liability Company
     • Companies are necessary because in addition to encouraging competencies, they also have goals and in so doing can have desired and manipulated outcomes.
     • John Micklewthwait and Adrian Wooldridge.  The Company: A Short History of a Revolutionary Idea.  New York: The Modern Library.
     • Shareholders
     • Owners
     • Risk

3. Outcomes

   • Positives
     • Maximize Shareholder Value
       • Rick Harris.  "Introduction to Managerial Economics" July 17, 2013.
     • Class System and Class Mobility
     • Largest GDP
       • RIck Harris.  "Gross Domestic Product" July 17, 2013.
     • Advancement of Society
       • "Where the characteristics of capitalism exist, historical evidence is clear that there is a positively-increasing slope of wealth creation, economic development, and standard of living.  Wealth creation does not refer solely to money or other measured forms of economic wealth. Wealth refers to social wealth, e.g. standards of living."    
       • Dan Fogel.  "Capitalism and Free Markets" July 29, 2013.
   • Negative
     • Exploitation of Wage Labor
       • Related to this is the globalized goal of the "race to the bottom".  Similarly, though the cost of living has increased over the past 30 years, the minimum wage has not increased with it.

4. Limited Government

   • Capitalism arose from limited government.  The market functions to promote the successful companies and weed out the weak ones, while the government provides limited regulation to set the rules of the game and protect individual rights.
   • Federal Regulatory Agenices
     • Given the number and complexity of federal agencies, US corporations incur substantial legal defense and compliance costs.
     • Unrealized "Administrative Branch"
       • Objectives unrealized through the Executive or Judicial branch can be put in practice by the administrative or regulatory agencies.  For example, if a law fails to pass the EPA can simply enforce greater regulations.
       • Dan Fogel "Capitalism and the Free Market" Class lecture July 24, 2013.
   • Three Branches of Government
     • Common law protects against judicial corruption
       • Dan Fogel "Capitalism and the Free Market" Class lecture July 24, 2013.
     • Equal treatment before the courts
       • Dan Fogel "Capitalism and the Free Market" Class lecture July 24, 2013.
     • Individuals have rights
       • Dan Fogel "Capitalism and the Free Market" Class lecture July 24, 2013.

5. America's Influencing Characteristics

   • History
     • Zingales, L. (2012)  A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.  New York, New York: Basic Books: 3-13.    
     • Federalism
       • By increasing state power, federalism encouraged competition between states and kept corporate power in check.
       • Dan Fogel, "Free Markets and Capitalism" Class lecture, Wake Forest University, July 24, 2013.
     • Education
       • America had the earliest business schools treating entrepreneurship as a technical skill and preferred industry.
       • John Micklewthwait and Adrian Wooldridge.  The Company: A Short History of a Revolutionary Idea.  New York: The Modern Library.
     • America's founders respect for private enterprise and contracts
       • Rule of Law and Property Rights
         • Rule of Law: the effectiveness and predictability of a country's laws to protect private property rights  Property rights: laws allowance  of individuals to accumulate private property
         • Hayek, F. (1944).  The Road to Serfdom.  Chicago, IL: University of Chicago Press Bishop, J. D. (2000).  “Ethics and Capitalism: A Guide to the Issues.”  In J.D. Bishop (ed). Ethics and Capitalism.   Toronto, Canada: University of Toronto Press: 4.      
     • Transportation
       • Railroad, canal, and interstate expansions were all critical to the expansion and development of capitalism, particularly by expanding the size of markets within which companies could compete and consumers purchase.
       • Oliver Williamson.  The Economic Institutions of Capitalism.  New York: The Free Press.
   • Geography
     • Dan Fogel "Class Capitalism and Markets" Class Lecture July 24, 2013. 
     • American Exceptionism
       • Because of America's isolation from the rest of the world early on, the American economy and the capitalist system evolved without foreign influence.  It is significant that we were not exposed to Marxist ideology.
       • Dan Fogel "Free Markets and Capitalism" Class lecture July 24, 2013 
     • Westward Expansion
     • Natural Resources
   • Culture
     • Value for competition
       • Dan Fogel.  "Free Markets and Capitalism" Class Lecture July 24, 2013.
     • The American Dream
       • The ethos of Americans that hard work and freedom always lead to success and increased wealth.
       • Emily Rosenberg.  Spreading the American Dream: American Economic and Cultural Expansion 1890-1945.  New York: Hill and Wang.