Capitalism_ Globalization_ and Economic Development

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					Capitalism, Globalization, and
         Professor Matthew Christ
           Graduate School USA
             Washington, DC
      Capitalism is a Product of
     “Enlightened” Self-Interest

 “Every individual … neither intends to promote the
  public interest, nor knows how much he is promoting
  it … He intends only his own gain, and he is in this, as
  in many other cases, led by an invisible hand to
  promote an end which was no part of his intention.” –
  Adam Smith
 Capitalism is based on voluntary

 “Man has almost constant occasion for the help of his
  brethren, and it is vain for him to expect it from their
  benevolence only. He will be more likely to prevail if
  he can interest their self-love in his favor, and show
  them that it is for their own advantage to do for him
  what he requires of them … It is not from the
  benevolence of the butcher, the brewer, or the baker
  that we expect our dinner, but from their regard to
  their own interest.” – Adam Smith
Focus on Specialization, Comparative
       Advantage, and Trade

  “It is a maxim of every prudent master of a family,
   never to attempt to make at home what it will cost
   him more to make than to buy... All of them find it for
   their interest to employ their whole industry in a way
   in which they have some advantage over their
   neighbors, and to purchase with a part of its produce,
   or what is the same thing, with the price of part of it,
   whatever else they have occasion for.” – Adam Smith
Minimal Government Regulation

 “Little else is requisite to carry a state to the highest
  degrees of opulence from the lowest barbarism, but
  peace, easy taxes, and tolerable administration of
  justice. … The natural effort of every individual to
  better his own condition, when suffered to exert
  itself with freedom and security is so powerful a
  principle that it is alone, and without any assistance
  … capable of carrying on the society to wealth and
  prosperity…” - Adam Smith
              Moral Behavior

 There can be no proper motive for hurting our
  neighbor, there can be no incitement to do evil to
  another, which mankind will go along with…. To
  disturb his happiness merely because it stands in the
  way of our own, to take from him what is of real use
  to him merely because it may be of equal or of more
  use to us, or to indulge, in this manner, at the
  expense of other people, the natural preference
  which every man has for his own happiness above
  that of other people, is what no impartial spectator
  can go along with. - Adam Smith
           Fundamental Tenets

   Motivation – Self-Interest
   Property - Private
   Direction and Coordination – Free Enterprise
   Resource Allocation – Free Market
   Regulation - Competition
   Government - Limited
     Fundamental Assumptions

   Rational Consumer
   Market of Individuals
   Full and Accurate Information
   All Costs and Benefits Reflected in Transaction (price)
   Income Fairly Distributed
   Institutions Functioning as Designed (Implicit
          Capitalism in Practice

   Irrational Consumers
   Market Concentration and Power
   Limited, Inaccurate, and Asymmetric Information
   Explicit Costs Only
   Unequal Income Distribution
   Dysfunctional Institutions

 The movement towards the expansion of economic
  and social ties between countries through the spread
  of corporate institutions and the capitalist philosophy
  that leads to the shrinking of the world in economic
 Includes transfer of wealth, natural resources,
  information, population, the integration of financial
  markets, and political and economic unions
        Economic Integration

 The increasing reliance of economies on each other
 The opportunities to be able to buy and sell in any
  country in the world
 The opportunities for labor and capital to locate
  anywhere in the world
 The growth of global markets in finance
 The increase in transaction speed
 The decrease in transaction costs
         Economic Integration

 Result of:
   Technology
   Global Communication Networks
   Internet Access
   Growth of economic cooperation – trading blocs
    (EU, NAFTA, etc.)
   Collapse of the Soviet Union and the Communist
   Global Movement to Free Trade
       Globalization Benefits

   Increased consumer choice
   Lower price
   Capital mobility
   Greater potential for growth
   Increase international economies of scale
   Increase efficiencies
   Greater employment opportunities
Disadvantages of Globalization

  Increase in gap between the rich and the poor
  Dominance of global trade by the rich, northern
   hemisphere countries
  Lack of accountability
  Lack of opportunities for the poor to be able to have
   access to markets
  Exploitation of workers and growers
  Inability of infant industries to survive
  Global transfer of resource wealth
  “Brain Drain”
Implicit Costs of Globalization

 Damage to the environment?
 Exploitation of labor?
 Monopoly power
 Economic degradation
 Non-renewable resources
 Damage to cultures
    Shortcomings of Capitalism on a
            Global Scale

   Irrational Consumers
   Global Market Concentration and Power
   Limited, Inaccurate, and Asymmetric Information
   Explicit Costs Only
   Unequal Income Distribution – National and Global
   Dysfunctional Global Institutions
Global Wealth Distribution
Inequality Increasing
And In Developing Economies
                      Global Problem?

 “These growing inequalities are not acceptable,” said
  Rahul Bajaj, chairman of Bajaj Group, who valued his
  holdings in the Mumbai-based conglomerate at $1
  billion. “The rich have done much better than the
  poor, and that creates problems.”
 “The global social-economic order will change, if we
  want it or not,” Victor Pinchuk wrote in an e-mail. In a
  second e-mail, he said businesses should concentrate
  on both maximizing profits and assuring “a more just
  distribution of wealth.”
   Mega-Rich Occupy Davos as 0.01% Decry Income Gap
   By Matthew G. Miller - Jan 25, 2012
                                   Or Not?

 Deripaska, 44, said if Davos participants can find “new
  ways out of the global political and economy
  instability” at this year’s meeting, “criticism will go
   Mega-Rich Occupy Davos as 0.01% Decry Income Gap
   By Matthew G. Miller - Jan 25, 2012
Sustainable Capitalism – An Answer?

    Long-Term Time Horizon
    Implicit Costs Included
    Natural Capital
    Social Responsibility
    Corporate Accountability
    Enlightened Social Interest
    Environmental, Social, Governance Metrics
To Paraphrase Winston Churchill:

  “It has been said that capitalism is the worst form of
   economics except all the others that have been
  Responsible for immense global growth,
   development, and innovation
  Reduction in global poverty, eradication of disease,
   increase in literacy
  The most participatory system (market)
  A dynamic and changing system
  Your future!

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