Class Notes: Government & Social Influences on Business – Week 1

Class Notes: Government & Social Influences on Business – Week 1

(For My Cal Poly – San Luis Obispo Students in BUS 404, and Those Who Want To Come Along For the Educational Ride…)

What is Capitalism: Individuals/Companies free to invest in all aspects of business. The U.S. is a mixed economy with elements of a Market-Based Economy (laissez-faire) and Command Economy (government oversight/control).

Classic Capitalism focuses on a smaller, limited government, and greater emphasis on the market controlling the economy. Adam Smith, in his book, The Wealth of Nations, states that the Invisible Hand is the engine for capitalism’s success — self interest to succeed in the marketplace creates opportunities for others to also succeed.

Neo-Classic Capitalism also focuses on smaller government but recent history includes larger military, deregulation of corporations, privatization of the commons, and encouraging debt.

Mercantile Based Economy: Borrowing Money, Producing/Selling Goods, Pay Back Debt with Interest. Limited in Scope.

Industrial Revolution: Banks Key to Lend money for machines & technology to create factories, economies of scale production. Labor Law Issues (abuses)

Socialism: Type of Command Economy — a political and economic system in which some business controlled by government. High taxes but substantial safety nets, as well as education, healthcare, basic labor protections.

Communism: Government typically controls business and people treated equally. Karl Marx believed capitalism was the last stop before communism, based on Class “Struggle” of the workers. He believed the workers would take control over the means of production as they already were creating the goods, and there would be a redistribution of the wealth. ”

State Capitalism: Following the mortgage/bank crisis starting in 2008, followed by high unemployment and bank bailouts, China and others take greater controls of its economy. Greater oversight, ownership and investment in its private businesses that compete in the marketplace against multinational corporations and other businesses.

Great recession started in 2008 attributed to 1) deregulation (repeal of Glass-Steagall Act, Pres. Clinton 1999) that allowed banks to invest/risk consumer deposits, 2) Fed Reserve flooding marketplace with money at low interest, 3) predatory loans by banks, and 4) fraudulent inducement by banks to get investors to purchase toxic debt-packaged securities that were given 5) bogus “A” ratings by Wall Street’s top firms responsible for valuing the risk index for investors.   (there are other contributing factors).

The President and Fed Reserve decided to bailout the banks with more than $700 billion. Were the banks too big to fail? Is this an act of true capitalism – classic or neo-classic? Was the bailout also an indication of the power of the banking and finance industry as it relates to political campaign contributions?

 

Stephen SternRead all author posts