Econ model project
saizo0816
Anglo-SaxonModelFall17.pptxAnglo-Saxon Model
Anglo Saxon: Germanic inhabitants of the territory of Great Britain from the 5th century CE to the Norman Conquest around the 11th century CE.
Anglo Saxon Model
Historical Great Britain
Based on the Natural Law philosophies of Adam Smith and John Locke
Minimal state and freedom of choice in social and economic affairs
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Pre-English Industrial Revolution
Enclosure
Lands previously tilled in open fields were assigned to specific users, such as the manor owner or more prosperous peasant families.
Advanced production and efficiency resulted.
Feudal Manufacturing
Cottage Industries
Manufacturing completed within the home.
Craft Guilds
A union of artisans and merchants that control the practice of their craft in a town.
Set norms, standards, trademarks, and restricted competition.
Often possessed monopoly and regulatory power.
Industrialization
Many rural dwellers left agriculture for urban textile mills and coal mines.
Agriculture did not decrease but proportion of total output dropped.
Corporate form of business emerges, expanding access to business capital.
Feudal Agriculture
Based on large manors where peasants farmed strips of land in open fields.
Lack of private ownership made the open field system highly inefficient.
Tragedy of the commons
The misuse and eventual destruction by individuals, acting in their own interests, of a commonly-held asset.
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English Industrial Revolution
Formation of the Corporation
Joint Stock Company Act of 1844
Allowed for formation of a corporation without a royal charter.
Joint Stock Company Act of 1856
Provided limited liability to owners.
Legal Personhood (1897)
Corporation becomes a “legal person”.
Could enter into contracts in its own name.
British Government & the Industrial Revolution
Mercantilist in policy.
Poor Laws
Required parishes to provide public support through taxes.
Early welfare program.
Glorious Revolution of 1688
Transferred power from the king to parliament, lowered tax burden, reduced government appropriation, and limited the growth of government.
English Bill of Rights (1689)
Freedom from royal interference in the law, freedom to petition, freedom of speech, right to bear arms, and no taxation without the consent of parliament.
No protection from property confiscation or “just compensation” requirement.
Lockean philosophy and influential in the U.S. Bill or Rights.
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English Industrial Revolution
English Industrial Revolution
Began in late 18th century.
Sustained growth in GDP and GDP per capita.
Spread across Europe and European offshoots.
English “Take-off into Sustained Growth”
The initial spurt of industrial growth.
Rostow’s Preconditions for “Take-off”
Secular education
Transportation infrastructure
Middle class from which to draw entrepreneurs
Stable banking system
Rostow’s empirical signals
Revolution in capital formation
Doubling of investment rate
Rapid industrialization
Walt Rostow
1916-2003
Rostow’s Stages of Economic Growth
Traditional society
Preconditions for take-off
Take-off into sustained growth
Drive to maturity
Age of High mass consumption
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The Rise of the United States
Worlds only superpower and the most technologically advanced country.
Primarily market-based capitalism
Common Law inherited from England
Limited government: constitution specifically enumerates the powers of the federal government and creates 3 separate branches with a bicameral legislature.
U.S. Exceptionalism
The notion that the U.S. is a unique social, economic, and political experiment made possible by a confluence of events in the late eighteenth century.
Historical Roots
Thirteen colonies, subjects of Great Britain.
War of Independence (1775-1883)
“Taxation without representation”.
Navigation Acts: legislation designed to limit trade and use of maritime vessels outside of the British Empire.
Philadelphia Convention (May-Sept 1787) designed to revise existing Articles of Confederation but instead led to the creation of a new government and the signing of the constitution in Sept. 1787.
Federalist Papers issued to promote ratification of constitution by the colonies, 1787-1788.
Constitution ratified by all 13 colonies in 1788.
Louisiana Purchase from France in 1803.
U.S. became a “melting pot” of immigrants.
Civil War 1861-1865 over slavery and states rights.
Participated in the Second Industrial Revolution beginning in the latter 19th century.
By 1900 the U.S. had surpassed the U.K. as the largest producer in the world (1950 for per capita).
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U.S. Model Characteristics
Corporate Governance
Management separated from ownership (own minority shares in company).
Stakeholders: non-owners affected by the actions of the corporation
e.g. managers, employees, suppliers, and/or buyers.
Shareholder value: value of a corporation measured by its market capitalization.
Management is incentivized to maximize shareholder value over stakeholders’ interests.
Hostile Takeovers: rival management team purchases control from share holders.
Opportunity with mismanaged and undervalued companies.
Corporate Raiders: (e.g. Warren Buffet, Michael Milken, & Carl Icahn).
Hostile Mergers and Acquisitions
Institutional investors: companies that represent ordinary citizens investing.
Includes private pension and mutual stock funds.
Influence has increased significantly since the 1980s.
Corporate Incentives
Stock Options
The right to buy a designated number of shares of the company at a specified price.
Profit Sharing
Employees offered a portion of profits based on performance.
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U.S. Model Characteristics
Competition
Highly Competitive
Larger companies do not necessarily imply less competition.
Federal Trade Commission & Department of Justice enforce Anti-trust laws to maintain competition.
Limited Market Power
Market power occur when businesses have significant influence over the price at which they buy and sell.
Monopsony and Monopoly
Capital Markets
Primary markets: new issues of stocks and bonds are sold (IPOs).
Secondary markets: existing issues of stocks and bonds are sold.
Underwriters: organize the initial sale of shares, sometimes buying stakes in the company themselves.
Regulated by the Securities and Exchange Commission (SEC).
Full Disclosure
Corporations listing stocks must publicly release all relevant information about the company.
Prospectus
Obligatory accounting information prepared by an accounting firm using GAAP.
U.S. Stock Exchanges
New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
NASDAQ
Strong venture Capital Markets
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U.S. Model Characteristics
Regulation
Contract Clause (Constitution, Article 1, Section 10, Clause 1)
Laws “impairing the obligation of contracts” are not allowed.
Supreme court under John Marshall (1801-1835) consistently ruled state laws that challenged the right of contract were unconstitutional (e.g. min wages, insurance).
Due Process and Just Compensation Clause (5th amendment to constitution)
Eminent Domain: the government’s right to seize property for the public interest.
2005 Kelo vs. New London, Connecticut
Affirmed a lower court decision transferring under eminent domain property to a private developer.
1877 Munn vs. Illinois
“Businesses affected with the public interest were subject to regulation of the state of Illinois.”
1887 ICC set up to regulate railroads.
1906 FDA
1914 FTC
1930s New Deal
Today over 30 regulatory agencies exist (e.g. EPA, DOL, OSHA, Commerce, HHS, DOT…).
Publication holding all new federal regulations, amendments, and proposals.
Official listing of all regulations in effect (in 1998: 134,723 pages, 201 volumes, claiming 19 ft. of shelf space).
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U.S. Model Characteristics
Deregulation
Reduction of government regulation and a return of decision making back to private business.
Economically Rational Regulation: occurs when benefits exceed costs.
Counterfactual Information: what would have happened absent the regulatory policies (makes assessing costs of regulation difficult)
Major Deregulatory Movements:
1978 Airline Deregulation Act: authorized airlines, rather than the Civil Aeronautics Board, to set fares and choose rates.
1980 Motor Carrier Act: curved the role of the ICC in interstate trucking.
1980 Staggers Rail Act: deregulated the railroads.
1980 Depository Institution Deregulation and Monetary Control Acts: allowed banks to charge any interest rates and authorized savings & loans and credit unions to offer checking accounts.
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U.S. Model Characteristics
Labor Markets
U.S. has one of the most flexible labor markets in the industrialized world.
Hire and fire market (at-will employment): a market in which workers and employees can be fired or laid off with few limits placed on them by the state.
Major Regulatory Movements
National Labor Relations Act of 1935 (Wagner Act)
“Union bill of rights”
Provides a framework for workers to unionize in the workplace.
Investigates unfair labor practices.
Established the National Labor Relations Board (NLRB)
Fair Labor Standards Act of 1938
Established minimum wage, overtime pay, recording keeping requirements, and banned child labor.
Unions
An organization of workers in a company that come together for the purpose of improving conditions of work and pay.
Membership peaked in 1950s and has declined since.
U.S. has much lower membership than many other industrialized countries.
Public sector > private sector unionization.
No successful union labor party in U.S..
Generally local federations associated with a national organization (80% AFL-CIO).
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U.S. Model Characteristics
Government Transfers
Entitlement: a transfer made to a person qualifying under the rules of the program (e.g. social sec. and TANF)
FDR’s New Deal: series of public work, unemployment, and social legislation designed to pull the country out of the Great Depression and to help those harmed by it.
Social Security Act of 1935: created social security.
Social Security Amendments of 1954: added disability insurance to social security program.
Johnson’s Great Society of 1965: established Medicare.
Tax System
Primarily income, corporate, and payroll taxes
Income tax established in 1914 via the 16th Amendment
Generally Progressive.
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