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Sociology 201: Globalization

QUESTION 1

a. List and briefly explain the five elements of capitalism.

Capitalism is a common term used to explain the social system that we live in. The assumption is that it has been existing in most of human history (Robbisson 21). The right to own property makes people work hard to acquire and accumulate wealth. The fact is that capitalism is a new social system with the following elements:

1. The right to own private property – this right involves three significant things: Everyone has the right to own and accumulate wealth (Bowles 7). Everyone has the right to inherit property for example when a loved one dies; the successors have the right to inherit the properties left behind. Everyone has the right to use their property as per their will (Robbisson 33).

2. Price mechanism – this is a free balancing of the forces of supply and demand to find the price of products in the market. The government is not allowed to intervene in the working of the market mechanism. The price brings the equilibrium balance between supply and demand. It gives a direction and guides producers on the amount to produce (Bowles 12). All economic activities depend on the price mechanism. It is an invisible hand that regulates and controls the capitalist economy.

3. The vital role of an entrepreneur – entrepreneurship is the heart of an economy that combines factors of production to create goods.

4. Freedom of enterprise – in a capitalist economy, there is freedom of enterprise where people are at liberty to select their occupation.

5. Role of Government – In a capitalist economy, the government is not supposed to interfere with the economic activities but to play a role in connecting capital economy to achieve set objectives (Robbisson 56).

The Laborer & Capitalism

What is true in all societies is that humans need to labour for survival.  In most cases, people must sell their labor power for a wage in which they can pay bills and purchase goods and services.  While consumers are necessary to propel capitalism, labor is also required to produce goods and services to sell.  Pierre Proudon defines capitalism as “an economic and social regime in which capital, the source of income, does not generally belong to those who make it work through labour”  (Robbins, 2014, p, 35).  In order to understand the role of labour it is important to understand the elements of capitalism which include:

1. Commodities

1. Capital Goods – land, raw materials, tools, machines and factories needed to produce goods

2. Consumer Goods – items to be sold

2. Money  – standard means of exchange (facilitates exchange of commodities)

3. Labour Power  – the work need to transform capital goods into consumer goods

4. Means of Production  – the process involved in converting capital goods into consumer goods

5. Production  – the integration of labour power and means of production to generate commodities

b. List and briefly explain the four ways in which consumer transformation was achieved.

Problem Description – this is the process of identifying problems related to consumption of products that are flowing into the market (Bowles 36). This can be done by having the right strategy. It helps to anticipate the customer’s need and how to achieve them.

Execution – this is the toughest part of the transformation. When change fails, then the desired business results may not be achieved (Robbisson 59).

Taking a profound observation of customer demand during business transformation – a client requires solutions to their problems and not specified services or products for consumer transformation to be achieved.

The Consumer

Capitalism is based on the production and sale of commodities and requires the interconnection between capitalists, labourers, and consumers.  While, capitalists accumulate surplus value (profit), labourers accumulate wages, and consumers accumulate goods.  Just as with any behaviour and interaction, these roles are socially constructed.  In other words, the roles and interactions of capitalists, labourers, and consumers are not instinctual, but socially determined. The drive to labour and consume are not universal, but culturally constructed within a capital economic system.

Think about the term  culture .  Culture is the total lifeways of a people including things like language, music, food, relationships; etc. From the minute a baby is born they are immersed within a culture.  Just as boys and girls are socialized to think and act in certain ways, so are consumers.  Simply, we are socialized to be consumers.  However, early forms of consumption differ greatly compared to modern forms.

Consumer goods in late nineteenth and early twentieth century such as tobacco, opium, rum, tobacco, coffee and tea did not require carefully designed marketing because of their largely addictive quality.   In fact, most consumer goods at that time were necessities such as food and clothing.  The notion of ready to eat foods or ready to wear clothes did not exist.  Therefore, people did not require any special persuasion to purchase goods.  General stores did not have to display goods in a special way to encourage consumption.  Goods were simply stacked up or placed on a shelf for people to purchase when needed.  People consumed what they purchased. However, with the advent of electricity and the automobile, the process of consumption began to change when luxury items were transformed into necessities.  This consumer transformation was achieved in 4 ways:

1. Marketing and Advertising

2. Reconstruction of Institutions

3. Revolution in Spiritual and Intellectual Values

4. Reconfiguration of Time and Space

1.Marketing & Advertising

Early goods were not marketed or displayed in any special way.  However, this began to change in the latter part of the 1800’s with the advent of the “department store” where particular attention was given to how products were presented to the public.  They would adorn stores with flowers and live music with the goal of inspiring people to purchase goods.  The displays used in these stores influenced fashion trends for clothing, home and leisure.  Advertising became a revolutionary way to shape wants, needs and desires.  Moreover, advertising prescribed consumer goods that could improve the status and desirability of consumers. 

By the twentieth century, national advertising campaigns were being used and celebrities were being used to endorse certain commodities.  Advertising now included cards, catalogs, newspaper ads, billboards, signs, posters, neon signs, bathroom stalls, fashion shows and stadiums where sporting and entertainment events characterized by ads.

Some suggest that people observe between 2,000 and 3,000 ads daily.  David Lamoreux, an award winning creative, media and brand strategist states that these numbers are inflated by including labels seen on food items and clothes.  He argues that a more conservative estimate of ads is about 247, of which half do not even cognitively register.   http://www.fluiddrivemedia.com/marketing-messages/

See:

Year	Dollars Spent on Advertising
1880	30 million
1910	600 million
1929	11 billion
1998	437 billion
2012	498 billion

Another marketing scheme to increase consumerism involved stores providing “consumer credit”.  This provision gave consumers the power to purchase the goods they desired in order to elevate their status, beauty and desirability.

2.Reconstruction of Institutions

Historically formal education focused on teaching people how to produce. However, in time, education began to focus on the study of mass retailing, mass marketing, credit systems, accounting, and banking.  People were now taught how to “keep track” of what was being sold, and how to encourage consumption.  Schools began to formulate academic programs with curriculum focused on business.  Other institutions such as museums aligned with business by including exhibits focused on commodities such as the history of fashion.  While the state historically dealt with issues associated to manufacturing and control of labor, it established agencies that aided in the promotion of a consumer  culture .  These agencies engaged in consumer research and analysis in order to provide retailers with information about popular products, best practices in retailing and display of goods and best practices in the transportation of goods.  The goal of these agencies was to eliminate all barriers between consumers and goods.

Moreover, manufacturing itself began to evolve with the creation of assembly-line work which involved an arrangement of workers, machines, and equipment in which the product being assembled passes consecutively from operation to operation until completed.  The development of assembly-line, albeit deskilled, increased  production  at a cheaper cost.  Some employers, however, ensured that they paid workers a decent wage so they could ensure that workers would also be consumers.  Consumption was also fostered with the expansion of credit.  Post 1920's people were encouraged to use credit to buy things like homes and cars.  Credit cards allowed consumers further purchasing power to buy goods they could pay for at a later date.  While, credit stimulated economic growth, many consumers acquired a tremendous debt load. 

3.The Consumer

Revolution in Spiritual and Intellectual Values

Historically, religious and social values included discipline and frugality.  However, with the advancement of capitalism, these values were replaced by ideals focused on leisure, spending and individual fulfillment.  Retail was promoted as having therapeutic qualities.  Links were being made between commodities and the personal benefits associated to these products.  For example, certain types of cars are advertised to give people more social status and perfumes and colognes are advertised to make you more desirable.

4.Reconfiguration of Time and Space

4.Re

Virtually every aspect of our lived reality has been configured around the consumption of goods and services including holidays and special occasions such as birthdays, Christmas, Thanksgiving, Halloween,  Mother and Father’s Day, Valentine’s Day, etc.  These occasions often include the exchange of gifts or other items that express or symbolize the socially constructed meaning associated to these times  One of the more notable items exchanged on special occasions is the greeting card which first appeared between 1840 and 1850. 

One of the most popular occasions where gifts and cards are exchanged is Valentines Day. Consider the fact that Valentine’s Day did not always represent a day dedicated to lovers.  Actually, Valentine’s Day originally reflected a day of martyrdom.  It was only when Geoffrey Chaucer’s poem The Parliament of Fowls which told the story of birds who choose their mates on Valentine’s Day prompted a change in the meaning associated to this day. 

Another configuration of space developed for consumption occurred with the expansion of communities as they grew outwards from the centre of the city.  As people started to live on the outlying areas of the city, they were reluctant to travel into busy urban centres.  The establishment of suburban shopping centres provided easier access and parking and a wider selection of goods and services. 

Also, retailers began marketing to target special consumer groups including children.  In fact, children are a major target for a wide range of consumer goods including toys, clothes, video equipment as well as vacations such as Disney World or Disney Land.  Consider for example the impact candy at the grocery store checkout stand.  This is a deliberate marketing approach since it plays upon the fact that possible tantrums of children demanding candy at the checkout stand will shame parents into complying with the demands of the child.  This phenomenon is referred to by some as the “Nag Factor”.  Several articles address the link between children nagging parents and its influence on consumption.  In the documentary “The  Corporation ” which we will be watching later in the term, it is suggested that companies spend billions of dollars on research and campaigns aimed at indoctrinating children to be consumers, the younger, and the better. See  http://youtu.be/Hi63rXnuWbw

QUESTION 5

What did the events of the Great Global Depression reveal?

The Great Global Depression was an economic downturn that started at around 1929 until 1939 (Duignan 21). It is perceived to be the most and longest severe financial depression ever experienced in the industrial world. Since it originated in the United States, it caused a considerable decline in the availability of jobs, low output, and deflation in most countries across the world. It had both cultural and social effects that were much staggering particularly in the United States (Robbisson 82). Most people argued that nothing changed after the depression decade, but the fact remains that each year takes people away from the financial turmoil experienced. Most of the economists who survived were shaped by the intense moments (Duignan 26).

Some of the noteworthy revelations from the event as noted by economists show devastating effects globally. It affected both the poor and the rich. Tax revenue, personal income, prices, and profits reduced as international trade dropped by 50%. It led to the lack of jobs that declined by more than 25% while in some countries, it fell by more than 33% (Duignan 32). Nations that depended on heavy industry got stricken by the global depression that even led to the virtual halting of construction activities thus leading to loss of the job in the industry. To all those who practiced farming, both in rural areas and the farming communities, they faced a drop in crop prices which reduced by almost 60%. Faced with the plummeting demands with few sources of jobs, communities that depended on industries like the logging and mining lost opportunities as well (Robbisson 103).

Interest rates dropped significantly. The deflation and people’s reluctance to borrow indicated that consumer investment and spending got depressed. Most sales such as those of automobiles reduced to levels below average (Duignan 41). The great depression led to the change of nearly all plain farms to change hands yet there was federal assistance. The decline in the U.S economic status led to the fall in most of the other nations. Efforts to shape up the economies of other states through the policies of protectionists like that of the 1930 retaliatory and Smoot–Hawley Act tariffs led to the collapse of the global trade. Before 1933, the economic drop led to the push of world trade to almost one-third of the level recorded more than five years earlier (Duignan 49).

QUESTION 7

Briefly explain the policies used to transform Iraq into a free-market economy

The economic reforms in Iraq was due to the decisions by the Provisional Authority to change Iraq’s economy. This happened after the invasion led by the U.S. Before the occupation by the US, Iraq had a planned centrally economy (Alnasrawi 11). Some of its policies included prohibiting foreigners from owning businesses within Iraq. The government ran most of the industries and imposed laws massive tariffs to bar or lockout foreign products from getting into the country. In 2003, after the invasion, Iraq started to issue several binding orders leading to the privatization of Iraq’s economy and leaving entry point for foreign investors (Alnasrawi 19).

Economic reforms were implemented as government organizations got aligned with the Iraqi legal system. Iraq gave room for international investment to help improve or repair the damaged infrastructure. The reform efforts have brought some success although challenges have been experienced; they include pervasive corruption, poor coordination, widespread corruption, inadequate security, and insufficient funding among local communities and international agencies (Robbisson 168).

The chief executive of Coalition Provisional Authority Paul Bremer thought to restructure government owned economy with the free market. This led to the dropping of the corporate tax rate from 45% to a 15% flat rate. It also allowed foreign-owned investments to repatriate profits earned in Iraq. During Bremer’s tenure, the policies could not be implemented due to the poor state of security and due to the opposition faced by senior officials from the government (Alnasrawi 36). Additionally, more than 200 other businesses owned by the government and privatization of the oil industry was planned to start in 2005 but faced opposition from the Federation of Oil Unions in Iraq (Robbisson 192). The framework laid was meant for full privatization except for initial processing and primary extraction of oil. The plan also allowed 100% foreign ownership of the assets in Iraq. However, the plans were canceled in September due to poor negotiations, and the work could not be completed within the scheduled time. It is argued that the deal could hinder efforts of passing the law on hydrocarbon (Alnasrawi 41).

As per the foreign investment policies, foreign investors were entitled to make investments in the country on terms that were not less favorable as compared to those applied to Iraqi investors. Besides, foreign investors are allowed to transfer to other countries without experiencing delays to funds associated with foreign investment (Alnasrawi 57). The framework created a favorable environment for foreign investors thus allowing America and other nations to dominate Iraqi’s market. It is argued that the policies were not only blatant attempts to shape the economy of Iraq but also illegal under the international laws.

QUESTION 9

What is the purpose of agricultural subsidies and what are the pros/cons to providing these subsidies?

Agricultural subsidies are a state subsidy that is paid to agricultural, agribusiness farms and organizations to help manage the supply and production of farm products, boost their income, as well as maintaining the cost and supply of agricultural products. People from both single-family farmers and large agribusiness organizations, all qualify for the subsidies (Robbisson 203). The US used about $20 billion labeled as income stabilizer (Chigavazira 22). The main aim of these subsidies is to save farmers from a poor harvest. At the time of their introduction, grants were called temporary solutions that dealt with emergencies of the great depression. During this time, in every four people, one worked on a farm. Currently, only 1% of the population is active in farming.

Below are some of the pros and cons of agricultural subsidies.

The pros

The subsidies help in managing domestic food products. They help make agricultural products to be cheap and affordable for the less privileged (Chigavazira 34). Despite it being paid to farmers, it can take different forms as the government can spend part of some agricultural products to reduce the burden on citizens.

Agricultural subsidies help provide emergency support. Since farming is a dangerous occupation as a season of severe weather can devastate one’s crops leaving no food or income at all (Chigavazira 41). The agricultural subsidies can be used during times of natural disaster, accidents, or any other emergencies. The subsidies can keep farmers moving instead of quitting farming due to calamities (Robbisson 252).

A subsidy helps in building domestic agricultural infrastructure. They are used to purchase farming assets too. In large-scale farming, there are specific tools needed to do some jobs within the required time. When farmers find it expensive to higher machines such as John Deere, the farmers find support from the agricultural subsidies kitty.

Agricultural subsidies help cut the number of agricultural imports. The subsidy can be used to grow agricultural goods that are imported to help reduce the imports. This will help the crops to be at affordable prices as well since the remaining part will be catered for (Robbisson 276).

Some of the disadvantages of the agricultural subsidies include:

Environmental consequences- The subsidies should be structured in such a manner that it supports the environment. In some cases, subsidies encourage farmers to grow specified crops to gain from the financial allocations. This reduces the effectiveness of the soil (Chigavazira 46). The use of specified pesticides, fertilizers, herbicides negatively influences the soil.

Subsidies are not applicable to all farmers. Most of the subsidies are applied for and reviewed if the farmer or organization qualifies for it. This has made it for small farmers to receive little while large organizations have received a lot (Chigavazira 52).

The subsidies require government involvement, meaning without the government, no success can be achieved. Lastly, the subsidies only benefit the landowners who happen not to be the real farmers.

QUESTION 12

Explain what “the invisible hand of the marketplace” means.

An invisible hand of the market is an unobservable market force that assists in the supply and demand of goods in a free trade area to automatically reach equilibrium. The term invisible hands were introduced in the book 'The Wealth of Nations' authored by Adam Smith (Beattie 9). The phrase can as well be used to express the unintended social benefits of one’s self-interested actions. The term was used in respect to income distribution.

Adam Smith assumed that economies work well in a free market environment where people work for their interest. Adam Smith further explains that an economy can only work well and function appropriately if the state leaves people to carry out business activities freely (Beattie 14). When people trades freely, then there is room for positive competition that leads to positive output through the assistance of an invisible hand (Robbisson 386). In free market zones with no restrictions or regulations imposed by the state, people tend to buy from those selling at a lower price or buy from sellers with better products or services as compared to their competitors. When customers demand on a product, the market supplies it. The selling person gets the price as the buyer receives the goods at the agreed price.

How the invisible hand works

Other names relate to the invisible hand, and they include supply and demand, human nature, the price system, or risk and reward. Actually, it is a collection of voluntary acts by financial actors. Its proponents always believe to believe that the government is not able to replicate or improve the unintended consequences of capitalism (Beattie 22).

For one to feel or to realize how it works could be during the period in which the price of an item rises. Once the cost of an item shoots up, its consumption goes down, as people tend to reduce its use leaving those who value it highly to purchase the product.

Another effect is when farmers in a particular area are not affected by any calamity. They sell the products at a higher profit since none of their inputs changed (Beattie 36). For those who wish to make more profits, they need to increase their production by planting in areas previously considered not profitable. This will make the supply of goods to increase thus meeting the global demand. With time, the price will fall back.

All the players in this hypothetical scenario need to be friendly to each other since their actions help in moving the invisible hand in fixing a global problem.

Works Cited

Alnasrawi, Abbas. The Economy of Iraq: Oil, Wars, Destruction of Development and Prospects, 1950-2010. Greenwood P, 2015.

Beattie, Peter. Crooked Timber and the Broken Branch: The Invisible Hand in the Marketplace of Ideas. 2017.

Bowles, Paul. Capitalism. 2015.

Chigavazira, Farai. The Regulation of Agricultural Subsidies in the World Trade Organization Framework. a Developing Country Perspective. 2016.

Duignan, Brian. The Great Depression. Rosen Pub, 2013.

Robbisson, Richard H. global problems and the culture of captilism. 6th ed., State University of New York at Plattsburgh, 2014.