Chapter 14: The Economy

Different Forms of Capitalism

4 general stages in the development of business corporations, although each overlaps the others and all continue to coexist today Family capitalism Managerial capitalism Welfare capitalism Institutional capitalism

Outsourcing

A business practice that sends production of materials to factories around the world; creates a truly global assembly line The components of one final product often originate from many different countries, and are then sent elsewhere to be put together and sold; factories from different countries must compete with one another to obtain business Important factor of the globalization of the economy Although this is a major mechanism through which the flexibility of the modern economy is achieved, it creates great uncertainty both for the factories (which much compete with another for orders), and for the workers for these factories who may lose their jobs if their factory is no longer needed

Taylorism

A set of ideas, also referred to as scientific management developed by Fred Winslow Taylor that involved simple coordinated operations in industry; became a system of production designed to maximize industrial output Had a widespread effect not only on the organization of industrial production and technology but on workplace politics as well Scientific management involved the detailed study of industrial processes to break them down into simple operations that could be precisely timed and organized Time and motion studies wrested control over knowledge and placed such knowledge firmly in the hands of management, eroding the basis on which craft workers maintained autonomy from their employers Has widely been associated with the de-skilling and degradation of labor

Housework

AKA domestic labor Unpaid work carried out in the home, usually by women; includes primary responsibilities such as domestic chores like cooking, cleaning, shopping, and raising children Typically involves the important task of socialization of children- a crucial step in preparing them for adulthood In the mid 1960, women did about 40 hours of housework per week As an increasing number of women enter the workforce, women spend less time doing housework (about 26 hours per week) but men are not picking up the slack If housework was monetized (paid according to its true value) it would contribute to 26% of GDP

Occupation

Aka job Work that is done in exchange for a regular wage, or salary; any form of paid employment in which an individual regularly works

Work and Economic Life

Although the nature of work varies widely both within and across societies, work is one of the most pervasively important of all human pursuits

Modern Family Capitalism

Among small firms, such as local shops run by owners and other small businesses, family capitalism still dominates Some of these firms have been in the same family for 2 or more generations, and are also dynasties but on a more minor scale (small proportion of firms owned by members of the same family for extended periods) Small-business sector however is highly unstable, and economic failure is common

Capitalism

An economic system based on the private ownership of wealth, which is invested and reinvested in order to produce profit Distinguished form other economic systems by private ownership of the means of production, free competition for markets to sell goods, acquire cheap materials, and use cheap labor, and restless expansion and investment to accumulate capital Began to oread with the growth of the industrial revolution in the early 1800s; vastly more dynamic economic system than any other that preceded it in history Modern societies are capitalistic; capitalism is now the most widespread form of economic organization in the world

Quick Characteristics of Fordism

Beureacratic/vertical Mass production Most work in-house (local) Job security(high wage, long term, full time, high career advancement)

Public Companies

Companies in which shares of stock are traded on the open market

Informal Economy

Economic transactions carried on outside the sphere of orthodox paid employment (cannot be described as fordist or post-fordist), sometimes involving the exchange of cash for goods and services provided, for which no official records are kept, and which therefore escape government notice A significant part of the national economy consists of informal work in poor countries (ex: Africa) For the US, informal work would add about 9% of the GDP Not only includes hidden cash transactions such as selling drugs (4% of global GDP), but also many forms of self-provisioning (do-it yourself activities)

Fordism

Emerged with the modern automobile industry; the system of production pioneered by Henry Ford, in which the assembly line was introduced (adopts the principles of Taylorism) Refers to the system of mass production tied to the cultivation of mass markets The division of labor increases productivity by allowing large complex tasks to be divided into a series of smaller, simple tasks; increases rate of production per worker Historical period in the development of post WWII capitalism in which mass production was associated with stability in labor relations and a high degree of unionization

Clothing and Shoe Industry

Few industries are as globalized (involves as much outsourcing) than the clothing and shoe industries in America Almost no major US companies today make there own apparel; instead, they outsource to independently owned factories that are found in more than 100 different countries around the world that do the work for them -These factories range from sweatshops to transnational corporations This industry relies on thousands of factories around the world to actually make the apparel through outsourcing, that is then sold in department stores or there retail outlets in the US

Family Capitalism

First stage of capitalism; characteristic of the 1800s and early 1900s Capitalistic enterprise owned and administered by entrepreneurial families; large firms were run either by individual entrepreneurs or by members of the same family, and then passed on to their descendants These individuals and families did not just own a single large corporation, but held a diversity of economic interests and stood at the apex of economic empires Most of the big firms founded by entrepreneurial families have since become public companies, but elements of family capitalism still remain Ex: corporate dynasties such as the Rockefellers and Fords

Job Insecurity

Flexible production has produced some benefits for consumers and the economy as a whole, but the effect on workers is not always positive Although it has provided workers with the opportunity to learn new skills and have less monotonous jobs, the marjority find their work lives less secure than before - rising wages, career advancement, long term employment, and health and retirement benefits are no longer guaranteed To keep jobs in manufacturing based industries, US workers need to accept pay cuts and reduced benefits, and worry about losing ons to overseas competition

Flexible Production and the Race to the Bottom

Flexible production, driven by global competition, has resulted in a global race to the bottom, in which retailers and manufacturers will go anywhere on earth where they can find the lowest wages, the fewest environmental restrictions, and the most lax governmental regulations to produce their products Can have negative effects on the workers of low-wage countries System that invites abuses

Quick Characteristics of Post-Fordism

Flexible/horizontal Mass customization Most work outsourced (global) Job insecurity (low wage, short term, part time, low career advancement)

Two Broad Types of Economic Organization in Capitalist Economies

Fordism and post-fordism The change from fordism to post-fordism involves a shift from mass production in large, bureaucratic organizations for a mass consumer market, to more flexible forms of production through global networks of suppliers tailored to more individual consumer tastes Both forms of industrial organization are found in the world today, although these new forms are becoming increasingly important

Bureaucratic Business Structures (Fordism)

Fordist manufacture-dominated production processes were organized as large bureaucracies, often controlled by a single firm that were responsible for both the making of goods and their final sales (ex: GM and Ford) - Most production was organized vertically: done under its own roof, controlled by its own management, structured in a highly bureaucratized fashion (responsible for its own design, marketing, and production)l control was highly centralized

Globalization

Globalization has led to global competition not only among firms but also between workers People across the world likely to have the skill, talent, and drive to challenge you for your job

Managerial Capitalism

In the corporate sector, family capitalism was increasingly succeeded by managerial capitalism; a capitalistic enterprise administered by managerial executives rather than by owners Family owners became displaced as managers came to have more influence through growth of very large firms; the replacement of the family in the company by the company itself Caused the corporation to emerge as a more defined economic entity (family members are less likely to replace each other during times of economic decline) Lare corporation increasingly began to leave a large mark on economic institutions; not only drives patterns of consumption, but also the experience of employment in contemporary society

Divison of Labor vs Craft Skills

In traditional societies, nonagricultural work entailed the mastery of a craft; craft skills are learned through a lengthy period of apprenticeship, and the worker normally carried out all aspects of the production process from beginning to end Most people in traditional communities worked on farms and were economically independent With the rise of modern production, more traditional crafts have disappeared altogether, replaced by skills that form part of more large-scale production processes; this marks an expansion of economic interdependence Even in the largest traditional societies, there usually existed no more than 20-30 major craft trades, together with such specialized pursuits as merchant, soldier, priest In a modern industrial system, there are thousands of occupations; 20,000 official distinct jobs in the American economy

Ford

Introduced the assembly line (inspired by slaughterhouses) to mass produce Assigned each worker a specialized task Was one of the first to realize that mass production required mass markets; if standardized commodities (such as automobiles) were to be produced on an even-greater scale, the presence of consumers who were able to buy those commodities must also be ensured Took the unprecedented step of unilaterally raising wages for an 8 hour workday at his factory so that his workers could buy a car and have more leisure time to enjoy it (also in part meant to secure worker compliance with the discipline required to work the highly productive assembly-line system

Technology

Main cause of the changing aspects of economic institutions themselves The application of knowledge of the material world to production; the creation of material instruments (such as machines) used in human interaction with nature; harnesses science to machinery in order to produce an ever-increasing variety of goods more cheaply

Capitalist Economies and Work

Most adults spend the better part of their waking hours at work in capitalist economies The jobs that one does determines their economic prospects, shapes their lifestyle, provides a sense of self-fulfillment, and provides them with friends and acquaintances

Developing Countries

Nations once referred to as "developing countries" are playing an increasingly important role as suppliers and assemblers of the products consumed throughout the world Design and marketing teams may remain centered in the US, Europe, Japan, and a few other advanced economies, but the actual goods are produced by independently owned factories throughout the world Giant transnational corporations, owned by individuals from China,South Korea, and Taiwan, operate apparel, electronic assembly, and other consumer goods factories around the world Many manufacturing jobs are moving to low-wage countries; many American retailers rely on foreign firms halfway around the world to actually manufacture products that heir their names and are sold on their shelves

Marx

One of the first to grasp that the development of modern industry would reduce many people's work to dull, uninteresting tasks resulting in low-trust work systems Saw that workers in a capitalist society lack ownership of the products they make, which they often cannot even buy, and are dehumanized by tedious and demeaning labor processes over which they have no control which is counter to human nature which involves creativity, control over one's activities, and cooperation with other. Thus,work appears as something alien- a task that the worker must carry out to earn an income but is in itself unsatisfying

Divison of Labor

One of the most distinctive characteristics of the modern economic system is the division of labor, or the specialization of work-tasks by means of which different occupations are combined within a productions system (work has been divided into an enormous number of different occupations in which people specialize) All societies have at least some rudimentary form of division of labor, especially between the tasks allocated to men and those performed by women With the development of industrialism, the division of labor became vastly more complex than in any prior type of production system In the modern world, the division of labor is international in scope

Flexible Business Structures (Post-fordism)

One of the most important changes in worldwide production processes over the past few years has been increase in organizational flexibility of many firms Post-fordist processes are organized horizontally; companies sell products designed by others (suppliers that outside the firm rather than part of it) -The complex network of retailers, brands, and factories through horizontal and flexible organization enables each business to respond quickly to changes in market conditions in a way that more vertically organized companies cannot by adjusting supply -ex: Walmart - In todays market, complex chain of buyers and suppliers -Global retailers are becoming increasingly dominant in the global economy (like Walmart; provides jobs to retailers overseas, changes business structures in the US) IT: information technology has revolutionized the field of supply chain management in the more flexibly organized production systems of the modern economy Electronic Data Interchange (EDI): coordinates activities between suppliers that enables firms to exchange relevant data, beginning with the information on the bar code attached to each product that is scanned at the time of purchase -Walmart has the most advanced systems that enable firms to order trust the right number of products to set demand, to shift orders among different suppliers, and to respond nimbly to changing market conditions Today, even GM has moved beyond the fordism path by outsourcing as much work as possible, and using advanced information systems to manage their supply chains

High-Trust Systems

Organizations or work settings in which individuals are permuted a great deal of autonomy and control over the work task Work systems in which workers are permitted to control the pace and even content of their work within overall guidelines Usually concentrated at higher levels of industrial organizations

Low-Trust Systems

Organizations or work settings in which people are allowed little responsibility for, or control over, the work task Fordism and Taylorism both involve low-trust work systems; jobs are set up by managers and are geared to machines Those who carry out work tasks are allowed little autonomy of action Can cause worker dissatisfaction and high worker absenteeism, and common industrial conflict

Modern Industry vs Premodern Systems of Production

Premodern systems of production: based above all on agriculture Modern systems of production: majority of people no longer work on farms or in fields, nor in factories (as was the case in the 1900s), instead today's jobs are based on providing services to others (from professional jobs, to low skilled jobs)

Flexible Production

Process in which computers design customized products for a mass market Made possible by outsourcing the production of materials

Work

The carrying out of tasks that require the expenditure of mental and physical effort, which has its objective the production of goods and services that cater to human needs The activity by whig people produce from the natural world and so ensure their survival Not exclusively paid employment, can be unpaid too (housework) In traditional cultures, there was only a rudimentary monetary system, and dew people worked for money In modern societies, there remain types of work that do not involve direct payment (ex: housework) In all cultures, work is the basis of the economic system

Economic Interdependence

The fact that in the modern division of labor, individuals depend on others (even those in factories across the world) to produce many/most of the foods, products, and services needed to sustain their lives

Mass Customization

The modern economy is marked by constantly changing demands of customers that are shaped by a constant flow of advertising Although fordism and taylorism were able to produce mass products that were all the same for mass markets, they wee completely unable to produce small orders of good, let alone goods specifically made for an individual customer Nowadays, mass customization combines the large volume production associated with fordism with the flexibility required to tailor products to consumers' needs Computer-adided designs coupled with other types of computer based technology such as EDI now permit factories to alter their assembly lines for small-batch production, serving and creating particular market niches -Info can be solicited about individual consumers and analyzed to determine the key types of consumer preferences for particular products, which are then manufactured to those specifications firms used to build a product first, and then worry about selling it. Now, mass customizers such as Dell (first computer company to carry mass customization to an individual level) sell first and build second - Has dramatically reduced the need to keep large amounts of stock parts on hand - Has outsourced an increasing share of production The rapid transfer of info between manufacturers and suppliers is essential to the successful implementation of mass customization

Post-Fordism

The period characterized by the transition from mass industrial production, using fordist methods, to more flexible forms of production favoring innovation and aimed at meeting market demands for customized products Since the 1970s, flexible practices have been introduced in a number of spheres, including production development/techniques, management style, the working environment, employee involvement, and marketing Group production, problem-solving teams, multitasking, and niche marketing (flexible/horizontal workforce) are some of the strategies adopted by companies attempting to restructure themselves under shifting economic conditions -Taken collectively, these changes represent a radical departure from the principles of fordism to meet market demands for diverse, customized products

Welfare Capitalism

The practice by which large corporations protect their employees form the vicissitudes of the market; large corporations sought to be the primary shelter of the uncertainties of the stock market (rather than state or trade unions) by providing services to employees including child care, recreational facilities, profit-sharing plans, paid vacations, and croup life and unemployment insurance Such programs offered through welfare capitalism often had a paternalistic bent One of its major objectives was coercion, as employers deployed all manner of tactics (including violence) to avoid unionization Most forms of welfare capitalism met their demise in the Great Depression years, as labor unions achieved unprecedented levels of influence and the New Deal administration began to guarantee many of the benefits provided by the firms Some forms went underground during the labor movement; in firms that avoided unionization during the period between the 30s and the 60s, welfare capitalism was modernized and shed blatantly paternalistic aspects and routinizing benefit programs: offered a model to many other firms beginning in the 70s, which allowed them to reassert their role as the "industrial manor" and workers as "industrial serfs," and to also press their advantage against side unions

Alienation

The sense that our own abilities as human beings are taken over by other entities The term was originally used by Marx to refer to the projection of human powers onto gods; he subsequently used the term to refer to the loss of workers' control over the nature and products of their labor Refers to the feelings of estrangement and even hostility- initially to one's job and eventually to the overall framework of capitalist industrial production

Reasons for the Declining Importance of Fordism

The system began to encounter certain limitations as it became more widely adopted to numerous different industries: - not suitable for all industries -only works successfully for those industries that -setting up mechanized production lines is very expensive and requires a lot of capital - once a fordist system is established, it is rigid; requires substantial reinvestment to alter a product Firms in countries where labor is expensive find it difficult to compete with those where wages are cheaper (why car industries increasingly set up elsewhere round the world

Economy

They system of production and exchange that provides for the material needs of individuals living in a given society; consists of the institutions that provide for the production and distribution of goods and services In all cultures, work is the basis of the economy Economic institutions are of key importance in all social orders; what goes on in the economy influences other areas of social life and all segments of society Modern economies differ substantially from traditional ones because the majority of the population is no longer engaged in agricultural production Changing nature of industrial production, the ownership structure of large businesses and corporations, and the nature of work and economic institutions itself - Change of economic institutions is due to the change in technology and globalization

Fordism Economy

Under Fordism, firms made commitments to workers, and wages were tightly linked to productivity growth Collective bargaining agreements between firms and unions that specified working conditions such as wages, seniority rights, and benefits, created a virtuous circle that ensured worker consent to automated systems of production, as well as sufficient demand for mass-produced commodities This system broke down in the 1970s and gave rise to greater flexibility and insecurity in working conditions

Work and Drudgery

Work is often associated with drudgery- with a set of tasks that we want to minimize and if possible escape altogether There is more to work than drudgery, otherwise people would not feel so lost and disoriented, and experience loss of self-worth when they become unemployed

Important Characteristics of Work

Work serves as a structuring element in people's psychological makeup and the cycle of their daily activities Provides money (main resource people depends on to meet their needs) Activity Level (provides a basis for the acquisition and exercise of skills and capacities; offers a structured environment in which a person's energies may be absorbed Variety (provides access to contexts that contrast with domestic surroundings) Structuring one's time (organizes the day and one's time around the rhythm of work; makes time more meaningful. provides a sense of structure in daily activities) Social contacts (provides friendships and opportunities to participate in charred activities with others) Personal Identity (work is usually valued for the sense of stable social identity it offers; self esteem, especially for men, is often bound up with their economic contribution they make to the maintenance of the household; job conditions such as the opportunity to work in jobs that are challenging, not routinized, and not subject to supervision contributes to sense of self-worth )