Text XIV. THE ECONOMY

The term economic system refers to the social institution through which goods and services are produced, distributed and consumed. Like the other social institutions, it shapes some aspects of the social order and is, in turn, influenced by them.

Sociologists have developed a classification of societies on the basis of their economic systems. The first category of society according to this classification is the preindustrial society. This type of society was composed of rather small settlements of people almost always related to one another. As a result, the family took on a particularly important role. The technology within this society remained rather limited as it mostly relied on the physical power of humans and animals. Members of this society were primarily engaged in the production of goods and later, of tools and household objects. But at the last stage of the preindustrial societya social surplus was created, i.e. the production by a group of people of enough goods to cover their own needs, while, at the same time, sustaining individuals who were not engaged in these tasks. As a result, the division of labor into specialized tasks was more extensive. The political institutions became more elaborate, and the concepts of property rights took on growing importance.

The industrial revolution, which took place largely in England during the period 1760 to 1830, was a scientific revolution that focused on the application of nonanimal sources of power to labor tasks. The process of industrialization produced significant changes and had distinctive consequences. Thus, the second type of society according to the economic classification introduced by sociologists is the industrial society, which, in general terms, can be defined as society that relies chiefly on mechanization for the production of its economic goods and services.

As for the contemporary industrial societies, there are two basic types of economic systems that exist: capitalism and socialism. Capitalism is an economic system in which the means of production are largely in private hands and the main goal of economic activity is the accumulation of profits.

In practice, capitalist systems vary in the degree to which private ownership and economic activity are regulated by government. During the period immediately following the industrial revolution, the prevailing form of capitalism was what is termed a free enterprise system which allowed people to compete freely with minimal government intervention in the economy.

Two centuries later, capitalism has taken on a somewhat different form which is characterized by extensive government regulation of economic relations. Without restrictions, business firm can mislead consumers, endanger the safety of their workers, and even defraud the companies' investors.

Contemporary capitalism also differs from the early capitalist stage in another important respect... monopolistic practices. In numerous industries, a few companies are monopolies because they dominate and control the field and exclude new enterprises from entering the marketplace.

Socialism is an economic system under which the means of production and distribution are collectively owned. The basic objective of this economic system is to meet people's needs rather than to make profits. Socialists reject the idea of free competition and believe that basic economic decisions should be made by the central government, which acts as the representative of the people. Therefore, government ownership of all major industries is a major feature of socialism as an ideal type.

As described above, capitalism and socialism serve as ideal types of economic systems. No nation precisely fits either model. Instead, the economy of each industrial state represents a mixture of capitalism and socialism.

The significant changes in the contemporary industrial societies have led social scientists to call technically advanced nations postindustrial societies, i.e. societies whose economic systems are based on the production of information rather than goods. Large numbers of people become involved in occupations devoted to the teaching, generation, or spreading of ideas.

In a very real sense, the world is not as large as it once was: one can travel from New York to Tokyo, or reach someone a continent away much more quickly than has ever been possible. Therefore, a cultural item is spread from group to group or society to society. One result is that the world can now be conceived of as a single marketplace. But, while the common marketplace is gradually being organized, the profits of business are not equally shared. There remains a great disparity between the world's «have» and «have not» nations. Two forces particularly responsible for this are colonialism and multinational corporations.

Colonialism is the maintenance of political, social, economic and cultural domination over a people by a foreign power for an extended period of time. By the 1980s colonialism had largely become a phenomenon of the past because most of the world's peoples had achieved political independence and established their own governments. However, former colonies were unable to develop their own industry and technology and their economic dependence on more industrialized nations has continued. Such continuing dependence and foreign domination is known asneocolonialism.

A key role in the neocolonialism of the 1990s is playedby multinational corporations, i.e. commercial organizations which, while headquartered in one country, own or control other corporations throughout the world. Though multinationals can have a positive impact on the developing nations of the world bringing jobs and industries, on the whole, their negative social impact on workers in both industrialized and developing nations is great. Social and political scientists have reported that moving factories out of countries such as the United States multinationals increase both unemployment in these countries and economic inequality and dependence within developing nations. In many respects, the rise of multinational corporations has become a threat to national sovereignty. At present, managers of Fiat, British Petroleum, and similar firms have more power than most sovereign governments to determine where people will live and what work (if any) they will perform.

By the year 2000 a few hundred corporations will account for more than half the value of goods and services produced in the entire world. Clearly, multinational corporations are reshaping the economic life and are transforming the societies in which they function.