Unit 4 The World of American Business

Capitalism and the American Economy

Before you read

Discuss

1. If we say that the economy of a country is strong or healthy, what do we mean? What does that say about employment, salaries, prices, production of goods, and so on?

2. What is capitalism? What are its main characteristics?

3. What is competition? When is it good? When is it bad?

Guess

Try to answer the questions. Then look for the answers in the reading.

1. How many Americans own shares of stock in companies traded on the two major stock exchanges? Check ( ) one:

____10 million ____ 60 million ____ 120 million

2. About how many Americans go bankrupt each year? Check ( ) one:

____ 500,000 ____ 1 million ____ 5 million

3. About how many women own their own businesses? Check ( ) one:

_____ 6 million ______9 million _____12 million

Capitalism and the American Economy The Basic Principles of Capitalism

The U.S.A. is a capitalistic country. In a capitalistic economy, businesses are privately owned and operated. The government's role in the business world is limited. Its main function is to protect each part of the economy-big business, small business, workers. and consumers-from abuse. In American capitalism, even such basic needs as trans­portation, communications, and health care are provided by private companies.

In a capitalist economy, prices vary with changes in supply and demand. When there are more apples available than people want to buy, the price of apples goes down; when there is a shortage, the price goes up. Of course, prices of goods and services are also affected by the cost of producing them.

Under ideal conditions, a free economy (with limited government controls) is good for everyone. Workers can choose their careers; they can change jobs to get higher wages, better working conditions, or professional advancement; and they can form unions with other workers to demand better treatment from their employer. Manufac­turers, wholesalers, and retailers can also do well in a capitalist system. They profit when their businesses are successful.

Competition is an essential element of capitalism. In order to compete, businesses must operate efficiently, economically, and creatively. Because of competition, cus­tomers receive high-quality merchandise at the lowest possible prices. When there is a lack of competition in an industry, a monopoly may develop. This can happen when a company buys its competitors or when a company sells its products below cost for a while in order to drive competitors out of business. To prevent such abuses, there are national laws prohibiting most monopolies.

In a capitalistic economy, disagreements between employees and employers can lead to work stoppages called strikes. A strike occurs when unionized employees refuse to work until their demands are satisfied. A strike in a vital industry can disrupt the en­tire national economy. For example, if there is a strike in the transportation industry, companies that depend on trains or trucks to transport raw materials and / or finished products must shut down. Their employees are, therefore, laid off. When workers' in­comes are greatly reduced, they do not spend as much. This, in turn, affects the income of businesses that usually sell to those workers. Also, when large numbers of workers go on strike, the public may be greatly inconvenienced. Strikes can shut down trans­portation or cut off food or fuel supplies to large areas.

Although capitalism has made most Americans prosperous, not all have benefited. Foreign competition and factory automation have caused many semiskilled workers who were earning good wages in manufacturing industries, such as automobile pro­duction, to lose their jobs. Many of those able to get new employment had to settle for lower-paying jobs.

At the end of the twentieth century, several multinational treaties greatly expanded the idea of competition to what is called a "free global economy." This means that busi­nesses in different countries can export their goods to the U.S. and other countries without paying tariffs (taxes imposed upon imports in order to favor the goods of the importing country). A free global economy is good for the consumer who can purchase cheaper merchandise from countries where the cost of doing business is lower than it is in the U.S. However, it is not good for American workers who may lose their jobs as a result of that competition.

Today's American capitalism benefits most workers as well as business owners. However, not everyone is prosperous in the U.S. About 12% of the population have earnings below the poverty line established by the government. Some people cannot get a decent-paying job for reasons such as illness or disability, old age, drug or alcohol ad­diction, or lack of education or job-related skills. Most people with marketable job skills can earn a living in the U.S., and there are many opportunities for learning these skills.

Check your comprehension.

What are three characteristics of capitalism?

Who benefits from tariffs?