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Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
The Capitalist RevolutionECONOMICS
Dr. Kumar Aniket
Bartlett School of Construction & Project Management
Lecture 1
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
HOW WILL THE COURSE WORK
EssentialReading
Core Econ (2016). The Economy: The Core Project.core-econ.org/the-economy
Plan One unit each week
Time 20 units in 10+10 weeks
Week 6 Unit 1 The Capitalist Revolution.Week 7 Unit 2 Technology, population, and growthWeek 8 Unit 3 Scarcity, work, and choiceWeek 9 Unit 4 Social interactionsWeek 10 Unit 5 Property and power: Mutual gains and conflict
Week 12 Unit 6 The firm: Owners, managers, and employeesWeek 13 Unit 7 The firm and its customersWeek 14 Unit 8 Supply and demandWeek 15 Unit 9 The labour marketWeek 16 Unit 10 Banks, money, and the credit market
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
COURSE MATERIAL
Website
> aniket.co.uk
>> Teaching
>>> Economics 0058 at UCL Course OutlineCalendar
Lecture SlidesReadings
> Moodle page
>> https://moodle-1819.ucl.ac.uk/course/view.php?id=935
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
CONTEXT
Why was there sustained growth in average living standards after 1700?
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
IN THIS LECTURE
Concepts
• Inequality
• Economic growth
• Technological revolution
• Capitalism
Reading:
• The capitalist revolution by The Core Project. Unit 1.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY: SINGAPORE
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY: TOP 10% IN RICH COUNTRIES
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY: 1980
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY: 1990
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY: 2014
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY: TOP 10% AND BOTTOM 10%
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITIES IN NUMBERS
Average Income Richest 10% Poorest 10%Singapore $67,436 $3,652
Liberia $994 $17
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
WITHIN AND BETWEEN COUNTRY INEQUALITY
Extreme equality: 1,000 years ago, the world was “flat”.
Era of growth
Sustained growth in some countries, others still in the flatlands
Inequality
Within country inequality and across countries.
both types of inequalities seemed to be increasing
Relationship between economic growth, inequality and economicsystem?
It’s Complicated
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
INEQUALITY AND GROWTH
For a very long time, living standards did not grow in anysustained way.
When sustained growth occurred it began at different times indifferent places.
The countries that took off economically a more thancentury ago – UK, Japan, Italy -— are now rich.
Countries that have taken off recentlyare getting richer.
Countries that haven’t taken off are in the flatlands.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
GDP GROWTH RATES: BRITAIN
Sustained growth since 1650 century
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
GDP GROWTH RATES: JAPAN
Sustained growth since 1870 century
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
GDP GROWTH RATES: INDIA, CHINA
Sustained growth after 1950
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
“HOCKEY-STICK” GROWTH
“Hockey-stick” growth: sustained rapid growth in some countries
growth take-off occurs at different time for different countries
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
ROLE OF TECHNOLOGY IN PRODUCTION
Technology: Idea that sets out how inputs can be used to produce anoutput.
Inputs −→ Technology −→ Outputs
TablesChairsCutleryStoveOver
ManagerWaiters
Accountant
−→ restaurant’s plan −→ FoodAmbience
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
THE TECHNOLOGICAL REVOLUTION
Remarkable scientific and technological advances occurs concomitantlymore with upward lurch in growth in Britain in the middle of the18th century.
Technological changes: improvement in technology reduceswork-time to produce the things we need,
people produced more in a given time and earned more
allowed significant increases in living standards.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
THE INDUSTRIAL REVOLUTION
Industrial Revolution:a wave of technological advances starting in Britain in the 18thcentury, which transformed an agrarian and craft–based economyinto a commercial and industrial economy.
E.g., productivity of labour today in producing light is half amillion times greater than it was among our ancestors aroundtheir campfire.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
TECHNOLOGICAL PROGRESS
Speed at which information travels increased with technological progress
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
ENVIRONMENTAL CONSEQUENCES
Increased production and population growth affects theenvironment
Global impacts (climate change) and
local impacts (pollution in cities, deforestation)
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
ENVIRONMENTAL CONSEQUENCES
Increased production and population growth affects theenvironment
Global impacts (climate change) and
local impacts (pollution in cities, deforestation)
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
ENVIRONMENTAL CONSEQUENCES
These effects are results of both
the expansion of the economy– illustrated by the growth in total output
the way the economy is organised– what kinds of things are valued and conserved
The permanent technological revolution may be the cause but it alsomay be part of the solution,
by making it possible to use less resources to produce more output.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
CAPITALISM
Institutions: are the laws and social customs governing theproduction and distribution of goods and services.
Capitalism: an economic system where the main institutions areprivate property, markets, and firms.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
KEY CONCEPTS: OWNERSHIP
What is it to own something?
Contract (renting): handing rights in return for money
Residual rights
Who decides what rights can be handed over?
Ownership
. . . of inanimate objects
. . . of animate being
. . . abstract ideas
. . . Is a painting a physical object or an idea?
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
KEY CONCEPTS: PRIVATE PROPERTY
Private property: ownership rights over possessions
Types of private property
capital goods: the non-labour inputs used in production.
products: output produced
. . . does not include some essentials, e.g. air, knowledge
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
KEY CONCEPTS: MARKETS
Markets: a way for people to voluntarily exchange products andservices for their mutual benefit.
Unlike other types of exchange, markets
– are reciprocated transfers
– voluntary
– usually there is competition
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
KEY CONCEPTS: FIRMS
Firms: business organisation that uses inputs to produce outputs,and sets prices to at least cover production costs.
Inputs and outputs are private property
Firms use markets to sell outputs
The aim is usually to make profit
Firms, different from families and governments . . .
. . . they rapidly emerge, expand, contract and exit.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
THE CAPITALIST REVOLUTION
Capitalism led to growth in living standards because of:
impact on technology: firms competing in markets had strongincentives to adopt and develop new technologies
specialisation: the growth of firms & the expansion of marketslinking the entire world allowed historically unprecedentedspecialisation in tasks and production
Together with the technological revolution, this increased workerproductivity.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
THE GAINS FROM SPECIALISATION
Specialisation increases productivity of labour because workersbecome better at producing things when they specialise
learning by doing
worker have different skills and talents
economies of scale
People can only specialise if they can stop self-production andobtain goods some other way.
Capitalist society: this is done via markets.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
COMPARATIVE ADVANTAGE & EXCHANGE
Greta has absolute advantage in production of both crops
Production if 100% of time is spent on one goodGreta 1250 apples or 50 tonnes of wheatCarlos 1000 apples or 20 tonnes of wheat
Greta has a comparative advantage in wheat
Carlos has a comparative advantage in applesCarlos’ comparative productivity is higher in apples.
Important result: if Greta and Carlos produce what they havecomparative advantage in, the collective output is maximised.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
COMPARATIVE ADVANTAGE & EXCHANGE
All producers can benefit by specialising and trading goods,
even when producer specialises in goods that others could produce atlower cost
Markets allow exchange, which in turn allows specialisation thatincreases the labour productivity
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
DID CAPITALISM CAUSE THE HOCKEY-STICK
GROWTH?
Natural experiment: Capitalist West Germany versus Centrallyplanned East Germany.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
DIVERGENCE IN GROWTH
Not all capitalist economies are equally successful
Economic conditions:
firms, private property, or markets may fail
Political conditions:
capitalist institutions are regulated by the government
Public Goods:
the government also provides essential goods and services(infrastructure, education)
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
DIVERGENCE IN GROWTH
Different types of capitalist system
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
POLITICAL SYSTEMS
Capitalism coexists with many political systems.
A political system determines how governments will be selected,and how those governments will make and implement decisions.
In most countries today, capitalism coexists with democracy
• individual rights of citizens (e.g. freedom of speech)
• fair elections
But capitalism has coexisted with non-democratic systems, too.
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
THE ROLE OF GOVERNMENTS
Versions of capitalism depending on versions of political system
Government’s role in capitalism changes with political systems
Course Introduction Inequality “Hockey-stick” growth Capitalism Summary
SUMMARY
Important trends in economic variables over time
– Income inequality across and within countries has increased time
– Positive/Negative consequences of sustained growth in GDP
– Role of technological progress in these trends
Capitalism depends on three specific institutions and its versionsvary across the world according to its underlying institutions
– These are private property, markets and firms
– Failure of these institutions can explain divergence ineconomic growth across countries
– Political systems and the role of government also determinethe type of capitalist society
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