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Social Institutions




The economy is the institution that provides for the production and distribution of goods and services, which people in every society need. Sometimes they can provide these things for themselves, and sometimes they rely on others to provide them. When people rely on others for goods or services, they must have something to exchange, such as currency (in industrialized societies) or other goods or services (in nonindustrialized societies). The customs surrounding exchange and distribution of good and services shape societies in fundamental ways.

Economic Systems

The two dominant economic systems in the world are capitalism and socialism. Most societies have varying blends of the two systems. Common hybrids of capitalism and socialism are welfare capitalism and state capitalism.


Capitalism is a system under which resources and means of production are privately owned, citizens are encouraged to seek profit for themselves, and success or failure of an enterprise is determined by free-market competition.

Example: The United States is one of the most purely capitalistic societies in the world. Most U.S. businesses are privately owned, but the government does regulate business practices.


Socialism is a system under which resources and means of production are owned by the society as a whole, rights to private property are limited, the good of the whole society is stressed more than individual profit, and the government maintains control of the economy.

Example: China is a socialist country. The government owns and controls almost all natural resources.

Welfare capitalism

Welfare capitalism is a system that features a market-based economy coupled with an extensive social welfare system that includes free health care and education for all citizens.

Example: Sweden allows private business ownership, but the government controls a significant part of the economy. High taxes support an extensive array of social welfare programs.

State capitalism

State capitalism is a system under which resources and means of production are privately owned but closely monitored and regulated by the government.

Example: South Korea’s government works closely with the country’s major companies to ensure their success in the global marketplace.

Marx’s Economic Theory

Philosopher and historian Karl Marx believed that the economy was the basic institution of society and that all other institutions, such as family and education, served to fuel the economy. As societies became more industrialized, he theorized, they also became more capitalistic. Marx disliked the fact that capitalism created a two-tiered system consisting of factory owners and factory workers, in which the groups were constantly in conflict with each other. Factory owners wanted to pay their workers as little as possible to maximize profits. Factory workers, on the other hand, wanted to make as much money as possible. The advantage was always with the owners, who could choose to fire workers who wanted too much and hire workers who would work for less.

Marx was a conflict theorist, believing that in any capitalist society there was always conflict between the owners of the means of production and the workers. He believed that the only way to resolve the conflict was for workers to unite, mount a revolution, and overthrow their oppressors. Marx believed that once the dust settled after the revolution, all societies would be communist, meaning that all the means of production would be owned by everyone and all profits would be shared equally by everyone. His ideas inspired the Russian Revolution of 1917.

Economic Trends

The ways the world and the U.S. economies work are changing rapidly. There are several important trends:

  • Globalization: The expansion of economic activity across many borders characterizes the global economy. Poorer, developing nations now produce the raw materials for the world’s multinational corporations. These multinational companies control most of the world’s economy.
  • Demand for educated professionals: The postindustrial economy is driven by trained professionals such as lawyers, communications professionals, doctors, and teachers.
  • Self-employment: New, affordable communications technology has allowed more people to go into business for themselves.
  • Diversity in the workplace: Once the bastion of white males, professional offices are heavily populated by women and minorities in today’s society.

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