Economic Institutions: Reciprocity

Objectives
At the end of this lesson, you should be able to:

define and explain the meaning of economic institutions;

discuss the concepts of reciprocity in line with sociology and economics;

analyze the activities of different economic institutions and the impacts

on the global community, and

relate the practical application of reciprocity to ones daily life.

How many gifts have you received recently? Is it expected for you to
return a favor? Why or why not?

Learn about it!

Economic Institutions
The term economic institutions has a broad meaning. Let us find out.
The term Economic Institutions refers to:
A) a network of commercial organizations that determine how goods and
services are produced, generated, distributed, and purchased.
Examples: producers, manufacturers, retailers, wholesalers, buyers

B) the particular agencies or foundations devoted to the gathering or

studying economic data, or authorized with the job of supplying a good
and service that is necessary to the economy of a country.
Examples: the Philippine Bureau of Internal Revenue, the U.S. Federal
Reserve, the National Bureau of Economic Research
C) the popular and thriving arrangements and structures that are part of
the culture or society.
Examples: competitive markets, the banking system, a system of property
rights

Reciprocity
What is reciprocity?

In Sociology
It is defined as the a system of voluntary exchange between individuals based
on the understanding that the giving of favor by one will in future be
reciprocated either to the giver or someone else.
Example:
Filipinos practice utang na loob. This act is part of our culture. When a person
showed you an act of kindness or favor, it is a must for Filipino to return the
favor.

In Economics
It is defined as an exchange of equal advantages.
Example:

Japan and Philippines made an economic agreement to remove traveling

restrictions to flourish the tourism of both countries.

Types of Reciprocity
What are the types of reciprocity?

1. Generalized
Generalized reciprocity is giving out of something without the anticipation of an
instant return.
Example:
When a friend gave you a birthday gift, it is not expected that you will also give
that friend a gift in return on the same day, although it is anticipated that you
will give him a gift or token sometime in the future or when his birthday comes.

2. Balanced
Balanced reciprocity is giving out of something with the anticipation of
immediate return.
Example:
When you get something from the store and walks out without paying for the
goods, you will be stopped by the shop employees because you have not
reciprocated with money the goods that you picked from the store.

3. Negative
Negative reciprocity occurs when the exchange of something already involves
taking advantage of someone or the situation. Most of the time, this type of
exchange involves trickery, intimidation, or hard bargaining.

Example:
Province X has no source of electricity for a long time. X Electric Company
made an agreement with the officials of the province to provide them the
supply of power. In exchange, the whole area should not entertain any other
electric company to offer the same services to them.

Economic Institutions, Reciprocity, and the Impacts on the

Global Community
We have learned in Chapter 2 that the economic institutions involve activities
such as producing, generating, distributing, and purchasing goods and
services. These activities have an impact on the global community.
See the graphic organizer below.

Legends:
Blue: Economic Institutions
Red: Activities of economic institutions
Yellow: Global community
The
activities
of
the
economic
institutions play a vital role in shaping
and maintaining the stability of world
community. If one system fails to do its
activity, there will be an imbalance that
will highly affect the whole community.

Practical Application

Reciprocity always necessitates adequacy of response but does not mean that it
should be of the same amount or volume. More than of economic gain,
reciprocity is more of a social benefit. We have to make use of this principle to
bring us closer to our neighbors, friends, family, and loved ones.
Explore! Think of at least three scenarios/situations where generalized
reciprocity can be applied.
Try it! Compare and contrast generalized from balanced reciprocity. Give
examples.

What do you think? How does negative reciprocity affect the activities of
different economic institutions? What do you think will be the impact of these
on the global community?

Keypoints

Generally, Economic Institutions refers to the network of commercial

organizations that determine how goods and services are produced,
generated, distributed, and purchased.

In sociology, reciprocity is defined as the a system of voluntary

exchange between individuals based on the understanding that the
giving of favor by one will in future be reciprocated either to the giver or
someone else.

In economics,

reciprocity is

defined

as

an

exchange

of

equal

advantages.

There are three types of reciprocity: general, balanced, and negative.

The activities of the economic institutions play a vital role in shaping and
maintaining the stability of the global community.

More than of economic gain, reciprocity is more of a social benefits.

Economic Institutions: Transfers

Objectives
At the end of this lesson, you should be able to:

explain the concepts of transfer or transfer payment concerning

economics; and

analyze the level of activities of different economic

concerning transfer and the impacts on the global economy.

Are you aware of the different kinds of goods and services that the
private and government sectors provide for the people?

Does the government now provide more goods and services than it did in
the past?

How does the government redistribute more incomes?

institutions

Review!
Economic Institutions
The term Economic Institutions refers to:

a network of commercial organizations that determine how goods and

services are produced, generated, distributed, and purchased.

Examples: producers, manufacturers, retailers, wholesalers, buyers

the particular agencies or foundations devoted to the gathering or

studying economic data, or authorized with the job of supplying a good
and service that is necessary to the economy of a country.

Examples: the Philippine Bureau of Internal Revenue, the U.S. Federal

Reserve, the National Bureau of Economic Research

the popular and thriving arrangements and structures that are part of
the culture or society.

Examples: competitive markets, the banking system, a system of property

rights

The Functions of Economic Institutions

The economy of a particular country like the Philippines is composed of
different institutions that play a significant role in providing the needs of the
people. These institutions perform economic activities that start from
production to distribution of goods and services to the people.
Here are some of the functions of economic institutions in society:

Enhance development through financial services

Provide business opportunity to people by financing and loans

Fund research projects aimed at improving the lives of the individuals in

the society

Transfers
In economics, transfer or transfer payment is a redistribution of income or
resources in the market system. It refers to payments or transactions where
there is no value added to the economy. There is no additional production of
goods and services but just a transfer of money from private hands to
government.
Examples:

Taxes

Social security

Private pension benefits

Housing

Health care

Transfer payments can originate from either government or business sources.

Business transfer payments include corporate gifts to non-profit institutions,

payments for personal injury, and taxes paid by domestic corporations to

foreign governments. Far more important, both, in terms and policy
significance, are transfer payments originating from government sources.

How Transfers Work in the Government

The government as an economic institution also provides commercial goods to
the people in the form of public services and transfer payments.
In the Philippines, the government is allocating a huge amount of money to
finance different programs like education, infrastructures, health, defense, etc.
Among the government agencies that received the highest allocations are:

Department of Education (DepEd) - P411.905 billion

Department of Public Works and Highways (DPWH) P384.287 billion

Department of the Interior and Local Government (DILG)- P124.229

billion

In the United States, a payment made to individuals by the federal government

through different social benefit programs.
In Canada, a payment made to all provinces and territories by the federal
government.

Economic Institutions, Transfers, and the Impact on the Global Economy

Transfer as an activity of every economic institution such as the industry,
finance, and services distribute part of their income or profit to provide
essential services and assistance to some segment of the society especially the
underprivileged to help uplift their living condition without expecting in return.
To help you analyse the realization of the definition above, look at the diagram
shown below:

In
the
circular
flow of the
economy,

households and firms pay taxes to the government; in return, the government
distributes transfers in the forms of services to the household and subsidies to
the firms.
The activities of the household, markets, businesses, government, financial
institutions as economic systems has a great impact on the global economy
because they provide goods and services needed by people not only of a
particular country but also by the world community. The stability of a
country's economy has a direct impact on the global community for it
determines its ability to provide the needs of its people and at the end, it
contributes to the stability of the world.
Explore! Imagine that the Philippine government is doing its job in solving the
rampant problem of smuggling. More taxes are collected, local and foreign
industries are protected. In the end, more effective and efficient services are
provided to the people. How do you connect this scenario to the topic?

Try it! If you will become a wealthy individual in the future and willing to
share part of your fortune to others, which among the basic needs (food,
housing, education, health) will be your priority? Justify your answer.
What do you think? Why many Filipino families still don't have access to
essential goods and services to support their everyday living?

Keypoints

Economic institutions are sectors of the economy that provide goods

and services to the people.

One of the activities of different economic institutions of a particular

country is to provide transfers.

Transfer or transfer payment is a redistribution of income or resources

in the market system.

The circular flow of economy helps explain the interrelationship of

different sectors of the economy.

Government and private enterprise play a major role in the economy.

The activities of economic institutions of a particular country have a

great impact on the global community.

Economic Institutions: Redistribution

Objectives
At the end of this lesson, you should be able to:

explain the concepts of redistribution in relation to sociology, economics,

and politics;

analyze the level of activities of different economic institutions

concerning redistribution and the impacts on global community; and

recognize the various forms of redistribution in own community.

What do you expect the government will do with the taxes they collect
from the people?

In your church, in what programs or projects do you think they spend

the donations coming from the members?

Review!
Economic Institutions
The term Economic Institutions refers to:

a network of commercial organizations that determine how goods and

services are produced, generated, distributed, and purchased.

Examples: producers, manufacturers, retailers, wholesalers, buyers

the particular agencies or foundations devoted to the gathering or

studying economic data, or authorized with the job of supplying a good
and service that is necessary to the economy of a country.

Examples: the Philippine Bureau of Internal Revenue, the U.S. Federal

Reserve, the National Bureau of Economic Research

the popular and thriving arrangements and structures that are part of
the culture or society.

Examples: competitive markets, the banking system, a system of property

rights

Learn about it!

Redistribution
What is redistribution? Why is it an important activity of societies? How do you
compare redistribution from reciprocity?

In relation to Sociology
Redistribution is an everyday activity of societies. Members of the society
contribute by giving their goods that would be collected by the head of the
community followed by a distribution of the goods among the members.
Example:

A) Church tithes
The church acts as the central organization that pools the goods donated by its
members in the form of tithes or donations. The church manages these tithes
and donations for the maintenance of the church itself and its projects and
programs in which most of the time, its members are the recipients. By that
process, the tithes or donations given by the members are being redistributed
to them, especially the less fortunate members.

B) Potlatch
It is a ceremonial distribution of property and gifts celebrated by most Pacific
Northwest tribes. In every celebration, each person invited to a potlatch receives
a gift. Ceremonial formalities were observed in the distribution of gifts or goods
by the donor according to the social rank or status of the recipients.

Potlatch in Relation to Economics

Traditionally, the potlatch is the economic system of the natives of South
America. Today, the potlatch is still evident in our economic system. How?

Example:
In our society today there are rival companies. Let us consider these companies
as the rival groups of Native Americans. Company A releases one product to

the market; the Company B will try to surpass that product by releasing their
product better than the product of the Company A.

In relation to Economics
Redistribution refers to the collection of goods and services of the people and
groups to be given by a central authority for allocation.
Example:

Taxation
When the government collects taxes
from its population, the government
becomes the centralized authority where
all the taxes are pooled and managed.
The taxes that were pooled will be
returned to the people in the form of
social
services,
welfare
benefits,
infrastructures, and others which the government will spearhead.

In Relation to Politics
Redistribution is the process by which electoral districts are added, removed,
or changed. This process is a form of boundary delimitation that changes
electoral district boundaries, usually in response to census results. In a most
representative democracy, redistribution is required by law or constitution.
Example:
In the United States, redistribution happens after each ten years census. The
state legislature approved most states' legislative district redistributions. The
highest court rulings require that congressional districts have roughly equal
populations.
The chart shows the comparison between redistribution and reciprocity.

Learn about it! Economic Institutions, Redistribution, and the Impacts on

the Global Community

As we have learned in Chapter 3, redistribution refers to the collection of goods

and services of the people and groups to be given by a central authority for
allocation.
BothProducers
and
Consumers/Citizens are
economic
institutions. In which, theGovernment/Central Authority collects taxes from
them and will allocate these funds for its project which will also be used by the
economic institutions. If one failed to do his function, there would be
dysfunction in the society and economic imbalance.
Redistribution in the Family/Community
Redistribution is evident in our society. Family, as the smallest unit of the
society, performs simple redistribution. The mother/father as the head of the
household collects part/share of his/her childrens income that will be
allocated to the food and pending bills. This also serves the basis for sustained
community efforts under a political leader.
Explore! Think of ways how
redistribution

is

practiced

in

your

school,

barangay,

being
family,
and

municipality/city effectively.
Try it!
Get a partner. Think of at
least three situations where
small-scale
redistribution
can occur in the community.

What do you think?

How does redistribution contribute to the development of the society?

Keypoints

Economic

Institutions refers

to

the

network

of

commercial

organizations that determine how goods and services are produced,

generated, distributed, and purchased.

About Sociology, redistribution is the system of exchange that involves

the centralized collection of products from members of a group followed
by the distribution of those goods among the members.

With Economics, redistribution refers to the collection of goods and

services of the people and groups to be given by a central authority for
allocation.

Concerning Politics, redistribution is the process by which electoral

districts are added, removed, or changed.

Potlatch is a ceremonial distribution of property and gifts by the donor

according to the social rank or status of the recipients.

Taxation is the process where the government collects taxes from the
people to turn into social services for the people.

Church tithes are the donations that are given to a religious institution
to be used for its programs and projects.

A redistribution is a form of reciprocity. It differs from mere reciprocity,

which is a back-and-forth two-party exchange.

The activities of the economic institutions play a vital role in shaping and
maintaining the stability of the global community.

Family, as the smallest unit of the society, performs redistribution.

Economic

Institutions:

Market

Transactions
Objectives
At the end of the lesson, the student should be able to:

define market, market transactions, and market equilibrium;

enumerate the different kinds of market structures and market

transactions;

demonstrate an understanding of market transactions as mechanism of

distribution of goods and services by making wise and informed
decisions; and

analyze economic organization and its impacts on the lives of people in

the society.

What is a market?

What is market transaction?

How does market and market transactions affect the lives of people in a
society?

Learn about it!

Market

A market is a place or medium in which buyers and sellers interact to transact

economic goods and services. The meaning of market is not limited to a certain
place, location or geographic area, rather, it focuses on people who are willing
and capable of buying and or selling goods and services.
In a capitalist economy, markets answer the three basic economic problems of
what to produce, how to produce, and for whom to produce.

Market Structures
Market structure is the classification of a market with regard to key
characteristics such as number of sellers and buyers, entry barriers to the
market, the control and determinant of pricing, and types of products in the
market.

Pure Competition Market - a market structure characterized by a large

number of sellers and buyers, products are homogenous, and there is a
complete freedom of entry and exit of market players.

Monopoly - a market structure characterized by a single seller of a welldefined product for which there is no available substitutes and high
barriers of entry of other market players. Seller has the complete control
of the pricing of goods and services.

Monopolistic Competition - a market structure characterized by a large

number of independent sellers, each producing a differentiated product
in a market with a low barrier to entry of other players.

Oligopoly - a market in which only a few number of sellers comprise the

entire industry with a relatively large number of buyers thereby sellers
has the power over the price of products.

Monopsony is a market in which there is only one buyer.

Market Transactions
Market transaction is the exchange of goods and services through a market,
whereby buyers and sellers agreed on the price and quantity of goods and
services to be bought and sold in a specific place and time.
Market transactions taking place in the economy could be a tool in:

Measuring the total output of the economy or the GDP of the country
thereby becoming one indicator of growth and development of a society

Providing the basic data that are used by economic planners and
forecasters

Types of Markets
There are different market types. Each one has unique charateristics and
function

Physical Markets
This is a set up where buyers can physically meet the sellers and purchase the
desired merchandise from them in exchange of money. Shopping malls,
department stores, retail stores are examples of physical markets.

Non Physical Markets/Virtual markets

In such markets, buyers purchase goods and services through internet. In such
a market the buyers and sellers do not meet or interact physically, instead the
transaction is done through internet.
Examples: Rediff shopping, eBay, Amazon

Auction Market
In an auction market the seller sells his goods to one who is the highest bidder.

Market for Intermediate Goods

Such markets sell raw materials (goods) required for the final production of
other goods.

Black Market
This is a setup where illegal goods like drugs and weapons are sold.

Knowledge Market
This is a set up which deals in the exchange of information and knowledge
based products.

Financial Market
This market deals with the exchange of liquid assets (money). Financial
markets can be firther categorized following types:

Stock Market - A form of market where sellers and buyers exchange

shares is called a stock market.

Bond Market - A market place where buyers and sellers are engaged in
the exchange of debt securities, usually in the form of bonds.

Foreign Exchange Market - In such type of market, parties are involved

in trading of currency. In a foreign exchange market (also called currency
market), one party exchanges one countrys currency with equivalent
quantity of another currency.

Predictive Markets - Predictive market is a set up where exchange of

good or service takes place for future.

Explore! Imagine yourself in a street where lots of goods are being sold in a
lower price, will you still buy these goods even though youre aware that these
goods are counterfeit and pirated? Will still be patronizing them?
Try it!
Make a very simple business plan whereby you will be producing a unique
product to be sold in a monopolistic market.

What do you think?

How does the continuous decrease of the price of petroleum product in the
world market affect the producer and seller of the product? Does it affect the
world economy as whole? If it affects the world economy, in what way does it
affect it?

Keypoints

Market exists whenever there is an interaction between buyers and

sellers.

Market structures are mechanism of the economy to answer the basic

economic problems of production, distribution, and consumption.

Market equilibrium became the balancing force between demand and

supply of goods in the market.

Market transaction occurs because of the exchanges of goods and

services between consumers and producers.

Economic Institutions: Markets and State

Objectives
At the end of this lesson, you should be able to:

differentiate the role of markets and state in running the economy;

determine the dividing line between markets and state; and

discuss the four competing economic models and analyze their impact on
the world community.

Why do many countries remain poor while others are rich?

In our country, the rich become richer and the poor become poorer, is
there any explanation for this reality?

Who will take the lead to solve this problems? How?

Review!
Economic Institutions
The term Economic Institutions refers to:

a network of commercial organizations that determine how goods and

services are produced, generated, distributed, and purchased.

Examples: producers, manufacturers, retailers, wholesalers, buyers

the particular agencies or foundations devoted to the gathering or

studying economic data, or authorized with the job of supplying a good
and service that is necessary to the economy of a country.

Examples: the Philippine Bureau of Internal Revenue, the U.S. Federal

Reserve, the National Bureau of Economic Research

the popular and thriving arrangements and structures that are part of
the culture or society.

Examples: competitive markets, the banking system, a system of property

rights

Learn about it!

Markets and State

A market is a place where buyers and sellers transact economic goods

and services. It is also a mechanism used by the society for allocating
and distributing the goods and services produced.

A state is a group of person, more or less numerous with a definite

geographical area with a defined territorial boundaries, independent of
external control, ruled by a government through laws where inhabitants
had to conform by force in the common interest. In economics, a state is
always referred to the government.

The market as a mechanism used by different economic institutions in

the distribution of goods and services that the economy produced always
rely on the very mechanism it used, the price of the products. While
the state used its inherent power and authority in allocating goods and
services.

The Dividing Line Between Markets and State

In the Philippines, some products are purely market-driven. In some,

the government can intervene in production and pricing. While there are
also products that production as well as the pricing have government
intervention. An example of which are the utilities and selected essential
services.

In a global perspective, model market economy such as the United

States and Singapore is characterized by freedom of choice and
enterprise, private ownership of all economic resources, a prevalence of
competition, and the presence of market mechanism. While in a statedriven economy like China, the government largely controlled the
industry.

The two mechanisms significantly differ in the way they allocate the goods. In a
market economy, those who can afford the price of the product have more while
in the state-run economy had this very principle of "each should have
according to its needs."

Competing Models of Economic Organization and Their Impact

on Global Community
1. Market Economy Model
The market economy model of Taiwan, Korea, and Singapore prevails in the
production of goods, competitiveness, flexibility and high growth rates are
manifested in the economy. High level of inequality prevails that result to a high
incidence of poverty among people, a problem in the environment, and
vulnerability to financial crisis.

2. State Capitalist Model

The state capitalist model of Russia and China shows the power of government
in the production of goods but with passivity in social and environmental

issues. High and steady growth rate is also evident but with a high level of
inequality is manifested.

3. Central Planning Model

The central planning model of North Korea dominates the entire economic
activity of production as well as the social context. This model wants to create a
classless society but in the long run, it is counter- productive and lower growth
rate or even economic stagnation occurs.

4. Social Market Economic Model

The social market economic model of most European countries depends heavily
on the role of the market in the distribution and allocation of products to the
economy and the government is very active in providing social welfare to the
people that lead to equality and harmony among people and government but a
level of taxation is evident.
Let us analyze these four competing economic models and their impact on the
world community. It is notable that if the government together with the private
corporations and multinational companies has to join hands in uplifting the
lives of the people, protecting and preserving the environment, and create a
caring society, this world will be a better place to live.
Explore! Imagine yourself in North Korea as a travelling journalist-economist,
what kind of story will you be writing about North Korea?
Try it! Based on this lesson, make a travelogue showing what countries you
will be visiting first based on economic status or model.
What do you think?
There are fundamental standards or criteria in analyzing economic models as
suggested by some economists. These are:

Is the living level of the people in that society improved?

Is the growth of economy aims at raising the standard of living of the

people?
Is the income of the society equally distributed among members?

Is there a guarantee that standard of living is being maintained?

Do human rights are respected by established institutions?

Do education and health of underprivileged have enough provisions?

Are these standards fit for the four competing models of economic organization?
Why? Why not?
Keypoints

Economic institutions evolve to distribute efficiently and allocate goods

and service to members of the society.

A market is a place where buyers and sellers transact commercial goods

and services. It is also a mechanism used by the society for allocating
and distributing the goods and services produced.

The state always referred to the government, is a group of person, more

or less numerous with a definite geographical area with a defined
territorial boundaries, independent of external control, ruled by a
government through laws where inhabitants had to conform by force in
the common interest.

In the Philippines, some products are purely market-driven. In some,

the government can intervene in production and pricing.

In the United States, the model market economy is characterized by

freedom of choice and enterprise, private ownership of all economic
resources and prevalence of competition while in China, the government
largely controlled the industry.

The four competing economic models that greatly affect the world
community aremarket economy model, state capitalist model, central
planning model and social market economic model.

Nonstate

Institutions:

Banks

and

Corporations
Objectives
At the end of the lesson, you should be able to:

define non-state institutions, banks, commercial banks, corporations,

and article of incorporation;

enumerate the different kinds of banks and non-banking institutions.

analyze the role of banks and corporations in the economy of the

country; and

discuss the functions of banks and corporation in the economy.

What are non-state institutions?

How do non-state institutions such as banks and corporations affect the

society?

Learn about it!

Non-state institutions
Non-state institutions refer to institutions that are organized by private
individual or groups for the purpose of providing services to the members of

the society. These institutions are not controlled by the government but they
are regulated through laws and statutes of the state.
There are non-state institutions that play a vital role in the economy because
they are the one providing the needs of the people in which the government
cannot provide but with a corresponding price or payment for their services.
Typical examples are different kinds of financial institutions, specifically,
the banks and different kinds of business organizations, specifically,
a corporation.

##** Financial Institutions**

Financial institutions are organizations that serve as bridges or
intermediaries that help the flow of money from people with money to save to
people who need to borrow money. This means that financial institutions serve
as links between the source of funds, the depositor, and the fund user, the
borrower.
Banks receive the savings and other deposits of their clients so that these may
be loaned out to borrowers.
Example: Juan dela Cruz has Php10,000.00, which he has saved from his
salary as a manager. He deposits it in Maharlika Bank, which offers a 2%
interest per year; meaning, if he does not withdraw any of his savings, he will
get 10,000.00 + 2% = 10,200.00 after one year. Now, Mr. Entrepreneur needs
7,000.00 because he wants to put up a sari-sari store. He borrows
Php7,000.00 form Maharlika Bank. Can you see the flow of money? Juan gets
more than P10,000.00 after a year; at the same time he is able to help Mr.
Entrepreneur put a business. This would not happened without the help of
Mahalika Bank, since Juan and Mr. Entrepreneur do not know each other.
Banks, in the modern sense of the word started during the Renaissance period
in Italy. The word bank traces its origin from the Old Italian word banca which
means table orbench; and is where transactions occur at that time.
The role of a financial institution as a link in the transfer of money from the
source to the borrower is very important to our economy.

Banks also provide a safe-keeping place for money and valuables of individuals.
Banks also perform a role in settling payments and credit intermediation.

Banking Institutions
The Bangko Sentral ng Pilipinas is known as the banks of all banks in the
Philippines. It is the bank responsible for the regulation, creation, and
management of money supply in the country.
These are the different types of banks:

Commercial Banks accept savings deposits, check deposits, and time

deposits. Examples of Philippine commercial banks are Bank of the
Philippine Islands and Metrobank.

Thrift Banks are categorized into stock savings and loan associations,
savings and mortgage banks, and private development banks. They
consolidate the savings deposits of their member into a fund from which
their member can draw loans with interest. They can also accept deposits
from the public and provide loans for small-and medium-scale
enterprise.

Rural Banks cater primarily to farmers and small business people,

mostly in rural areas.

Corporations
A corporation is an organization of people legally bound together by a charter
to conduct some type of business. It has a legal entity separate from its owners.
The type of business that a corporation wants to venture depends on its
articles of incorporation.
Articles of incorporation are written application to the government requesting
permission to form a corporation. This will give the name, address, and type of

business for the corporation; the names of the officers, and the initial amount
of money being put into the business.
Alfred Chandler, a renowned business historian, explained how modern
corporations propelled the growth of modern economy and was fascinated on
how the people that make up large corporations managed to "coordinate
complex production processes" and "produce the wealth of the nations."
The following are the advantages of corporation as a business organization in
the economy:

*Easy to raise funds* the corporate form is the most effective for raising
money.

Limited liability is the concept that owners of the business are only
responsible for its debts up to the amount they invest in the business.

Unlimited life the corporation does not cease to exist if a major

stockholder dies.

Specialized

management

big

corporations

can

afford

to

have

specialized managers to run the business.

Risks are shared the risks of the business are spread among many
owners.

The following are the disadvantages of corporation as a business organization

in the economy:

Difficult to start corporation needs government approval before

starting the business.

Less direct control the owners are usually far from the day-to-day
operation of the business.

Double taxation corporation pays corporate tax and the owner who
received dividends from the profit has to pay their personal income tax.

Limited activities what is only stated in the article of incorporation is

the only activity that corporation should do.

Explore
One of the hottest issues now in the Philippine banking industry is the $81
million allegedly stolen from Bank of Bangladesh and laundered in the
Philippines through the banking system and the casinos. What do you think is
the impact of this particular case to the Philippine banking industry and to the
whole Philippine economy. Are you in favor of the on-going investigation by the
Senate about the issue? Will you still trust our banks and big corporations like
casinos operated by wealthy individuals?

Try it!
A portion of your weekly or even monthly allowance be deposited in the bank
and document your experience in opening your savings account in a bank.
What are the different documents that they will be asking from you? Will you
be allowed by the bank to transact with them even if you are a minor?

What do you think?

Matthew, Mark, and John being good buddies since high school up to college
have decided to put up a corporation named MMJ Corporation. The articles of
incorporation states that they will be selling beauty products. They borrowed
money from the banks using their cars as collateral. The first 3 years of
operation is very successful because they were able to dominate the market. As
years passed by, numerous competitions emerged and the sale had suddenly
dropped and the profit is dwindling and near bankruptcy. They are behind in
loan payments, owes money for suppliers, and is behind workers compensation
and taxes to the government. It looks as if MMJ Corporation will go out of
business. Matthew, Mark, and John are worried that creditors will force them

to turn over their personal savings and sell their cars to get the money to pay
MMJ Corporation business debt.
1. Can MMJ Corporation creditors force Matthew, Mark, and John to turn
over their personal savings and sell their cars to pay the debts? Why or
Why not?
2. Do you think it is fair to the three buddies? Do you think it is fair to the
creditors? Explain.

Key Points

*Non-state institutions * refer to institutions that are organized by private

individual or groups for the purpose of providing services to the members
of the society.

Financial institutions are organizations that serve as bridges or

intermediaries that help the flow of money from people with money to
save to people who need to borrow money.

The Bangko Sentral ng Pilipinas is known as the banks of all banks in the
Philippines.

There are three kinds of banks, these are commercial banks, thrift banks
and the rural banks.

*Corporation *is an organization of people legally bound together by a

charter to conduct some type of business.

Advantages of corporations are easy to raise funds, limited liability,

specialized management, and risks are shared.

The disadvantages of corporations are difficult to start, less direct

control, double taxation and limited activities

Nonstate Institutions: Cooperatives and

Trade Unions
Objectives
At the end of this lesson, you should be able to:

define cooperatives and trade unions;

explain the different types of cooperatives and examples of trade unions;

enumerate the purposes of organizing cooperatives and trade unions;

and

discuss the functions of cooperatives and trade unions as non-state

institutions that promote self-help among people in the society.

Are there ways to improve the predicament of many individuals who are
struggling to meet their needs every day from limited income? Do people have
the power to improve their lives through collective efforts? Is social justice
attainable in this country?

Review!
Non-state Institutions

Non-state institutions refer to systems that are organized by private

individual or group of people for the purpose of providing services to the
members of the society. The government does not control these
institutions, but they are regulated by laws and statutes of the state.

Non-state institutions play a vital role in the economy because they are
the one providing the needs of the people in which the government
cannot do.

Two crucial non-state institutions promote self-help and self-reliance

among its members and at the same time giving leverage to people for
development. These are the cooperatives and trade unions.

Learn about it!

What are Cooperatives and Trade Unions?
Cooperative is a voluntary organization of people who have agreed to pool their
resources together to undertake an economic enterprise for the reason of
meeting their everyday needs, and which they democratically manage, control,
and share the economic benefits by participation and patronage (Cooperative
Development Authority, CDA).
Trade unions (or labor unions) are voluntary associations of either employees
or employer or independent workers to protect their interest and became an
instrument of defense against exploitation and maltreatment.
The commonalities of these two non-state institutions:

Organized and formed by group of people to protect their interest

Promote the common good among members

Voluntary in nature

Below are the different types of cooperatives.

Here

are some
examples of
trade unions.

The Differences Between Cooperatives and Trade Unions

As to the Purpose:
###As to Function:

Cooperatives and Trade Unions as Means of Promoting Self-help

Towards Development of the Economy
Cooperatives are

the

self-help

organizations

presently

utilized

by

the

government as more efficient tools for economic development. These are also
business enterprises which the affiliates own, manage, and control following

accepted democratic principles. Members are not organized primarily for profit
nor to serve other persons but to address the needs of their members.
Memberships in cooperatives are voluntary and open to all those who need
their services. The members share economic benefits from unions in proportion
to the individual member's patronage of the business or enterprise.
Trade unions are always fighting for better wages by improving employees pay
and other benefits such as holiday entitlements.
Examples:

Secure improvements in employees working conditions including hours of

work and health safety at work, improving pensions, and industry injury
benefits

Provide improved standard of living

Safeguard the interest of workers by encouraging firm to increase

employee participation in decision-making

Prevent employees from exploitation

With trade union on a place, strikes can be avoided thus resulting stability and
growth of the firm that may lead to economic development. It promotes unity,
spirit of self-reliance and self-respect.
Explore! Imagine a construction worker earning a minimum wage with no
additional benefits from the employer, no security of tenure from his work, and
can be terminated any time of the day. What can cooperatives and trade unions
help/do to improve his life?
Try it! Now, you are aware that cooperatives and trade unions are vital
institutions in the economy that foster self-help and self-reliance. Soon, if given
a chance, what role do you prefer to play, an employee or an employer? Why?
How would you promote the importance of cooperatives and trade unions?

What do you think? We are aware that different kinds of cooperatives and
trade unions were organized and formed in various parts of the country but
still some of their members are struggling every day to meet their needs. What
do you think are the reasons why most of the cooperatives and trade unions
have failed in fulfilling their functions? Are there external factors that
contribute to their failure? What do you thinks are these factors?

Key Points

Non-state institutions refer to institutions that are organized by private

individual or group of people for the purpose of providing services to the
members of the society.

Cooperative is a voluntary organization of persons who have agreed to

pool their resources together to undertake an economic enterprise for the
reason of meeting their everyday needs.

A trade union is a voluntary association of either employees or employer

or independent workers to protect their interest.

The different types of cooperatives are consumer, credit, producer,

marketing, and service.

Examples of trade unions are transport groups, workers welfare

organizations, and employers associations.

Functions and purposes of organizing and establishing cooperative and

trade unions are critical in promoting economic development.

Nonstate

Institutions:

Transnational

Advocacy Groups
Objectives
At the end of this lesson, you should be able to:

define transnational advocacy groups;

explain the functions of transnational advocacy groups; and

discuss the significance of transnational advocacy groups in society.

You may already know that nonstate institutions exist to play its part in local
and international politics and policy-making.
Do you know the specific functions and roles these nonstate institutions play in
society?

Learn about it!

There are numerous kinds of nonstate institutions that play roles across
macro-level social concerns. One of these institutions is a transnational
advocacy group which will be discussed and elaborated in this lesson.

What are Transnational Advocacy Groups?

Transnational advocacy groups are networks, not bound by any national or
international border; that defend a cause or proposition. They are a group of
people from different walks of life who advocate for policy changes that are in
line with their interests and the interests of others.
Transnational advocacy groups are greatly established through interactive and
communicative networks across numerous countries that operate under the
same advocacy or principle. Though they may have little power in the
traditional politics, they have learned to appropriate their limited power in such
a way that they can influence social change and belief systems.

What are Transnational Advocacy Groups?

Transnational advocacy groups use a variety of political tools to influence
international policy and practice. These tools are:

Information politics: the ability of groups to control or limit the release

of information so as to provide a realistic and broader picture of a certain
issue. Doing so does not necessarily guarantee a good image for the
government.

Symbolic politics: linking past events to another in to provide a possible

outcome for a similar, presently-occurring event.

Leverage politics: creating linkages with other groups to gain moral and
financial support in advocacy.

Accountability politics: monitoring the action of states to ensure their

commitment. The responsible state or companys accountability on the
matter shall be made known to the public should any discrepancy
between commitment and result occur.

Transnational advocacy groups may be made up of non-government

organizations (NGOs), politicians, bureaucrats, or representatives from private
corporations and businesses.

Examples of Transnational Advocacy Groups

International organizations for human rights (e.g. Center for Individual

Rights)

Non-government organizations for environmental welfare (e.g. Earth

Rights International)

Groups advocating for womens rights (e.g. International Womens

Tribune Center)

Functions of Transnational Advocacy Groups

They change political and policy-making focus: issues raised by

transnational advocacy groups are actual issues of the common
population. Implicating moral and emotional forces, these groups refocus
the most important issues.

They redefine issues: these groups, through wise use of information,

repackage issues into more general and unbiased forms. As such,
positions on various issues are influenced to change with some being on
advocacy networks favors.

They reframe information: as mentioned, transnational advocacy

groups learned to control the flow of information to include unbiased and
broader pictures of existing issues. In doing so, a moral and emotional

appeal will likely influence people to raise their advocacy and concern for
the phenomenon.

They give voice to the voiceless: because of their moral and emotional
impact on the public coupled with their advocacy for vulnerable groups;
transnational advocacy groups give the voiceless and vulnerable people a
chance to raise their concerns in an international scene.

Significance of Transnational Advocacy Groups in Society

Transnational advocacy groups have become the voice of the people in raising
important, realistic issues that a vast number of people are experiencing
worldwide. In society, these groups maintain considerable influence through
information disseminationenough to shift the focus of states in dealing with
more immediate causes and concerns. As a result, transnational advocacy
groups may change international policy and practice to fit any raised concern
or issue.
What makes transnational advocacy groups so important is their advocacy.

Explore! Transnational advocacy groups have gained success because of their

take on important issues that are relevant in the international scene. Can you
identify some of these issues that may be advocated by such groups?
Try it! Think of a cause that you are very much interested to advocate. Create
a poster or infographic that tells about your chosen advocacy. You may use
actual drawing materials or online software to create your poster. Be creative in
making your poster. Once finished, you may opt to upload your advocacy poster
in any social media platform.
What do you think? How are transnational advocacy groups able to get
control of information dissemination?
Tips

Transnational advocacy groups are made up of people with the same set
of advocacies and beliefs. Being part of support does not require any
educational or career accomplishment.

Transnational advocacy groups may form networks that span across

countries or continents. This is the reason why they can easily involve
themselves in tackling international issues.

Keypoints

Transnational advocacy groups are networks, not bound by any

national or international border; that defend a cause or proposition.

Transnational advocacy groups make use of political tools such

as information, symbols, leverage, and accountability to ensure the
success of their advocacies.

Transnational advocacy groups may be made up of non-government

organizations
(NGOs),
politicians,
bureaucrats,
or
representatives from private corporations and businesses.

Transnational advocacy groups primarily utilize their ability to control

information in tackling international concerns and issues.

What makes transnational

their advocacy.

Nonstate

advocacy

Institutions:

groups

so

important

is

Development

Agencies
Objectives
At the end of this lesson, you should be able to:

define development agencies;

explain the significance of development agencies in society; and

discuss the millennium development goals and the role of development

agencies.

Some developed countries today were not what it used to be during the early to
mid-1900s. What form of assistance did these countries encounter that helped
shape their status today?

Review!
Non-state Institutions

Non-state institutions refer to systems that are organized by private

individual or group of people for the purpose of providing services to the
members of the society. The government does not control these
institutions, but they are regulated by laws and statutes of the state.

Non-state institutions play a vital role in the economy because they are
the one providing the needs of the people in which the government
cannot do.

Learn about it!

Development is an issue that all nations face. While the state has always
focused on the matter, some non-state institutions also play a part in targeting
specific aspects of society for development.

What are Development Agencies?

Development agencies are local or international groups committed to
pursuing specific developmental agenda of the state. Initially seen as an
immediate response to a common emergency, the rise of such agencies began
after the World War II where there were war damage, industrial decline, and
dereliction. Over time, development agencies have become popular methods of
shaping economic strategies that can uplift the state. It is reported that there
are over 15,000 such organizations existing worldwide.
These are the features and functions of a development agency:

Economic roles: a development agency can take on entrepreneurial

approachesintermediating between the government and the market
especially when such tasks are outside of government responsibility. As
leverages are formed, investment failures are avoided.

Leadership roles: development agencies set out long-term developmental

goals. As independent groups, their capability to shape goals and
outcomes are not influenced by electoral or political changes.

Governance and coordination roles: agencies coordinate with the state

in the attainment of developmental practices and methods. They help
overcome the jurisdiction of the public sector in making a sole decision
on developmental goals.

Implementation roles: a development agency can formulate its team to

facilitate attainment of a defined growth strategy. This team is focused on
project management, instrument development, and business or investor
facing services.

While development agencies exist to aid in the attainment of developmental

goals, their local and international functions are continuously updated and
reinvented to suit the needs of the state.

Examples of Development Agencies:

International Development Organization

Organization for Economic Cooperation and Development

Overseas Development Institute

Significance of Development Agencies in Society

Development agencies assist the government in attaining a welldeveloped society through well-studied developmental strategies and
policies.

As such, development agencies exist to promote business efficiency and

competitiveness to increase economic growth and sustainable
development.

Additionally, development agencies actively provide avenues for honing

employment strategies and opportunities.

Millennium Development Goals and the Role of Development

Agencies
In 2000, the United Nations sought measures to enhance human life by
attaining eight developmental goals by the year 2015. The Millennium
Development Goals (MDGs)project, as they are collectively called, called action
and support from nations, and local and international development agencies to
promote the following causes by 2015:
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development

The assistance provided by all agencies involved proved to be significant as the

UN was able to gather enough data to assess and address each MDG. However,
according to reports, further, data are needed for a post-2015 development
agenda that will be tackled by the United Nations next.
Explore! Development agencies are not only limited to the local scene but also
active

in

tackling

and

addressing

international

policies

and

issues.

Partnerships with such groups continue to expand because of the seemingly

successful businesses and developmental strategies brought about by various
groups on different issues. In your perspective, what would occur if no
development agencies exist to aid states?
Try it! Read about the Millennium Development Goals and choose one of the
eight major issues tackled. Upon making your choice, try to find a movie or
video clip that talks about the individual issue. You may watch more than one
clip if you like. After watching, try to reflect on the impact of such global
concerns to your local community or country.
What do you think?
What development issues should development agencies prioritize to resolve?
Tips

Development agencies are available and functional in any country,

regardless of that country's level of development. Wealthy and developed
countries are no exemption from needing the help of developing agencies
to reach their full potentials.

Development organizations may be based locally or abroad, and may

tackle local or international issues that are relevant to an individual
nation or state.

Key Points

Development agencies are local or international groups committed to

pursuing specific developmental agendas of the state.

Development agency has four functions and features, namely: economic,

leadership, governance and coordination, and implementation.

Development agencies assist the government in attaining a welldeveloped society through well-studied developmental strategies and
policies.

The Millennium Development Goals was created by the United Nations

in 2000 to address eight relevant issues and developmental challenges by
2015.

Nonstate

Institutions:

International

Organizations
Objectives
At the end of this lesson, you should be able to:

define international organizations;

explain the functions of international organizations; and

discuss the significance of international organizations in society.

You may be familiar with groups that are actively existing across various
nations. Seemingly, there is an office existing in every country for such groups.

In your opinion, what are these groups and what are the reasons they are
situated across many countries?

Learn about it!

Organizations having branches in numerous countries are known as
international organizations. These organizations play a prominent role in
facilitating global and international changes and advocacies that demand the
betterment of a certain cause. In this lesson, you will learn more about
international organizations and their contribution to society.

What are International Organizations?

International Organizations are groups that promote voluntary cooperation
among its members. These started out during the rise of city-states in Greece,
but significantly emerged during the French Revolution. Further improvements
on the purpose and functions of international organizations were laid out
during the early 19th century when nations decided that such a group is
needed to preserve the status quo and avoid inter- and intra-state conflicts.
At present, international organizations may or may not be handled by the
government. It was reported that there are 6, 000 Non-Government
Organizations compared to only 250 under the government.
International bureaucracies manage International Government Organizations
(IGOs), but authority remains ultimately in the state. IGOs work together with
non-government international organizations to successfully reach a common
goal. However, note that in this lesson, international organizations are only
taken and discussed in the context of nonstate or non-government
organizations.

What are International Organizations?

The following conditions should be met for one group to be called an
international organization:

There must be membership from at least three states or nations.

Activities must occur across several states.

Members must have formally agreed to be part of the organization.

Apart from the abovementioned conditions, international organizations must

also follow the rules set by the International Law Commission to function
legally as a recognized international organization.

Examples of Non-Government International Organizations

United Nations Environment Program

European Union

World Health Organization

Functions of International Organizations

An acquaintance of information: International organizations have the

capability to access relevant information for a specific cause. They also
have the capability to monitor trends and progresses of longitudinal
empirical researches.

Provide service and aid: These organizations, especially the bigger ones,
provide various types of services to people depending on the cause. For
example, an international organization tackling health may provide free
vaccines to a specific nation hit by a dangerous epidemic.

Provide avenues for communication: Being part of an international

organization means that members from different parts of the world get
easily to voice out their concerns to one another. This may lead to easier
communication and work flow.

Provide

avenues

for

settling

disputes:

Because

international

organizations members continuously communicate with each other,

disputes and misunderstandings over certain issues and concerns may
easily be resolved as such organizations provide opportunities for
communication through regular meetings and updates.

Significance of International Organizations in Society

International organizations establish a connection to issues not only occurring
in a certain nation, but also across the organizations various locations.
Because of this, an international issue can be made into a cause. People of
different societies and nationsnot limited to social class or statusare made
part of a global community that will aim to resolve, as one unified group,
identified international conflicts as well as provide outcomes suitable to
address global issues being tackled.
Explore! Long existing international groups have already made a name for
themselves on the world stage. With many issues and challenges to tackle, each
international group has made a specific focus on their cause, function, and
existence. If you were to put up your international group, which countries
would you choose to put it up? What cause will you opt to advocate?
Try it! Get a piece of paper and list down all international groups that you are
familiar with. Take your time in doing so. Once finished, look into the internet
to see a list of other international organizations you may not be familiar with.
What do you think? How does an international organization operate if it is
situated in different countries?

Tips

International organizations may vary in sizedependent on the number

of offices and countries it has partnered with. Some organizations are big
with headquarters in more than 100 countries.

International organizations, like development agencies, may also put a

focus on developed countries. While most international organizations
agendas are focused more on developing countries, the aim to target a
rich and well-developed country is also plausible.

Keypoints

International

Organizations are

groups

that

promote

voluntary

cooperation among its members.

The following conditions should be met for one group to be called an

international organization: (1) there must be membership from at least
three states or nations, (2) activities must occur across several
states, and (3) members must have formally agreed to be part of the
organization.

Functions of international organizations include an acquaintance of

information, provide service and aid, provide avenues for
communication, and provide avenues for settling disputes.

International organizations establish a connection to issues not only

occurring in a certain nation but also across the organizations various
locations. Because of this, an international issue can be made into a
cause.