Chapter18: ECONOMY

Outline:
INTRODUCTION: Nature and Definition of Economy
:
 THE SOCIAL STRUCTURE OF ECONOMY: ECONOMIC SYSTEM

Panopio (1994) classified economic system:

1.Agrarian to Industrial
2.Subsistence to mechanized
3.Underdeveloped to super-developed
4.Capitalistic to socialist
5.Third-World to industrialized First-World
TERMS: Subsistence Economy: family is the center of economic activities.

Barter: is the system of exchange.

Mechanized Economics: employs to a large extent, mechanized power

for production of economic goods.

Capitalism: enables one, through free enterprise, to keep products of ones

efforts oneself with a minimum state control

Communism: every persons governmental collective ownership as well as

shares produced by the society

Underdeveloped third world countries: a great part of natural

resources are untapped.

High developed first world countries: high degree of mechanization,

industrialization, automation, advance technology, and high living
exist.
 ECONOMIC IDEOLOGIES
Ideology- is a set of ideas that explain and justify a social order.
1. The Capitalist Market Economy:
Concept of private property: all means of production; owned by private individuals
rather than state.

Profit motive: is the drawing force of capitalism. Owners are strongly motivated to
maximize profit.

Freedom of enterprise: everybody is free to engage in business with minimum

governmental control.

Products of goods and services: consumers want the most and the lowest price.

Free competition : competing entrepreneurs will produce quality products and

services.

Force of supply and demand: the law of supply and demand determines prices of
goods and commodities.
2. The Command Economy
-arose in response to some of the abuses and dangerous works and child labor.

Karl Marx- believes that capitalism benefits mainly the owners of the means and production and exploit workers.

Basics about egalitarian society:

First: all the means of production would be collectively owned.

Second: economic decision making would not be left the vagaries of the
market but would be placed in the hands of central planning board.
THE CORPORATION
THE NATIONAL POWER OF LARGE CORPORATION
OLIGOPOLIES
-Industries dominated by only a few large firms.

Economists point out that when a few

corporations provide nearly all of a
particular product, those companies are
virtually free from the restraints that exist
in a competitive market.

CONGLOMERATE
-multi-industry company
It is the combination of two or more
corporations engaged in entirely different
businesses that fall under one corporate
group, usually involving a parent company
and many subsidiaries.
 THE NATIONAL POWER OF LARGE CORPORATION
Large corporations are free to decide what new technologies to explore.
Technologies has large impact on all aspects of social life.

The national power of giant corporations is not confined to the economy.

Corporations also use campaign contributions to influence politics.

e.g. (to persuade officials that certain legislation should or should not be passed.)
 THE GLOBAL POWER OF MULTINATIONALS
Multinational corporation (MNC)

-has facilities and other assets in at least one country other than its home country. Such
companies have offices and/or factories in different countries and usually have a
centralized head office where they coordinate global management.

Transnational corporations (TNCs)

-are incorporated or unincorporated enterprises comprising parent enterprises and

their foreign affiliates. A parent enterprise is defined as an enterprise that controls
assets of other entities in countries other than its home country, usually by owning a
certain equity capital stake.
 IN THE PHILIPPINES TOP 10 MNCs INCLUDE:
1. Pilipinas shell (British)
2. Caltex (Philippines) Inc. (American)
3. Nestle Inc. (Swiss)
4. Texas Instruments (Philippines) Inc. (American)
5. Toyota motors Philippines Corp. (Japanese)
6. Phil. Automotive Manufacturing Corp. (Japanese)
7. Procter and Gamble Phils. Inc. (American)
8. Unilever Phils, Inc. (Dutch)
9. Matsushita Communication Industrial Corp. (Japanese)
10. Phil. American Life Insurance (America)
 COSTS AND BENEFITS OF MNC'S AND TNC'S
A. BENEFITS
 COSTS AND BENEFITS OF MNC'S AND TNC'S
Stimulate new industries, directly through investments and indirectly through
purchases and sales.

Stimulate competitors.

Increase national income.

Develop natural resource industries of the country.

Contribute to the growth, development and modernization of the economy.

Produce basic commodities like soap, watches, ball pens, etc...

Produce export goods and earn dollars.

 B. Costs (limits to benefits)

Utilize local capital at the expense of domestic enterprise; use retained earnings rather
than new capital

Worsen balance of payments by:

-Repatriating capital and remitting profits, royalties, technical and management fees
-Restricting the export of goods produced by local subsidiaries
-Maintaining a high import content in goods produced by local subsidiaries

Transfer inappropriate and outdated technology

Limit employment generation, directly and indirectly because on the high

import content of production process and limited direct employment.

Confine skills development to a few

 Have concentrated power in the hands of few elites, which
has resulted in an aberration of the capitalist system.

Death of local industries and closing of small business due

to monopolistic practice of big companies

MNCs in oil production, road transport, CFC production,

etc., for roughly 50% of green house gas emission and
virtually all ozone-destroying chemicals

MNCs dominate the trade in natural resources resulting in

the depletion of forest, soils,etc.

MNCs dominate the production of most of the worlds

toxic chemicals

MNCs are the main entities involved in the transfer of

environmentally unsound production system and hazardous
materials to the south and 3rd world countries.
 ECONOMIC SECTORS
The economy includes several sectors, that involved in successive phases.
The ancient economy was mainly based on subsistence farming.
The industrial evolution lessened the role of subsistence farming, converting it to more
extensive and mono-cultural forms of agriculture in the last three centuries.
In the economies of modern consumer societies there is a growing part played by services,
finance, and technology.
Other sectors include:
Public sector- providing basic government services.
Private sector- not controlled by the government.
Social sector- is the duty of social activity undertaken by organizations that are not-for-profit and
non-governmental
Four modern economies main sectors
 The Philippine Major Economic Sector
Three major economic sector that created according to the countrys GDP:
-Agriculture -Service -Industry

Agricultural sector: contributes 20% of the countrys gross domestic product

Industry sector: 32% of the countrys gross domestic product
Service sector: plays a dominant role of 48% in the Philippine economy
The PHILIPPINES is Asia-Pacifics second largest call center market, next to India, according to June
2008, study released recently by Oracle Corp.
Railway system are found in highly urbanized center of Metropolitan Manila and Quezon City.
Industrial sector is based around manufacturing electronics and other high-tech components usually
from Japanese and American corporations.
Industrial production is centered on processing of food, beverages, textiles and garments.
The Philippine Economy and its Contemporary Problems and Issues
Defects in the economic structure, such as
great disparity in the distribution of wealth and
material goods.

Slow economic growth and rapidly raising

population make it difficult to expand education
and health services and improve their quality.

Government reliance on and support of foreign

investors, MNCs and foreign debts and foreign
aid.

Lack of political will on the part of government

to support local entrepreneurs and develop
local industries as well as to assert its self-
determination by promoting Filipino First and
protection policy.

Low real wages and little job opportunities.

 Huge foreign and domestic debts.

Bureaucracy and massive graft and

corruption in government.

Inefficient tax collection, tax evasion

,tax credits and tax holidays given to
foreign investors rob nations of
needed revenues.

Colonial mentality of people to

patronize foreign goods rather than
locally made products.

Economic instability brought by peso

devaluation, political instability, and
high cost gasoline.

Unemployment and underemployment

Governmental Solutions to the Economic Problems
Conversion of former American naval base, Subic naval base into a
free port zone
Inviting foreign investors to set up business in the country and
provide incentives
Organized livelihood projects to help poor self-reliant
Entering into treaties and joint ventures agreements with foreign
nationals
Opening the Philippine markets to world commerce ,import
liberalization policy, lifting of protectionist policies and adherence to
the idea of globalization
More foreign debts and foreign aids from the World Bank and IMF to
solve budget deficits
Privatization and commercialization of government-owned
corporations
Joining in treaties and agreement with world trade bodies
Imposing dictatorship or strong presidency to control political and
economic power
Nationalist Alternatives
o Governmental support to local entrepreneurs and
development of local industries

o Industrialization of agriculture

o Development of the national steel industry

o Provision of real wages and profit sharing in business

o Free education for all through state-funded education

o Countryside and regional development

o Moratorium on payment of foreign debts

o Intensive and more efficient tax collection

o Political will to stop graft and corruption

o Protectionism and governmental regulation on
prices of commodities

o Campaigns on Filipino First Priority

o Strict adherence to the constitutional provision

on the exploitation of our natural resources

o A realistic appraisal to the cost and benefits of

dealing with MNCs on a pragmatic context,
where these are advantageous to both

o The government should enact foolproof laws

against the abuses of MNCs and TNCs by
recognizing only legitimate and fair foreign trade

o A planned economy based on a grand strategy

o Genuine land reform

o More trade and commercial relation with Asian

neighbor countries
 SUMMARY

ECONOMY: refers to the structuring and functioning of the development and utilization of human and natural
resources in the production, processing distribution, and consumption of material goods and services.

Social structure of economy includes:

-traditional economy, command economy, market economy, economic system within various continuums,
subsistence to mechanical, under develop to super developed, capitalistic, and social third world to
industrialized first world

Two major parts of Economic system:

CAPITALIST
SOCIALIST

1945 after World War II- giant Multinational Corporations (MNCs) were established