Capitalism, Socialism, and Communism

Capitalism- Capitalism is an economic system through which businesses are privately owned in order to make a profit. This system follows the laws of Adam Smith, including the law of competition, law of self-interest, and law of supply and demand.
Socialism- The economic and political system of socialism is operated through the regulation of private business by the government and government control of the means of production (factors necessary for life or business)
Communism- The economic and political
system of communism effectively dictates what can and cannot be done in the realm of business. There are defined limitations for the amount a business can produce and how much money they can earn. In addition to directly controlling the means of production, communism places strict rules on the way businesses operate in such a way that a classless society is born. No matter what field a business specializes in the same amount of funds will be allocated to each, and each worker will receive the same amount of money.


Capitalism- Through capitalism a private business can benefit from its own services and use revenue in a number of ways. Citizens in a country are able to produce to care for themselves and continue to grow economically and socially to a limitless extent if they so wish. Businesses in this system work for their own interests and work more productively through competition, also the availability of a given commodity is determined by its natural occurrence and by the demand of the public. In some cases this system may result in a small group of wealthy businesses and individuals that control the inner workings of a population.
Socialism- Within this system a private business has the ability to produce for itself, but the means of production are controlled. Basically, resource allocation, machinery, and factories are controlled by the government. This effectively limits how far a business can travel economically and socially creating a balanced society where wealth is not concentrated in a small upper class.

Communism- The economic and political system of communism effectively dictates what can and cannot be done in the realm of business. There are defined limitations for the amount a business can produce and how much money they can earn. In addition to directly controlling the means of production, communism places strict rules on the way businesses operate in such a way that a classless society is born. No matter what field a business specializes in the same amount of funds will be allocated to each, and each worker will receive the same amount of money.
Capitalism- Countries that follow the economic system of capitalism include the United States and Canada. The primary incentive for this action is the rate at which it encourages development.
Socialism- There is a fine line between socialism and communism, one such country that is considered to have socialist ideals in some instances of government is Germany.
Communism- On the other side of this fine line are countries such as Cuba and China which are both communist states that fully regulate production and productivity on a business and individual scale.


Definition- The mutual benefits of industries and or businesses locating near one another.
Explanation- In the case of many businesses, location is the most important factor and often the first to be considered. While proximity to customers is important, locating near other businesses is just as important. Outlets that specialize in specific products will optimally locate near similar outlets that carry complementing merchandise. Such is the case with clothing retailers, which are often located near one another. Building a shoe store next to a jean outlet would be beneficial to both outlets since the added customers of the shoe store and the old customers of the jean outlet would both shop at both businesses more often than not.
Example- The concept of agglomeration is applied in malls across America and the world over. Having numerous retailers located in a single area draws customers interested in a number of products, and individual customers are likely to spend money not only at their initial destination but also in surrounding businesses. Such is the case with fashion as aforementioned; when retailers specializing in a specific article of clothing locate near each other, people will usually shop at each business to create an outfit as opposed to only visiting one.

Weber’s Least Cost Theory

Definition- This theory basically encompasses a simple triangular assessment that ultimately shows the most effective location to place a factory with minimal transportation costs in accordance with the location of the desired market and resources, labor costs, and transportation.
Explanation- Weber’s Least Cost Theory governs the placement of a factory by assessing the costs of transportation. Factories associated with weight gaining industries, producing products that weigh more than the raw materials used to make them, should allocate closer to the desired market. Weight reducing industries, which manufacture products that weigh more than the original materials, should be allocated closer to the required natural resources or raw materials. In doing this transportation costs of products will be at the lowest rate since the transportation of heavier merchandise usually costs more. Factories should also be as close as possible to a means of transportation such as a railway to cut shipping costs and must take into account the type of labor needed, either skilled or unskilled.

- In the case of a weight gaining industry such as the bottling of soft drinks, light materials are incorporated such as plastic, syrup, and water into a final product that weighs more. This type of industry will allocate its factories closer to the market it is targeting in order to reduce transportation costs. In contrast, the copper industry, which is a weight reducing industry, locates near the bulky natural resources due to the expense associated with the transportation and processing of copper in its raw form. Once it has been processed it can then be shipped more easily and less expensively. In this way, the final product weighs less than the raw materials and the allocation of factories closer to natural resources is fiscally beneficial.

Optimistic and Pessimistic Viewpoints on Development

Definition- The pessimistic model of development simply states that not all countries will be able to develop due to various hindering factors such as an inability to develop. In contrast, the optimistic viewpoint on development is similar to the Rostow development model in that it reasons that given enough time all regions of the world will eventually reach a level of development equivalent to that of more developed countries.
Explanation- Certain countries, according to the pessimistic viewpoint on development are hindered by their dependence on developed regions, an idea that is presented in the dependency theory. Also, the pessimistic viewpoint holds that with so many countries developing global equilibrium is at risk. However, the optimistic viewpoint on development is in keeping with the ideas presented by the Rostow development model, that is, every country will eventually reach high levels of development as they follow a predetermined timeline.
Example- An example of these models can be seen in a hypothetical situation. If a given country relies on exportation of goods in order to obtain revenue for development, the pessimistic model of development states that it will never be able to reach a high level of development due to its dependence on other regions. In contrast, the optimistic model of development would state that eventually this country would be able to develop.

Human Development Index
Definition- The human development index, or HDI, is an indicator of development for a given country constructed by the United Nations. This indicator combines economic and social factors including GDP, life expectancy, and education.
Explanation- Using a rather complex formula a country is given a decimal number between zero and one based on its level of development in the areas of education, economy, and demography. By taking into account a country’s GDP, education information such as literacy rates, and demographic information such as life expectancy a clear level of development is attained. More developed countries have levels closer to one, indicating a greater level of development overall.
Example- The highest ranking country using this indicator of development is Norway with a score of .971. In contrast the United States is ranked 13th with a score of .956.

Physical Quality of Life Index

Definition- The physical quality of life index, or PQLI, is an indicator of quality of life or well-being within a given country used as an indicator of development in the past.
Explanation- By taking into account three aspects of society within a country, each ranked on a scale between zero and one hundred and then averaged, a score that is a percentage of one hundred is reached. This percentage indicated the quality of life within a country, however this method in general is no longer used. The three factors usually taken into account are basic literacy rate, infant mortality rate, and life expectancy.
Example- In less developed countries PQLIs will be significantly lower, such as in Nigeria where the physical quality of life index is 25. Whereas in developed countries the PQLI is higher as in the United States where the PQLI is 94. srth.png

Core Periphery Model of Development

Definition- The core periphery model of development states that as a given region grows and develops from a central starting point, the core, its development is bound to spread to and influence peripheral locations as it continues to expand.
Explanation- As a region expands it will eventually meet another region with a separate economy and or societal factors. In order to continue to grow a given region must “engulf” surrounding regions so that it effectively spreads from its initial core to the periphery, outlying locations. These outlying locations are either influenced or completely overcome by the new incoming governances that have spread from the initial core.
Example- The most notable example of the core periphery model of development can be seen in the development of countries. The MDCs centered closely together, such as in Europe and North America which act as a large core, have spread their influence throughout LDCs which comprise the periphery.


Dependency Theory

Definition- The dependency theory follows the tenants of the core periphery model of development, where the core continues to expand and influence the periphery. In the case of this model the core is represented by wealthier states and the periphery by states that are unable to further develop as a result of core influence.
Explanation- As wealthier countries continue to grow they hinder the development of peripheral countries. Resources flow from developing states to wealthy states and thus compromise the rate at which the first can grow. In this way less developed countries are dependent upon the more developed countries for a means of sustenance as they continually ship out their resources for the benefit of other states.
Example- Many states in Latin America are either fully dependent or somewhat dependent in the United States. In this case the United States is representative of the core while the periphery is represented by Latin America, primarily regions such as Argentina, Mexico, and Brazil which send many of their resources such as workers to the United States and therefore have less to advance their own economies.
Rostow’s Growth Model
Definition- This growth model defines development of all regions as occurring in five stages of varying lengths dependent on a region’s rate of development. The five stages are as follows: Traditional society, Preconditions to takeoff, Takeoff, Drive to maturity, and Age of mass consumption.
Explanation- The tenant of this model is that all states move through these stages of development at varying rates. All societies are said to begin by devoting large amounts of time to nonproductive activity such as military and religion while many are employed in the agricultural line of work. Following the stage of traditional society, a small group begins to initiate economic activities that stimulate productivity by investing in technology and infrastructure. Next, a society “takes off” where a few of the industries that have been able to establish themselves gradually advance technologically while other sectors remain “traditional”. Then, according to this model, a state matures as technology that has developed in only a few sectors spreads to all others as productivity grows and workers becoming increasingly skilled and specialized. Lastly, a society shifts from “heavy industry” to the production of consumer goods.
Example- If the history of the United States were broken down into these five stages they would be as follows:
1) Colonial United States- Society is focused on establishing ownership of land and settling the country through agricultural, military, and religious means.
2) United States Early 1800s- Society begins to establish transportation networks and an infrastructure for the future.
3) United States During the Industrial Revolution- Industry expands rapidly as diffusion from Europe reaches the United States.
4) United States Early 1900s- The momentum generated by the Industrial Revolution drives other sectors of the economy to expand and workers to begin to specialize and become skilled in specific craft.
5) Present Day United States- The economy is primarily concerned with producing consumer goods such as automobiles.

Richard Nolan’s Growth Model

Definition- This growth model concerns the growth of information technology within a business or organization. It is divided into six stages concerning the development of technology within a given organization including initiation, contagion, control, integration, data administration, and maturity.
Explanation- A business begins its movement through the Richard Nolan growth model as technology, primarily computers, is first introduced. Next, technology advances and becomes more widespread, followed by control mechanisms being put into effect in order to control spending. Then, users of computers and technology begin to further understand the usages of the devices and control them to a greater extent. Finally data administration is introduced and technology such as computers becomes more of a data resource than a machine.
Example- The typical example of information technology used to display this model is the computer, which, when tracked via this model, grows quickly into a data resource as control and utilization increase.