CHAPTER 4:  

The U.S. economy

1. Free enterprise and historical background  

1.1. Background: 

- American economy: a free enterprise system, which allows private business the freedom to operate for profit with minimum government interference and regulation 

- Adam Smith (1723-1790)- the founding father of American economic system philosophy 

o "Laissez Faire"(leave it alone): individuals, motivated by self-interest, are allowed to pursue profit freely; the result is good for all of society. 

o "The invisible hand": market forces control the efficient allocation of goods while each participant in the market is seeking his or her own self-interest.

1.2. Role of government 

- In 19th Century: minimum government intervention 

- From 1930s, government regulation exists in many areas of business 

- Generally, the idea of "free" private enterprise is strongly supported

1.3. Family income 

- Distribution of family income 

o Annual income in 1986= $27,700 

o 60% of all families and individuals are in the middle-income or high-income rank 

- "Median family income, at least measured by standard statistics, was about the same in1995 as it was in 1973" - Kruman (1996) 

- The U.S. economy grows but the matter is: "the rich have become a great deal richer, while the poor have become significantly poorer" - Kruman (1996)

2. The US favorable conditions 

2.1. Natural resources 

- Rich in mineral resources and fertile farm soil.  

- A moderate climate. 

- Extensive coastlines on both the Atlantic and Pacific Oceans, as well as on the Gulf of Mexico.  

- Rivers flow from far within the continent, and the Great Lakes provide additional shipping access.  

2.2. Labor 

- The promise of high wages brings many highly skilled workers from around the world to the United States. 

- The number of available workers and, more importantly, their productivity help determine the health of an economy.

2.3. Manufacturing and investment 

- The corporation has emerged as an association of owners, known as stockholders, who form a business enterprise governed by a complex set of rules and customs.  

- American investors and corporations have influence all over the world.

3. Achievements and problems 

3.1. World's leading producer: 

- Productivity: World's leading producer of goods and services 

- High industrial and technological production. World's leading industrial and technological products such as Aluminum, Copper and Sulphur 

- U.S agriculture: Farming is highly merchandized and commercialized => produce 15% of the world's food needs. 

- Challenges for the US agriculture: crisis of the small farm  

- Major products are machinery, automotive products, aircraft and chemicals. 

- Since 1971 a trade imbalance: import > export 

- There is a shift in production: manufacturing -> services

3.2 . Budget Deficit 

- Definition: The government spend more money than it takes in. 

- Problems:  

o Inflation 

o High interest rate 

o Unemployment  

o Become a debtor 

o Affect national savings

3.3 . Trade Deficit 

- Definition: The imbalance between exports and import (payment for manufactured goods is much more than gaining from exports of manufactured goods) 

- Problems:  

o Job loss 

o Debt 

4. The characteristics of American business 

4.1. American Business 

- American Business means private and profit 

- Businesses are directly or indirectly owned and operated by private individuals in order to make a profit 

- Traditional American values 

Reason for coming Price to be paid Individual freedom Self-reliance Equality of opportunity Competition Material wealth Hard work  

4.2. Two kinds of American business heroes: 

4.2.1. Entrepreneurs 

- Entrepreneurs are those who built up great industries: steel, railroads, oil refining, etc. 

- They start with almost nothing and end up with virtually everything 

- They are everyone's perfect heroes as they reflect the American dream in its purest meaning 

- Typical example: Henry Ross PerotvsWilliam "Bill" Gates

4.2.2. Organization man/woman 

- They run the businesses that are already established by others 

- With have power and wealth, they are also models of success in US 

- But they do not have a strong hero image as entrepreneurs 

- Typical example: Malcolm Stevenson "Steve" Forbes Jr.vsLido "Lee" Iacocca 

* Why are Entrepreneurs and Organization men/women American business heroes? 

=> They reflect traditional American values: Competition, hardwork, individual freedom, self -reliance, equality of opportunity, and wealth materials.

3 | Page