Economic Institutions

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 one’s 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 children’s 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 country’s 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 you’re 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 worker’s 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 company’s 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 women’s rights (e.g. International Women’s 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 dissemination—enough 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 approaches—intermediating 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 nations—not limited to social class or status—are 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 size—dependent 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.