Planet Money recounts the story of the seminal document that, in 1979, sparked the transformation of China’s economy into capitalism.
A key thing to note: the document was a contract, which assigned property rights to individuals (families actually) rather than the collective. And even though the contract could not be legally binding in communist China, the signers had to be confident enough that it would be respected — by each other at the least.
The result of the change was a 5 fold increase in the amount of food produced by the farm.
Despite the risks, they decided they had to try this experiment — and to write it down as a formal contract, so everyone would be bound to it. By the light of an oil lamp, Yen Hongchang wrote out the contract.
The farmers agreed to divide up the land among the families. Each family agreed to turn over some of what they grew to the government, and to the collective. And, crucially, the farmers agreed that families that grew enough food would get to keep some for themselves.
The contract also recognized the risks the farmers were taking. If any of the farmers were sent to prison or executed, it said, the others in the group would care for their children until age 18.
One of our economics assignments this cycle asks students to divvy up $200,000 among a group of ten people. One is a divorced mom, another a playboy, a third a bank manager, you get the gist. The purpose is to compare what students think it should be, to what a socialist might believe, to students’ estimation of reality. I’m really curious to see what they come up with.
Michael Norton and Dan Ariely have some actual data on the wealth distribution in the United States that might really challenge some assumptions (Norton and Ariely, 2011 pdf). They asked survey respondents what percentage of wealth they thought was owned by the poorest 20% of U.S. citizens, the next 20% and so on. They also asked what kind of wealth distribution people though would be ideal. Finally, they compared what people thought to what was actually there.
The actual distribution of wealth in the U.S. (top), what people think is the case (middle), and people's ideal distribution (bottom). Figure from Norton and Ariely (2011).
People, apparently, really underestimate the income inequality in the U.S..
A second part of the same study gave people pie charts of wealth distribution in different societies and asked them to pick out which one they would prefer to live in if they were dropped at random into one of these societies. They compared the more socialist-like Sweden, to the U.S., and to a perfectly even distribution. People greatly preferred societies with a more equal sharing of wealth.
How wealth is shared in the U.S. compared to and equal distribution (middle), compared to Sweden. Image adapted from Norton and Aireli (2011).
I think I’m going to have to modify this assignment to use these graphs. I’ll also have to use their definition of wealth:
Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person’s net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.
Figure 1. The ultimate vehicle. Produced in round 3 of the capitalisim simulation, this vehicle was carefully designed to match the preferences of the consumer. It earned 5 out of the 10 dollars spent in that round.
Abstract
The power of capitalism lies in the system’s ability to adapt to the needs of people. It does so by giving preferential rewards to those who best meet those needs as expressed in the market. As part his spring Independent Research Project, middle school student, Mr. Ben T., came up with a simulation game that demonstrates this advantage of capitalist systems over a communal systems that pays the same wage irrespective of the output.
Background
In either the fall or the spring term I require students to include some type of original work in their Independent Research Project (IRP). Most often students take this to mean a natural science experiment, but really it’s open to any subject. Last term one of my students, Ben T., came up with a great simulation game to compare capitalism and socialism. With his and his parent’s consent I’m writing it up here because I hope to be able to use it later this year when we study economic systems and other teachers might find it interesting and useful.
Procedure
The simulation was conducted with six students (all 7th graders because the 8th graders were in Spanish class at the time) who represented the producers in the system, and one student, Ben, who represented the consumers.
Simulating Capitalism
In the first stage, representing capitalism, the producers were told that the consumer would like a car or cars (at least a drawing to represent the cars) and the consumer would pay them based on the drawing. The producers were free to work independently or in self-selected teams, but only one pair of students chose to team up.
Producers were given three minutes to draw their cars, which they then brought to “market” and the consumer “bought” their drawings. The consumer had limited funds, 10 “dollars”, and had to decide how much to pay for each drawing. Producers were free to either accept the offered payment and give the drawing to the consumer or keep their drawing.
This procedure was repeated three times, each turn allowed the producers to refine their drawings from the previous round, particularly if it had not sold, or create new drawings. Since all drawings were offered in an open market, everyone could see which drawings sold best and adapt their drawings to the new information.
Simulating Socialism
Socialism was simulated by offering equal pay to all the producers no matter what car/drawing they produced. Otherwise the procedure was the same as for the capitalism simulation: students were told that they could work together or in teams; they brought their production to market; the consumer could take what they liked or reject the product, but everyone was still paid the same.
Assessment
At the end of the simulations consumer students were asked:
How did you change your car in response to the market?
Did it make the car better?
What do you think of a socialist system?
Which [system] do you prefer?
Results
Students showed markedly different behaviors in each simulation, behaviors that were almost stereotypes capitalist and communistic systems.
Capitalism simulation
Producers in the capitalist simulation started with fairly simple cars in the initial round. One production team drew a single car. Another made four cars with flames on the sides, while another went with horns (as in bulls’ horns rather than instruments that made noise) and yet another drew. When brought to market, despite the fact that almost all drawing were paid for, it quickly became obvious that the consumer had a preference for the more “interesting” drawings. The producer who drew six cars with baskets on top got paid the most.
Figure 2. Rocket launchers and shields were an important innovation in Round 2 of the capitalism simulation. It earned 4 of 10 dollars and influence all cars in the subsequent round.
In the second round one innovator came up with the idea of adding a rocket launcher (Figure 2) and was amply rewarded. In response, in the third round, the market responded to this information with enthusiasm, however, all the rocket launchers were trumped by a tank shooting fire out its back with, “Ben 4 Prez!” written on the side (Figure 1).
Figure 3a. Evolution of cars in response to consumer preferences. Example from paired producers: Capitalism. Round 1.Figure 3b. Round 2. This set of producers go with multiple cars.Figure 3c. Round 3. Train and cars with rocket launchers developed in response to the market's favorable response to weaponization in Round 2 (see Figure 2).
The producers responded the the preferences of the consumer. The best example of this was the work of the couple students who decided to pair-up.
Their first car was simple and straightforward and it only garnered one “dollar” (Figure 3a). In the second round they chose to go with quantity, producing a lot of cars (Figure 3b) as that had been a fairly successful strategy of another producer in Round 1. Their reasoning was that since there were two of them they would be able to outproduce the others. By the final round they had developed a train with rocket launchers in addition to a set of cars with rocket launchers (Figure 3c). Again, market pressures had an enormous influence on the final vehicles, but the individual philosophy of the producers also showed through in the vehicle production choices.
[UPDATE 5/17/2012]: The capitalism part of the simulation produces winners and losers, and a good follow-up is to do the distribution of wealth exercise to see just how much wealth is concentrated at the top in the U.S.. The second time I ran the simulation — with a different class — the students were quite put out by the economic disparity that resulted and ended up trying to stage a socialist revolution (which precipitated a counter-revolution from the jailed oligarchs).
Socialism Simulation
Figure 4. Cars produced under conditions of equal pay to all producers regardless of work.
Although three rounds were intended, time constraints limited the socialism simulation to a single round, however the results of that single round were sufficient for students to identify the main challenges with communal rewards for production. The producers decided that they would work together and produced two sets of basic cars (Figure 4). Half of the students did not even contribute, they spent their time just standing around. It was the stereotypical road construction crew scene.
Figure 5. Industrious capitalists very focused on their work.Figure 7. Socialists slacking off.
Survey Responses
All students who responded to the question preferred capitalism, the primary reason being injustice “… cause [during the socialism simulation] some people do nothin’ [and] other people do something.”
Discussion and Conclusion
Using only one consumer reduces the time needed for the simulation but limits students from seeing that markets can be segmented and different producers can fill different niches. It would be very interesting to see the outcome of the same simulation in a larger class.
The small class size also allowed the simulation to take place in less than half an hour. Most of the post processing of the information gained was done by the student who ran the simulation since it was part of his Individual Research Project. While he did a great job presenting his results at the end of the term, when I use this simulation as part of the lesson on economic systems I would like to try doing a group discussion at the end.
I’m also curious to find out how much more the cars would evolve if given a few more rounds. Which brings up an interesting point for consideration. Since some students have already done the simulation, it may very well influence their actions when I do it again this year. It would probably be useful to make sure that there are more than one consumers, or that there consumer has very different preferences compared to Ben T.. A mixed gender pair of students might make the best set of consumers.
