Class 11 The Changing Nature of the International Business Environment

Class 11: Agenda

• Administration 7:00-7:15

• Review Protectionism 7:15-7:30

• Model Practice 7:30-7:50

• Globalization 7:50:8:15

• Break 8:15-8:30

• Review 8:30-9:30

• Q & A 9:30-10:00

Nature of the Business Environment

Outcome

• To be able to discuss the characteristics and impact of globalization

• To be able to discuss the principles of international trade and factors that influence favourably and unfavourably

• To be able to apply course material to exam

Final Exam Info

MAY 26, 2009 @ 7:00 - 10:00 P.M.

IN STUDENT FIELD HOUSE

Final Exam Info

It is a three hour open book final examination. No sharing of notes and textbooks -- each student is responsible to bring her/his own notes and textbooks to the final exam. There is no electronic aids, including computers and cell phones; advise students to bring a watch. They will be instructed to put their cell phones away. Also, students must bring identification to sign in/out of the exam.

Petro Canada - Suncor

Part 1: The acquisition of Petro Canada by Suncor. The questions will focus on the assigned mid-term assignment articles from Wesson as well as Lecture 6. There will be two (2) questions, each valued at 25 marks.

Part 2: One of the case studies in which A General Model of Government Intervention is applied. There will be two questions, each valued at 25 marks that will require applying the Model.

Petro Canada - Suncor

http://www.cbc.ca/clips/mov/calvert-suncor-090323.mov

Final Exam Info

. The first part of the final examination consists of two questions on Suncor's acquisition of Petro Canada using the assigned articles from the mid-term assignment from Dr. Tom Wesson's Canada And The New World Economic Order Third Edition. There has been a twist in the deal between Suncor and Petro Canada as now some at Petro Canada do not want to sell to Suncor.

http://www.canada.com/Business/Business/1555097/story.html

Final Exam Info

Both questions are valued at 25 marks; so, these are not short answers. Rather answer the questions fully and completely. You may recall from the articles that the theme of the articles is about Canada's global competitiveness.

Final Exam Info

You might find it helpful to go to the index at the back of the book and look up "competitiveness". Make notes to bring to the final examination.

You will have only three hours to answer four questions in total on the final examination. you don't have time to waste copying word for word sentences or paragraphs from the textbook. So, by creating a set of notes for each article in your own words summarizing the theme, arguments. Note source in notes

Citations of sources is required in answer but no bibliography required

Final Exam Info

The second part of the final examination will consist of two questions each valued at 25 marks. Again, these are not short answers. Answer fully and completely in as much detail. One of the case studies that we have been discussing where A General Model of Government Intervention has been applied will be chosen.

Possible Cases

Final Exam Info

Required Case Readings: Between Public and Private

• Triple E Senate P. 176-188• Medical Centre P. 325-360• Book Publishing Industry P. 361-378• Canada’s Industrial Strategy P. 379-396• Cultivating Cash P. 397-428• Privatization 407 P. 437-442• Solid Waste Management P. 453-470• Commercialization LCBO P. 443-452• Soft Wood Lumber P. 482-514

Final Exam Info

Be certain to present a theoretical explanations for the Dimensions of the Intervention and Quality Determinants.

Your answers will be evaluated on the correct use of the case information and the presentation of your analyses applying A General Model of Government Intervention. If your answer has the incorrect Goal and/or Interventions, then this puts your analyses in jeopardy. So, read the questions very carefully and answer what is asked. Remember. the Goal is often embedded in the question. The Intervention is from the case study.   

Final Exam Info

Grades are only released by the Registrar's Office; so, do not contact me as I am prohibited from releasing grades.

I do not keep or have access to your final examinations. They become the property of the University so I cannot discuss your exam after it is marked

Final Exam Info

Once the grades are released, you will have an opportunity to view your final examination by making an appointment at the School of Administrative Studies in room 282 of Atkinson. You will notice that only grades are provided and no comments are provided on the final examination.

If you believe that something was overlooked in the grading of your final examination, then you can petition on academic grounds for a re-appraisal. But there's a risk -- grades can be raised, lowered or confirmed.

Protectionism

A Mixed Economy

Combines private ownership with government control

Attempts to eliminate inefficiencies inherent in both capitalism and socialism.

Canada is one example of a mixed economy.

A Market Economy

Canada is a market economy.

Prices are determined in a separate market for each commodity.

Prices act as the signaling mechanism to answer all basic economic questions.

Competition

In its pure form it refers to the conditions that are present in the marketplace when buyers and sellers interact to establish prices and exchange goods and services.

Refers to the means whereby the self interest of buyers and sellers acts to serve the needs of society as well as those of individual market participants.

Pure Competition does not exist

Desirable Conditions for Workable Competition

1. A market structure with at least two buyers and two sellers, but preferably more

2. A mixture of large and small firms

3. No collusion or coercion among sellers

What is Protectionism?

It is the degree to which a government intervenes in the operation of the day to day market in an economy.

Refers to government policies that shield domestic production and producers from foreign competition.

Even in the most right wing of countries, governments will inevitably choose to intervene to protect what they perceive as in the nation interest.

How does Protectionism Work

Degrees of Intervention– Persuasion (Minimum)– Manipulation of the tax

system– Tariffs & Non Tariff Barriers– The awarding of

government contracts– Granting subsidies and tax

concession policies– Government Owned

Entities– Nationalization of industries

Protectionism Interventions Tariffs

Refers to government policies that shield domestic production and producers from foreign competition.

Tariff refers to a tax imposed by the importing country when a good crosses an International boundary

An Example of a Protective Tariff

A Canadian Tariff of 15% is imposed on foreign automobiles. The automobile costs $50,000/ This means the tariff will be $7500. When exported to Canada the Canadian price will be $57,500.

The Influence of Tariffs

1. Reduces both imports and exports

2. Collapse of trade when tariff barriers increase

3. The decline of tariffs are often accompanied by growth of non-tariff barriers

Protectionism Interventions Non-Tariffs

• Non-tariff barrier refers to any action other than a tariff that restricts International trade

1. Quotas

2. Licensing

3. Subsidization

4. Regulations

The Decline of Tariffs was replaced by Non-Tariff Barriers

Import quotas– A quantitative restriction on the

import of a particular good.– Marketing Boards

Voluntary Export Restraints • An agreement between two

countries' governments in which the government of the exporting country agrees to restrain the volume of its exports.

• Softwood Lumber

The Decline of Tariffs was replaced by Non-Tariff Barriers

Non-tariff barriers are a more severe impediment to international trade than tariffs.

When non-tariff barriers and tariffs are added together for Canada, the overall amount of protection increases more than three-fold.

Redistubutive Policies: Subsidization as Protectionism

Effect a transfer of resources within a society.– Government financing and Infusion of capital– Loans or loan guarantees– Incentive grants– Tax credits

Bailing out a bankrupt corporation

Arguments for Protection

Need to Protect infant industries Need to diversify domestic industry Need to protect domestic supply Need to protect against dumping National identity

Economic Nationalism

Refers to a movement aimed at achieving greater control by Canadians of their economy.

Protectionism Dislikes foreign ownership of

business Examples Defence against

Dependency Theory

Dependency Theory

Dependency theory is a body of social science theories, both from developed and developing nations, that create a worldview which suggests that poor underdeveloped states of the periphery are exploited by wealthy developed nations of the centre, in order to sustain economic growth and remain wealthy.

Dependency Theory

Promotion of domestic industry and manufactured goods. By subsidizing and protecting industries - countries can produce their own products rather than simply export raw materials.

Import limitations. By limiting the importation of both luxury goods and manufactured goods that can be produced within the country, supposedly, the country can reduce the amount of its capital and resources that are siphoned off.

Forbidding foreign investment. Some governments took steps to keep foreign companies and individuals from owning or operating property that draws on the resources of the country.

Nationalization. Some governments have forcibly taken over foreign-owned companies on behalf of the state, in order to keep profits within the country.

Consequence of a Protective Tariff

Producers dependent on protection cannot normally export since their costs are often above world prices.

They depend almost entirely on the domestic market.

No incentive to improve or innovate

Focus on protecting tariffs rather than business

Case: Book Publishing

In Northrop Frye’s words, “In an immature society culture is an import; for a mature one it is a native manufacture which eventually becomes an export.” (The Department of Canadian Heritage: 362)

Case: Book Publishing

A Case of Protection: The Book Publishing Development Program – Goal: Develop Canadian Literary and Publishing industries From the 1950’s Canada realized that it was a cultural wasteland with no literary figures nor a viable publishing industry. Canadian culture and heritage was threatened without a literary representation With the development of the Canadian Council for the Arts in 1957 Canada has achieved spectacular results.

Case: Book Publishing

Cultural Program

• Writers-in-Residence• Writers in the Schools• Wired Writers Program

Led to the development of many Canadian Authors:Michael Ondaatje, Mordecai Richler, Margaret

Lawrence, Margaret Atwood

Public Lending Right CommissionPays Canadian Authors to allow their books in libraries.

$8M to 11,151 Authors and covering 44,360 books

Case: Book Publishing

Industry Programs Loan Program to Save Canadian Publisher: McClelland and Stewart Support program for the sale and marketing of Canadian Books and structural support of industry Cancopy:Support for authors to get paid for photocopying of their work

Case: Book Publishing

Key Result Findings Canadian Books are acknowledged as a major cultural success Industry is active in all major genres but its economic viability varies greatly Canadian Owned publishing is diverse from small to very large organizations Publishing is active in both French and English and in every region of Canada Purchase of Canadian books if fueled by Canadians and international audiences

Case: Book Publishing

Using the Case: The Book Publishing Industry Development Program choose one government intervention that supports books publishing in Canada and describe it using the model of intervention and then evaluate it using the one quality determinant the best measures its effectiveness.

Class 11&12 The Changing Nature of the International Business Environment

The Interconnected World

The world had gone international

Money has become an internationally traded commodity.

Physical trade has become international

Service trade is international. The power of international

markets drives all of these. The barriers that separated

international markets have been torn down by policy or technology.

Financial Services

Exchange Rates are determined principally by market forces

As a result of these freedoms, the financial services industry has created vast array of products enabling borrowers and savers to take advantage of financial conditions around the world.

Thus firms have achieved greater mobility.

Re-Thinking of the Global Economy

The global economy has changed everything we do. Costs have gone down and connectivity had increased.

Distance, time and borders have eroded because they leave no country or community untouched.

– International air travel– International communication.– Information and media use.

Impact of Technology

People have been tied together by the impact of the global telecommuni-cations revolution.

People now work and communicate over vast distances.

Trade can be executed much more seamlessly than in previous generations.

Information is much more available.

Technology itself has become a significant product

The Mobile Economy

Capital sweeps across countries at electronic speed.

Manufacturing and the generation of services move flexibly among countries and are networked across borders.

Markets are supplied from a continually shifting set of sources.

Ideas, insights, and techniques are commu-nicated with increasing ease.

The Mobile Economy

Access to technology continues to grow.

Borders are eroded as markets are integrated.

As barriers fall, private capital seeks new markets.

Government anxious to reduce deficits and shift spending to social needs, increasingly welcomes this investment.

The New Markets

The integration of financial markets is significant.

Privatization marked the first true global offerings of equity

The distinctions among national markets have become lost.

World trade is growing. Creative Destruction

increases opportunities

World Trade

As world trade grows, trading in currency is growing at a steeper rate

There is a greater risk of these markets causing instability because they are so large and so much money is moving around in them. Sub Prime Market

This can be destabilizing. Many Asian states have suffered from currency swings in late 90’s. Today it is happening on a global basis

How have Companies Positioned themselves in a Changing World?

• There is a presence of wider opportunities and tougher competition.

• Boundaries are coming down.• Computers, alliances and outsourcing are

permeating the walls of companies.• Financial operations are more transparent and

subject to more aggressive scrutiny and demands by outside investors.

How have Companies Positioned themselves in a Changing World?

Much wider and more diverse range of opportunities.

More bracing competition and more risk along with the pressure generated by capital markets and customers who have a broader range of choices.

Companies have to be prepared to meet these challenges.

Fostering a culture that encourages alertness, responsiveness and flexibility and speeding up the cycle time of processes and decisions.

Emphasizes the importance of employee knowledge.

Information technology is driving the process.

What is the Role of Business?

Companies have had to adapt to become more nimble to meet the challenges of the rapidly changing markets. (e.g.. Eastman Kodak)

Entrepreneurial values and attitudes emphasize initiative and rapid response.

There is a need for creators and builders.

Companies have to engage with the community's interest, environmental concerns and social values.

The Characteristic of Globalization: Economics over Politics

The erosion of borders does not mean the end of national politics, national identity and economic nationalism. A country's history, culture and definition of national objectives still shape politics within each country.

What is the Role of Government?

To reduce intervention. To retool and refocus intervention to preserve the

public trust. To buy into the idea of fundamental global change. To translate that change into policies consistent with

national culture, history and temperament. To create and maintain the parameters within which

the market operates. To move from an enforcer role to that of a referee.

Section 2: The Principles that influence International Trade.

“The benefits of international trade result in a more efficient employment of the productive resources of the world.”

John Stuart Mill

International Trade

The exchange of goods and services between or among countries

Enables a country to specialize in those goods it can produce most cheaply and efficiently

Enlarges the potential market for goods of an economy

Major force of economic relations among countries

Is an extension of governmental policy

Reasons for Trade

Resources are not completely distributed across the globe.

The climate and terrain of a state.

The skills of its labor force.

The advantages of specialization

Adam Smith

To specialize in production leads to increased output.

To trade internationally specializing in producing only those goods in which a country has absolute advantage

David Ricardo (1817) on the Theory of Comparative Advantage

A country gains from trading certain goods even though its trading partners can produce those goods more cheaply.

Goods and services which a country should produce and trade with other countries is the goods and services that it produces relatively more efficiently than other countries. Products that it can acquire a higher price externally than it can at home

David Ricardo on the Theory of Comparative Advantage

A country is said to have a comparative advantage in the production of a good if it can produce it at a lower opportunity cost than another country.

The opportunity cost of cloth production is defined as the amount of one unit of a product good that must be given up in order to produce one more unit of another product.

Theory of Comparative Advantage

Beef

100Kg

Cheese

100Kg

Canada 3 person days 2 person days

England 6 person days 3 person days

• Canada has an absolute advantage in both beef and cheese

• Canada is relatively more efficient in Beef and therefore that is Canada’s comparative advantage

• England has a comparative advantage in cheese

Economic Benefits of the Theory of Comparative Advantage

International trade leads to more efficient and increased world production

It results in the expansion of markets

It leads to growth in domestic employment

It stimulates the modernization and innovation of domestic companies

Criticism of the Theory of Comparative Advantage

Factors of production are assumed to be perfectly mobile.

Encourages dependency There are no transport

costs. There are only two

economies producing two goods.

The theory assumes that traded goods are identical

There are no tariffs or other trade barriers.

The Importance of International Trade

• Some countries export only to expand their domestic market or to aid economically depressed sectors within the domestic economy.

• Other countries depend on trade for a large part of their national income and to supply goods for domestic consumption.

• Canada has the highest proportion of it GDP depending on exports than any other G7 country

The Importance of International Trade

Year Can Fran Germ Italy Japan Korea UK USA

2000 42.7% 28.1% 33.2% 26.6% 10.3% 39.2% 29.1% 13.2%2001 40.7% 27.5% 33.8% 26.4% 10.3% 36.7% 28.7% 12.1%2002 39.4% 26.3% 33.4% 25.2% 10.7% 34.6% 27.8% 11.7%2003 36.2% 25.1% 33.7% 24.3% 11.2% 36.8% 27.0% 11.8%2004 36.2% 25.6% 35.7% 25.0% 12.4% 41.9% 26.9% 12.7%2005 36.0% 26.6% 38.1% 26.3% 13.6% 41.2% 28.3% 13.4%

International Trade % of GDP

Section 3: Multilateral Trading Agreements

INTERNATIONAL TRADE Attempts to improve balance

of payments between countries.

Use of differential tariffs. Trade policy has become

the source of many international disputes.

General Agreement on Tariffs and Trade - GATT (1947)

Goal was to minimize new existing trade barriers

Reduce import tariffs and quotas

To abolish preferential trade agreements between member countries

Tariff concessions were negotiated on the principle of reciprocity. (you scratch my back I’ll scratch yours).

Uruguay Round of GATT

• The goal was the eventual reduction of tariffs by 33%

• Tried to reduce or eliminate many non-tariff impediments.

• Strengthen protection for intellectual property.

• Open trade in investments and services

• Establish the World Trade Organization (W.T.O.)

Doha Round

• Began Nov. 2001• Involves 141 Countries • Tariffs• Non-tariff measures• Agriculture• labor standards• Environment• Competition• Investment• Transparency• patents etc

Dawlat QatarState of Qatar

WORLD TRADE ORGANIZATION - W.T.O.

Operates a dispute settlement process

Possesses stronger power to enforce agreements

Has the authority to issue trade sanctions against a country that refuses to revoke an offending law or practice.

The GATT Debate

SUPPORTERS GATT would improve the

overall business environment.

Would create jobs Would stimulate trade and

investment. Would allow countries to

lever their natural competitive advantages.

OPPONENTS GATT would result in

massive losses of manufacturing jobs

Would result in lower pay for workers in developed countries.

Opportunities would threaten the sovereignty of countries.

The powerful W.T.O.

Trading Communities

To promote trade among countries that have common economic and political interest or are located in a particular region.

They favor member counties over non-member countries.

– The Commonwealth of Nations

– The North American Free Trade Agreement

– European Union

International Trade

In 1990, International trade was approximately $8.76 trillion (US), double that of 1980 by 2006 it has risen to $14.6T

Source: Overseas Development Institute ODI

The Growth of International Trade

Floating currency exchange rates were adopted in 1973.

In the 1970s and 1980s, price competition between trading partners was augmented by the resulting fluctuations in exchange rates.

The depreciation of a country's currency making exports appear cheaper and causing imports to appear more expensive.

This affects a country's balance of trade.

Canada’s Situation

Section 4: Restrictions on International Trade

Canada’s Dependence on Natural Resources

How should Canada determine the price of its natural resources?

Weighing increased current income and consumption against the possibility of lower real income and consumption in the future If costs increase.

Opposition to export sales of natural resources.

Indirect Restrictions on Exports

Policies of diversification on industrial production

– The goal is to reduce dependence on income from exports if there is fluctuations in export sales of commodities.

– To maintain a basic self sufficiency in essential commodities to avoid dependence on other countries.

– National security concerns.

Specialization

Requires the mobility of labour at high economic and social cost.

Emphasizes the broader range of costs and the distribution of potential benefits and costs.

Restrictions on Imports

A tariff or import duty is a tax. An ad valorem tariff is a tax as a percentage of the price of a

good. A license fee is required to import specific a good. Quotas are limitations on the quantity of a good which can be

imported. Combined with an import license so that the importer is paying

a fee to import a specific amount. More stringent restrictions

– Embargo, Sanction, Boycott.

Why Tariffs ExistWhy Tariffs Exist

Raising the price of imports Raising the price of imports maintains domestic industries at a maintains domestic industries at a less efficient level of production less efficient level of production than would occur under free trade than would occur under free trade and encourages tariff retaliation and encourages tariff retaliation from other countries.from other countries.

This compounds the loss of real This compounds the loss of real income and output that would be income and output that would be realized by specialization and realized by specialization and comparative advantage.comparative advantage.

CANADA AND INTERNATIONAL TRADE

HISTORICAL PERSPECTIVE From the 16th to the 18th

Century, Canada's leading exports was fish and fur.

During the 19th century, there was the exploitation of forests and timber as they became the staple export.

In the 20th Century, agriculture, forestry, mining and manufacturing was developed.

CANADIAN EXPORT GROWTH

Year Billions of $1950 $3.161960 $5.391970 $16.821980 $64.31996 $275.822000 $412.22005 $450.12008 $489.5

Goods & Services

Canada’s Export Grwoth

CANADIAN EXPORT GROWTH

March 2009 Canada’s merchandise imports and exports

both declined in March largely due to volume reductions. Imports decreased more than twice as fast as exports, leading to the widening of Canada’s trade surplus with the world from $262 million in February to $1.1 billion in March.

Stats Can May 12, 2009

The Purpose of NAFTA

To gradually remove tariffs and other trade barriers on most goods produced and sold in North America.

It was built on the Canada - The United States Free Trade Agreement (1989)

To eliminate or reduce many tariffs between the two countries.

The Goals of NAFTA

The Governments of Canada, the United States and Mexico resolved to strengthen the special bonds of friendship and cooperation amongst their nations.

To contribute to the harmonious development and expansion of world trade and provide a catalyst to broader international cooperation;

To create an expanded and secure market for goods and services produced in their territories;

To reduce distortions to trade;

The Goals of NAFTA

To establish clear and mutually advantageous rules governing their trade;

To ensure a predictable commercial framework for business planning and investment;

To build on their respective rights and obligations under the G.A.T.T. and other multilateral and bilateral instruments of cooperation;

To enhance the competitiveness of their firms in global markets;

To foster creativity and innovation and promote trade in goods and services that are the subject of intellectual property rights;

The Goals of NAFTA

To create new employment opportunities and improve working conditions and the living standards in their respective territories;

To undertake each of preceding in a manner consistent with environmental protection and conservation;

To preserve their flexibility to safeguard the public welfare; To promote sustainable development; To strengthen the development and enforcement of

environmental laws and regulations; To protect, enhance and enforce basic workers rights.

National Treatment

Refers to establishing for Canada the United States and Mexico with respect to a state or province, treatment no less favorable than the most favorable treatment accorded by such state or province to any like, directly competitive or substitutable goods.

National Treatment

This means that Canadian federal, provincial and territorial governments cannot treat goods from the United States and Mexico any differently from the way that they treat domestic goods with respect to taxation and regulations for sale, transportation, distribution or production.

The United States and Mexico cannot discriminate against Canadian goods.

Tariff and Non-Tariff Barriers

The crux is the reduction of tariffs. There would be no exception from eventual

elimination of quotas and tariffs. Tariff negotiations would start from actual or much

lower tariff rates. Goods placed into four categories based on their

sensitivity to increased imports, reflecting both how great an impact liberalization of trade would have and how political powerful its producers were.

NAFTA Commission

The avoidance or settlement of all disputes regarding the Interpretation or application of this Agreement or whenever a Party considers that an actual or proposed measure of the other Party is or would be inconsistent with the obligations of this Agreement."

Panels are organized on the basis of industry sectors.

Dispute Resolution Panels

Anti-dumping refers to goods that are sold at prices lower than in their domestic market.

Countervailing refers to a practice of a government to decide that manufacturers of imports have been unfairly subsidized in some way by their domestic government.

The Effects of NAFTA

• Created the world's second largest free trade zone

• Brings together an estimated number of 440 million consumers (2008)

In 2006 trade between Mexico, Canada and the United States accounted for $846 billion, which has represented an annual increase of 8.6 percent, and an increase of 193.1 percent from that registered in 1993.

Future Of NAFTA

It's a game where trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart. – Feb. 13, 2008

CLINTON: I think NAFTA was, in principle, a good idea to try to create a better trading market between Canada and the United States and Mexico. But I think the terms that it contained, and how it was negotiated under the Bush Administration and the failure to have any tough enforcement mechanism, Jan. 27, 2008

Course Review

Government and the Economy?

How to we see the Economy– News Items– Housing Starts– Trade Figures– Employment Rate– GDP– Balance of Trade

What is government’s role in the economy?

Regulator Law Maker Trade Negotiator

/Deal Maker Benefactor Protector/Guardian Deliverer of Service

200$200$30

Political or Social Ideologies

Collectivist – Socialism

Democratic Socialism Communism

– Conservatism– Neo-Conservatism

Individualist– Liberal– Libertarianism

The Concepts of Capitalism

Refers to an economic system where the means of production, or capital, is owned primarily by individuals.

Economic decisions are made by market forces.

The Concept of Capitalism

Focus is on an open system of: Pricing Profits and Losses Private Property Ownership Capital Movement

Differing Models of Capitalism

1. Pure Capitalism - Liberalism Defined by lack of government regulation Laissez-faire approach by government

2. Mixed Economy/Democratic Socialism/Conservatism

Mostly privately owned, however, some degree of government intervention

Most modern developed economies have this element

Economic Liberalism

Laissez-Faire Capitalism. Adam Smith, The Wealth of

Nations If man is left to pursue his

own interests, he will contribute to the common good.

“Government is best which governs least”

What is a Mixed Economy?

This is a capitalist ideology Government regulated competition Government protects indigenous industries.

(In Canada, timber, fishing, mining, manufacturing.)

Government protects and develops social programs.

Class 6: Government and its Effect on the Private Sector

How do we view the Economy

Can $ Employment Rate Housing Starts Jobs Created GDP Growth

Two Approaches to Running the Economy

One camp favors government intervention believing politicians and bureaucrats can orchestrate the economy from above.

The other camp argues for tax cuts and a reduction of governments role in the running of citizens lives.

This they argue is the only way to achieve productivity.

Economic Principles

Gross Domestic Product Gross domestic product (GDP), is the unduplicated value of all goods and services produced in a year within Canada ’s borders measured at market prices. It is the standard measure of the overall size of the economy . .

Economic Principles

Gross Domestic ProductGDP is divided into four categories, according to the final purchaser:

GDP =Consumer Spending+Business and Residential Investment+Government Spending-Trade Deficit (Exports-Imports)

Economic Principles

The multiplier effect specifically refers to the effect that spending has when it is circulated through an economy. For example, when the building of a sports stadium is proposed, one of the suggested benefits is that it will raise income in the area by more than the amount spent on the project. (mpc=marginal propensity to consume)

Multiplier

Wikipedia

Economic Principles

Monetary PolicyIn any currency there is a supply of money, and an interest rate, the price at which money can be borrowed.Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation and unemployment.

In Canada, monetary policy is the responsibility of the BANK OF CANADA, a federal crown corporation that implements its policy decisions largely through its ability to alter the Canadian money supply.

Fiscal Policy

Fiscal Policy refers to the federal government's use of its annual budget.

The budget strategy can also influence the achievement of the government's objectives of internal and external balance and economic growth.

The two main instruments of fiscal policy are: – government spending– Taxation

Changes in the level and composition of taxation and government spending can impact

– Aggregate demand and the level of economic activity – The pattern of resource allocation – The distribution of income.

The General Model of Government Intervention

Canadians Back Government Intervention on Car Insurance

Poll Reveals Satisfaction With Auto Insurance Is Higher In Provinces With Public Systems

Types of Government Intervention

• Protectionism

• Deregulation/Regulation

• Privatization

• Law or Policy

• Tax Change

Strategic - Reactive Dimension

Reactive: is defined as one which responds only to the superficial aspects of the issue, without visible concern for underlying root causes.

At the other end of the continuum is the purely strategic response that would consider and deal with the underlying root causes to any issue.

Direct - Indirect Dimension

If the intervention is aimed at the accomplishment of multiple goals or objectives, then the measurement of whether it is direct or indirect may depend upon which goal is specified.

The same policy may be direct in respect of one goal, but indirect in respect of another

Coercive - Voluntary Dimension

There is no continuum for this dimension. It can only be one or the other.

The group or individual which the intervention (policy) directly affects must either adhere compulsory to its provisions or its acceptance is voluntary.

Quality Determinants.

When you evaluate public policy not only must you identify the type of intervention, direct/indirect, strategic/reactive and coercive/voluntary but it is also important to make a quality assessment.

They are accuracy, precision, efficiency, time delay and the environmental effects on the private sector.

Accuracy

The accuracy of an intervention is simply the degree to which the intended or stated goals are satisfied when all the effects and interactions are substantially complete or have reached a state of equilibrium.

Precision

PRECISION is the degree to which the effect of the intervention is limited to only the intended goals.

Does the action result in unintended consequences?

Efficiency

Efficiency measures the differences or the relation between the resources or utilities crested (expended) and those expended (costs).

Time Delay

Time delay is the period of time between the implementation of an intervention and the accomplishment of the desired goals.

Environmental Effect on the Private Sector of an Intervention

Accounts for who or which sector has government targeted for change and what will be the response.

Any change could be deleterious to the private sector.

The Policy Evaluation Matrix

Tips on Using the Model

Do not present a summary or definition of the model – There are no marks for this

Do not summarize the case that is identified – There are no marks for this.

Tips on Using the Model

Identify the Goal that the intervention is to solve or achieve. All aspects of the model will refer back to this.

Identify the intervention. Clearly state the action to be taken whether it is from the case or one that you are asked to design. Read the Question

Using the Model: Quality Determinants

– Accuracy – Greater/Less– Precision – Greater/Less– Efficiency – Greater/Less– Time Delay – Less/Greater– Effect on Private Sector/Less or More

DeleteriousExplain why for each

Part 3: The Rationale for Privatization

Improving Efficiency Reducing the public sectors borrowing

requirements. Reducing Government involvement in

enterprise decision making. Encouraging Employee Share Ownership Gaining political advantage

Privatization of 407

Quick Facts: From : Highway 407 ETR

1.407 ETR runs east and west just north of Toronto Canada's largest city. From QEW (in the west) to Highway 7 just east of Brock Road (in the east) for a total of 108 kilometers.

2. Connects with 6 interchanges on the 400 series highways:401, 403,, 410,, 427, 400, and 404.3.

First day of tolling was October 14, 1997.

4. Over 710,000 transponders have been distributed as of February 2006.

5. Over 12,922,268,218 total vehicle kilometers traveled since opening 407 ETR in October 1997, as of January 30, 2006.

6. 108.081 kilometers is the total length of 407 ETR.

Case: The Privatization of Highway 407

Why was it done? Goal of Highway

1. To build safe roads faster.

2. Increased efficiency

3. Not use Government Money

4. To reduce costs. (To protect the environment.

5. To introduce new technologies and efficiencies.

6. Political.

Case: The Privatization of Highway 407

Outcomes 1. To build safe roads faster. (20 years ahead of schedule)2. Increase efficiency – Cost $300 M less3. Not use Government Money $930M – (Gov. maintained

most of the risk)4. To reduce costs. (eventually sold for 3+ billion)5. To protect the environment. (Plans for protection

developed)6. To introduce new technologies and efficiencies. (innovative

toll system use of concrete rather than asphalt7. Political. (to create jobs)

Case: The Privatization of Highway 407

Goal: To build highways more efficiently

Using the case: Privatization of the 407 describe use use the model of intervention to show why this to explain this intervention and using one of the quality determinants show that it was effective.

LCBO in 1927-1987

The intent was to promote temperance. Stop the sin of alcohol. Not set up as a traditional retail system. Change of Government and new CEO Review of the system began as sales began

to slip a 3 key publicized criticisms of LCBO A new Board led by private sector directors No money to deliver on that vision.

Commercialization of LCBO

Case: LCBO Privatization

The reasons that government undertake privatizations are as follows.

1. To improve efficiency (more stores needed, technology)2. To reduce public sector borrowing requirements. (no cost,

revenue increased revenue as well)3. To reduce government involvement in decision making. 4. To ease problems of pay determination. To widen share

ownership.5. To gain political advantage. (Satisfied non-urban areas that

supported alcohol control)

LCBO in 1987-2008.

New Private Sector Management Team hired LCBO Focused on Category Management and Retailing a team Initially change was slow because if the lack of resources

available due to recession and 3 different governments 1994 LCBO Launches Credit and Debit Cards New Computerization of all major functions New Buying Function created By 1997 Profit increased from $598M to $701M 1997-98 LCBO launches Airmiles and Sunday Shopping LCBO launches new Strategic Plan with a 5 year capital budget

of $222M Since that time profits have grown from $701M million to 1.4

billion.

Case: LCBO Commercialization

Using one of the reasons Governments privatize crown corporations and Using the Model of Intervention and the facts from the case to Commercial the LCBO develop an intervention that would be effective. Show how your intervention is effective by using 2 quality determinants