Monetary Policy is concerned with how much money circulates in the economy, and
what that money is worth.
o Low, stable and predictable inflation is the best contribution that monetary policy
can make to a productive, wellfunctioning economy. It allows Canadians to make
spending and investment decisions with more confidence. This encourages
longerterm investment in Canada's economy, and contributes to sustained job
creation and greater productivity. This in turn leads to real improvements in our
standard of living.
Federalism is central to the organization of government in Canada.
o Canada is divided into two constitutionally autonomous levels of government: the
federal or central government, and the provincial governments. The nation’s basic
division of government plays an important role in public finances and public
o Levels of government: federal, provincial, territorial, and local governments.
o Encourages regionalism, internalizing diversity!
o Division of powers as prescribed by the constitution (provincial and federal).
o Societal Federalism: The interaction of federalism with underlying economic and
societal differences to create different political cultures and social and economic
environments for the conduct of politics in Canada’s provinces and regions.
o Civic v. Ethnic
o Canadian Nationalism:
4. Rest of Canada (ROC)
Regionalism is – the shared identification of citizens with a region as a distinct political
or social community based on conscious differences in political, economic, and social
interests and structures.
o Regional Disparities refer to the inequalities in political and economic power
among Canada’s provinces and regions.
o Differences in regional disparities are affected by timing of settlements, level of
national resources development, physical and financial infrastructure necessary to
transport goods to markets. Those less developed are more in favour of transfer
payments. Provinces want to diversify!
o While transfer payments equalize standards of living, they are also problematic in
that they increase dependence in certain regions.
Macroeconomic Policy deals with GDP, inflation, etc. Deals with fiscal and monetary
policy. Microeconomics deals with stimulating consumption; things within the Canadian
Institutions are deeply embedded patterns of social practices or norms that play a
significant role in the organization of society.
o Include diverse areas of social activity, from the family to basic aspects of
political life. In some cases they acquire an organized or bureaucratized
administrative structure, in which case they become institutions in something
closer to the common usage of the term
The Unholy Trinity is a trilemma in international economics, which states that it is
impossible to have all three of the following at the same time:
o A fixed exchange rate
o Free capital movement (absence of capital controls)
o An independent monetary policy
Transfer payments are the redistribution of income in the market system. Considered to
be nonexhaustive, they do not directly absorb resources or create output. In other words,
the transfer is made without any exchange of goods or services.
o E.g. welfare (financial aid), social security, and government making subsidies for
o In Canada, transfer payments usually refer to a system of payments from the
federal government to the provinces. Major Canadian transfer payments include
equalization payments, the Canada Health Transfer and the Canada Social
Transfer (formerly the Canada Health and Social Transfer) and Territorial
Embedded Liberalism is a compromise between two contradictory objectives:
1. Revive free trade (recover from WWI and the Great Depression)
2. Allow national governments the freedom to provide generous welfare programs
and to intervene in their economies to maintain full employment.
The result was the Bretton Woods System, which aimed to set up an open system of
international trade in goods and services, facilitated by semi fixed exchange rates. Yet it
also aimed to "embed" market forces into a framework where they could be regulated by
national governments. New global multilateral institutions were created to support the
new framework, such as the World Bank and the International Monetary Fund.
International Political Economy
ResourceExportNature of the Canadian Economy
o Canada’s reliance on exports requires us to go beyond the U.S. – we cannot rely
on only the U.S. and internal markets.
o Because we are such a tradedependent nation and have such a small population
and economy, our position as price takers affects our political economy as well.
o Canada realized multilateralism was the best bet against protectionist policies and
trade barriers. As price takers, we have to join agreements, institutions, etc. in order to survive and remain as secure as possible. We don’t trade with third world
countries without oil, because tariffs are high and it’s not wise or a stable
agreement. When it comes to foreign aid, we have to do so with countries that
will help us in return (promise to buy Canadian).
o The root cause of inequalities is our (Canada’s) existence as a resourcedependent,
pricetaking economy. The Canadian government’s ability to alter our situation is
limited – we need to export, and therefore have favourable arrangements with
other countries. Constrains Canada’s ability to deal with our economic and
political issues and domestic problems at hand.
Single Member Majoritarian Voting System (firstpastthepost)
o When single candidate with the highest number of votes is elected.
o The first round determines the two candidates that compete.
o The second round determines the winner.
Factors of Production referrers to the input portion of the production process
Proportional Representation is an electoral system in which parties gain seats in
proportion to the number of votes cast for them.
Hybrid Voting System: It is a combination of 2 or more voting systems in a country.
There are usually two tiers of representatives, those elected under the plurality/majority
system and those elected under the proportional system.
Import substitution industrialization (ISI) is a trade and economic policy that
advocates replacing foreign imports with domestic production. ISI is based on the
premise that a country should attempt to reduce its foreign dependency through the local
production of industrialized products.
The Warsaw Pact was a mutual defense treaty among eight communist States of Central
and Eastern Europe in existence during the Cold War. The founding treaty was
established under the initiative of the Soviet Union and signed on 14 May 1955, in
Warsaw. Disbanded in 1991 most governments got rid of their communist governments.
The Marshall Plan (officially the European Recovery Program, ERP) was the American
initiative to aid Europe, in which the United States gave economic support to help rebuild
European economies after the end of World War II in order to prevent the spread of
Soviet Communism. The plan was in operation for four years beginning in April 1948.
The goals of the United States were to rebuild wardevastated regions, remove trade
barriers, modernize industry, and make Europe prosperous again
Please list the six (6) Canadian state structures we discussed in the fall term, and
note the significance of each on the Canadian economy, and on Canadian business
government relations. Federalism
o Union of provinces, direct power of citizens, single national legal system
o Social and economic policy meetings of PM and cabinet ministers
o Separation of Power
• Regional pressures and interest are constant
o Federal reserve
o Provincial governments respect their provincial and regional interests in Ottawa
but also with other governments and outside economic interests
o Control over natural resources and energy resources have been central to the
economic development policies of most provinces
o Due to the executive federalism the more closely governments work together to
address common policy problems, the greater the likelihood that significant
economic and social interests outside government may be neglected or sidelined
in policy outcomes.
o Electoral system single member majority, or first past the post versus
o The party system impact of the electoral system on the party system
o Public administration
• Central agencies PMO
• Departments – foreign affairs, finance
• Crown corporation: CBC
• Regulation commissions
Charter of rights and freedoms
o Institution established by prime minister Trudeau
o Established along with the repatriation of the Canadian constitution or the
construction act of 1992
o Overseen by the judiciary
o Aim to protect minorities from the majority
o Institutionalized democratic rights and freedoms, mobility and legal rights
entrenched the officials languages act and defined minority language education
o Freedom of association
o Influences on policy development: advocacy, provision or withholding
information, support for government, lobbying.
Mass media o Influences on policy: aids in the selection of candidates, shaped perception
policies are often shaped with how much time they will received in the “lime
International regimes such as NAFTA, NATO
o International processes/collection of rules/ideas
o Sometimes formally organized
• North American Free Trade Agreement
• Formed in 1994
• Between Canada, US and Mexico
• Liberalizing trade
• North Atlantic Treaty Organization
• Formed in 1949
• Military alliance
• 28 members
What is the role of smallbusiness in the Canadian economy?
Is the Canadian economy too reliant on the US economy? Is this reliance
dangerous? Are there any alternatives? What are these alternatives? Should Canada
pursue these alternatives more aggressively?
Sweatshops are defined as “a manufacturing facility that requires its workers to work
long hours for low wages, often in unsafe conditions.”
o Sweatshops are the origins of global supply changes, and many would argue exist
as a modern colonial influence by the business sector.
o We have a difficult time engaging in ethical trade and consumption. Looking at
sweatshops in even North America, the problem is that supply chains fail to look
out for the human rights of individuals working in these factories.
o Globalization should not be a race to the bottom. But who will take responsibility
in the global supply chain? Companies won’t because they are not their workers,
facilities, or products – they just buy from them. Governments argued that
companies DO have a duty of care, which should be applied to these business
deals, and included in all contract terms.
o However, even inspectors are too often bought off/bribed, and at the price of
consumers’ consciousness, these inequalities in production continue to exist.
o Transparency is absolutely critical to this – responsibility without accountability
is not possible. These companies need to behave in a socially responsible way.
Worth of Labour (versus the CostBenefit Analysis) o Note: How can you measure someone’s ability if they’ve never even had the
opportunity to be educated – they don’t know any different. A lot of times we
define worth and potential by education.
What is meant by “race to the bottom” in the global political economy? Discuss.
The race to the bottom is a socioeconomic phenomenon in which governments decrease
their business regulations and/or taxes in order to attract or retain economic activity in
their jurisdictions, resulting in lower wages, worse working conditions and fewer
environmental protections. An outcome of globalization and free trade, the phenomenon
may occur when competition increases between geographic areas over a particular sector
of trade and production.
In the South, the standards are low and it is hard to enforce these standards
Governments in the North may be compelled to relax their regulatory standards in
fears of MNC flight
Governments in the south may further relax their environmental and labour
standards as a result of reduction in standards by the North.
This will relax the standards in the North even further. Competition to maintain
and attract investment will drive regulatory frameworks down towards the lowest
common denominator. The idea is to attract or keep MNCs within our borders –
giving jobs to our citizens, etc.
o The aim of the private corporations and companies is to generate income. But the
aim of governments and institutions to provide public goods and protect the
public interests. Should we allow firms to make profit in a way that they are just
because we like to maintain/increase our standards of living? Where is the
dividing line? We are increasingly at the mercy of MNCs and even businesses in
o As a government official (e.g. Premier of Ontario), you have to ensure longterm
security of citizens (profit, growth, sustainability, etc.). These officials should be
able to negotiate with things like “We will negotiate and give you a tax break, but
you have to keep your business here for x number of years.” Where is this line of
negotiation/balance – between keeping businesses (provide livelihood, jobs,
further business, etc.) and attracting them, and the government’s job of working
for the public good. Keep in mind that politicians aren’t always interested in the
longterm, as they only stay in office for so long.
o But does this mean that we are totally at the mercy of businesses? Not necessarily
– it must be a mutually beneficial arrangement. Is it 5050 though?
o The market cannot provide equitable distribution of anything!
What is the significance of NAFTA? Is it beneficial for Canadian, US, and Mexican
business and economy relations?
NAFTA, also stown as The North American Free Trade Agreement, came into
effect on January 1 , 1994, creating the largest free trade region in the world, generating
economic growth and helping to raise the standard of living for the people of the three
member countries involved: Canada, the US and Mexico. The central goal of this
agreement was to eliminate most tariffs on products traded among the United States,
Mexico & Canada. This economic integration has made the jobs and businesses of its Canada’s manufacturing and other goodsproducing sectors overwhelmingly dependent
on access to US markets, although Canada’s export markets have diversified somewhat in
recent years. This heavily influences the political and lobbying priorities of major
Canadian business associations. Extensive investments by Canadian firms in the US
have often contributed to the development of coordinated lobbying strategies, which seek
to harmonize technical rules and standards on both sides of the border and promote
cooperative action by national governments. There have been arguments for both the
benefits and disadvantages of NAFTA, arguing that it benefits the larger businesses while
having negative effects on smaller, localized business.
What were some of the economic and financial barriers to free or open trade we
discussed during the Winter Term? To what extent are they barriers? And, to what
extent do they inhibit the economic development of a state?
TARIFF BARRIERS NONTARIFF BARRIER
• Ad valorem tariff • Quotas
• Protective tariff • Technical standards
• Specific tariff • Preferential government
• Retaliatory tariff purchasing
• Physical distances between
There are three types of subsidies:
o Nonactionable subsidies: Subsidies that are permitted by the WTO. It is
assistance by the government in terms of R&D, helping out in healthcare costs,
o Prohibitive subsidies: Would be those types of subsidies that are designed
superficially to lower the cost of a firm’s export prices. Prohibited by the WTO
o Actionable subsidies: Are also considered to distort trade but not quite as bad as
prohibitive subsides. May or may not be prohibited by the WTO
The use of trade barriers that raise the price of importing goods only serves to disrupt the
natural flow of trade. No longer is it advantageous for a consumer to buy an imported
good if its price has been artificially raised by a trade barrier to match the price at which
that good is produced at home. This causes the consumer’s buying power in the importing
country to be decreased and the producers in the exporting country to lose a valuable
source of revenue. Causing disruptive effects on the economies of both nations.
Please explain the notion of ‘comparative advantage’ in international trade? Does it
make sense; why, or why not?
A country is said to have a comparative advantage in production of a good if it has
lower opportunity costs in producing this good compared to another country or the rest of
the world. If countries specialize in the production of those goods in which they have a
comparative advantage then free trade improves production and consumption efficiency by increasing aggregate output with the same amount of resources and expanding the
choice for consumers
Comparative advantage helps to a certain extent to explain patterns of trade but it
is not the definitive explanation. This theory predicts an extreme degree of specialization
that we do not observe in the real world. It also does not allow for differences in
resources among countries as a cause of trade, thus missing an important aspect of the
trading system. It also neglects the possible role of economies of scale as a cause of trade.
However, the theory’s basic prediction: that countries will tend to export goods in which
they have a relative comparative advantage is not far from the reality of international
If you are asked to evaluate the context of business-government relationship in
Canada, what would you emphasize? What themes in the course would you draw
upon, and what detailed information would you include in your answer?
Looking at competition between government and business interests, and the
ability of interest groups, policy communities, and lobbyists to influence the policy
process. Although the government has the final say in this process, some steps of this
multi-dimensional process are more transparent than others. For example: How much
influence over decisions do large corporations (crucial to Canadian economic stability)
have - officially and unofficially? Do actors influence (set up, maintain and change)
institutions OR do institutions influence actors (ideas, preferences)? Take for example the
role of the Senate. In Canada, the Senate (is supposed to) exist as a sober-second thought,
but seems to be more of a rubber-stamping (useless) institution.
Government organizations in the business world include organizations such as the
Canadian Chamber of Commerce, sectoral organizations, special interest groups, etc.
Competition and the diffusion of interests (even within the business community) exists.
This allows government(s) to control business, but because of the heavy competition and
complexity of the diffusion of interests, this is not usually the case.
Business associations are essentially concerned only with their own interests – the
only actor within a state or country that can make sure that things are allocated and