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York University
Administrative Studies
ADMS 1000
Eytan Lasry

ADMS 1000 – Mid Term Exam Review – Thursday December 12 , 2013. – 60% Globalization (Chapter 6) • What is it? • Integration of markets and economics • Free flow of goods/services, capital and labor • Multinational Corporations • Benefits/Threats • International Trade • Mercantilism/protectionism • Tariffs, quotas, subsidies (see handout on tariffs)  What are the problems with protectionism? • Trade Agreements and International bodies  GATT, WTO, IMF, World Bank… • Regional Trading Blocs (EU, APEC, ASEAN) • NAFTA • Objectives • Impact on trade, employment and business; on Canadian culture; on competitiveness… Globalization Globalization is the: • Process involving integration of economic and world markets facilitated by bodies such as NAFTA, EU, APEC, ASEAN etc. • Free movement of goods/services, capital and labor is critical to globalization • Increased cross border transactions, FDI & economic interdependence Multinational Corporations BENEFITS THREATS Economic development e.g. creates No allegiance to host country employment Brings management expertise Mobile profits Introduces new technology & relevant Power Held in home country e.g. R&D training investments Encourages International Trade Difficult to control Unites different countries & cultures International Trade Mercantilism (1500-1800) is: • Encourages trade surpluses where exports of goods or services exceeds imports • Result: Colonial powers (Britain, France, Spain, Netherlands) conquered countries to gain access to raw materials & markets for finished products Protectionism is: • Protects domestic economies through import restrictions • Tariffs – tax placed on goods entering a country • Quotas – limits the amount of imports • Subsidies/grants to domestic industries/firms to encourage exports Problems with protectionism: • Increased costs to consumers, less spending on other industries, economic decline, costs of imposing + collecting tariffs, possible costs of retaliation and trade wars • Limit competition for domestic firms, rising sales, prices, employment, spending, government revenues Trade Agreements and International Bodies: • GATT (1948) – 100 countries agreed to reduce tariff levels • WTO (1995) – took over from GATT, to manage world trade agreements • IMF – provides short term aid to developing countries • World Bank – seeks to provide long-term loans for development Regional Trading Blocks • EU (European Union) – 27 countries and 12 using EURO currency with over 450 million people • APEC (Asia Pacific Economic Cooperation) – 21 countries and over 2 billion people including Australia, Canada, USA, Japan, Singapore, New Zealand, Thailand etc. Represents 50% of the world’s output! • ASEAN (Association of South East Asian Nations – Brunei, Cambodia, Laos, Indonesia, Philippines, Singapore, Thailand, Vietnam, Myanmar, Malaysia NAFTA Objectives: • Reduce/eliminate tariffs barriers on almost all goods and services traded • Facilitate cross-country investment • To establish rules for government subsidies • To universal rules for health, safety & the environment • To provide a common market among members Impact on trade • Pro – increased trade (from 17% to 33% of GDP between 1990-99) • Cons > Canada still a resource-heavy economy with insufficient high-tech exports > Too dependent on the US > Trade is very sensitive to currency fluctuations Employment and business • Pro - Increased competition forces domestic businesses to improve efficiency, innovation and standards and to focus on core industries where we have a competitive advantage and abort inefficient operations • Con – Competition may be too strong – forcing bankruptcy and job losses given US firms’ productivity advantage and cheaper Mexican labor On Canadian Culture • Pro – Doesn’t affect Canadian culture; cultural exports - $5B and opens big market in royalties • Con – may destroy Canadian culture; Canada may become a ‘subsidiary of USA’; competition from American media affects Canadian cultural capital On Competitiveness • Pro – more exposure to competition, more choice for consumers, cheaper inputs, further market opportunities • Con – no increase in productivity; unable to match US productivity; early success based on weak C$, cheaper production and value e.g. film industry Beijing and the Oil Sands (pg. 123) – Textbook Case Discussion Why is this about Globalization/Protectionism? • Integration world economies, corporations, influences (Canada & China) -> Globalization • Government had to review the buyout, nothing can be done before approved of parliament -> form of Protectionism • Foreign Investment/ ownership/ takeover (FDI) restrictions are protectionist measures and conflict with objectives of free trade and globalization i.e. they prevent the free flow of capital Potential risks/benefits? • Benefits: > FDI creates jobs in Canada > Tax revenue > Promotes economic and resource development > More competition = better prices, selection, innovation • Risks: > Fewer head office jobs in Canada, executive brain drain > Lose control of strategic resources and core industries > Violates free trade rules and invites retaliation The Ethics of Globalization How to ensure that developing countries benefit from free trade & globalization? • Allow time for their domestic industries to adapt to multinational competition – don’t remove trade barriers too quickly! • Remove tariffs and subsidies protecting industries in developed countries too – free trade is about reciprocity • Ensure governments in developing countries provide a social safety net to its needy citizens The Role of Government (Chapter 7) • Taxation: Revenue – Restrictive Taxes • Crown Corporations • Why do we have them?  Market Failure?  Natural monopolies  Government control (and profits)  National Security, public policy, vital/strategic industries… • Benefits and disadvantages of crown corps/privatization? • Which sectors of the economy should be controlled by the Government and which should be left to the private sector?  E.g. Health Care, Education, Military/Defense/Law & Order/ Corrections, Retail distribution of beverage alcohol (i.e. LCBO) Taxation: Revenue – Restrictive Taxes • Revenue Taxes is used to collect money in order to help fund government services and programs > Individual income taxes – largest source of revenue for federal and provincial governments – income of individuals or net profits of proprietorships and partnerships nd > Corporate income taxes – 2 largest source of revenue for federal government – corporations taxed on net profit at a combined federal and provincial rate > Sales taxes – important source of revenue for most provinces and federal government – paid through retail stores, act as collection agents when they sell their goods to consumers > Property taxes – largest revenue source for municipal governments – used to fun operating costs of municipal government and the services that it generates. • Restrictive or regulatory taxes aimed at controlling or curbing the use of specific products or services > Excise taxes applied to goods or services that are deemed harmful (tobacco and alcohol products) > Tariffs are taxes placed on goods entering the country to make domestic products more competitive Crown Corporations • A Crown corporation or public enterprise is any organization accountable, through a minister, to parliament for its operations • Why we have them: > Implement public policy that includes protecting or safeguarding national interests e.g. Air Canada (cross-Canada transportation) and Petro-Canada (domestic oil industry) > Protect industries deemed to be vital to the economy e.g. Canadian Ratio Broadcasting Commission – prevent Canadian broadcasting becoming inundated with material originating in the U.S. > Provide special services that could not otherwise be made available by private business e.g. Bank of Canada – develop monetary policy and regulating monetary operations in Canada > To nationalize industries that were considered to be “natural monopolies” including the generation and distribution to electricity • Crown corps Advantages Challenges • More competition • Shareholder Stakeholders • More Efficiency • Employee Stakeholders • Evolution of business sector • Community Stakeholders • Money from sell-off • Need to regulate carefully • Which sectors of the economy should be controlled by the government and which should be left to the private sector? E.g. Health Care, Education, Military/Defense/Law & Order/Corrections, Retail distribution of beverage alcohol (I.e. LCBO) Part 2 – Regulation • Regulation is the Imposition of constraints, backed by the authority of a government, that are intended to modify behavior in the private sector significantly • Regulation is needed: • Imperfect competition occurs when fewer than the optimal number of competitors exist in the industry, less pressure to offer best possible good or service at the lowest possible price • Public interest – control operations of a private enterprise through regulations through commissions, tribunals, agencies and boards. For example, liquor boards are responsible for approving any price changes proposed by breweries within their province Bailouts and Subsidies • Bailout refers to government assistance given to prevent an organization or industry from financial collapse by giving more liquidity to meet its financial obligations, may involve one time financial assistance to combat financial troubles in the form of a loan or loan guarantee • Subsidies are cash payments, low-interest loans, reduced taxes to assist domestic industry against foreign competition • Argument against – businesses should manage their costs without external help as consumers are paying for their subsidies, constitutes form of trade barrier and creates unfair competition • Government should subsidize the activities that would be net economically benefit to society • The government should bail out large companies that are failing because it would cause negative repercussions for the economy. On the other side it is a bad idea because it is viewed as overriding the functioning of the market Government Subsidies in a Global Context 1) Nurturing young industries – government should help a young industry to grown and develop ensuring that the industry maintains a dominant share of the domestic market until it is mature enough to compete against foreign competition 2) Encouraging Direct Foreign Investment – desirable if increases job opportunities, contributes to growth of industry and adds the amount of capital 3) Maintaining Favorable Balance of Trade – ensure trade surplus to subsidize domestic industries in order to encourage growth in their exports 4) Protecting Domestic Business from Unfair Competition – foreign competitors export their products at low prices will be accused of dumping as they ell the product at a loss or for less than the price of the sellers domestic market 5) Mainta
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