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Chapter 7

Chapter 7- The political Context ADMS 1000

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Department
Administrative Studies
Course
ADMS 1000
Professor
Peter Khaiter
Semester
Fall

Description
Chapter 7: The Political Context The Canadian Business Enterprise: Fundamental Features  The Canadian economy is a mixed market system: Essentially capitalist but with a strong government influence in various sectors of the economy and nearly complete control of the health care and education sectors.  All developed countries have some sort of economic business enterprise system that essentially determines the following o What goods and services are produced and distributed to society o How the goods and services are produced and distrusted to society Capitalism; a type of economic system that is based on these fundamental principles; right of the individual, rights of private property, competition, the role of government 1. Rights of the individual o Individuals have every right to pursue their own self-interest, which includes seeking to make profits from business enterprise, but there are limits placed on individual right to peruse self interest o Government regulation enforce rules that affect how business owners conduct their affairs; example: government may restrict who can be hired for a job 2. Rights of Private property o Asserts that individuals have the right to own land, labour and capital o In CAD there is uneven distribution of wealth so the government has intervened  Taxation is one approach that can be partly aimed at redistributing wealth among members of society o Government also decide where a product or service is of national interest; ex. Government of health care 3. Competition o Belief is that sufficient competition among business enterprises will ensure that business provides the goods and services required by society at fair cost o Competition is the “invisible hand” that ensures the market works o perfect competition does not exist in Canada 4. The Role of Government o View of government “laissez faire” which mean “ let people do as they choose” o Minimal government interference in the business enterprise system o Also referred to as “free enterprise system”, reflecting the notion of the right to private ownership of property, competition and restricted government involvement Communism: far extreme from Capitalist; responsibility for the allocation of society’s resources into the hands of the government Government as Guardian of Society The Tax Collector Role  Collection of revenue taxes (individual, corporation, sales, property) o Individual taxes: income of individuals or on the net profits of proprietorships or partnerships (largest source of revenue for federal and provincial government nd o Corporation taxes: corporations taxed on net profit (2 largest revenue for federal) o Sales taxes: paid through retail stores, which acts as collection agents when they sell their goods to consumers o Property taxes: revenue gained Is used to fund the operating cost of the municipal government and services it generates (largest revenue for municipal government)  Collection of restrictive/ regulatory taxes (excise & customs duties/tariffs) e.g. on Tobacco, Alcohol etc. aimed at controlling or curbing the use of specific products or services o Excise & customs: applied to goods or services that government wants to restrict; products that are deemed to be potentially harmful o Tariffs: Tariffs are essentially a tax on imports. The government taxes imports, which drives the price of the goods up and makes the domestic goods more competitive. Otherwise, foreign goods could be sold far cheaper than domestic goods. The Business Owner Role: Crown Corporations KEY POINT Crown Corporation/public enterprise: is an organization accountable through a minister, to parliament for its operations; may be federal or provincial Governments establish Crown Corporations to:  CC’s implement public policy & safeguard national interests, e.g. CMHC, Bank of Canada o Example; Air Canada and petro Canada helped facilitate government policy in the area of cross Canada transportation and Canadian ownership in the domestic oil industry  CC’s protect vital industries,  CCs provide services that private enterprise would not otherwise pursue (Canada Post)  to nationalize industries that were considered to be “natural monopolies” including the generation and distribution of electricity; ex. Hydro, Gas  CCs allow for more government control (OLG, LCBO) e.g. CNR, CBC  CC’s may be federal or provincial  Number of CC’s has been decreasing along with the number of employees.  LCBO – is a successful CC business & a regulatory system on alcohol consumption The Regulator role Government Economic regulation: defined as the imposition of constraints backed by the authority of a government, that is intended to modify economic behavior in the private sector significantly  Imposes constraint to modify economic behaviour in the private sector, e.g. Energy, Health & Safety, Labor, Food, Consumers etc.  Imperfect Competition – occurs when fewer that the optimal number of competitors exist to ensure fair pricing and distribution of goods and services at highest quality o Intervention ensures appropriate provision of goods & services.  Public Interest – protects consumers through regulation, limitations imposed on business (e.g. foreign ownership, advertising, pricing etc.) Government as Guardian of the Private Business Sector Government Assistance to Private Business  Government offered direct incentives for industrial and resource development  Incentive programs; to encourage managers to conduct business in a way desired by the government Bailout  When a bankrupt/nearly bankrupt business/bank/corporation is given more “liquidity” (cash flow) in order to meet its financial obligations o Chrysler (1980s + 2008), GM & US Banks (2008)  Government provides funds until it’s in a stable condition  Financial assistance could also be a loan or a loan guarantee Opponents for auto Bail Out  Government should not prop up business that are in trouble, they should be allowed to fail  GM bail out will cost tax payers about 1.4 million for each job it saves; it doesn’t save jobs over all  Bailouts in auto industry will lead companies in other industries to requests bail outs  Skepticism that bailout money will never be repaid Supports for auto bailout  Occasionally necessary when the ups and downs in the economy becomes so severe that chaos looms; during these times governments need to intervene to reduce oscillation  Because its necessary to protect jobs, studies show failure of a big auto company may throw its economy into a deep recession Subsidies  Subsidies in the global context are intended to assist domestic industry to compete against foreign businesses, whether in the home country or through exports o Includes cash payments, low-interest loans or potentially reduced taxes  Argument against: businesses should be required to manage their costs without help or ‘handouts’ from the government o Consumers are paying for this through GST and PST o Subsidies
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