Chapter 10: Political

Question 1

Capitalism: is a type of economic that is based on a number of fundamental principles:
and what is the opposite of Capitalism?

4 Principles

Answer 1

1. Rights of the Individual:
   
   • Implies that individuals have every right to pursue their own self interest, include seeking to make profits from business enterprises
     □ Limits: governmental regulations enforce rules that affect how business owners conduct their affairs
2. Rights of private property:
   
   • Capitalism asserts that individuals have the right to own land, labor, and capital
   • However, because of the uneven distribution of wealth in society, the government has implemented taxation as an approach aid in balance
3. Competition
   
   • Capitalism advocates competition – sufficient competition among business enterprises and will ensure that businesses provide the goods and services required by society at a fair cost
   • “invisible hand”
4. The Role of Government
   
   • The view government is reflected in the French term “laissez faire” - “let people do as they chose”
     § Minimal government intervention
     § Free enterprise system

Communism: places responsbility on the government, not business

Question 2

Structure of Canadian Government

Answer 2

Federal
* Highest level
* Roles: national defence, criminal law, bankruptcy law, the postal service, foreign policy, currency, First Nations issues, banking, Royal Canadian Mounted Police, and immigratio
* Have federal-owned businesses such as Canada Revenue Agency and Canada Post
○ Canada Post is a Crown Corporation

Provincial and Territorial:
* Affects citizens within a province
* Roles: highways, transportation, education, provincial police, and health care
* Provinces can have different laws than other provinces
* Ontario owns LCBO (Liquor Control Board)
○ LCBO is a provincial crown corporation

Municipal:
* Lowest level
* Govern a city, town, village
* In Canada, there is over 4,000 municipal governments
* Roles: police services, fire protection, land planning, sewage, public transportation, garbage collection, and library services
* The Constitution Act of 1867 allows the provincial government power over municipal intuitions

Question 3

What are the roles of government?

name them

Answer 3

Governments collect taxes, own businesses, can regulate business activity

Question 4

Roles of Government: Define Revenue Taxes and what are four differnet taxes the government collects and define Regulatory/restrictive taxes

Answer 4

Revenue Taxes: to collect money to help fund governments services and programs

Individual income taxes: recieved from wages, provided the most revenue for governments

Property taxes: from housing, largest source of revenue for muncipial governments used to fund municipal activities

Sales Tax: retail tax

Value-added tax: a tax paid at each step of the manufacturing process (GST)

Harmonized sales tax (HST): combines federal (GST) with provincial sales tax (PST)

Regulatory/restrictive taxes: applied to goods that the government wishes to restirct

Question 5

Roles of Government: Define Governmental Economic Regulation, Imperfect Competition, The Public Interest

Answer 5

• Governmental economic regulation: a form of government intervention designed to influence to behaviour affirms an individuals in the private sector
  ○ Ex. regulation focused on consumer protection, on environmental protection, and regarding the nature of competition
  § Created the Food and Drug Act, designed to protect the public from potential health risks

Why does the government need to intervene in the functioning of the business enterprise system?
* Imperfect competition: suggests the need for government involvement in a not perfect free enterprise system
○ Imperfect competition occurs when fewer than the optimal number of competitors exist to ensure that services are given at a fair pricing and are the highest level of quality
§ When there is insufficient competitors, there is less pressure on businesses to offer the best possible good at the lowest possible price

* **The Public Interest**: governments want to protect public interest, so to control private enterprises,  they do that through regulations
	○ National regulators include the Canadian transport commission – approves route and rate applications for commercial air and railway companies

Question 6

How can Government benefit Business?

4 things

Answer 6

Government assistance to Business
* Tariff and nontariff on imported goods were designed to protect domestic businesses
* Introduced incentive programs were established to encourage managers to conduct business in a manner desired by the government
○ Ex. Achieve higher export activity
○ Ex. Can encourage new employers using incentives to build their new office in their area

Bailouts
* Bailout - refers to government assistance given to prevent an organization or industry from financially collapsing
○ The business is given more liquidity (cash flow)
§ If the company is very large and could cause negative repercussions for the economy
□ Ex. Canada has to advert Air Canada’s bankruptcy because of the pandemic

Subsidies
* Subsidies for either cash payments, low interest, loans, or potentially reduce taxes – in a global context, subsidies are intended to assist domestic industry to compete against foreign business
○ More handouts from the government
○ Argues that businesses should be required to manage their costs without external help

Question 7

What role can governments play in Global Business?

6 things

Answer 7

Nurturing Young Industries
* Government should help a young industry to grow by ensuring that the industry maintains a dominant share of the domestic market until it’s mature enough to compete against foreign companies

Encouraging Foreign Direct Investment (FDI)
* The action of reducing foreign imports result in the foreign business directly investing in the target country instead
○ A foreign company can decide to set up business in the targets country if it wishes to gain access to that country’s consumer market -if you can’t do with imports
§ Increases job opportunities, etc.

Maintaining a favourable Balance of Trade
* The government may seek to influence the statues of exports and imports to avoid running in a trade deficit (country imports more than it exports)
○ Can be done by banning foreign imports and imposing more tariffs

Protecting Domestic Business from Unfair Competition
* Foreign competitors will offer their products are extremely low prices… could cause domestic producers to fall out of business, and be replaced by foreign imports

Maintaining Adequate levels of Domestic Employment
* Government ensures unemployment rate does not go up

Offering Subsidies to compete Globally
* Conflicts in regard to free trade, gives domestic industries an unfair competitive advantage

Question 8

Why should Governments not Intervene with Global Business?

6 things

Answer 8

Promotes a Political Agenda
* Governments justify handouts to win votes

Creates an Uneven Playing Field
* Not fair to existing profitable firms

Undermines Public Confidence in Politicians
* There is public suspicion that special treatment may be due to political connectedness, rather than profitable, economic choices
○ Example, large corporations that receive handouts have the power to make sizeable political donations, rather than small entrepreneurs with little fans

Contrary to Free and Open Markets
* Government handouts can change business’ priorities from focussing on its products to lobbying for government funds

Creates Dependency
* Corporations may come to expect future free money while remaining ineffective
* Leads to higher taxes and slows economic growth

Benefits only a Few
* Corporate welfare benefits a few businesses and employees - may not be deserving

Question 9

Define Deregulation and what are the benefits and risks?

Hint: legislation

Answer 9

Deregulation
* Involves a reduction in the number of laws, or regulations affecting business activity – suggest a reduction of the powers of government enforcement
* Benefit: for consumers is increased, competition arising.. more entry of new competitors
* Risk: is consumer exploitation – reduction in quality of the products or services being offered, increases in consumer fees, and price

Question 10

Define Privatization what are the Pros and Cons?

Hint: Ownership

Answer 10

Privatization
* Refers to the divesting of government involvement in the operation, management, and ownership of activities
* Involves the transfer of activities or functions from the government to the public sector
* Also involves contracting government jobs to private companies
○ Ex. Selling Crown Corporation to a private sector
○ Ex. Selling Highway 407 to private business

Pros for Privatization
* Belief in the Power of Competition as a Control Mechanism
* Private enterprise should be allowed to expand into areas that were once monopolized by the government

• Belief that private Business can Operate more Efficiently
• Financial Benefits from Selling Government-Owned Assets
  • Money can now be used for needed-areas
  • Can be applied to government deficit reductions

Cons to “Going Private”
* The main threat was for the company to be less likely to serve public interests and maintain governmental standards