Class 2: The Canadian Business System Flashcards
Economic system
An arrangement using land, labour, and capital to produce, distribute, and exchange goods and services to meet the needs and wants of people in society.
Capitalism
An economic system that allows for private ownership of the means of production (land, labour, capital) and assumes that economic decision making is in the hands of individuals or enterprises who make decisions expecting it to earn a profit.
Key differences in types of capitalism being amount of government intervention.
Three central features of capitalism
1) Wage labour
2) Private ownership of the means of production
3) Production for exchange and profit
Laissez-faire capitalism
- Minimum government intervention
- Government strictly limited to police and fire protection
Stakeholder capitalism
- Business accepts broader responsibilities beyond financial responsibilities to shareholders
- Balance the needs of shareholders with stakeholders such as employees, suppliers, customers, local communities.
Clean capitalism
Incorporates social, economic, and ecological costs (and benefits) into the marketplace and the prices we pay.
Focuses on externalities (things we do that affect others not involved).
State capitalism
- The state (i.e. government) undertakes commercial (for profit) activities.
- State-owned enterprises.
Capitalism vs. Socialism
Capitalism: means of production are owned by individuals, companies live by the profit motive and exist to make money, and the government’s job is to enforce laws and regulations to ensure a level playing field for privately-run companies.
Socialism: means of production are owned by the state or public, everyone works for wealth that is in turn distributed to everyone, and the government decides how wealth is distributed among the people. They provide for the people. Oh my!
Corporations
A company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.
Most dominant type of firm operating in Canada and the world.
Doctrine of Incorporation
Freedom of association: The association of individuals coming together for some purpose is fundamental to forming a corporation.
When a business incorporates, a separate legal entity is created.
Privately-owned corporations
Owned privately (founders, founding family).
Advantages: No shareholders to answer to.
Disadvantage: Have to raise capital privately.
Ex. Samsung, Cargill
Publicly-traded corporations
Traded on the stock market (anyone can buy shares).
Advantages: can raise capital on stock market.
Disadvantage: must answer to shareholders.
Examples: Apple, Exxon, Petro Canada
Crown corporation
Wholly-owned federal or provincial organizations that function like independent companies.
Advantage: Greater freedom than government departments.
Disadvantage: Still subject to constraints of government.
Examples: CBC, Via Rail, Manitoba Liquor and Lotteries.
Corporate Governance
Owners: direct ownership (shareholders) or indirect ownership (e.g. mutual fund holders).
Boards of Directors: elected by shareholders; must fulfill legal and fiduciary obligations.
Managers: top managers are hired by boards of directors; oversee operations of corporation.
Non-profit organizations
An organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization shareholders (or equivalents) as profit or dividends.
Ex. Abundant Life Baptist Church, Humane Society, Doctors Without Borders
