DYNAMICS

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DYNAMICS INTERRELATIONSHIPS AMONG BUSINESS,
ECONOMICS GOVERNMENT
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THE DYNAMICS OF BUSINESS ECONOMICS
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Different Economic Systems

• Capitalism - individuals seeking profits produce
  goods and services
• Goods and services are sold in a free market to
  those who can pay for them
• Communism or State Socialism- the government
  decides what will be produced and who will
  consume that production
• Socialism - some free market and some government
  allocation
• Most countries have a Mixed Economy

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Economic Theory of Wealth Creation Adam Smith

• Adam Smith wrote The Wealth of Nations in 1776
• He defined Capitalism
• Capitalism is a system of rights and freedoms
• Right to Make a Profit
• Right to Private Property
• Right to Buy or Sell
• Freedom to Compete
• Freedom from Government Interference

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The Foundations of Capitalism

• How a free market works - many buyers and sellers
  trading freely determine prices at which they
  will exchange goods and services
• Theoretically how prices are determined - the
  constant interplay between supply and demand
  determines an equilibrium price at which a
  transaction will occur

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SUPPLY DEMAND
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Supply Curve
High
Price(P)
S
High
Quantity(S)
Low
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Demand Curve
High
Price(P)
D
High
Low
Quantity(D)
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Equilibrium Point
Surplus
High
Market Equilibrium
Price
S
D
Shortage
Quantity
High
Low
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Free-Market Competition
Monopolistic Competition
Oligopoly
One
Many
Monopoly
Perfect Competition
Sellers
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Limits of Free-Markets

• Inequality of Wealth- Causes National World
  Tension
• Especially difficult for the minority groups, the
  sick the aged
• Greed Compromises Ethics
• Potential Environmental Damage
• Limitations Push Country towards Socialism
  Government Regulation

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KARL MARX ALTERNATIVES TO CAPITALISM

• What to do about the inequalities of capitalism?
• Workers should own the means of production
• USSR - State ownership of the means of production

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Three Economic Systems
Mixed
Socialism
(Highly Controlled)
(Little Control)
Communism
Capitalism
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Economic Systems and Where They Occur

• Communism
• Or State Socialism North Korea Cuba
• China (approaching mixed economy)
• Mixed Economies
• Attention to Social Policy (in order)
• Nordic countries (Sweden most prominent)
• France Israel
• India (more socialist in economy than the
  others above)
• More Capitalist Less attention (in order)
  United States, Canada, Australia, Japan

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RANKING OF GROWTH COMPETITIVENESS
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THE MIXED ECONOMY OF CANADA

• Reasons why government has played a large role in
  the economy
• Reduction of government involvement in
  regulation of the economy
• Trend of deregulation is widespread in most
  countries Eastern European countries, republics
  of former Soviet Union, and China

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ECONOMIC CONCEPTS IMPORTANT IN BUSINESS

• Gross Domestic Product
• Total value of a countrys output of goods
  services in a given year
• Growth in GDP is good but it should not be
  either too fast or too slowly. Why?
• Productivity labor cost total output of goods
  services of a given period by the total hours
  of labor required to produce them
• Unemployment
• National Debt
• Inflation

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Inflation and the CPI

• Consumer Price Index (CPI) is the index
  economists use to measure the effects of
  inflation
• Inflation was high prior to the 1990s, but it has
  been about 2 per year in recent years
• The Rule of 72 means that dividing 72 by the rate
  of inflation equals the number of years that
  prices will double due to inflation
• Currently, it would take 36 years for prices to
  double due to inflation

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What Makes Up TheConsumer Price Index?
SOURCE U.S. Bureau of Labor Statistics
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The Outlook for our Economy

• Unemployment has remained stubbornly high in the
  1990s
• By 1999 2000 Canadian economy improved but
  collapse of technology stocks had a very negative
  effect on the economy
• Mid 2001 air of uncertainty about the prospects
  for the Canadian American economies
• Sharp decline in profits stock market values of
  high tech-companies, and especially the dot-coms,
  was a major contributing factor to the economic
  weakness uncertainty about the future
• September 11, 2002 World Trade Center disaster
  led to heightening of uncertainty about the
  future caused a further decline in an already
  weak economy
• 2004 - Canada is in the early stages of long-term
  economic growth with excellent job prospects for
  those entering the workforce
• Those with education and the ability to learn new
  skills will be successful

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REPORT OF WORLD ECONOMIC OUTLOOK APRIL 2005

• Recovery continuing - growth in world output
  predicted to be 4.3 in 2006 4.4
• Projection for U.S. 3.6 in 2005 2006
• Projection for Canada 4.3 in 2005 4.4 in
  2006
• Still problems with the debt national debt
  stated as percentage of GDP was 47.6 in 2004
  projected to decrease to 43.9 in 2005
• US 45.2 in 2004 47 projected for 2005
• Both countries too high - but better than Japan
  (78)!

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THE ROLE OF GOVERNMENT IN BUSINESS
Claude Monet
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GOVERNMENT EFFICIENCY
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Historical Role of Government in the Economy

• Canada has a mixed economy our various levels
  of governments play a large very role in our
  economy
• From the start in 1867 the National Policy was to
  force trade to flow East-West
• Tariffs were used to deter the natural
  North-South flow of goods

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HOW GOVERNMENT AFFECTS BUSINESS TODAY

• CROWN CORPORATIONS
• SERVICES
• FINANCIAL AID
• PURCHASING POLICIES
• LAWS REGULATIONS

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Crown Corporations

• Governments own companies - these are called
  Crown Corporations
• Examples AECL, CBC, Canada Post, Bank of
  Canada, etc.
• Some provinces use crown corporations to invest
  in the province - Caisse de Dépôt in Quebec is an
  example
• The recent trend is towards privatization, i.e.,
  Telsat

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Government Spending of Tax Dollars

• Fiscal Policy - how governments collect and spend
  tax dollars
• The federal government is the largest buyer of
  goods and services
• Federal procurement policies can be used to
  influence regional economies and companies
• NAFTA places limits on the federal governments
  ability to use this spending power

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Other Government Policies

• Strangely enough, provincial governments put up
  interprovincial trade barriers
• Provincial governments spend billions on health,
  education and services - these funds are directed
  to local companies
• Various governments may cooperate to provide
  loans, grants or support for projects like
  Hibernia
• The federal government has programs to assist
  business in depressed regions

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Government Departments

• Industry - grants articles of incorporation,
  maintains records and ensures fair competition
• Communications - regulates telephone, cable and
  broadcasting companies, issues licenses and holds
  public hearings
• Transport Canada - regulates interprovincial
  transportation, issues licenses and enforces
  safety regulations
• Finance - determines fiscal and monetary policy,
  controls the money supply, interest rates and
  taxes

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Employment and Immigration

• Two government departments have a large impact on
  business
• The Department of Citizenship and Immigration
• The Department of Human Resources Development

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Canadas Innovation Strategy
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Canadas Innovation Strategy Achieve Excellence

• Innovation - process through which new economic
  and social benefits are extracted from knowledge
• Innovation performance lags in Canada
• Rank 14th in OECD spending on RD
• University participation lags

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Principles for Action

• Create a competitive business climate conducive
  to industrial innovation
• Make Canada's university-based research and
  innovation system among the best in the world
• Monitor the innovation system as a whole, report
  on the health of the system, adjust government
  policies to correct any deficiencies and
  encourage collaboration

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Canadas Innovation Strategy

• Knowledge Matters
• Ever increasing demand for well educated and well
  skilled workforce
• Looming demographic crunch as the most skilled
  retire that will exacerbate the shortage
• Learning system must be strengthened

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GAMBLING A CASH COW FOR PROVINCIAL GOVERNMENTS
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GAMBLING A CASH COW FOR PROVINCIAL GOVERNMENTS

• Some people organizations argue that
  governments should not be in the gambling
  business, that encouraging gambling is a bad
  idea. Others argue private enterprise should run
  that kind of business and argue further that
  companies would generate more profit for
  governments. Governments reply that they want to
  keep organized crime from controlling gambling so
  they must own run such operations. What do you
  think? Is it OK for governments to be in
  business? Should they be in gambling?

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GAMBLING A CASH COW FOR PROVINCIAL GOVERNMENTS

• Governments seem to believe that gambling is a
  great way to raise money because we dont seem to
  mind creating revenue for them by having some
  fun, a chance of big winnings, instead of just
  paying higher taxes. Besides, they argue, nobody
  is forced to gamble, so its a kind of voluntary
  tax. How do you feel about that? Do you buy that
  argument?

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GAMBLING A CASH COW FOR PROVINCIAL GOVERNMENTS

• Some churches other institutions concerned with
  personal family welfare point to the rising
  number of family personal breakdowns caused by
  people becoming gambling addicts. Also easy
  access to VLTs is very bad for young persons. Do
  you agree with either of these concerns? Why?
  What can be done to improve the situation?

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GAMBLING A CASH COW FOR PROVINCIAL GOVERNMENTS

• Suppose you agree with those who are totally
  opposed to governments encouraging gambling.
  Wouldnt taxes have to be raised to replace these
  revenues? Would you mind paying more taxes? Do
  you think your parents or family members would
  mind? Or do you have any other suggestions?

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CLASS FOR 14/9/2005

• Writing Your Paper
• Guest Speaker
• From the Writing Centre