Final Exam Mgmt 1035 PDF

Week 7 (The Business of Alcohol): The Politics of Spirits Two Examples: ○ Gin was an early example of the impact of trade policy and unintended consequences in alcohol policy. ○ Rum’s history and development has always been influenced by politics Gin...

Week 7 (The Business of Alcohol): The Politics of Spirits Two Examples: ○ Gin was an early example of the impact of trade policy and unintended consequences in alcohol policy. ○ Rum’s history and development has always been influenced by politics Gin Craze: Alcohol mixed with juniper berries and other herbs was used for flavoring and medicinal purposes for many years. In the 16th century, the Dutch created Genever, which the British shortened to gin. Gin was inexpensive to make and became very popular, but it also had political significance. Impact of William III (Late 1600s): Placed large tariffs on French brandy and wine.(This made French brandy and wine more expensive in Britain) Gave tax breaks to British gin distillers. Made gin very inexpensive, cheaper than beer, leading to widespread abuse. Backlash and Regulation: Temperance movements emerged in response to gin abuse. The Gin Act of 1751 introduced government licensing to control production and reduce consumption. Gin in the 1800s: Gin regained popularity as a drink. Mixed with quinine water to create gin and tonic, which was used as an anti-malaria remedy. Rum: Made from molasses, which is a by-product of sugar production. Became popular in the late 1600s and especially in the 1700s. Large sugar plantations were set up in French and British colonies in the Caribbean. These plantations needed cheap labor, leading to an increase in African slaves being brought to the colonies. Rum's Impact: Starting in 1731, British sailors got a daily serving of Jamaican rum. The rum ration for sailors decreased over time, but lasted until the 1970s. This rum ration tradition was also followed by the Canadian navy for some time. Rum was a political issue for much of its history. The British discouraged American producers from making rum, so they turned to whiskey instead. Cuba and Bacardi’s Rum History:  Bacardi’s Early History: ○ Bacardi supplied rum to Spanish royalty starting in the 1880s. ○ Operations were based in Cuba. Cuba Libre: ○ The combination of rum and Coke became known as "Cuba Libre". ○ After the Cuban Revolution, the drink gained a new significance. Bacardi’s Response: ○ The Bacardi family fled Cuba and established new facilities in Puerto Rico and other locations. ○ Bacardi grew into a global leader in rum production. Ongoing Dispute: ○ Despite their success, Bacardi continues to seek compensation from the Cuban government for the loss of their distilleries. Week 7, Part Two - "Every day's a Sunday" - the Temperance movement and Prohibition: Prohibition Restraining the Liquor Trade 1. What is Prohibition? Definition: Legal ban on making, selling, and drinking alcohol. Reasons: ○ Moral beliefs: Led by Protestant churches. ○ Economic: Alcohol seen as harmful and wasteful. 2. Prohibition in Canada Influences: Inspired by Britain and the U.S. Supporters: ○ Mostly Protestants. ○ Organizations: Dominion Alliance for the Total Suppression of Liquor Traffic. Women’s Christian Temperance Union (WCTU). Women’s Role: ○ Leaders of the movement. ○ Connected to the women’s suffrage movement. 3. Politics and Prohibition Local Laws: Scott Act let towns ban alcohol (local option). Political Support: ○ Reformers (Liberals) favored Prohibition. ○ Sir John A. Macdonald opposed it. 4. The 1898 Referendum What Happened: ○ Wilfrid Laurier held a non-binding vote on Prohibition. Results: ○ Close: 278,380 (yes) vs. 264,693 (no). ○ All provinces except Quebec voted yes.  ○ Quebec: Over 80% voted no. Outcome: ○ Laurier did nothing because the vote was so close. 5. Prohibition During WWI Patriotism Argument: ○ Saved food for soldiers during the war. Timeline: ○ 1901: P.E.I. banned alcohol (lasted until 1948). ○ World War I: Most provinces banned alcohol, except Quebec. ○ March 1918: Federal government banned production and import of alcohol. 6. Problems with Prohibition Alcohol still sold illegally (bootlegging). People argued it took away personal rights. Law wasn’t enforced equally, causing complaints. Criminal distribution increased. 7. Prohibition in the U.S. Key Dates: ○ 1920: 18th Amendment banned alcohol. ○ 1933: 21st Amendment repealed Prohibition. Negative Effects: ○ Loss of jobs (breweries, bars, truckers, waiters). ○ Growth in smuggling and illegal markets. 8. End of Prohibition in Canada Ontario (1927): ○ Replaced Prohibition with government control (LCBO). Tourism: ○ Americans came to Canada to drink during U.S. Prohibition. 9. LCBO (Liquor Control Board of Ontario) Created: June 1, 1927, after 11 years of Prohibition. Purpose: ○ Balance personal freedom with government control. ○ Promote temperance and respect for the law. Early Rules: ○ Permits tracked purchases and could be revoked for misuse. ○ Stores looked like banks; no alcohol displayed on shelves. Gradual Changes: ○ 1947: Cocktail bars allowed. ○ 1958: Permit system ended. ○ 1969: Self-service began in stores.  Modern Changes (1980s): ○ Improved store design and customer experience. ○ Introduced Project Image for modern branding. 10. Trends in the Alcohol Industry 1. Brand Growth Global market dominated by a few multinational companies (MNEs). AB InBev: ○ Largest alcohol company (revenue: $45.6 billion in 2017). ○ Controls ~1/3 of global beer sales. Major Mergers: ○ 2004: InBev created (merger of AmBev & Interbrew). ○ 2008: Acquired Anheuser-Busch. ○ 2012: Bought Grupo Modelo (Mexico). ○ 2014: Acquired Oriental Brewing (South Korea). ○ 2016: Merged with SABMiller (Africa). 2. Differences Between Alcohol MNEs and Others Growth Factor: ○ Driven by heritage brands (not innovation or technology). ○ Brand recognition more important than new products. 3. Tensions Between Health and Profit Health Risks: ○ Alcohol harms health, so governments try to limit consumption. Profits: ○ Companies rely on higher consumption for revenue. 4. Restricting Advertising Methods: ○ Voluntary Codes: Self-regulation by companies (less effective). ○ Regulations/Laws: Stricter, more successful. 5. Loi Evin (France’s Alcohol Marketing Law) Ad Restrictions: ○ No TV, cinema, or sponsorship ads. ○ Only factual info (origin, ingredients) allowed. ○ Must include health warning: “Alcohol abuse is dangerous for health.” 6. Brand Stretching Definition: Linking alcohol brands to non-alcoholic products (e.g., T-shirts) to expand marketing. Purpose: Bypass ad restrictions and boost visibility. 7. Brand Extensions Definition: Expanding into new products to grow sales. Types: ○ Line Extensions: Variations of existing products (e.g., light beers). ○ Category Extensions: New product categories (e.g., Jack Daniel’s barbecue sauce). Examples: ○ Baileys: Ice cream. ○ Guinness: Chocolates. ○ Smirnoff: Key rings. 8. Conclusion Brand Equity: Successful brand extensions increase profits and strengthen the brand. Strategy: Alcohol companies use creative marketing to maintain relevance. Chapter 8 MGMT 1035: Roman Holiday: Week 8, Part One: Seeing and Selling the World - The Business of Tourism: Early Tourism Roman Holiday: ○ Roman Empire made travel safe and possible. ○ Wealthy Romans traveled to places like Italy, Greece, and Egypt to see famous sites and relax at spas. Pilgrimages: ○ Religious trips in Christianity, Buddhism, and Islam. ○ Created business opportunities like inns and food services for travelers. The Grand Tour: ○ In the 1600s, wealthy young men traveled across Europe to see art and architecture. ○ Only rich families could afford these trips Thomas Cook and Modern Tourism Thomas Cook Travel: ○ Started organizing tours in the 1800s. ○ Became a major travel company but declared bankruptcy in 2019. Impact of WWII: ○ Travel slowed during the war. ○ Resumed after with jet planes and new destinations after the Cold War. Economic Importance: ○ 2019: Tourism created 10.5% of global jobs and 10.4% of the world’s economy. ○ 2024: Expected to contribute $11.1 trillion globally. Cruise Industry Early Cruises: ○ Began in 1844 with trips to Mediterranean destinations. ○ Luxury ships like Titanic became popular for wealthy travelers. Modern Cruises: ○ Ships are now like floating hotels with restaurants, nightclubs, and entertainment. ○ Focus is on relaxing vacations (e.g., Caribbean, Alaska). Growth: ○ 1970: 500,000 people took cruises. ○ 2013: Over 20 million passengers. Innovations: ○ New ships like Icon of the Seas have modern features (e.g., pools, water slides). ○ Use eco-friendly technologies like liquefied natural gas. Challenges: ○ Large ships can’t dock everywhere. ○ Rising costs have led to complaints about reduced services. Commercial Aviation Early Milestones: ○ 1908: First passenger flight by the Wright brothers. ○ 1914: First airline started in Florida but only lasted a few months. Key Developments: ○ 1920s: Multi-engine planes made flights safer. ○ 1930s: Douglas DC-3 made flying faster and more comfortable. ○ 1940s: WWII slowed commercial aviation but improved technology. The Jet Age: ○ 1950s–60s: Jet engines made air travel faster and more affordable. ○ Airlines offered luxury services to attract passengers. Budget Airlines: ○ 1970s: Laker Airways started cheaper flights by cutting services. ○ 1980s–90s: Ryanair and EasyJet made no-frills travel popular in Europe. The Boeing 747: ○ Launched in 1970, it could carry more passengers over long distances. ○ Helped lower ticket prices and made air travel more accessible. Post-COVID Recovery: ○ Air travel dropped during the pandemic but is now recovering. ○ 2021: Over 30 million flights, getting close to pre-COVID levels. Resort Hotels Origins: ○ Started with Roman seaside resorts and spas.  ○ Modern resorts became popular in the 1930s in Britain. All-Inclusive Model: ○ Guests pay one price upfront for food, drinks, and activities. ○ Removes worries about extra costs and makes resorts more profitable. Impact on Local Communities: ○ Creates jobs but much of the money goes to foreign investors. ○ Resorts can isolate tourists from local cultures. Global Trends: ○ All-inclusive resorts are growing in Asia, with places like Macau and Hainan attracting millions of visitors. Key Trends and Challenges Cruise Industry: ○ Cruises are now popular for middle-class families. ○ Onboard spending (e.g., spas, gambling) is a major source of revenue. Sustainability: ○ Cruise ships and airlines are working on reducing environmental damage. ○ New ships use energy-efficient technologies to lower pollution. Week 9: Global Finance: What is Money? Definition (Oxford English Dictionary): ○ Money is anything that people agree to use to trade goods and services without bartering. ○ Includes coins, paper notes, and digital records. Types of Money: ○ Coins: Made of metal; valued for the metal or as tokens. ○ Paper Money: Represents value; first used in ancient China. ○ Digital Currency: Exists as information, not physical objects. ○ All money works because people agree on its value. Kinds of Money Commodity Money: Items like gold, silver, shells, or grain that have value. Token Money: Coins or paper backed by a commodity like gold (e.g., the "gold standard"). Fiat Money: Money declared valuable by a government, not backed by a physical commodity. Potosi and Silver  Potosi (Bolivia) produced massive amounts of silver, driving early capitalism. Silver from South America: ○ Boosted European economies by replacing barter with money. ○ Changed global trade, especially with Asia. ○ Pushed European nations to colonize more lands. Modern Relevance: ○ Today, Potosi is a major source of lithium, used in electric car batteries. ○ How lithium is developed will shape its future role in global markets. What is a Bank? Central Banks Bank of England (1694): ○ Formed to raise money for the navy. ○ Allowed to issue notes and manage government accounts. Federal Reserve (USA, 1913): ○ Created to handle financial crises and control the economy. ○ Key roles: Regulate banks. Act as a lender for banks in trouble. Set interest rates. Bank of Canada (1935): ○ Established after the 1931 gold standard was dropped. ○ Initially private but controlled by the government by 1938. ○ Handles Canada's money supply and currency Chartered Banks in Canada Chartered banks take deposits and make loans. They operate under government charters. Examples: Bank of Montreal (1817), Bank of Nova Scotia (1832). Evolution of Banking in Canada Before 1923: Bank failures were common. 1923: The Home Bank failure led to stronger regulation. 1967 Bank Act: Allowed banks to offer personal loans and mortgages, boosting competition. The Euro Key Milestones Early Efforts: ○ Treaty of Rome (1957) aimed to coordinate economies. ○ The Bretton Woods system tied currencies to the US dollar and gold. Steps Toward the Euro: ○ 1970s: European Monetary System (EMS) created to stabilize currencies. ○ 1989: Delors Report suggested a 3-stage plan for a single currency. Stage 1: Coordinate economic policies. Stage 2: Set up central banking systems. Stage 3: Replace national currencies with the euro. ○ 1992: Maastricht Treaty laid rules for joining the euro. Euro Launch: ○ 1999: Introduced as virtual money. ○ 2002: Coins and notes were issued. ○ Today: Used by 19 of 27 EU countries. Challenges and Dollar Dominance The euro was meant to compete with the US dollar, but the dollar remains dominant. Reasons for dollar dominance: ○ 60% of global transactions use dollars. ○ The dollar is seen as stable and reliable. EU actions to strengthen the euro: ○ Issued euro-denominated bonds (2021). ○ Improved its credibility during the pandemic. Exchange Rate Systems Free Floating: Currency value is decided by supply and demand (e.g., USD, British Pound). Managed Floating: Mostly market-driven, but central banks intervene sometimes (e.g., Brazil, China). Fixed Rate: Currency is tied to another (e.g., Hong Kong’s peg to USD). US Financial Power The US dollar dominates global trade and financial systems. Sanctions on Russia highlight the dollar's power. Challenges for developing countries: ○ Many borrow in dollars, so stronger dollars increase their debt burden. ○ The World Bank warns that many are near debt crises. Black Business and Afrocentric Management Key Figures: ○ Charles Clinton Spaulding: Ran North Carolina Mutual Life Insurance, focusing on community and cooperation. ○ Prieto and Phipps: Promote Afrocentric business ideas inspired by African values like "Ubuntu" (community and interconnectedness). Contributions of Spaulding: ○ Encouraged teamwork and responsibility. ○ Supported employees with training and benefits. ○ Pioneered corporate social responsibility. Week 10: The Textile Industry Historical Background Cotton has been used for thousands of years in regions like: ○ South and Central America, Indus River Valley, and Ancient Egypt. Cotton became popular in Europe through: ○ Greek conquests (Alexander the Great brought cotton to Europe from India). ○ Islamic traders in Spain and Sicily (introduced cotton-spinning technology). ○ The Silk Road (cotton fabrics were traded into Southern Europe). Industrial Revolution and Cotton Cotton production was revolutionized by: ○ Spinning Jenny (James Hargreaves): Allowed one person to spin multiple threads. ○ Water Frame (Arkwright): Used water power for mass thread production. ○ Steam Power: Increased productivity in cotton spinning and weaving. ○ Cotton Gin (Eli Whitney): Quickly removed seeds from raw cotton, boosting production. Industrialism's Impact: ○ Machines replaced many manual jobs (e.g., spinning and weaving). ○ England became the global leader in cotton production despite growing no cotton. ○ Colonial powers, like Britain, extracted cotton from India and the American South. Labor and Exploitation Factories relied on cheap labor: ○ Women and children were paid less and worked long hours in dangerous conditions. ○ Child labor laws introduced later (e.g., 1833 Factory Act in England) but poorly enforced. Cotton production in the U.S. depended heavily on slave labor. ○ After the Civil War, sharecropping exploited both freed slaves and poor whites. Modern Textile Industry Generates $450 billion annually and employs over 25 million people globally.  Ethical issues: ○ Sweatshops in developing countries: Poor working conditions, long hours, low wages. Women face higher rates of abuse and discrimination. ○ Fair trade/environmentally sustainable textiles account for only 0.5% of revenue. Homeworkers: ○ Subcontracted workers (e.g., in China, Latin America) produce garments at home for low pay. Key Disasters and Their Impact 1. Triangle Shirtwaist Factory Fire (1911, New York): ○ Fire killed 146 workers (mostly women). ○ Resulted in stronger labor regulations (e.g., fire safety measures). 2. Rana Plaza Collapse (2013, Bangladesh): ○ Building collapse killed 1,134 garment workers. ○ Sparked global debates on corporate responsibility and worker safety. Key Themes Cotton and textiles "chase cheap"—companies often move production to countries with the lowest costs and least regulation. Regulation is critical but often poorly enforced. Consumers and companies share responsibility for supporting ethical practices. Overview The British imposed restrictions and bans on Indian textiles during their colonial rule. Policies targeted India's textile industry to benefit Britain's economy and maintain colonial control. The measures severely impacted India’s economic, cultural, and social structures. Key Reasons for the Ban 1. Economic Interests and Industrial Growth: ○Britain’s Industrial Revolution boosted mechanized textile production. ○India provided raw cotton for British factories. ○Restrictions ensured a steady supply of raw materials for British industries and strengthened their dominance in the global textile trade. 2. Protectionism and Market Control: ○ Tariffs, taxes, and import duties were placed on Indian textiles to make them less competitive in Britain. ○ Protected British manufacturers, ensuring their products remained dominant globally. ○ Restricted India’s ability to compete in both domestic and foreign markets. 3. Colonial Exploitation:  ○Wealth from Indian textiles was funneled to Britain through trade imbalances and taxes. ○Contributed to the economic drain that weakened India's industrial and economic development. ○ India became economically dependent on Britain. 4. Undermining Indigenous Craftsmanship: ○ Targeted handloom weaving and traditional textile practices, central to India's economy and culture. ○ Eroded India's cultural identity and reduced economic self-sufficiency. 5. Social and Political Control: ○ Restrictions on textiles asserted British dominance over Indian society. ○ Reduced economic autonomy of local communities, reinforcing India’s role as a supplier of raw materialsand a market for British goods. Consequences Economic Impact: ○ Decline of India’s textile industry. ○ Increased dependence on British goods. ○ Stifled India's industrial development. Cultural Loss: ○ Undermined traditional craftsmanship and weakened cultural heritage. Colonial Hegemony: ○ Cemented British dominance over Indian society and economy. Conclusion The restrictions were part of a larger strategy to exploit India for Britain’s benefit. Highlight the intersection of economic, cultural, and political goals in colonial policies. Had lasting effects on India’s economy, culture, and autonomy. Overview The textile and apparel industry is one of the world’s biggest and oldest industries. The industry has evolved significantly over time, starting from prehistoric clothing to modern apparel. Origins: ○ Humans started wearing clothes between 500,000 and 100,000 years ago. ○ Early trade hubs for textiles: Ancient China, Turkey, and India (along the Silk Road). Historical Highlights Egypt: Pharaohs wore linen and animal skins. Byzantine Empire: Luxurious purple silk was highly fashionable and in demand. Key Factors Driving the Textile Industry 1. Consumer Demand: ○ Influenced by fashion trends and the cost of materials. 2. Efficiency: ○ Companies must produce efficiently to succeed. 3. Contracts: ○ Securing deals with clothing brands is crucial for success. Overview of the Silk Road What it was: ○ A network of trade routes connecting China, India, Central Asia, and the Roman Empire. ○ One of the first international trade highways. ○ Began around 100–200 BCE. Purpose: ○ Facilitated trade of silk, spices, and gems. ○ Connected two powerful empires: China and Rome. Silk's Role in Ancient Trade Demand for Silk: ○ Highly sought after in the Roman Empire. ○ Silk was more comfortable than wool and symbolized luxury and status. ○ Reserved for wealthy elites due to its scarcity and high cost. Chinese Monopoly: ○ Silk production was a Chinese state secret for centuries. ○ China maintained control over silk manufacturing until around 300 AD. Impact of the Silk Road 1. Trade and Economy: ○ Opened one of the first long-distance economic relationships. ○ Encouraged geopolitical and economic interactions between East and West. 2. Cultural Exchange: ○ Spread ideas, philosophies, and religions between Asian and Western cultures. ○ Fostered early cultural globalization. 3. Black Plague: ○ The Silk Road is believed to have helped spread the Black Plague from Asia to Europe in the 14th century. ○ The plague killed over 20 million Europeans (~1/3 of the population). Legacy The Silk Road set the stage for modern international trade and politics. Ancient Roman demand for Chinese silk influenced today's global economic systems. Overview of the Industrial Revolution Began in England in the 1700s. Colonial resources (silk, cotton, tobacco, sugar, gold) fueled Britain's industries. Britain exported finished products (textiles, metalware) to its colonies. Britain's ports, population, water, and coal supply made it ideal for industrialization. By the late 1790s: ○ 57% of British exports went to North America and the West Indies. ○ 32% of British imports came from these regions. Textile Industry Before Industrialization Cottage Industry: ○ Textiles were made at home. ○ Workers controlled their own schedules but were unproductive. Rising demand for textiles led to a need for faster production methods. Key Innovations in Textile Production 1. In Britain: ○ (Hargreaves): Increased thread production speed. Spinning Jenny ○ Water Frame (Arkwright): Improved thread quality and speed. ○ Steam Engine (Boulton and Watt): Powered machines more efficiently. 2. In the United States: ○ Cotton Gin (Eli Whitney): Removed seeds 50x faster, boosting cotton production. ○ Power Loom and Factories (Francis Cabot Lowell): Allowed raw cotton to be processed into cloth in one place. ○ Samuel Slater: Brought British technology to the U.S., sparking its Industrial Revolution. Societal Changes During the Industrial Revolution Shift from rural to urban living: ○ Before: Over 80% lived in rural areas. ○ By 1850: Most in Britain and the U.S. lived in cities. Rise of the middle class. Women joined the workforce: ○ Factories hired women for cheap labor. ○ Women sought independence through employment. ○ Example: Lowell Girls worked in Francis Cabot Lowell's U.S. textile factories, earning profits for employers through low wages. Legacy The Industrial Revolution transformed production, society, and labor systems. Innovations in textile manufacturing laid the groundwork for modern industries. Overview of the Modern Textile Industry Economic Significance: ○ Generates $450 billion annually. ○ Employs over 25 million people worldwide. ○ Produces over 120 billion pounds of textiles each year. ○ Cotton demand: Over 120 million tons annually. Ethical and Environmental Concerns Only 0.5% ($3 billion) of the industry's revenue is considered fair trade or environmentally sustainable (as of 2007). Sweatshops: ○ Common in developing countries. ○ Workers face: Long hours (10–18 hours/day, up to 80 hours/week). Unhealthy conditions (poor ventilation, exposure to toxins). Low wages. ○ Women face additional challenges: Higher rates of abuse (physical and verbal). Poor maternity support. Less accommodating workspaces. Importance of the Industry to Developing Countries Economic Dependency: ○ Cambodia: 80% of export earnings come from textiles. ○ Bangladesh: 75% of earnings depend on the textile industry. For many, working in sweatshops is seen as better than alternatives like scavenging. Sweatshops are defended by businesses as necessary for market competitiveness. Emergence of Homeworkers Homeworkers: ○ Subcontracted workers who produce garments from home. ○ Paid per piece. ○ Estimated to produce 60% of garments in China and Latin America. Allows some flexibility but often involves low pay and lack of worker protections. Conclusion The textile industry continues to grow to meet global demand. Despite tough conditions, it provides economic stability for developing countries. Ethical and sustainable practices remain a challenge for the industry. 1800s: The Beginnings  Before the 1800s, clothing was handmade, often from materials people produced themselves (e.g., wool from sheep). Industrial Revolution: ○ Introduced textile machines, factories, and ready-made clothing (bulk manufacturing of standardized sizes). ○ Sewing machine (1846): Drastically reduced clothing prices. Increased the scale of production. Local dressmakers: ○ Middle-class women bought from small businesses. ○ Lower-income women often made their own clothes. ○ "Sweaters": Home-based workers producing garments for very low wages. Early form of outsourcing. 1900s-1950s: Standardization and Globalization World War II: ○ Fabric restrictions led to more functional, standardized clothing. ○ After the war, consumers embraced mass-produced clothing. Triangle Shirtwaist Factory Fire (1911, New York): ○ Killed 146 garment workers, mostly immigrant women. ○ Highlighted poor working conditions, a recurring issue in fast fashion. Post-WWII: ○ Increased demand for affordable clothing led to large-scale textile mills in developing countries. ○ Outsourcing saved costs for Western companies. 1960s-1990s: Rise of Fast Fashion 1960s: ○ Young people embraced cheap, trendy clothing to follow fast-changing trends. Global Retail Giants: ○ H&M: Founded in 1947 (Sweden), expanded to the U.S. in 2000. Emphasized affordability and fast trend turnover. ○ Zara: Founded in 1975 (Spain). Known for its "15-day" production cycle, quickly bringing trends to stores. ○ Other brands like TopShop, Primark, and Forever 21 followed similar models. Mall Stores: ○ Predecessors like Wet Seal and American Eagle were slower in trend production and eventually declined. 2000s-Present: Democratization and Criticism  Late 1990s-2000s: ○ Fast fashion became "chic," as affordability allowed consumers to mix high-end and low-cost fashion. ○ Prominent figures like Kate Middleton and Michelle Obama wore fast fashion, normalizing "disposable clothing." Global Accessibility: ○ Online shopping made trendy clothing instantly accessible. Major Issues: ○ Labor Exploitation: Examples: Tazreen Fashion fire (2012, Bangladesh) and Rana Plaza collapse (2013, Bangladesh). ○ Environmental Impact: High levels of waste and unsustainable production practices. Calls for change: ○ Advocate for slowing down production and focusing on sustainable fashion. Key Themes Fast fashion originated from industrial innovations and grew through globalization. Benefits: ○ Affordable clothing for the masses. ○ Democratization of fashion. Drawbacks: ○ Poor labor conditions and environmental harm. The future of fashion may focus on balancing affordability with sustainability. Cotton's Global Importance (Pre-Civil War) By 1861, cotton was the foundation of the world’s largest manufacturing industry. ○ Employed 20 million people globally (~1 in 65 people). ○ In Britain: 1/5 to 1/4 of the population relied on the cotton industry for livelihood. Cotton accounted for half of British exports. ○ U.S. cotton exports made up 61% of all U.S. exports, dominating global cotton markets. By the late 1850s: ○ The U.S. supplied: 77% of Britain’s cotton. 90% of France’s cotton. 60% of Germany’s cotton. 92% of Russia’s cotton. Factors Behind U.S. Cotton Dominance Key Ingredients: ○ Labor: Enslaved people provided abundant and forced labor.  ○ Land: Fertile and virtually free land enabled high production. ○ Credit: Strong financial networks facilitated trade. Slavery was central to this system: ○ It fueled the prosperity of the U.S. South and global cotton production. ○ However, observers noted its instability and moral contradictions, raising concerns about rebellions and economic dependence. Impact of the Civil War on Cotton Confederacy fired on Fort Sumter, initiating the Civil War. April 1861: Disruption of Cotton Supply: ○ Confederate government initially banned cotton exports to force British support. ○ Union blockades reduced exports from 3.8 million bales (1860) to nearly nothing by 1862. ○ Resulted in a “cotton famine” that devastated European industries reliant on U.S. cotton. Global Response to the Cotton Crisis European nations scrambled for alternative sources of cotton: ○ Egypt, India, and Brazil increased production. ○ Highlighted labor, not land, as the key limiting factor. Transitioned from slave labor to various systems: ○ Coolie labor, sharecropping, and wage labor became new models. Demonstrated the interconnectedness of global economies: ○ Cotton shortages impacted trade, agriculture, and real estate globally (e.g., in Liverpool, Bombay, and Alexandria). The Role of Slaves in Emancipation During the Civil War: ○ Enslaved people: Deserted plantations and joined Union forces. Withheld labor, turning the war into a fight for emancipation. ○ By the war’s end, 4 million enslaved people gained freedom. Raised concerns among global elites about maintaining cotton production without slavery. Post-War Rebuilding of the Cotton Industry Global Experiment: ○ Cotton production shifted to non-slave systems during and after the war. ○ Debates emerged on whether cotton could be produced profitably without forced labor. Lessons Learned: ○ Labor supply remained the primary challenge in global cotton production. ○ State involvement became crucial to maintaining trade networks and industrial stability. ○ Despite the disruption, the global cotton trade and "King Cotton" remained dominant. Key Themes 1. Cotton and Capitalism: ○ Cotton was central to global capitalism and industrialization. ○ Slave labor and colonial exploitation underpinned its success. 2. The Civil War as a Turning Point: ○ Severed the U.S. South's dominance in global cotton markets. ○ Shifted the cotton trade toward free labor and diversified production regions. 3. Interconnected Global Economy: ○ The cotton crisis demonstrated how local events (e.g., Civil War) had far-reaching global impacts. Week 11: Oil Industry Historical Background of Oil and Gas Early Use of Oil: ○ In the 1800s, oil was used mainly for lubrication and kerosene (for lamps before electricity). ○ Gasoline was a byproduct of refining kerosene and initially discarded. Internal Combustion Engine: ○ Enabled the use of gasoline as fuel. ○ Innovators like Karl Benz developed the first gasoline-powered vehicles. ○ Required networks of gas stations and infrastructure like highways for widespread adoption. Key Historical Figures and Companies William Knox D’Arcy: ○ Founded British Petroleum (BP) in Persia (now Iran). ○ BP was granted monopoly rights by the British government, highlighting colonial exploitation. John D. Rockefeller: ○ Created Standard Oil, which controlled 90% of global refining by the 1890s. ○ U.S. government eventually forced Standard Oil to break up into smaller companies due to anti-monopoly concerns. Impact of Gasoline and Automobiles Henry Ford and the Model T: ○ Revolutionized car production with the assembly line. ○ Made cars affordable, increasing demand for gasoline and roads. ○ Sparked the creation of suburbs as people could live farther from work. Highways and Infrastructure: ○ Governments invested heavily in roads and gas stations. ○ Created a cycle of more cars requiring more infrastructure. Global Politics and Oil  Oil as a Strategic Resource: ○ Essential for wars (e.g., tanks, ships, planes during WWI and WWII). ○ Control over oil often caused conflicts. OPEC (Organization of Petroleum Exporting Countries): ○ Formed by oil-producing nations to control prices and production. ○ 1973 Oil Embargo (during Yom Kippur War) caused a global recession. ○ OPEC's influence has declined due to internal discipline issues. Environmental and Social Concerns Pollution: ○ Oil refineries and transportation (pipelines, tankers) cause environmental damage. ○ Risks include spills, pipeline breaks, and greenhouse gas emissions. Indigenous and Land Rights Issues: ○ Pipeline construction often conflicts with indigenous rights and property concerns. Canadian Oil Industry Imperial Oil: ○ Originally part of Rockefeller’s Standard Oil, dominated Canadian oil for decades. Petro-Canada: ○ Created in the 1970s by the Canadian government to provide a national oil company. ○ Later privatized in stages, no longer fully government-owned. Key Themes 1. Oil and Capitalism: ○ Oil is central to modern economies but heavily tied to exploitation and colonialism. 2. Environmental Impact: ○ The oil industry faces significant challenges related to sustainability and pollution. 3. Global Politics: ○ Oil has driven both economic development and international conflicts. What is Petroleum? Definition: ○ A naturally occurring liquid found underground. ○ Can be refined into fuels (e.g., gasoline, kerosene) and converted into plastics. Formation: ○ A fossil fuel formed over millions of years from decomposed organic matter under heat and pressure. Key Uses: ○ Powering vehicles, heating units, machines. ○ Used in making plastics, fertilizers, and other products. Significance of Petroleum Economic Impact: ○Major driver of the global economy and geopolitics. ○Many of the world’s largest companies are involved in petroleum extraction, processing, or related industries. Non-Renewable: ○ Finite resource; alternatives like solar, wind, and biofuels are being explored. Petroleum Industry Overview 1. Oil Extraction: ○ Drilling methods: Developmental Drilling: Known reserves. Exploratory Drilling: Searching for new reserves. Directional Drilling: Vertical drilling to a specific source. ○ Geologists use "seismic reflection" to locate reservoirs. 2. Oil Classifications: ○ Based on: Geographic origin. Sulfur content (sweet vs. sour crude). API gravity (density measure). 3. Supply Chain: ○ Upstream: Exploration and production of raw materials. ○ Midstream: Transportation and storage. ○ Downstream: Refining and post-production distribution. 4. Top Oil Reserves (2022): ○ Venezuela: 303.8 billion barrels. ○ Saudi Arabia: 297.5 billion barrels. ○ Canada: 168.1 billion barrels. Pros and Cons of Petroleum Pros: Stable and reliable energy source. High energy output. Easy to extract, transport, and use. Wide variety of applications. Cons: Non-renewable. Carbon emissions contribute to global warming.  Extraction and transportation harm the environment (e.g., spills, fracking, pollution). Investing in Petroleum Investment Methods: ○ Oil futures, ETFs (e.g., Invesco PXE, iShares IEO). ○ Mutual funds (e.g., Vanguard Energy Fund, Fidelity Select Natural Gas Fund). Energy Sector Funds: ○ Focus on companies like Shell, ConocoPhillips, Marathon Petroleum. Alternatives to Petroleum Uses turbines to harness wind energy. Wind Power: Solar Power: Converts sunlight into electricity. Biofuels: Made from vegetable oils and animal fats. Key Takeaways Petroleum is essential for energy and manufacturing but is a finite, non-renewable resource. Its extraction and use have significant environmental impacts. Alternative energy sources are critical for future sustainability. Crude Oil: Key Drivers of Prices Global Supply and Demand: ○ Economic growth increases demand for petroleum (e.g., transportation, heating, electricity). ○ Transportation sector: Heavily reliant on petroleum products like gasoline and diesel. ○ Petroleum accounts for about one-third of total world energy consumption. Factors Influencing Prices: ○ Geopolitical events: Political upheavals, conflicts, and trade disruptions (e.g., wars, embargos). ○ Severe weather: Hurricanes and cold weather can disrupt production and refining, raising prices. ○ Market structure: Oil markets operate like a global auction, with prices set by the highest bidder. OPEC and Price Control Role of OPEC: ○ Controls about 72% of global crude oil reserves and 37% of production (as of 2021). ○ Sets production quotas for member countries to manage global supply and influence prices. Challenges for OPEC: ○ Mixed compliance with production quotas by member countries. ○ Competition from non-OPEC producers.  ○ Ability of consumers to switch energy sources or reduce consumption. Spare Capacity: ○ Refers to OPEC's ability to increase production during shortages. ○ Key to stabilizing markets during supply disruptions. ○ Saudi Arabia holds the largest share of global spare capacity. Supply Disruptions and Oil Price Shocks Historical Examples: ○ Sharp price increases due to reduced supply. Arab Oil Embargo (1973–74): ○ Iranian Revolution & Iran-Iraq War: Political instability disrupted production. ○ Persian Gulf War (1990–91): Major impact on global oil prices. ○ Recent events in the Middle East, Venezuela, and Libya have caused similar disruptions. Short-Term Price Volatility: ○ Supply disruptions create uncertainty, leading to sharp price changes. ○ Low spare capacity and inventories amplify the effects of disruptions. Oil Market Transactions 1. Futures Contracts: ○ Standardized agreements to buy/sell oil at a fixed price on a future date. ○ Used by producers, consumers, and speculators to hedge or profit from price changes. 2. Spot Transactions: ○ On-the-spot purchases of oil for immediate delivery at current prices. 3. Market Signals: ○ Rising Prices: Indicate a need for more supply. ○ Falling Prices: Signal oversupply relative to demand. Key Market Dynamics Auction-Like Behavior: ○ Tight markets (high demand or low supply) lead to higher prices. ○ Loose markets (low demand or high supply) allow buyers to wait for lower prices. Price Responsiveness: ○ Supply and demand are inelastic in the short term. ○ It takes time to develop new sources or adapt consumer equipment to alternative fuels. Summary of Key Takeaways Crude oil prices are influenced by economic growth, geopolitical events, OPEC actions, and market dynamics. Supply disruptions (political or weather-related) significantly affect short-term prices. Oil markets operate through futures and spot transactions, with prices reflecting supply-demand balances.  OPEC plays a central role in stabilizing global markets but faces challenges from non-OPEC competition and compliance issues. Oil Pricing Benchmarks 1. Brent Oil: ○ A global benchmark originating from the North Sea. ○ Light and sweet oil with low sulfur content. ○ Benefits: Easily transported via extensive pipelines and tankers to global markets. Receives some of the highest prices in the market. 2. West Texas Intermediate (WTI): ○ A U.S. benchmark based in Cushing, Oklahoma. ○ Light oil, but: Limited by U.S. crude oil export restrictions. Landlocked production requires transport to coastal refineries. ○ Trades at a discount to Brent due to transportation challenges and a glut of supply. 3. Western Canada Select (WCS): ○ Canadian benchmark for heavy oil blends. ○ Includes bitumen and diluents (used to make bitumen flow in pipelines). ○ Priced at a further discount to WTI due to: Heavier quality. Distance from major markets. Alberta Oil Pricing Dilbit (Diluted Bitumen): ○ A blend of bitumen and diluents from Alberta's oil sands. ○ Heavier than WCS, so it trades at an even greater discount. Bitumen Netback: ○ The final price producers receive after deducting: Transportation costs. Costs of diluents and pipelines. ○ Forms the basis for royalty calculations in Alberta. Key Factors Influencing Alberta's Oil Prices 1. Oil Quality: ○ Alberta oil (e.g., WCS, dilbit) is heavier and harder to refine than Brent or WTI. ○ Results in lower market prices. 2. Geographic Location: ○ Alberta's oil is far from coastal markets, adding transportation costs. ○ Limited pipeline capacity further increases price discounts. 3. Market Access: ○ Easier access to global refineries (e.g., new pipelines) reduces price discounts.  ○ Lack of market access limits Alberta’s ability to compete with higher-priced benchmarks like Brent. Impact on Alberta's Royalty Framework Royalties: ○ Paid based on the value of resources sold (bitumen netback). ○ Lower oil prices reduce the royalties Alberta receives. Challenges: ○ Discounts from lower quality and market access limitations reduce Alberta's revenue. Solutions: ○ Improved infrastructure (e.g., pipelines) could increase access to refineries and reduce discounts. Summary Alberta’s oil prices are lower than global benchmarks (Brent, WTI) due to: ○ Heavy oil quality. ○ High transportation costs. ○ Limited access to global markets. Addressing transportation and market access issues can help reduce price discounts and increase royalties.