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These notes detail the business of alcohol, covering gin, rum, and prohibition. They reference historical events and trends in alcohol consumption, and regulations in several countries, such as the US, Canada, and the UK.
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WEEK 7-12 NOTES WEEK 7 LECTURE NOTES ART ONE - BUSINESS OF ALCOHOL P Gin: Mixed alcohol + juniper berries for medicine 16th-17th century, Dutch created “genever” - inexpensive Came to Britain from King William III who pu...
WEEK 7-12 NOTES WEEK 7 LECTURE NOTES ART ONE - BUSINESS OF ALCOHOL P Gin: Mixed alcohol + juniper berries for medicine 16th-17th century, Dutch created “genever” - inexpensive Came to Britain from King William III who put tariffs of French wine and gave tax breaks to English gin distillers bc they’re domestic A lot of English people started making gin to get benefits but they did not know how to drink it - caused drunkenness Backlash to Gin: Gin Act of 1751 - hard to get licence and gin is taxed In 1800s, quinine was thought to be cure for malaria but English people hated the taste, so they combined it with gin to make “gin and tonic” Rum: ate 1600s to 1700s, distilled from molasses and sugar L Sugar plantations in French/British colonies for cheap labour (African slaves) In 1731, British sailors got rum as tradition until 1970s America, a British colony, was prohibited from making rum by British. Instead made whiskey Cuba: acardi supplied rum to Spanish royals in 1880 B Created “rum and coke” calledCuba Libre Fidel Castro nationalized all distilleries, so Bacardis fled to Puerto Rico America put embargo (no trade) against Cuba but are considering removing it in 21st century, but Bacardis want their distilleries back ART TWO: PROHIBITION P Idea of preventing manufacture, storage, sale, possession of alcohol by law. Canadian Prohibitions: Influenced by Protestant churches In 1800s, the Dominan Alliance and Women’s Christian Temperance Union (organizations) wanted “Total Suppression of Liquor Traffic” Related to women’s suffrage who were affected by drunk men - wanted voting rights to remove booze John A. Macdonald uninterested in bans - he liked drinking Laurier - 1898 Referendum: Wilfrid Laurier liberal PM in 1896 ○ His English support liked prohibition ○ His French (Quebec) support hated prohibition Prohibition won nationally, but 80% of Quebecois against prohibition Laurier did nothing Prohibition with WWI: PEI’s prohibition lasted from 1901-1948. Seen as patriotic and conserving food March 1918 - stopped manufacture/import of liquor Alcohol in the Trenches: Canadian soldiers loved rum in WWI - considered medicinal/morale booster ○ Private Ralph Bell was in support Canadian PM felt pressure because people were against soldiers drinking When soldiers faced some prohibiton from their colonel, they threatened mutiny ○ So they removed that colonel and let them drink rum After WWI: Alcohol went back to selling after the war Drinking was seen as a right Also created criminals who illegally moved alcohol American Prohibitions: Alcohol illegal in US constitution in 1920 till 1933 21st amendment reversed this Ken Burns: Prohibition of alcohol was economically negative (job loss) Similarities in Canada (Job Loss): Devastated jobs and legacies Alcohol just went into black market instead of being reduced Increasing Access in Canada: 1927 ended alcohol prohibition (government control) Canada was tourist spot for Americans where it was still illegal ○ Smuggled from Canada to US LCBO: Premier Howard Ferguson was writing Liquor Control Act ○ To protect “God-given freedom” and promote sobriety, liberty, and respect for the law Evolution of LCBO: 1947 - cocktail bars 1958 and 1962 - End of passports/pass cards Wine displays allowed in 60s ARTICLE:Buzzkillers: A brief history of the LCBO Business started in 1927 after 11 years of prohibition News hated it the first week saying it was disgraceful and hurt youth Method of Payment: Customers vetted by employee and receive annual purchasing permit (passport) Filled in order and gave to clerk who determined if it was too much ○ Could lose permit if abused privileges and added to “interdiction” list B elieved regulations improved family life (men drank less, could work) Store staff stressed by lengthy process Women/minorities not allowed to work in stores, Indigenous not allowed permits till 1959 Changes: Passport permits gone by 1958, replaced by wallet cards (gone in 1962) Ontarians sick of being shamed for drinking but others (Temperance movement) did not want government money to fund liquor stores In 1969, self-service allowed, but concerns about shoplifting and traffic 1974 - criticisms that staff ridiculed customers with drinking problems In 1980s, Jack Ackroyd became chairman and asked Gary Reinblatt for help ○ Increased advertising, gave store managers power, larger locations ART THREE: MARKETING BRANDS / CONTROL P Brand Growth: Controlled by small number of MNEs (AB InBev largest) InBev: 2 004 - InBev created by merging AmBev and Interbrew Expanded to Latin America, Europe, South Korea In 2016, expanded to South Africa to sell beer and sweetened beers to women How Alcohol Companies Grow: People look for familiar brands and heritage rather than innovation - name recognition Health vs. Profit: Governments want to control consumption but rely on profits Results in some advertising restrictions Two Ways of Limiting Advertising: 1. Voluntary Codes of Conduct Producers design and follow code of conduct 2. Regulations by law Loi Evin: High smoking and drinking caused prohibition on advertising in TV, cinemas, sponsorship, allowed billboards and print No people/lifestyle in ads Health message included Was more successful at controlling tobacco than alcohol RTICLE:Gradual catch up and enduring leadershipin the global wine industry A Intro: Latecomers in wine industry changed how its made, sold, and enjoyed ○ Challenges France and Italy who led market till the 80s ○ Weakened by inexperienced consumers, low consumption US, Australia, Chile, South Africa gained market share ○ Slowed growth in Australia opened doors for Argentina, New Zealand, and Italy A bramovitz: Catch up involves going above and beyond with technology and social capabilities ○ Latecomers must share the market with current leaders ○ Key Dates and Cycles: 1 960s: European producers (France, Italy, Spain) dominatedthe global wine industry, with 63% of world production. 1976: The "Judgement of Paris" marked a turning point,where Californian wines outperformed French wines in a blind tasting. 1980s-1990s: U.S. and Australia began gaining marketshares, followed by Chile and South Africa in the 1990s. 2000s: Argentina and New Zealand entered as notablecompetitors. Italy modernized and gained significant market share. 2010 onwards: Emerging Asian markets, especially China,started reshaping global dynamics. Key Players: Andrea Morrison & Roberta Rabellotti: Authors of thestudy. F rance and Italy: Historically dominant Old World (OW) producers; Italy overtook France in key markets like the U.S. during the 2000s. Australia and USA (California): Early New World (NW)entrants; pioneered market-driven approaches and branding. Chile, South Africa, Argentina, and New Zealand: LateNW entrants focusing on premium and super-premium wines. China: Emerging as both a major consumer and a potentialglobal competitor. Major Changes and Innovations: M arket Dynamics: Declining consumption in traditionalEuropean markets; rising demand in the U.S., Asia, and Northern Europe. NW Innovations: Shifted from bulk production to brandedpremium wines. Countries like Australia embraced centralized R&D and branding. Institutional Support: Countries like Australia andNew Zealand established robust research and marketing systems, e.g., Wine Institute of New Zealand. Terroir and Premiumization: OW producers leveragedhistorical branding (e.g., AOC system) to sustain leadership despite challenges. Key Trends: D ecline in Traditional Consumption: France, Italy,and Spain saw significant drops in per capita wine consumption (50%-59% decline from 1961 to 2009). Export Growth: By 2009, global exports accounted for32% of production, up from 11% in 1961. Asian Markets: Rapid growth in demand, with China'sconsumption rising from negligible levels to 7.6% of global consumption by 2009. Challenges and Future Outlook: E U Regulatory Changes: 2008 reforms aimed at marketefficiency, reducing structural oversupply, and supporting competitiveness. New Competitors: China’s growing production and acquisitionof French wineries signal its potential as a key player. Sustainability of OW Leadership: Rooted in traditionsand terroir, but modernization and adaptation remain critical. his article highlights the nuanced interplay between tradition, innovation, and market T dynamics, with the global wine industry serving as a case study for gradual industrial catch-up. ARTICLE:Brand stretch: How alcohol brands are pushingmarketing boundaries Key Concepts: B rand Stretching: A strategy where alcohol companiesextend their brand to non-alcoholic products to increase visibility and bypass advertising restrictions. Line Extensions: Variations within the same productcategory (e.g., low-calorie beers like Bud Light). Category Extensions: Application of a brand name tonew product categories (e.g., Jack Daniel's BBQ sauces, Guinness chocolates). Historical Context: P ost-WWII Era: Significant growth in branding; alcohol brands became embedded in everyday life. Modern Trends: Alcohol companies focus on sophisticatedmarketing techniques, including social media, product placements, and sponsorships, moving away from traditional advertisements. Marketing Techniques: 1. A lcohol-Branded Merchandise (ABM): Products like T-shirtsand mugs with alcohol branding are used to create consumer connection and loyalty. ○ Example: Heineken's e-commerce hub for branded merchandise. 2. Alcohol-Flavored Foods: Brands like Jim Beam offerproducts like flavored potato chips and sauces. ○ Alcohol Concern Cymru’s study identified extensions like Baileys ice cream and Guinness chocolates. Risks and Benefits: Advantages: ○ Increases brand equity and consumer awareness. ○ Creates additional revenue streams with lower promotional costs. Challenges: ○ Risk of brand dilution (e.g., Coors’ failed extension into bottled water). ○ Potential erosion of the core brand's identity. Regulatory Concerns: Displacement Marketing: A tactic used to bypass advertisingrestrictions. ○ Example: Camel introduced branded boots in Norway following a cigarette ad ban. Youth Impact: Studies show young people exposed toalcohol-branded merchandise are more likely to initiate drinking. Global Examples: India: Alcohol bans led to creative branding strategies,such as Kingfisher Airlines and Bacardi music CDs. Recommendations: A dvocacy for stricter regulations on alcohol marketing, including an end to sponsorships and ensuring ads are restricted to adult audiences. Key Figures and Sources: T om Blackett: Discussed branding's role in consumerconfidence. Don Williams: Emphasized brand personality and historyfor alcohol brands. Alcohol Concern Cymru: Conducted research on alcoholmarketing in Wales. Important Dates: 2 013: Heineken launched its global e-commerce hub. 2013: Guinness faced a regulatory review for its brandedcrisps, which were deemed compliant. his document highlights the innovative yet controversial ways alcohol brands extend their T reach through creative marketing, raising concerns about regulatory loopholes and youth exposure. WEEK 8 LECTURE NOTES ART ONE - SEEING/SELLING THE WORLD - TOURISM P Historical Background: Roman Holiday: Rome’s power/empire made tourism possible by giving security to travel without fear Rome’s “Grand Tour” included Italy, Greece, Troy, and Egypt for spas/baths Pilgrimages: Christianity, Bhuddism, and Islam called for pilgrimage (e.g. Mecca) Businesses saw it was for sight-seeing and conducted trips, set up food/drink stops The Grand Tour: Late 1600s England where it became norm for young boys to tour France, Italy, Greece to see art and architecture ○ Focused on prosperity and safety Only for the rich, but English banks would arrange letters of credit that boys could show other European bank ○ These financial relationships persisted Grand Tour ended because wars made it unsafe to travel in Europe homas Cook Travel: T Timeline of Company: Cook’s grandson inherited company in 1899 and was run by family till 1928 when it was sold to a Belgian Orient Express Taken over by British railway companies in WWII Nationalized after WWII, privatized in 70s, bankrupt in 2019 More About the Company: Had talks about temperance and bought railway tickets for his followers Put together global tours operated by Thomas Cook Travel ○ Continued idea that you need money to travel Post WWII Travel: Jet plane travel made it easier, but was expensive until the 70s. Became cheaper after 1990s End of Cold War = more potential destinations and travellers Stats: World travel and Tourism Council Before COVID, tourism was 10.5% of all jobs and 10.4% of global GDP Visitors spent $2 trillion in 2019 2024 supposed to be new high of $11.1 trillion PART TWO: COMMERCIAL CRUISES P eninsular and Oriental Steam Navigation Company (1844) started idea of passenger cruise ships Advertised sea tours to Gibraltar, Malta and Athens Main Era of Cruise Ships: Cunard Line of England launched in 1906 had largest and fastest ships ○ Ships ‘Mauretania’ and ‘Lusitania’ refined NA to EU travel Carried 50% more passengers than competitors Focused on size, speed, and luxury Lusitania torpedoed by Germans in 1915, killing 1,200 (mostly Americans) Titanic: French and English racing to build luxury ships - gyms, restaurants, library, swimming pool Was considered a social event, so Europeans travelled to New York Departed from Southampton on April 10, 1912 - stopped in France and Ireland, sunk on April 14 with 1,500 deaths Airplanes Introduced: Industry didn’t stop because ships were still the only way to get across ocean Jet travel caused ship industry to decline In 80s, Cunard Lines had small clientele Hotel-Like Cruises: Hospitality staff made it feel like a resort to Caribbean, Alaska TV show ‘The Love Boat’ from 77 to 86 popularized cruise ships ○ People on show were middle-class Americans COVID-19 / Cruises: People died on ships, industry shut down RTICLE:EXCHANGE --- Heard on the Street: The MathBehind The Megaships --- The A cruise industry is bringing a whole new meaning to the phrase 'economies of scale'- Spencer Jakob While cruises used to be for extremely wealthy people (‘newly wed and nearly dead’), now it’s mostly middle-class Americans/Europeans looking for luxury Attract children with theme park-like vibe Keeping Costs Down: Employ cheap labour and use tax havens, but main way iseconomies of scale ○ EoS alos happens to be green After COVID, cruise industry made tickets really cheap to get passengers back ○ One-third of their revenue comes from purchases on board (drinks, spa, restaurants, gambling) Royal Caribbean’s Icon of the Seas in 2023 is 5x bigger than Titanic ○ Larger ships are cost-efficient - there’s still only one captain, engineering team, etc Going Green: COVID forced ships to recycle older vessels which improved costs and environmental impact bc they were replaced with fuel-efficient models Expected to hit GHG reduction goals by 2026 Ships have more spacewhilebeing more environmentallyfriendly Fueled by clean liquified natural gas, less friction (more efficient), can connect to shore power, treat its waste Bigger ships have trouble getting into smaller places - so cruise lines lease private islands for docks like ‘Castaway Cay’ and ‘Perfect Day’ ○ Boost revenue bc they don’t have to pay local vendors ○ Save energy ○ Appeal safety of islands to customers PART THREE: COMMERCIAL AVIATION First paid commercial flight on Jan 1, 1914 from St. Petersburg to Tampa, Florida ○ Was limited to one passenger at a time WWI boosted airplane operation, creation, and accessibility 1930s had transpacific flights Boeing Clipper 314 could fly 74 passengers / 10 crew to 3,500 miles Air travel interrupted by WWII but also causes tech to expand Boeing 747: 747 created in 60s, created large # of passengers and distances (could go 8,000 miles without refueling) Made airline travel fares reasonable Pre- and Post-Covid: Travel rose from 23.8 million flights in 2004 to 38.9 million in 2019 21 million flights in 2020 and 30 million in 2021 Air travel now safer but environmentally costly ARTICLE:The History of Commercial Flight: How GlobalTravel Took Off First passengers flight in May 1908 First airline was German DELAG company 1920s: Lawson C-2 was the first multi-engine airplane Would fly low and frequently stop, making it cold, noisy, and expensive. Lots of turbulent and took a while 1935: Q antas had first international flight from Brisbane to Singapore, then to UK through Imperial Airways 6,000 passengers in 1930 to 500,000 in 1934 (the rich liked to fly) Innovation: Douglas DC-3 was an improved plane used by Delta, TWA, American, and United 1940s: WWII slowed commercial airline development By late 40s, Pan Am started using Boeing 307s which had the first pressurized cabins - could now go up to 20,000 feet ○ Now more advertising for travel to business hubs Golden Age: 50s and 60s introduced jet engine aircrafts Pan Am first to travel worldwide and added jet aircraft, used computerized reservation systems 60s introduced Concorde for transatlantic flights but it was very expensive Making it Cheaper: Laker Airways (England) started offering budget friendly flights by reducing inflight services/luxuries Reduced fuel consumption/engine wear with new technology - allowed for faster altitude climbs ○ Bankrupt in 80s recession For the Masses: Boeing 747 made it cheaper by carrying more passengers and lower ticket prices ○ No longer for the rich First class cabins and other luxuries were separated 80s and 90s had Ryanair and EasyJet for extremely cheap flights (20 pounds) 9/11: Increased airport security, more restrictions More cockpit security - locked doors, only pilots entering Recovered to pre-9/11 numbers in 2004 Post-Pandemic: Predicted 7.2 billion passengers by 2035, but COVID happened Still has positive future RTICLE:The Rise of the All-Inclusive Resort A Conversation between Adam Tooze and Cameron Abadi. Start of Resort Hotels: 1. Seaside Living Seaside living started with Romans (Europeans visiting Britain and Germany) Railways in 1930s made seaside resorts accessible 1930s had regular paid holidays 2. Spa Romans began culture of spas and bathing 3. Britain All-inclusive resorts in Britain in the 1930s 1950s had Club Med Resort Business Model: “ Holdup” problem where people are reluctant to sign up for resorts in case its too expensive once they do, common in American airports Britain resolves this by saying nothing will cost more than it does in the high street - all-inclusive model gets rid of holdup problem ○ More people want to go on holiday bc they are promised a fixed price European resorts more profitable than American ○ Resorts receive payment upfront ○ Creates goodwill Affect on Locals Near Resorts: Businesses say more business means more jobs Critics say they get distracted by locals when they’re vacationing - but this is just racist Described as ‘colonial’ model of vacationing Only 20-30% of revenue from resorts stay local (in wages) Solution would be to insist on localizing to build supply chains Who Travels? Used to be mostly Americans/Europeans but more global now CHINA: Macau huge hub for gambling - over 30 million visits ○ Vegas gets 40 million visitors, for comparison ○ Mexico gets 66 million visitors WEEK 9 LECTURE NOTES GLOBAL FINANCE PART ONE: HISTORY OF GLOBAL FINANCE What is money? Money: Any generally accepted medium of exchange to trade goods; objects with value. Coins/banknotes collectively are a medium of exchange Written, printed, or electronic record which isgenerallyacceptedas equivalent to coins/notes Coin: Valued for metal. Paper money: Issued to represent value. Digital currency: Exchanged as information. There needs to be ashared consensusof value. Kinds of Money: Commodity Money: Gold/silver coins, shells, grain (all with agreed values) Token Money: Coins/paper exchanged for gold/silver, e.g. “the gold standard” Fiat Money: Issued by government, not backed by gold but a declaration of value olitical Impact of Money - Potosi and Silver: P Context: Potosi is South American land conquered by Spanish Mountain had large supply of silver ○ Enslaved local population and increased Spain’s power ○ Supplied money, the ingredient of capitalism Impact: Spanish had supply of gold/silver to build wealth, influential, and buy military power Was able to buy from China/Asia Shifted European economy to cash-based instead of barter-based Locals in Potosi: Locals barely benefited from the minerals in Potosi Now, one of leading suppliers of lithium (used in electric cars and devices) Bank of England - Central Bank (1694): First central bank was Bank of England (1694) Designed to raise money for military (Navy for war with France) Became bank for government accounts By late 18th century, they issued currency, managed debt, and held gold to cover all currency in England US Federal Reserve (1913): December 23, 1913 Formed in response to financial crises and centralize control, regulate banks JP Morgan was responsible for fixing banking system Three Roles of Federal Reserve: 1. Maximize employment 2. Stabilize prices 3. Moderate long-term interest rates Bank of Canada (1935): Canada wanted to inflate economy following Great Depression and abandoned gold standard in 1931 Royal Commission in 1933 studied the economy and created Bank of Canada Controlled monetary supply Initially controlled privately, but now government controlled hartered Banks in Canada: C Context: Take deposits and make loans, operating under government Used to print their own money As capitalist economy grows, banks are more important BMO (1817): Bank of Montreal was first Canadian bank Used branch banking, where small group of banks would have branches across Canada ○ Provided stability Very different from US approach where there was fear of centralized authority causing unstable system with multiple banks Evolution of Banks in Canada: The Bank Act said, every 10 years, it will be re-examined But, Home Bank failed in 1923 - created stricter regulations Porter Commission (1964) wanted an open/competitive system Bank Act revised in 1967 allowed banks to have more power ○ Lifted 6% interest-rate ceilings on loans Allowed to enter into mortgages ○ Created Canadian Deposit Insurance Company to cover failures New Inventions:Bitcoin, ApplePay only work if wetrust it. ART TWO: THE EURO SHAKING UP GLOBAL FINANCE P Video:A Short History of the Euro Context: Not all member states use the euro but they all must eventually except Denmark Treaty of Rome (1957) had economic measures, but there wasn’t a need to coordinate currency because of Bretton Woods Bretton Woods: Fixed exchange rate for US dollar and gold Beginning Conversations: Hague Summit of 1969 started talking about solutions for European stability because Bretton Woods was shaky Pierre Werner wanted to replace national currency with a common EU currency Policies of New Currency: 1. Stronger coordination of economic policies 2. Must have free movement of capital 3. Must have fixed exchange rates between European countries Differences: ‘Economists:’ Believed shared currency was necessary (Germany, Netherlands) ‘Monetarists:’ Believed shared currency would make countries’ economies very similar (France, Belgium, Luxembourg) Currency Snake: Member states form ‘currency snake’ after Bretton Woods end in 1971 ○ Currencies are allowed to fluctuate against each other within 2.25% Oil crisis in 1973 caused devaluing of some European currencies and currency snake failed The European Monetary System: France wanted to cooperate but Germany thought inflation would spread to Germany Resolved by forming European Monetary System in 1978 1. Virtual currency called European Currency Unit (ECU) 2. Exchange rate mechanism (meaning member states agree to central rate) Delors Report: In 1989, proposed Economic and Monetary Union Stage One: Coordinate economic/monetary policies Free movement of capital Stage Two: Gradual transfer of monetary policy to European Commission (EC) Establish European System of Central Banks (ESCB) Implement narrower fluctuation Stage Three: Full transfer of monetary policy to EC Fixed exchange rates European currency Germany Changing Opinions: After Berlin Wall fell, they wanted to do shared currency Stage 1: Stage 1 begins 1990 Germany/Netherlands (want strict criteria) vs. France/Belgium (want to start) disagree because of Economist vs. Monetarist approaches Maastricht Treaty of 1992: Compromise was that stage 3 will begin as: ○ Common currency will start in Jan 1999 (satisfying monetarists) ○ Convergence criteria to participate in Stage 3 is also defined (satisfying economists) Convergence Criteria: ○ Stable currency, limited public debt, durable convergence, price stability BUT, Denmark disagreed to treaty: Caused British and Italian currencies to be kicked out of EMS Remaining EMS countries widened central rate to 15% - became flexible Denmark given opt-out Stage 2: 1994 when European Monetary Institute created In 1998, 11 countries in Stage 3: 1999, euro introduced as virtual currency with fixed exchange rates Jan 1, 2002 is when Euro coins/notes begin Now, used in 20/27 countries of EU rticle:Euro visions; The international role of theeuro. A Launch of Euro: European economists wanted to challenge American dollar Bank / businesses continue to use US dollar June 15th, €20 billion in bonds issued through Next Generation EU (NGEU) to boost EU economies (all backed by EU) ○ Safe asset similar to US Treasury bonds Advantages of Global Currency: Using Euro prevents risks - When using dollar exchange rates will change and cause disruption Selling EU bonds to foreign investors lowers borrowing costs for EU Euro’s Current Role: 1/3 to 1/2 of all Euro banknotes outside of Euro Zone 20% of central banks dominated by euros, 60% dominated by US dollar Challenges/Setbacks: In 2007 euro briefly rival dollar in popularity for issuing debt - stopped after 2008 financial crisis Investors fell back on stable US dollar Damaged euro’s reputation Aiming for Reduced Dollar Dependence: Under Trump (and Biden), US adopted protectionism - EU rethought reliance on dollar EU leaders push for ‘strategic autonomy,’ i.e. independence from US policies on sanctions like those on Iran ○ Int. banks rely on US dollars even outside of America. Going against US sanctions means large fines Changing Perspectives Among EU Leaders: US dollar power caused Germany (previously hesitant to promote euro) more open to it ECD responded very quickly to COVID which helped euro’s reputation Remaining Barriers: NGEU bonds are only $1 trillion while US treasury is $20 trillion ○ But NGEU bonds being backed by entire EU makes it safer for investors ○ Reza Moghadam: NGEU bonds also fills gap of lack of reliable, low-risk euro investment similar to US Euro still less stable than other areas - in risk-sharing, fiscal redistribution, divided capital markets, no central financial hub Potential Future: Former Bank of England Governor Mark Carney: Digital currencies can change dollar’s dominance by creating multiple global reserve currencies ECD exploring digital currency to help euro compete Long-Term Outlook: Possibly share global reserve with euro and Chinese yuan, similar to pre-WWII ART THREE: CURRENCY EXCHANGE P Video:Exchange Rate Systems Explained Free Floating Exchange Rate: Currency value set purely by market forces (supply and demand) Can eitherappreciateordepreciate No interventionby central bank - no target for exchangerate Value of currencynot a targetof a monetary policy(more freedom) Managed Floating System: Central bank gives freedom for market exchange rates day-to-day, supply/demand give value Central bankmayintervene ○ Buy to support currency ○ Sell to weaken currency Currencybecomes targetof monetary policy Exchange rate higher to control inflation ‘Managed depreciation’ Ex: Singapore, China How does China control the currency? Capital controls to limit money inflows/outflows Strict foreign investment quotas Have huge reserves if they do want to intervene in the market Fixed Exchange Rate: Central bank fixes currency value - pegs to one or more currencies Central bank must have enough foreign exchange reserves to intervene to maintain peg Peg rate becomes exchange rate May be unofficial trades in shadow currency markets G overnment may dodevaluationorrevaluationthe exchange rates with IMF’s approval Ex: Hong Kong pegged to US $, Bulgarian Lev pegged to euro Currency Board System: Exchange rate where nation’s currency is backed by a foreign reserve currency (usually in fixed exchange rate) Must have enough foreign currency reserves equal to domestic currency rticle:The World Is Seeing How the Dollar ReallyWorks(Adam Tooze) A Sanctions Highlight Dollar Dominance: A fter Russia’s invasion of Ukraine, the U.S. and its European allies imposed financial sanctions on Russia’s central bank, showcasing U.S. influence over global finance. Countries with large foreign reserves, like Russia, often hold these in dollars or euros, which gives the U.S. power to control access to those reserves during conflicts. Russia’s Response: R ussia restricted its financial system from the outside world to cope with sanctions. Imports dropped to half their previous levels, highlighting the impact of dollar-based sanctions on a country's economy. Possibility of a New Currency System: S ome speculate that countries like Russia, China, and India might try to create an alternative currency system to reduce dependence on the dollar. For example, India paid for Russian coal in Chinese currency, showing how countries might start trading without using dollars. However, creating such a system would take years and depends on China's economy continuing to grow. Current Reality: T he dollar remains dominant globally, especially as the U.S. economy impacts the entire world. The U.S. Federal Reserve’s decisions on interest rates heavily affect global credit, currency values, and trade. Rising Dollar and Global Impact: S ince mid-2021, the U.S. has raised interest rates to control inflation, leading to a 15% increase in the dollar’s value compared to other currencies. This rise makes it harder for countries with dollar debt, as paying it back becomes more expensive. Other countries are forced to raise their interest rates to avoid inflation and currency devaluation. Strain on Economies: W eaker economies, like Sri Lanka and Argentina, are struggling with high inflation and debt because of these conditions. Many low-income countries face debt crises, with 60% at risk of financial distress. Dollar-Based System’s Resilience: T he dollar system has evolved since the 1990s to handle these stresses, making it resilient despite the pressures on weaker economies. Larger economies are now better at protecting themselves from dollar fluctuations. Risk Management and Dollar Alternatives: C ountries now prefer to borrow in their own currencies to reduce dependence on the dollar. Emerging markets have learned to avoid dollar-based loans for households or governments as it increases risk during financial crises. Geopolitical and Financial Support for Dollar System: T he U.S. dollar’s dominance is supported by both commercial interests (like banks and investors) and geopolitical alliances. In crises, the Federal Reserve extends support to major central banks around the world to stabilize the dollar-based financial system. Future Outlook: T he strength of the U.S. economy will determine how much the Federal Reserve will raise interest rates. A slowdown in the U.S. economy could ease global pressures, while continued strength might force higher rates, creating more strain globally. A “soft landing” (mild recession with inflation cooling) would be ideal for the global economy. Article:Is the Big Mac index a good guide for currencyspeculators?- The Economist Introduction H ong Kong’s Currency Pressure: Recently, Hong Kong’smonetary officials intervened in the foreign exchange market to defend their currency peg (which ties the Hong Kong dollar to the U.S. dollar). They are selling the US dollar for Hong Kong dollars to keep demand for HKD up and maintaining the exchange rate. This defense is crucial, as any weakening of this peg could lead to a severe economic crisis. Question Posed: The article examines if the Big MacIndex can be a useful tool for currency speculators – people who try to predict and profit from changes in currency values. The Big Mac Index P urpose: The Big Mac Index is a simple way to measurepurchasing power parity (PPP). It compares the price of a Big Mac in differentcountries to assess whether a currency is overvalued or undervalued relative to the U.S. dollar. Example: If a Big Mac costs 13% less in one countrythan in the U.S., it suggests that this country’s currency is undervalued by 13%. Limitations of the Big Mac Index for Currency Speculation 1. Mismatch with Actual Investment Returns: ○ Imaginary Scenario: If an investor had used the BigMac Index to invest in the currencies of countries where Big Macs were cheapest (assuming they were undervalued), their returns might not match the index predictions. ○ Inflation and Investor Sentiment: Real-world currencyvalues are influenced more by inflation rates and investor sentiment than by PPP alone. 2. Case Study of Ukraine: ○ Ukrainian Hryvnia: If an investor used the Big MacIndex, they would have bought Ukrainian currency in 2015, expecting it to rise in value based on the low Big Mac price. However,investor confidence andinflationwould have impacted the currency more than PPP, making this strategy unreliable. 3. Example of India: ○ Indian Rupee: In India, a Big Mac saw a price risein rupees by about13% from January 2013 to January 2015. Despite this, therupee fell in value, which made the Big Mac Index misleading as it did not account for broader economic pressures on the rupee. 4. Swiss Franc Example: ○ Some currencies, like the Swiss franc and the euro, tend to follow PPP predictions more closely. In these cases, the Big Mac Index can be a bit more reliable because these economies have similar price levels and stable conditions. However, these are exceptions rather than the rule. Why the Big Mac Index Is Limited for Speculation S hort-Term Volatility: Short-term exchange rate movementsare driven by many factors beyond PPP, such as inflation expectations, trade balances, and geopolitical issues. Economic Fundamentals: Economists argue that morecomplex economic indicators, like inflation rates and market sentiment, often provide a clearer picture of currency movements. Arguments for Using the Big Mac Index L ong-Term Trends: Although not useful for short-termspeculation, the Big Mac Index may help illustrate long-term currency trends based on PPP. Currencies with a strong economic foundation may realign with PPP over time. Academic Support: Some economists argue that the BigMac Index is valuable as a rough indicator of PPP. Studies have even shown it aligns with long-term currency trends for certain stable currencies. Conclusion T akeaway: The Big Mac Index, while an interestingtool to highlight currency over- or undervaluation in a simple way, has significant limitations for speculators seeking to profit from short-term currency movements. Recommendation: For serious currency speculation,relying on more comprehensive economic indicators is generally more effective. WEEK 10 LECTURES/READINGS ART ONE: COTTON AND TEXTILES BACKGROUND P Early Cotton: Grown and used in South/Central America since 5000 BC, also Egypt In 3000 BC, cotton grown in Indus river valley Spread of Cotton to Europe: Used to use wool/leather originally Cotton entered Europe through Greece Alexander the Great invaded India and found cotton clothes Muslim traders bring cotton to Spain, Columbus finds it in the Bahamas Spread to America: In 1600s, cotton grown in Virginia - used slaves that were for tobacco India’s Large Supply: Large supply, work force, and dying secrets Supplied Europe in exchange for gold (95% of source by 1700s) Supply limited by price and technology - makes cotton pervasive EIC and Cotton (1690s): Calico, coloured cotton, became popular EIC able to take cotton from India, process it in UK, and sell it back in India for cheaper price Colonial cotton from America/Caribbean also benefited UK Restrictions: Limited by number of factories Needed to be combed/removed for seeds immediately or it would go bad Needed to be spun to thread to be cloth, then loomed for fabric Relied on manual labour Industrialism Changing the Cotton Game: “The Spinning Jenny” in 1764 by James Hargreaves spun the cotton into thread Richard Arkwright - Used water power for faster system done byoneperson ○ Destroyed by mob in 1768 because people were losing jobs to machines “Power Loom” - Edmund Cartwright in 1785 for faster weaving In 1800s, steam power made entire process faster Combing Still an Issue: Cotton needs to be combed immediately, meaning production was slow in in America “Cotton Gin” - solution by Eli Whitney ○ One person can do the job of many Industrial Cotton: Increased production levels (output grew from 21 million yards in 1796 to 347 million yards in 1830) Britain dominates cotton industry and becomes “cotton capital” despite not growing cotton itself Worth of cotton, wool, and silk increased. Number of cotton mills rose (all between 1770 and 1870) Work Force: Women/children used for labour (inexpensive and compliant) 1833 Factory Act banned children under 9 in textile factories, and limited working hours - but there was nobody to enforce regulations Used children to clean lint from machines while they are still operating - dangerous Overall for England: Cotton made England the first industrial power, using technology to mass produce through colonial powers Dominated economies in India Horrible working conditions for women and children American Cotton Business: England understood its large advantage with cotton and made it illegal to export the technology and for skilled workers to leave UK American spies roamed British Isles to take new machines and skilled workers ○ Ex: Francis Cabot Lowell, an American, was able to get into British mills and memorized plans of Cartwright loom Lowell’s Mills: Lowell was founded in 1820s Employed 8,000 “mill girls” who operated the looms - mostly from farming backgrounds Lowell’s Decline: 1830s, cloth prices dropped, wages cut and hours longer G irls went on strike until 1845 when laws were passed to help (but ignored) Poor Irish immigrants in 1840s-1850s replaced some girls King Cotton: 1850s, 50% of US exports were cotton Late 1850s, US-grown cotton was used in UK, France, Russia Opinions on Slavery: “Slavery stood at the center of the most dynamic and far-reaching production complex in human history.” - Sven Beckert US thought slavery was needed for cotton industry UK understood it was unethical and economically unstable US Civil War (1861 - 1865): North and South very divided in the US UK lost access to American cotton and looked to India ○ Caused famine in India where food production was replaced with cotton North and South England divided because of sympathy for India End of War: Look for new ways to get cotton when war ended Sharecropping replaced slavery ○ Former slaves, now free, still lived on plantations - were given portion of land to grow cotton and share with owner ○ Poor white people also did this Owners were able to pit the poor black and white people against each other Triangle to Rana Plaza: Triangle Shirtwaist Factory in New York destroyed by fire in 1911 146 deaths from smoke inhalation (immigrant women, poor conditions) ○ Owners padlocked all doors (including fire escapes) so women could not steal May 2013, clothing factory in Rana Plaza, Bangladesh collapsed and killed 1,134 people ○ Had faulty construction ○ Debated about western consumers and merchants aterials from Michigan State University Business Center: M Part One:The Evolution of the Textile Industry SeriesIntroduction- Andrew Good Earliest textile trade hubs in ancient China, Turkey, India (Silk Road) Consumer tastes and cost of products are primary demand drivers art Two:The Silk Road: The International Ramificationsof Ancient Textile Trade- Tyler P Beck Textile industry shapes international business and cultural trends Ancient Chinese silk was catalyst for Silk Road, connecting Roman and Chinese empires In 100-200 BC, silk was more comfortable and luxurious than wool but was low on supply and costly Low supply because silk was Chinese secret (had a monopoly) ○ Silk Road transferred silk, spices, gems, and culture/ideas/religions Was cause of Black Plague (killed 20 million) Part Three:The Textile Industry During the IndustrialRevolution- Alli Farago British Industrial Revolution (1700s) used colonies in America/Asia for silk, tobacco, sugar, gold, cotton and manufactured in England Britain controlled international trade, producing ships and goods Before industrialization, “cottage industry” made textiles manually ○ Was unproductive Hargreave’s spinning Jenny, Arkwright’s water frame, Boulton and Watt steam engine increased efficiency In 1780s, Samuel Slater brought UK tech to US Industrial Revolution pulled 80% of people from rural to urban areas by 1850 Also caused rise of middle class (women seeked independence by joining workforce) Part Four:Working Conditions in the Textile Industry- Andrew Menke Textile one of the largest industries But largely environmentally unstable and not by fair trade Sweatshops: Unhealthy, exploitative, long hours, unventilated, low pay, toxic Cambodia - Textile is 80% of export earnings, Bangladesh - Textile is 75% of earnings In China, Fair Trade Certificates ignored - labour unions restricted Conditions worse for women - verbal abuse, maternity Sweatshops are better alternative than normal life, businesses need them to be competitive Homeworkers - employees creating products from own, revenue at per-piece rate rticle 1: Colonialism and the Indian Textile Industry A Why were Indian textiles banned by the British? Economic Interests and Industrial Dominance: British ban on Indian textiles was to safeguard British manufacturing In UK, demand for cotton was too high - ban on India was to get steady supply of raw cotton from them UK capitalized on it and dominated global textiel trade Protectionism and Market Control: Ban was rooted in protectionist policies - tariffs, taxes, import duties on Indian textiles Protect domestic industries from foreign (Indian) competition UK textiles stayed dominant in English market Colonial Exploitation and Economic Drain: Wealth from Indian textiles went to UK through trade imbalances and taxes Damaged India’s development and growth - became dependent on UK Undermining Indigenous Craftsmanship: Brits wanted to align with British interests and values, undermining handloom weaving (Indian) Ban eroded India’s cultural identity and economy Social Control and Colonial Hegemony: Ban gave British control over Indian economy and society Subjugated Indian communities under British rule India remained supplier of raw materials and a consumer of British manufactured goods because of ban Overall: Ban was a larger goal to subjugate India’s economy, culture, and society to benefit UK rticle 2: “Fast Fashion” A Fashion History Lesson: The Origins of Fast Fashion- Sara Idacavage 1800s: Prior to, people used wool and spun yarn for cloth Industrial Revolution - textile machines and factories to mass produce clothing Sewing machine patented in 1846 caused price of clothing to fall and increase in supply Dressmaking businesses made clothes for middle-class women, low income women made their own clothes “Sweaters” worked from home for low wages 1900s-1950s: Lots of factories but also clothing production from home or small workshops WWII fabric restrictions increased standardized production 1911, NYC factory burned, 2012/2013, Bangladeshi factories burned 1960s-2000s: Young people liked cheap clothing for new trends Brands kept up with demand through huge textile mills in third-world countries Zara, H&M, TopShop, Primark started in Europe and expanded to US H&M longest standing - opened in 1947 Before these retail giants, US consumers hunted for trendy affordable clothes Forever 21 is huge - opened 1984 in LA Today: Unjust labour, massive waste May be time to slow down and be mindful rticle 3:Empire of Cotton- Sven Beckert A Pre-Civil War Cotton Industry (1861): Cotton was central to global economy - John Benjamin Smith said it was greatest industry ever By 1862, 20 million worldwide involved in cotton cultivation UK dominated production 61% of US exports were cotton - was a major global player U S supplied 77% of UK’s, 90% of France’s, 60% of Germany’s, and 92% of Russia’s cotton Factors Driving US Dominance: Slavery (elastic labour supply), land, credit The Economist (1861) said US advantage was fertile land, slavery, and good export systems Tensions of Slavery and Capitalism: Herman Merivale - British wealth from cotton linked to exploitation of enslaved workers By 1850s, slavery seen as economically needed but politically unstable ○ Fear of rebellion from slaves Manchester Cotton Supply Association called slavery a “treacherous foundation” for cotton economy Civil War and Disruption (1861-1865): Severed global cotton supply chains Confederacy banned exports to force UK recognition Northern blockades stopped shipments Cotton exports to Europe dropped from 3.8 million to near zero - cotton famine European manufacturers looked to Egypt, Brazil, and India Slavery and Emancipation: 4 million slaves free - caused Civil War Emancipation raised questions about sustaining cotton production without slavery Global Cotton Experiment: Edward Atkinsion “Cheap Cotton by Free Labour” - 1861 William Holmes “Free Cotton” - 1862 ○ Works debating how to sustain cotton production Post-War Reconstruction of Cotton Industry: In 1865, racial labour, sharecropping, and wage labour tried to replace slavery Free labour cotton production a priority but there were struggles in implementing it Cotton capitalists realized need for state intervention to protect trade networks ○ Critical to economic stability and political legitimacy Global Economic Integration: Civil War showed importance of US market in global economy Real estate markets in Bombay collapsed after Union victories - a ripple effect of the Civil War “The empire of cotton is ensured; King Cotton is not dethroned.” WEEK 11 LECTURE NOTES OIL INDUSTRY PART ONE LECTURE: HISTORY OF OIL AND GAS INDUSTRY Gasoline a byproduct of refining oil to kerosene ○ D id not know what to do with it because it unstable and hard to control - dumped it into rivers in 1800s US H ad limited use before combustion engine Internal Combustion: Developed in 1870s - Karl Benz begun commercial production of this He needed to create a network of places that had combustion engines that needed fuel asoline’s Impact: G Companies: Britain: William Knox Darcy foundedBritish Petroleum- oil monopoly in Persia/Middle East US: John D. Rockefeller foundedStandard Oil- usedgas as fuel to heat oil in refining process, gained huge market monopoly ○ US courts forced it to break up because it had too much power Technology: HenryFord’s Model T Car- tractors replaced steamengines in agricultural sector More cars means more highways, expanding networks of gas stations Business: Increased gasoline markets meant more exploration for sources of oil Canadians shift focus to Alberta, US shift to Texas/Oklahoma World shifts focus to Middle East War: Essential for tanks, ships, planes, transport Cause of conflict between rivals Politics: US and UK paid very low royalties to Iran while taking their oil August 1953, Premier Mohammad Mossadeq wanted more money ○ CIA and MIA concerned about the Cold War had coup to overthrow Mossadeq to have a more lenient government that would let the West take oil In 1980s, American historians filed freedom information requests about this event and had proof that the CIA did this Environment: Refineries, transportation of oil, and pipeline issues OPEC: Organization of Petroleum Exporting Countries - cartel made to control oil Oil embargo launched in 1973 caused a recession in the West Cartels need discipline, but members raised prices anyways Canada: Imperial Oil, big oil player in Canada and branch of Rockefeller’s Standard Oil PetroCanada started as Crown Corporation during 1970s crisis ○ Most companies in oil were US, Canada wanted to join to get in ○ Money that was made went into expanding ○ Eventually privatized RTICLE:What Is Petroleum? Why It's Important and How To Invest in It-Investopedia A Petroleum (crude oil) is a natural resource that is refined to a (fossil) fuel. It is used to power vehicles, heating, machines, and make plastics. Process of Petroleum: Largest global companies involved in extraction/processing of petrol to make plastic, fertilizers, cars, and planes Requires oil drilling - the more difficult to process, the less valuable Companies divided into upstream, midstream, and downstream based on position and supply chain ○ Up: Identify, extract, or produce raw materials ○ Mid: Connect down and up by storing and transporting oil ○ Down: Post-production of crude oil/natural gas PROS CONS - eat, light, transportation, plastic H - on-renewable limited supply N - Easy to extract and transport - Underwater drilling causes leaks - High power ratio and fracking - High carbon pollution Petrol Industry: Classified into geographic location, sulfur content, API gravity Unrefined petrol classified into asphalt, bitumen, crude oil, and natural gas Geologists, chemists, and engineers research structures that hold petrol Extracting: Exploratory drilling to find new reserves Directional drilling vertically to a known source of oil Investing: Attracts investors who speculate on demand for oil Vanguard Energy Fund Investor Shares (a mutual fund) and Fidelity Select Natural Gas Fund invest and pay dividends Oil and gas EFTs offer direct access to energy market Alternatives: Wind, solar, biofuels ART TWO: OIL AND GAS MARKETPLACE P ARTICLE:Oil and petroleum products explained-EIA Economic growth is the biggest factor affecting crude oil/petrol demand ○ Bc it transports goods from producers to consumers Rely on petrol for heat, cooking, electricity OPEC’s Influence on Supply/Price: Organization of the Petroleum Exporting Countries (OPEC) Influence prices by setting production targets/quotas Controls 72% of world crude oil reserves and 37% of production Depends on: How much member countries comply with quotas ○ ○ Consumers’ willingness to reduce petrol use in response to high prices ○ Competitiveness of non-OPEC producers when prices change ○ Efficiency of OPEC producers to supply oil compared to non-OPEC “Call on OPEC” - difference in oil market demand and supply from OPEC and non-OPEC Extra capacity indicates the market’s ability to respond to disruptions Causes of Disruptions in Oil Market: Geopolitical events and weather create price volatility ○ Arab Oil Embargo, Iranian revolution, Iran-Iraq war, Persian Gulf War ○ Hurricanes in Gulf of Mexico Inelastic supply/demand because switching fuel sources is challenging Disruptions strain producers who can’t supply quickly Refinery outages, pipeline issues Buyers/Sellers in Global Auction: Highest bidder will win available supply chain In tight markets (demand high, supply low), bidders must be willing to pay higher price In loose markets (demand low, supply high), bidders may choose to wait for lower prices Types of Oil Market Transactions: Contract arrangements for crude oil Futures contracts to buy quantity for a future date (are also bought/sold to speculators who don’t produce or consume oil) ○ Producers guarantee price received ○ Consumers guarantee price paid Spot transactions—on the spot purchases of a single shipment for prompt delivery at the current market price Market Responsiveness: Spot market prices are a signal about balance of supply and demand Futures markets have info about physical supply/demand EIA Projects: Short-Term Energy Outlook Annual Energy Outlook RTICLE:OPEC (brief history)-Energy Education A Founding: Created in conference in Baghdad, Iraq September 1960 Founding members Iran, Iraq, Kuwait, Saudi Arabia, Venezuela To bring stability to global oil market by coordinating policies for fair prices and steady supply Early Years (1950s-60s): 1 950s, Soviets increase oil output and Seven Sisters had to drop their prices to compete Seven Sisters: Esso, Mobil, Standard, Gulf, Texaco, BP, CFP Second consecutive cut in prices in Arab nations enabled way to ensure price doesn’t fall further In 1962, OPEC fought over export limits - each country wanted to export more but that would drop price During Six-Day War in 1967, Israel launched embargo against Arab countries that failed ○ Because Venezuela and Iran did not support sanctioning of Israel In 1968, Declaratory Statement of Petroleum Policy in Member Countries to enshrine each nation’s right to their natural resources ○ Important since many OPEC members were former colonies Expanded to include Qatar, Indonesia, Libya, UAE, and Algeria in 60s Struggling in late 60s as new oil sources were discovered in other places 1970s: 1973, OPEC supplying 56% of world oil US helped Israel in Yom-Kippur War in 1973, causing Arab countries to have embargo on oil sales to US, Canada, UK, Japan, and Netherlands Created rise in prices as supply decreased and transportation costs OPEC members struggle to coordinate control over market bc of political/economic factors Reliant on Western countries to refine product 1980s: Fear of oil becoming scarce drove search for energy alternatives Try replacing with coal, nuclear power, and natural gas 1979 Iranian Revolution lowered their supply Gulf of Mexico, North Sea, Alaska, and Siberia’s oil market challenged OPEC In 1973, USSR was top oil producer OPEC forced rise in price by placing quotas on members but couldn’t agree 1990s-Now: 1988, Iran-Iraq war ended and there was some stability in OPEC 1989, USSR collapsed Ecuador/Gabon stopped going to OPEC and tried increasing their production Iraq invaded Kuwait America invaded Iraq, but Saudi filled gap left by them Ongoing conflict in Libya, Nigeria, Iraq, and Syria disrupt supply ARTICLE:Not All Oil is Equal: Explaining Price Differences-Alberta Energy Price producers receive depends on type of oil, source, and where it’s purchased Brent oil is global benchmark used by Middle East, Africa, and Europe ○ Can move easily because of coastal access ○ Inexpensive to move oil inlarge tankers West Tax Intermediate (WTI) also benchmark used in US (Oklahoma) ○ Priced as light oil but without global reach Produced in landlocked areas (no coastal access) ○ ○ Produces at price discount to Brent oil Western Canada Select (WCS) is Canadian benchmark ○ Heavier oil, so it stays away from main markets and priced a discount to WTI Oil blends are called dilbit which is heavier than WCS and priced lower Producer revenues based on “bitumen netback” price To some extent, price discounts because if Brent oil and WTI are unavoidable because Alberta produces lower quality (i.e. heavier) oil than both and is located further from consumers EEK 12 W SERVICE INDUSTRY ART ONE: OVERVIEW P What is the service economy? Education, healthcare, tourism, finance Intangible things like advice, attention WTO: Service sector is… 50% of employment 67% of global GDP History: In 1867, half of population was in agriculture - this was
