Lecture 6: The Alcohol Industry (PDF)

LECTURE 6. THE ALCOHOL INDUSTRY. - FINAL EXAM FROM NOW ON. The business of alcohol: Alcohol, spirits and wine have traditionally been a profitable business. Gin was an early example on the impact of trade policy and unintended consequences on alcohol policy. Rum’s history and development has alway...

LECTURE 6. THE ALCOHOL INDUSTRY. - FINAL EXAM FROM NOW ON. The business of alcohol: Alcohol, spirits and wine have traditionally been a profitable business. Gin was an early example on the impact of trade policy and unintended consequences on alcohol policy. Rum’s history and development has always been influenced by politics. Gin craze: For many years alcohol has been mixed with juniper berries and other herbs, for flavoring and medicinal purposes. 16th century Dutch created “genever” = gin, shorted by the British It was inexpensive to make and very popular, but also political William III, the king of England in the late 1600s placed large tariffs on French brandy and wine, he also gave tax breaks to British distillers of Gin. William III was annoyed because of France’s alcohol competition and the amount of money they made from it. William III introduced the idea of Gin. Gin Lane in London, shops around England, people struggling with public drunkenness. Gin became very expensive (cheaper than beer) and regularly abused. This led to a backlash that included temperance movements and new government licensing to control production. Gin Act of 1751. In the 1800s gin recovered as a popular drink. This was in part because it was mixed with quinine water as an anti-malaria potion. This became gin and tonic. The british remained huge players in the Gin industry Rum: Rum is distilled from molasses, a by-product of sugar manufacturing. Rose to popularity in the late 1600s but especially in the 1700s. Large sugar plantations were created in both French and British colonies in the Caribbean. Rum required cheap plentiful labor, which led to a dramatic increase in the importation of African Slaves.  Starting in 1731, the British sailors received a daily pint of Jamaican rum for each man and a half. The sailor rum ration decreased over time, but the tradition lasted until the 1970s, this also happened with the Canadian navy for some time. Rum remained political for much of its history. American producers were discouraged by the British and turned to whiskey instead. Cuba: Founder of Bacardi = Facundo Bacardi Bacardi had been a supplier of rum to Spanish royalty from the 1800s to facilities in Cuba. Rum and Coke is called “Cuba Libre” which took on a different twist after the Cuban Revolution. After the Revolution Castro seized distilleries. The Bacardi family fled to establish new facilities in Puerto Rico and other locations. They became a huge global producer of rum. They have thrived but continue to seek compensation from Cuba. The politics persist into the situation of Cuba because of the alcohol situation Prohibiting: Restraining the liquor trade. Prohibition is the act of practice or forbidding by law, the manufacture, storage, transportation, sale, possession and consumption of alcoholic beverages. The prohibition was largely based on protestant church moral beliefs, but also on an economic argument. The alcohol prohibition affected companies because of it being profitable. In Alberta, 1918, $12,000,000 were spent on booze. Prohibition movements in Canada were very influenced by both British and American examples. In 1800s, two major Canadian organizations for alcohol prohibition: - Dominion Alliance for the Total Suppression of the Liquor Traffic - Women’s Christian Temperance Union - Prominent roles for women, due to men spending their money on alcohol, or their husbands being drunk all the time. Politics of prohibition: - Scott Act and Local Option - Sir John A and drinking  - Reformers (liberals) tended to favor The 1898 referendum: The Wilfried Laurier Government elected in 1896 had a large temperance segment. It also had a large following in Quebec which opposed prohibition. Laurier (first french-canadian) decided to hold a non-binding referendum. Results were close: 278,380 in prohibition, 264,493 against. Every province except Quebec saw a YES vote, but Quebec was over 80% against. Laurier decided to do NOTHING. His idea was to do anything for people not to complain. World War I and prohibition: In 1901 Prince Edward Islands introduced prohibition, which would last until 1948. The other provinces began to do so in World War I. It was seen as patriotic, as well as conserving food. Only Quebec did not. In March 1918 the federal government stopped the manufacture and importation of liquor. Loopholes for medical purposes, etc. You could order it by mail if that was the case. Na Poo was soldier slang for “there’s no more”. “Demon Rum”: Alcohol in the Trenches Most of the Canadian soldiers received a daily rum ration. It was considered essential as a morale-booster for being faced daily with death and living in horrible conditions Also used for medical purposes. Canadian infantryman Ralph Bell wrote that, “when the days shorten, and the rain never ceases; when the sky is ever grey, the nights chill, and trenches thigh deep in mud and water; when the front is altogether a beastly place, in fact, we have one consolation. It comes in gallon jars, marked simply SRD.” Prohibition: After the war, the lack of success in eliminating alcohol and the idea that the enforcement was unbalanced and often unfair began to take hold. For some the idea that the state limited this “right” was an issue. Soldiers wanted their alcohol for fighting for the nation.  Criminal distribution also came to be seen as a problem. The American Experience Prohibitionists were successful in passing the 18th amendment to the US constitution in 1920. Alcohol remained illegal until 1933 when the 21st amendment repealed the 18th. Ken Burns in a PBS documentary noted: ○ On the whole, the initial economic effects of Prohibition were largely negative. The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades. ○ Lack of Success A history of Labatt’s brewery notes that in Canada the impact on business was severe: ○ "The doors of thirty-five Ontario breweries had gone dark. Across the nation, prohibition had a similarly devastating effect on a once vibrant industry. The personal fortunes of many brewers were lost, legacies vanished, and hundreds of well-paying jobs disappeared." This was accentuated by the fact that the "business" of alcohol was simply driven underground into a thriving black market. This opened the door to organized crime. End of Prohibition In 1927 Ontario ended prohibition, replacing it with government control. Over time the laws became more liberal. For some years prohibition remained in the U.S., making Canada a tourist destination for American drinkers and the U.S. a market for smugglers from Canada. Alcohol was illegal in the U.S until 1933. LCBO The solution in Ontario was to create a government monopoly on distribution under tight controls = LCBO. The Premier of Ontario, Howard Ferguson, stated that the Liquor Control Act was "... to allow people to exercise a God-given freedom under reasonable restrictions." Ferguson was further quoted as saying the purpose of the LCBO was to "promote temperance sobriety, personal liberty and, above all, to restore respect for the law." Evolution of LCBO  In 1947, the LCBO began to allow cocktail bars, which marked a shift in social drinking norms. Initially, purchasing alcohol from the LCBO required a customer to obtain a "permit book" or "passport," which tracked their purchases. This practice was meant to monitor and control individual alcohol consumption. In 1958, this system was abolished, signaling a move towards more modern and less invasive purchasing processes, as the LCBO began to trust consumers to regulate their own behavior. After the end of the passport system, the LCBO introduced pass cards as a less awkward way to identify and track customers. However, these were also discontinued in 1962. This further simplified the process of purchasing alcohol, reflecting a continued effort to modernize and reduce bureaucracy in the LCBO’s operations. Up until the late 1960s, LCBO stores operated more like warehouses than retail outlets. Customers had to request items from a clerk, who retrieved them from the back. In the late 1960s, wine displays were introduced, allowing customers to browse and select bottles themselves. This change marked the beginning of the LCBO's transition into a modern retail experience, emphasizing customer convenience and engagement. Marketing brands and control in the Alcohol Industry Brand Growth: The global market is controlled by a small number of MNEs. The largest one is AB InBev, with an annual revenue of $45.6 billion USD in 2017. AB InBev was created through a merger of AmBev and Interbrew, an amalgam of Latin American, Canadian and European brewery interests. In 2008, Anheuser-Busch was acquired, and acquisitions of Grupo Modela in 2012 and South Korea. Oriental Brewing helped the international penetration in 2014. In 2016, a merger was negotiated with African rival SABMiller to create AB InBev. The AB InBev merger was the 3rd largest in corporate history, establishing a dominant market position of an estimated ⅓ of all beer sold worldwide. Differences between Alcohol MNEs and others: Unlike many MNEs, the growth of alcohol major companies is often driven by heritage brands and familiar names. They often deal with restrictions. Technology can be a factor, but name recognition is more important. Tensions between health and profit: The fact that alcohol has clear health implications like: atherosclerosis, damage to brain function, cirrhosis, chronic heart failure, reproductive dysfunction, pancreatitis, etc. Governments want to control levels of consumption but company profits rely on the increase of consumption. Regular drinkers give companies the most profit. This has meant some level of restriction on advertising in most countries. Restricting Advertising: There are two methods countries can employ to limit advertising of alcohol. Voluntary codes of conduct from producers are one. Restrictions by law or regulation is the other. Voluntary codes are much less effective than regulatory. Loi Evin: France’s regulation of alcohol marketing - 1990s A high level of community and medical concern led to the adoption of legislation to prohibit advertising on television, cinemas and all sponsorship in sport events. The advertising that is allowed is print media for adults and on some radio channels and billboards, is restricted to information about the product and no images of people and lifestyle. Content controlled advertising. A health message should be included on each advertisement to the effect that alcohol abuse is dangerous to health. Law’s success: More successful with tobacco control. Producers have lobbied to roll back some of the limitations with their political influence and power. MNEs and Regulation: ARTICLES. Wine Industry: Until the end of the 1980s, the European countries, and particularly France and Italy, dominated the international market for wine. Subsequently, significant changes in the market, namely decreases in consumption by traditional consuming countries, the entry of new inexperienced consumers, and the increasing importance of large distribution have threatened this supremacy. Initially, the USA and Australia and later emerging countries such as Chile and South Africa, gained increasing market shares in both exported volumes and value, at the expense of incumbents. However, some of these newcomers (e.g. Australia) have shown slower growth, opening opportunities for newer entrants such as Argentina and New Zealand. At the same time, some of the incumbents (especially Italy) have innovated, challenging the leadership of France in key markets such as the USA. Wine production and more broadly agricultural activities have always been heavily subsidized in the European Union. Since the inception of the European Common Market in 1957, top wine-producing countries such as France, Italy and Spain have taken advantage of subsidies and incentives for domestic activities, as well as protection of their internal markets from foreign competition. As a result of centuries of tradition, in the 1960s the main European producers – France, Italy, Spain, Germany and Portugal – dominated the wine industry, accounting for 63% of world wine production by volume, with France and Italy alone accounting for almost half (47%). In that period per-capita wine consumption reached 124 l in France and 108 l in Italy, well above the world average of 7.2 l. The globalization of wine was still to come, and a mere 11% of world wine production was exported, with France, Italy, Portugal and Spain accounting for almost 40% of the total global market Italy and France are the top wine producing, exporting and consuming countries. Since the 1970s, the traditional European producers have experienced a drastic reduction in the quantity of wine being consumed, driven by lifestyle changes, with wine becoming a beverage for special occasions, and with much more attention to quality than before. In fact, the reduction in the volume of consumption has been matched by an increase in unit value, due to a shift in the type of consumption from bulk to premium wines. These new consumers lacked the experience to appreciate differences related to wine regions, and had no knowledge about European appellations. Their preference was for ‘easier-to-drink’, affordable wines from the NW. The quality upgrading of wine demand coincided with an increase in wine purchases from supermarkets and the rising importance of large-scale distribution. To exploit the new, rapidly growing markets, supermarkets required large volumes of international wine varieties such as Sauvignon, Cabernet and Chardonnay. In the 1990s, supermarkets also began to source and ship wine directly from NW producers, with great reductions in costs allowing lower retail prices. Australia and California were the first to exploit the new market segment, taking advantage of their favourable land and capital factor endowments. Quality ratings provided by wine experts and guides played an increasing role in shaping the perception and behaviour of potential consumers. These highly qualified professionals, sometimes described as flying winemakers, work as consultants for wine companies around the world and transfer vast amounts of tacit knowledge, contributing to the diffusion of new, more rigorous approaches to winemaking. Stimulated by the government, in 2002 the South African Wine and Brandy Corporation (SAWB) was created to enhance the industry’s competitiveness. A process of institutional renewal has also taken place in Chile; in 2007 the two major winery associations in Chile, Vi˜nas de Chile and Chilevid, merged to form Vinos de Chile to provide a single voice aimed at achieving a more coherent strategy to guide the industry. Alongside the adoption of new technology, modernization has included more attention to marketing and branding. For example, screw-cap bottles of European wines, and wine in boxes, have become common for table wines. Increasingly, individual wineries and wine consortia are contracting with communication and marketing agencies to advertise their products, especially to enter international markets (often supported by national vouchers under EU wine policy. For example Italy and Spain have upgraded their competences in popular as well as top-quality wines (e.g. sparkling wine), and innovated in order to address new consumer requirements while keeping the industry firmly rooted in the local terroir. Similarly, the competitive advantages of world-renowned French wines (e.g. Champagne, Bordeaux) have been reinforced based on their unique territories, and have gained market share in both traditional and emerging markets (e.g. China). In contrast, French popular wine producers’ (especially cooperatives) lack of market knowledge combined with their dogged adherence to the terroir model has proved less successful because many regional appellations are not immediately recognizable by foreign consumers. Since the early 2000s, global consumers’ tastes have changed qualitatively, mainly favouring OW producers. This new class of consumers is more sophisticated and better educated, and pays more attention to variety and intangible features such as the history and authenticity of the wine. These knowledgeable and demanding consumers belong to the emerging wealthy and middle classes in developed (e.g. UK) and emerging economies (e.g. China), and want mainly high-status goods. Recent figures indicate that China’s domestic consumption in the last decade has grown faster than that for any other country in the world. Although consumption is still low in per capita terms, total wine consumption in China is close to that of traditional wine countries. The wealthy middle class that has emerged in China is becoming more sophisticated and more westernised. This affluent group searches for high-status goods such as imported wines. Therefore, demand for luxury iconic French wines and Australian branded super-premium wines has been particularly high. The Asian (and particularly the Chinese) wine industry is attracting international capital and is expanding internationally. Chinese investors have acquired a number of French châteaux and have made investments in US and Australian wine companies. These are tangible signals within the Asian business community of growing interest in the wine industry LCBO: LCBO’s first day of business was on June 1, 1927. The first outlets were nothing like the boutique liquor stores of today: the original system was designed to make the experience of purchasing alcohol feel as shameful as possible, and to allow the province to pry into the private habits of Ontarians. If the customer passed muster, they would be given a passport-sized permit book. To make a purchase, they filled out an order form and took it to a clerk, who reviewed their buying history. The system was highly prejudicial — women and visible minorities were effectively prevented from working in stores, while members of First Nations weren’t allowed to hold permits until 1959. Permit books were scrapped in 1958, replaced by wallet cards, which remained in effect until 1962. Eventually, liquor was allowed to be displayed on the sales floor: small wine displays appeared in 1958, followed by catalogs in 1965. LCBO officials sensed that Ontarians were tired of being made to feel ashamed when buying alcohol, but the agency still feared the influence of temperance activists, who complained that government money should be spent on education or health care, rather than better liquor stores. Although the LCBO announced in 1973 that all stores would convert to self-service, it would take another 20 years for the last counter-service locations to be phased out. The LCBO retail experience lurched toward its current form when former Metro Toronto police chief Jack Ackroyd was appointed chairman in the mid-1980s. The awards for store design and innovative retailing that the LCBO received by the end of the 20th century would have horrified the early shapers of the agency. It remains to be seen which incarnation of the LCBO — stern and sterile, or colorful and customer-friendly — will be used as a blueprint for the marijuana stores of the 21st century. Brand and Alcohol Marketing: The commercial use of brands developed during the industrial revolution of the eighteenth and nineteenth centuries, and many of today’s famous consumer brands, like Coca-Cola, Bass beer, Quaker Oats, Kodak, Heinz and Prudential Insurance, originate from this time. However, it was probably during the period following the Second World War where the growth of brands really took off, and they have now become an integral feature of our everyday lives. Many of the best-selling alcohol brands, such as Smirnoff, Bacardi, Budweiser, Stella Artois and Blossom Hill, are now very familiar to most adult consumers. Research suggests that many young people, in particular, do not recognise alcohol promotion via such mediums as ‘marketing’, yet the messages being conveyed to them likely shape their drinking behaviours once they have entered adulthood. A related marketing approach used by companies to potentially grow sales of their products and increase consumer awareness of the brand is ‘brand extensions’ or ‘brand stretching’. Brand stretching can be achieved through two means. The first is through line extensions, whereby the brand name is applied to a product in one of the company’s existing categories – in other words, products that are variations on the same brand in the same category. Line extensions have been around for a long time, with a classic example being Coke introducing a sugar-free alternative, called Diet Coke, in the early 1980s. A more recent example is Starbuck’s development of a premium coffee liqueur. It has been estimated that more than half of all new products introduced each year are line extensions. In the alcohol beverage industry, there are numerous recent examples of line extensions in the beer category. Brands have introduced lower calorie or ‘light’ beers as an extension to their core sellers – see Bud Light, Miller Lite and Coors Light – and new citrus-flavoured beers such as Carling Zest, hoping to win appeal in the female market. However, it is the second means of brand stretching, namely category extensions, which is of most interest. This occurs where the company applies an existing brand name to a new product category. There have, again, been many examples of this practice. Perhaps the best known is Virgin, which has extended from music recordings into airlines, radio stations, beverages and financial services; other examples include Caterpillar extending from heavy machinery into clothing and shoes, Ikea extending from furniture to hotels, and Yamaha offering motorbikes and sports equipment in an extension to its original musical instrument business. The idea behind category extensions is that brand associations and attitudes are transferred from the well-established, parent brand to the new extension product. They also help build brand equity, that is, the commercial value of having a well-known brand name, and are thought to encourage purchases of other products from the company. Such a strategy can cause erosion of the core brand, in that the new product might simply attract existing customers away from the original, or might insinuate that the core brand has problems – for example, a low fat version might imply that the original version is high in fat. Marketing research also indicates that perceived fit determines the success of brand extensions – as noted above, one of the main reasons for the failure of Coors beer extension into bottled water was that the new product did not represent a good fit with the parent brand. Alcohol Concern continues to call for tougher restrictions on alcohol marketing in the UK, including an end to alcohol industry sponsorship of cultural and sporting events, and the requirement that alcohol marketing messages be restricted to adult audiences and contain only factual information about products. QUIZ, WEEK 6: 1. According to the article on "Catch up" in the wine industry, which two countries led the breakthrough of NW producers? Australia and the USA 2. An advantage of category extension for alcohol is... avoid regulations on advertising 3. The LCBO was created in Ontario in which year? 1927/1928  4. Which country is involved in a conflict with the Bacardi company? Cuba 5. Which disease helped to restore the popularity of gin? Malaria 6. In the 1898 referendum in Canada which province voted against prohibition? Quebec 7. The dominance of Old World wine producers has been threatened, in part because… The increasing importance of large distribution 8. Diet coke is an example of... Line extension. 9. Which country experienced the "Gin Craze"? England 10. The French law to restrict advertising of alcohol is called... the Loi Evin LECTURE 7. TRAVEL AND TOURISM INDUSTRIES. Roman Holiday Rome’s power and empire made tourism possible. Two of the preconditions for tourism are: Security to travel without fear and resources to do so. A roman version of the Grand Tour developed to include southern Italy, Greece, Troy and Egypt to cruise the Nile. Trips to spas, baths, etc Pilgrimages: Christianity, Buddhism and Islam all featured (or feature) a call for pilgrimage. An obligation in many cases. These journeys were also sightseeing opportunities and businesses sprang up to organize and conduct the trips.  Other businesses included inns and food and drink provisions. Taking advantage of these pilgrimages. The Grand Tour: Beginning in the 17th Century, especially in England, it became the custom for young gentlemen (20’s and sometimes late teens) to spend 2-3 years touring France, Italy, Greece and other European centers. They saw the sights, especially architecture and art. Only the rich could afford this. If you were an English landowner you had arrangements with your bank. Banks would arrange letters of credit with European banks. Eventually faded away because of the Revolution and the Napoleonic wars which made it much less for young English gentlemen to be around traveling Europe. And when those wars ended the world had changed, industrialism had brought a whole new group of people that wanted to travel, for shorter periods of time. There’s echoes of it, at the end of the 19th Century, wealthy Americans would send their children or accompany their children to live in England for a while to learn culture, etc. Thomas Cook Travel: The company eventually was inherited by Cook’s grandsons in 1899. Remained in family hands until sold in 1928 to the Belgian Company that ran the Orient Express. During World War 2 was taken over by the British Railway companies. After the war they were nationalized, so Cook’s was too. It was privatized in the 1970s. Declared bankruptcy in 2019. Post World War II Travel and Tourism: New jet plane technology makes travel easier. Air travel was expensive during the deregulation trend (especially North America and Western Europe) of the late 1970s and the advent of discount carriers, especially after 1990. End of the Cold War meant new destinations and new potential travelers. The World Travel and Tourism Council determined that in 2019, prior to the pandemic, Travel & Tourism (including its direct, indirect, and induced impacts) accounted for 10.5% of all jobs (334 million) and 10.4% of global GDP (US$ 10.3 trillion). Meanwhile, international visitor spending amounted to US$ 1.91 trillion in 2019. The World Travel & Tourism Council (WTTC) is projecting a record-breaking year for Travel & Tourism in 2024, with the sector's economic contribution set to reach an all-time high of US$ 15.5 trillion. These numbers are expected to grow. Cruise Ships Titanic to Queen Mary: The idea of passenger cruise ships, where the voyage was not just the means of travel but part of the attraction, began with the Peninsular and Oriental Steam Navigation Company in 1844. They had been sailing from England to Mediterranean destinations delivering mail and people for some time, but in 1844 launched the cruise idea. Advertising sea tours to destinations such as Gibraltar, Malta and Athens, sailing from Southampton. RMS Mauretania and RMS Lusitania (ships): Owned by Cunard Line of England. Launched in 1906. Redefined the way to travel to Europe from North America and back. They were massive. RMS Mauretania and Lusitania were the largest ships ever built at the time. Carried 50% more passengers than their largest competitors. Designed for speed in response to competing shipping lines. Started the tradition of dressing for dinner and advertised the romance of the voyage. Carried 552 1st class, 460 2nd class, 1,186 3rd class = 2,198 passengers.  Lusitania torpedoed on 7 May 1915 by a German U-boat killing nearly 1,200 of the 1,959 people on board. Titanic: Luxury cruises as opposed to simple transportation became increasingly competitive. If you were wealthy you desperately wanted to be in first class. French and English lines built newer machines. Titanic, launched on May 31, 1911, and set sail on its maiden voyage from Southampton on April 10, 1912, with 2,240 passengers and crew on board. On April 15, 1912, after striking an iceberg, Titanic broke apart and sank to the bottom of the ocean, taking with it the lives of more than 1,500 passengers and crew. Business, theater and social leaders were traveling in First Class. Among them were the American millionaire John Jacob Astor IV and his wife Madeleine Force Astor, Isidor Straus from Macy’s and many others including the president of the Grand Trunk Railway. Charles Melville Hayes. 3rd class passengers were accorded for fewer amenities. Stopped at Cherbourg, France and Queenstown, Ireland, then set sail to New York. At 11:40PM on Sunday 14 April the ship struck an iceberg. Titanic had gone down in only 2 hours and 40 minutes. The industry continues: Transocean cruises remain the only method for many years. Early air travel was difficult so the ships remained the choice. The advent of large jet liners in the 1960s changed this and accentuated the decline of transatlantic and transpacific cruises. By the 1980s only Cunard Lines serviced a small clientele of ocean crossers by offering a cruise experience on the Queen Elizabeth II. Cruise lines: The ocean crossing trips have been replaced by the new style of cruise. Cruise ships are organized much like floating hotels, with a complete hospitality staff in addition to the usual ship's crew. Caribbean, Alaskan and other tours are the focus rather than a journey to a destination. Facilities include night clubs, sports facilities etc. In 1970, about 500,000 people went on cruises; By 2013, that number was higher than 20 million.  The Love Boat, a tv series which ran from 1977 to 1986, helped to popularize the idea of taking a vacation at sea on a ship. COVID-19 and Cruise Lines: Cruise ships were particularly affected by the pandemic. People died in the cruises because there were not enough doctors and solutions aboard. Now, the industry is continuously recovering from it. Before the hit TV show helped popularize them, cruises were derided as being for the "newly wed and nearly dead," and were a lot more expensive than they are today. Those not quite rich enough for their own yacht can still splurge on intimate, luxurious trips or high-octane adventures to places like Antarctica. But most cruisers these days are middle-class Americans or Europeans looking to be fed, pampered and entertained on a floating version of home. Many bring their children. The hyper-efficient industry has made that possible by building mega ships that resemble floating theme parks, and even its own islands. In 1980, the first year data is available from industry body Cruise Lines International Association, there were 1.4 million oceangoing cruise passengers. That number had already begun to soar as a direct result of "The Love Boat," the ABC show set aboard the MS Pacific Princess that began its nine-season run in 1977. It was surely one of the most lucrative product placements ever. Next year, the industry expects 36 million passengers. Mass-market operators keep ticket prices low enough to reach full occupancy even during recessions because a substantial part of their cost is the vessels themselves, and their fuel. Once people are on board, more than a third of revenue can come from onboard spending such as drinks, spa treatments, specialty restaurants and gambling. Royal Caribbean's Icon of the Seas launched in January 2024, with a maximum capacity of 7,600 people, not including 2,350 crew members. It is as big as five Titanics. Its incredible size is a selling point in and of itself, but it also highlights the pursuit of savings. Between 2020 and 2022, some 38 ships across the industry were taken out of service, and their average age was six years younger than those retired in the preceding three-year span, according to Cruise Industry News. Icon is powered by relatively clean liquefied natural gas, has a specially coated hull to reduce friction, can hook up to shore power, treats its own waste and can produce nearly all of its water through desalination. Being green pays dividends beyond saving on fuel. With governments and especially cruise destinations aware of the environmental impact of giant vessels and record passenger numbers, there increasingly are incentives to avoid pollution. But Carnival's Burke points out that bigger ships have downsides, such as where they can sail: "At some point you begin to limit your ability to get into certain places." To get around that, and also to save energy and boost revenue, cruise lines have even leased their own private islands a short sail from Florida cruise ports, giving them new names like Castaway Cay and Perfect Day at CocoCay. Often featuring docks that can accommodate megaships, they offer a sanitized version of the tropics where every dollar spent accrues to the cruise line. Hyper-efficiency is nearing its limit, though, and inflation has affected the industry too. Cruise lines have caused some grumbling by charging more for mandatory onboard gratuities. Cruisers are showing up in record numbers anyway, and shareholders are celebrating too. After nearly going under amid Covid-19, all three major operators are laden with debt but have seen their shares rebound by an average of 85% just this year. Commercial Aviation: First paying passenger flight. It was hard to keep it viable as a commercial property, because you could only transport one person at a time. Jan. 1, 1914, the St. Petersburg-Tampa Airboat Line became the world's first scheduled passenger airline service, operating between St. Petersburg and Tampa, Florida. The first flight's pilot was Tony Jannus, the first passenger was Abram C. Pheil a mayor of St. Petersburg who had bought the trip at a charity auction for $400 A service ran for several months, but was limited to one passenger at a time. Air Travel: By the 1930s transpacific flights were expanding although still rare. The Clipper 314 is capable of comfortably flying 74 passengers and 10 crew to distances up to 3,500 miles. WW2 interrupts the expansion of commercial air travel, but also advances the technology. Military necessity made the technology improve. It was pretty expensive but was an effective way to travel. Boeing 747: The Boeing 747 was conceived while air travel was increasing in the 1960s. Would carry long numbers of passengers over long distances. Goes into service in 1970.  It was now possible for airlines around the world to carry passengers at a reasonable fare further than ever before, more than 8,000 miles without refueling. The status of the industry: Precovid and post Between 2004 and 2019 the total number of commercial flights in the world rose from 23.8 million to 38.9 million. This has been reduced by COVID-19 restrictions but projections still suggest levels over 21 million for 2020 and over 30 million for 2021. Statistics indicate air travel continues to get safer, but also indicate the cost to the environment is significant because of pollution. But air travel remains the primary choice of travel for long distances. The first ever passenger flight took off in May 1908 when Wilbur Wright carried Charles Furnas just 2000 feet across the beach at Kitty Hawk, North Carolina. Just one year later, the first airline in the world, the German airship company DELAG, was founded. However, it wasn’t until the 1920s that commercial flights carrying paying passengers started to become commonplace with the introduction of the multi-engine airplane, the Lawson C-2, which was specifically built to carry passengers. During this time, more and more start-up airline carriers were being established, some of which are still in operation today. These include KLM in the Netherlands (1919), Colombia’s Avianca (1919), Qantas in Australia (1920), and Czech Airlines (1923). Aircraft from this period would land frequently to refuel and fly at lower altitudes due to unpressurized cabins. This made traveling by plane noisy, cold, and expensive. Flying times were lengthy, and turbulence was frequent. Passengers regularly experienced air sickness, and many airlines hired nurses to reduce anxiety and tend to those affected. Despite flying being incredibly dangerous and extremely expensive during this period, it was still a fashionable way to travel for the rich. According to the Smithsonian National Air and Space Museum, the number of airline passengers grew from just 6,000 in 1930 to nearly half a million by 1934; the aviation industry was well on its way to becoming hugely important to the global economy. The introduction of the Douglas DC-3 in 1935 also had a big impact on the future of commercial flight. Faster and more reliable, it could carry up to 32 passengers and had a cruising speed of 207 mph with a range of 1500 miles. This made it popular with well-established airlines, including Delta, TWA, American, and United, who soon added the aircraft to their fleets. However, by the end of the decade, the industry was heading towards a new era as Pan Am began operating its fleet of Boeing 307s, which featured the first-ever pressurized cabin. This transformed air travel for passengers, allowing them to enjoy a comfortable experience at an altitude of 20,000 feet. Major airlines were now ramping up their advertising spending and offering travelers smooth journeys to far-flung destinations and business hubs, including Pan Am’s iconic New York-London route. The 1950s and 1960s heralded the age of jet engine aircraft, and with it came an upsurge in commercial flights, airline carriers, and international flying routes. Commercial air travel was booming, and major airlines were fiercely competitive, offering passengers more and more inflight perks, including lavish silver-service meals and fine wines. Pan Am was a front-runner in pioneering and marketing the very best air travel had to offer. It was the first airline to fly worldwide and introduced ground-breaking changes to the industry, such as adding jet aircraft to their fleets and utilizing computerized reservation systems. Offering transatlantic flights in just 3.5 hours, the aircraft was a hit with business travelers and royalty alike. However, tickets were extremely expensive and only a privileged few could afford to travel via Concorde. Seeing a gap in the market for making air travel more accessible to everyday people, British-owned Laker Airways, founded in 1966 by Freddie Laker, was one of the first airlines to start offering a budget alternative by adjusting its inflight offer. Using the budget airline business model that is commonplace today, Laker was able to offer lower fares by reducing inflight services and luxuries, such as free meals. The airline also found innovative ways to reduce fuel consumption and engine wear by introducing the reduced thrust take-off technique and faster climbs to obtain the optimum flying altitude in as little time as possible. Sadly, the airline was a casualty of the 1980s recession and subsequently went bankrupt. However, it paved the way for budget travel and opened a world of possibilities for millions more people to get the chance to travel by air. Today, the world’s largest low-cost carrier is Southwest Airlines in the US. Synonymous with budget travel, the company’s low-cost domestic and short-haul offer has undoubtedly inspired many other well-known brands to tap into the no-frills market, including Ryanair and EasyJet. Larger and more economical aircraft, such as the Boeing 747, had also made cheaper air travel possible. Airlines were now able to carry more passengers than ever before, meaning ticket prices could be sold at a reduced rate. Holidaying abroad was no longer reserved for the rich. First-class cabins, sophisticated onboard bars, and exclusive-use airport lounges meant those who could afford to, could still travel in style. During the 1980s and 1990s, the budget airlines Ryanair and EasyJet launched. Offering airfares for as little as £20, they changed the face of commercial flying and put pressure on traditional carriers to lower ticket prices. The tragic events of 9/11 had a profound effect on air travel. Security at airports was increased significantly and passengers without a ticket at US airports could no longer accompany friends and family through security to the gate. Cockpit security was also heightened. Previously, it had been possible for passengers to visit the flight deck and speak to the pilots. However, after 2001, cockpit doors were locked with only the pilots controlling who could enter. According to the Bureau of Transportation Statistics, it took until 2004 for air passenger numbers to reach pre-9/11 levels and until 2007 to reach a record high. During this period, low-cost carriers were experiencing increased demand as the popularity of booking websites surged, and, by 2009, figures from the tourism research company PhoCusWright reported that half of all travel-related bookings were being made online. Passenger numbers continued to surge throughout the 2010s, and by the end of the decade, the volume of travelers using commercial airlines was at an all-time high. HOSPITALITY: All-inclusive resort hotels are a booming global business that earns billions of dollars per year. For decades, their typical clientele has been families from the United States and Europe seeking convenient vacations on beaches along the Mediterranean or Caribbean. But their appeal now extends to customers, and hospitality providers, across Asia—and with the same basic economic rationale. There are three convergent strands in the history of the modern resort. One is the very idea of seaside living, which goes all the way back to the Romans. So much of this in Europe traces back to the Romans, who had resort towns all along the coasts of what is now modern Italy. And those then really disappeared with the collapse of the Roman Empire. But from the 18th century onward, if not before, Europeans were visiting the seaside, notably in Britain, then also in Germany—Heiligendamm in Mecklenburg was the first German resort on the Baltic. By the 19th century, with railways, you had a lot of seaside resorts that were easily accessible by train from the city. And by the 1930s, you had regular paid holidays, which enabled people to go to the seaside. The other strand is the spa, which also has Roman origins, and we call it “spa” because the Romans had a curative bathing complex in what is now the Belgian town of Spa. But if we’re actually fast-forwarding to the present and asking ourselves when does the modern all-inclusive resort come into existence, it’s again in Britain, the most developed of the European countries in the 1930s, in the legendary Butlin’s holiday camps. And then from the 1950s, Club Med. And it’s really Club Med that, from 1950 onward, founded the modern concept of the all-inclusive, party-focused enclosed resort. The holdup problem, which is fairly familiar from all sorts of settings, commercial and noncommercial, is the problem of your reluctance to enter into a contract when you don’t know whether one party to the contract will subsequently revise the terms of the deal in a very unfavorable way. So basically, the fear of the anxious parent is that you sign up to go to this resort, you’re in a food desert, shops are miles away, and they’ll gouge you when you get there because the restaurants will be too expensive. So in Europe, they in fact resolve this problem by saying, our promise is in British airports that nothing will cost more than it does in the high street, so come and do your shopping in the airport. Whereas you’d have to be a fool to buy anything in an American airport because they resort to this primitive holdup-type thing. If you promise them a fixed price, more people will actually sign up to go. One of the reasons the resorts like it is that the payment is all upfront. So they receive a large lump payment, and then their relationship with their customers is unaffected by any kind of transaction. So it creates goodwill. Once you’re there, you just feel basically they’re extremely generous because the original payment was made beforehand. So, from a cultural and political point of view, they are an extraordinarily colonial model of vacationing. One figure I saw said there were about 860 all-inclusive resorts all over the world and about half of them are in the Caribbean. And so the advocates of the model would say, it’s a tourism-generating business. The critics would say, first of all, why is it that in a situation like the Caribbean, you do this enclosure? Part of it is basically pandering to a bunch of racist or racialized stereotypes about people needing a comfort zone, not wanting to be “distracted” by the particularities of the local region, and just wanting to enjoy the paradise of the beautiful water and needing this enclosed bubble in which to do that. And in economic terms, the consequences of that can be very severe in that for some of the resort systems in the Caribbean, it’s estimated that only about 20% to 30% of the revenue generated by the resort stays locally in the form of wages and local supplies. The obvious solution is actually just to insist on localizing as much as possible to attract local investment and to build supply chains, which actually rely heavily on local economies. So Macau, the great Asian gambling center, if you look at the origin of the 30 million people who visit Macau, 90 percent are from Asia, and 85 percent of those are from Hong Kong and mainland China. Now, that’s 30 million visitors. Vegas gets 40 million visitors a year. So Macau is just 10 million short of Vegas. Mexico’s tourism complex generates 66 million visitors. The Chinese tropical island of Hainan has 99 million visitors a year. Everything’s bigger in China. Chinese visitors are the big drivers of global tourism and global luxury consumption. It’s just a numbers game. And the Chinese middle class is so large. It may once have been a kind of European colonial thing, but, yeah, China does colonialism, too. QUIZ WEEK 7. TRAVEL AND HOSPITALITY. 1. Which American Airline is the world's largest low-cost airline? Correct answer: Southwest Airline 2. Hainan is... Correct answer: A Chinese tropical Island destination 3. Who is generally considered to be the first "travel agent." Correct answer: Thomas Cook 4. In the Foreign Policy article on All Inclusives one participant calls All Inclusives "an extraordinarily kind of colonial, you could say, model of vacationing." Why? Correct answer: Very little of the money generated stays in the area of the resort. 5. All Inclusives solve which problem identified by economists? Correct answer: The "holdup problem" 6. According to Dr. Thomson's video lecture, what are the two preconditions for tourism to exist? Correct Answer: Security to travel and the resources to travel. 7. One of the many ways that the 747 changed air travel was that it was able to travel _____ miles without refueling. Correct answer: 8,000 8. Which plane, introduced in the 1930s changed commercial aviation? Correct answer: The Douglas DC-3 9. Which cruise line took 38 ships out of service during the pandemic shutdown? Correct answer: Carnival 10. Larger ships have many benefits but also problems. One problem is... Correct Answer: Use too much fuel LECTURE 8. GLOBAL FINANCE. “Money” is defined as any generally accepted medium of exchange which enables a society to trade goods without the need for barter; any objects or tokens regarded as a store of value and used as a medium of exchange. Coins and banknotes collectively as a medium of exchange. Later also more widely: any written, printed or electronic record of ownership of the values represented by coins and notes which is generally accepted as equivalent to or exchangeable for these. Coins: valued for metal content or as representative tokens. Paper money: Issued to represent value. From ancient China to modern societies. Digital currency: Exchanged as information, rather than physical money. All of these work only with a shared consensus of value. KINDS OF MONEY: Commodity money: Gold and silver coins but also things like shells, grain or other items of agreed value. The gold standard which is why major currencies tended to be on before the Great Depression. Token money: Coins or paper that can be exchanged for the face value of gold or silver. The “gold standard” is an example. Flat money: Money issued by a government that is not backed by gold or another commodity but rather by declaration of the issuing government. You had to have the value of gold in money. POTOSI AND SILVER “Potosi was the first city of capitalism, for it supplied the primary ingredient of capitalism – money”. It was conquered by Spain but when they arrived what they found was this great mountain with stones and minerals, the mountain was incredibly rich with silver. The local people mined silver and refined silver on a scale in which they found what they needed. The Spanish started an aggressive campaign and enslaved the local population, forcing them to work constantly mining and refining silver at this mountain. The colonial power of Spain increased dramatically. Impact: The influx of gold and especially silver from South and Central America changed the economies of the world. It made Spain one of the wealthiest countries in the world. The transition to cash in Europe helped facilitate the development of a capitalism based on the exchange of money rather than barter. Spanish silver changed the nature of trade with China and other parts of Asia. It also drove other European countries to seek their own colonial opportunities. Potosi in Bolivia and the surrounding area are now one of the world's leading sources of lithium, an essential part of modern batteries for use in electric cars and other devices. How, and for whom, that resource is developed will be the next chapter in Potosi’s influence on capitalism. The government of Bolivia is trying to figure out ways in order to maintain the benefits of extracting lithium within Bolivia. Image is a lithium rich salt pond. Lithium is vitally important for things like electric cars, and other kinds of stuff like phones, or whatever has a battery in there. What is a Bank? Banks and Central Banks The Bank of England, the model for most Central Banks, was formed in 1694. Central banks have enormous interests. Designed to raise money for the government to finance a navy. 1.2 million pounds raised, in return the Bank could issue notes against government bonds. BANK OF ENGLAND By the end of the 18th Century the bank issued currency, managed the public debt and had become “the bankers bank” holding enough gold to cover currency issued by itself and other banks in England. Other central banks: In the USA, the Federal Reserve Created December 23, 1913. Response to the financial crisis and a desire to ease ups and downs in the economy. Post American Civil war. The crisis of 1907. The banks in New  York City found themselves in a critical situation, they entered into real estate transactions and that they didn’t go the way they wanted to. Many of them didn't have the money to cover the deposits that had been made in their banks. Similar to Silicon Valley a couple of years ago. That's why they created their central bank. They approached John Pierpoint Morgan to fix the New York System. As time went on The Federal Reserve had more power. Centralize control of monetary Regulate banks Lender of last resort for banks Set interest rates The Bank of Canada: The first Canadian governments were happy to let the Bank of Montreal control most of the things and they found themselves very much still under the British model. In 1913 when the Federal Reserve started, Canada didn't feel a particular need to copy them and have a Central Bank. The Great Depression changed that. Canada abandoned the gold standard officially in 1931 and Canada moved to a currency system that allowed the government to reinflate the Canadian economy Royal Commission established in 1933 to study the issue. Bank of Canada established in 1935. Central control of Canada’s monetary supply. Including tasks like moderating inflation. Initially controlled by private interests but transferred to federal government control in 1938. Control of currency. Standardized currency established in 1950 (CAD). Chartered Banks in Canada: Chartered banks are the sort of banks most of us are familiar with. They take deposits and make loans. The banks operate under charters issued by the federal government. Originally banks issued their own bills, supported by their holding of gold or other assets. Why are banks so important in capitalist economies? Banks collect money and all of the people in the area put their money in the bank. The bank bundles it up and issues loans, sometimes eventually mortgages to individuals and businesses giving them access to pools of capital they might otherwise not be able to find. It was essential in the development of the English Industrial Revolution that those expensive early stages of industrial development were funded in large part by the ability of banks to pool money and lend them to the new industries.  They used to print their own money backing it up with gold and sometimes other assets. As a capitalist economy grows the role of the bank is increasingly important. Chartered Banks in British North America: First Canadian Bank was the Bank of Montreal, established in 1817, followed by others including the Bank of Nova Scotia in 1832. Which they call the big five now. The big five control everything, but they opened branches in different parts of Canada which allowed the pools of capital to become even bigger. Limits on the amount of debt in relation to deposits General conservative nature of chartered banking in British North America resulted in a branch banking system Different approach from banking in the United States, where a fear of centralized authority and monopoly resulted in a loose system of many banks. Evolution of Banking in Canada: Bank failures were more common before 1923. Home Bank Failure in 1923 led to much stronger regulation. Important when the Depression hit in 1929. Home Bank was a bank in Toronto. Sir Henry Pellet built Casa Loma, he was one of the major investors in the Home Bank. He made a very poor number of investments and suddenly didn't have the resources to cover the deposits. In 1964 the Royal Commission on banking and finance (Porter Commission) recommended 'a more open and competitive banking system,' and its suggestions led to major reforms and changes. The 1967 Bank Act revision lifted the six per cent annual interest-rate ceiling banks could charge on personal loans and allowed banks to enter the mortgage field. The Canadian Bank Act passed shortly after Confederation governed the way the Canadian banking system worked. Every 10 years the Bank Act will be re-examined to see if it needs to be changed, updated or whatever. Although the Canadian banking system was impacted by the Great Depression in 1929, they were never really in Danger. Whereas in the U.S. they had to close the banking system temporarily. When Franklin Roosevelt took power in 1933, 50% of the American banks had already closed their doors. In the 1950s banks for the first time were allowed to issue mortgages, but only in very narrow circumstances.That and more revisions really opened up the Canadian banking system.  In 1967 and 68 the Canadian government created the Canadian deposit insurance company. It is not a government institution. Banks have to pay premiums to insure the money but you as a customer are secure in the knowledge that the first $100,000 you put in the bank. If the bank goes under this, the insurance company will compensate you. New Tech, same questions: New innovations like Bitcoin and even Apple Pay still work only if we have faith in them. If we question whether our “money” is safe, they cannot work. From paper money to digital files, trust makes currency work. The Euro shaking up Global Finance Trans European Policy Studios video: Although the Euro is a common policy of the EU, not all Member States are part of it. It is an example of “differentiated integration”. However all of the European countries are legally bound to adopt the euro one day, except for one, Denmark who formally opted out. The Euro has the same name in all EU languages. The Werner Plan and the Currency Snake: Although the euro started being used around 20 years ago, it started much earlier. In 1957 the Treaty of Rome outlined the Creation of the European Economic Community (EEC) to promote coordination in economic and monetary matters. However, until the mid 1960s the need for European monetary cooperation was not very pressing, because the stability of the international monetary system was ensured by the so-called Bretton Woods arrangement. Only when the Bretton Woods system begins to show some cracks, the Europeans realize the urgency for monetary cooperation among themselves. At the Hague Summit in 1969 the Member States entrusted Luxembourg’s Prime Minister and Minister of Finance Pierre Werner with the task to lay down a plan for the creation of an economic and monetary union as a solution to the growing instability of the Bretton Woods system. The plan elaborated by Werner (Werner Report - 1970) envisions the gradual replacement of national currencies with a common European currency. This rests on a number of conditions: 1. The Member States should strengthen the coordination of their budgetary and fiscal policies. 2. All restrictions to the movement of capital should be removed. 3. The exchange rates between the European currencies should be fixed irrevocably. “Economist” approach - Germany and the Netherlands: Economic convergence before monetary integration. “Monetarist approach - Belgium, Luxembourg, France: Leads to economic convergence. In 1971 the U.S. administration announced the end of the Bretton Woods system. As a response, in the attempt to restore some stability in the international monetary system in 1972 the Member States came up with the creation of the “currency snake”. The currencies of the Member States are allowed to fluctuate against each other within a margin limited to 2.25%: in other words, the Member States’ currencies are now pegged to one another. Pegged Currency: A currency whose value is controlled so that it stays at a particular level in relation to another. The Oil Crisis in 1973 led some countries to depreciate their currencies and to the failure of the “currency snake”. These years were also marked by a severe economic crisis throughout Europe and by a high volatility of exchange rates due to the US refusal to keep the value of the dollar stable. 1973: Denmark, Ireland and the United Kingdom join the EU. The European monetary system and the Delors committee: In this phase, however, not all Member States see eye to eye: while France is in favor of deepening monetary cooperation, Germany fears that inflation, which is rampant in the other countries, might spread to its economy. These disagreements are overcome thanks to a gradual convergence between the German Chancellor Helmut Schmidt and the French President Valéry Giscard d’Estaing, who in 1978 proposed the creation of a new European Monetary System. Two key elements: Virtual “European Currency Unit” (ECU) – replaces the dollar as the pivot of the system. It is virtual because no coins or banknotes are issued. Exchange rate mechanism, based on “fixed but adjustable exchange rates”, means that the Member States agree on a central exchange rate and on a fluctuation band around this central rate, around 2.25% above and below. However, the central rate can be readjusted periodically upon unanimous agreement. In 1968 the Member States confirmed their objective to establish a fully-fledged monetary union. Building on the conditions identified by the Werner report, in 1989 (Delors Report), a committee led by the President of the European Commission Jacques Delors proposes the implementation of the Economic and Monetary Union in three stages: 1. Stage one (1990) - Coordination of economic & monetary policies. - Free movement of capital. 2. Stage two: - Monetary policy gradually transferred to EC - Establishment of a European system of central banks (ESCB). - Narrower fluctuation bands. 3. Stage three: - Monetary competence transferred to EC. - Fixed exchange rates. - European currency. The Maastricht Treaty and the EMU: The situation changed with the fall of the Berlin Wall in 1989, according to some, in this new context, Germany’s consent for the launch of the monetary union became a bargaining chip for Germany to win its European partner’s support for the countries reunification. In 1990, Stage one starts and at the same time an intergovernmental conference is convened to discuss the treaty revisions that are necessary to move to stage two. At the conference, the two old dividing lines re-emerge. These discussions lead to the signature of the Maastricht Treaty in 1992, that establishes a European Union with a common monetary policy. A compromise is decided, the introduction of the common currency will begin automatically on 1 January 1999. But at the same time, convergence criteria that the Member States have to fulfill in order to participate in Stage Three are also defined. The U.K does not agree to moving to stage three and negotiates an opt-out that allows the country to remain outside of the monetary union. The Maastricht convergence criteria set out a number of requirements that Member States have to meet in order to participate in the monetary union. These requirements include: - Exchange rate stability - Limits to public deficit and debt - Durable convergence - Price stability Just when the monetary union seems irreversible, a massive crisis puts the whole project at risk. The crisis began in 1992, when a referendum in Denmark rejected the Maastricht Treaty, putting the monetary union in question. This is followed by a wave of speculations against the weaker currencies – the Italian lira and the British pound – forcing both currencies to leave the European Monetary System, and forcing the remaining countries to widen the fluctuation bands to 15% above and below the central rate, de facto making the system a flexible rate system. Denmark is granted an opt-out from the monetary union, and Stage Two begins in 1994 when the European Monetary Institute is created as a precursor to today’s European Central Bank. In 1998, 11 countries were deemed eligible to join the monetary union on the basis of the convergence criteria: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. Besides these, the UK and Denmark have obtained opt-outs, while Greece and Sweden don’t fulfill the conditions to join. Stage three finally begins in 1999 when the euro is formally introduced as a virtual single currency, and the exchange rates between national currencies are fixed irrevocably. On 1st of January 2002, Euro coins and banknotes officially started to circulate. Since then, new Member states have joined, and today the Euro is used in 19 out of the 27 countries of the European Union and by more than 300 million Europeans. The Economist Article: WHEN THE European Union launched the euro two decades ago, economists wondered if the new currency might pull off a feat no other had managed in the post-war period: to challenge the mighty American dollar. However, reserve managers at the world's central banks, as well as businesses around the world, largely stuck with the greenback. Now Europe is having another go at establishing the bona fides of the euro beyond its borders. A significant step was taken on June 15th when [euro]20bn-worth ($24.3bn) of bonds was issued as part of the Next Generation EU (NGEU) scheme to boost European economies. Those bonds could yet rival American Treasury bonds as a safe asset of choice. Currencies exist mainly to facilitate the transactions of people and businesses within the borders of the places that issue them. But having an international presence helps in many ways. For firms, having imports and exports denominated in their local currency rather than, say, the dollar, means less disruption when exchange rates inevitably see-saw. Issuing a currency that foreigners want to hold can make it easier for governments to raise money from them at cheap rates. That in turn drives down the cost of borrowing for firms and banks. The euro is widely available outside the 19 countries that formally use it. About two dozen countries link their own currencies to it in some way, albeit mainly former European colonies and close neighbors. Nevertheless, by the normal measures used to gauge international usage, it is a distant runner-up to the dollar. Around a fifth of all foreign-exchange reserves owned by central banks, and a similar percentage of cross-border loans and bonds, are denominated in euros--the share for the dollar is about 60%. The euro's share of payments for transactions is much closer to that of the dollar, unsurprisingly given that the EU is the world's biggest trader of goods and services. In its first few years the single currency looked as if it might rival the post-war champion. By 2007 the euro even became the most popular currency in which to issue foreign-currency-denominated debt (for example by multinationals). It was not to last. The financial crisis that started that year prompted skittish investors to fall back on the dollar as their currency of choice. Europe now wants to have another crack, if not at overtaking the dollar, then at least at reducing the latter's dominance. Two changes in circumstances mean there is a chance the euro could gain ground. The first is America's changing attitude to international economic policymaking--at least under the presidency of Donald Trump. His brand of jingoistic protectionism jarred with the obligations incumbent on the issuer of the world's reserve currency. Even under the more conciliatory Biden regime, Europe frets that its interests will not always be aligned with America's. Relying on the dollar is perceived as an even greater potential vulnerability than before. America has used the need of big banks to have access to dollars to police their behavior far beyond its shores. Those that have fallen foul of American edicts have incurred large fines. The second change came, unexpectedly, as a result of the pandemic. Whereas the last global recession brought the euro to the precipice, on this occasion the swift actions of the ECB and national governments to support their economies were well received. Such battle-hardening has boosted the credibility of the euro in a crisis--a key attribute of a global currency. A big step was the creation of the NGEU scheme and the subsequent bond issuance. The bonds are backed, in effect, by the balance-sheet of all EU member states, thus making them roughly similar to America's Treasury bonds. This is a relative novelty in Europe, where borrowing has mostly been done by national governments, whose creditworthiness varies. The new pan-EU bond creates a way for investors to save in euros without taking credit risk. The absence of such a "safe asset" had been one element hampering the use of the euro internationally. All manner of cross-border operations, from central-bank reserve management to companies borrowing money in a foreign currency, are underpinned by a liquid risk-free benchmark. Whether gaining share from the dollar helps insulate Europe from America's reach is questionable: banks will always need dollars, and thus a foothold in New York, even if the euro thrives. Few think the single currency can displace the greenback, but it could perhaps rebalance the international monetary system. That may help reduce the disruptions caused by American central bankers, for example when a slight tightening of monetary policy in 2013 caused a "taper tantrum" that reverberated globally. The euro is the obvious currency to provide diversification. In 2019 Mark Carney, then governor of the Bank of England, mused that technology might disrupt the kinds of network effects that anchor the dollar at the heart of international finance. The rise of digital currencies issued by central banks, which the ECB is considering, might result in a new equilibrium where many currencies share global reserve-currency status. That could provide space for China's yuan, which has its own global aspirations but is hampered now by its lack of convertibility. Europe has long bristled at the "exorbitant privilege" America enjoys thanks to the dollar's special status. It may find it less intolerable if it can seize a share of it. Exchange rate systems by Tutor2U: Main currency systems: Free floating currency: - Currency value is set purely by market forces. - Strength of currency supply and demand drives the external value of a currency in markets - Currency can either appreciate (rise) or depreciate (fail) - No intervention by central banks. There is no target for exchange rate. - The external value of a currency is not an explicit target of monetary policy (meaning that a country’s interest rates are not set to influence the value of the currency). Managed floating exchange rate: - Brazilian Reais - Indian Rupee - The Central Bank gives freedom for market exchange rates on a day-to-day basis, supply and demand factors drive the currency’s value.  - Central bank may intervene occasionally. - Currency becomes a key target of domestic monetary policy. - Semi/fully-fixed currency (crawling peg): - Central bank fixes the currency value - pegged to one or more currencies - The central bank must hold enough foreign exchange reserves to intervene in currency markets when needed to maintain the fixed currency peg - Pegged rate becomes the official rate - Trade in currencies when buying and selling products takes place day-to-day at this official exchange rate. - There might be unofficial trades in shadow currency markets. - Adjustable peg: Occasional realignments may be needed (must be officially sanctioned with the agreement of the IMF) leading to either a devaluation or revaluation. - Examples are: Hong Kong Dollar (pegged to U.S. dollar and Bulgarian Lev - pegged to the Euro). Currency board system (hard peg): - A currency board system is a type of exchange rate regime in which a country’s domestic currency is fully backed by a foreign reserve currency or a specific foreign asset, typically held in a fixed exchange rate relationship.  - The central characteristic of a currency board system is that the domestic currency is issued only when there are corresponding foreign currency reserves to back it up, and the currency in circulation is fully convertible into the foreign reserve currency at the established fixed exchange rate. - For example: If the exchange rate is 1:1 (1 unit of domestic currency = 1 unit of foreign currency) the currency board must hold foreign currency reserves equal to the amount of domestic currency in circulation. Free floating exchange rate: Canada The Economist (Big-Mac Index): Hong Kong’s monetary officials stepped into the foreign-exchange markets after dusk to defend the city’s long-standing peg to the dollar. Given everything the financial hub has faced in recent months—protests, a pandemic and punitive American sanctions—you might assume it is battling to prop its currency up. You would be wrong. The city’s monetary authority has been forced to sell Hong Kong dollars repeatedly since April to stop the currency strengthening too much. The tongue-in-cheek guide to the fair value of currencies showed that the Hong Kong dollar was undervalued by almost 54% in July. That suggests no urgent need for it to fall. The Big Mac index is a simple illustration of purchasing-power parity (PPP), the notion that the fair value of a currency should reflect its power to buy goods and services. It took HK$20.50 to buy a Big Mac in Hong Kong in July and $5.71 to buy one in America. The exchange rate that would equalize their burger-buying power was therefore HK$3.59 to the dollar. That is substantially stronger than the actual exchange rate of HK$7.75. Although not great for an investor’s wealth, these results are not quite as damaging to the idea of PPP as they first appear. Deviations from PPP can narrow in two ways: through fluctuations in the exchange rate or via movements in prices. In India, for example, the price of a Maharaja Mac (which McDonald’s serves in place of a beefy Big Mac) rose much faster than that of an American Big Mac from January 2013 to January 2015. Believers in PPP also accept that rich countries tend to be more expensive than poor ones, because their wages are higher even in parts of the economy that are not terribly productive. So The Economist also calculates an adjusted Big Mac index, which shows whether a burger is cheaper or dearer than you would expect given a country's level of GDP per person. LexisNexis Article: The world is seeing how the dollar really works: If you export far more than you import and thus hold really large foreign exchange reserves—like Russia's $500 billion—there really is nowhere else to hold them other than dollars or euros. Russia has, so far, ridden out the storm, but to do so it has had to close its financial system to the outside world. Its imports have been squeezed to barely more than half their pre-crisis level Surely Russia, China, and India would look to build an alternative currency system. This might perhaps be denominated in China's renminbi and would be centered on the exchange of key commodities. One model might be the kind of deal recently brokered by a leading Indian cement producer, which paid for imports of Russian coal in Chinese currency. To secure funding, you could borrow in the so-called dim sum bond market in Hong Kong, where issuers from around the world issue offshore renminbi debts. From our current vantage, six months on from the start of the war, a future beyond the dollar seems more remote than ever. As the world economy slows down, commodity prices are far off their peaks. There is still excess demand for oil, gas, and coal, but other commodities such as iron ore are going cheap. China, rather than asserting its dominance as an alternative center of the world economy, is seeing a hemorrhage of foreign capital at a rate faster than that during the crisis period of 2015-2016. With talk of rivals to the dollar system on the wane, what dominates the global economic news cycle in mid-2022 is another face of U.S. financial power: the tightening of Federal Reserve policy in response to inflation and a surging U.S. dollar. This changes the conditions under which the entire world economy operates, not through legal or geopolitical interventions but through currency values, interest rates, and the demand and supply of credit. Political and military power plays a part in anchoring the global dominance of the dollar. It is hard to imagine U.S. Treasury debt having the status that it does in the world economy if it were not ultimately backed by the world's preeminent military power. But the more prosaic motive for the dollar's adoption as the main currency of trade and finance is that dollar liquidity is abundant and cheap, and the currency is universally accepted. That is the reason that close to 90 percent of all currency trades—a daily turnover of $6 trillion before the COVID-19 pandemic—involve the dollar as one of the currencies in the pair. Of course, a rising dollar creates both winners and losers. It means that other currencies are falling in relative terms. One might expect that the effects of a rising dollar would be offset by the effects of the falling value of other currencies. If the dollar rises, anyone who has borrowed in dollars—and there are trillions of dollar debts outstanding all around the world—faces more painful debt service charges. A surging dollar also raises the global cost of exports priced in dollars, making them less competitive. Overall, a 1 percent rise in the dollar is thought to knock around 0.7 percent off global trade within a year. Since the middle of 2021, as the FED has pushed up rates, the dollar surged by 15% against a basket of currencies. The euro and yen have both been reduced to record lows. So too have the currencies of emerging markets ranging from Chile to Turkey to Egypt. As in the case of financial sanctions, there is always a risk that as credit conditions tighten, the links that make up the dollar-based financial system will snap. For those economies in the worst shape, this risk is very immediate. Sri Lanka has tipped over the edge into default and political crisis. Argentina faces surging inflation and crushing energy import bills. In both cases, their economies were already weak and their debt unsustainable before the current surge in commodity prices, interest rates, and the dollar. But the new conditions contributed to making their situation evidently unsustainable, helping to trigger an open crisis. All told, the World Bank estimates that nearly 60 percent of low-income borrowers are at danger of debt distress or already in it. Economic and financial hardship is already afflicting tens of millions of people and will in due course likely affect hundreds of millions. A half-dozen debtor countries or more may find themselves navigating the uncertainties of debt restructuring and sovereign default. In all likelihood, however, we will avoid a systemic crisis of the dollar-based global financial system. Big emerging-market economies like Brazil and Thailand have learned that it is better, if you are going to take money from foreign lenders, to borrow from them only in your own currency. In a crisis, that may still leave the value of your currency in danger—as foreign investors sell out their stakes, you will likely suffer a devaluation—but at least part of the risk is then borne by the lender, and you can at least ensure you have enough local funds to service the debts The United States, United Kingdom, and European Union agreed at last year's United Nations climate conference to provide financial support to South Africa in the financial restructuring of Eskom, its ailing power utility. This was both an energy transition strategy and a way of relieving the pressure on the South African government account arising from its implicit responsibility for Eskom's debts. What 2022 has revealed is that the dollar system has the resilience and strength that it does because it is deeply entrenched and buttressed by both commercial and geopolitical interests Wall Street Consensus (Daniela Gabor): Highlights the role of investment bankers, fund managers, and their client borrowers in maintaining the dollar-based global financial network. In major crises this system becomes an overt public-private partnership secured from the top down by the liquidity swap lines extended by the Fed to the major central banks of Europe, Latin America, and Asia. In general, a strong U.S. economy promotes growth and secures the prosperity of American capital and the centrality of U.S. equity markets to global capital accumulation. It also, however, requires a tighter stance from U.S. monetary policy. Right now, it is the latter point that is critical. How severe the tension in the global economy becomes over the coming months will depend above all on how far the Fed's tightening goes, and that depends on how rapidly American inflation cools down. LECTURE 9. THE TEXTILE INDUSTRY. “The cotton business chases cheap”. The T-shirt represents many aspects of cotton’s history. It is universal, almost all of us own one. They are usually inexpensive and the ethics of its manufacture can be controversial. Early Cotton: Archeology and early history show cotton has grown and been used by people in both South and Central America since perhaps as early as 5000 B.C.E. 3000 B.C.E. It is grown and spun in both the Indus river valleys. In early Egypt they knew of cotton, but clothing made of linen was the norm. The spread of cotton to Europe: Europe and early Greece used clothing made of wool. Like silk, cotton made its way west through trade and war. Herodotus, an early Greek historian described cotton as “a wool exceeding in beauty and goodness that of sheep”. Alexander the Great invaded India to conquer, and his men found the cotton clothes of the conquered more comfortable than their own. They took things and a lot of what they took was cotton. They made their way back to Europe with all the benefits of the conquest and that fabric, then trade became a factor. By the middle ages cotton is in Europe: Muslim traders and later conquerors spread spinning and cotton use to Spain and Sicily. They brought the technology to spin cotton and create cotton fabric. It spread into Europe later. Columbus finds cotton in the Bahamas, which the natives are using for clothing and he is impressed by the colors. So he steals some and takes it back with him. By 1500, Cotton became more common in Europe. For the most part it was inexpensive. Begins to be grown in America: By the early 1610s cotton was being grown in Virginia. The Spanish had it grown in Florida even earlier. The slave economy in Virginia already existed with Tobacco expanded. To produce cotton and process it you require a large inexpensive workforce, so it means that the British in Virginia and eventually up and down the eastern seaboard introduced an extensive program of slavery. India is a major source of supply: For the most part India remained the major source of supply of cotton. It had a fully developed industry and the cotton grew well there. The secret of dying cotton: how to dye it, how to process it, etc.  They supplied most of Europe in exchange for gold. In the 1600s and early 1700s India was the source of 95% of British cotton. Supply is limited by price and limited technology. Production is limited by cost, cost is always a limitation but it is also limited by technology, and technology changes the thing. BEIC and Cotton: The British East India Company began to import cotton in the 1690s. Calico, a brightly coloured version, became very popular. Wool and linen makers tried at all times successfully to keep it out. As the BEIC grew in power it was able to sell cotton back into India after processing it in England. The advent of colonial cotton in America and the Caribbean also led to an expansion of English cotton use and production. RESTRICTIONS: Cotton production was limited by a number of factors: Cotton had to be combed to remove the seeds or it went bad. Cotton needed to be spun into thread in order to be turned into cloth. Thread needed to be loomed to create the cotton fabric. All of these relied on manual labor or rudimentary technology. Industrialism changes everything: The Spinning Jenny: Spinning had been a “craft” taking a place on a wheel in workers' homes. Cotton was spun into thread. In 1764 James Hargreaves invented the Spinning Jenny, which could do 8 spindles at once. Thread was still a bit weak, but it was improving. Richard Akrwright: Arkwright added a water powered system which made a much stronger thread. This was required if industrial production was to be possible. One person could do the work of many. Suddenly all of the employment that was required to create cotton thread to fabric was gone and replaced by machines. In 1768, an angry mob destroyed Arkwright’s factory. The power loom: Reverend Edmund Cartwright patented the power loom in 1785, which was improved over the following years to allow faster weaving of more thread. By 1800, the introduction of steam power at each stage made massive productivity possible. The need for more cotton and the restriction created by the need to “comb” the cotton meant only slow increases in yield, even in the new American fields. The solution would be the cotton gin. Patented by Eli Whitney. Created a solution and was able to make people’s hours of work in only a few minutes. Results of the First Industrial Revolution in England: Increased production levels. The cotton cloth output was 21 million yards in 1796. 347 million yards of cotton in 1830. This allowed Britain to dominate the world cotton industry for decades. In 1770, the cotton industry was worth around $600,000. By 1805, it had grown to $10,500,000 and by 1870, $38,800,000. By comparison, over the same hundred years, wool had increased in value from $7,000,000 to $25,400,000 and silk from $1,000,000 to $8,000,000. In Manchester alone, the number of cotton mills rose dramatically in a very short space of time: from 2 in 1790 to 66 in 1821. The work force: In England, children and women were prime sources of labor. It was inexpensive and compliant. The 1833 Factory Act banned children from working in textile factories under the age of nine. From nine to thirteen they were limited to nine hours a day and 48 hours a week. By the time you were fourteen, you were considered an adult. Regulations only work if you enforce them. Conclusion: Cotton facilitated the transition of England into the first industrial power. English technology allowed them to mass produce cotton fabric and gave them global control of this commodity. That strength allowed them to dominate the economies of countries like India. It created a powerful industrial economy and an expanded middle class, but at the expense of horrible working conditions for women and children. Also sustaining their economy by globalization of slavery and production of raw materials America gets into the cotton business: Throughout the late eighteenth century and early nineteenth, American industrial spies roamed the British Isles, seeking not just new machines, but skilled workers who could run and maintain those machines. Francis Cabot Lowell talked his way into a number of British mills and memorized the plans for the Cartwright power loom. When he returned home, he built his own version of the loom and became the most successful industrialist of his time. He was only ever known by his name. Lowell’s Mill Girls: Lowell, Massachusetts, named in honor of Francis Cabot Lowell, was founded in the early 1820s as a planned town for the manufacture of textiles. By 1840, the factories in Lowell employed some estimates of more than 8,000 textile workers, commonly known as mill girls or factory girls. These “operatives” so-called because they operated the looms and other machinery–were primarily women and children from farming backgrounds. The decline at Lowell: In the 1830s, cloth prices dropped and wages were cut and hours were extended. After Lowell sells this trend continues. On three occasions the girls went on strike until in 1845, Massachusetts passed laws to help them, which were largely ignored. A wave of poor Irish immigrants replaced the more independent girls in the late 1840s and 1850s. King Cotton: By the 1850s, Cotton accounted for more than 50% of the U.S. exports. By the late 1850s, cotton grown in the United states accounted for 77% of the 800 million pounds of cotton consumed in Britain. It also accounted for 90% of the 192 million pounds used in France, 60% of the 115 million pounds spun in the Zollverein and 92% of the 102 million pounds manufactured in Russia. U.S. Civil War: “Slavery stood at the center of the most dynamic and far-reaching production complex in human history”. Sven Beckert. It was thought essential in the south but many in the north and elsewhere were troubled by both the ethical problem and the instability of slave systems. Civil War: 1861-1865 Aside from the implications for north and south, it also created chaos in the world cotton market. Most of the world’s cotton came out of the U.S. and now because of the trade restrictions imposed by the North, they blocked the south to try and prevent cotton from being exported to give the south money. Lost access to American cotton caused England to look to India and the Middle East. Put a real shock to the global economy. Similarly, the same thing happened to feed the appetite for raw cotton. The consequences in India were devastating, famine based upon the loss of food production to replace cotton. Led to some sympathy for the south in England and friction between the North and England. After the Civil War, some friction remained and damaged the relations between the United States and Canada and the United States and England. End of the war: As the war comes to an end, the South loses and slavery ends, meaning that there has to be new ways to replace cotton. Sharecropping replaced slavery. New sources in other parts of the world became important. Emphasized and increased global reach of the industry, even when the American cotton returned to the market. The reason cotton clothing is so cheap is that you can hire people and pay them very little to manufacture clothes. Triangle to Rana Plaza: On March 25, 1911 a fire destroyed the factory of “Triangle Shirtwaist” in New York, U.S. The fire caused the deaths of 146 garment workers, 123 women and 23 men who died from the fire, smoke inhalation or falling or jumping to their deaths. The oldest victim was Providenza Panano at 43, the youngest were 14 years old, Kate Leone and “Sara” Rosario Maltese. The two guys who owned the factory were afraid of women taking unauthorized breaks or stealing fabric to take home, so when the women went into work they would padlock all of the doors including the fire escapes to keep them in, so they wouldn't sneak out. So when the fire hit, the people with the keys, the owners went out, they were all fine but the doors didn't work. Regulations started hitting in, so they moved to New Jersey and then further into the American South, Mexico and eventually Asia, seeking jurisdictions where they will be allowed to have low wage, highly exploitative working conditions. Rana Plaza and the cost of cotton: In May 2013, a clothing factory in the Rana Plaza building in Bangladesh, had a faulty construction, despite indications it was unsafe. In fact, extra floors were added and they were not in the design. Workers went back to work. The collapse killed 1134 people. Launched a huge debate about responsibility of western consumers and merchants. If you regulate too much, then the companies just move away. And that remains a significant problem. The evolution of the textile industry – Andrew Good (Global Edge) It is estimated by anthropologists that humans began wearing clothes somewhere between 500,000 and 100,000 years ago. Since this time the textile industry has been evolving. The earliest trade hubs of textiles can be found in ancient China, Turkey, and India. All of these regions can be found along the Silk Road. From the linen and animal skin wearing Pharaohs of Egypt to the luxurious purple silk worn in the Byzantine Empire the most fashionable trends have always had a major impact on the textile industry. The most in-demand products are the products every merchant wants to sell and every factory wants to produce. Consumer tastes and the cost of products are two primary demand drivers in the textile industry. The primary driving factors for a company’s success in the textile industry are the ability to operate efficiently and securing contracts with clothing marketers for their products. The textile industry has been shaping international business and cultural trends for thousands of years. In fact, ancient Chinese silk was one of the catalysts for the formation of the world’s first international commercial highway. The Industrial Revolution started in England in the 1700’s. At this time, England was a colonial power, and used its colonies in the Americas and Asia to provide resources such as silk, tobacco, sugar, gold, and cotton, and provided its colonies with finished products such as textiles and metalware. At this time, Britain largely controlled international trade, and most global trade was conducted within Europe, but by the late 1790s 57 percent of British exports went to North America and the West Indies, and 32 percent of British imports were provided by these regions. Before the Industrial Revolution, textiles were made by hand in the “cottage industry”, where materials would be brought to homes and picked up when the textiles were finished. This allowed for workers to decide their own schedules and was largely unproductive. Because Britain was the main supplier of textiles overseas, it needed a new way to meet the large demand for textiles. Many aspects of society and business today started during the Industrial Revolution. Before the Industrial Revolution, over 80 percent of people lived in rural areas and by 1850, more people in Britain and the United States lived in cities than in rural areas. Another aspect of the Industrial Revolution that we can still see today is the rise of the middle class. Additionally, women were introduced to the workforce during the Industrial Revolution. Many women were hired to work in the textile factories because they provided cheap labor and many women were seeking the independence that joining the workforce could give them. An example of this in the Industrial Revolution is the Lowell girls. Francis Cabot Lowell started textile factories in the United States and employed mainly young women, and was able to make large profits because of the cheap labor. Colonialism and the Indian textile industry – Times of India ( The historical context of the British colonial rule over India is marked by a complex interplay of economic interests, cultural dynamics, and imperial ambitions. One prominent aspect of this colonial relationship was the British imposition of restrictions and bans on Indian textiles. While not an outright ban on all Indian textiles, the British colonial authorities strategically employed policies that severely impacted the Indian textile industry. By imposing restrictions on Indian textiles, the British aimed to secure a steady supply of raw cotton from India. This allowed British manufacturers to capitalize on the raw materials, ultimately strengthening Britain's dominance in the global textile trade. The British ban on Indian textiles was also rooted in protectionist policies. The British colonial administration sought to protect its domestic industries from foreign competition, including Indian textiles. To achieve this, the British government implemented tariffs, taxes, and import duties on Indian textiles, making them less competitive in the British market. By stifling the Indian textile industry, the British effectively controlled trade dynamics to their advantage. By imposing restrictions on Indian textiles, the British aimed to diminish traditional Indian textile practices, which were deeply ingrained in the cultural and economic fabric of the nation. This not only eroded India's cultural identity but also weakened its economic resilience. Restricting or banning certain Indian textile products asserted British control over the economy and society. The policy aimed to curtail the economic autonomy of local communities, further subjugating them under British colonial rule. By limiting the economic potential of Indian textiles, the British ensured that India remained a supplier of raw materials and a consumer of British manufactured goods, reinforcing their colonial dominance. The economic interests of the British industrial sector, combined with protectionist measures, market control, and exploitation, converged to create an environment where Indian textiles were systematically suppressed. This suppression had far-reaching consequences for India's economic growth, cultural heritage, and socio-political autonomy. Fashion History Lesson: The Origins of Fast Fashion – Fashionista (Sara Idacavage). The concept of fast fashion is widely regarded as being a fairly new concept that originated from brands like Zara being able to sell trends at record speed for affordable prices, but "fast fashion" is really j