MGMT 1035 Globalization PDF

Week 2: What is Globalisation? Globalisation- The action, process or fact of making global; especially in later use, the process by which business or other organizations develop international inﬂuence or start operating on as international scale which considered to be ta the expense of national identity. - Political Globalization; political decisions, trade agreements, or international orgs - Cultural Globalization; Music, ﬁlms, tv, sports, fast food -Started around 1850-WW1 during creation of telegraph so countries could communicate in the growing global market. Silk Road -Origins can perhaps be traced to Silk Road, Venice to China. -Transported silk and spice to Europe from China. Gold, Silver and Horses to China. - Cultural Exchange - Brough new languages, religions, and culture traveled back and forth along the route - Diseases “Globalization 4.0” - If trade was interrupted, it was most often because of blockades by local enemies of Rome or China. - It is a pattern we’ll see throughout the history of trade: it thrives when nations protect it, it falls when they don’t. - First Romans and Chinese; Silk and Spice - Next Muslim Merchants, spices; cloves, nutmeg, mace - Europeans and America, potatoes, tomatoes, coVee, chocolate - British Empire, technology, iron, textiles; trade grew 3% per/year =14$ total GDP WW1 - USA, technology - Internet - USA and China, digital economy Tools of Globalization: - Venice was the centre of exchange and helped changed the way globalized business was conducted. - 2 Tools helped them dominate control: the “company” and double entry bookkeeping -“THE COMPANY” brings the idea of a family business; liability brought severe punishment. People needed to trust who they delt with. -“BOOKKEEPING” Allows Venice companies to keep record of all sales across the world. Became essential for vast trade. -“SAIL POWER” New ship deigns allowed for faster and eVicient trade leading to high proﬁt -“NAVIGATING”-tools like compass, and astrolabe improved ship deigns. Crucial for long distant -“THE SEXTANT” allows navigators to determine their position on the ocean with accuracy -“CONTAINER SHIPS” more of a driver for globalization than the past 50 years of trade agreements. Move 95% of goods -“TELEGRAPGH” allowed for instant communication across the world. Samuel mores -“THE TELEPHONE” inspired by telegraph -”THE INTERNET”- Current use for globalization. Anti-Globalization - After WW! The rise of nationalism and hardship of the depression led to blame big companies and argued tariVs protected national economies - Protests in 1999 Seattle argued that; multinationals business and corporations were undermining national sovereignty, Companies used their inﬂuence to push governments, globalization destroy local culture. “An economist explains the pros and cons of globalization” - Gita- advantages are they raise output in countries, productivity, create more jobs, raise wages, and lower prices - Consumer notices advantages with decline in prices of washing machines, cars or clothing - Losers are workers who have cheap competion; us manufacturing workers - Overall, net positive “China’s Massive Belt and Road Initiative” -China’s Belt and Road Initiative(BRI) launched in 2013 Xi Jinping - The New Silk Road, link East Asia to Europe, expanded to Africa, Oceania, Latin America to broaden China’s economic and political inﬂuence. -The belt and Road would be controlled by China but facilitate 2 way trade -The plan was two-pronged: the overland Silk Road Economic Belt and the Maritime Silk Road. - Creating a vast network of railway and highways connecting Asia -Network would expand the use of Chinese currency -Also create a network of port all over -Expenses could reach $8 Trillion WHY CHINA IS MOTIVATED -Stops US inﬂuence in region -Global Economic links to Western region, historically neglected -Geopolitical leverage over BRI countries(Sever ties with TAIWAN) ROADBLOCKS -Countries cannot repay debts -High Costs -Climate issues 3rd Parties -G7 launched B3W to compete with BRI -India, Japan, Europe, Russia -INDIA- warns of a “STRING OF PEARLS” China creates uncontrollable debt and seize control of region. Provide its own development to neighbours -JAPAN- Committed to infrastructure development in the area. Asia-Africa Growth Corridor connect ports. -EUROPE- 2/3 of EU countries signed BRI -RUSSIA- Once partners on BRI, now worried the plan would outshine MOSCOW Week 3: Organizations: Multinational Enterprises (MNEs) Multination enterprise- an enterprise producing goods or delivering services in more than one country. - Apple and Microsoft, headquarters in the USA but buying and selling throughout the world. - USA holds 1/3 of the MNE. McDonald’s - McDonald’s has 34,000 restaurants in 118 countries - Ray Kroc took over the company and brought innovative marketing strategies increased sales and restaurant services 1. Clown Ronald McDonald toys created family appeal 2. Branded with double arches 3. Emphasis on low prices Big Mac Index- 1986, a guide to whether currencies are at their correct level. It is based on the theory of purchasing power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and service in any two countries. Challenges with MNE’s Challenges from local jurisdiction they operate (Cultures, or government challenges that they face and must comply with). I.e Apple with the cords that they must sell in Europe Power Smaller national countries face diViculties in enforcing their regulations. They may be forced to limit/change their rules to attract MNE’s which provide many beneﬁts. “Multinational Corporation (MNC)” Reasons for being MNC: 1. Access to lower production costs: -Outsource production to developing countries=low costs 2. Proximity to target international markets -Reduce transport costs 3. Access to larger talent pool -Hire best management to provide innovative thinking 4. Avoidance of taxes Models of MNC’s Centralized-executive headquarters in their home country and build manufacturing plants in other countries. Headquarters manage all oVices Regional-Headquarters in one country and supervises oVices in other countries. OVices report to regional headquarters then main. Multinational- Headquarters in home, oVices in other countries. OVices have more independence in their operations. Advantages of MNC’s 1. EViciency 2. Development 3. Employment 4. Innovation Disadvantages of MNC’s 1. Legal burden 2. Increase tax compliance 3. Public relations 4. Political instability Foreign Direct Investment- The investments occur when an investor or company from one country makes an investment outside Part 2: The Evolution of MNEs Early Trading: Small group or individual voyage could be wildly proﬁtable but could also ruin the ship Risk was mitigated by joining investors in an adventure to trade Example: Dutch East India Company Dutch East India Co. (VOC) Began Sending expeditions to the Paciﬁc seeking spice 1595 First voyage, 4 ships to main pepper port (WEST JAVA) they fought Portugal and Indigenous Indonesians. They returned with a proﬁt 1599, 8 ships reached spice islands (MALUKU), cut Javanese middlemen. They made a 400% proﬁt. Creation The United East India Company was created by the government of the Dutch Republic in 1602 Given a monopoly on all trade in Paciﬁc and Asia Shares were bought and sold by Dutch citizens The company, backed by the government, were able to raise an army and enforce their laws Banda islands held the world nutmeg production. The company used their power to force the island to only trade with them. After resistance, the company launched a military campaign (1621), wiped the population 1k left The End The Co. suVered local conﬂict and internal corruption, importantly lost battles As the Dutch fought with British, the Co. paid the price 1700s the Co was ruined and disbanded by government Virginia Company 1600s, created to plant tobacco and settlers in Virginia colony THE HUDSON BAY COMPANY 1670 was created to conduct the fur trade and other business in what is now north Canada These MNE’s - were private stock companies - Endowed with rights by the government - Symbolized one stage in the development of colonialism Nestle 1866, a company, Anglo-Smith, to make condensed stored milk 1867, Henri Nestle began selling mix of milk and ﬂour as BABY FORMULA 1868, DANIEL PETER partnered with nestle to develop a milk chocolate product 1905 Nestle and Anglo-Smith combined WW1, Expanded their chocolate business in Europe and USA Found success in Nescafe, instant coVee sold to USA army After WW2, Nestle established international presence in several products 1960s they expanded through acquisition and development 2014 Nestle are the largest food company Tata Based in India, founded 1868 Jamshedji Nusserwanji Tata Sought to achieve several goals in expanding business interests including steel, hydro-electric, hotel, and education Opened oVice in London and conducted business there In the third generation,1938 JRD started with had 14 diVerent enterprises. By 1988 they expanded to 95. The government of India took control interest in Arline company but JRD remained chairmen “In Retreat” Supply chains account for over 50% of trade 1/3 of the value of stock makrtes Passed 5 years, MNE proﬁts dropped 25% Shrinking, roots in local, lower tax, competition, demands “The world’s most powerful corporation”(TUTORIAL) The company was established for trading, with a royal charter by Queen Elizabeth I granting it a monopoly over business with Asia. It was one of the largest employers in Britain and also hired vast numbers overseas: in India, it ran a military of 260,000 local recruits. East India Company had vast competition for job positions Manual labour, clerk, writers needed nominations Success for jobs was ultimately dependent upon connection and influence rather than the possession of any skills and aptitude for the post,” To guarantee good behaviour, new hires needed to post a bond around 500. Mangers 5000 In 1806, the Company opened the East India College, a 60-acre estate in Haileybury, designed by architect William Wilkins, to train new clerks. On the curriculum: history, the classics, law – and Hindustani, Sanskrit, Persian and Telugu. it’s known as the Haileybury and Imperial Services College today. Free breakfast early. Free food abroad Meals included pilau, raisin and almond-stuffed fowl, spit-roasted beef and plenty of wine and arrack (liquor from fermented coco palm sap). Those who headed abroad on the Company’s behalf were allowed to conduct private trade for themselves outside of their Company dealings. They even got space on the Company ships to bring back the goods The ample opportunities for insider trading. Officers in India with on-the-ground knowledge of the market would send orders back to Britain to buy or sell stocks Factory workers overseas often received gifts of jewels or silks from merchants and others hoping to curry favour. In the late 18th and early 19th Centuries, the East India Company’s clerks were some of Britain’s highest paid. A clerk who had been employed for 40 years could retire with three-quarters of his salary – at 50 years, full pay. No days off-Christmas Week 4: International Trade Mercantilism- Based on the principle that the world’s wealth was static, that is the supply of gold and silver was finite. Governments had to regulate trade to build their wealth and national power. an economic system of trade that spanned the 16th-18th century “A nations wealth and power were best served by increasing exports and reducing imports.” Nations used military to protect local markets and supply sources. Colonialism Biggest users of Mercantilism were European coloanal powers They embraced the idea that economic strength came from reducing imports an emphasizing export in order to hold on to and increase their gold supply They developed colonial systems that would allow them to extract resources. Triangle of Trade The imperial power constructs a system in which all economic activity is conducted with the purpose of extracting resources from the colony to benefit the ‘mother country’ -For example- If people wanted to buy American Tobacco, they had to go through England How it Works Need to maintain a trade surplus Must have a large population (represented wealth. High population was integral to supplying a labour force, domestic commerce and maintain armies) Protectionism-protecting a nation’s ability to build and maintain trade surpluses. Also prohibits colonies from trading with other nations and imposing taxes on imported goods. Navigation Acts 1660 England passes the Acts which prevents their colonies from selling directly to other European countries Forced other European nations to buy goods in England-they couldn’t go to the American colonies seeking goods. For the colonist, this stripped away any notion of free trade and restricted their markets. Corn Laws 1700’s-1848, England placed taxes on imported goods of grains and other foods to protect domestic producers. Gave better rates to colonies like Canada but maintained protection By 1840’s it became clear that food was expensive. People were hungry. The Peel government repealed the Corn Laws to let more inexpensive food into England Decline of Mercantilism 1800s, Adam Smith started the idea that trade helped everyone more than protection The UK moved towards free trade which was helped by the fact that they were an established, powerful economy. “The Importance of International Trade to the Canadian Economy” In 2015, exports accounted for 31.5% of GDP, up from 25% before Canada signed a series of free trade agreements starting in 1988. Exports directly and indirectly accounted for 2,942,400 jobs in Canada in 2011 according to Statistics Canada, or 16.7% of all employment. Imports were the equivalent of 33.8% of GDP in 2015. The effective tariff rate on imports is 1%, down from 3.5% before the push to more free trade began in the late 1980s. Because Canada exports to Asia, notably natural resources, it has a relatively small trade deficit with Asia compared with the US. Canada has little direct trade with Mexico Firms in Canada that export have significantly higher productivity than firms that do not export. Economic Impact: International trade enhances productivity and competitiveness, allowing Canadian businesses to access larger markets. Job Creation: A substantial number of jobs in Canada are linked to exports, supporting various sectors. Diverse Partnerships: Canada benefits from a diverse range of trade partners, which helps mitigate risks associated with economic fluctuations. Policy Implications: The report advocates for trade-friendly policies to sustain and enhance Canada’s economic advantages. Trade Benefits: Import competition lowers prices, forces domestic firms to become more productive, and increases the choices available to consumers and businesses. Part 2: Theories of International Trade Mercantilism Comparative Advantage: David Ricardo, 1817 Comparative Advantage vs. Absolute Advantage(Focused on what your best at) Trade can be better off for all when Relative efficiency is considered\ Focused on Labour Costs Unrestricted Factor proportions Theory Also known as Heckscher-Ohlin theory Different aspects of a country’s economy are proportion to other parts Factor endowments A country will specialize in what it as a lot of relative to other countries New Trade Theory 1980s Paul Krugman Why would similar countries trade with one another? -Build greater efficiency in different industry Importance of growing return to scale Advantage in moving quickly One firm has a lot of power/monoply Strategic Tarde Theory 1980s Government intervention in a firm to make it compete in global markets How to account for single firms that dominate global market? How should countries respond Role of industry policy Examples: Aribus-CHIPS and Science Act Part 3: Global South Globalization helped north more than south Global south defined as having their development has been restricted South-South trade creating an environment that both benefit from that North liked trade when they benefited Now, South is gaining benefits from manufacturing and north is reluctant to trade “Chinese companies are winning the global south.” The expansion of Chinese business is taking two forms: 1. Globalised supply chains -Since 2016, listed Chinese firms have quadrupled their sales in the global south, to $800bn - Some Chinese firms are attempting to skirt restrictions by shifting production to the global south. 2. Focusing on huge south population Chinese Expansion: Chinese companies are increasing foreign direct investment and sales in developing countries, with sales in these markets surpassing those in wealthier nations. Strategic Adaptation: In response to Western trade barriers, Chinese firms are relocating production to the Global South and enhancing diplomatic ties through initiatives like the Belt and Road Initiative. Consumer Benefits: The influx of Chinese goods, including affordable smartphones and medical devices, improves access to technology and healthcare for millions in developing regions. Competition vs. Protectionism: Policymakers in the Global South must balance between protecting local industries and allowing competition, as excessive protection could stifle innovation and consumer choice. Future Trends: Chinese firms may increasingly adopt practices seen in Western companies, such as training local workers and investing in local communities, which could enhance their influence and deepen ties in emerging markets. “Return to picking winners” (TUTORIAL) Mariana Mazzucato, of University College London, believe that firms are losing the ability to innovate, weighing on future prosperity National-security hawks on both sides of the Sino-Western divide fret about reliance on adversaries for critical resources, from semiconductors to pharmaceuticals. Western bosses complain about "unfair competition" from China's state-backed behemoths. Mr Cass blames the innovation drought on governments abandoning their role as midwife to technological breakthroughs, as they were for the internet and biotechnology. Rishi Sunak, Britain's Conservative chancellor, proposed to funnel billions to the private sector. Tax relief for research and development, nearly half of which firms claimed for work done outside Britain in 2019, will be "refocus[ed]. towards innovation in the uk". One bank boss thinks "Britain is closest to Chinese thinking." Western leaders justify this revived industrial policy in two ways. 1. preserving countries' rightful place in the global pecking order. 2. domestic economic development Losers of industrial policy: fuel cells, which may be better suited for heavy transport, or more efficient combustion engines as a bridge to a cleaner future Some British airlines, which unlike their European peers were left out of pandemic relief support, feel "buggered Winners of industrial policy: Pat Gelsinger, boss of Intel, welcomed the news of impending semiconductor splurges with congratulatory tweets L Key Points: 1. Shift in Economic Thinking: After the 1970s, liberalization allowed corporations to prioritize efficiency and profits, benefiting many. However, recent crises, such as the 2008 financial crash and the COVID-19 pandemic, have led to skepticism about market efficacy and calls for greater government involvement. 2. Concerns Over Innovation: Critics argue that Western firms are struggling to innovate, partly due to reduced government support for strategic industries. Some economists suggest that government needs to actively nurture technological breakthroughs, as seen in past successes like the Apollo program. 3. China's Model: China's approach combines state support with strategic industrial policies, which some Western nations are now trying to emulate. Countries like Japan and members of the EU are investing heavily in key sectors, such as semiconductor manufacturing and clean energy. 4. Bipartisan Support in the U.S.: Industrial policy has gained traction in the U.S. across party lines, with significant investments proposed for sectors critical to national security and economic stability. 5. Challenges of Industrial Policy: There are concerns about inefficiencies and potential overreach in government support. Critics warn that not all sectors deserve government aid, and that market manipulation can lead to misallocation of resources. 6. Diverse Reactions from Businesses: Companies have mixed feelings about government support; while some welcome subsidies, others worry about conditions attached, such as local labor requirements or restrictions on international trade. 7. Cautionary Perspective: The article emphasizes the need for careful consideration of the implications of closer government-business ties, warning that becoming too dependent on state support can lead to unforeseen complications. New policy=government intervention It was first hated because: 2008, loss of middle-class jobs Villain is CHINA Government spending picks winners by giving funding Maybe pick the wrong winners HARD to stop funding MAY be good for national security. EX- Computer chips. But what is national security. EX- Koski couldn’t buy 711. Week 5: Financial Institutions Unilateral Trade Agreement-One sided, non-reciprocal agreement that helps developing countries imp0rove economic development Bilateral Trade Agreement- A mutual beneficial agreement between two countries to reduce trade barriers Multilateral Trade Agreement- Regional trade agreement, acts in the same way as a bilateral or free trade agreement but with 3 or more countries. EX- USMCA or the EU One of the motivations was fear of the sort of economic and trade chaos that marked the post WW1 period and the Great Depression Post 1919, USA followed “AMERICA FIRST” policy which imposed increasing tariffs on imports. European imperial powers wanted to maximize their trade while restricting their rivals’ Smoot-Hawley 1930, imposed sweeping new tariffs to try and protect American industry. This set offs rounds of retaliatory tariffs which stifled already weakened international trade Bretton Woods Many nations sought to impose order to avoid future economic driven crises Monetary policy, tariffs and other levers of trade were restricted in the interest of stability “Imf” IMF works to achieve sustainable growth and prosperity for all its 190 members. 1944, 44 members 0% interest loans Can lend $1 TRILLION to its members By supporting economic policies that promote financial stability and monetary cooperation 3 Important missions; furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity. Special Drawing Right(SDR)- 1969, Supplement special reserves of its members L Policy Advice Surveillance- monitoring the economic and financial policies of member countries and providing them with policy advice Identifies potential risks and recommends appropriate policy adjustments to sustain economic growth and promote financial stability. Financial Assistance Provides financial support to countries hit by crises to create breathing room as they implement policies that restore economic stability and growth Provides precautionary financing to help prevent crises Capacity Development Providing technical assistance and training Accounts for around a third of the IMF’s annual spending. “FROM GATT TO WTO” 1948, 23 countries signed GATT International banking, telecoms, high tech inventions Determined what countries could and could not do with their policies Mediated international disputes Uruguay round brought: WTO Improve trade in poor countries Even the gap between rich and poor Challenges; Keep pace with new priorities and changing trade environment Ensure rules are upkept everywhere Regional groups support the globe Being global means taking care of the poorest countries Respond to the aspiration of members in every country “NAFTA and the USMCA” NAFTA= Canada, Mexico, USA 1994 Eliminated most tariffs on products traded between the 3 Regional trade tripled under the agreement, and cross-border investment among the three countries also grew significantly The hope was that freer trade would bring stronger and steadier economic growth to Mexico, by providing new jobs and opportunities for its growing workforce For the United States and Canada, Mexico was seen both as a promising market for exports and as a lower-cost investment Over the treaty’s first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Canada saw strong gains in cross-border investment in the NAFTA Since 1993, U.S. and Mexican investments in Canada have tripled Most important for Canada was they opened their economy to the USA Canadian exports to the United States grew $110 billion to $346 billion; imports from the United States grew by almost the same amount. Agriculture grew Canada’s labour productivity remained 72% of the USA’s USMCA achieved stronger enforcement mechanisms for labour provisions then the original NAFTA “The United Kingdom is set to join the trans-Pacific free trade pact” UK negotiated a trade pact with Indo-Pacific countries Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)-11 countries 14% of world GDP The CPTPP gives signatory countries greater access to one another’s markets and reduced tariffs on trade on the vast majority of items after Brexit. UK wants to improve trading links around the world after BREXIT “China and the WTO: Two systems meet” China first applied for GATT in 1947 but was removed in 1950 for forming their People’s Republic The exceptionally long accession negotiation reflected the challenge of having a country with a socialist economic system join an organisation conceived and operated on essentially liberal economic principles. China describes its economic system as ‘socialist market economy’. Public sector made 63% of employment “REGIONAL TRADE AGREEMENTS” JAG- Regional trade agreements are compatible with the WTO because they are allowed by article 24 JAG-However, some trade agreements are becoming too large that they compete with WTO and most trades go through the side agreements rather than WTO JAG-Spaghetti Bowl Problem- lots of Criss Cross of tariffs GARRY- Trade is meant to lower barriers J- Some trade agreements are bad J-Believe big countries shouldn’t have 1-1 agreements “Bretton Woods” (TUTORIAL) 80th anniversary July 1944, host some of the most influential economic thinkers of the mid-20th century. 22 days Symbolizes that globalization remains anchored in rock-solid foundations. Their mission was to devise an inclusive and durable postwar economic order in contradistinction to the disastrously flawed peace treaty after the First World War. Rasminsky The United States viewed the conference as a golden opportunity to transpose its military dominance into monetary dominion Meeting resulted in the IMF and World Bank(IBRD)(LAUNCHED 1947, first loan to France) and global trading system John Handcock, WTO, says “There’s a reason why people remember Bretton Woods but not San Francisco.” Bretton Woods enabled a system of trade, stabilized exchange rates, invested in undercapitalized economies International trade 45x since 1950 Globalization biggest reason for failure is China’s rise and therefore, fall of western manufacturing Dartmouth, Doug Irwin doesn’t like world trade Harvard, Dani Rodrik likes world trade Dr Irwin wants a new trade organization without authoritarianism Canada role in in the new global trading model is as trade policy/facilitator Week 7 Alcohol Industry Two examples of politics in the industry are: 1. Gin was an early example of the impact of trade policy and unintended consequences in alcohol policy 2. Rum’s history and development has always been influenced by politics Gin Alcohol has been mixed with juniper berries and other herbs for flavour and medical purposes 16th century Dutch created “GENEVER” which translate to Gin It was inexpensive to make and very popular and political WILLIAM III(DUTCH), King of England, 1600s, placed tariffs on French bandy and wine. Stop giving money to fight us and start domestic production He also gave tax breaks to British distillers of gin Gin became very inexpensive (cheaper than beer) and was regularly abused This led to backlash that included temperance movements and new government licencing to control production For example, The Gin Act of 1751. Hard to get license and go back to beer 1800s, Gin recovered as a popular drink because it was mixed with quinine water as anti—malaria potion (Gin and tonic) for soldiers RUM Rum is distilled from molasses, by-product of sugar making. Popular in late 1600s, especially 1700s Large sugar plantations created in French and British colonies in the Caribbean These required cheap plentiful labour, importation of African slaves Impact Starting 1731, British sailors received a daily pint of Jamaican rum for each man and a half. The sailor rum ration decreased over time, but tradition until 1970s. Also true for Canadian navy for some time. American producers were discouraged by British and tuned to whiskey instead Cuba Bacardi had been a supplier of rum to Spanish royalty from 1800s from Cuba facilities Rum and coke called “CUBA LIBRE” took a twist after Cuba revolution After the revolution, Castro seized the distillers The Family fled to establish new facilities in Puerto Rico. They grew to become a huge global producer of rum They have thrived since but want compensation from Cuba Part 2: Temperance Movement Prohibition: Restraining the liquor trade Prohibition-the act or practice of forbidding by law the manufacturing, storage, transportation, sale, possession, and consumption of alcoholic bevs Based on Protestant church moral beliefs and also an economic argument Movement in Canada Influenced by British and American examples Largely a Protestant movement Two major Canadian organizations in the 1800s; The dominion Alliance for the Total Suppression of Liquor Traffic and The Women’s Christian Temperance Union Prominent role for women, tied to suffrage movement (Argument is Men spent all their money and anger on alcohol, Allowing Women only people who would vote to get rid of booze) Politics of Prohibition Scott Act and Local Option Sir Jon A. MacDonald and drinking (Pro drinking) Reformers (Liberals) tended to favour (Pro Prohibition) The 1898 Referendum 1896, The Wilfrid Laurier Government had a large temperance segment. It also had a large following in Quebec which opposed prohibition Laurier decided to hold a non-binding referendum Results: close 278,380 in favour of Prohibition and 264, 693 against Every single province except Quebec saw a yes vote, but Quebec was over 80% against Laurier decided to do nothing WW1 and Prohibition 1901, PEI introduced prohibition until 1948. Other provinces began to do so in WW1. It was seen as patriotic and conserving food Only Quebec did not March 1918, the federal government stopped the manufacturing and importation of liquor Loopholes for “medical purposes Na Poo was solider slang for “no more” Demon Rum: Alcohol in the trenches Most Canadian soldiers received a daily rum ration Considered essential as a moral boaster for many faced daily with death and living horrendous conditions Used for medical purposes Private Ralph Bell: “The only consolation comes in Gallon Jars” People in Canada were angry that they had prohibition, soldiers also shouldn’t drink. Solders didn’t comply as they liked alcohol. Tim Cook tells story of a new Kornel bans the rum ration and offers tea instead, met with silence and soldiers wouldn’t fight. Moved that, Kornel. Prohibition After the war, the lack of success in eliminating alcohol and the idea that enforcement was unbalanced and often unfair began to hold (White guy caught with alcohol vs person of colour caught). For some, the idea that state limited this “right” was an issue Criminal distribution also to be seen as a problem (Speakeasy) American Prohibition Prohibitionists were successful in passing the 18th amendment in 1920. Alcohol remained illegal until 1933 when 21st amendment appealed the 18th Ken Burns noted: economic effects were largely negative. Eliminated thousands of jobs; distilleries, saloons, barrel makers, truckers, waiters and related trades Lack of Success A history of Labatt’s brewery notes that in Canada the impact on business was severe “35 breweries closed in Ontario. Similar devastating effects in a vibrant industry. Personal fortunes of business owners were gone as well as well-paying jobs” “Business” of alcohol was simply driven underground to a thriving black market Opened the door to organized crime End of Prohibition 1927 Ontario ended Prohibition, replacing it with government control Over time, the laws became more liberal Prohibition remained in the US, making Canada a tourist destination for American drinkers and the US a market for smugglers from Canada LCBO The solution in Ontario was to create a government monopoly on distribution under tight controls 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 to restore the respect for the law” Evolution of LCBO 1947 cocktail bars 1958 end of passports 1962 end of pass cards Wine displays were allowed in the later 1960s “Buzzkillers: A brief history of the LCBO” LCBO’s first day of business on June 1, 1927 11 years of prohibition The first outlets were nothing like 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. Temperance-minded newspapers hated what they saw The stores were located away from main streets, resembled banks New customers could not simply buy they need a pass: first, they had to be vetted by an LCBO employee to determine whether they were moral enough to deserve an annual purchasing permit. To make a purchase, they filled out an order form and took it to a clerk who reviewed their buying history Costumers could lose their permits if clerks deemed, they abused their privileges or exceed limits LCBO officials felt strict regulations improved lives of families System was prejudicial- no women or minority workers First Nations could not get permits until 1959 Permit books were scrapped in 1958, replaced by cards which ended 1962 Wine displays 1958, catalogues 1965 LCBO officials felt Ontarians were tired of been ashamed when buying alcohol but felt pressures from Temperance movements who felt money should be spent on education or health care, rather than better liquor stores Radical costumer services changes debuted in 1969- Costumers entered picked their bottle and left through 1 of 5 checkouts Customers raved about the new freedom self-service allowed, but there were criticisms from temperance advocates 1973, LCBO announced self-service( Pick your own alcohol) Part Three - Trends in the Alcohol Industry Brand Growth The global market controlled by a small number of MNE’s The largest, AB InBev had annual revenue of $45.6 Billion in 2017 2004, InBev was created through a merger of AmBev and Interbrew, an amalgam of Latin America, Canadian and European brewery interests 2008, Anheuser-Busch was acquired Acquisitions of Grupo Modela in 2012 South Korea Oriental Brewery in 2014 helped international penetration 2016, a merger was negotiated with African rivals SABMiller to create AB INBev the third largest in corporate history, establishing a dominant market position, an estimated 1/3 of all global beer Differences between Alcohol MNEs and others Unlike many MNEs the growth of Alcohol major companies if often driven by heritage brands and familiar names Technology can be a factor, but name recognition is more important For example, Budweiser is big in UK while it’s a American brand Tensions between Health and Profit Alcohol has clear health implications Government want to control levels of consumption, but, company profits rely on increased consumption This has meant some levels of restriction on advertising in most countries Restricting Advertising There are two methods countries can employ to limit advertising of alcohol 1. Voluntary codes of conduct from producers 2. Restrictions by law or regulations Voluntaries 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 adoption of legislation to prohibit advertising television, in cinema, and all sponsorship. No advertising should be targeted at young people The advertising that is allowed, in print media for adults and on some radio channels and billboards, is restricted to information about the product no images of people or lifestyle. Its content is controlled and only refer to qualities of products such as degree, origin, production, patterns of consumption A health message must 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 MNEs and Regulation 1. Tensions between health concerns and drive for profits 2. Small jurisdictions can find it hard to impose regulations 3. Even in large jurisdictions lobbying can limit regulatory success Brand-stretch-How-alcohol-brands-are-pushing-marketing-boundaries A brand is the name, usually a trademark, of a product or manufacturer, or the product identified by this name. Its purpose is to help the product and/or company to which it belongs differentiate itself from its competitors. The commercial use of brands developed during the industrial revolution of the eighteenth and nineteenth centuries. But Brands really took off after WW2 A study found that found that nearly four fifths (79%) recognised the brand Carlsberg as an alcoholic beverage, a higher proportion than those who recognised brands for food products more commonly associated with children When kids are able to drink, they will go for the brands they know and have a positive feeling about Familiarity is achieved by increasing a set of marketing techniques to build awareness and value of their brand-Tv, radio, cinema A noticeable shift from traditional adverts to below the line activities such as competitions, product placement and sponsorships 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. Half of all new products are line extensions The second means of brand stretching, namely category extensions, This occurs where the company applies an existing brand name to a new product category Alcohol-branded merchandise (ABM) Category extensions in the alcohol industry are limited to a set of brands ( Well established brands) Marketing research also indicates that perceived fit determines the success of brand extensions. When the extended products don’t fit with the parent product Advantage of category extension is it circumvents the rougher restrictions on advertising Concerns nevertheless remain that alcohol brand extensions to products that, in themselves, are typically appealing to children - crisps, chocolates, ice cream - may be introducing this group to familiarity of, and potentially loyalty to, “Gradual catch up and enduring leadership in the global wine industry” Catch Up- A process that depends on the ability of countries to build some technological congruence with leaders as well as their own social capabilities. Late commers need to share with Leaders in order to adopt their models. Ex- Market size Issues of technical competence, education, and infrastructure Windows of Opportunity-abrupt changes in market demand, rise in consumers, major modifications in government regulations, or policies Incumbents find it difficult to adopt and are late to change Leaving new commers are not constrained by traditions and technology, gain new opportunities Wine Industry Catch-Up in 1990s, Australia, USA, Argentina, Chile, and SA took advantage of changing needs Why Incumbents have not lost their Hold 1. Classified as “SUPPLIER DOMINATED”- Slow and gradual technology change 2. Agriculture reacts more slowly than manufacturing to changes, due to the manufacturers social and geographical specificities and to economic and profitability issues 3. Wine is a typical cultural commodity 4. Contingent factors that play a relevant role Week 8 Tourism Part One: Seeing and Selling the World - The Business of Tourism Roman Holiday Rome’s power and empire made Tourism possible 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 Pilgrimages The major Religions: Christianity, Buddhism, and Islam all featured a call for pilgrimage These journeys were also sight-seeing opportunities and business sprang up to organize and conduct the trips Other business included inns and food and drink provisions ‘ The Grand Tour 17th Century, England, became custom for young gentlemen (after education) (Were the future of the world, needed to explore the world) to spend 2-3 years touring France, Italy, and Greece and other European centers They saw the sights, classic architecture and art Only the rich could aVord this Banks would arrange letters of credit with European Banks Ended with Napolean (safety) Thomas Cook Travel 1840, Hobby is talking about temperance 1841, Starts tours to travel around the world 1899, The company eventually was inherited by Cook’s grandsons Remained in family until it sold in 1928 to a Belgian company that ran the Orient Express During WW2 it was taken over by the British railway companies After the war they were nationalized, so Cook’s was too Privatized in 1970s Bankrupt 2019 Post WW2 Travel and Tourism Net jet plane tech makes travel easier Air travel expensive until the deregulation trend 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 How important is Travel and Tourism to the Global Economy World Travel and Tourism Council determined that in 2019, Travel and Tourism (Including direct and indirect and induced impacts) accounted for 10.5% of all jobs (334 million) and 10.4% of global GDP (US$10.3 Trillion) 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 global economic contribution set to reach $11.1 Trillion Part Two: Tools of Tourism-Commercial Cruises 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 destination delivering mail and people for some time but in 1844 launched the cruise idea Advertising sea tours to destination such as Gibraltar, Malta, and Athens, sailing from Southampton Mauretania and Lusitania Owned by Cunard Line of England Launched 1906 They were the largest ships ever built at the time Carried 50% more passengers than their largest competitions 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, and 1186 3rd class= total 2198 passengers Lusitania torpedoed on 7 May 1915 by a German U-boat killing 1200 of the 1959 people on board Titanic Luxury cruises as opposed to simple transportation became increasingly competitive French and English line built newer modernized ships The Titanic resembled the Star Line, was built in 1911 First Class had a gym, café, swimming pool The “UNSINKABLE” Business, theatre, and social leaders were travelling 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 others including the President of the Grand Truck Railway, Charles Melville Hayes 3rd class passengers were accorded far fewer amenities Sinking of the Titanic The Titanic left Southampton, England, on 10 April 1912 Stopped at Cherbourg, France and Queenstown, Ireland, than set for New York At 11:40pm on Saturday, 14 April 1912 the ship struck an iceberg Titanic had gone down in only two hours and 40 minutes 1500 people died The Industry Continues Trans ocean cruises remain the only method for many years Early air travels were diVicult, so 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 1980s only Cunard Lines serviced a small clientele of ocean crossers by oVering a cruise experience on the Queen Elizabeth 2 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 staV 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, and sport facilities, etc Expansion of the Cruise Industry 1970, 500,000 people went on cruises. 2013, 20 million were on cruises The Love Boat, a tv series which ran from 1977-1986 helped to popularize the idea of taking a vacation at sea on a ship “Heard on the Street: The Math Behind The Megaships” 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 Using tax havens and employing thousands of workers from developing countries to keep costs down 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 The newest megaships are also saving money through energy eViciency But Carnival's Burke points out that bigger ships have downsides, such as where they can sail: Part Three: Tools of Tourism - Commercial Aviation “The History of Commercial Flight: How Global Travel Took o[” 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. In 1914, the world’s first scheduled passenger service, an airboat piloted by Tony Jannus, set off from St. Petersburg, Florida, and landed at Tampa 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. The number of airline passengers grew from just 6,000 in 1930 to nearly half a million by 1934 The introduction of the Douglas DC-3 in 1935 also had a big impact on the future of commercial flight. The propeller-driven airliner was a larger and much improved aircraft compared to its predecessors 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. During the 1980s and 1990s, the budget airlines Ryanair and EasyJet launched. Offering airfares for as little as £20 It took until 2004 for air passenger numbers to reach pre-9/11 levels and until 2007 to reach a record high. Commercial Aviation Jan 1, 1914, First paying passenger flight, the St. Petersburg-Tampa Airboat Line became the world’s first scheduled passenger airline service 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 limited to one passenger at a time Air Travel 1930s, transpacific flights were expanding although still rare The Clipper 314, 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 The Boeing 747 The 747 was conceived while air travel was increasing in the 1960s Would carry large numbers of passengers over large distances Goes into service in 1970 It was possible for airlines around the world to carry passengers at a reasonable fare further than ever before, more than 8,000 miles without refuelling 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 restrictions and 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 environment is significant “The Rise of the All-Inclusive Resort” 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 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 The holdup problem, is 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. Gouging 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. Which is also why you get much bigger brand names in European airports than you do in American airports because the European model is just to increase the volume of sales the advocates of the model would say, it’s a tourism-generating business. So, from a cultural and political point of view, they are an extraordinarily kind of colonial, you could say, model of vacationing 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 percent of the revenue generated by the resort stays locally in the form of wages and local supplies 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 Week 9 Finance Part One - The History of Global Finance What is money Money- 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 a value and used a medium of exchange. Coins and banknotes collectively as a medium of exchange. 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 contents or as representative tokens Paper money- issued to represent value. From ancient China to modern society 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. Also, shells, grain or other items of agreed value Token money- Coins or paper that can be exchanged for the face value of gold or silver. For example, The “Gold Standard” Fiat money- Money issued by a government that is not backed by gold or another commodity but rather by declaration of the issuing government Potosi and Silver “Potosi was the first city of Capitalism, for it supplied the primary ingredient of capitalism…money” Impact The influx of gold and silver from South and Central America changed the economies of 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 changes the nature of trade with China and other parts of Asia. It also drove other European countries to seek own colonial. An Aside!! Potosi, Bolivia and the surrounding area are now one of the worlds leading sources of lithium, part of modern batteries for electric cars and other devices How, and for whom, tat resource is developed will be the next chapter in Potosi’s influence on capitalism What is a Bank 1694, The Bank of England, the model for most Central Banks 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 Became the bank for the government accounts 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 USA, the Federal Reserve Created December 23, 1913 JP Morgan Maximize employment, stabilize crises, monitor long-term interest rates Response to financial crises and a desire to ease ups and downs in the economy Centralize control of monetary system Regulate banks Lender of last resort for banks Set interest rates The Bank of Canada Federal Reserve Act of 1913 in the US not copied in Canada 1931, Canada abandoned the gold standard 1933, Royal Commission established to study issue 1935, Bank of Canada established Central control of Canada’s monetary supply Initially controlled by private interests 1938, But transferred to federal government control Control of currency 1950, Standardized currency established 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 Chartered Banks in British North America 1817, Bank of Montreal established 1832, Bank of Nova Scotia Limits on the amount of debt in relation to deposits General conservative nature of chartered banking in BNA resulted in a branch banking system Different approach from banking in the USA where fear of centralized authority and monopoly resulted in loose system of many banks Evolution of Banking in Canada Bank failures more common before 1923 1923, Home Bank Failure led to much stronger regulation. Important when Depression hit in 1929 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 1967, Bank Act revision lifted the six per cent annual interest rate ceiling banks could charge on personal loans and allowed banks to enter mortgage field. New Tech, Same Questions New innovation like Bitcoin and Apple Pay still work only if we have faith in them. If we question whether out “money” is safe, they cannot work From paper money to digital files, trust make currency work Part Two - The Euro shaking up global finance “A SHORT HISTORY OF THE EURO” Not all EU members have EURO Differentiated Integration- Not all member states participate in all EU policies to the same degree or at the same time However, all must adopt the euro one day- except Denmark 1957, TREATY OF ROME- Creation of the European Economic Community (EEC). 1964, BRETTON WOODS AGREEMENT- establishes the gold exchange standard 1969, THUE HAGUE SUMMIT- relaunch of the European Integration Process 1970, WERNER Report-replacement of a communal European currency (1)Stronger coordination of economic policies. (2) Free movement of capital. (3)Fixed exchange rates and common system of central banks ECONOMIST APPROACH- Economic convergence before monetary integration. GERMANY& NETHERLANDS MONETARIST APPROACH- Monetary integration leads to economic convergence. FRANCE& BELGIUM 1971, End of Bretton Woods system 1972, Creation of the “Currency Snake”- currency are allowed to fluxgate with 2.25% Pegged Currency- A currency whose value is controlled so that it stays at a particular level in relation to another 1973, Oil Crisis=failure of snake 1973, Denmark Uk Ireland join EU 1978, European Council Copenhagen, Proposal for a European Monetary System (EMS) 1979, EMS in enforced. (1) virtual European Currency Unit (ECU). (2) Exchange rate mechanism 1986, Single European Act 1989, Deloris Report. Stage (1) Stronger coordination of economic policies and Free movement of capital. Stage (2) Monetary policy transferred to EC. Stage (3)Monetary fully transferred and fixed exchange rates 1990 Stage 1 1992 Maastricht Treaty, creation of EU 1994, Stage 2 1999, Stage 3, euro introduced 2002, euro in circulation To be In monetary union; exchange rate stability, limits to public deficit, durable convergence, price stability “Euro visions; The international role of the euro” A significant step was taken on June 15th, 2021 when [euro]20bn-worth ($24.3bn) of bonds was issued as part of the Next Generation EU (NGEU) scheme to boost European economies. Currencies exist mainly to facilitate the transactions of people and businesses within the borders of the places that issue them Having an international presence (CURRENCY) helps in many ways: (1) 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 (2) Issuing a currency that foreigners want to hold can make it easier for governments to raise money from them at cheap rates 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 Between a third and half of all euro banknotes by value are held outside the euro area, according to the European Central Bank (ECB) Around a fifth of all foreign-exchange reserves owned by central banks, are denominated in euros--the share for the dollar is about 60%. By 2007 the euro even became the most popular currency in which to issue foreign- currency-denominated debt The financial crisis that started that year prompted skittish investors to fall back on the dollar as their currency of choice Two changes in circumstances mean there is a chance the euro could gain ground (1) The first is America's changing attitude to international economic policymaking. Relying on the dollar is perceived as an even greater potential vulnerability than before. (2) The second change came, unexpectedly, as a result of the pandemic; the swift actions of the ECB and national governments to support their economies were well received 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 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 The bonds of Germany have served as an imperfect proxy until now, but the NGEU issuance "contributes to making the euro a better substitute for the dollar", says Reza Moghadam of Morgan Stanley, a bank Not all barriers to more international usage of the euro have disappeared. For one, the "safe asset" may prove temporary 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 Part Three - Currency Exchange “EXCHANGE RATE SYSTEMS EXPLAINED” Free-Floating Exchange rates- currency is set purely by market forces. supply and demand factors drive currency value Currency can appreciate or depreciate No intervention by central bank A country’s interest rates are not set to influence the value of the currency Managed-Floating Exchange rates- currency floats and supply and demand factors drive currency value Central bank may intervene: buy to strengthen, sell to weaken currency Currency become a key target of domestic monetary policy Fixed Exchange rates- pegged to one or more currencies Central bank hold enough foreign exchange reserves to intervene in currency markets wen needed to maintain currency fixed Pegged rate becomes the official rates Unofficial trade in shadow currency markets Currency Board System- a type of exchange rate regime which a country’s domestic currency is fully backed by a foreign reserve currency “Is the Big Mac index a good guide for currency speculators” Hong Kong monetary authorities were forced to sell Hong Kong dollars repeatedly to stop the currency strengthen too much Big Mac Index- simple illustration of purchasing-power parity(PPP). Reflects the currency’s power to buy goods and services relative to Big Macs Shows that Hong Kong dollars was undervalued by 54% in July HK$20.50=1 Big Mac in Hong Kong vs. USD$5.71 in USA The exchange rate would equalize their dollar power should be HK$3.59=USD$1 But actually its HK$7.75=USD$1 Modest deviations from fair value halve every 1-3 years 2013 Indian Rupee fall 13% against the dollar in 2 years Deviations from PPP can narrow in 2 ways; through fluctuations in exchange rates or movements in prices Price of Indian Big Bac rose more than US Big Mac from 2013-2015 The rise in price made up for fall in rupee, leaving India less-under valued Rich countries tend to be more expensive than poor ones because higher wages Economist made a updated Big Mac index to adjust for this Buying lowest currency and selling 2 years later pay off 12 of 15 times since Jully 2011 Few literate economists take PPP seriously “The World is Seeing How the Dollar Really Works” Dollar Power- power that manifests itself in both overt and subtler forms. 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 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. Such a system would secure independence from the United States It also depends on the continuing shortage of key raw materials Another face of U.S. financial power: the tightening of Federal Reserve policy in response to inflation and a surging US dollar The dollar system is a commercial and financial network Political and military power plays a part in anchoring the global dominance of the dollar Close to 90 percent of all currency trades involve the dollar 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 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. If these countries want to avoid a devaluation and a consequent surge in the price of imports, they have no option but to match the Fed's rate rises All told, the World Bank estimates that nearly 60 percent of low-income borrowers are at danger of debt distress In all likelihood, however, we will avoid a systemic crisis of the dollar-based global financial system. The acute pain will be confined largely to the weakest and poorest economies Since the 1990s it has evolved to cope with these stresses, and the more important nodes in the network have become far better at protecting themselves. Week 10: Textiles Part One - Cottons, textiles and backgrounds A T-Shirt The T-Shirt represents many aspects of cotton’s history It is universal, almost all of us own one Usually inexpensive The ethics of manufacturing 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 as early as 5000 BCE 3000 BCE, it is grown and spun in both the Indus River valley 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 and his men found the cotton clothes of the conquered more comfortable than there own But the Middle Ages cotton is in Europe Muslim traders, and later conquerors spread spinning and cotton use to Spain and Sicily Spreads to Europe Columbus finds cotton in the Bahamas, which that natives are using for clothing. He is impressed by the colours 1500, it is becoming more common in Europe Begins to be grown in America 1600s, cotton is being grown in Virginia The Spanish had grown in Florida even earlier In Virginia, it expands the salve economy that already existed with tobacco India is a major source of supply India had a large supply, a work force and the secret of dying cotton 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 BEIC and Cotton The British East India Company or just East India Company, began to import cotton in the 1690s. Calico, a brightly coloured version became very popular Wool and linen markers tried at times successfully, to keep it out As the BEIC grew in power, it was able to sell cotton back into India after processing in England The advent of colonial cotton in America and the Caribbean also led to an expansion of English cotton use and production The restrictions Cotton production was limited by a number of factors; Cotton had to be combined to remove the seeds, or it was bad Cotton needed to be spun into thread to be turned into cloth Thread needed to be loomed to create the cotton fabric All of these relied on manual labour or rudimentary technology Industrialism changes everything The Spinning Jenny Spinning had been a craft taking place on a wheel in workers homes. Cotton was spun into thread 1764, James Hargreaves invented the Spinning jenny which could do 8 spindles at once Thread still a bit weak, but improving Richard Arkwright 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 1768, angry mob destroys Arkwright’s factory The Power Loom 1785, Reverend Edmund Cartwright patented a powered loom 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 Need More Cotton 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 Results of the First Industrial Revolution in England Increase production levels 1796, Cotton cloth output was 21 million yards 1830, it was 347 million yards This allows Britian to dominate world cotton industry for decades In 1770, the cotton industry was worth 600,000 Pounds. By 1805, this had grown to 10,500,000 Pounds By 1870, 38,800,000 Pounds By comparison over the same 100 years, wool had increased in value from 7 million pounds to 25.4 million and silk 1 million pounds to 8 million pounds In Manchester alone, the number of cotton mills rose dramatically in a very short space of time; 2 in 1790-66 in 1821 The work force In England, children and women were prime source of labour Inexpensive and compliant 1833, Factory Act, this banned children from working in textile factories under the age of 9. From 9-13 years old, they were limited to 9 hours a day and 48 hours a week 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 as the expense of horrible working conditions for women and children America gets in the cotton business Throughout the late 18th and early 19th centuries, 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 to 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. Lowell’s mill girls Lowell, Massachusetts, named in honour 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 at some estimated 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 1830s, cloth prices drop and wages are cut and hours extended After Lowell sells, this trend continues On 3 occasions, the girls went on strike until in 1845 Massachusetts passed laws to help them, which were largely ignored. Waves of poor Irish immigrants replace the more independent girls in the late 1840s and 1850s King Cotton 1850s, cotton accounted for more than 50% of US exports By late 1850s, cotton grown in the US accounted for 77% of the 800 million pounds of cotton consumed in Britain. It also accounted for 90% of the 192 million used in France, 60% of the 115 million pounds spun in Zollverein and 92% of the 102 million pounds manufactured in Russia US 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 implication for north and south it also created chaos in the world cotton market Lost access to American cotton caused England to look to India and the Middle East Led to some sympathy for the South in England and friction between the North and England End of the War The end of the war and of slavery meant looking for new way to get cotton Sharecropping replaced slavery New sources in other parts of the world became important Emphasized and increased global reach of the industry even when American cotton returned to the market. Triangle to Rana Plaza Triangle Shirtwaist Factory New York March 25, 1911 Fire destroys factory 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 Oldest victims was Providenza Panno at 43, and the youngest were 14 year olds Kate Leone and Sara Rosaria Maltese Rana Plaza and the cost of cotton In May 2013 a clothing factory in the Raza Plaza building in Bangladesh Faulty construction despite indications it was unsafe workers were sent back to work Collapse killed 1134 people Launched huge debate about responsibility of western consumers and merchants P1:“The Evolution of the Textile Industry Series Introduction” It is estimated by anthropologists that humans began wearing clothes somewhere between 500,000 and 100,000 years ago The earliest trade hubs of textiles can be found in ancient China, Turkey, and India Linen and animal skin wearing Pharaohs of Egypt Purple silk worn in the Byzantine Empire 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 P2: “The Silk Road: The International Ramifications of Ancient Textile Trade” In fact, ancient Chinese silk was one of the catalysts for the formation of the world’s first international commercial highway. The Silk Road, or Silk Route, was an ancient network of trade routes spanning from China through India and Central Asia The main routes of The Silk Road began being established around 100 to 200 BCE and from that time on silk was in high demand in the Roman Empire, which spanned from Europe to Northern Africa and the Middle East Silk clothing was far more comfortable than the standard woolen Roman clothing and was also viewed as a luxury and status symbol Silk clothing was reserved for wealthy aristocrats and government elites Up until around 300 AD, China had a monopoly on the production of silk and Chinese weavers and harvesters were forbidden from sharing their secrets with outsiders The Silk Road was one of the first connections between Western and Asian cultures and resulted in the spread of their respective ideas, philosophies, and religions The Silk Road is also believed to be the primary facilitator of the Black Plague, which made its way from Asia to Europe in the 14th Century and went on to kill over 20 million Europeans P3: “The Textile Industry During the Industrial Revolution” The Industrial Revolution started in England in the 1700’s. The value for trade motivated Britain to produce more ships and goods, and Britain’s ports, population, and supply of water and coal made it the perfect place to industrialize 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 New technological innovations such as Hargreave’s “spinning jenny”, Richard Arkwright’s water frame, and the Boulton and Watt steam engine improved the quality of thread and the speed it took to produce. The textile industry was primarily based in Britain, until the 1780s when Samuel Slater brought English technology to the United States. P4: “Working Conditions in the Textile Industry” The textile industry is one of the largest economic markets in the world, generating $450 billion and employing over 25 million people across the globe. It’s estimated that over 120 billion pounds of textiles are made each year However, as of 2007, only $3 billion of the $450 billion—0.5%—of the revenue generated by the textile industry is considered “fair trade or environmentally stable” “Why were Indian textiles banned by the British?” Primary motivation behind British ban on Indian textiles was to safeguard the interest of the British industrial and manufacturing sectors By imposing restrictions on Indian textiles, the British aimed to secure a steady supply of raw cotton from India The British ban on Indian textiles was also rooted in protectionist policies To achieve this, the British government implemented tariffs, taxes, and import duties on Indian textiles, making them less competitive in British markets The British colonial authorities were also engaged in systematic exploration of India’s resources and wealth The wealth generated from India’s textile industry was siphoned off to Britain through trade imbalances and taxes Britain sought to establish a socio-economic structure that aligned with British interests and values. Including; undermining indigenous craftsmanship such as weaving Restrictions on Indian textiles aimed to diminish traditional Indian textile practices The ban had political and social implications Restrictions asserted British control over the economy The policy aimed to curtail the economic autonomy of local communities, further subjugating them under British colonial rule Britain ensured India remained a supplier of raw materials and a consumer of British manufactured goods “Fashion History Lesson: The Origins of Fast Fashion” 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 just a term given to a constantly evolving production system that has been gaining momentum since the 1800s. The cycle of fashion finally picked up speed during the Industrial Revolution, which introduced new textile machines, factories and ready-made clothing, or clothing that is made in bulk in a range of sizes rather than being made to order. First patented in 1846, the sewing machine contributed to an extremely rapid fall in the price of clothing and an enormous increase in the scale of clothing manufacturing Localized dressmaking businesses were responsible for making clothing for middle-class women, while women of lower incomes continued to make their own clothing On March 25, 1911, a fire broke out in New York's Triangle Shirtwaist Factory, which claimed the lives of 146 garment workers, many of whom were young, female immigrants. If you've ever wondered when fashion trends began moving at a dizzying speed, it was the 1960s, as young people embraced cheaply made clothing to follow these new trends and reject the sartorial traditions of older generations Technically, H&M is the longest running of these retailers, having opened as Hennes in Sweden in 1947, expanding to London in 1976 and eventually reaching the states in 2000. According to the New York Times, founder Erling Persson drew inspiration for his store from visiting high-volume retail establishments in the U.S. after WWII When Zara came to New York at the beginning of 1990, the New York Times used the term "fast fashion" to describe the store's mission, declaring that it would only take 15 days for a garment to go from a designer's brain to being sold on the racks. Before the arrival of these global retail giants, American consumers on the hunt for clothing that was trendy-yet-affordable had to go to the mall and shop at trend-driven teen stores such as Wet Seal, Express and American Eagle. The inability to keep stores stocked with a huge variety of new merchandise in the span of weeks has led to their rapid demise When the first H&M location in the U.S. opened in April 2000, the New York Times wrote that the retailer had arrived at the right time as consumers had just recently become more likely to hunt for bargains and dismiss department stores, stating that it was now "chic to pay less." Of course, we must also acknowledge that there are major problems with our current fashion system, such as unjust labor practices and catastrophic amounts of waste. “Empire of Cotton” By the time shots were fired on Fort Sumter in April 1861, cotton was the core ingredient of the world's most important manufacturing industry. The manufacture of cotton yarn and cloth had grown into "the greatest industry that ever had or could by possibility have ever existed in any age or country One author boldly estimated that in 1862, fully 20 million people worldwide—one out of every 65 people alive—were involved in the cultivation of cotton or the production of cotton cloth Except for wheat, no "raw product, had "so complete a hold upon the wants of the race.” The United States more than any other country had elastic supplies of the three crucial ingredients that went into the production of raw cotton: labor, land, and credit Week 11: The Oil Industry Part One - The history of the Oil and Gas industry What is gasoline Gasoline was a byproduct of the refining of oil into kerosene Prior to the intenal combustion engine, it had limited use In the USA in the 1800s, it was routinely dumped into rivers Internal Combustion Germany, internal combustion cars were developed in the 1870s and by mid 1880s Karl Benz had begun commercial production The necessity to use gasoline created a new market for what had been discarded in the past Ways to consider gasoline’s impact One way to look at this influence is to consider individuals who benefitted from the increasing importance of gasoline William Knox Darcy who developed the oil industry in Persia and elsewhere in the middle east Founded what became British Petroleum John D. Rockefeller Founded Standard Oil\had used gasoline as a fuel to heat oil in the refining process Internal combustion gave him a huge new market Standard Oil became virtual monopoly Technology The power of gasoline made internal combustion engines much superior to other types Henry Ford’s Model T made the car more widespread In agriculture tractors replaced steam engines Society Card need highways Card allow more suburban spread Card require the expansion of networks of gas stations Changes in the oil business Increased markets for gasoline mean increased exploration for sources In Canada, this means exploration in Alberta In the USA, the shift to Texas, and Oklahoma Globally, the Middle East became more important War Gasoline becomes an essential too of war Tanks, ships, planes, and transport all need it As a strategic resource it becomes a cause of conflict as well Politics August 1953, American and British roles in the coup against Iranian Premier Mohammad Mossadeq 1953, The CIA and the UK organized a coup in Iran to replace the popular government with one more amenable to the oil and gas industry. Example of gasoline industry on world events OPEC The Organization of Petroleum Exporting Countries 1973, The oil embargo causes a recession in the western economies Environment Not just use in cars Production in refineries Transportation of product Land issues with pipelines Canada Oil and gasoline are still critical to the Canadian economy One way of looking at this is to look at companies and individuals Imperial Oil, a branch of Rockefeller’s Standard Oil PetroCanada Started as a Crown Corporation during the economic crisis in the 1970s Was to be a “window on the industry” Eventually privatized “What Is Petroleum? Why It's Important and How To Invest in It” Petroleum, also called crude oil, is a naturally occurring liquid found beneath the earth’s surface that can be refined into fuel. Because the majority of the world relies on petroleum for many goods and services, the petroleum industry is a major influence on world politics and the global economy The extraction and processing of petroleum and its availability is a driver of the world's economy and geopolitics Petroleum is recovered by oil drilling and then refined and separated into different types of fuels Petroleum companies are divided into upstream, midstream, and downstream, depending on the oil and gas company's position in the supply chain Upstream oil and gas companies identify, extract, or produce raw materials Downstream oil companies engage in the post-production of crude oil and natural gas. Midstream oil and gas companies connect downstream and upstream companies by storing and transporting oil and other refined products. Oil is classified into three categories including the geographic location where it was drilled, its sulfur content, and its API gravity, its density measure Drilling for oil includes developmental drilling, where oil reserves have already been found. Exploratory drilling is conducted to search for new reserves and directional drilling is drilling vertically to a known source of oil. Mutual funds like Vanguard Energy Fund Investor Shares (VGENX) with holdings in ConocoPhillips, Shell, and Marathon Petroleum Corporation, and the Fidelity Select Natural Gas Fund (FSNGX), holding Enbridge and Hess, are two funds that invest in the energy sector and pay dividends Petroleum is a fossil fuel that was formed over millions of years through the transformation of dead organisms, such as algae, plants, and bacteria, that experienced high heat and pressure when trapped inside rock formations Unrefined petroleum classes include asphalt, bitumen, crude oil, and natural gas “Oil and petroleum products explained” Economic growth is one of the biggest factors affecting petroleum product—and therefore crude oil—demand Petroleum products made from crude oil and other hydrocarbon liquids account for about one-third of total world energy consumption. The Organization of the Petroleum Exporting Countries (OPEC) can significantly influence oil prices by setting production targets for its members o OPEC includes countries with some of the world's largest oil reserves o At the beginning of 2021, OPEC members controlled about 72% of total world proved crude oil reserves (plus lease condensate), and they accounted for 37% of total world crude oil production in 2021 OPEC attempts to manage its member countries' oil production by setting crude oil production targets, or quotas, for its members. In general, the main factors determining OPEC's ability to influence oil prices include: o The extent to which OPEC members comply with production quotas o The ability or willingness of consumers to reduce petroleum consumption in response to higher product prices o The competitiveness of non-OPEC producers when oil prices change o The efficiency of OPEC producers to supply oil compared with non-OPEC producers The difference between oil market demand and supply from non-OPEC sources is often referred to as the call on OPEC because OPEC members maintain the world's entire spare crude oil production capacity Saudi Arabia, the largest OPEC oil producer and one of the world's largest oil exporters Geopolitical events and severe weather that disrupt the flow of crude oil and petroleum products to market can affect crude oil and petroleum product prices. Oil price volatility is tied to low responsiveness, or inelasticity, of supply and demand to price changes in the short term. Crude oil and petroleum product prices are the result of thousands of transactions taking place simultaneously around the world Oil markets are essentially a global auction—the highest bidder will win the available supply. Contract arrangements in the oil market cover most crude oil that changes hands Crude oil is traded in the futures markets o A futures contract is a standard contract to buy or sell a specific commodity of standardized quality at a certain date in the future Crude oil is also sold in spot transactions—on the spot purchases of a single shipment for prompt delivery at the current market price. o Prices in spot markets send a clear signal about the balance of supply and demand Rising prices indicate that additional supply is needed, and falling prices indicate there is too much supply for current demand “NOT ALL OIL IS EQUAL:EXPLAINING PRICE DIFFERENCES” The price a producer receives for a barrel of oil depends on the type of oil, where it’s produced, and where it is purchased. Lighter oils generally receive higher prices than heavier oils, because they are easier (and cheaper) to process in refineries As a starting point, let’s look at “Brent” oil — a global benchmark used by oil markets o Its name refers to oil fields in the European North Sea, where it originates. o Because it has easy access to coastal ports Brent oil can move easily to customers around the world. o Because it is inexpensive to move oil in large tankers the price is fairly similar anywhere tankers can load or unload. o As a light, sweet oil that can be widely transported, Brent oil currently receives some of the highest prices. West Texas Intermediate” (WTI) oil is another benchmark used by oil markets, representing oil produced in the U.S. It is based on oil at a large tank and pipeline hub in Cushing, Oklahoma Like Brent oil, WTI is priced as a light oil, but it doesn’t have the same global reach. o One reason is that, with few exceptions, the U.S. prohibits the export of crude oil o Another reason is that WTI supplies are produced in landlocked areas, and nowadays need to be transported to the coast, where most refineries are located An important benchmark price in Canada is known as Western Canada Select (WCS) WCS rep-resents a stream of conventional heavy (high viscosity) oil mixed with some blends of bitumen and diluents. Since the oil in WCS is much heavier than WTI (which is a light oil), and further away from main markets, WCS is priced at a further discount to WTI Much of the oil produced from the oil sands is delivered to market in various blends of bitumen and diluents These blends are com-monly called “dilbit”. Since the share of bitumen it contains is higher, dilbit is generally heavier than WCS, and so dil-bit is priced at a discount to WCS. Well, royalties are about Albertans (as owners) getting the value of our resources when they are produced and sold. The amount of value depends on the price we receive for our resources, and what it costs to produce and transport them. To some extent, these price discounts are unavoidable. The oil Alberta produces is simply of a lower quality than Brent or WTI, and is located further away from customers. Week 12- The Service Industry Part One - An overview of the Service Industry Service Economy- An economy that is primarily focused on the production and consumption of services rather than goods

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