LECTURE 1

The Science of Election Campaigns

Topics:
1. Basics of Campaign Strategy
2. Key Components of an Election Campaign

CAMPAIGN STRATEGY

POLITICAL TRIAGE
 Divide voters into 3 categories

1. Base voters
2. Opponent’s base voters
3. Swing voters
o Not all swing voters are targeted do to the ‘First Past the Post’ model

Political Triage
 Ignore opponent’s base votes
 Less focus on your own base votes
 Most focus on swing votes

Proportional Representation
o % of seats = % of popular vote
o Smaller parties prefer PR
o Ex. Green win 3.9% of the vote, 1 actual seat, but would have had 12 PR seats
First Past the Post
o Most votes per riding wins the seat

POLITICAL TRIAGE IN FIRST PAST THE POST

o 2 Step process:
1. Identify base and swing ridings rather than base and swing voters
 Swing riding: won or lost by 10% or less
 In US presidential election, first-past-the-post is on state by state basis
 Thus, ID swing or battleground states first
2. Identify base and swing voters within swing ridings

Demographic Segmentation
 ID characteristics of voters who do or might support you
 E.g. old, white, male = Conservative
 Parties create profiles of different groups/segments of swing voters
o Tim Horton’s crowd
o Soccer moms
o Multicultural vote
Political Marketing
 o Growing use of techniques from world of consumer marketing
o Growth of professional political consultants
Sales (past)
 Have a product and then sell it
 You invent then sell
Marketing (now)
 Customize products to groups of consumers
 You do market research before inventing product

Political Marketing
 Customize policies to groups of voters based on market
research

BOUTIQUE POLICIES
 Single issue policies
 Appeal to self interest
 Target specific groups of swing voters
o Erin O’Toole: lower cell phone bill
o Trudeau: $10 day childcare for families

RED MEAT POLICIES

 Policies further to right or left
 Appeal to party’s base voters
 Motivate base voters to vote, donate, volunteer
o Bernie Sanders: free tuition, medi-care for all
o Trump: Build a wall

In addition to policies, also use market research to make leaders more appealing
 Focus groups, style makeovers and messaging

COMPONENTS OF AN ELECTION CAMPAIGN

1. The Air War
2. The Ground War

AIR WAR
 Conducted by the national level campaign
 Main purpose is to persuade swing voters and motivate base voters

Paid Advertising
 Negative attack ads to ‘define’ opponent
 Positive ads to sell leader and message
 Guided by political triage and demographic segmenting
 Target specific voters in swing ridings
 ‘Microtargeting’ with direct mail and social media
Leaders’ Tour
 Speeches, announcements and media events
 Generate earned media
o As opposed to paid media

Leaders’ Debates
 Emphasis on leader
 Leaders prep in mock-up sets
 Can occasionally have big impact

Rapid Response War Rooms

 Strategists, research and communications staff, media studios
 Provide immediate reactions to media to respond to opponents
 Issue texts, Twitter, etc… to journalists to help them write stories
 Respond to opponents in real time
 Conduct opposition research
o Old quotes, photos
o Trudeau’s blackface

GROUND WAR
 Focuses on organizing at the riding level
 Main purpose is to locate specific voters
 GOTV
o Get Out the Vote

Identify Voters for:

 GOTV Get Out the Vote
 Call and remind supporters to vote
 Drive them to polls
 Fundraising, volunteers and lawn signs

Identify Voters by:

 Direct Voter Contact program
 Voter databases
o CIMS
o Liberalist
 Telephone banks
 Door to door
 Social media
 Direct mail ‘surveys’
 Demographic segmentation
 LECTURE 2
THE CANADIAN AND US POLITICAL SYSTEMS

Key Topics:
1. Key institutions of the Canadian and US political systems
2. Debate format
3. Research skills
4. Organizing debate teams

THREE COMPONENTS OF POLITICAL SYSTEMS

1. Legislature:
 Legislates by passing policy/laws
2. Executive:
 Governs by initiating and enforcing policy/laws
3. Judiciary:
 Interprets policy and laws to settle disputes

THE LEGISLATURE IN CANADA

 Canada’s legislature is the Parliament of Canada
 Bi-Cameral (two house) institution

PARLIAMENT
House of Commons
 Elected Members of Parliament
Senate
 Senators appointed by Prime Minister

Purpose of having two houses: Regional representation. More weight to smaller areas

US CONGRESS
House of Representatives
 Congressmen/women elected every 2 years
Senate
 Senators elected for 6-year terms
 1/3 elected every 2 years
Purpose: Still about regional representation, higher amount of weight to rural populations.
FUNCTIONS OF THE LEGISLATURE
 Passes laws and policy based on majority votes
o 170 votes (50%+1)
 Majority vs minority government
 Whipped votes, confidence votes and free votes
o Party Whip, vote in line with Party stance
o Confidence vote: Must have 170 votes or government falls

 Have input on legislation through parliamentary committees

o Review legislation, hold hearings, recommend changes
 Question Period to question the executive

THE EXECUTIVE IN CANADA

 Initiates and enforces policies and laws
 Includes
o Crown
o Prime Minister
o Cabinet
o Bureaucracy

CROWN
 Queen is official head of state
 Represented by the Governor General
 Appointed by PM
 Mostly ceremonial
o Reads throne speech

THE PRIME MINISTER

 Leader of the party with the most seats
 Elected leader by the party
 Initiates policy and laws
 Appoint ministers, senators, ambassadors, judges, etc…
 Is assisted by political staff in the PMO

THE CABINET
 Ministers responsible for a ‘portfolio’ (department)
 Ministers are elected MPs appointed to Cabinet by the PM
 Assisted by Parliamentary secretaries (also MPs)
Regional representation, gender representation

THE BUREAUCRACY
 Civil servants employed by the government
 Led by deputy ministers
o Minister -> Parliamentary Secretary -> Deputy Minister (civil servant)
 Provides technical advice and implement policy
THE EXECUTIVE IN THE US
 Separate from the legislature
o President is not a member of Congress
o White House vs Congress
 President is elected directly
 Cabinet is non-elected and appointed by the President
President’s Cabinet picks, judges must be confirmed by the Senate

US ELECTIONS
 General Election
o Every 4 years
o President, House and 1/3 of Senate
 Mid-terms
o Half-way between general elections
o House and different 1/3 of Senate
First two years of presidency are usually about domestic policy, because their party controls House and
Senate

Latter two years of presidency are typically about foreign policy, as the House and Senate flip to the
opposition

US PRIMARIES
 State by state elections held by each party to select their nominee for president
 Campaign starts about a year before general election

CANADIAN ELECTIONS
 Some provinces have fixed election dates every four years
 PM with a majority can call election anytime within 5 years
o Constitutional requirement is 5 years
o Fixed
 In a minority, election occurs when opposition votes against government in a confidence vote

THE JUDICIARY
 Settles disputes over policy and law
 Judicial review to rule on constitutionality of laws
o Federal/provincial division of powers
o Charter of Rights and Freedoms
 Notwithstanding clause
 LECTURE 3
THE FREE MARKET APPROACH TO ECONOMIC POLICY

TODAY’S TOPICS
1. Classical Economic Liberalism
2. Neoliberalism

CLASSICAL ECONOMIC LIBERALISM

 Original free market approach
 Decentralized economic decision-making by firms and consumers rather than by government
 Believed to be more efficient than centralized command economy

ADAM SMITH
 Father of classical economic liberalism
 1776 The Wealth of Nations
 “Invisible hand” of market forces would automatically coordinate decentralized decisions

 Efficient allocation of resources

o The whole being greater than the sum of its parts

ALFRED MARSHALL
 1890 Principles of Economics
 Created “neo-classical economic liberalism”
 Formalized Smith’s notion of the invisible hand based on laws of supply and demand and price
signals
o Supply and demand are like the two scissors that cut the cloth

DEMAND, SUPPLY AND PRICES

 More demand than supply = prices rising
o Demand rises or
o Supply falls
 Less demand than supply = prices falling
o Demand falls or
o Supply rises

PRICE SIGNALS
 Supply and demand determine prices
 Prices then send signals to producers and consumers
  Free markets react to change automatically
 Price signals are the invisible hand

GOVERNMENT POLICY
 Night-watchman state or minimalist state
 Intervention in the economy kept to an absolute minimum to let invisible hand work
 Governments should protect private property, enforce contracts, provide national defense and not
much else

BENEFITS OF A FREE MARKET SYSTEM

1. Automatically coordinates supply and demand
2. Stimulates innovation
 Because there’s no competition in centralized/planned economies
3. Automatically self-corrects problems

REDUCE TO CLEAR
 Used for products with low demand
 Lower prices until consumers are willing to buy
 Market automatically clears excess supply

HIGH UNEMPLOYMENT
 Too much supply of workers relative to demand
 Lower wages cause employers to hire more
 Unemployment automatically self-corrects

PROBLEM OF GOV INTERVENTION

 Gov intervention disrupts the free market
 Min wage prevents workers from lowering wage demands
 Unemployment fails to self-correct

BENEFITS OF A FREE MARKET SYSTEM

 Automatically coordinates supply and demand
 Stimulates innovations
o More competition
 Automatically self corrects problems (even unemployment)
 Decentralization of power

NEOLIBERALISM
 Contemporary branch of free market approach
 Classical liberalism was dominant from 1800s until the 1930s Great Depression
 After Depression, government intervention became more dominant
 Neoliberalism was an attempt to bring back free market approach

Friedrich von Hayek

 Father of neoliberalism
 Austrian economist
 Wrote in the 1940s
 Won Nobel prize in economics
  “Austrian school”
Both were founding fathers of neoliberalism.

Milton Friedman
 Wrote in 1960s-70s
 Won Nobel prize in economics
 “Chicago school”

NEOLIBERALISM DIFFERENCES FROM CLASSICAL LIBERALISM

1. Emphasizes freedom rather than efficiency

 Willing to sacrifice some efficiency to preserve freedom
2. More orthodox in desire to limit government intervention
 Lower taxes
 Less social spending
 Less regulation
3. Lock-in free market policies through constitutional provisions
 James Buchanan
 Constitutional economics
o Constitution should protect economic freedom in the same way it protects
freedom of religion
 Nobel Prize

CONSTITUTION
 Constitutions constrain government
 Courts have power of judicial review
 Can declare laws ‘unconstitutional’

NEOLIBERALISM
 Property rights in charters of bills of rights
 Balanced budget amendment
 Referendums for tax increases

SUPPLY SIDE ECONOMICS

 Less academic version of neoliberalism
 Associated with the Wall Street Journal and conservative think tanks
 More pro-business than pro market

LAFFER CURVE
 When tax rates rise past a certain point, revenues will decline
 Thus, sometimes, tax cuts = more revenue
 Supply side economics sometimes misrepresented to say
o Tax cuts = more revenue

SUPPLY SIDE ECONOMICS

  Policies that benefit supply side (business) rather than demand (consumers)
 Focused on cutting taxes and regulation on business
 Trickle-down economics

LECTURE 4
THE INTERVENTIONIST APPROACH TO ECONOMIC
POLICY
1. Origins of the Keynesian-Welfare Approach
2. Its Key Rationales for Government Intervention

THE KEYNESIAN-WELFARE APPROACH

 Believes in market system
 Advocates some intervention to correct market failures
o Market Failures
 When free markets don’t work the way it’s supposed to
 Creates a problem that free market won’t fix on its own
 Creates rationale for intervention to correct failure
 Make markets more fair
o Reduce inequality
o Deal with social problems
 Efficiency and social justice

BRANCHES OF ECONOMICS
Microeconomics
 Focus on producers and consumers and individual products
Macroeconomics
 Focus on the economy as a whole

WELFARE ECONOMICS
 Arthur Pigou’s 1920 The Economics of Welfare
 About welfare of society as a whole, not welfare programs
 Market system was most efficient but subject failures
 Sometimes prices don’t reflect product’s true value
 Sends false signals to producers (market failure)
 Can lead to
o Over-supply of bad products
o Under-supply of good products
 Market failures create rationale for intervention
  Governments can use taxes and subsidies to influence behaviour and make prices reflect the
true cost of a product

 Sometimes market failure doesn’t self-correct

 Tax things society doesn’t want (e.g. smoking)

 Subsidize things society does want (e.g. education)
Pigouvian taxes and subsidies

KEYNESIAN ECONOMICS
 John Maynard Keynes’ 1936 General Theory of Employment Interest and Money
 Focus on market failures at the macroeconomic level
 Failure of high unemployment to self-correct

 Stock or housing market crash creates vicious circle of:

1. Falling confidence
2. Less spending
3. Bankruptcies, layoff and unemployment

Free market economics

 High unemployment will self-correct
 Unemployment forces workers to lower wage demands
 Employers then hire
 Government intervention prevents lowering of wages
 Reduced to clear will apply to labor

Great Depression
 Wages didn’t fall and unemployment didn’t self-correct as free market theory predicted
 Little government intervention or unions to explain why
o Market failure at macroeconomic level

Keynesian Economics
 Keynes said free market theory treated people like other products
 Unlike products, people have families to feed and they don’t accept lower wages
 Reduced to clear fails
 Market might self-correct eventually
 However, high unemployment or drastic wage cuts could lead to political revolution
 “in the long run, we’re all dead”
 Lack of self-correction was a market failure
 Created rationale for government intervention
 Government stimulus to boost spending, sales and hiring

Government stimulus breaks vicious cycle of less spending

Keynesian-Welfare Economics
 Paul Samuelson merged Keynesian macro with welfare micro
  Market was best system but government is needed to correct market failures
 Led to identification of key rationales for government intervention

RATIONALES FOR GOV INTERVENTION (6)

High Unemployment
 Use stimulus to fight recessions
 Use stimulus, outside recessions to keep unemployment very low
 Departed from original Keynesianism and caused problems

Negative Externalities
 Costs not incorporated into price of a product
o i.e. when a firm can pollute for free
 externalizes the cost onto others who have to pay for clean-up
 unfair to those who must pay for clean up
 inefficient as costs of prevention often cheaper than clean up
 market failure as will never self-correct as firm has no incentive to pay for prevention
 creates rationale for government intervention
 Tax on pollution to create incentive to reduce
 Internalizes cost making supply and demand work again
 Stimulating innovation. Scrubber

Public Goods
 Goods/services that government must provide because the market won’t/can’t
 To meet definition must be
1. Non-rival
 If someone uses it, it doesn’t prevent others from using it
 Consumption doesn’t use up the good or service
 Cake = rival good
 Streetlight = non-rival good
2. Non-excludable
 No effective way to prevent people from using even if they haven’t paid
 Creates “free rider” problem
 Means market won’t provide

 Creates rationale for government intervention

 Only government can force payment through taxes
 Key is to pay for good rather than provide it

Monopolies
 Monopoly (1 seller)
 Oligopoly (few sellers)
  Monopsony (1 buyer)
 Are a market failure as
o Emerge naturally
o Limit competition
 Problems caused by monopolies
o Higher prices
o Poor service
o Less incentive to innovate
o Concentration of power
 Economic power and political influence
o Too big to fail
 Domino effect
 Forces government to bail out

Government remedies for Monopolies

1. Regulate
 Regulate prices
 Regulate risk taking
2. Break-up
 Make too small to matter
 Problem is competitiveness
3. Nationalize
 Crown corporation

Asymmetric Information
 One party to transaction has more info than other party
o Used cars, food content
 Creates rationale for transparency, labelling and other regulations

Social Goals
 Problems can emerge even when free market works as it’s supposed to
 E.g. inequality, precarious labor, homelessness
 LECTURE
THE POLITICS OF ECONOMIC POLICY AND THE
STRUCTURE OF THE CANADIAN ECONOMY

1. Relationship between ideas and interests

2. Political spectrum in Canada and the US
3. Basic structure of the Canadian economy

Neoliberal Goals and Policies

 Individual freedom
 Less government
o Lower taxes
o Less social spending
o Fewer regulations
o Weaker unions
o Free trade

Free markets best

 More efficiently allocate resources
 Stimulate innovation
 Self-correct problems
 Decentralize economic and political power

Keynesian welfare goals and policies

 Efficiency and social justice
 More government
o Higher taxes
o More social spending
o More regulations
o Stronger unions
o Managed trade
Keynesian Welfare beliefs
 Market system is most efficient but
o Sometimes market failures occur
o Free markets lead to high inequality
 Need intervention to correct market failures and reduce inequality
Neoliberal
 Individual responsibility
 Government intervention
 Homelessness
o Individual’s fault
 Financial crisis
o Country’s fault
 Chile? Friedman
 Solution is less government

Keynesian Welfare
 System not individual
o Root cause
 Market failures and inequality
 Homelessness
o Systemic causes
 Financial crisis
o Financial system
 Solution is government intervention

Changing the structure/institutions of the system

Ideas and Interests

Robert Cox
 All theory is for someone and for some purpose
 Theories often rationalize interests of specific groups
Science of economics is not a science. The policy depends on what the goal is.

Neoliberal
 Businesses
 Wealthier individuals
Keynesian-Welfare
 Unions
 Social activists
 Environmentalists

Different interests focus on different problems

Who benefits directly?

Neoliberal
 Focus on competitiveness and productivity to justify tax cuts
 Focus on deficits and problems with social programs to justify social cuts

Keynesian welfare
  Focus on social problems to justify programs
 Focus on market failures to justify regulation

The political spectrum

 Spectrum rather than set camps
 1789 National Assembly in France
o Aristocracy sat on the right
o Revolutionaries sat on the left

Political spectrum in social policy

Left Wing
 Socially progressive or liberal
o Pro choice
o Favour gay marriage
o Favor strict gun control
o Anti-capital punishment
o Root cause national security and law
Right Wing
 Social conservatives and religious right
o Pro life
o Opposed to gay marriage
o Opposed to strict gun control
o Pro-capital punishment
o Military/police and national security and law

Political Parties
Left Wing
 NDP
 Greens
 Bloc Quebecois (economic policy)
 Liberals (centre left)
 Democrats (centre left)
Right Wing
 Conservatives
 Republicans

Canadian Media
Right
 National Post
 Sun newspapers
 Maclean’s
 Talk Radio
Left
 Toronto Star
 Walrus magazine
 CBC
  CityTV Toronto

US Media
Left
 NYT
 Washington Post
 MSNBC
 CNN
 Harper’s Magazine
 The Nation

Right
 Wall street journal
 Fox news
 Washington times
 National review magazine
 National interest
 The weekly standard

Comedy and talk radio

 SNL
 Full frontal (left)
 Rush Limbaugh (right)

STRUCTURE OF THE CANADIAN ECONOMY

Dependence on natural resources

 Oil in Alberta, Saskatchewan and Newfoundland
 Forestry in BC and QB
 Agriculture in prairies
 Fishing on coasts
 Mining in North

Dependence due to
1. Natural resources represent 60% of Canadian exports
2. More significant outside Ontario and Quebec
o Accounts for big share of economy
3. Many manufacturing and services tied to resources

Resource Politics
Dutch disease
o Holland/Netherlands, oil producing. When an oil country has an oil boom, it can hurt the
manufacturing industry in that country
 Oil or mining boom leads to large investment inflows
 Drives up dollar and makes exports more expensive
 Hurts manufacturing
  NDP argued that Alberta oil sands create Dutch disease, hurt manufacturing in Ontario
 Oil creates regional politics and divisions
 1980 National energy program
o NEP. Exclusively explains why Liberals can’t get elected in Alberta
o Pierre Elliot Trudeau
 Said oil belonged to Canada. Higher taxes on oil to redistribute revenue from oil
 Led to Western alienation
 Let the Eastern Bastards Freeze in the Dark

Resource/Regional politics
 Carbon tax
 Pipelines

Corporate concentration & foreign ownership

 Corporate concentration
o Monopolies and oligopolies
 Foreign ownership
o Branch companies (GM Canada)
Due to/Stems from:
 Small market
o Hard to achieve economies of scale
 National policy of 1878

Economies of scale
 Cost savings from producing on a bigger scale for a bigger market
 Spread fixed costs over more units of production to make product cheaper

Corporate Concentration
 Small market can only support small number of companies with decent economies of scale
 Small market leads to concentration and less competition
 National policy of 1878
o John A Macdonald
o Designed to develop Canadian manufacturing
o Interventionist to diversify away from natural resources and develop industry
o Protectionist trade policies. Imposed tariffs on certain types of products

Tariffs
 Tax on imports
 Make foreign goods more expensive and less competitive
 Designed to protect domestic industries from foreign competition
 Protectionism

Concentration & Foreign Ownership

 High tariffs protected Canadian companies from foreign competition
  Added to corporate concentration
 High tariffs and open investment led to foreign ownership
o Allow foreign companies to build factories in Canada
o Branch plants inside tariff wall. No tariffs.
 Canada gets taxes, jobs, etc
o Sell to the Canadian market

Canada-US Free Trade

 Shift to free trade in the 1980s
 Has led to high dependence on US economy

LECTURE

UNIONS AND LABOUR POLICY

1. The Labour Movement in Canada
2. Certification and Collective Bargaining
3. Union Political Activities

THE LABOUR MOVEMENT IN CANADA

Canadian Labour Congress
 National umbrella organization for Canadian unions
o Lobbying and advocacy
o Training union officials
o Link with international counterparts
Do union officials make additional money on top of their wage

Provincial Labour Federations and Local Labour Councils

 Lobbying and advocacy at the provincial and local levels
 Training union officials
 Ex Ontario federation of labour

National Union -> Local

National Union
 Lobbying, training, provide local unions with legal and financial support
Local
 Union sub-unit in a given workplace with the same employer
 Bargaining, grievances, benefits assistance

Ex. PSAC & PSAC LOCAL 610

THE LABOUR MOVEMENT

Provincial Labour federations & councils
 Ontario federation of labour
International Affiliated Unions
 Teamsters Canada
 Like a branch plant
 A Canadian union that’s affiliated with an international union

Private Sector Unions

 UNIFOR
 NHLPA
Public sector unions
 CUPE
 CFNU
o Canadian federation of nurses unions

THE LABOUR MOVEMENT IN CANADA

 Union membership has declined most in the private sector
o Free trade and competition
o Shift from manufacturing to services
 Difficult to organize people. Services = more decentralized
o Occurred for structural reasons???
 Unions membership remains high in the public sector
o Can’t outsource government jobs
o Public sector has leverage, more powerful

Certification and Collective Bargaining

 Certification is the process used to create a union
 Is governed provincially under the Ontario Labour Relations Act
 3 main steps
1. The organizing drive
 Union will attempt to sign-up members in a new workplace
o Workers sign union cards
 Union will legally try to do this in secret to prevent a counter-campaign by
the employer
o Countercampaign: Unionproof
 Social media helping unions organize
o Like campaigns
2. Application for certification
 When union has signed up sufficient members, it applies to OLRB (Ontario
Labour Relations Board) for certification
o 40% of workplace in Ontario required
 Employers have 2 days to file a response
3. Certification Vote
 Labour board calls for a certification vote
 Vote is secret ballot
 50% of eligible workers must then vote in favor of unionizing
 Union will then be certified
Certification and Collective Bargaining
 Certification laws are highly political
 Business wants mandatory secret ballot vote
 Unions want card check certification
o Granted with signed membership cards only
 Varies by province

Certification and Collective Bargaining

 Once certified, the union becomes the exclusive bargaining agent for workers in that bargaining
unit
o Collective bargaining
 All workers are required to pay union dues and be members
o The Rand formula
 US origin
 All workers must pay union dues and be members
o Prevent free riding

 Business prefers right to work laws instead of Rand formula

 Allows workers to not pay union dues or be union members
 Unions oppose as it undermines them

Why doesn’t Ontario have right to work?

Certification and Collective Bargaining (8+3)

 Collective bargaining is a set process that aims to renegotiate a collective agreement
 Starts with a Notice to Bargain
o Both sides exchange their proposals
o Negotiations begin
 If an impasse is reached, there are a few stages before a strike occurs
 Strike vote?
o Must be held before a legal strike can occur
o 50% threshold
 Over 90%
o Strong vote helps union bargain
o Strike vote often happens
 Conciliation
o Ministry of Labour provides a conciliation officer to assist
o Must attempt conciliation
 Final offer vote
o Employer can force a vote on their final offer
 No Board Report
o Not advisable to appoint a conciliation board
o Either side can request
o Triggers a 17 business day cooling off period
o Are then in a legal strike/lock out position
  Strike
o Union members stop working and go on picket lines
o Choke-point? Checkpoint at the entrances
 Work to rule
o Doing only what is stated in your contract
o Work to letter of contract only
 Lock out?
o Employer prevents work

Certification and Collective Bargaining

 Essential services?
o Workers that can’t go on strike
o Fire, police, hospitals, nursing homes, TTC
 Back to work legislation?
o Government forces union back to work
o Unions oppose
o Governments will use if strike lasts too long and annoys public
o Conservative government employs back to work legislation too quickly. Takes away
ability to collective bargain
 Arbitration
o Labour board appoints mediator to force an agreement
 Tentative agreement
o Deal is reached by the bargaining people
o Can occur at any stage
 Ratification vote
o Union members vote on deal
o The union will say this is the best deal we can get, so union members will vote and
decide if they want it or not.

UNION POLITICAL ACTIVITIES

Lobbying and Advocacy
 Unions remain strong political actors
 Lobby on various issues (5)
o Labor laws
o Minimum wage
o Social programs
o Trade agreements
o Israel
 Controversial
 Why do they care/lobby about Israel?

Support think tanks and advocacy groups

 Canadian centre for policy alternatives
 Council of Canadians
 Broadbent institute
Elections
 Work against conservatives
 One of the biggest advertisers
 MONETARY AND FINANCIAL POLICY
1. Domestic Macroeconomics
2. International Macroeconomics
3. Periods of Economic History

DOMESTIC ECONOMICS

Aggregate Demand
 Total demand for goods and services in the economy
 Determined by
o Amount of money consumers and firms have to spend
o Consumer and business confidence

Growth
 Changes in the size of the national economy
 Measured through Gross Domestic Product or GDP
 GDP: the value of all goods and services produced in a country in a given year

Negative Growth
 When GDP shrinks, it’s referred to as negative growth
 2 quarters of negative growth = recession

Relationship between Demand and Growth

Unemployment
 The percentage of the labor force that is seeking employment but is not employed
 Does not include part-timers looking for full-time work

Relationship between: Demand and Unemployment

 Demand rise = Unemployment falls
 Demand falls = Unemployment rise

Inflation
 An increase in the general level of prices
 Measured through Consumer Price Index (CPI)
 Inflation rate is percentage changes in the price level over time
o Pay freeze = pay cut
 Erodes savings and purchasing power

 Disinflation vs deflation
o Disinflation = rate of inflation goes down
 Decline in the rate of inflation
o Deflation = prices fall in real-terms
Relationship between: Demand and Inflation
 Demand rises = Inflation increase
 Demand falls = Inflation falls
If Demand goes up…
 Growth rises
 Unemployment falls
 Inflation rises

If Demand goes down

 Growth falls
 Unemployment rises
 Inflation falls
Note: Unemployment and inflation move in opposite directions

MONETARY POLICY
 Government’s control over interest rates through the central bank
 E.g. Bank of Canada, US Federal Reserve
o Independent agencies. Like the SCC. Government can’t influence it.
 Use interest rates to regulate demand and maintain balance between inflation and unemployment

Inflation Rates and Demand?

 Lower interest rates make loans cheaper
o People and firms pay less interest on existing loans
o Cheaper to get new loans for purchases and expansions
 People and firms have more money
 Demand increases
 Used to stimulate economy in a slowdown
 Interest rates are the price of (borrowing) money

Slow-Growth or Recession
 Demand falls
 Unemployment rises
 Growth falls
 Inflation falls

When a recession occurs…

 central bank will lower interest rates
 lower interest rates increase aggregate demand

Interest rates go down

 demand goes up
 growth goes up
 unemployment goes down
 inflation goes up
If inflation goes up…
 central bank will raise interest rates
 higher interest rates lower demand
Interest rates go up…
 demand falls
 growth falls
 unemployment rises
 inflation falls

The Business Cycle

1. recession: slow growth/high unemployment
 contraction in the economy and decline in economy activity
 drop in spending
 defined as a negative growth for 2 consecutive quarters
2. trough: lower interest rates
 end of the declining business activity and transition to expansion
3. recovery: higher growth & inflation
4. peak: higher interest rates to cool economy

INTERNATIONAL ECONOMICS

International Finance
 Like trade, international finance can be either free or restricted
 Free finance is known as capital mobility
 Governments can prevent capital mobility through the use of capital and exchange controls
o Regulations to investors

Exchange Rates?
 The value of one currency priced in terms of another currency
 E.g. Canadian dollar priced in US dollars

Capital flows and exchange rates

 When money flows in, the currency goes up
 When money flows out, the currency goes down
 i.e. oil and the Canadian $
o if price of oil goes up, Canadian dollar goes up

Interest rates and the exchange rate

 interest rates rise = currency rises
o because investors will earn more on their return if they invest in Canada
 Interest rates falls = currency falls

Exchange rate regimes

 Floating exchange rate
o Aka flexible exchange rate
o The value of the currency is determined by market forces as money goes in and out
o What Canada & US use
 Fixed exchange rate
 o Pegged exchange rate
o The government uses interest rates to keep the value of the currency within a set range
o Benefit: stability. Theoretically promotes trade

The Mundell-Fleming thesis

 Aka the impossibly trinity
 Governments can only pursue (any) 2 of the following 3 goals at any one time:
1. Capital mobility
 Can’t take money out of country
2. Fixed exchange rate
3. Discretion in monetary policy

M-F Thesis and Economic History

 The history of the international economy often boils down to which 2 of the 3 M-F
thesis options governments have chosen

3 Periods of Economic History

1. 1870s-1929
 Classical liberalism – original period of free markets, free trade and economic
globalization
 Fixed exchange rates & Capital mobility
 = No discretion in monetary policy
2. 1930s-1970s
 Keynesian-welfare approach – New Deal, welfare state and end of economic
globalization
 Fixed exchange rate & Discretion in monetary policy
o No free trade = no capital mobility
3. 1980s-Present
 Neoliberalism – freer markets, free trade and return of economic globalization
 Capital mobility & discretion in monetary policy

Great recession. We were able to stimulate our way out and avoid repeat of great depression

COMMON CURRENCY = FIXED EXCHANGE RATES. EU!

LECTURE: FISCAL POLICY
1. Key types of taxes
2. Key types of government spending

Reasons for Taxation

1. Raise revenue for government spending
2. Affect the macroeconomy through aggregate demand
3. Change incentives at the micro level
 i.e. carbon tax

Personal Income Taxes

 tax on an individual’s income

KEY TYPES OF TAXES (6)

Progressive Tax System
 The more money you make, the higher percentage of your income you pay in taxes
 Redistributing income
 Tax brackets
o $50,000+ = 40%
o $20,000-50,000 = 25%
o $10,000-20,000 = 15%
o $0-10,000 = 10%
 Income of $60,000 pays 40% = $24,000

Marginal Tax Brackets

 First $10,000 = 10%
 $10,000-$20,000 = 15%
 $20,000-50,000 = 25%
 $50,000+ = 40%
 Income of $60,000 pays?
o Pay 10% on first 10k = $1,000
o 15% on the next $10k = $1,500
o 25% on the next 30k = $7,500
o Pay 40% on the last $10,000
o = $14,000 in total tax paid

Gross income is not taxable income. Deductions.

Regressive Income Tax System

 Everyone pays the same absolute amount of money, regardless of income
 Is mainly theoretical
 Applies to user fees

 E.g. everyone pays $5,000

o For people making 20k = 25%
 o For person making 50k = 10%
 Lower incomes end up paying higher percentage

Flat Income Tax System

 Everyone pays the same percentage of their income in taxes
 E.g. everyone pays 10%
 Rich still pay more, but not as much as they would pay under a progressive tax system
o Means less redistribution
 Free-marketers support the flat income tax

Flat income tax system

 Strong fiscal conservatives advocate flat tax
 No developed country has a flat tax
 Ben Carson campaigned on a flat income tax
 Ted Cruz

Flat income tax system

 Proponents argue it makes tax code much less complicated
 However, complications come from deductions not tax brackets
o RRSP, RESP = tax credits/tax deductions

Consumption Taxes
 Taxes on consumer goods and services
 Like a flat tax
 E.g. GST (federal) and PST (provincial) and HST
 Used to lower income and corporate taxes.
If government focuses more on consumption, it is moving toward more free market and less redistribution
of income

Wealth Taxes
 Tax assets rather than income
 Tax capital gains (growth in value of assets)
 Tax very large inheritances (exclude farms and small businesses)
o Also known as an estate tax
o No inheritance tax in Canada

Corporate Taxes
 Corporate tax:
o On the income, or profits, of a corporation
 Capital tax:
o On corporate assets

Taxes and Demand

 Tax cut = demand rise
 Tax raise = demand falls
Purposes of Government Spending
1. Public Goods
2. Affect macroeconomy
3. Social programs

Public Goods
 Goods/services that the market won’t provide
 National defence
 Infrastructure

Spending to influence Demand

 Spending increase = Demand rise
 Spending falls = Demand falls

Spending and Demand

 Automatic stabilizers
 Discretionary spending

Automatic Stabilizers
 Employment insurance & welfare
 Government automatically increases spending when unemployment rises
 Decreases spending when unemployment falls
 Automatic because the government doesn’t have to pass more legislation to spend more money.
Program is already in place

Discretionary Spending
 Specific decision to increase spending
 Stimulus package
 E.g. a new infrastructure construction program

Budget Deficits
 Spending is greater than revenue
 Forces governments to borrow money
 Borrows by issuing bonds

 Deficits most likely during recessions

 Tax revenues go down
 Spending on auto stabilizers go up
 Spending on stimulus packages goes up

Government Debt
 Government debt is the total of accumulated deficits
 $613 billion
  Key is debt to GDP ratio

Budget Surplus
 Revenues greater than spending

A government can have a surplus (yearly) and a debt (years of accumulated debt).

Social Programs
 Promote social goals not dealt with by free market
o Reducing inequality
 Many have the effect of redistributing income

Types of Social Programs

1. Entitlements
o Health, education, pensions
2. Income support
o EI, social assistance, housing
3. Nation-building
o CBC
4. Economic development
o Paying for worker retraining

Health Care, Education, Pensions (6)

 Redistribution rather than pure efficiency
 Do not meet precise definition of a public good
o Can be provided by the private sector
 Can be provided in a number of ways ranging from fully public to fully private

Universal Fully Public Health Care

 A.k.a ‘socialized medicine’
 Government provides healthcare by running clinics, hospitals etc
 Government pays for healthcare for all
 Example: UK, NHS system

Universal Single-Payer Health Care

 Private sector (or public-private mix) provides health care
 Government pays for healthcare for all (single payer)
o Pays but does not provide healthcare
 Doctors on fee for service
o Government sets fees
 Privatization could be privatizing more providers
 Canadian system
  Equal access – no queue jumping
o Medical service is based on need, not wealth
 Government pays for listed services
o Debates are about listed services.
o OHIP doesn’t cover everything. Cosmetic procedures, dental, optometry
 Can purchase private insurance for unlisted services

Two-Tier, Means Tested Health Care

 Private sector provides health care
 Government pays for health insurance only for those in need (means testing)
o For lower-income people
 Rest buy private insurance or have none
 Money = priority
 Example: US
o Medicare
 For seniors
o Medicaid
 For poor people

Obamacare
 Private provision & two-tier, means-tested
 Expands number covered
o Expands Medicaid
o Subsidies and tax credits for employers
o Guaranteed issue and individual mandate
 Guaranteed issue: Private insurance companies cannot deny insurance for people
with pre-existing health conditions
 Individual mandate: government mandates that everyone who doesn’t have
health insurance, has to buy it. Used to offset guaranteed issue, subsidizing
people with pre-existing conditions.

Private healthcare with some government support

 Private sector providing health care
 Government provides limited support to needy
 Defined contribution, not defined benefit

Example.
o Defined benefit: public workers, when you retire, you get a set amount of money. Very
few places have it.
o Defined contribution: every month, employer contributes a certain amount in your
retirement account. Invest the money saved. More risk on the employee. Almost all
pensions are defined contribution.

o Defined benefit: OHIP covers everything

o Defined contribution: certain amount of money goes into an account and whatever is in
that account is how much you can use.
  Paul Ryan’s medicare reform plan

Private Health Care with Government Support

= defined contribution
 Voucher system/premium support
o Government gives needy set amount to use toward insurance
 Health savings account
o Tax credits and voucher for health investment account
 Similar to how RRSP works

Fully private health care

 Health care treated like any other product
 Health care providers and insurers compete
 More money equals better and faster health care
 LECTURE FIGHTING RECESSIONS
1. Causes and types of recessions
2. The Great Depression
3. The Great Recession

Business Cycle recessions

 Central banks maintain a balance between inflation and unemployment
 Recession can occur when central bank raises interest rates to fight inflation

Oil Shock Recession

 War, weather, etc. causes sharp rise in oil prices
 Rising oil prices lead to inflation
o Because oil is used in everything
 Central Bank raises interest rates to fight inflation

Asset bubble Recession

 A.k.a ‘balance sheet recession’
 Involve high levels of private debt
 Start with bursting of an asset bubble

Asset Bubble
 Prices rise far above fundamentals
 Fundamentals = real economic conditions
 Occurs when people borrow money to speculate
 Rising assets used as collateral
o The wealth effect
o Stock portfolio rising, assets have grown, bank more willing to lend.
o But stock prices are inflated

Bubble bursts, crisis begins

 Prices crash
 Those who borrowed to speculate default on loans
 Some banks fail and this causes panic and bank runs
o Chain reaction
o Self-fulfilling prophecy. Might have been fine, but when everyone pulls out their
deposits, the bank will actually fail.

Bank runs and credit crises

 Collapse of one bank creates domino effect and more collapse
 Depositors panic and ask for money back
 Bank has to sell assets at panic prices and goes bust
 Banks stop lending

Asset bubble recession

 Financial crisis and no lending create a vicious cycle of:
 1. Falling confidence
2. Less spending
3. Bankruptcies, layoffs and unemployment

The Great Depression

 Capital Mobility, Fixed exchange rate, discretion in monetary policy
o Mundell-Fleming thesis/ impossible trinity
 At the time of the Great Depression,
o Gold standard (fixed exchange rate)
o Capital mobility

Capital mobility
 Investment is flowing freely across borders
 Reinforced free trade
 Free finance and free trade made this the original period of economic globalization

Gold Standard Fixed Exchange Rates

 Currency as a price relative to the price of gold
o Exchange rate between countries is the same
 1 common anchor

No discretion in monetary policy

 Meant that governments could not use interest rates to respond to recessions and high
unemployment
 This is key to understanding the causes of the Great Depression

Couldn’t stimulate way out of recession. Government during Great Depression raised interest rates,
defending gold standard, instead of stimulating spending (and loans). Making it worse.

Workers had less influence

 Limits on voting rights
 No labor based political parties
 Few trade unions

Very free markets

 Few regulations on business and finance
 No healthcare, pensions, education
 Charities rather than social programs

When people are unemployed, it really magnifies aggregate demand because they have 0 money.

Great Depression
 Began as an asset bubble recession
 Booming economy in the 1920s
 Stock market bubble as more borrowed to speculate
 Fed raises interest rates to prick bubble
o To make it harder for people to borrow money and invest into the stock market
 o But it spooks investors
1929 Stock Market Crash
 Higher interest rates cause stock market to crash
 Financial crisis as banks fail and cause panic
o Many default on loans
 Panic leads to bank runs and credit crisis

Financial Crisis causes Recession

 Financial crisis and no lending create vicious cycle of
1. Falling confidence
2. Less spending
3. Bankruptcies, layoff and unemployment

The Collapse of Free Trade

 Agricultural surplus leads to falling prices
 Countries respond with tariffs
 Smoot-Hawley tariff in US
 Free trade collapses and further hurts confidence

From recession to depression

 Started as a normal asset bubble recession
 Became depression as governments defended fixed exchange rates
 Raised, rather than lowered, interest rates

Like an arms race, every country is raising interest rates to attract investors

Government Response (5)

 Raised rather than lowered interest rates
 No bank bailouts
 No automatic stabilizers
 Austerity not stimulus
 Led to massive unemployment and hardship

Great Recession
 Asset bubble recession
 Began with the bursting of the US housing market bubble
o Global investors and hedge funds
 Spread globally
 2008-2012

Housing Bubble Emerges

 Banks issued subprime mortgages
o Giving mortgages to people with bad credit
o Why is it happening? Because banks make money by issuing loans
o NINJA Loans
 Banks sold mortgages to investors to raise more money
o More and more investors are exposed to the US housing market
 Housing bubble as more borrowed to speculate
Housing bubble bursts
 Fed raises interest rates
 Higher interest rates cause subprime to default
 Banks sell houses and prices fall
 Underwater owners default creating more falling prices
o House is worth less than the mortgage
o Let the bank take it. House is worth less than the amount you paid for

Financial Crisis
 Banks stuck with many defaulted mortgages
 Lehman goes bust
 Bush administration doesn’t bail out
 Creates panic and credit crisis
o No bank wants to loan. Nobody knows who is exposed and could fall next
o A lot of lending stops
 After that Bush bails out

No bank runs. Government implemented regulations against bank runs.

Federal deposit insurance.

Recession spreads globally

 Spreads through 2 channels
1. Financial
o International banks that own US mortgages also in trouble
o Canadians weren’t as exposed to the subprime mortgages. So the recession didn’t come
to Canada via financial channel
2. Trade
o Falling US demand

Free market vs interventionist

 Other than strong diehards, now recognize that there’s two outer limits of capitalism. Keynes and
Friedman were both right
 90% economists today agree that you need more of a Keynesian approach to recessions
 But when it comes to inflation and stagflation, you need Friedman’s/free market way of fighting
inflation

Contemporary Globalization
 Capital mobility
 Discretion in monetary policy
Fundamental difference is that there was no fixed exchange rate

One exception was in Europe

 Euro (fixed exchange rate) & Capital mobility
  Some countries experienced Depression-like conditions
 Greece needed massive amount of stimulus, but didn’t receive because Euro was being defended
and they didn’t lower interest rates

Differences from Depression

 Lowered rather than raised interest rates
 Automatic stabilizers
o Some spending power is maintained even when people are laid off
 Stimulus packages
o Even the Conservatives
 Bailed out banks
 Bailed out auto companies
 Maintained free trade
LECTURE 1
THE ERA OF ECONOMIC INTERVENTION
1. The Political Implications of the Great Depression
2. The Postwar International Economy
3. The Postwar Growth of the Mixed Economy

GREAT DEPRESSION
 Raised interest rates to defend currencies
 No bank bailouts
 Austerity not auto stabilizers or stimulus
 Trade protectionism
 Led to massive unemployment

POLITICAL IMPLICATIONS OF THE GREAT DEPRESSION (3)

1. Undermined support for free market ideas
2. Undermined trade and globalization
3. Led to economic nationalism
o Tariffs
 Smoot-Hawley, US
 Milestone that ended free-trade in 1930
o Capital controls
 Preventing capital mobility, capital moving across borders
o Controls on immigration

POLITICAL IMPLICATIONS OF THE GREAT DEPRESSION

 Growing demands for government intervention
o No social safety nets
 Workers mobilize through growth of unions and socialist parties
o Political mobilization of workers
o The CCF
o Became more active in expressing their views
 Mainstream parties and business began to support more intervention
o They saw it as a lesser of evils compared to a socialist revolution
o This is the time of the Russian Revolution
o Huge number of young men who fought in WWI, military training,
 Threat of a socialist revolution was perceived to be on the table
THE MIXED ECONOMY (4)
 Began with Roosevelt’s New Deal in the 1930s
 Interventionist policies
1. Business regulation
 New agencies
2. Labor regulations
 Working conditions
3. Social programs
4. Job stimulus

REGULATION ON BUSINESS
 Alphabet Soup of new government agencies
 Financial regulation through SEC
 Deposit insurance through FDIC
o Federal Deposit Insurance Corporation
 Working conditions
 Health and safety

LABOUR REGULATION
 1935 National Labor Relations Act in US
o Increased legitimacy and power of labor unions
 PC 1003 in Canada
o Privy Council
o After this, the union movement begins to expand
o Unions then become powerful political actors
o Leads to further growth of the welfare state. They want more social programs,
more taxes
o Unions become the main muscle on the left side of the spectrum arguing for more
interventionist policies
 Recognized unions, collective bargaining and right to strike
 Boosted union power and pressure for more intervention
o Support labor based political parties

SOCIAL PROGRAMS AND JOBS STIMULUS

 Progressive taxation
o To fund social programs
 1935 Social Security Act in US
o Pensions
o Employment insurance
o Welfare
o Disability support
  Created of WPA: Works Project Administration
o Stimulus package of infrastructure
o Hired millions to work for the people
o Construction
o Provide jobs, inject money into the economy

THE NEW DEAL IN CANADA

 PM Bennett’s New Deal in Canada
 Roosevelt’s New Deal was politically possible and successful, so Canada emulated
 Pensions, EI, Health Insurance
 Struck down by courts for treading on provincial jurisdiction
o Social welfare falls under Provincial
o Not constitutional for the federal government to enact these programs
 Eventually Canada followed US lead – mainly after WWII

POLITICAL IMPLICATIONS THE GREAT DEPRESSION

 Economic nationalism became political nationalism
 Government intervention became state socialism
o Government owns factories, controls means of production
 Political nationalism + state socialism
 National socialism
o Nazis
 Economics and interventionism played a large role in the Nazis rise
 Great Depression gave rise to interventionism
 Great Recession gave rise to populism
 Now we’ve seen economic nationalism push more into political nationalism

POLITICAL IMPLICATIONS THE GREAT DEPRESSION

 Keynesian economics emerges during the Great Depression
 Undermined free market economics
 Boosted Keynesian economics
 Austerity had made things worse
 Unemployment failed to self-correct
o Reduced to clear fails

WWII AND END OF DEPRESSION

 Governments abandon Gold Standard to stimulate their economies
 Took WWII production to end Depression
 Equivalent to a massive stimulus program
 WWII provided blueprint for era of economic intervention
THE BRETTON WOODS AGREEMENT
 1944 agreement among the allied powers
 How they would manage the international economy
 Reflected shift from free market to Keynesian ideas
 Key was desire/need to prevent high unemployment
o Meant governments had to be free to use interest rates to stimulate aggregate
demand
 1944 conference in Bretton Woods, New Hampshire
 Key negotiators were Keynes (UK) & Harry White (US)
 Both supported Keynesian economics
 MF Thesis
o Capital mobility
o Fixed exchange rates
o Discretion in monetary policy

5 Main components of Bretton Woods Agreement

1. Capital controls: end of globalization
 Meant governments could have fixed exchange rates and discretion in monetary
policy
2. Fixed exchange rates
 Dollar gold standard. Pegged to the US dollar which is then pegged to the price of
gold
3. The Dollar Gold Standard/Gold convertibility
 Fort Knox. Can convert money to gold
4. Discretion in monetary policy
 Key in Keynesian economics. Ability to lower interest rates to stimulate your way
out of a recession
5. Creation of IMF & the World Bank

THE IMF AND THE WORLD BANK

 IMF
o Short-term loans to maintain fixed rates
o Help with the economic exchange rate system
 WB
o Long-term loans for reconstruction development
o Economic development in developing countries
o Formal name of the world bank is
 International Bank of Reconstruction and Development

POSTWAR TRADE
 Bretton Woods failed to create the ITO
 Instead, led to the General Agreement on Tariffs and Trade
 o Was an organization, but basically a process/rounds of negotiation
 Successive rounds of trade negotiations to lower tariffs
 These matters, because it means that free trade did not return
 No economic globalization post-WWII until the late 80s
 Uruguay round. Free trade returns. Creation of WTO

GROWTH OF THE MIXED ECONOMY

1. Business Regulation
2. Progressive taxes and social programs
3. Keynesian macroeconomic policies
 Spread globally

GROWTH OF REGULATION
 Grew after WWII, especially in 1960s (second wave)
 Consumer protection movement
 Environmental movement emerged
 Environmental regulation
 Air pollution, cancer, ozone layer, acid rain
 Ralph Nader
 Rachel Carson
 A world without birds

TAXES AND SOCIAL PROGRAMS

 Entitlement Programs
o Pensions
o Healthcare
o Education
 Income support programs
o EI
o Social Assistance
o Affordable housing
 Dealing with social inequality in a number of different ways

COST-SHARED PROGRAMS
 Provinces designed and ran programs
 Federal government provided funding with conditions
o E.g. 50% of funding if province follows federal conditions for how program is
designed
 Health, social welfare, post-secondary education

 1966 Medical Care Act

o Where public health care came to Canada
 Healthcare is entirely in provincial jurisdiction
LABOR REGULATIONS
 Expansion of pro-union regulation
 Boosted union power
 Created political pressure for more intervention

KEYNESIAN MACROECONOMIC POLICIES

 Use of monetary and fiscal policy to fight recessions
 Many governments went further to get unemployment lower
 Set the stage for an inflationary crisis
 No left-right spectrum, all Keynesians

LECTURE 2: THE MODERN CORPORATION AND THE

RISE OF UNIONS
1. The Rise of the Modern Corporation
2. The Fordist Structure of Business Labor Relations
3. The Rigidities of the Fordist System

CORPORATION
 Business is legally separate entity from owners/shareholders
 Limited liability
 Pays corporate taxes
 Perpetual lifetime
 Ownership based on shares

CORPORATIONS BEFORE THE DEPRESSION

 Industrial revolution led to the emergence of big corporations
 Many founded and run by individual industrialists
 J.P. Morgan financed mergers in rail and steel and set off M&A wave

CORPORATIONS BEFORE THE DEPRESSION

 Private corporations were owned by individuals or families
 Integration of ownership and control
o Individual who owned the company, tended to run them on a day to day basis
 Owners often specialized in the products they produced
 Era of the Robber Barons

RISE OF THE MODERN CORPORATION

 Industrialists retired and sold their shares
 Led to a shift in the ownership structure of large corporations
 This shift led to the rise of the modern corporation based on 3 characteristics
 o Also known as the Berle Means model

Berle Means Model

1. Decentralized Ownership
2. Separation of ownership and control
3. Managerial revolution

1. Centralized to Decentralized Ownership

 Industrialists retired and sold their shares
 Many firms went public through an IPO
 Came to be owned by a large number of small, unconnected shareholders

TYPES OF CORPORATION
Private Corporation
 Small number own shares – often person or family
 Shares do not trade publicly
 Financial info not made public
Public Corporation
 Large number own shares
 Shares do trade publicly
 Financial information is made public
Crown Corporation
 Public enterprise
 Majority of shares owned by government
 Nationalization vs privatization?

Nationalization
 When a private sector company is bought/taken over by the government
 Trans Mountain pipeline
 Cuba nationalized many private companies. Didn’t pay corporations fairly
Privatization
 When a crown corporation is sold to the public

2. Separation of Ownership and Control

o Decentralized ownership meant owners no longer ran corporation
o 1932 Berle-Means model of the model corporation
o Adolph Berle and Gardiner Means

Shareholders (large number of small and unconnected shareholders)

Board of Directors (represent shareholders and oversee management)

  Board of Directors can veto management decisions
 Can vote on certain decisions at AGM or through proxy votes
 This was the theory
 Reality was that modern corporation was characterized by managerial
autonomy

 Shareholders had little influence over management for 3 reasons

1. Unconnected shareholders don’t organize votes

2. Own shares in many companies – therefore exit rather than
voice
o Owners will generally just sell their shares rather than
express their opinions against management
3. Compliant boards rubber stamp CEO
o Bit like the Senate in Canada
o CEOs nominate board members. CEOs are all sitting on
each other’s boards

CEO and Management (specialized managers)

3. Managerial Revolution
 Managers no longer owners
 Specialists in management itself
 Professionalization of managers and business schools
 Apply scientific principles to maximize efficiency

TAYLORISM
 F.W. Taylor’s The Principles of Scientific Management
 Focus on efficiency in factories
 Led to mass production

TAYLORISM
 Producing standardized goods
 Separation of conception and performance of work
o Separates the ideas work (designing) from manual work (assembly line
production)
 Hyper-specialization into low-skill, repetitive tasks
 Assembly lines
 Massively increased the amount of goods produced

FORDISM
 Henry Ford
 Mass production required mass consumption
  Pay workers enough so they could afford to purchase the products they made
 $5 8-hour workday
o Revolutionary at the time
o Established national standards for pay for workers
 Led to 50 hour week
 Decent wages to compensate workers for boredom of assembly line
 Absolute rather than relative gains
o If the worker knows that the economic pie grows, their slice will automatically get
bigger
o In percentage terms, they are not asking for more economic redistribution

FORDISM
 Give workers income and leisure time to purchase goods
 Reinforced Keynesian focus on aggregate demand
 Fordism spread due to union demands

TAYLORISM AND UNIONS

 Taylorism located many workers in one factory
 Made unions easier to organize
 Led to further expansion of the mixed economy
o Increasingly powerful unions are able to push companies to adopt Fordist model

FORDISM AND SOCIETY

 Nuclear family
 Prohibition
o Ford was afraid that his workers would spend money drinking and hurt
productivity and prevent them from buying cars
 Ford sent social workers into his employees’ home
 His 5 dollar work days allowed his workers to have a family
o Time and ability
o Rise of the middle class
 As the economy changes, it can contribute to changes in society/culture

FORDISM AND CULTURE

 Consumer culture
 Standardization and modern aesthetic of functionalism
o Modernism art?
o Type of art that is more about function than pure aesthetic beauty
 Suburbia and modernist architecture
o Ugly, but functional
o Like the social science building on campus
 Connection between economy and society
 o Deliberately promoted by business

Taylorism + Fordism created a broader way of life, beyond just the workplace into architecture,
design, family

RIGIDITIES OF THE FORDIST SYSTEM

 Aspects of the economy that are locked in
 Inflexible to change
 Rather than bend, they eventually break

1. RIGIDITIES IN MASS PRODUCTION SYSTEM

 Assembly lines designed for a single product
o Hard to adjust if demand for that specific product fell

 Assembly lines were long-term capital investment

 Long term contracts with suppliers

o To guarantee that assembly lines would always be running
o Did not have just in time delivery
 Difficult to change
 Long term lock ins make it hard for companies to respond to changes in demand

2. RIGIDITIES IN THE LABOR MARKET

 Long-term employment contracts
o Company isn’t going to lay you off every time profits fall
 Trade unions
o Makes it harder to adjust pay, fire

 Pro-union labor laws

 Makes it more difficult for firms to lay-off workers when demand falls

3. RIGIDITIES IN WORKER BENEFITS

 Defined benefit pension plans
o Gold plated pension plan
o Used to be the norm
 Risk on employer: firms on the hook to pay even when times were tight
 Today have shifted to defined contribution pension: risk on employee
  Defined benefit: set amount of money. Get that pension till you die. Was a big cost for
business.
 Almost completely gone in the private sector. Very few in public sector. Teachers.
Military.
 Defined contribution:
o Pension received is no longer guaranteed by employer
o Both contribute to individual investment fund, which then pays benefits based
entirely on its market value at the time of retirement
o Not a set amount every year
o Basically like you have a savings plan
o All the risk of how the investments do over time, is shifted to the employee

All of these rigidities make the welfare state inflexible that contributes to another economic
crisis. Stagflation.

LECTURE 3: THE STAGFLATION CRISIS

1. The stagflation crisis
2. The political implications of stagflation
3. The collapse of Bretton Woods and the shift to neoliberalism

DEFINING STAGFLATION
 Stag-flation = stagflation + inflation
 High inflation and unemployment at the same time
 Emerged in the 1970s
 Referred to the misery index

KEYNESIANISM AND STAGFLATION

 Was supposed to be impossible in Keynesian economics
 Inflation and unemployment supposed to move in opposite directions
o Inverse relationship
 Rise in demand, drop in unemployment, inflation goes up
 Demand falls, unemployment rises, inflation falls

MILTON FRIEDMAN
 Conservative professor at University of Chicago
 Predicted stagflation in his 1967 Presidential Address to the American Economics
Association

THE PHILLIPS CURVE

 Keynesians believed unemployment and inflation moved in opposite directions in a
direct trade off
  Lower unemployment could be achieved by accepting slightly higher inflation
 Keynesians thought that inflation would stay at 4-5%
 Primary focus of Keynesian economics was keeping unemployment low

ECONOMIC CAUSES OF STAGFLATION

 Friedman argued the trade-off between unemployment and inflation was NOT stable
 Higher inflation that lasted for a while would eventually begin to snowball

 Keynesians
o Unemployment: 6% - 6% - 6%
o Inflation: 5% - 5% - 5%
o Trade off was stable
 Friedman:
o Unemployment 6% - 6% - 6%
o Inflation: 5% - 6% - 7% - 8%
o Trade-off was NOT stable and inflation would soar

UNION WAGE DEMANDS

 Inflation = 5%
 Wage increase = 5%
 Net gain = 0%
 Therefore, unions and workers would continuously demand higher wage increases

 Inflation = 5%
 Wage increase = 7%
 Net gain = 2%

 Unions incorporate inflation into wage demands

 Unions were powerful at the time, and they got these wage increases
 If inflation lasts too long, it changes expectations
 Self-fulfilling prophecy
o You ask for raises based on a cost of living increase
o This can become a real problem because it leads to a wage price spiral

WAGE PRICE SPIRAL

 Workers demand higher wages to compensate for inflation

 Higher wages force firms to raise prices and hire less workers

 More stimulus required to lower unemployment creates more inflation

 Almost like a spiral that happens with a depression
Most economists accept that persistently high levels of inflation will snowball and lead to
stagflation

INCREASED UNION POWER (4)

 Welfare state increased power of unions:
1. New Deal pro-labor laws
 And members are voters
2. Fordism
 Mass production and higher pay of Fordism made it easier for unions to
organize
 Physically located in factories
3. Lower unemployment
 Fewer unemployed people who can replace workers
 Greater bargaining power
4. Less free trade
 Businesses couldn’t threaten to move factories if unions asked for more
money

UNIONS AND STAGFLATION

 Power of unions
1. Allowed inflation to be incorporated in wage demands
2. Prevented governments from raising interest rates
Today: unions are not nearly as strong. Could potentially mitigate today’s inflation to spiral out
of control. Are the unions powerful enough today?

Keynes always believed the central bank had to maintain a balance between inflation and
unemployment. Had to adjust interest rates to correct the situation. He never advocated for
excessive stimulus. But the power of unions made it hard for politicians to raise interest rates,
union members wouldn’t vote for them.

UNDERMINED KEYNESIANISM
 Stagflation somewhat undermined Keynesian economics
 Boosted Friedman’s free market economics
1. Credibility
2. Public intellectual
 Newspaper columns
3. Predicted the stagflation crisis
 What Depression was to free market, stagflation was to welfare state

BUSINESS MOBILIZED POLITICALLY

 For business, stagflation was the last straw
 Motivated business to mobilize politically
 They created and expanded business lobby groups
Proverbial last straw that breaks the camel’s back

 Political donations to politicians

 Canadian Chamber of Commerce
 Business Council of Canada

BUSINESS MOBILIZED POLITICALLY

Lewis Powell
 Supreme Court Justice US
 1971 memo for the US Chamber of Commerce
 Argued that business had to build a conservative movement
 More free market conservative activists to gain more influence
 Viewed as a spark, and blueprint for conservative movement

 Created and expanded free market think tanks and lobby groups
 Promote free market policies through policy research and media

 Creation and expansion of conservative media outlets

 1987 removal of “fairness doctrine” in US broadcastings regulations allowed for one
sided media
o Required news stations to present both sides of any issue
o When the FCC removed this doctrine in response to all the lobby, this facilitated
huge growth of conservativism
 Rise of talk radio

 Similar but milder trend in Canada

 Conservative media emerged alongside rest of media
 Not as significant as the US
 To offset mainstream, left-leaning media

BUSINESS MOBILIZED POLITICALLY

 Stagflation caused the business community to get a lot more involved in politics
 Helped to build the modern conservative movement
 Promoted the shift to more free market policies

BUSINESS MOBILIZED ECONOMICALLY

 Business also mobilized economically in response to stagflation
 Increasing internationalization of production and finance
 Get away from higher taxes, unions, wages
 Moved factories to developing countries
o Before free trade
o But even relocating factories and paying tariffs, you still had higher profit
margins
o Still beneficial to move away
  Banks also relocated to offshore financial markets
o Cayman Islands

THE BRETTON WOODS ORDER

 Fixed Exchange rates
o Lower interest rates to stimulate economy, reduce unemployment. And normally,
currency would drop but capital controls prevent this from happening
 Discretion in monetary policy
 No capital mobility
o No economic globalization, no free trade, no globalization of production

BRETTON WOODS DOLLAR-GOLD STANDARD

 Currencies were pegged to the US dollar
 US dollar was pegged to the price of gold
 Different from gold standard in the Great Depression
o There was capital mobility at the time

THE COLLAPSE OF BRETTON WOODS

 Low interest rates and high inflation cause investors to evade capital controls
 Possible due to
1. Use of computers
 And money becomes digitized
 Harder to track. No longer big pallets of cash.
2. Weak enforcement
 Government was lobbied by business
 Republicans chose not to try and catch people who evaded the controls
3. Growth of offshore financial markets
 Unregulated financial markets that accept money with no questions asked
 Swiss bank account
 Capital controls had to work on both ends
 One prevents from leaving
 Other has to enforce and not accept

COLLAPSE OF BRETTON WOODS

 Capital mobility increases and violates the impossible trinity

 Money leaves and causes dollar to drop out of exchange rate

 President Nixon had 3 choices
1. Enforce capital controls
 Wall Street opposed
2. Maintain fixed exchange rate
 Would require higher interest rates
  Politically, this would have been difficult
3. Maintain discretion in monetary policy

 1971 Nixon gave up fixed exchange rates and $ gold standard

 Inflation continued to rise and led to stagflation
 Capital mobility increased
o Beginnings of financial globalization

1973 OPEC OIL CRISIS

 OPEC massively raises oil prices
 Organization for petroleum exporting countries
 Inflation spikes to 15% by 1975 then drops somewhat
o Because oil is an input for so many products
o Unions demand even higher wages
o Further increases wage price spiral
 Inflation going up, unemployment going up
 Many OPEC members have an oil embargo on US
o Because of US supplying weapons to Israel during Yom Kippur war

STAGFLATION CONTINUES
 By 1978, inflation again rises to 10 percent
 President Carter and public convinced that inflation must be dealt with
o Interest rates must be raised
 Appoints Paul Volker chairman of Fed

FIGHTING STAGFLATION
 Volcker raises interest rates to fight inflation
 But then, 2nd OPEC shock 1979
o Iranian revolution, US-backed Shah was overthrown
 Inflation hits 12%
 Volcker shock: a massive increase in interest rates
 Recession/end of stagflation
o Worldwide recession
 Also played a major role in the shift away from the welfare state towards free market
neoliberalism

VOLCKER SHOCK
 High interest rates raise developing countries’ interest costs
 Worldwide recession lowers demand for developing countries’ exports
 More spending + less earnings = debt crisis
 1982 debt crisis that forced many developing countries to adopt more free market
policies
  Many poor countries had borrowed money at low interest rates to help develop, but when
Volcker increased the rates, collateral damage was that many developing countries now
had higher interest payments on their debt.

IMF AND NEOLIBERALISM

 IMF provides loans in exchange for structural adjustment programs (SAPs)
o Conditions that were attached to the loans
o Deregulate, lower taxes,
 Forced countries to adopt free market policies to attract foreign corporations
 Globalization of production
 Marks the shift to neoliberalism in developing countries

CONSERVATIVE GOVERNMENTS AND NEOLIBERALISM

 Volcker shock recession hurts Keynesian governments
 Leads to election of conservatives
 They implement free market policies
 Voters chased out Carter, oil prices going up, inflation going up,
o Carter one term president
 Part of the conservative movement
 Turning point into neoliberalism in Canada, US
o Lower taxes, cut to social programs, privatization, shift to free market
 These governments bring back free trade
 Pendulum swings back more to the right
o Still have social programs, progressive taxes,
o But now some people argue that free market has once again gone too far

LECTURE 4: FINANCIAL LIBERALIZATION AND THE

OFFSHORE WORLD
1. The Liberalization of Financial Markets
a. Capital mobility
b. Financial deregulation
2. The Growth of the offshore world
3. New financial instruments and actors
4. The rise of mass investment

FINANCIAL LIBERALIZATION
 Collapse of Bretton Woods and end of capital controls
o President Nixon
o Creates capital account liberalization
 Investment money flows across borders
  Led to globalization of finance with more money moving across borders
 Investors used computers and technology to skirt capital controls

The Euro is the exception to today’s Mundell Fleming thesis

 Common currency
o Fixed exchange rate
o No central bank
 Given up ability to stimulate out of a recession

FINANCIAL LIBERALIZATION
 Deregulation of domestic financial markets
 Reagan deregulation in 1980s
 Allowed commercial banks to make more high risk investments
 Savings and Loan crisis where allowing the banks to take higher risk loans didn’t work
out
o But didn’t stop overall deregulation

FINANCIAL LIBERALIZATION
 Financial deregulation continued under Bill Clinton
o A democrat
o Key goal of think tanks: deregulating finance
 Financial Services Modernization Act (1999)
o Repealed New Deal era Glass-Steagall Act
o Allowed mergers between commercial and investment banks
 Bank runs in the Great Depression
 Insurance, commercial, banks allowed to merge
 Would lead to a domino effect if one fails.
 Led to bigger banks and more risk taking
o Monopoly power
o Too big to fail
 Huge effect on economy
 Banks are a systemic risk to the financial system
o Banks can make bad choice knowing there’s no consequences
 A problem of moral hazard
 Higher risk, higher reward.
 Can contribute to a financial crisis
 2008
 Banks who were deregulated taking excessive risk with subprime
mortgages knowing they would be bailed out
 Government financial bailout
 That’s why the housing crash didn’t happen in Canada
 Canadian banks more highly regulated even though we only
have a few big banks
 Bigger systemic shift away from Keynesian
  Pro: banks compete internationally

FINANCIAL LIBERALIZATION
 Commodity Futures Modernization Act (2000)
 Deregulated use of specialized financial instruments called derivatives
o Allow banks and other investors take a huge amount of risk
 Led to even more risk taking by banks and investors

Higher levels of regulation prevented banking crises. Did it go too far? Stifling competitiveness,
profits

THE OFFSHORE WORLD (4)

1. Export processing zones
2. Offshore tax havens
3. Offshore financial markets
4. Flags of convenience

THE OFFSHORE WORLD

 Characterized by low taxes, regulations and government oversight
 Legal construct within states where normal laws don’t apply
 A lot of the offshore world is a legal realm, not an island

EXPORT PROCESSING ZONE

 Special economic zone within a country where taxes and regulations are lower
 1982 Developing country debt crisis, IMF forces countries to open up and attract foreign
investment/capital
 E.g. Maquiladoras in Mexico
 Used to attract TNC investment

OFFSHORE TAX HAVEN

 Lower taxes for foreigners
o Can still make money because so many corporations will relocate
 E.g. Cayman Islands
 Firms/wealthy can relocate on paper with nameplate residence
o Corporations have headquarters in Cayman Islands
o But it’s just a mailbox
o No staff are moving
 Pay lower taxes of their home country
 E.g. Walmart has 78 subsidiaries and 76 billion in tax havens, 0 stores

OFFSHORE FINANCIAL MARKETS

  Nameplate residences for corporate HQs
 Allows company to be subject to much lower regulations of the offshore market
 Can therefore follow lower standards and take more risks
 Offshore financial market is more about regulations
 Offshore tax havens are more about taxes

FLAGS OF CONVENIENCE
 Like a nameplate residence for ships
 Foreign ships fly another country’s flag to benefit from lower taxes and regulations
 E.g. Panama, Liberia, Bahamas
 Paul Martin
o Registered in Liberia, didn’t fly a Canadian flag
o Obey different labor laws
 Lower wages, maintenance, regulatory costs
 Some are even land-locked countries
 Almost all big shipping companies are registered in the flags of convenience countries

NEW FINANCIAL INSTRUMENTS AND ACTORS

 Financial innovation also leads to a less regulated financial system
 New instruments and actors are harder to regulate
 When a whole new industry emerges, there simply aren’t regulations in place

 Shift from bank loans to securities

o E.g. stocks and bonds
 Securities are more liquid
o This means money can move faster
o Greater risk because of herd behavior
 You can panic better
 Drive prices down quickly, stock market crash
o Increased speed at which money can move across borders
 Allowed financial institutions to get around existing regulations

NEW FINANCIAL INSTRUMENTS

 Growth of derivatives
 Specialized financial contracts which are derived from an underlying asset
o E.g. options and futures
 Used to hedge risk
 Used to speculate
 Main purpose is to reduce risk
o How it’s meant to work
o But it can also be used to speculate
 Almost gambling
Since the commodities deregulation act, the use of derivatives skyrocketed

So complicated that it’s hard to tell how much risk you’re even exposed to

NEW FINANCIAL INSTRUMENTS

 Futures contracts
 Contract to buy or sell an underlying asset at a future date
o Like you’re selling an I owe You
 Allows someone to sell an asset which they don’t yet own

SHORTING/SHORT SELLING
 Profit from falling asset prices
 Sell high first, then buy low

Now
 Stock at $10/share
 I sell you a futures contract for 100 shares at $10/share = $1,000
 You pay me $1,000 and I give you the contract which promises to give you 100 shares in
3 months

3 months later
 Stock at $5/share
 I buy 100 shares at $5/share = $500 and give them to you
 You paid me $1,000, so I make $500 profit

Flip side:
 Stock at $20/share
 I buy 100 shares at $20/share = $2,000 and give them to you
 You paid me $1,000, so I lose $1,000

SHORT SELLING
 With short-selling, potential loss is unlimited
 With normal investing, can only lose the amount invested
 Short-selling with derivatives massively increases risk
 Derivatives on derivatives on derivatives
 Almost impossible to tell how much risk they’ve been exposed to
 Subprime mortgage
o Selling and giving out mortgages
o Risk of defaults high
o Giving out more mortgages, sell it to foreign investors
o Derivatives allowed banks to convert something that was not liquid, into
something liquid
 Lots of banks across the world bought these derivatives
OTHER DERIVATIVES
 E.g. mortgage backed securities
 Combine less liquid assets (mortgages) into an overall contract that can be sold
 Played a role in the US housing bubble

Securities bring prominence to new financial actors

NEW FINANCIAL ACTORS

Institutional Investors
 Institutions which invest money on behalf of individuals
o Pension funds and mutual funds
o Fidelity Investments, Ontario Teachers’ Pension Plan
 First 15 years of deregulation, from 1981 3.2 billion to 21.4 trillion
 Managing ever larger pools of money

Hedge Funds
 Unregulated form of mutual fund that caters to firms and wealthy investors
 Why are they less regulated?
o Located in offshore financial markets
o Their customers are wealthy firms and companies
 Not managing average people’s pensions
 So because of this, governments have looked away
 Won’t bail out
 Their clients can take care of themselves
 Use short-selling
 Use leverage
o Borrowing money to make investments
o Speculating with borrowed money
o Mutual funds and pension funds are not allowed to use leverage
 Take much greater risks
 LTCM crisis
o Long Term Capital Management
o Almost broke the global financial system
o 1990s, 4.7 billion in assets
o Leveraged up to a $1 trillion
o Started to go wrong
o Borrowed so much if that if they didn’t pay it back to banks
 Banks would collapse
 1 firm could expose so much risk
o Too big to fail
THE RISE OF MASS INVESTMENT
 Over 50% of the population now owns a stake in the stock market
 Contributed to growth of institutional investors
 1935 11% Americans own stock
 1983 = 19%
 2005 = 52%

THE CAUSE OF MASS INVESTMENT

 Shift from defined benefit to defined contribution plans
o Everyone had to learn how to invest
 Shifted risk and control over saving for retirement to workers
 1984 70% defined benefit programs
o 2000 = 50%
 1984 30% defined contribution plans
o 2000 = 50%

FORDISM AND CULTURE

 Mass production, standardization and suburbia, modern architecture
 Fordism and nuclear family

THE RISE OF MASS INVESTMENT

 Economic changes lead to cultural changes
 Mass investment led to a mass investment culture
 Sociological component

MASS INVESTMENT CULTURE

 Investment clubs
 Express identity through investment
 Boy scout badge for investing
 Financial literacy
 Green funds
 You start to see the world through the lens of an investor
LECTURE 5: FREE TRADE, GLOBALIZED PRODUCTION
AND BUSINESS-LABOR RELATIONS
1. Postwar Protectionism
2. The shift to free trade and globalized production
3. The shift in corporate governance and business labor relations

PROTECTIONISM
o Opposite of free trade
o Government intervention to protect domestic industries
o Tariffs: tax on imports

o Non-tariff barriers
o Quotas
 Countries only allow x of cars imported
 Establish ceiling on the number of items allowed in
o Subsidies
 Giving money to domestic companies to help them compete
 Tax breaks to lower cost
 Grants for research and development.
o Buy American government procurement
 Government as a customer buying things
 Military
 Fighter planes, destroyers, automobiles, buildings
 Government can put in a requirement that forces companies to source
from American companies
POST WWII-ERA
o Absence of free trade
o Period of protectionism
o Bretton Woods failed to establish ITO, International Trade Organization
o 1947 General Agreement on Tariffs and Trade (GATT)
o Not a trade agreement
o Trade process
o Rounds of negotiations
o Slowly lowering tariffs through successive negotiating rounds

POST-WWII ERA IN CANADA

o Trade still guided by National Policy of 1878
o High tariffs and open investment policy
o Protect infant industries
o Move away from natural resources
o Attract branch plants
o No industry to protect
o Open investment + high tariffs = branch plant economy
o Logic was to get factories and jobs and corporate taxes into Canada
o Global competition forced all sorts of auto companies to build factories in Canada

POST-WWII ERA
o Many countries had tariffs and attracted branch plants
o Led to the growth of MNCs
o Set up factories to get around tariffs and sell to local market
o Same thing as import substitution industrialization

THE SHIFT TO FREE TRADE

o Firms moved to developing countries in response to stagflation and high wages, taxes and
regulations
o Debt crisis (developing country debt crisis, Volcker shock), IMF and creation of export
processing zones
o IMF forced structural adjustment programs in response for loans to developing
countries
o Goes hand in hand because MNCs wanted to move abroad
o Increased demands for free trade
o MNCs increased movement to developing countries
o And MNCs began to demand removal of tariffs, advocate for free trade

REGIONAL FREE TRADE DEALS

o Canada-US Free Trade Agreement (CUFTA)
o North American Free Trade Agreement (NAFTA)

GLOBAL FREE TRADE

 o Uruguay Round of GATT
o 1986-1994
o Finalized the shift from protectionism to free trade

URUGUAY ROUND
o Expanded tariff reductions for textiles and agriculture for developing countries
o Two of the developing countries’ major exports
o Wanted access to sell in developed countries, tariff free

URUGUAY ROUND
o General Agreement on Trade in Services
o GATS
o Reduced tariffs in the service sector
o Mainly desired by industrialized countries
How do you put tariffs on services?
o Consulting, Accounting etc

URUGUAY ROUND
o Knowledge-based industries
o Pharmaceuticals
o Software
o Cultural products
 Hollywood movies
o GMOs
 Genetically modified organism
o High R&D costs
o High upfront cost
o Cheap and easy to copy
o Knockoffs
o Reverse engineer medication
o Difficult for manufacturer to recoup R&D costs
o Creates need for intellectual property right

URUGUAY ROUND
o Intellectual property rights
o Copyrights, patents and trademarks

URUGUAY ROUND
o Copyrights and patents did not apply across borders
o Led to illegal copies
o Burger King rebranded as Hungry Jacks in Australia
TRIPS
o Trade related intellectual property rights
o International recognition of property rights and patents

Controversy: Pandemic vaccines. Should developing countries ignore property rights?

URUGUAY ROUND
o Investor Property Rights
o Prevent nationalization by government
 Cuban revolution
 Castro nationalized MNCs and didn’t pay for them
o Foreign investor protection agreements FIPA
 Neoliberals wanted property rights in Constitution and Bill of Rights
 By putting property rights in international trade agreements, its similar
to putting it in the constitution
 Issue of where a government could pass an environmental law, and MNCs
can say that it hurts their rights, and that it should be struck down
o Allows firms to sue governments directly
o Investor to state dispute settlement ISDS
 Companies can sue governments
 Controversial
 Once you privatize a portion of healthcare, you can’t nationalize

URUGUAY ROUND
o Created WTO
o 1995
o Combined all previous GATT agreements into a single undertaking
o All or nothing
o You can’t cherry pick which sub-agreements you want to be in

o Created permanent institutional structure

1. Oversee negotiations
2. Monitor compliance
o Canadian vs American softwood lumber
3. Dispute resolution court
o Take the offending country to a trade tribunal as opposed to a national
court

PROTECTIONISM
 Protectionism
 Forces branch plants to get inside tariff wall
 Sell to local market
FREE TRADE
 Free trade
 Tariffs removed
 Countries make products and sell them to each other

GLOBALIZATION OF PRODUCTION
 Globalization of production and supply chains
 International division of labor and global assembly line
 Locate different parts of production process based on business conditions
 PC supply chain
 Industrialized countries in charge of designing
 Manufacturing in NIC
o Low labor cost, technical skill still relatively high
 Assembly in another country
o Low wages, more straight assembly line
 Marketing is back in the industrialized country

MNCs and TNCs

 Multinational Corporation
o Associated with protectionism
o Locates branch plants to produce for local market
 Transnational corporation
o Associated with free trade and global production
o Locates factories in other countries to produce for world market

CORPORATE OWNERSHP/GOVERNANCE
 How corporations are governed
 Nature of relationship between owners and managers
 Technical issues such as board organization, management pay, company charter, etc

THE BERLE-MEANS MODEL

 Large number of small, individual shareholders
 CEO/management runs company
 Board oversees management
 Shareholders vote on key decisions/board

THE BERLE-MEANS MODEL

 Reality was that modern corporation was characterized by managerial autonomy
 Shareholders had little influence over management for 3 reasons
1. Unconnected shareholders don’t organize votes
2. Own shares in many companies, therefore, can exit rather than voice
3. Compliant boards rubber stamp CEOs
 Because CEOs nominate the board
 CEOs basically appointing other CEOs
THE RISE OF INSTITUTIONAL INVESTORS
 Growth of mutual and pension funds
 Invest heavily in stocks
 Replace individual shareholders with institutional shareholders
 Change nature of corporate governance

DECLINE OF MANAGERIAL AUTONOMY

 CEOs no longer able to do what they want due to
o Centralization of share ownership
o Firms now owned by small number of large shareholders
o Fund managers pay attention and vote

Individual investors -> fund managers -> board of directors -> CEO + Management

SHORT TERM PRESSURES

 CEOs were autonomous because they weren’t under pressure to perform short term

 Fund managers under pressure to boost fund in short term due to

o Even though the money seems like it should be long-term
o The industry is so competitive that they have to ensure their funds perform very
strongly
 Some mutual fund managers have month long, short term contracts

o Competition for customers

o Quarterly evaluations
o Short term contracts

SHORT-TERM PRESSURES
 Fund managers then pressure CEOs for short-term boost in stock
o Increase shareholder value
 Get stock price up
 Use voting power
o To fire CEO, era of autonomy was gone
 Use stock options to link CEO pay directly to the share price
o CEO have material incentive to raise stock price

SHORT-TERM PRESSURES
 CEOs focus on cost-cutting
o Layoffs
 Put pressure on company to lower labor cost
o Cut wages and benefits
o Squeeze suppliers
  Use savings for share buyback to boost stock price

Problems: not reinvesting in the company. Cutbacks to R&D.

BUSINESS-LABOR RELATIONS
 Free trade and shareholder value shift bargaining power from employees to firms
 Labor relations move in a more pro-business direction

BUSINESS-LABOR RELATIONS
 Free trade causes many manufacturing jobs to move to Mexico, China
o Wages, taxes, regulatory costs
o Forced to move because competitors are moving
 Not about the individual CEOs, but rather the incentive structure that’s
created
 Unionized manufacturing jobs replaced by non-unionized service jobs
o E.g. retail

BUSINESS-LABOR RELATIONS
 Firms moving jobs creates pressure to be more competitive
 Governments adopt more pro-business labor laws
o Right to work laws
o Harder for unions to organize/strike

BUSINESS-LABOR RELATIONS
 Decline of manufacturing and pro-business labor laws leads to decline in unions
 Threat to relocate gives firms more bargaining power
o E.g Caterpillar, GM

BUSINESS-LABOR RELATIONS
 Shift in bargaining power leads to more labor flexibility
o Contrast to Fordist rigidity
 9-5 job
 Work at the Factory for their whole life
 Less permanent, full-time employees
o Extreme end = gig economy
 More part-time, temporary and self-employed contract workers

LECTURE 6: THE DEBATE OVER FREE TRADE

1. Liberal
2. Progressive
 3. Neoliberal
4. Populist Conservative

THE CLASSICAL LIBERAL VIEW IN FAVOR OF FREE TRADE

 Free trade increases efficiency
 Gives firms access to larger markets
 Free trade increases overall amount of production

ADAM SMITH AND FREE TRADE

 Adam Smith, The Wealth of Nations 1776
 Absolute advantage
o Better than protectionist policy
 Based on specialization

SPECIALIZATION
 Each worker specializes in a particular job
 Increases productivity by allowing each worker to become more efficient at their tasks
 Specialize in area of absolute advantage
o Something you’re good at
o E.g. natural resources
 Pineapples in Ontario

ECONOMIES OF SCALE
 Cost savings that result from producing on a bigger scale due to a bigger market
 Bigger market means that producers can spread out fixed costs over a larger number of
units

FREE TRADE, SPECIALIZATION AND ECONOMIES OF SCALE

 Free trade means more people and bigger markets
 Allows for greater specialization and economies of scale

FREE TRADE AND ABSOLUTE ADVANTAGE

 Countries can specialize in their absolute advantage
 Based on climate, skills of labor force, etc.

DAVID RICARDO AND COMPARATIVE ADVANTAGE

 Would a country still benefit from trade if it had an absolute advantage in all products
 Ricardo said yes based on the theory of comparative advantage
 Ricardo = Principles of political economy
 Even if a country had an absolute advantage in everything, it is still in their interest to
trade

Before trade
  England
o X amount of cloth with 100 workers
o 120 wine
o 0 surplus
 Portugal
o X with 90 cloth workers
o X with 80 wine workers
o 0 surplus
 Portugal has the absolute advantage
 Trade would result in more cloth and wine
 Country should specialize in areas with the most comparative advantage
o Compared to the other product, not the other country
 Comparative advantage – can produce 1 product better than it could produce another
product

 England should produce cloth

Specialized in product of comparative advantage

 England
o X amount of cloth with 200 workers
o 0 wine
o 20 surplus
 Portugal
o 0 cloth workers
o 160 wine workers
o 10 surplus
 Overall produce 10% more cloth
 More 6.25% wine

TRADE, GROWTH AND DEVELOPMENT

 Trade promotes efficiency and growth
 GDP per capita
 Trade promotes development in emerging markets
o Investment and technology
o China, India,
 Evidence supports this
 Free trade also supports democracy and peace
o The Dell theory, interdependence

TRADE AND DEMOCRACY

 In developing countries, trade promotes middle class
  Middle class uses economic power to demand democracy and human rights

TRADE AND PEACE

1. Democracies less likely to fight each other
a. Average people generally only vote to fight defensive wars
2. Interdependence makes war more economically costly

Progressives are most in favor of conscription because it has to be a war of necessity and so the
sons of congressmen and women have to go to

THE PROGRESSIVE VIEW

 In the 1980s/90s, progressives opposed free trade
o Anti-globalization movement
 Concerned free trade would lead to globalized production
o You don’t just have free trade, you have factories moving around
 Jobs would move to low wage developing countries

THE PROGRESSIVE VIEW

 Globalized production did cause many well paid, unionized manufacturing jobs to move
to Mexico and China
 Partially caused by technology
 But you can really see the drop in manufacturing in Ontario, auto sector moving to
Mexico

THE PROGRESSIVE VIEW

 Progressives also concerned that globalized production creates policy competition
 Countries are forced to compete for jobs with lower wages, corporate taxes, and
environmental regulations
 Increases inequality
 Competition leads to lower tax rates
 Union membership drops from 1948 to 2004
 What is the competitiveness of your policy requirement?
 Canada can’t implement a carbon tax because if Americans don’t do it too, we’re at a
competitive disadvantage
o Under a free trade environment, lots of little tax increases will force companies to
leave your country
Puts pressure on countries to adopt pro-business policies in order to attract those jobs and
factories

THE PROGRESSIVE VIEW

 WTO’s Trade Related Intellectual Property Rights go too far
  Gives monopoly rights to drug companies that go beyond decent profits
 Much higher drug prices hurt patients
 How long should the patent last?
 Intellectual property rights favor business too heavily
o Basically a monopoly

THE PROGRESSIVE VIEW

 Similar issues in biotech
 Monsanto able to patent traditional seeds and then charge for their use
o Go into developing countries
o You can cross breed without having to be a scientist
o Local farmers had been cross breeding for centuries
o Monsanto reverse engineers
o Local farmers don’t have a patent on it
o Write down the formula
o Patent it
o And force farmers to pay licensing fees
 Patents on gene sequences
o Discovering as opposed to inventing DNA sequences
o Do you own it if you’re the first to discover it

THE PROGRESSIVE VIEW

 Investor property rights go too far
 Lawyers expand anti-nationalization clauses to any policy that hurts profits
o Quasi-constitution
o Lawyers argue that something is the equivalent of nationalization
 Allow firms to sue governments
 NAFTA’s Chapter 11
o The Investor’s weapon of choice

THE PROGRESSIV VIEW

 US Ethyl Corp sues Canada over ban on MMT
 Canada forced to pay and repeal regulation
 Main issue is regulatory chill
o Self censorship
o Government won’t even implement the regulation in the first place

 Chapter 11 of NAFTA about investor property rights

 Trade dispute panel
o Trade experts, not judges
o Canada knew that they would lose the case, so they decided to settle out of court
  Canada paid company $13 million in damages
 Established a precedent
 Completely unrelated to trade, but company still won and argued that by hurting that
business, and hurting its profits, it was the equivalent to nationalizing the business
 Laws that could be struck down

NEW PROGRESSIVE VIEW

 Shift from anti-trade to inclusive or progressive trade
 Minimum standards on taxes, labor, and environment in trade agreements
o Offset policy competition
 Aim is to prevent governments from lowering standard to compete for business and jobs
 Reversing free trade is almost impossible
 Embedded in the system
 Regulation at national level, economy at international level
o Bring national control up
o Bring democratic control up to prevent policy competition

THE NEW PROGRESSIVE VIEW

 As progressives gain influence, centre-left parties adopt progressive trade and social
globalization
o Trudeau’s progressive trade
o Biden’s minimum corporate tax
o Climate change agreements

THE NEOLIBERAL VIEW

 Seeks to lock in free market policies with constitutional provisions
 Agrees trade agreements can lock in free market policies
 First, investor property rights can be used to overturn or prevent intervention
 James Buchanan
 Putting property rights into the Canadian Charter of Rights

Support all the classical liberal arguments. But the icing on the cake is the lock in by free trade
agreements

THE NEOLIBERAL VIEW

 Second, agrees that free trade creates policy competition and pressures for free market
policies
 Creates structural constraint on centre left governments which they support

THE NEOLIBERAL VIEW

 Opposes progressive trade and social globalization
  Minimum standards offset policy competition and reduce the constraints on governments
and unions
 Use nationalist arguments against global governance
o Protect sovereignty
o Use nationalism to own advantage
o Used to be progressives making the nationalist argument

Reversal: libertarians have become almost anti-globalization, against social globalization and
progressive trade because it offsets policy competition

THE POPULIST CONSERVATIVE VIEW

 Agree with progressives that free trade hurts blue collar workers
 Views trade and immigration as part of globalist agenda by corporate elites
 Advocate for strong nationalism including protectionism and anti-immigration

THE POPULIST CONSERVATIVE VIEW

 Donald Trump represents populist conservative faction of Republicans
o Pulls out of TPP
o Renegotiates NAFTA
o Trade war with China
o Strong focus on immigration
 BREXIT
o Left opposed to EU common market
o Now it’s the Right who’s opposed
o EU, social globalization, everyone flipped sides

LECTURE 7: JOBS AND COMPETITIVENESS

1. The Free Market Approach to Jobs and Competitiveness
2. Critiques of The Free Market Approach
3. The Interventionist Approach to Jobs and Competitiveness
4. Critiques of The Interventionist Approach

DEFINING COMPETITIVENESS
 Free trade/globalized production means companies can move across borders
 Countries now have to compete for companies, entrepreneurs, and jobs
 Must provide a strong business climate

DEFINING COMPETITIVENESS
 Countries compete based on
 o Tax, subsidy, and regulatory policies
 Policy competition
o Worker wages/skills
 Highly skilled workforce
 How unionized
o Infrastructure
 Firms and entrepreneurs rank countries and decide where to invest

FREE MARKET APPROACH

 Overall approach
 Neutral approach
o Policy government uses should focus on business as a whole instead of targeting
 E.g. corporate tax cut for all
 Policies to promote and attract business as a whole rather than targeting specific sectors
 Across the board free market policies

FREE MARKET APPROACH

Trade
 Starts with support for free trade and opposition to protectionism
 Supports the policy competition free trade creates to promote pro-business economic
freedom

Taxes
 Lower corporate taxes to compete for companies
 Lower income taxes to compete for entrepreneurs and prevent brain drain

Subsidy
 Opposes subsidies as a non-neutral form of government intervention
 Opposes using government procurement to support specific companies
 Opposes bailouts

Regulations
 Want lower regulations and red tape to compete for companies
 Cut environmental regulations that increase compliance and energy costs

Labor Policy
 Wants less pro-union labor policy to compete for companies
 Education and training needs to be more practical and targeted to business needs
o E.g. skilled trades

Entrepreneurs
 Lower income taxes
 University education focused more on business and STEM
  Strong intellectual property rights
 Less regulations on venture capital
o Dragon’s Den/Shark Tank
o Investing in start-up
Immigration
 Economically oriented immigration policies
 Priority given to:
o Investors/entrepreneurs
o Skilled trades
 Less focus on family reunification and refugees

Infrastructure/Public Goods
 Prioritize more traditional infrastructure that benefits all business
o Rail
o Ports
o Highways
o Telecommunications
o Utilities

CRITIQUES OF THE FREE MARKET APPROACH

 Focuses on growth not distribution
o Idea that you could say free trade is good for Canada
o Possible for free trade to increase inequality while increasing GDP
o Head in the freezer feet in the fire
 Ignores geographic distribution
o Factory town
 Nothing guarantees jobs will locate in a particular region or country

CRITIQUES OF THE FREE MARKET APPROACH

 Neoliberals believe if jobs don’t come to workers, they can move to jobs
 Views people as units of production
 Ignores labor mobility and immigration issues

CRITIQUES OF THE FREE MARKET APPROACH

 Attracting jobs with free market policies hurts quality of life

o Lower taxes = less government services
o Lower regulations hurts environment, safety
o Weaker unions = lower wages
CRITIQUES OF THE FREE MARKET APPROACH
 Other countries are using government intervention
o China’s state owned enterprises
o US military spending
 Creates a rationale for Canada to intervene as well

INTERVENTIONIST APPROACH
 Industrial policy
 Targeted rather than neutral approach to promoting and attracting business
 Target specific sectors
 Picking winners

INTERVENTIONIST APPROACH
 Government picks specific industries to help
o Existing industries where the country already has an advantage
o Emerging industries where country could create advantage
 E.g. genetic modification
 Where no country has an advantage yet

INTERVENTIONIST APPROACH
Trade
 In the past, has been open to targeted protectionism
o E.g. free trade but not in autos
 Support infant industries
 Attract branch plants
 Less popular today

Taxes
 Targeted corporate tax cuts only (to preserve government revenues)
o Focus on trade exposed firms that could leave
o tax credits for specific sectors
 use non-tax policy to compete for entrepreneurs

Subsidies
 targeted subsidies to attract firms to specific regions
 e.g. economic development agencies provide targeted
o grants
o energy price breaks
o low interest loans
o consumer subsidies
Bailouts
 targeted bailouts for anchor firms
 prevent loss of firms that anchor whole industry and or towns
o auto bailouts during the recession
o bombardier

Government Procurement
 Targeted procurement
 Use government purchasing to support targeted industries
o Hybrid vehicles for government cars, public transit
o Defense procurement

Infrastructure
 Greater focus on attracting talent rather than just firms
 Quality of life as well as traditional infrastructure
o Cultural infrastructure
o Environmental policy
o Childcare, parental leave
 E.g. Amazon HQ 2

Immigration
 Economic focus and…
 More openness to family reunification to attract talent
 Multiculturalism and diversity policies as quality of life policies

Entrepreneurs
 Entrepreneur assistance programs
 Provide capital, mentorship, networks, business services
 Incubators, accelerators, and export promotion

 Incubators help entrepreneurs start companies

 Accelerators help small companies scale up
 Export development Canada is government agency that helps SMEs export

Business cluster
 Geographic concentration of connected firms, suppliers, and institutions in one sector
 Silicon Valley
 Wall St, Bay St

 Business clusters create local positive externalities or network externalities

 Advantage of being near other similar firms
 Helps attract more firms
Hard to challenge once another country has this cluster
When new clusters are emerging, that’s where you want to target industrial policy

 Creates incentive to promote clusters

 More targeted form of industrial policy
o Sector and place
 Coordinate policies to build on existing and emerging clusters
 E.g. Waterloo and Blackberry

4 CRITIQUES OF INDUSTRIAL POLICY

 Reduces pressure for free market policies
o Neoliberals want free market policies for all firms and not just trade exposed
firms
 Doesn’t work
o Governments not good at picking winners

 Distorts markets
o Props up failing firms
o Diverts resources away from successful firms
 Targeting often driven by political not economic criteria
o Voters and donors
o Ideological projects

LECTURE: BUSINESS AND CANADIAN FEDERALISM

1. The Basics of Federalism
2. The Neoliberal Approach to Federalism
3. The Keynesian Welfare approach to Federalism
4. Business vs Activists in Canadian Federalism

DEFINITION OF FEDERALISM
 At least 2 levels of government rule the same land and people
 Contrasts with unitary government
 Each level is enshrined in constitution so neither can abolish the other
o Municipals/Cities can be dissolved, not enshrined in the Constitution

FEDERALISM IN CANADA
 Constitution includes national government and provinces
 Municipalities are creation of provinces
  Constitution outlines division of powers
 Supreme Court and judicial review

DIVISION OF POWERS
 Federal
o National defence
o Criminal law
o Employment insurance
o Trade and foreign affairs
o Money and banking
o Transportation
o Aboriginals
 Provinces
o Health
o Education
o Welfare
o Environment
 Carbon tax, infringed on provincial, but ruled as constitutional because
Federal has jurisdiction over taxation
o Municipalities
o Property and civil rights
o Admin of justice

WHY FEDERALISM?
1. Greater diversity of policies
a. E.g. Quebec vs English Canada
b. US red vs blue states
2. More democratic as governments are closer to people
3. Decentralization of power
4. Policy experimentation
a. E.g. healthcare started at provincial level
b. Guaranteed annual income

NEOLIBERAL APPROACH
 Free markets and less government
o Lower taxes
o Fewer social programs
o Less regulation
 Markets efficiently allocate resources
 Markets promote freedom due to exit option
NEOLIBERAL CONSTITUTIIONALIISM
 Use constitution and judicial review to lock in free market politics
o Property rights in the charters or bill of rights
o Balanced budget amendments

NEOLIBERAL FEDERALISM
 Use federalism to lock in free market policies
1. Centralize pro-business powers related to internal trade
o Provinces would not have the ability to
 No capital controls at the provincial level
 Free trade within Canada
 More power to maintain economic union to the federal government
o Creates exit option within country
2. Decentralize tax, social spending and regulatory powers
o Create policy competition
o Force provinces to compete for mobile investors with lower taxes and regulations
o Mirrors the approach to free trade
o Lock in pressures for jurisdiction to lock in free market policies within 1 country

NEOLIBERAL FEDERALISM
 Also known as
o Market preserving federalism
o Competitive federalism
 Federalism is key battleground over economic policy

SOCIALLY CONSERVATIVE FEDERALISM

 Most prominent in US
 Sought to go against federal civil rights policy by demanding states rights
 Today is about gay marriage, gun control, immigration
 10th Amendment
o Residual powers
o Powers not delegate to the federal government are reserved to the states

KEYNESIAN WELFARE APPROACH

 Government intervention to reduce inequality and correct market failures
o Higher taxes
o More social spending
o More regulation of business
 Social democracy

KW CONSTITUTIONALISM
 Most simply oppose neoliberal constitutionalism
 Some want to put economic, social and environmental rights in constitution
 o Right to health care
o Guaranteed annual income
o Right to clean air and water
 Left is usually advocating for positive rights, conservatives advocating for negative rights
o Positive rights are harder, require the government to do something

KEYNSIAN WELFARE FEDERALISM

 Opposes neoliberal federalism
 Believes in national free trade
 Also wants national approach to many taxes, social programs, and regulations
 Prevent policy competition

CANADIAN FEDERALISM
 Main politics in Canadian federalism are
o Provinces vs Feds
o Region vs region
 However, left vs right is also significant

FEDERALISM AND THE WELFARE STATE

 PM Bennett’s new deal in Canada
o EI
o Public health care
o Public pensions
 Struck down by courts for treading on provincial jurisdiction
 Cost shared programs

FEDERALISM AND THE WELFARE STATE

 More centralized
 Feds create programs in provincial jurisdiction
 Health care, post-secondary education, welfare
 Cost shared programs
1982 CONSTITUTION ACT
 Trudeau Sr brought constitution home from Britain and added Charter
 Parti Quebecois in Quebec refused to sign on
o Separatist government
 National Energy policy alienates the West
o Canada should get a cut in the oil revenue from Alberta

1982 CONSTITUTION ACT

 Business sponsored Fraser Institute lobbied for
o Decentralization of tax and spending powers
o Including balanced budget amendment in Charter
1987 MEECH LAKE ACCORD
 Set of constitutional amendments to appeal to Quebec
 Distinct society and greater control over immigration and Supreme Court
 Wanted an opt-out from cost shared programs
o Would have been just federal government just giving money
o Worry was that it would lead to massive decentralization and lead to policy
competition
o So outside of Quebec, a lot of Canada opposed this, liberal/NDP

1987 MEECH LAKE ACCORD

 Accord was very decentralizing
 Business lobby hroups supported it
 Uniions and activists opposed
 Many provinces began to oppose, and it failed

1992 CHARLOTTETOWN ACCORD

 Wider range of issues led to proposals from business
o Property rights in Charter
o Right of business to sue provinces for trade barrier such as regulations
o Opt out of cost shared programs
 Opposed by unions and activists

1992 CHARLOTTETOWN ACCORD

 Many business proposals not included
 1992 national referendum failed
 Led to break up of Conservatives
o Bloc Quebecois
o Reform Party

1995 QUEBEC REFERENDUM

 Charlottetown and election of Parti Quebecois
 1995 referendum on separation
 Canada almost lost

1995 FEDERAL BUDGET

 Paul Martin’s deficit fighting budget
 Cut transfers to provinces for cost shared programs
 Led to greater decentralization of social policy
LECTURE: THE ANTI-CORPOROATE MOVEMENT
1. Roots of the Anti-Corporate Movement
2. Origins of the Contemporary Anti-Corporate Movement
3. Brand-Based Activism
4. No Logo video

ROOTS OF THE ANTI-CORPORATE MOVEMENT

 Started with trade unions before depression
 With welfare state, economic inequality was less of an issue
 1960s: various mass social movements emerge
o Because labor movement had succeeded, focus on other movements

ROOTS OF THE ANTI-CORPORATE MOVEMENT

 Peace movement
 Civil rights movement
 Women’s movement
 Environmental movement
 Consumer protection movement

ROOTS OF THE ANTI-CORPORATE MOVEMENT

 Student-led movements as baby boomers hit university
 Role of television
o Information spreading rapidly over TV
o Vietnam
 Postwar affluence and growing focus on non-economic issues

PEACE MOVEMENT
 Anti-nuclear weapons
o Cold war
o 1962 Cuban Missile Crisis
 Anti-Vietnam
o High casualties
o Conscription
 US conscription
 University students didn’t have to go
o Televised

CIVIL RIGHTS MOVEMENT

  MLK, racial equality
 Anti-segregation
o Brown v Board of Ed

 Anti-discrimination
o 1964, 1968 Civil rights Acts
 Housing and employment
 Anti-voter suppression
o 1965 Voting Rights Act
o Allowed federal government to prevent states to use anti-voting laws
o SCC recent decision on Voting Rights Act not as required today as before

WOMEN’S MOVEMENT
 Betty Friedan The Feminine Mystique
 Gloria Steinem
 Second wave feminism
o First wave = right to vote
o Second wave = birth control, sexual revolution
 The pill and sexual revolution

ENVIRONMENTAL MOVEMENT
 Rachel Carson’s Silent Spring on DDT
o DDT = pesticide
 Gave rise to environmental movement
 Shift from conservation to pollution/health and resource limits

CONSUMER PROTECTION MOVEMENT

 Ralph Nader and auto safety
 Ford Pinto
o Recall was more expensive than fixing the problem
 GM’s actions against him and lawsuit
 Led to rise of consumer protection movement
 Regulations, lawsuits

COUNTER-CULTURE AND BACKLASH

 1960s mass movements were anti-establishment and socially progressive
 Led to backlash in 1970s and 80s by social conservatives
o Moral majority
ORIGINS OF ANTI-CORPORATE MOVEMENT
 Emerged in response to neoliberalism
o 1970s business mobilizes politically again
o 1980s Reagan, Thatcher, Mulroney begin shift to free trade and free markets
o 1990s left mobilizes

ORIGINS OF ANTI-CORPORATE MOVEMENT

 Began in a decentralized manner
 Different groups mobilized on different issues
o Program cutbacks
o Jobs, wages, benefits
o Deregulation
o Anti-free trade
 Trade as the underlying cause

ORIGINS OF ANTI-CORPORATE MOVEMENT

 Tipping point was 1999 Battle of Seattle
 50,000 protest WTO
 Shifted focus to the growing economic and political power of large corporations
 No Logo
o Naomi Klien

ORIGINS OF ANTI-CORPORATE MOVEMENT

 Most visible presence has been mass protests at various international summits
o G20 2011 in Toronto
 After 9/11, shifted to anti-war during Iraq war

ORIGINS OF ANTI-CORPORATE MOVEMENT

 During the Great Recession, it re-emerged as the Occupy Wall Street movement
 Response to financial crisis, cutbacks and bailouts
 1% and 99% message

BRANDING
 Build trust in company’s name
 1980s idea that companies should produce brands rather than specific products
  Shift from manufacturing to marketing

BRAND EQUITY
 Value of a company’s brand that’s independent of its other physical assets
 Phillip Morris paid 6x Kraft’s physical assets

BUILDING BRAND EQUITY

 Lifestyle marketing to create brand meaning/identity
 Create positive brand awareness with brand symbols (logos, mascots, celebs)

BRANDS MORE IMPORTANT THAN PRODUCTS

 Build brand loyalty across products
 Why brands can move into completely different product lines
 President’s Choice

BRAND EQUITY AND BRAND BASED ACTIVISM

 Branding means that firms increasingly exist in the realm of ideas
 Brand equity means firms are increasingly vulnerable in the realm of ideas
 Has led to brand based activism

BRAND BASED ACTIVISM

 Activists target a company’s positive brand image by revealing negative corporate
practices
 Shift in activist focus from governments to corporations due to their growing power

BRAND BASED ACTIVISM

 Anti-sweatshop activism
 Reveal working conditions behind brands
 1995: Year of the Sweatshop

BRAND BASED ACTIVISM

 Bring journalists to factories & vice versa
 Linked working conditions to popular brands
 Impact on stock price

INVESTIGATIVE RESEARCH
 Analysis of business practices vs claims
 Publicized through
o Reports and op eds
 o Press conferences
o Books

DIRECT ACTIONS: PUBLICITY STUNTS

SHAREHOLDER ACTIVISM
 Buy shares and ask embarrassing questions at AGM
 Make individual investors aware of corporate practices
 Pressure institutional investors to divest and pressure CEOs

ANTI-CORPORATE LITIGATION
 Sue companies for bad behavior
 Class action suits
 PG&E

MASS PROTESTS AND OCCUPATIONS

 Non-violent mass protests and occupations
 Numbers important
 Problem is sometimes lack of clear message
 Also lack of control over violent groups

THE BLACK BLOC

 Set of tactics rather than a set group
 Anti-corporate property damage

HACTIVISM
 Using computer hacking techniques against companies
o Denial of service attacks
o Reveal negative practices
 Anonymous

LECTURE: THE CORPORATE SOCIAL RESPONSIBILITY

MOVEMENT
1. Definition and types of CSR
2. Debate over CSR
3. Evolution of Corporate Codes of Conduct

DEFINITION OF CSR
 o The moral, rather than legal, obligations of a firm to its stakeholders and the fulfilment of
these obligations through beyond compliance measures
o Corporate citizenship

DEFINITION OF CSR
o Moral rather than legal obligation
o Go beyond what the law requires
o Maintain positive brand image and brand equity
o Self-interest involved, and recognizing that it’s not just about morality

DEFINITION OF CSR
o Stakeholders
o Any group, other than the firm’s management, who may be affected by, and thus
have some stake in, the behavior of an individual firm

DEFINITION OF CSR
1. Shareholders
2. Employees
3. Customers
4. Suppliers
5. Social activists
6. Local community

DEFINITION OF CSR
o Beyond compliance measures
o Measures that go beyond simply complying with what is legally required
 Corporate philanthropy
PHILANTHROPY
o Corporate charity where money, goods or services are donated to a specific charitable
cause
SOCIALLY RESPONSIBLE PRODUCTS AND PROCESSES
o Products
o Product itself promotes greater responsibility
o Green products, healthier food at fast food outlets, energy efficient appliances
o Processes
o Normal products that are made through a socially responsibly process
o i.e. fair trade coffee, ethical investing (Ethical funds)

SOCIAL AND ENVIRONMENTAL ACCOUNTING AND REPORTING

o Creating methods of measuring CSR performance
o So that you can evaluate it
 o Triple bottom line of environmental, social, and corporate governance
o Also called ESG

SOCIAL AND ENVIRONMENTAL ACCOUNTING AND REPORTING

1. Benchmarking
a. Determine variables and benchmark year
b. Measure relative performance within and between firms
2. Full-cost Accounting
a. Measure externalities and absolute performance
b. Full cost of the positives subtract the negatives
c. Inefficiency if cost of the problem outweighs the solution to the problem
i. Full cost accounting is trying to quantify the problem side

CREATION OF CSR OFFICERS AND DEPARTMENTS

o Management position or department dedicated to CSR
o Promote best practices
o Monitor CSR performance

CORPORATE CODES OF CONDUCT

o Aka voluntary codes of conduct
o A formal statement of principles or list of rules and standards that companies agree to
abide by

CORPORATE CODES OF CONDUCT

o Single company codes
o Adopted by individual companies
o Sectoral codes
o Created by sectoral industry association
o i.e. chemistry, forestry
o often is a condition of membership in the industry association
o general business codes of conduct
o created by national and international business lobby groups
 i.e. US Chamber of Commerce
o also by international organizations such as the UN
 Global Compact

CORPORATE CODES OF CONDUCT

o Self-regulatory organizations
o Industry associations for different professions
o Set own standards
o Grant credentials
o Must be a member and adhere to standards to practice in profession
o E.g. Canadian bar association
 o Stock exchange
o For a company to be listed, you have to meet the standards of the exchange,
which acts as a self-regulatory organization

CORPORATE SOCIAL ACTIVISM

o Companies go beyond improving their own behavior
o Promote social causes by putting pressure on governments
o Take business out of states pursuing certain policies
o Texas, trans bathroom bills
o Similar to policy competition, but into social activism

THE DEBATE OVER CSR

1. Neoliberal
2. Classical liberal
3. Progressive
4. Keynesian-Welfare

NEOLIBERAL VIEW OF CSR

o Opposes CSR
o Pure free market view
o Friedman
o Firms should max profits and shareholder value
o CSR interferes with invisible hand

CLASSICAL LIBERAL VIEW OF CSR

Dominant view today
o Favors CSR
o Brand-based activism creates a market incentive
o CSR better than government regulation
o Pre-emptive strategy to prevent government regulation
o Can build brand equity
o Business incentive to engage in it
o Self-interest of a business
o Not just being a do-gooder (as neoliberals see it)
o Builds goodwill with public, can’t wait until you have a problem

THE PROGRESSIVE VIEW OF CSR

o Opposes CSR
o CSR is public relations not real change
 o CSR is designed to pre-empt government regulation
o Greenwashing
o Want government regulation
o Performance turns off when spotlight goes away

THE KEYNSIAN-WELFARE VIEW OF CSR

o Supports CSR
o Better than nothing
o Extra-territorial effects
o Firms influence their suppliers in developing countries
o Corporations can achieve things that governments cant because they can push it
back through supply chain
o CSR can be effective with monitoring and verification
o Critiques of CSR were mostly first generation CSR, (e.g. painting your building
green)
o Argument that it was mostly PR and ineffective doesn’t necessarily apply to 2 nd
generation CSR

FIRST GENERATION CORPORATE CODES

o Created only by firms and their industry associations
o Too vague and aspirational
o Not specific or measurable
o No monitoring and auditing
o No public reporting or outside
o Was a PR tool in response to crisis

E.g. Nike
o No sweatshop labor
o Nike argued it was not them, it was their suppliers
o Nike stock price dropped
o Brought in a corporate code of conduct
o A year later, activists followed up
o Management in factories had never even heard of CSR
o PR crisis for Nike

FIRST GENERATION CORPORATE CODES

o Nike targeted for use of sweatshops
o Adopts voluntary code with first generation characteristics
o Code is criticized heavily and creates further PR problems

SECOND GENERATION CORPORATE CODES

o Multi-stakeholder
o More specific criteria
o Mechanisms for international monitoring and auditing
 o Mechanisms for public reporting and verification
o Enforcement through certification
o E.g. fair trade coffee, 3rd party groups monitoring and certify

SECOND GENERATION CORPORATE CODES

o Forest Stewardship Council (FSC)
o Includes forest companies, customers like Home Depot and NGOs
o Specific criteria, monitoring and certification
o Certification enforced by customer firms
o Market power

LECTURE: NEW TRENDS IN BUSINESS LOBBYING

1. Types of Business lobbyists
2. Lobbying techniques
3. Cases: Oilsands and Pipelines

TYPES OF LOBBYISTS
 Business Associations
o Business mobilized politically in response to stagflation
o Created and expanded business lobby groups
o Exists at all levels and for all sectors and some specific issues
 E.g. Canadian Chamber of Commerce

TYPES OF LOBBYISTS
 Across all levels
o Municipal and provincial chambers of commerce
o National business associations
o International business associations
o Regional associations
 Sector associations
o Represent specific industry sectors
o Monitor government policy
o Lobby governments
o Public relations
o Coordinate lobbying and PR of members

TYPES OF LOBBYISTS
 In-House Lobbyists
 o Large firms have in-house
 Government relations
 Public relations
 Media relations

TYPES OF LOBBYISTS
 Consultant Lobbyist
o Firms that specialize in political strategy and communications
 Aka strategy, GR, PR, public affairs or communications firms
o Specialist firms as well

TYPES OF LOBBYISTS
 Specialist Firms
o Firms that specialize in a specific technical skill associated with lobbying and PR
 Pollsters
 Data analytics
 Grassroots mobilization

TYPES OF LOBBYISTS
 Huge growth in number and type of political consultants
o Work for parties at home and abroad
 Reflects growing professionalization of election campaigning

TYPES OF LOBBYISTS
 Political consulting became a profession
 Graduate programs in political management
 Professional associations
 Who are lobbyists

TYPES OF LOBBYISTS
 Former politicians, political staff and civil servants
 Hired for their knowledge of the policy process
 Also for contracts within parties and government

TYPES OF LOBBYISTS
 Ex party strategists and staffers
 Political science grads
 Communications specialists and former journalists
 Technical specialists in polling, data, etc

LOBBYING TECHNIQUES
 Direct lobbying
 o Create arguments to support client’s position
o Present arguments to decision makers
o Detailed knowledge of policy process
LOBBYING TECHNIQUES
 Direct lobbying creates need for former insiders
 Contacts
 Inside knowledge and information
o Contract information
o Who to lobby when
o Decision maker interests

LOBBYING TECHNIQUES
 direct lobbying can occur before party/politicians are in power
o e.g. at party conventions to get policies in platform
 dairy farmers prefer interventionist policy, conservatives opposed
o lobbying at Conservatives convention
o get rid of supply management

LOBBYING TECHNIQUES
 In addition to persuasion, direct lobbying can also involve pressure tactics
 E.g. 2010 Shoppers in Ontario
o Hiring freeze
o Shortened hours in key ridings
 To convince MPs to pressure their premier

LOBBYING TECHNIQUES
 Rise of campaign style lobbying
 More emphasis on mobilizing public opinion
 Run like an election campaign using political marketing techniques

LOBBYING TECHNIQUES
 Air war
o Paid advocacy ads
 Tv
 Radio
 Social media
o Earned media
 Press release
 Commentary
 Media events

LOBBYING TECHNIQUES
 Voter research
 o Polls
o Data analytics
o Customize messages
 Issues management
o Monitoring and reacting to events/opposition
 Opposition research and response

LOBBYING TECHNIQUES
 SLAPP Lawsuits
 Strategic lawsuits against public participation
 Lawsuits for libel against activists
o Force them to waste resources on legal defence
o Intimidate into silence

LOBBYING TECHNIQUES
 Front groups
 Create third party advocacy groups
 Masks who is advocating policy

LOBBYING TECHNIQUES
 Ground war
o Identify and recruit potential supporters
 Use of social media and database apps
o Mobilize stakeholders to put pressure on decision-makers and media

OILSANDS LOBBYING CASE

 Oilsands became highly politicized by environmentalists
 Branded as dirty oil and tar-sands
 Images of ducks in tailings ponds
 Led to boycotts, etc

OILSANDS LOBBYING CASE

 Canadian Association of Petroleum Producers (CAPP) launches campaign style lobbying
effort in 2010
 Included air war of paid ads targeted to key groups
 Also earned media

OILSANDS LOBBYING CASE

 Also included sophisticated grassroots mobilization effort
 Used member firms and social media to identify supporters
o People with material interest in your industry
  E.g. employees, their families, suppliers, Conservatives in Ontario
(support on ideological grounds)
 Used paid social media and media ads to recruit them

OILSANDS LOBBYING CASE

 Energy Citizens.ca
 Website employs database software with stakeholder progression model
 Moves supporters to ever higher levels of activism
 Oil sands app

OILSANDS LOBBYING CASE

 Like and share ad or meme
 Write letters and emails to politicians
 Call in to radio programs
 Attend rallies and public hearings
 CAPP provides templates and talking points

TYPES OF GRASSROOTS
 Organic
o Individuals react and self-organize spontaneously
o No formal interest group involvement
 Subsidized publics
o Genuine public participation
o Mobilized by interest groups
o Mobilized by firms and business associations
o Used to be just activist, but business has been engaging in it more recently
 Astroturf
o Fake grassroots/NGOs
o Front groups with no genuine public participation

PIPELINE LOBBYING CASE

o Oil prices drop
o Lack of climate progress
o Environmentalists target and politicize pipelines
o Keystone XL in US
o Energy East and others in Canada

PIPELINE LOBBYING CASE

o Pipeline lobbying was traditionally proactive and behind the scenes
o Became reactive and campaign style in response to politicization by environmentalists

PIPELINE LOBBYING CASE

 o TransCanada hired Edelman PR which has also worked for the American Petroleum
Institute
o Key campaign documents for Energy East were leaked to the media
o Shows campaign style

PIPELINE LOBBYING CASE

o Air war component of campaign is called Promote, Respond, Pressure
o Includes
o Paid and earned media
o Monitoring and issues management
o Opposition research and pressure on opponents

PIPELINE LOBBYING CASE

o Ground war component has detailed grassroots mobilization plans