1010 Exam Review

Final Exam Format

► While some of the questions on the
exam are fairly strait forward, in others
you will be required to apply
knowledge that you have acquired to
specific cases.
► Read the cases. Read the additional
readings I will suggest.
► I have set up a web site with an
example of the type of question you
might be asked.
► www.geocities.com/lafitte_ca
 Some Tips
► There will no consultation of textbooks, notes or
dictionaries.
► Please bring two pieces of identification with
you:York University Validation Card and photo
identification.
► Students are responsible for the entire course
content.
 Some Tips
► Read the question carefully and answer only what is asked.
If it is an essay answer, then it is expected that a thesis
statement, supporting evidence and summary of evidence
are provided. If it is an answer requiring the use of A
General Model of Government Intervention, read the
question carefully to determine how many interventions
are required.
► Be sure you understand the general model of
government intervention detailed on page 302.
► What aspect of the Model is required? Only the Dimensions
of the Model or the entire Model. (ie. The Policy Evaluation
Matrix)
 Readings
Cases: In Between Public and Private:
Readings and Cases on Canada's Mixed
Economy:
1. The Medical Centre on pp. 325 – 360.
2. Commercialization of the Liquor Control
Board of Ontario on pp. 443 – 452
3. Solid Waste Management in Toronto on pp.
453 – 470
4. Privatization of Highway 407, pp. 437 –
442.
 Additional Suggested Readings
5. The Book Publishing Industry
Development Program: An Evaluation, pp.
361 – 378.
6. The Canada – US Softwood Lumber Trade
Dispute. pp. 482 – 514.
7. The Case for the “Triple E Senate”, pp.
176-188.
8. See my “helpful” articles on my web site,
they will be of use.
The Policy Evaluation Matrix
 Policy Evaluation Matrix
► Was the policy intervention Direct or
Indirect?
► Was the policy process of the government
Strategic or Reactive? Reactive is often
viewed as ‘knee jerk’)
► What is the policy intervention coercive or
was it voluntary?
 Quality Determinants.
► When you evaluate public policy not only
must you identify the type of intervention,
direct/indirect, strategic/reactive and
coercive/voluntary but it is also important to
make a quality assessment.
► They are accuracy, precision, efficiency,
time delay and the environmental
effects on the private sector.
 Quality Determinants.
► When you evaluate public policy not only
must you identify the type of intervention,
direct/indirect, strategic/reactive and
coercive/voluntary but it is also important to
make a quality assessment.
► They are accuracy, precision, efficiency,
time delay and the environmental
effects on the private sector.
 Accuracy
► The accuracy of an
intervention is simply
the degree to which
the intended or stated
goals are satisfied
when all the effects
and interactions are
substantially complete
or have reached a new
state of equilibrium.
 Accuracy of an Intervention
► Direct Coercive
Intervention is
more accurate.
► The goal to eliminate
traffic congestion is
satisfied with causal
relationships (for example,
weather, road conditions,
budgetary requirements,
etc.)
 Accuracy of an Intervention
► Indirect
Voluntary
Intervention is
less accurate.
► Commuters will choose
at which point they will
decide to use public
transportation
 Precision
► PRECISION is the
degree to which the
effect of the
intervention is limited to
only the intended goals.
► Does the action result in
unintended consequences?
 Precision of an Intervention
► Direct coercive ► Indirect Voluntary
intervention is more intervention is less
precise. precise.
► The goal to eliminate ► There are requirements for
traffic congestion is the infrastructure of public
satisfied with the banning transit and enticements to
of automobiles. satisfy the goal of
eliminating traffic
congestion.
 Efficiency of an Intervention
► Direct Coercive
intervention is more
efficient.
► With the elimination of
automobiles, the city’s
spending on roads will be
reduced.
► Revenues will be collected
from fines.
► There will be less traffic
and a healthier population.
► Indirect Voluntary
intervention is less
efficient.
► There will be increased
budgetary pressure for
incentives to take public
transit.
► Transfer and equalization
payments will be required.
 Time Delay
► Time delay is the
period of time between
the implementation of
an intervention and
the accomplishment of
the desired goals.
 Time Delay of an Intervention
► Direct Coercive ► Indirect Voluntary
intervention takes intervention takes
less time. more time.
► It is immediate. ► Waiting for commuters
to choose the ‘better
way’ could take
forever.
► Take the TTC as an
example.
 Environmental Effect on the Private
Sector of an Intervention
► Accounts for who or
which sector has
government targeted
for change and what
will be the response.
► Any change could be
deleterious to the
private sector.
 Environmental Effect on the Private
Sector of an Intervention
► Purely Strategic ► Purely reactive
intervention is less intervention is more
deleterious.
deleterious.
► The private sector is
► Business thrives in an endeavoring to resolve
environment of the effects, impacts
predictable formal and and influences of the
consequences and
informal relations with ramifications that
government. government did not
consider.
Case: The Medical Centre
► Shouldice Medical
Centre
► In 1940, hospital
space and doctors
were scarce,
especially for this
non-emergency
surgery that
normally took three
weeks of
hospitalization.
Case: The Medical Centre
► Dr. Shouldice resolved
to do what he could to
alleviate the problem.
Contributing his services
at no fee, he performed
an innovative method of
surgery on seventy of
these men, hastening
their induction into the
army.
 Case: The Medical Centre

► These delighted recruits soon made known

their success stories and by the war's end,
more than 200 civilians had contacted the
doctor and were awaiting surgery. The
scarcity of hospitals beds however, created
a major problem. There was only one
solution, Dr. Shouldice decided to open his
own hospital.
The Medical Centre

Interventions
► 1931 creation of
the Private
Hospitals Act
Allowing for the
Creation of Private
Hospitals
► 1972 Act was
amended to
prevent new
entrants.
► 3P Model (Public
Private
 Application of the Model: Cases
1. The Privatization of
Pearson
International
Airport.
Application of the Model: Cases

2. The Privatization
of Highway 407
 Privatization
1. The reasons that government undertake
privatizations are as follows.
2. To improve efficiency
3. To reduce public sector borrowing requirements.
4. To reduce government involvement in decision
making.
5. To ease problems of pay determination.
6. To widen share ownership.
7. To gain political advantage.
 Case: Privatization of Pearson
International Airport
► Intent of the policy intervention: To build a new airport in
Toronto with private money.
► Why? Future passenger growth, desire not to use public
funds, job creation.
► 1,900 person years of employment during a period of
recession in Canada.
► The contract was eventually awarded to the Pearson
Development Corporation.
 Case: Privatization of Pearson
International Airport
► Following his election in 1993 new PM Jean
Chrétien cancelled the contract at a cost of
some $60m. No policy now existed.
► Later the management and operation of
Pearson was turned over to a not for profit
private public partnership, the GTAA.
► The GTAA is now developing a 4.4 billion
dollar construction program at Pearson.
 The Pearson Privatization
To recap: The reasons that government undertake
privatizations are as follows.
1. To improve efficiency (more capacity needed)
2. To reduce public sector borrowing requirements. (no
cost, although, less revenue as well)
3. To reduce government involvement in decision making.
(no longer responsible)
4. To ease problems of pay determination.
5. To widen share ownership. (public/private)
6. To gain political advantage. (Job Creation)
Case: The Privatization of Highway 407

Why was it done?

Need to build a
highway.
1. To build safe roads
faster. (20 years
ahead of schedule)
2. To reduce costs.
(eventually sold for
$3+ billion)
3. To protect the
environment.
Case: The Privatization of Highway 407

4. To introduce new
technologies
and efficiencies.
(innovative toll
system).
5. Political. (to
create jobs)
Quick Facts: From Highway 407 ETR

1. 407 ETR runs east and west just north of Toronto —

Canada's largest city. From QEW (in the west) to Highway 7
just east of Brock Road (in the east) for a total of 108
kilometers.

2. Connects with 6 interchanges on the 400 series highways:

401, 403, 410, 427, 400, and 404.

3. First day of tolling was October 14, 1997.

4. Over 710,000 transponders have been distributed as of

February 2006.

5. Over 12,922,268,218 total vehicle kilometers traveled since

opening 407 ETR in October 1997, as of January 30, 2006.

6. 108.081 kilometers is the total length of 407 ETR.

 Case: Solid Waste Management in
Toronto
► Problem identified is that Toronto is overflowing
with garbage and does not know what to do with
it. The system is at capacity.
► Landfills were the disposal method of choice in
Toronto, however, in 2002 the Keel Valley Landfill
closed, resulting in the vast majority of Toronto's
trash being sent to Michigan.
► Cost at Keele were $12 per tonne. Michigan is
very costly at $52 per tonne.
How Might Toronto deal with this
Stinky Problem?
► Open the Adams Mine project thus
creating a new landfill for Toronto.
► Running a publicity campaign
encouraging households to use
backyard composters.
► Bag limits.
► Setting up an incinerator.
► How would we characterize these
interventions?
How Did Toronto deal with this
Stinky Problem?
► Purchased a new
landfill in London
► City council voted
26 to 12 in favor
of purchasing the
Green Lane
landfill, a 130-
hectare privately
owned facility
southwest of
London.
 Case: LCBO Privatization
To recap: The reasons that government undertake
privatizations are as follows.
1. To improve efficiency (more stores needed)
2. To reduce public sector borrowing requirements. (no
cost, although, less revenue as well)
3. To reduce government involvement in decision making.
(no longer responsible for liquor)
4. To ease problems of pay determination. (union jobs)
5. To widen share ownership. (public/private)
6. To gain political advantage. (possible job creation)
 Case: The Commercialization of the
LCBO
Why was it done? Need to make LCBO
more efficient.
1. To serve the public better.
2. More and bigger stores needed.
3. To make additional revenue.
4. To introduce new technologies and
efficiencies. (Warehousing and POS).
5. Political. (to give it a chance to perform)
 LCBO in 1929-1987
► The intent was to promote temperance.
► Stop the sin of alcohol.
► Not set up as a traditional retail system.
► Review of the system began as sales began
to slip. A new Board led by private sector
members like Steve Stavro envisioned a
new LCBO.
► No money to deliver on that vision.
 LCBO in 1987-2004.
► LCBO began to be led by Andrew S. Brandt in
1991 and a team of private sector retailers.
► Notably, Larry Gee from Dominion and Bob Peter
the former President of the Bay.
► Initially change was slow because if the lack of
resources available.
► In 1997 that changed with the introduction of a
seamless 5 year capital budget.
► Since that time profits have grown from $596
million to 1.04 billion.
 Case: The Book Publishing Industry
► The Canadian Book publishing industry has both a
cultural dimension and an industrial dimension.
► These two elements are reflected in the way
government approached the industry from a policy
perspective.
► Since the 1950’s Canada's industry has moved
from a cultural wasteland to a literary world
leader.
 Why has this Occurred?
► Federal and Provincial Programs such as the Writers in
Residence and the Writers in Schools program have
introduced Children to the idea of literature from an early
age.
► The Public Lending Rights Commission pays writers
for the use of their books in public libraries. This increases
availability and provides money to the authors.
► Financial support is provided by the Book Publishing
Industry Development Program (BPIDP).
► What kind in interventions are these? Are they
both the same type?
2430 Class 10 & 11 The Changing Nature
of the International Business Environment
 The Interconnected World
► The world had gone
international
► Money has become an
internationally traded
commodity.
► Physical trade has become
international
► Service trade is international.
► The power of international
markets drives all of these.
► The barriers that separated
international markets have been
torn down by policy or
technology.
 Financial Services
► Exchange Rates are determined
principally by market forces
► As a result of these freedoms,
the financial services industry
has created vast array of
products enabling borrowers
and savers to take advantage of
financial conditions around the
world.
► Thus firms have achieved
greater mobility.
Re-Thinking of the Global Economy
► The global economy has
changed everything we do.
Costs have gone down and
connectivity had increased.
► Distance, time and borders
have eroded because they
leave no country or
community untouched.
ƒ International air travel
ƒ International communication.
ƒ Information and media use.
Impact of Technology
► People have been tied
together by the impact of
the global telecommuni-
cations revolution.
► People now work and
communicate over vast
distances.
► Trade can be executed
much more seamlessly
than in previous
generations.
► Information is much more
available.
 The Mobile Economy
► Capital sweeps across
countries at electronic speed.
► Manufacturing and the
generation of services move
flexibly among countries and
are networked across
borders.
► Markets are supplied from a
continually shifting set of
sources.
► Ideas, insights, and
techniques are commu-
nicated with increasing ease.
 The Mobile Economy
► Access to technology
continues to grow.
► Borders are eroded as
markets are integrated.
► As barriers fall, private
capital seeks new markets.
► Government anxious to
reduce deficits and shift
spending to social needs,
increasingly welcomes this
investment.
 The New Markets
► The integration of financial
markets is significant.
► Privatization marked the
first true global offerings
of equity
► The distinctions among
national markets have
become lost.
► World trade is growing.
 World Trade
► As world trade grows,
trading in currency is
growing at a steeper rate
► There is a greater risk of
these markets causing
instability because they
are so large and so much
money is moving around in
them.
► This can be destabilizing.
Many Asian states have
suffered from currency
swings.
How Have Companies Positions in a
Changing World?
• There is a presence of wider opportunities and
tougher competition.
• Boundaries are coming down.
• Computers, alliances and outsourcing are
permeating the walls of companies.
• Financial operations are more transparent and
subject to more aggressive scrutiny and
demands by outside investors.
 How Have Companies Positions in a
Changing World?
► Much wider and more diverse range of opportunities.
► More bracing competition and more risk along with the
pressure generated by capital markets and customers who
have a broader range of choices.
► Companies have to be prepared to meet these challenges.
► Fostering a culture that encourages alertness,
responsiveness and flexibility and speeding up the cycle
time of processes and decisions.
► Emphasizes the importance of employee knowledge.
► Information technology is driving the process.
What is the Role of Business?
► Companies have had to
adapt to become more
nimble to meet the
challenges of the rapidly
changing markets. (e.g..
Eastman Kodak)
► Entrepreneurial values and
attitudes emphasize
initiative and rapid
response.
► There is a need for creators
and builders.
► Companies have to engage
with the community's
interest, environmental
concerns and social values.
The Characteristic of Globalization: Economics
over Politics
► The erosion of borders
does not mean the end of
national politics, national
identity and economic
nationalism.
► A country's history,
culture and definition of
national objectives still
shape politics within each
country.
 What is the Role of Government?
► To reduce intervention.
► To retool and refocus intervention to preserve the
public trust.
► To buy into the idea of fundamental global
change.
► To translate that change into policies consistent
with national culture, history and temperament.
► To create and maintain the parameters within
which the market operates.
► To move from an enforcer role to that of a
referee.
Section 2: The Principles that
influence International Trade.
► “The benefits of
international trade
result in a more
efficient
employment of the
productive
resources of the
world.”
John Stuart Mill
 International Trade
►The exchange of goods and
services between or among
countries
►Enables a country to
specialize in those goods it
can produce most cheaply
and efficiently
►Enlarges the potential
market for goods of an
economy
►Major force of economic
relations among countries
►Is an extension of
governmental policy
Reasons for Trade
► Resources are not
completely distributed
across the globe.
► The climate and terrain
of a state.
► The skills of its labor
force.
► The advantages of
specialization
 Adam Smith
► To specialize in
production leads to
increased output.
► To trade
internationally
specializing in
producing only those
goods in which a
country has absolute
advantage
 David Ricardo on the Theory of
Competitive Advantage
► A country gains from trading
certain goods even though its
trading partners can produce
those goods more cheaply.
► Goods and services which a
country should produce and
trade with other countries is
the goods and services that it
produces more efficiently
than other countries.
Economic Benefits of the Theory of
Comparative Advantage
► International trade leads
to more efficient and
increased world production
► It results in the expansion
of markets
► It leads to growth in
domestic employment
► It stimulates the
modernization and
innovation of domestic
companies
The Importance of International Trade

• Some countries export only

to expand their domestic
market or to aid economically
depressed sectors within the
domestic economy.
• Other countries depend on
trade for a large part of their
national income and to
supply goods for domestic
consumption.
 Performance Criteria of a Mixed and
Market Economy?
► What model should
governments choose.
What emphasis?
1. The emphasis is on
achieving maximum
output per person or per
person employed.
2. Freedom of choice is
available to both
producers and
consumers.
 Section 3: Multilateral Trading
Agreements
► INTERNATIONAL TRADE
► Attempts to improve
balance of payments
between countries.
► Use of differential tariffs.
► Trade policy has become
the source of many
international disputes.
General Agreement on Tariffs and Trade
- GATT (1947)
► Goal was to minimize new
existing trade barriers
► Reduce import tariffs and
quotas
► To abolish preferential
trade agreements between
member countries
► Tariff concessions were
negotiated on the principle
of reciprocity. (you scratch
my back I’ll scratch yours).
 Uruguay Round of GATT
• The goal was the eventual
reduction of tariffs by
33%
• Tried to reduce or
eliminate many non-tariff
impediments.
• Strengthen protection for
intellectual property.
• Open trade in investments
and services
• Establish the World Trade
Organization (W.T.O.)
 WORLD TRADE ORGANIZATION - W.T.O.

► Operates a dispute
settlement process
► Possesses stronger power
to enforce agreements
► Has the authority to issue
trade sanctions against a
country that refuses to
revoke an offending law
or practice.
 The GATT Debate
SUPPORTERS OPPONENTS
► GATT would improve the ► GATT would result in
overall business massive losses of
environment. manufacturing jobs
► Would create jobs ► Would result in lower pay
► Would stimulate trade and for workers in developed
investment. countries.
► Would allow countries to ► Opportunities would
lever their natural threaten the sovereignty
competitive advantages. of countries.
► The powerful W.T.O.
 Trading Communities
► To promote trade
among countries that
have common
economic and political
interest or are located
in a particular region.
► They favor member
counties over non-
member countries.
ƒ The Commonwealth of
Nations
ƒ The North American
Free Trade Agreement
ƒ European Union
 International Trade

► In 1990, International
trade was
approximately $8.76
trillion (US), double
that of 1980.
► Driven by inflation
and higher prices for
commodities, the
value of international
trade in the United
States increased
nearly tenfold
between 1958 and
The Growth of International Trade

► Floating currency
exchange rates were
adopted in 1973.
► In the 1970s and 1980s,
price competition between
trading partners was
augmented by the
resulting fluctuations in
exchange rates.
► The depreciation of a
country's currency making
exports appear cheaper
and causing imports to
appear more expensive.
► This affects a country's
balance of trade.
 Section 4: Restrictions on
International Trade
► Canada’s Dependence on
Natural Resources
► How should Canada determine
the price of its natural
resources?
► Weighing increased current
income and consumption
against the possibility of lower
real income and consumption in
the future If costs increase.
► Opposition to export sales of
natural resources.
 Indirect Restrictions on Exports
► Policies of diversification on
industrial production
► To reduce dependence on
income from exports if there
is fluctuations in export sales
of commodities.
► To maintain a basic self
sufficiency in essential
commodities to avoid
dependence on other
countries.
► National security concerns.
 Specialization
► Requires the mobility
of labour at high
economic and social
cost.
► Emphasizes the
broader range of costs
and the distribution of
potential benefits and
costs.
 Restrictions on Imports
► A tariff or import duty is a tax.
► An ad valorem tariff is a tax as a percentage of the price of
a good.
► A license fee is required to import specific a good.
► Quotas are limitations on the quantity of a good which can
be imported.
► Combined with an import license so that the importer is
paying a fee to import a specific amount.
► More stringent restrictions
► Embargo, Sanction, Boycott.
 Why Tariffs Exist
► Raising the price of imports
maintains domestic industries at
a less efficient level of production
than would occur under free
trade and encourages tariff
retaliation from other countries.
► This compounds the loss of real
income and output that would be
realized by specialization and
comparative advantage.
 CANADA AND INTERNATIONAL
TRADE
► A HISTORICAL
PERSPECTIVE ON TRADE
► From the 16th to the 18th
Century, Canada's leading
exports was fish and fur.
► During the 19th century, there
was the exploitation of forests
and timber as they became the
staple export.
► In the 20th Century,
agriculture, forestry, mining
and manufacturing was
developed.
 CANADIAN EXPORT GROWTH
Year Billions of $
1950 $3.16
1960 $5.39
1970 $16.82
1980 $64.3
1996 $275.82
2000 $412.18
 The Purpose of NAFTA
► To gradually remove tariffs
and other trade barriers on
most goods produced and
sold in North America.
► It was built on the Canada -
The United States Free
Trade Agreement (1989)
► To eliminate or reduce many
tariffs between the two
countries.
 The Goals of NAFTA
► The Governments of Canada, the United States
and Mexico resolved to strengthen the special
bonds of friendship and cooperation amongst their
nations.
► To contribute to the harmonious development and
expansion of world trade and provide a catalyst to
broader international cooperation;
► To create an expanded and secure market for
goods and services produced in their territories;
► To reduce distortions to trade;
 The Goals of NAFTA
► To establish clear and mutually advantageous rules
governing their trade;
► To ensure a predictable commercial framework for
business planning and investment;
► To build on their respective rights and obligations under
the G.A.T.T. and other multilateral and bilateral
instruments of cooperation;
► To enhance the competitiveness of their firms in global
markets;
► To foster creativity and innovation and promote trade in
goods and services that are the subject of intellectual
property rights;
 The Goals of NAFTA
► To create new employment opportunities and improve
working conditions and the living standards in their
respective territories;
► To undertake each of preceding in a manner consistent
with environmental protection and conservation;
► To preserve their flexibility to safeguard the public welfare;
► To promote sustainable development;
► To strengthen the development and enforcement of
environmental laws and regulations;
► To protect, enhance and enforce basic workers rights.
 National Treatment
► Refersto establishing for Canada the United
States and Mexico with respect to a state or
province, treatment no less favorable than
the most favorable treatment accorded by
such state or province to any like, directly
competitive or substitutable goods.
 National Treatment
► This means that Canadian federal, provincial and
territorial governments cannot treat goods from
the United States and Mexico any differently from
the way that they treat domestic goods with
respect to taxation and regulations for sale,
transportation, distribution or production.
► The United States and Mexico cannot discriminate
against Canadian goods.
 Dispute Resolution Panels
► Anti dumping refers to goods
that are sold at prices lower
than in their domestic
market.
► Countervailing refers to a
practice of a government to
decide that manufacturers of
imports have been unfairly
subsidized in some way by
their domestic government.
 NAFTA Commission
► The avoidance or settlement of all disputes
regarding the Interpretation or application of this
Agreement or whenever a Party considers that an
actual or proposed measure of the other Party is
or would be inconsistent with the obligations of
this Agreement."
► Panels are organized on the basis of industry
sectors.
 Tariff and Non-Tariff Barriers
► The crux is the reduction of tariffs.
► There would be no exception from eventual
elimination of quotas and tariffs.
► Tariff negotiations would start from actual or
much lower tariff rates.
► Goods placed into four categories based on their
sensitivity to increased imports, reflecting both
how great an impact liberalization of trade would
have and how political powerful its producers
were.
 The Effects of NAFTA
• Created the world's
second largest free
trade zone
• Brings together an
estimated number of
365 million consumers
• Has a combined
annual trade and
investment flow of
over $500 billion US
Good Luck on your Exam!