Chapter 10 Flashcards
What is a business enterprise system?
A business enterprise system determines:
what goods and services are produced and distributed to society
how the goods and services are produced and distributed to society
What is Capitalism?
Capitalism is a type of economic system that is based on a number of fundamental principles:
1.Rights of the individual
2. Rights of private property
3.Competition
4.The role of government
Rights of the individual
The notion of capitalism is based on the view that it is the individual who takes precedence in society, as opposed to institutions or the overall society. This implies that individuals have every right to pursue their own self interest, which includes seeking to make profits from business enterprises. The notion of the individual as the most important element of society is not entirely representative of the ideology present in Canadian society. There are limits placed on individuals’ right to pursue their self-interest. Government regulations enforce rules that affect how business owners conduct their affairs. For example, government guidelines regarding job candidate selection criteria may affect who is hired for a job and may place emphasis on certain groups in society over others.
Rights of private property:
As opposed to state ownership, capitalism asserts that individuals have the right to own land, labour, and capital. In Canada, certainly, individuals are permitted to own their means of production, whether it is land, labour, or capital. However, because there has been an uneven distribution of wealth in society, the government has intervened in a number of ways. For example, taxation is one approach that can be partly aimed at redistributing wealth among members of society. Other examples include the fact that much of the natural resources in Canada have been retained by federal or provincial governments. The government may also decide to nationalize certain products or services that it seems to be on national interest— for example, government control of health care.
Competition
Capitalism advocates competition. The belief is that sufficient competition among business enterprises will ensure that business provides the goods and services required by society at a fair cost. Competition is the “ invisible hand of the market ” (in the words of economist Adam Smith) that ensures the market works in this manner. In Canada, the notion of perfect competition does not exist in practice—there is no guarantee that an adequate supply of competitors exists across all industries.
The role of government:
The view of government is reflected in the French term laissez faire , which means “let people do as they choose.” This suggests minimal government interference in the business enterprise system. This notion of capitalism has also been referred to as the free enterprise system , reflecting the notion of the right to private ownership of property, competition, and restricted government involvement.
How is Canada’s government structured?
Federal
Provincial
Municipal
Federal
is the highest level of government and applies to all Canadians. Generally, federal responsibilities are very wide. Some roles include national defence, criminal law, bankruptcy law, postal service, foreign policy, currency, First Nations, banking, and immigration.
Provincial
is more regional in nature and only affects those citizens and residents who reside in a particular province. Provincial responsibilities include highways, transportation, education, and health care. Since each provincial government is a separate and unique jurisdiction, provinces can have laws and regulations that differ from other provinces. In Ontario, for example, the provincial government owns and controls the sale of distilled spirits through the Liquor Control Board of Ontario (LCBO), a provincial Crown corporation. In Alberta, however, the provincial government does not own or control the sale of alcohol but only regulates it.
Municipal
is the lowest level of government. A municipal government can govern a city or a smaller community, such as a town, village, or parish. In Canada, there are over 4,000 municipal governments. Some municipal responsibilities can include police services, fire protection, land planning, sewage, public transportation, garbage collection, and library services.
What roles do governments serve?
Tax Collector
Business Owner
Regulator
Tax collector
Revenue taxes:
Individual income tax
Corporate income tax
Sales tax
Property tax
Revenue taxes
is to collect money to help fund government services and programs. They include individual income taxes as well as corporate income tax , along with property tax and sales tax.
Individual income
taxes have provided the largest source of revenue for the federal and provincial governments. Individual income tax is levied on the income of individuals or on the net profits of proprietorships and partnerships. Corporate income tax has provided the second largest source of revenue for the federal government.
Corporate income tax
are taxed on their net profit at a combined federal and provincial rate that can vary among provinces and that is subject to change based on government policy.
Sales taxes
are an important source of revenue for most provinces, as well as for the federal government. This tax is paid through retail stores, which act as collection agents when they sell their goods to consumers.
property taxes
is the largest revenue source for municipal governments. The revenue gained from this form of tax is typically used to fund the operating costs of the municipal government and the services that it provides.
Restrictive taxes:
taxes when the government is trying to control or curb an activity.
Examples:
alcohol
Cigarettes
Business Owner Crown Corporation
Established To:
implement public policy that includes protecting or safeguarding national interests
protect industries deemed to be vital to the economy
provide special services that could not otherwise be made available by private business
nationalize industries that are considered to be “natural monopolies,” including the generation and distribution of electricity
The Regulator
What are regulations?
Constraints to modify economic behaviour
What do they aim to achieve? (regulations)
To protect the consumer
To protect the environment
To protect fair competition
How much should the Government help business?
Government as Guardian of Business
- Nurturing Young Industries
- Encouraging Direct Foreign Investment
- Offering Subsidies to Compete Globally
- Maintaining Adequate Levels of Domestic Employment
- Protecting Against Unfair Global Competition
- Maintaining Favourable Balance of Trade
Nurture Young Industries
The infant-industry argument asserts that government should help a young industry to grow and develop by ensuring that the industry maintains a dominant share of the domestic market until it is mature enough to compete against foreign companies. Consequently, this philosophy is still applied, particularly among developing countries. The rationale is that the infant industry may be less competitive, particularly because of initially high output costs; however, with maturity the production will become more efficient and protection will no longer be necessary.
Encourage Foreign Direct Investment
The action of reducing foreign imports may result in the foreign business directly investing in the target country instead. That is, a foreign company can decide to set up business in the target country if it wishes to gain access to that country’s consumer market and it is unable to achieve that with imports. Of course, from the domestic country’s viewpoint, this foreign direct investment may be desirable if it increases job
opportunities, contributes to the growth of industry, and adds to the amount of capital.
