Production’s Dark Clouds

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Production’s Dark Clouds




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Presentations text content in Production’s Dark Clouds

Slide1

Production’s Dark Clouds:Concerns for Firms

Slide2

The Eternal Question…

best way to produce goods & services to satisfy society’s needs/demands?

“free market” competition for profit?

g

overnment planning & delivery?

Slide3

Is Bigger Better?

“People of the same trade seldom meet, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Adam Smith

Slide4

Modern industrial production is “capital-intensive”

Can be more efficient (“econ.

o

f scale”)

BUT

r

esults in fewer, very large producers (oligopoly)

normal market

behaviour

results in less

competition – less pressure to keep prices down

increased risk of collusion – benefits of efficient production more likely go to the firm (profits) rather then to consumer (lower prices)

Slide5

Successful firms often use profits by purchasing competitors (“mergers”, “acquisitions”, “takeovers”, “buyouts”)

r

educes risks of competition by controlling it

reducing production of goods/services by closing competitor after buying it

Slide6

Case: Canada’s Banks, 1990’s

Several major

Cdn

banks explore merger

RBC & BMO, CIBC & TD

achieve size needed to “compete globally”

Fed. Gov’t blocks merger – concerned it would

reduce competition

and

availability of services

in domestic (

Cdn

) banking market

Slide7

“Third Party” Costs

Profit-seeking

behaviour

= minimize all costs

absolutely

Markets not good at

internalizing

costs (passing all costs of production on to consumers)

Seek to

externalize

as many costs as possible

Ex. pollution passes on environmental costs of production to others

Non-monetary costs called

“social costs”

or

“third party costs”

Slide8

Case: English Wabigoon First Nation

N. Ontario in 1970’s

Pulp mills on English R. discharge mercury-laden effluent into water

Wabigoon

First Nation downriver consumes fish from river – mercury

bioaccumulates

First Nations experience high levels of mercury poisoning/death

Slide9

Public-Private Balance

Gov’t also not a totally efficient provider of goods/services

1960’s: growing population, belief that gov’t can provide essential services better than free market (ex. of “missing markets”)

Gov’t expands role as producer of “essential services” (education, health care)

Slide10

1990: gov’t spending “out of control” (spending more $ than taking in in revenue)

Annual deficits, public debt grow at alarming rates (who will pay it in future?)

Gov’ts respond by

“downsizing”, “right-sizing”

cut spending, payroll, services

Privatized, deregulated markets (ex. hydro)

“mistakes were made”

Slide11

Case: Walkerton, Ont. , May 2000

Gov’t cuts to Ministry of Environment budget force reduction in staff needed to monitor water quality

Municipal well at Walkerton contaminated by farm runoff (e-coli)

Hundreds fall ill in Walkerton, 7 deaths

Slide12

Food for Thought…

Should we go further and invite more participation of private companies in the delivery of social programs?

Should we be wary of turning essential social services over to firms whose main motivation is profit? (ex. health care?)


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