so welcome to part two of our week four lecture on Canadian political economy so before we talk about can what Canada's political economy is and Staples Theory we need to do a little review about some of the key Concepts around the idea of political economy uh so you did some reading in the for the course uh for this week that sort of introduces some of these things but I want to sort of tease out some important ideas and some important Concepts that will then allow us to sort of have a better understanding of of Canada's economy and Canada's political economy and what what Canada's political economy is and how it's important for understanding the ways in which Canada has developed over time and the way in which we interact with each other today and with with the government so the concept of political economy refers to the intersection or the intertwining of the state right that's the political side and the market that's the economy side so when we talk about political economy we're talking about the state and the market those are the two main Concepts in political economy and so uh this this idea of political economy can be applied domestically so if you think about country like Canada or China or South Africa or Vietnam or the United States each country has a state and and a market okay and each and each uh each country has a unique combination of those two concepts but you can also apply political economy internationally beyond the domestic okay so people there's a if you study international relations in in political science for instance take our courses in international relations in political science there's a field of study called International political economy that sort of looks at sort of the role of states and markets at the international level uh beyond beyond countries for instance okay but anyway for us for our purposes we're focusing mostly on the domestic side and we want to we want to re understand that each country like Canada has a unique mix of how much emphasis they put on the state and the market that in some places the state is a very large has a very large role in some places the state's role is very tiny whereas in other countries the market is free to run it dominates all parts of life another part the market is is much smaller so you know some societies as we'll learn and even even in a society like Canada you know it may change over time some societies rely extensively on and very heavily on state production the state production and also the state's allocation of goods and services so the state has a very big role in the lives of our country it provides all sorts of public goods for us okay it might provide us with it provides people with Health Care education welfare with respect to employment for instance or old age pensions while in other countries the state is small and the market is free to run okay and so um you know people rely on the market to provide public goods so public goods are good that are shared by everybody so clean air you know we rely on markets to we rely on citizens voluntarily figuring out how to how to engage in exchange to create free markets or to create clean air or you know it's not some public good another public good could be education and health care that maybe we we turn to society rather than the state running schools maybe it's it's uh churches right societal groups that have nothing to do with the state churches for instance in Quebec the the church was a very powerful player in terms of providing education into a lesser stand healthier the most important thing to remember here is that that the specific mix the specific size and the specific influence of state and Market institutions within a particular nation state like Canada that is what makes up a country's political economy and that mix of big state small state free markets regulated markets has a powerful effect on how wealth and political power are distributed in a country and which in turn of course then leads to certain ideologies being more dominant Capital uh liberalism conservatism socialism it could alert lead to certain policies being promoted so that's why maybe you know in Canada we have a very in in Scandinavian countries we have very large uh welfare states relative to other countries where the welfare states are small where states are very have very little uh influence on or little very little presence in terms of providing social welfare in the form of Health Care education employment assistance all day pension you know that's because countries have have chosen you know small states or large states unregulated markets or heavily regulated markets so if you want to understand a country and and sort of its character and then you need to understand not only as political institutions whether it's a democracy or not and what kind of democracy but also its economy and the role of the state and the role of the market in those countries okay so let's let's talk state in the market uh and we'll also talk about two related Concepts to the state of the market uh which in the case of Canada are capitalism and democracy these are sort of the capitalism is sort of the the nature of our market and uh in terms of our state we have a very Democratic state let's start with a state the state is actually sort of an ambiguous Concept in fact there's almost there's over 150 definitions of the state in the political science literature and in the sociology literature and the economics literature but perhaps the the most famous and often used definition was written by a German sociologist Max Weber who wrote that the state is a human community that successfully claims the Monopoly of the legitimate use of physical Force within a given territory so you know that's sort of a very common very popular definition of the state used in used by political scientists economists sociologists and the like okay so the state includes is it's a human community and it includes all those bodies or organizations or groups that are thought to have a monopoly on the legitimate use of physical Force within a given country you know Monopoly means that only they can exercise physical Force legitimately right if you had a doulopoly then you'd have two two groups maybe there'd be two states there'd be a English Canadian and a French Canadian state that both have that share that or you'd have the church you know a societal group and the state that would be a duopoly right but Monopoly means one person has all the control and so in this case the state has a monopoly on the legitimate use of physical Force within a given country so these you know State bodies that have this Monopoly think about it they include things like the police right uh the military but also so you know these are sort of obvious examples but there's also bodies that can order you to be incarcerated to be put into jail so think about the Judiciary the Judiciary can order you it has the authority to order you to be placed in jail or to be at home or whatever right they can authorize the use of force okay so so part of it is you know who has the who who has the legitimate Authority or who can legitimately use physical violence within a given country the police the military the Judiciary but also who can order the legitimate use of physical force in a given country so so the state also has a monopoly over sovereignty sort of the classic definition of the state so the state also has sovereignty right it has the sum of all authority in terms of over those who inhabit its territory it's a sum of all authority within the country and so the state is a set of political institutions the set of bodies right like the bureaucracy or the Civil Service the Judiciary the police the military the executive the legislature these these groups have a monopoly on all authority and the use of physical Force within a given country the state is different from the government they're not the same thing the state and the government are different things okay the government refers to a group of people that temporarily runs the state at any given time okay so this is the government is different from the state these are not interchangeable terms they're they're they're different terms okay the government refers to a specific group of people that temporarily and temporarily can be you know you know a decade even or two decades in a democracy it's okay if they continue to be elected that run the state they they they they they run the Judiciary they run the police they run the military at any given time and so in Canada as we learned last week the government is run by the governing party right the government is the cabinet of you know is cabinet and cabinet is chosen out of the members of the governing party who then initiate and Implement laws uh that have passed through legislative oversight we talked about that uh last week you can go back to those videos if you need a quick Refresher so government and the state are different concepts the state is also different from society when we think about countries we usually think of the state and society that you know you can divide countries into the state and Society uh and Society for instance there are gangs and gangs uh use physical violence they use intimidation to achieve their goals right but gangs are not part of the state least in democracies like Canada uh because even though they can use use they can use violence that violence is not legitimate you know in Canada we don't you know we can understand police police we all agree that police should have the authority to use violence to enforce the law and we agree that the military should be able to use use violence to protect our country but none of us agree with the idea that gangs have the have the moral right or uh or or how you have the moral or legal right to use physical violence uh in uh to get their way so you know that's a big difference again the Monopoly of the Monopoly matters okay um so so for now anyway what what's what's key is that the state uh the state the key aspect that matters for state is not only that they have the legitimate uh they're seen as the legitimate they have an uh they have a monopoly over the legitimate use of physical Force but they also have a monopoly over authority over sovereignty it's a society our society makes up those individuals those groups those bodies that don't have that Authority that don't have that legitimacy to make decisions and use physical Force as needed so as I mentioned before or earlier the state is very important because it can have a very large role in a society or can have a very small role and a lot of political debate today and even a debate about you know society and economies really has to do with the size of the state and its role in society states can have a very large role in allocating and distributing resources and allocating Distributing public goods or it can have a very small role okay so you can build a state that is very large it taxes the rich it taxes all of us and so that it can create social programs that address all of our all of our social issues like income Assistance or income inequality Health Care education Etc we can decide you know what we don't like the fact that you know one percent of the population controls 99 of the of the wealth and so the state should regulate you know what should be produced in factories you know or what should we produce in farms for instance or maybe we need the state to tell people what we should be producing and maybe even set the price for the goods produced by those factories and Farms so large state does all those kinds of things or can do those kinds of things it can collect lots of taxes create all sorts of social programs it can regulate uh what gets produced in factories what gets grown on farms and how they're produced how they're farmed you know you know you can you can regulate no more pesticides or or you can you can say use all the pesticides you want it can ban genetically modified foods in the 90s there's a lot of debate about that in Canada should we ban genetically modified foods or should we just let people do that should we just let companies do it and let citizens sort it out right I mean that's sort of the other argument is that citizens will say I really don't like genetically modified foods or I don't like pesticides so I'm just going to buy those things or free Free Run free range eggs you know eggs are that are laid by hens that are not in cages they're in much larger spaces you know this a large State an active estate could regulate that and say all eggs in Canada must now Be Free Run free range or it can just say it can just let the market decide and say and so produce you know farmers can say I'm going to produce these eggs and Canadians can decide oh yeah as a country we all want to do that and we can indicate that by buying only those eggs and if all if you know 80 of Canadians started buying just free run eggs then uh Farm producers would respond right they'd be like oh no one's buying my caged eggs I'm gonna go and sell and sell um free red eggs so so there's two ways of thinking about those are two very different ways of achieving the same goal if the goal is more free-range eggs you could just a large State forces everyone to to grow that or you or the other way around which is you know uh you can let you can let people decide right make it attractive to people for people to make that choice and there's things in between right like the state can maybe impose that a certain price we're going to add a tax we're gonna add um we're not going to ban caged eggs or cage tens but what we're going to do is we're going to post a 10 10 oppose a ten dollar tax on every dozen eggs sold and that will then incentivize Canadians to choose the freerunnings that's that's just one example and indeed Canada does quite a bit of this in contrast to the United States for instance in Canada we have what's called a very strong system of Supply management that's you're managing Supply you're managing the production of of goods and in particular we have very strong Supply management when it comes to to milk production for instance and grain production and the like okay okay of course in democracies but even also in autocracies the state's parathon absolute it's supposed to in a lot of ways the state has a monopoly on Authority on the legitimate use of authority and physical force it has a monopoly on that but that doesn't mean that its power is absolute that despite the state having all of the legitimate Authority and power that illegitimate activities still occur right so think about you know um illegal there's a illegal goods and illegal markets uh for various things in Canada like very hard drugs and to some extent prostitution so you know why why do these activities occur like if the state has all the legitimate Authority and has all of the legitimate power to to engage in physical Force how can uh how can some how can illegal markets and illegal activities continue to occur and that's because some members of society question the legitimacy of the state to act in some areas of our political life so even though the state has all that legitimate Authority some people think that the state shouldn't have uh legitimacy in certain areas right it disagrees with the state's decisions right so sure we agree that the state should be able to regulate X but um but I don't like how it regulated it for instance or I don't or some people think we don't I don't think I don't think you should the state should should have that power and so you know a lot a lot of that has to do with uh two concepts of freedom of inequality that we've talked about you know Freedom the state can't can't you know the station be imposing upon my freedom is a is a common thing we see more recently in Canadian politics and in the United States and some other countries just think about covid-19 and the range of restrictions that were placed on you wherever you may have lived well some people don't believe that the state has that has that legitimate right to impose that that that that on us right same thing with things like abortion or gender expression that's the new thing in 2023 of course is this whole thing about the state can't tell me what what I believe gender should be that's sort of one of the one of the things that are one of the disputes the state is trying to do that school boards which are an expression of the state or are trying to impose that um through through Pride celebrations and some people disagree with that so where's this resistance to State legitimacy come from it comes from citizens with independent wealth and power so you have citizens who have become wealthy who who are very influential and they feel that they can resist they have the resources and status to resist the state uh without having to fear uh any negative repercussions resistance comes from citizens with very strong ideological or cultural predispositions that question the question the authority of the state there are Libertarians who believe in maximum maximum Liberty maximum Freedom there are sourceless and Marcus marxists who believe you know we you know the um who believe that uh you know the state should be serving the the should be serving to create equality so so you know people can have strong ideological cultural religion you know religion is another sort of aspect that you know this this the some religious groups some religious individuals have very clear views about what is God's for instance and what is what is what is not God's realm and and they argue that there's there are differences there and then citizens can also uh be opposed to the state because they feel a sense of Injustice that state activities benefit some groups at the cost of others right so they believe that sure we have the state has it's do making these decisions but it's creating inequality it's creating harm it's creating Injustice sometimes as well so another way so that those are some those are some ways in which um State resistance those are some some sources of State resistance towards State legitimacy another is that sometimes states contain certain features that promote or Empower citizens to challenge its Authority so some of these features encounter for instance include federalism so as we talk about federalism divides power between two levels of government so you can try and you know it almost creates multiple States and so you try you can even try and try and leverage different levels of government different orders of government to to achieve your goals or because we've talked about previously uh constitutional rights that we've adopted a number of constitutional rights through the Canadian Charter rights and freedoms that give Canadians a set of individual and Collective rights of freedoms that we can use to challenge the state to bend the state to challenge its legitimacy and in fact Canadians have done for all sorts of things in criminal law the environment uh equality rights uh various rights and freedoms your freedoms of expression or the freedom of assembly these kinds of things have been used by in citizens to challenge the state so anyway the main point to keep in mind is that the state is powerful it's important it has a monopoly on the legitimate Authority and the use of physical force in our country and the role of the state can vary it can be very large or can be very small and then a lot of our contemporary political and social debate a lot of it has to do with the role of the state and about electing a government that will either increase the size of the state or increase the the influence of the state or electing another gov another party that can form a government that will take control of the state and reduce it reduce the size of the state reduce the role of the State uh with producing very you know maximizing Freedom maximizing the quality or minimizing the freedom minimizing the quality and the like what about the market in contrast to the state uh which again has a monopoly over physical force and Authority the market is a different thing you can think of the market as the space beyond the state where individuals engage engage in or where individuals engage in voluntary Exchange okay so rather than relying on the state to decide you know what gets produced who produces what uh how those goods are produced and how those goods are allocated the market is that those non-state spaces generally where individuals get together and voluntarily and freely Exchange Land or they exchange labor they exchange Capital they exchange goods to achieve whatever their goals and interests are okay so the key characteristic of the market is voluntary exchange voluntary Exchange exchange can occur in a variety of ways right so people can exchange commodities they don't want for things that they do want this is called barter exchange right oh I produce apples you know and my neighbor produces pairs I'm sick of eating apples so I take my excess supply of apples I want I still like apples because I'm still going to bake with it but I take my excess excess Supply and I go to my neighbor and I trade it for pairs right that's partner exchange right uh people you know you probably have seen maybe you haven't seen But at one point there's a there was a there used to be a game where you you start with like you know a safety pin and you're the goal is to get to a car and so you go from person to person trying to exchange upwards you say hey this pin will you exchange it for you know you know six you know uh I don't know a vacuum and then you exchange that vacuum there was a bit that's always sort of a game that's that's played in at one point about so so that's barter exchange exchanging goods for goods but in Mar in modern societies we don't do a lot of barter exchange anymore right I you know I don't say I'll I'll fix your TV if you um fix my toilet we don't do a lot of that anymore in the extent and instead we use money money basically is a proxy for our wealth it's a proxy for our Goods but also a proxy for our labor okay it's and so it's it's a more efficient way of engaging in voluntary exchange so rather than having apples and finding someone who grows pears or bananas we exchange our apples for a piece of paper that that describes the value of those apples which then I can use to exchange for labor right so I'm giving you you know 10 apples I'm going to give you the equivalent of 10 apples in exchange for you fixing my toilet for instance or exchange for here's here's a million apples this paper represents a million apples um which will then allow me to buy in exchange that you'll give me that house so uh beside you know so voluntary exchange is important but but a key component of voluntary Exchange is you need a price markets rely on price to determine the value of one's goods and the value of one's labor right price helps determine that and price is determined by if you go if you take some classes economics or if you take some classes in in political economy price is determined by demand how much people want something right and supply how much is available so if you understand the price of something it's determined by how much by demand how much people want and supply how much is available right so when people really want something but there's not a lot of it price is high right it's like we really want apples but there's there was a a blight that killed all the apples well now people charging a ton of money for that right whereas if if people don't want something and there's a lot of it well then people just price is really low people are just giving away giving away the product so that's just a basic basic price and price demand and supply so how does the market determine what gets produced in society how do if if the state's not doing it if the state is not doing it how does the market do it how does the market decide what gets produced um how and how it gets distributed right well the market doesn't rely on the state to do that although States as we've talked about earlier can do that instead production and distribution decisions are determined by individuals we rely on the freedom and agency of individuals to make those those choices that individual preferences about what we want that's demand uh so people have to figure out what do people really want what's the demand and then you need to supply that Demand right you need to supply something you need to create the supply to feed that demand so that's that's how you know people basically individuals are responding to what other people want and what other people have and it's an organic process you know we don't need to in the market you don't need the state to to tell you set the price you just figure out oh all my neighbors none of them want apples I got a ton of apples that's a real problem right so I better produce something else you know because everyone everyone has an apple tree so um you know demand is low Supply is high I better find out oh and hey nobody's ever thought about you know bananas no you can't really grow bananas in Canada no one's really thought about apples so I'm gonna or a pears I mean no thought about pears so I'm going to plant a bunch of pears if you think about the wine industry in Canada it's the same kind of thing you know we've been or we you know people planted these wines um and you know this first we had we had Canadian varietals like Canadian grapes and they planted a bunch of these but nobody wants them right because we're all want European wines you know we know what a Cabernet is we don't know what a Baco Noir grape is or um or Merlot grape and so Canadians so wine producers planted European varietals because that's what they know so that's how markets work so theoretically the market is egalitarian right it's in in the in the abstract it works really well it's about individuals making choices uh and coming together as a community to make these choices but in practice the market could sometimes not be allocate egalitarian so if we all have the same starting point if we all have the same abilities the same lands and the same Goods well at least you know same world we also have the same place we you know it might be okay but we know that in reality the initial distribution of property rights is not egalitarian you're when you're born some people are born into great wealth and some are born into poverty and that makes it and when you're born into poverty it makes it difficult you don't have any capital or labor to exchange you know uh you say you don't have any capital or or lands or Goods to exchange you may have labor but you also it's harder because you're poor it's harder for you to get the skills to be highly skilled labor you know that's why there's not a lot of class movement in many Democratic systems right you know if you come from a poor family it's much more difficult for you to complete to get to University and completely degree versus someone who um who isn't poor you know you you know it's hard to afford the tuition you know if you think about a a young person who's who's growing up in primary school high school and if you're struggling if you're with a rich family well the the rich parent may have more time or they can hire a tutor right the poor poor parent is working two jobs right they're working 16 hours a day or 12 hours a day they don't have time to tutor their child or and they don't have the money because they're poor they don't have the money to hire a tutor and so you know the rich kid the rich kid you know is able to go and succeed in University and and get highly skilled labor acquire the skills to be a highly skilled labor and the poor the poor child is not able to do that and so you have this cycle of so sometimes the initial distribution of property rights immediately produces Market winners and Market losers making it impossible for those who started with no property to end up with more property okay uh these CR you know where you're born or or where you know this this you know these things make it more difficult for you to to succeed and so in that case um so so so so far we've spoken about States and markets we've sort of spoken them as being separate things but of course they're not that states and markets are independent are interdependent you know they rely on each other right that sometimes markets fail and so you need states to come in and correct that failure I mean that's part of the reason why socialism and Marxism sort of leninism all these left-wing things you know they say markets fail they produce they you know the people are born rich people are born poor there's two upper classes in those cases you know no amount of voluntary exchange is going to fix that and so you need states to come in and fix that for us right it needs to redistribute wealth that's why you tax tax from the rich to give to the poor you need to Robin Hood them uh basically it's some sort of the view we need to level the playing field and of course you know some of that in reform liberalism as we talked about in previous weeks a little bit of that in terms of Tory touch conservatism we talked a little bit about that also States right sometimes uh States fail too States can't efficiently uh produce some sort of public good and so you turn to the markets right so this is the whole thing about privatization so at some point in the in the last 10 years there was a discussion about how cities were terrible at uh garbage pickup and so that you know it was expensive and efficient and difficult and so the solution in Toronto for instance was let's hire private contractors to to deliver to pick up garbage it's gonna be cheaper it's gonna be more efficient sometimes States aren't very good at particular things and markets are better so so it's intertwined right it's about for a lot of countries it's about finding that right mix about to to produce outcomes we all want but also to reflect the kinds of values that we as as Canadians think make us who we are right and so that mix is going to be different from what Americans think who they are and so they believe in smaller States larger markets in Canada where tend to be uh more welcoming of larger States and smaller markets okay but and so it's about finding that mix you know the you you know and you can't it's very rare for a country to have pure State pure market right it's always going to be about a mix one way along that Spectrum and so the state of the market even though I've talked about them separately they're actually very much intertwined with each other they work together to um to make a country a country so what is Canada's political economy our economic system is based on a system of capitalism which means that the the means of production tools of production land uh factories infrastructure these are owned by a small group of citizens now these these Property Owners they don't grow crops to just to just feed their families they don't just build um car engines for their own cars instead the aim for these Property Owners is to produce a surplus of goods which they can they can then sell to others to generate a profit generate that Surplus these owners need to hire workers they need to hire workers they need to hire laborers uh and they and and they they pay them a wage to help them produce these Goods by in a capitalist system the goal is to to produce profit it's about accumulating capital a procumulating profit by create by by accumulating profit you're creating economic growth you're able to hire more workers you're able to pay them more you're able to give them a better standard living give them benefits it also allows for you to be Innovative to seek innovative solutions it allows you to expand right more profit should help everyone okay so and and property rights are important in a capitalist economic system property rights are important you want to have safe secure transactions you want people to be able to engage in profit maximizing uh without fear of losing all their wealth through to an uprising or whatever so Canada is a capitalist system in terms of our state in terms of the nature of our state the nature of our the political side of our economy our state is a large State for the most part that it's grown over the years it's it's grown from a very minimal state in 1867 to a very large and involved State you know health care and education we're not State activities in 1867 the state wasn't doing health care and education but during the the post-world War II the state became heavily involved in in all sorts of social welfare functions that it had had very little role in 1867 but our state is also a democratic one that our our political as you know the political side of our system is is a democracy so the state has a monopoly over sovereignty in the use of physical Force but the that Monopoly exists only to the extent to which our country's citizens believe that the state can legitimately exercise those powers and it exercises that oversight through Democratic means right we have a Westminster parliamentary system where we elect representatives who then form the government based on the on who the governor general thinks can command the confidence of the house so if we think the state's getting too big then we can elect a conservative right-wing government that believes in small states for instance or if we think the state's too small we can elect a left-wing government you know the NDP who can then expand the role of the state into the market so the the you know the the range of legitimate Authority and legitimate physical physical Force depends on the government in office and we hope we we uh excise oversight through Democratic means so what does this all mean what does this all mean for Canada how does how does this apply to Canada so in the next video uh we'll talk a little bit about Staples Theory