Category Archives: Hall of Fame

The Apple iEconomy: A Positive or Negative Development?

The iPod: the new standard.

It used to be cars –even refrigerators or air-conditioning that was the common measure of household standards. Now, with 51% of American households (that’s 55 million homes! ) owning at least one Apple product, it seems that having any device created by Steve Jobs is quickly becoming the new standard.

Since Apple Inc. was first incorporated on January 3rd, 1977 in Cupertino,California, the company has grown to become one of the most powerful and successful companies in the world, achieving a pace of innovation nearly unmatched in modern history.

Apple’s line of computers and consumer electronics, including the iPhone and the ubiquitous line of iPods, have revolutionized our interaction with technology so much so that the company has been named as the most admired in the world  for the past five consecutive years by Fortune magazine.

The problem with Apple’s success however, is that it seems to be achieving it like many other successful companies: outsourcing labour to the cheaper Asian markets and maximizing profits by cutting expenses to the bare minimum. We’ve heard this story many times before; big powerful company wants lower costs so big powerful company applies pressure to their suppliers who, in turn, exploit their workers.  But what’s Apple’s story?

If anyone was searching for evidence to counter the benefits we have received from Apple’s products, they really could just follow the company’s supply chain, a feat made easier now that Apple has released it’s list of 2011 suppliers.

It all starts when officials from companies around the world arrive in Apple’s Cupertino offices, or invite Apple executives to visit their foreign factories. These companies are all vying for one goal: to become a supplier. The process can be broken down into two parts: suppliers specify the costs of their labour and the parts, and then Apple calculates how much it will pay for each part. Most suppliers are allowed only the slimmest of profits. As a result, suppliers often try to cut corners in order to maximize their profits and keep their lower-cost business model competitive and attractive to Apple. With so many suppliers clamouring for a piece of Apple’s pie, the company has the power to ensure that these suppliers are giving them the lowest price possible, lest they pick another supplier who could offer an better and cheaper alternative.

With its market power and ability to dictate terms to its electronic components suppliers, Apple can be thought of as a monopsonist.

If you merely mention that Apple’s production operates in an imperfectly competitive form, any economist can automatically tell you that the company is not operating in a way that achieves the highest possible gain to society.

Instead of paying for a quantity that would be considered socially optimal, Apple purchases less from its manufacturers than what it need to match the demand for Apple products. At this quantity (Q*), the company should be paying its suppliers at PA, but they instead pay the lowest price they can – P*.

That economically dreaded triangle that forms, called deadweight loss, is the clearest indicator of economic inefficiency; further transactions that could have occurred do not and supplier and buyer welfare is not maximized.

All of this is done because Apple wants to maximize its profits, and since they are preventing mutually beneficial trade with its suppliers from occurring, Apple has generated a market failure.

At this point, I don’t think any of you are clutching your iPods in despair over the deadweight loss that this device has incurred, which makes sense since no one is really going to start a protest accusing the whole institution of impeding the global economy because the company stole its suppliers’ theoretical economic surplus.

If anything has riled up consumers against Apple, it would be the recent string of news regarding chemicals-related injuries, suicides, and factory explosions which have all exposed the public to the troubling practices inside many of Apple’s suppliers.

Fifteen Foxconn workers threatened a mass suicide in order to protest the working conditions of the factory.

If you own an Apple product, chances are it got its start  in one of the Chinese factories owned by Foxconn, a Taiwanese tech company who work closely with Apple to assemble the iPhone, the iPad, and various Macintosh computers.

Compared to our standards, conditions in these factories are dismal. The 230,000 employees often work 12 hour days, 6 days a week. The average worker earns less than $17 a day, and over a quarter of these employees live in the cramped company barracks. As workers fulfill their various jobs, assembling the numerous i-gadgets or cleaning screens, aluminum dust fills the air. The lack of proper ventilation only adds to the health problems of the workers, and was the reason behind the two aluminum dust explosions in Foxconn and another Apple supplier.

To Apple’s credit, they are doing some part to deal with these issues. They recently launched a supplier responsibility initiative, which is why the list of suppliers was released in the first place. This initiative involves the implementation of their supplier code of conduct which details standards on labor issues, safety protections and other topics. Apple audits its suppliers regularly and when abuses are discovered, the company demands corrections.

According to the company, these audits have found consistent violations of Apple’s code of conduct. In 2007, two-thirds of the thirty-six plus audited suppliers indicated that employees regularly worked more than 60 hours a week. In extreme cases, 15 year-olds were hired, and records were falsified. Over the next three years, Apple conducted more than 300 audits, and each year, more than half indicated that employees were working extended overtime. Last year, of the 229 audits conducted, 93 facilities still had workers exceeded the 60-hours-a-week work limit.

Notice a pattern? This lack of change might be explained by a former executive involved in Apple’s supplier responsibility group: ”Noncompliance is tolerated, as long as the suppliers promise to try harder next time.”

For the suppliers, following Apple’s supplier’s code obviously means higher expenses. Since the code isn’t enforced strongly, there’s no incentive for suppliers to change their ways except maybe for the sake of morality. Oftentimes in business, that’s hardly a strong enough incentive. ”The only way you make money working for Apple is figuring out how to do things more efficiently or cheaper,” states an executive at one company that helped bring the iPad to market. ”And then they’ll come back the next year, and force a 10 % price cut.” This only perpetuates the working conditions as companies replace expensive chemicals with cheaper and more toxic alternatives, and force employees to work faster and longer.

Working conditions aren’t the only underlying issues with Apple’s supply chain system.  For Americans, it’s the fact that, of all the people needed to engineer, build, and assemble Apple’s products, barely any of them work for the United States since they are all outsourced to the cheaper Asian factories like Foxconn. For the U.S., that’s 700,000 jobs  that could alleviate its job crises and high unemployment levels.

But does all this information and statistics actually show that Apple has done more harm to the global economy than it has done good?

The benefits that Apple has provided to the world and its economy is more obvious than the drawbacks. We can not deny that Apple has transformed our relationship with technology. The multi-functioning aspects of Apple’s products have given its consumers greater convenience and functionality, raising our standards for what we expect from any of our electronic devices. Music and media interaction has evolved into a whole other level; iPods and iTunes have changed the way in which we listen to music by adding the feature of instant access. Visual communication production was changed when the Mac computers allowed typesetting, retouching, illustration, and film editing to become available to the average consumer.

Apple’s innovations and designs have paved the way for further technological development –either through the competition generated or the firm’s own motivation to outdo themselves, that has benefited society as a whole. These spillover benefits created indicate that there are not enough Apple products out in the market to meet the amount that society wants. 

With all that’s said and done, we still demand more of their products because they’ve truly made our lives better. The cheap labour and the pressure placed on suppliers where the biggest criticism of Apple lies? That sounds an awful lot like what other companies such as Walmart is doing), and the millions of Walmart’s daily consumers are all snapping up the lower-cost products without consideration for any of the implications. In terms of Apple’s manufacturing process, the company also doesn’t stray to far from its less mighty, but still successful competitors. It’s estimated that 40% of the world’s consumer electronics are produced in Foxconn’s factories, including products from brands such as Amazon, Dell, Hewlett-Packard, Nintendo, Nokia and Samsung. So why are we all so hung up on Apple’s misgivings? Maybe the answer is because Apple is good for the economy. So we expect it to do better; in short, we expect Apple to achieve maximum greatness for the world.

With recession-proof annual earnings of $108 billion, all of Apple’s success seems to oblige them to do even more, especially for their home economy. That’s because Apple is “the quintessential example of the Yankee magic that everyone from Barack Obama to Michele Bachmann insists will pullAmerica out of its job crisis.”

Apple may be a technological pioneer, but that doesn’t mean it’s holding the key to saving the American economy, waiting for the perfect moment to release the ultimate iSolution, perhaps through a press conference in San Diego.

First off, just as the previous graph indicates, the positive externalities generated from the firm’s products means Apple needs to supply more of its gadgets, and they are already having trouble meeting that current demand. Given that Asia, with it flexible labour and environmental rules, and bountiful population of unskilled workers can’t churn out enough suppliers or workers to meet up with the demand, there’s not much to be said about the U.S.  Even if Apple was able to find hundreds of thousands of workers willing to work a low-skill job, the only logical move in opening some manufacturers in the U.S. is to move the entire supply chain there, which is not easily replicable in the short-run. A supply chain in America would increase labour and production costs, which would ultimately jack up the price of any Apple product. Now, you’ll actually have a protest accusing the whole institution of impeding the global economy.

Since we’re evaluating Apple’s contribution to the world’s economy, it actually doesn’t matter that there’s a lot of foregone job possibilities in the U.S. Other countries have those jobs and opportunities, and that benefits the global economy through theirs instead. Of course, conditions at most of these manufacturers are far from ideal, but this negative development can’t be entirely blamed on Apple. Other companies employ either the same factories, or other manufacturer that use similar tactics. Apple’s fault does not lie in the fact that they are mistreating their workers, it’s more because they are not using their full market power to make other companies, like their suppliers, change their ways. At the end of the day, no matter how an Apple product is created, the output from these suppliers still contribute something to the economy, even if some of these conditions are less than ideal.

As the iPod travels through its production & supply chain, it attributes value to each of the countries that its 451 parts come from. When the research was conducted, the $299 U.S. retail value of the iPod can be broken down like this: $73 from Toshiba’s hard drive, $20 from the display module, $13 for the video/multimedia processor and controller chip, and the assembly at $4. Countries where any of Apple’s devices are created and assembled, like Japan,China, and Korea, all have extra value added into their economy because of Apple. The U.S. benefits the most from this; with the iPod, $163 of its value was captured by Apple’s conception and design of the product, and the distribution, retail, and domestic components from other American companies and workers.

If that value-added wasn’t enough and the U.S. still wants to complain about the fact that Apple hasn’t been an effective driver of job growth at home, they should look at it this way: Apple has still generated 46,000 direct jobs in their home country. Indirectly, the iOS app economy has created about 210,000 jobs. Add in the figures from the huge number of accessory manufacturers that have sprung up in theU.S., and the employment impact is even greater.

So really, if you combine their technological innovations, employment generation, massive sales, and you know, the fact that they have allowed you to listen to music without hauling a boombox on your shoulder (a reduction in muscle strain injuries does benefit the economy in some form), Apple has been a positive development for the world.

We may be holding on to the negative aspects of Apple’s growth because we consider Apple the modern variation of the American dream, just reformatted into a glossier, sleeker, and cleaner package. The Apple logo conjures up an image of thinkers and entrepreneurs that have used innovation to propel us further into the future than we ever thought possible. And because of this idea, we also expect them to champion a human rights labour movement and reconstruct the American manufacturing industry. Whether they do so or not, you can’t deny that they have impacted our lives and the economy at a greater degree than any of the negative developments the company is associated with. And that’s clearly the anodized-aluminum case with the iPod you pop in your earphones to listen to music with.

Asbestos, Definitely Not Best For Os

Imagine being winded by a half block walk, fighting to catch your breath as your lungs slowly harden, gasping for air against a disease that will eventually suffocate you. Pretty scary right? Welcome to the world of asbestosis, a disease caused by the inhalation of asbestos fibres, and a disease for which there is no cure. Asbestos, when it was discovered in 1879, was called “white gold,” today, it is banned in 50 countries. The World Health Organization has identified asbestos as being amongst the most dangerous occupational carcinogens in the world, causing diseases such as lung cancer and mesothelioma, in addition to asbestosis. Knowing this, it comes as little surprise that Canada has effectively banned asbestos for domestic use. What is surprising, and perhaps shocking, is that next to Russia, Canada is the second largest exporter of asbestos to Asia. What do you do when you have lots of a carcinogenic substance that nobody is willing to use at home? Export it, of course; to countries like India where the health standards are much lower. This is exactly what Canada is doing, and so the question becomes whether Canadian companies should be allowed to mine, market and sell asbestos.

Asbestos is, without a doubt, a very useful substance. Asbestos was once a global commodity that was known as a “magic mineral” because of its insulating and fire resistant properties. The usefulness of the substance is seen by the fact that at one point, asbestos was everywhere, you could find it in houses, cars, factories, and thousands of both household and industrial products. It was used in all kinds of insulation and was in practically everything ranging from brake pads, paint, cement, sidings, shingles, pipes, ceiling and floor tiles, and clutch facings, all the way to crayons. In fact, asbestos was considered so valuable at one point that the American military planned to defend the Quebec mines if Germany ever gained control of Canada. Asbestos cement was also used to make Winston Churchill’s bunker during World War II. It is evident that asbestos is an extremely useful and versatile substance, both durable and relatively cheap, so why should we be banning it?

This question can be answered by three words: asbestos, causes, cancer. The banning of asbestos exports was never a question of its usefulness, the problem is the massive market failure associated with it. Namely, negative externalities. For all its benefits, the use of asbestos is also coupled with extreme negative impacts. As mentioned before, exposure to asbestos, a carcinogen, leads to the diseases asbestosis and mesothelioma. People often express concern for the people working in asbestos factories, but simply improving conditions at asbestos factories only solves part of the problem, because the negative externalities don’t end there. The primary exposure is not to factory workers; it is to people such as construction workers, masons, plumbers and electricians, whose job it is to do things like cutting through asbestos pipes, sheets and tiles all day. Not only that, people working in buildings made with asbestos are exposed to it each and every day. And if that isn’t bad enough, the families of those working in asbestos factories are also exposed to the fibres that are brought back to the house. A girl named Cavanagh Matmor’s grandmother died of exposure from fibres her husband, who worked in a Toronto factory with asbestos, brought into the house with him. The World Health Organization reports that each year more than 100, 000 people die from diseases due to asbestos exposure, and more will continue to die, as 125 million people are exposed to asbestos at work each and every day. Those are some pretty scary numbers, and the failure of asbestos is summed up pretty well by Dr. Amir Attaran’s description of asbestos use in his country, “It’s a scientific failure, a clinical failure, and a social and moral failure of India. It is a failure of culture and science.”

That’s a pretty fancy suit you got there! Wait…why doesn’t the other guy have one?

The negative externalities associated with asbestos exposure are obvious, so why does demand for it continue to exist in developing nations such as India and Indonesia? After all, you can’t really say it’s our fault if they know what they’re getting into but keep asking for more right? Well, first off, the negative externalities may not be so obvious to the workers in these nations because their employers hide that information from them, and they do not have the education to read the English warnings on the bags they carry. There are two major reasons why the demand for asbestos in these countries continues to exist, and even grow: lax limitations on control and use, and the fact that the people are poor. With limited regulations, there is nothing to stop companies from using asbestos, so they don’t stop. Banning asbestos in Canada and selling it abroad is basically saying “we don’t care who dies from asbestos, just as long as it isn’t us.” In Canada, buyer’s preferences have shifted completely away from asbestos now that people are aware of the health risks, so much so that the government has banned its use, but that hasn’t prevented Canada from shipping it out to other nations with poorer regulations. In these places, a worker might have cloth tied over their face as safety equipment at best. Durai Swami, who worked with asbestos for 24 years has the right idea when he says, “In Canada, you have all these safety measures. In my country, they’ve left us to carry it and die.” Yet they continue to work because the economic incentive of even a meagre wage outweighs the potential health risk. To them, asbestosis or no asbestosis, they need a job and the industry employs 100, 000 people directly, and a further 300, 000 indirectly. These countries also have many people, and many poor people. India, with a growing population of 1.2 billion, presents a huge number of buyers creating demand for the product. It isn’t difficult to understand why people in these nations continue to use asbestos, considering that asbestos cement sheets are both durable and cheap, costing half as much as roofing made of galvanized steel or tin, and lasting twice as long. An economic incentive that great becomes difficult to pass up, which explains why Asia’s share of the world’s asbestos use went from 14% during 1920 to 1970, all the way up to 33 percent from 1971 to 2000, and currently sits at 64%. However, there will be a huge price to pay, as Dr. Arthur Frank, Chairman of Environmantal and Occupational Health at Drexel University explains, “What we can expect is very predictable – an absolute catastrophe of death and disease.”

It is understandable why people in India continue to use asbestos, what is less understandable is how Canada can continue to justify these exports to its population. We know what is happening with our asbestos once it gets to other nations, we know the damaging impacts it has, the statistics are right in front of us. So if we think and know it is wrong, why doesn’t the population force the government to ban exports? One possibility is that the Canadian asbestos is mined in Quebec. Because of the cultural and language differences, Quebec’s affairs are somewhat separated from the rest of Canada, as if they were practically two separate nations. Without the rest of Canada as involved, there isn’t as much pressure on the federal government, and so the key to Canada’s asbestos lies with the Quebec government. This is because without the $58 million loan guarantee from the Premier, the industry will have to cease operations. However, whether from Quebec or the rest of Canada, Canadian asbestos is all the same to workers in India and Indonesia, and the damage is done to Canada’s reputation as a whole. The only way politicians such as Stephen Harper and Jean Charest will make changes to Canada’s position on asbestos is if there is sufficient pressure from the public, and so even if the population is opposed to it, perhaps the isolation of the industry in Quebec is preventing that pressure from building.

It’s plausible that the isolation of asbestos mining to Quebec prevents public pressure in Canada from building up to a great extent, but that doesn’t explain how Canada as a nation can justify exporting a carcinogen on a global scale. After all, the conservative government just decided to block an international agreement that would include asbestos on the Rotterdam Convention watch list of hazardous materials. Bernard Coulombe, owner of the Jeffrey asbestos mine, said, “We don’t want to be on a banned list, that would bring shame for us.” Obviously exporting a carcinogen that you won’t touch yourself to developing nations, simply because they are poorer and have lower regulatory standards, isn’t shameful at all. The Canadian Cancer Society said it was an “unethical decision” and that it was left “shocked and embarrassed.” Canada’s decision certainly didn’t help its international reputation as a fair dealer, but that doesn’t mean it was baseless either. Believe it or not, Canada does have some legitimate justification for its asbestos. Canadian chrysotile is supposed to be of higher quality and safer than other forms of asbestos, and is valued as the industry standard. “Chrysotile” is the recent rebranding of Canada’s white asbestos, which seems suspiciously like slapping a new name on the same product so as to move away from the damaged name of asbestos. In any case, John Nicodemus, an executive director of the Asbestos Cement Products Manufacturers Association of India says, “Canadian fibres are amongst the best in the world – that is why most companies prefer Canadian fibres first.” Conservatives and the mining industry contend that chrysotile is less harmful than the much more toxic blue and brown asbestos other countries produce, and that it is safe if handled properly. And they are correct, Canada’s asbestos is the best out there, so if they’re going to use asbestos anyways, may as well give them the best. However, the key words to note here are “less harmful” and “if handled properly.” “Less harmful” just means that Canada is the best, the best of the worst that is, which doesn’t make it good, as WHO has stated that there is no safe level of exposure to asbestos. Moreover, “if handled properly” is a very big if, considering activists in India argue that there is no such thing as safe use in the country because occupational safety isn’t practised, regulations aren’t enforced, workers’ health isn’t monitored, and there is severe poverty.

The Conservatives try to defend their chrysotile, and the difference in quality is a legitimate argument, to some extent, but no matter what quality asbestos, it certainly isn’t helping Canada’s international reputation. So what reason does the government have to swallow the damage to its status? The answer seems to be entirely political. Taking on asbestos exportation is difficult for the Conservatives, or any political party, because of the industry opposition. The Conservatives are very firm in their support of the asbestos industry, and it may just be a play on their part to win as many seats as they can. In the past election, the NDP swept up in Quebec with 59 Mp’s elected, leaving the Conservatives hanging on to just five ridings south of the St. Lawrence, which is mostly made up of the asbestos region. For the government, the decision on asbestos became a balancing act of social incentives. Ban asbestos and please health organizations, along with maintaining Canada’s international reputation, or support asbestos, and keep the support of its regional base in Quebec. Ultimately, it seems that on the social incentive scale the side that gets Harper votes is the one that wins out. Not an admirable decision by any means, but it is an understandable one; after all, the goal of any government is to get votes and stay in power, especially holding on to its established ridings. However, Harper certainly knows what’s wrong with asbestos, planning to begin a $1 billion renovation project to clean asbestos from the parliamentary buildings, so perhaps it is time for our government to suck it up and ban asbestos for good, because it’s the right thing to do.

The right thing to do, that’s what this issue ultimately boils down to. Developing countries have the economic incentive to go on using the cheap and durable asbestos, and profits for Canada provide the incentive to go on selling it. The Conservatives have the opposing social incentives of global reputation and its Quebec region support. However, it is not the economic incentives that are most important, nor are the social incentives; what must be considered first and foremost is the moral incentive. Is allowing Canadian companies to mine, market, and sell asbestos, not domestically, it’s banned here, but export it, the right thing to do? As Frank, a public health expert at Drexel University says, “Canada is the world’s biggest hypocrite when it comes to asbestos. It is taking it out of Parliament buildings but willing to sell it overseas.” The government should know that asbestos is a carcinogen. The government should know that asbestos-related diseases kill an estimated 107, 000 people worldwide each year. And so, the government should know what it must do. An Indian named Ragunath Manwar asks Canada, “Doesn’t you government feel a moral responsibility that what they are doing is killing us?” It certainly should, and it is about time for Canada to stop exporting death.

Journal Prompt #1- Hsin-Yen Liu

What determines a student’s mark? Knowledge? Intelligence? Effort? Sure. But apparently there’s one more thing: money.

In 2011, The Toronto Star published an article revealing the issue of students paying for grades.  Basically, certain private secondary schools, known as “credit mills,” allow students to earn easy and inflated marks for a fee of $500 to $980 per course. Below are some of the findings on credit mills:

  • Grades at some private schools arbitrarily increased upon request
  • Credits granted with less than half of mandatory class hours completed
  • Missing student assessments
  • Teachers without proper qualifications and those who “do not understand” evaluation and assessment
  • Rewriting of tests for $100
  • Students left to write tests with little supervision and access to the Internet.

Most people, I assume, would frown upon the idea of paying to get good marks. If students can exchange paper bills for better marks, then what would become of the meaning of marks? Wouldn’t marks become a measure of wealth, not ability? However, as questionable as this credit-mill business may seem, it exists, and it seems quite successful.

The question is: why?

Incentives and Opportunity Costs
We can use incentives and opportunity costs to explain why private schools are willing to sell “A-credits,” as well as why some students are willing to pay large amounts of money for higher marks.

For the credit mills, it is clear why they want to give easy marks to students: economic incentives (money). By allowing students to get high marks effortlessly, the schools attract desperate students who will pay $500 to $980— as mentioned earlier—for each of the courses that they take. This makes a lucrative business that the schools would definitely not want to miss out on. So basically, for the credit mills— which have nothing to offer (they obviously don’t offer good education if they have unqualified teachers) except easy marks—

Now, how about the students? Why would some students want to obtain their credits from credit mills? Well, we can analyze the opportunity costs— the values of the next best choice.

If the students choose to go to regular schools, their opportunity cost would include the higher marks that they could have gotten from the credit-mills. This could very well translate into getting into the desired university programs and receiving scholarships. Also, perhaps less importantly, the opportunity cost would also include some extra time; if they have gone to the credit-mill schools, they would have gotten their credits with less than half of the mandatory class hours, as well as fewer assessments to spend time worrying about.

On the other hand, if the students choose to buy easy marks, their opportunity cost would include the $500 to $980 that they spend on each of their courses, as well as “proper” education. What do I mean by proper education? Well, education with qualified teachers, enough class hours, and reasonably difficult tests during which the Internet is not allowed —none of which you can find in the description of a credit-mill class. By not receiving proper education, it is obvious that the students do not study or learn as much as they would have in a regular class.

Evidently, for the students who are choosing to get their credits from credit-mills instead of regular high schools, the latter is costlier. That is, they place more value on getting higher marks (and more free time) than on the course fees and a proper high school education. As a result, they choose to sacrifice their money and their high school education so that they don’t miss out on higher marks and free time. Why? Some of them may know/feel that the only way for them to get to into their desired university programs is to pay for the required admission marks. Since getting into the “right” university programs is so important, nothing — not even bad high school education or high financial costs— will stop them from doing whatever they can to ensure their placements in the programs. Or, they might just have “screwed up” very badly in public school, to the point where buying their marks seems to be their only solution.

So here we go. We have private schools that are willing to supply good marks at high prices, and students who are willing to pay those prices to get better marks. This is why the credit-mill industry is successful.

Credit Mills: Good or Bad?
Hmm, so perhaps credit mills are not that bad after all. Some students get the marks that they need, and the credit mills get to pocket large amounts of money. It’s a voluntary trade, and everyone seems happier. However, this is only a superficial observation. If we compare the efficiency and and equity of two school systems—one with and one without credit mills—we will see that credit mills are indeed bad.

Efficiency: one system is more efficient than another if some people are better off and no one is worse off. So, in the short term, it may seem more efficient to have credit mills— some private schools are better off with more money, certain students are happier with paid high marks, and the remaining students are just getting the marks that they normally get. Some people are better off, and the others are not worse off.

However, on the long run, having credit mills is definitely not more efficient. The private schools are still better off with more money, but many of the students are worse off. According to the Toronto Star article, students who pay for grades “are beating out more academically deserving teens for university spots and lucrative scholarships.” This makes the “more academically deserving teens” worse off. In addition, the students who pay for grades will eventually “flunk out because they’re not ready.” So they are worse off too.

In the end, the credit mill industry only benefits the credit mills, and it harms many students. Thus, a system with credit mills is definitely not more efficient. However, this is not to say that a system without credit mills is more efficient, because it makes the private schools worse off.

Equity: According to research fellow Harry Jones from Britain’s Overseas Development Institute, equity means that people are treated as equals, and it concerns three major areas:

1. Equal life chances: There should be no differences in outcomes based on factors for which people cannot be held responsible.
2. Equal concern for people’s needs: Some goods and services are necessities, and should be distributed according solely to the level of need.
3. Meritocracy: Positions in society and rewards should reflect differences in effort and ability, based on fair competition.

It is quite clear from the above criteria that it would be inequitable if students can pay for grades; credit mills create unequal life chances. Students who are born to poorer families are at a disadvantage because of a factor for which they are not responsible— their parents’ income. Also, if one student is getting a better mark than another student because they (or most likely, their parents) have paid for it, clearly that does not reflect “differences in effort and ability,” does it? It would not be a fair competition if students can pay for grades.

On the other hand, if credit mills did not exist, a difference in marks would be a more accurate reflection of the differences in effort and ability. The outcome would be much fairer and much more equitable. So from this perspective, credit mills should definitely not exist.

To sum it up, credit mills do not make a school system more efficient, for even though they benefit the private schools, they make many students worse off. Also, credit mills make the school system a lot less equitable and fair. Seeing as a school system should aim to benefit the students, there is really no reason why credit mills should exist.

Students should not be able to pay for grades.

Solutions?
Now that we have established that credit mills are bad, how can they be eliminated?

Actually, back in 2009, the school ministry attempted to reduce the problem by flagging every private school credit with a “P” on the transcript. They did it in the hopes that universities would disregard the undeserved high marks, and thus lowering the opportunity cost for obtaining credits the regular way (the high marks bought from credit mills will then have little value).  However, many universities, such as Wilfred Laurier University, University of Toronto, and University of Western Ontario, still take the approach of “a grade is a grade is a grade.” The “P” tells nothing about the nature of the marks except that they are earned from private schools, but not all private schools are credit mills. In other words, the extra “P” did nothing to change the opportunity costs for students.

An inexpensive improvement on the existing “P” would be adding the names of the private schools onto the transcripts. This could perhaps give universities a better idea of whether the marks are legitimately earned or not. However, Jennifer Yang, the author in this Toronto Star article, feels rather pessimistic about it; she questions whether universities would take the trouble to create a ranking system for all the private schools.

I believe that the solution lies in getting to the root of the problem—identifying and doing more about the schools that are selling marks. As Yang has mentioned in her article, there should be better inspections: suspicious schools should be inspected more to ensure that they are doing everything properly. And to avoid an increase in spending, schools with good records should be inspected less often.  Also, once identified as being credit mills, private schools should face more consequences. Currently, schools can get their credit-granting authority revoked if is found that they have problems. However, they can re-open as soon as one year after the they are shut down! Clearly, there should be a change in policy to increase this waiting time, so as to discourage schools from doing wrong.

The ministry should add negative economic incentives too: if they fine credit mills large amounts of money for selling grades, then the opportunity costs for doing the business would increase significantly. Not only only would the schools be shut down (for a while), they would also lose the profits that they have earned in the previous year(s). If the fines are large enough, the opportunity costs for selling grades would rise to a level at which credit-mills would find it more desirable and less costly to run their schools properly (to offer real education, not just marks).

A (Not So) Brief Recap
To sum everything up, there exists a problem in our education system where students are able to pay for easy grades by going to certain private schools known as “credit mills.” They pay something in the range of $500 and $980 for each course, and in return they get high marks that require almost no effort.

The credit-mill industry is successful because the private schools want to earn money, and students value high marks. However, being successful doesn’t make it good: not only does it make some students worse off (thereby not making the school system more efficient), it also makes the school system less equitable.

To eliminate credit mills, more inspections should be done so that the problem-schools can be better identified. Also, credit mills should face worse consequences once they are identified. They should have to wait for more than one year before they can re-apply for their licenses, and they should be fined (heavily). With proper incentives, the opportunity cost for selling marks could be increased to a point where it is actually costlier than that of not selling grades.

Paying for grades is a serious problem, but not one that cannot be fixed.

Canada’s Economic Toil, and How We Must Act Now

Economics Journal 11

In Canada’s near future as individual citizens and as a country we will face a number of economics challenges that if not handled to appropriate way will severely impact the economy that we rely on to sustain our current way of life.

While many toils can be predicted to arise in the near future, in my opinion the ones that concern us the most deal with our employment and our resources.

Employment

Canada is a capitalistic country, and because of this our society functions based on how stable our economy is. If the economy is doing badly, then arguably the quality of life is declining because luxuries are scarcer, and basic necessities become harder to obtain for a lot of people.

Economies are fuelled off demand, and most demand (demand for non-essential items) only exists when consumers have disposable income. In order for consumers to have disposable income they must be employed and have a salary that is sufficient enough for them to pay off all their expenses and have left over money to spend. This is essential for an economy on a larger level because if purchasing stops then manufacturing or servicing stops, then more people lose jobs, which leads to even less consumer’s with disposable income. So this cycle continues downwards in what is known as the multiplier effect.

Many years ago developed countries realized the massive fiscal benefits of producing outside of the country because often work laws, such as minimum wage and work environment regulations, are far more relaxed in these foreign countries. Unfortunately this has caused the death of a large part of the manufacturing industries- seeing almost 1/7 jobs in this industry being lost between 2004 and 2008. This is known as structural unemployment, because the economy no longer has need for workers with these skills. Those who do not lose their job will most likely see a significant wage cut because the company need to cut expenses in order to make it worth their while to continue operations in Canada, and with most of the jobs being outsourced workers will have nowhere else to work if they become unemployed or are dissatisfied with their wage; also often the education of a worker in manufacturing is not very high, so they are automatically excluded from many job markets. A very significant wage cut that recently happened is at Caterpillar, where worker’s salaries were cut in half.

If trend continues many people are likely to see their job lost or their salary severely cut and because workers in these jobs often do not have a high education finding a new job is difficult. It is important for the well-being of our economy that some intervention be had. There are effective ways the government can deal with the decline of manufacturing jobs and all the people left unemployed by this, they simply must retrain them so they are suited for jobs that are still available in Canada, and make sure people entering the work force receive the

education they need so they can enter a field that has demand. By offering programs such as Second Careers to train workers how to apply their skills to different careers that are in demand. The government needs to open more programs like this, and promote them so those who become structurally unemployed have to opportunity to continue making a living. It is also possible for the governments on both a provincial and federal level to offer a tax benefit to company that manufacture in Canada in order to encourage production to stay in Canada- this could be a useful step to preserving these jobs. Manufacturing makes up 11.5% a massive drop from 14.9% ten years ago, and this is a trend that will likely continue if no action is taken.


 Having this huge number of jobs these disappear without replacement would put a huge strain on the economy but it can be avoided if the right moves are made by individuals and the government.

Resources

Canada consumes 2.209 million barrel of oil each day this goes towards supplying us with electricity, fuelling ours cars, planes, factories, and many more uses. We rely on oil to live our daily lives, but unfortunately it is not an unlimited resource, and recently there has been speculation that our supply will become limited in the near future- this is called peak oil.

Peak oil is the point where maximum oil output is reached, and after this point has been passed oil output will decline. The world reached its peak in 2008. When oil supply declines, as the projections say it will, but demand continues to rise (projections agree with this as well), there will be a huge price rise, as can be seen on a supply and demand graph. Even Canada’s massive oil supplies will not last forever or save it from this crisis, and much of these are sold to the US and other countries, a rise in the global price in oil will affect the price in Canada regardless of the product being domestically produced. This will cause the price of electricity and gas to skyrocket, and anything that relies on electricity or gas will become near unaffordable for the average Canadian to use. If every factory shut down, and citizens could no longer afford to transport themselves to work and back, and shipping goods became too expensive for importing and exporting then it would not take long for the country to effectively shut down.

There are a number of ways both individuals can prepare themselves for the future and help sustain the environment at the same time. Becoming less reliant on energy produced by oil (practically all electricity) is the only way to avoid this crisis. Average homeowners or landlords can install solar panels on houses or buildings (residential or commercial) to produce energy, and save on energy costs in the future.  For individuals this can be an investment that will save money in the long-run and lead to a cleaner environment.

It is important for the government to take action and start paving the way to an less oil dependant future, because our supplies are running out and they will not replenish quickly. The government should restart programs such as the Solar Energy System Rebate Program that was closed in 2007 to encourage citizens to install alternative energy sources. The government invests money every year into grants for researchers; it can start putting a lot of this into research for alternative ways to power cars. There are also projections that if the government begins investing into wind energy by 2025 20% of Canada’s electricity can come from this source, if the government were to also start investing into solar panels to cover vast areas of Canada that are uninhabited. If the Federal and provincial governments can create sufficient energy sources before we start to heavily feel the effects of peak oil then Canada could have a much smoother transition than other countries into the far less oil dependant existences countries will soon need to lead.

These two economic issues are ones Canada will have to overcome in the near future. If the proper pre-emptive actions are taken we can save ourselves a lot of damage to our economy in the future. It is both the individual and governments responsibility to educate themselves and take action on these to prevent or solve these problems.

University Education, Making the World a Better Place

A university education is the basis of a bright future and a good life, or so we’re told by our parents and our teachers. With a degree we will be able to become better, more successful people. We will be able to get jobs that will allow us to swim in money. Graduating from a university is supposed to help us make it in life and benefit us immensely.

"Don't want to go to university? Welcome to your future home, not shady at all." - Mother

However, not only does a post-secondary education benefit each individual, these benefits spill over and have a positive effect on the people around them. The education that a student gains from attending university creates numerous positive externalities. One major positive externality would be the improvement that higher education has on a society’s labour force. A more educated population means a more educated work force. This means more chances for innovation and development by that society. A more educated and prepared society would also have more people ready to work, lowering unemployment rates. This would be another increase to the social welfare of that particular society.

A university education, as far as I can see, only creates positive externalities. How can someone becoming more educated in a career field possibly have a negative impact on those around them? People going to university for medicine now means a healthier society later. People researching new technology in university now means a more advanced world for everyone later.

Everything that we use or that benefits us is a good, therefore a university education is a good, but what kind of good is it? Well a good is defined by two characteristics, whether it is excludable and whether or not it is rival in consumption. A university education is both excludable and rival, making it a private good. It is excludable because in order to attend classes and go to university, you must be able to pay the university fees, such as tuition, boarding, textbooks, among other things. If you cannot afford those, you are excluded – not able to have access to the good that is university education. It is rival in consumption because there is only a limited amount of space available for any given university program. For example, if a program only accepts 500 out of 1000 applicants, that means that the good in this case, university education, can only be consumed by the 500 accepted applicants. The rejected applicants will not be able to consume the good, meaning that it is rival. This means that university education is a private good because it is both excludable and rival.

To be a rival good, someone has to get hurt.

In addition to being a private good, I believe that university education is also a merit good. A merit good can be defined by two characteristics. Firstly, its consumption and secondly, the externalities associated with the good. The government believes that merit goods would be under-consumed if left alone in the market, so merit goods are often subsidized or even offered for free, such as high school education. Regarding the externalities, merit goods are goods that create positive externalities, “where the social benefit from consumption exceeds the private benefit”.

Based on those two characteristics, university education must be a merit good. Although university education is not offered for free in Canada, there is substantial funding by the government that goes into post-secondary education. In 2005 – 2006, approximately 30.6 billion dollars was spent by all levels of government in Canada on funding for universities and colleges. Also, the government does assist those that need money by offering grants, scholarships, and financial loans to those that meet their standard or requirements. They do this because they are aware of the potential benefits that each university graduate can bring to their country and society. The benefit one offers to society with the knowledge gained from higher education is vast. A doctor can save countless lives, a teacher is able to impart knowledge and prepare future generations. While the education may mean a job and money for the individual, it means much more than that to their society.

As previously stated, there are multiple positive externalities associated with receiving a university education, and because of that, there should be more incentive for youth to attend university. In order to do that, university must be more accessible. There is already an economic incentive associated with getting a university education, the chance at a more successful career then one could have had without it. However, this incentive is not strong enough because it is not instant. It takes a lot of time for the incentive that lured students in, discovering a career and earning good money, to become a reality. There is also the negative economic incentive that comes with a university education, which would be the cost.

   
As this chart shows, tuition costs vary greatly. Costing as "little" as $4 000 per year to as much as $13 000 per year.

Using the above chart, we can see that the average cost of tuition, between these six programs, is $9 145.50 per year. This is a strong incentive for Canadian students not to attend university, the high costs.

However, changing the way that university is paid for now would only negatively affect the market for university education.  Of the four types of goods, the only type of good that is not considered a market failure is the private good, which we have established that university education is.  Therefore, I believe that the current funding system should remain. Students should pay for their own education, but they should be helped by the government if they require it. With the government aid most likely coming from tax money.

In an interview with Robert B. Archibald, economist at the College of William & Mary in Virginia, USA, he states,

Everyone has three objectives for higher education: lower tuition, higher quality, and less government spending on subsidies. The unfortunate truth is that we can have any two of these, but we can’t have all three. If we mandate low tuition, we have to give on one of the other two. Either the government has to increase spending on subsidies, or the quality of the education schools will be able to provide will suffer.

I believe this not only applies to American colleges, but colleges and universities all around the world, including Canada.

Let’s pretend that university education was made completely free in Canada. Tuition, board, any other costs associated with gaining a university level education was taken care of by the government. The education would no longer be excludable, but remain rival. It would no longer be excludable in the sense that no one would have to pay for university education, they would only have to have grades that meet admission requirements and from that point, it is rival, since there may still be limited spaces. This would mean that higher education would become a common resource, a good that is also a type of market failure. If university education became a common good, it would suffer from overuse. This would likely mean a lack of professors available to teach, resulting in a negative impact on the market and leading to a poor education for those attending.

Furthermore, it has been documented that lower university tuition costs do not mean that more people attend university. According to the Higher Education Strategy Associates, Canadian provinces such as Nova Scotia, with the highest tuition fee, also has the highest university participation rate. Whereas Quebec, which has the lowest tuition fee also has the lowest participation rate. Coincidence? This supports the idea that lower tuition costs does not equate to higher attendance rates by children of lower income families.

Even Alex Usher of The Globe and Mail agrees.

"Indeed, the evidence that such a policy would increase participation from low-income families is slim to nonexistent."

To conclude, universities are more than just an education, universities are economics. A university education is a valuable good, a private good that we must pay for. A private good that offers not only those that are paying for it benefits, but also offers social benefits as well.

Banking On Your Mark Just Got Easier

Pencils? 1 dollar. Notebook? 50 cents. Calculator? 20 dollars. Getting a high mark in that Economics class? Priceless.

We’ve heard that tag line a million times on various TV stations, but guess what? Getting that high mark in Economics? Not so priceless anymore.

In a recent investigation done by the Toronto Star, shocking facts were unearthed about “credit mills.”

But first, what exactly is the credit mill industry? Most commonly found in private schools, these sneaky school operations allow for kids to pay for higher marks to replace their less-than-stellar grades. Universities today are setting high standards, and kids are using these methods in order to achieve the best mark money can buy.

Findings from the newspaper were as follows:

– Grades at some private schools upgraded upon request.
– Difficult questions removed from the exam.
– Students allowed to write tests with little supervision and internet access.
– Tests could be rewritten for a hundred dollars.

Imagine if regular high schools allowed those things to happen. We would never have to study for tests again! Don’t like that question? Ask the teacher to remove it! Don’t like that grade? Upgrade it! Don’t know the answer to that question? Google it! Sounds unreasonable right? This is exactly what is happening in credit mill high schools. Instead of failing out of classes, under-achieving students are able to pay their way to a better grade.

You would think that a sensible teacher would take a moment to say “Hey guys, this is actually very unfair!”, but either it hasn’t happened, or they have been silenced. Now, okay. I know what you’re thinking – so what if they get higher marks, it doesn’t affect me! You bet it does. Hard-working kids like you and I are being rejected from top university programs (I’m looking at you, Schulich!) simply because students from these credit mills are taking our spots.

Because your marks aren't high enough, that's Y!

Credit mills are bad news, but if that’s the case, why do they still exist? Better yet, why are they so successful?  Here are the reasons why.

1. Economic Incentives

Incentives are used as a way to change the choices that people make. Here in these credit mill cases, the obvious incentive being used are economic incentives. Economic incentives are enticing because it  involves people gaining economically (usually involving money), as long as they change their decisions.

In an example provided by this article, a student received a measly 74 percent in Advanced Functions, and sought out to change it by attending TCT high school – a credit mill. Paying between $500 – $700 dollars for each credit, the student knew what he was getting into. The amounts of money being paid by students were  huge economic incentives for the school to hand out easy marks. The money is what differentiates these credit mill classrooms from regular classrooms.

One of the main reasons why these credit mills are so successful is that it is just so simple to give easy marks. After all, the teachers are gaining from it. So what if they’re not exactly qualified? So what if they’re doing less than the required 110 hours of classroom time? They’re getting paid. The economic gain in these situations are so powerful that there isn’t much to lose from partaking in them.

One teacher offers the explanation that the marks are higher because of “smaller class sizes and more personal attention.” Yeah, right. The only reason these teachers would pay more attention is because of the number of zeroes these kids are throwing away. Students being prepared for university isn’t even close to being one of these high schools’ concerns.

Students on the other hand, should know better. It is pretty obvious what they are getting into by attending one of these schools. Although, for the students, the economic gain is pretty enticing as well. All they have to do is pay a couple hundred dollars and voilà! An easy 90 without any work involved. By parting with their money (or most likely their parents’), students are guaranteed a reasonable amount of economic gain – the desired mark and the university of their choice (Hogwarts not included) . Whether they are ready or not for said university, can still be questioned. Working hard at school could possibly yield the same results, but more often than not, students  feel that it isn’t worth it. These credit mills are an easy way to get what they want without losing much.

I guess Jessie J was wrong, because it's all about the money.

2. Opportunity Cost

Opportunity cost refers to the most highly sacrificed alternative – or the value of the “next best choice”. It is basically what was not chosen.

The opportunity cost for attending these credit mills is a real education. School is a lot more than just getting the required mark. Sure, it would be great to get that 100 in Calculus, but more often than not, it’s about what you learned. Sometimes your mark reflects that, but sometimes it doesn’t. Buying your mark from these credit mills? You may be gaining in the marks department, but you’re surely falling short in the education department.

For those who argue that these are the same things, you’re wrong. Let’s take History for example. The fact is, all they do is memorize and cram the information into their brains for a test/exam. A week later, they probably could not tell you about the Treaty of Versailles. This goes to show that not only cramming is bad, but that you probably didn’t learn much in that class. You may have received a 90+ mark in that class, didn’t learn anything. There is a huge difference between learning and knowing the material for a test. Learn for the sake of learning, not for the sake of getting an easy mark, even if that is an added bonus.

When going to one of these private schools,  you are not learning at all, yet, your mark doesn’t reflect that. The opportunity cost for attending these credit mills are costing students their education, along with the regular cost of their money. Instead of going to a credit mill, students could be learning the material that will prepare them for university. Therefore, one may conclude that the opportunity cost for going to these institutions is an education. Students, however do not realize this. They think that it is an easy way to get high marks, and that is why these credit mills are so successful.

The 3 “E”s 

Equity

To be equitable, it means that everything is fair or impartial – that everyone gets their fair share. An operation is efficient when some people are better off without making others worse off. By paying for grades, one may think that everyone is getting their fair share. Teachers are getting the money, while kids will get the mark they want. This, however is untrue. The students that are paying are actually worse off. They are worse off because they will start to believe that everything in life can be solved with money.  These students also do not work to earn their grades, which in turn means that they do not learn anything. Although it seems great that they are getting high grades, it will ultimately cause problems when they enter university.

Efficiency

The ability of being able to pay for grades is nothing if not efficient (in the short term). As the Dictionary.com definition reads, efficiency means the accomplishment of  or ability to accomplish a job with a minimum expenditure of time and effort. With the proof provided by the Toronto Star, it seems as if running a credit mill requires little to no effort at all! Teachers do not need to provided constant supervision during tests, and the required 110 hours of classroom time isn’t even met at all. The reason that there is no effort at all is because the teachers know that there is no point. Both the educators and students know that the money has already guaranteed a high mark.  The only work you have to do is bring out the money. What’s the point in putting in time and effort, when the results are already set in stone?

In the long run, however, it is not very efficient. Paying for grades would mean that students do not care, and do not put in the effort to get a certain grade. In turn, this makes them unprepared for university. Yes, they do get into their program of choice, but whether or not they can stay in is another matter. Dropping out of university is highly inefficient. You lose time, and also money (due to tuition). Once you drop out, students will probably have to find another way to get back in, to get their desired career. If the students had put in the effort in the first place, they will save a lot of time and money. The chance of those hard working students dropping out of university is far less than those who paid for their grades.

Equality

Now, some of you may say “But they’re paying for it! It’s only fair that they get what they put in!”.  Ladies and gentlemen, let me introduce you to my friend named the Fallacy of Composition. The Fallacy of Composition states that just because something is good for a particular group or individual, doesn’t necessarily mean that it’s good for everyone. Sure, credit mills are fair to those who get what they paid for, but students that work hard to achieve their grades are the losers in this game. They might get a 91 in mathematics, but what good is that compared to a student that got a 97 in a credit mill?  Paying for grades is definitely not an equal system for everyone. Not everyone can afford to pay these high price tags to get a 90+ percentage.  The fact that everyone has an equal opportunity to pay for grades, does not take into account whether or not they have the means to.

What now? 

Universities don’t test the students on what they know, only on what their marks are. This is why the idea of standardized testing should be implemented. Like the SAT in the United States, these will ensure that all the applicants know all the required material before entering post-secondary education. Not only that, it could potentially put these credit mills out of business. Because it’s obvious that these credit mills do not benefit the students academically, no one would pay to get their marks anymore.

Better enforcement could be placed on these private school credit mills. Teachers (unlike in these credit mills) will have to be certified, and have a diploma. Every so often, there should be a government employee sent (preferably undercover) to see what it is like inside the private schools.  Taking them by surprise, there is no way they will be able to “clean up” their act before the auditor arrives. If more schools get caught, other private schools would think twice before following in their footsteps. Additionally, if schools are caught, they should be exposed to the media. Not only does this bring shame to their school, but it will set an example for other schools – kind of like a warning. For example, a 28 year-old Toronto Star journalist went undercover in an alleged high school credit mill, and here’s what her experience was like.

Which leads to my last suggestion. Publicly acknowledging these schools will be a social incentive not to open credit mills. Society will definitely start looking at these schools in a bad light. If exposure to the media is done often enough, people will not want to attend these institutions at all. Universities will probably start looking at which schools a student obtained a credit from. Got your credit from a credit mill named by the media? REJECTED.

Evil, thy name is “paying for grades”. 

I believe being able to pay for grades is awful, and should never be implemented in any school system. Not only is it unfair to those who can’t afford it, it is unfair to those who can. Education is free, take advantage of that and instead of paying for marks, earn them. That way, you can have the satisfaction of saying that you actually worked hard, instead of saying you paid for it. It is unfair for those who work so hard to earn their grades, when all you have to do is pay. Life has no shortcuts, and if you try to take them, it will only result in you going the long way in the end.  Do it right the first time, or you’ll end up having to work more. Instead of finding ways to cheat your way to a higher mark, just do your homework and study. Instead of paying for your marks, just work hard.  Nothing comes easy, but if you put in the effort, the results will be worth it.