Great Recession of 2007-09 and Management Changes

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Table of Contents

Introduction
Capitalism
Liberal Democratic capitalism
Nationalist Authoritarian Capitalism
Impact of great recession on the West market economies
Impact of great recession on the East
How great recession is changing management practices in the West
Paradigm Shift, are the leftists taking over?
Conclusion
Reference

Introduction

The last great recession which began in 2007 and continued through 2009 was precipitated by limited cash circulation in the United States financial and money lending institutions. In particular, the mainstream banking institutions experienced increased lending and borrowing due to sharp liquidity decline. Many large financial institutions such as Banks and insurance companies collapsed in the west during the crisis. In America where the financial crisis is believed to have its roots, it took the national government “bail out” running into billions of dollars in a recovery package plan aimed at correcting the problem when the crisis impact tolls peaked in 2008. The recession was further marked by a major downturn in world major stock markets since the great depression of 1930s. Dow Jones Industrial Averages, NASDAQ, NYSE and other stocks progressively registered reduction in numbers because bear dominated market at the time. In the west and particularly in U.S.A., the housing market also experienced significant shocks resulting in premature closures and prolonged vacancies in most built up areas. As a matter of fact, the financial crisis impacted on many people’s livelihoods in the West.

In the west where the recession was concentrated, it resulted into slow turnover in business as it brought with it market failure. As people rushed to employ corrective measures, at individual level, the crisis continued to force mare people into unexpected decline in wealth. Consumers adopted more stringent measures by consolidating their wealth while trimming down further purchases in the short run. Through the recovery plan the federal government undertook an extra commitment to restore the economy of the nation by embarking on stimulus programmes meant to bring back key industries in productive sector which were already run down by the financial crisis. For example, the decline in costs of housing in America which hit ceiling in 2006 in the United States led to the significant fall of values of securities associated with real estate valuation soon after. The financial crisis was evident by insolvents banks at the chagrin of the Federal Reserve in Wall Street in the period 2008-2009. Soon after the ripples spread to the global market in Europe while the East markets remained relatively stable. Investor confidence in the western economic core ( the United States) was significantly shaken as critics argued that stock brokerage firms failed to estimate the risks involved in mortgage tied financial products and that there was little adjustments to regulatory practices with regards to prevailing trends (Gitlin 2003, 258).

The lateness in response by international governments and money lending institutions to the meltdown forms the core of discussions in this essay. It might have seemed rather unlikely that the western economic cores would never be trapped in an economic recession like this particular one. The main motivating factors to drive economic powers in the west were concentration of wealth to buffer political influence and acquire dominance in the global market. However, the extent of the financial crisis in the west as shown by its multiplicity of economic effects across sectors has caused commentators to assess the position of economic power of western nation with regards to their market practices and ideas. Why would nations like US and UK pursue liberal democratic capitalism against the back drop of economic recession propagated by their markets? Are liberalized market practices still a viable way of economic development or it is time for investments to be directed to other markets such as China, Singapore, Malaysia or India which practice other market principles, viz nationalist authoritarian capitalism? By examining the pros and cons of each kinds of capitalism the essay discusses the populists view that propose shift of economic interests to the East due to conditions which indicate possible collapse of liberal democratic capitalism in the west.

Capitalism

Capitalism par se is an economic system based on individualistic social culture which demands that factors of production, thus land and capital goods are privately owned, while labour and products are traded for some agreeable fee in the market before taxed profits are to the owners ( capitalists). The capitalists can then decide where to invest the returns be it in new found business such as retail or whole sale market or simply in new technology or expand the existing industry.

Liberal Democratic capitalism

Liberal democratic capitalisms refer to the system of production and economic development where factors of productions are owed by a central government. In this system, the government observes the rules of political liberalism. The government therefore takes the responsibility of protecting every citizen’s rights from the government’s power to exploit its nationals. While liberal democracy is a form of government, capitalism in this respect refers to the government system of production and ways of intervention in the market whether local or international. Because the government provides the regulations of production and a nation’s individual companies’ employees have to follow, in the event of market failure due to any reason, the government has the responsibility of shouldering the corrective measures solely. Always production and local sales together with international sales is guided by the governments ideologies inclined to ‘liberal democracies”. Such has been the trend in the west prior to and during the recession that has had huge impact in western markets (Gambe 1999, 68).

Advantages

Some of the advantages associated with liberal democratic capitalism include citizen’s limited liability to possible risks which may be precipitated or proliferated in its market by trade of non standard goods. Non standard goods are all the goods produced without following the government’s regulations and thus considered illegal for any trade activities in the nation. In this system anybody can get involved in production and trade provided he keeps a significantly large taxable portion of his unit production by the government as a result any capitalist in a liberal democratic structure has to work in conjunction with the government. At high levels the two parties do business as partners ²because the government wants to protect its people against individual interests and the citizenry against any exploitation. The masses enjoy government protection from any malicious goods in its markets while at the same time they are cushioned against poor wages and product pricing because the government issues all the bench marks of production and trade activities (Bello 2005, 162).

Disadvantage

A major setback of this system is the fact that it discourages independence of individual investors who may wish to manipulate available resources to make his desired returns. Most ventures are either owned as state corporations or agencies partly funded by the government. It therefore implies that direct investor or participants are obliged to promote primarily government goals and not necessarily their personal interest. Hence, foreign investments in hindered by the dictates of the state(Prindle 2006, 237).

Nationalist Authoritarian Capitalism

This is a system of production and economic development that is associated with fascism. Factors of production are generally owned by a central government which is authoritarian in nature. The government ideologies impact on its markets through direct influence on production mechanisms used by local and foreign entrepreneurs. As a result of complex interrelationship that exists between economic system practised and political system practiced in the same location, nationalist authoritarian capitalism has had significant influence on markets in the Eastern hemisphere especially the Eastern European nations such as Italy and Russia. This system of capitalism rests supreme authority to the government which in turn takes on the activities of production through communism and socialism. By and large, market economies and systems of governments are structured to act in the interests of the nation. This system is not an exception (Siegel 1998, 54).

They are formed with the development of the nation’s sectors in mind. Consequently, nationalist authoritarian system is generally designed to concentrate wealth in Asia and East Europe where production is driven by subjecting entrepreneurs and their labourers to a “totalitarian” state that exercise direct control to all features of national life. In as much as individuals’ investments are considered important to the nation, the nation’s ideologies which are put to guide its economies are never compromised. It is observed that much of the philosophies promoted by nationalists authoritarian capitalism functions in reactions to western ideologies of liberal market capitalist system (Siegel 1998, 56)

Disadvantages

This system focuses on the development of the state as a whole at the expense of individuals’ interests. It regards the national ideals and philosophies as more important compared to entrepreneurs’ investments in the same state. Nationalist totalitarian capitalism has other setbacks which include its hindrance to individual development and creation of personal large scale enterprises. In its initial stages, this form of capitalism encouraged monopoly as only state run companies benefited from favourable terms of treatment. All financial and social resources were directed to such companies which later expanded due to advantages of large scale production. Because the government control all facets of the citizen’s life it reserves the right to choose which entitlement is relevant for its people. This means that the government can discriminate on investments and investors because it can only choose to allow business with people or companies which offers services and goods which resonates with its people’s basic demand according to their own preferences. Even when the government allows such form of business it tariff regulations is fixed arbitrarily to keep the populace within the government’s control (Gitlin 2003, 262).

Impact of great recession on the West market economies

The great recession leaves a lot of its effects on the western nations particularly the U.S. from increased national debt the Federal Reserve failure to regulate the financial market coupled by global financial crisis has led to increased cost of housing and basic commodities. The recession was preceded by exponential growth of profits and returns of financial institution and microeconomic anomalies associated with extensive borrowing and bubbles in the trade of long term fixed assets. Hence, the average financial sector in the U.S. rose sharply from 22% GDP in the end of 20^th century to 117% by September 2008. Similarly, in the UK, the financial sector debt increased almost two-fold to 250% in by the end of 2008. Asset price bubbles are yet another significant effect on the west market especially the U.S. which is opposed to leftism due to market uncertainties created by totalitarian states. The overall ratio of household debt to GDP in the US and UK rose to exceed 100% by the end of 2008, following high inflation that was caused by heavy lending and borrowing by financial institutions (Gitlin 2003, 244).

This was followed by profound declines in workforce output and massive layoffs heightened by an all-time-high overall debt burgeoning to over 300% of GDP. Again, huge lasting fiscal deficit was experienced in western nations with high accrued trade imbalances as the major players tried to adjust demand of local assets. These proponents of advanced Keynesian economics in business management postulated that sophisticated techniques of marketing and modern finance could spread the risk to the ultimate persons who are able to manage it. This was manifested by homelessness and increased unemployment on the part of the average American. In UK and West Europe the case was worsened by the failure of most financial institutions and fall of equity share (Bello 2005, 162).

Impact of great recession on the East

In the Far East and Asia the ripples of the great recession were not that destructive as it was at its core in the US and neighbouring nations. Both intellectual ³and political interests are drawn to China, India and Brazil as some of the nations that come out of the recession with their economic position relatively enhanced. Besides, nations like Taiwan and Singapore adopted economic strategies that attracted more investors through moderating its totalitarian systems. India, Thailand and China maintained a totalitarian capitalist system but were able to move from traditional communism and socialism practice by embracing the fascists’ fashion of capitalism. Through a complete totalitarian government system and state powered capitalism, china was able accumulate a national reserve of more than $2.4 trillion and consolidate its concentration of world trade share such that by the time the situation started to normalize its economic position in the world’s trade was better of than it was before the recession. Conversely, the case of India is best explained in terms of its closed market economy rather than the totalitarianism that is inherent in its system of government (Gitlin 2003, 239).

Through direct control of its workforce, China and India were able to organize its market and means of production to increase production to levels that meet customer demands. Generally, there were little effects of the recession in most developing nations which had embarked on long term development goals with strong bases. Naturally in a totalitarian capitalism system the market is directly controlled by the state and protectionism is basic to this principle. In fact, prior to open system now encouraged by some extreme leftists, closed market system was the order of the day. The fascists totalitarian government subjected its citizen to work in state found industries motivated by communism which demanded that they work for the sake of the nations output intended for meeting local consumption needs and surplus for export and foreign exchanges. In return the government guaranteed the labourers health care, food, shelter, and other basic requirements. It meant that people work for the common good of the state at the demands of a totalitarian authority. In Malaysia for example, prior to the normalizing recession, the government had rolled out a plan to act as a road map towards the nation’s industrialization. Previously, its leadership served as a totalitarian capitalist authority which demanded a comprehensively exclusive closed market system with production mainly circulating within its boundary during trade and the surplus destined for foreign markets are circulated with in its Asian neighbouring states. As measure to protect the effects f recession from penetrating and spreading into their markets ASEAN nations adopted highly protective measures including increased tariffs for foreign goods which could be found or manufactured locally. With proper pricing mechanism the government and its development partners had only international market for its products to worry about (Prindle 2006, 237).

How great recession is changing management practices in the West

In the emergence of rapid industrialization and globalization phenomena stiff completion characterize the struggle for the world’s most viable system of production. The current focus of volatile localized investments is in the developed nations in the West, Europe, Japan and South East Asia with dominant forces in the world market activities is arguably destined to be founded in nations with major influence in its regional market and abroad. Such a nation or group of nations is at the same time expected to set the criteria for economic system which will be vigour enough to take in shocks of economic recession brought by both systematic and non systematic changes in its markets. While still debating on the form of capitalism to follow, investors are keen on governments ideologies practised by the preferred nation and with attention to its stability. In management principles, current world production is driven by massive capital investment in the initial stage followed by extensive and intensive production facilitated by mechanised system and limited use of man power. However, the cost of acquiring and maintaining the capital equipment employed is often higher than expected, especially in the long run (Bello 2005, 68).

Production and marketing managers therefore refocus marginal revenue versus cost of production in order to strike a balance on the most viable investment strategy together with its prime location. In particular government influence in local and foreign business forms the basis of this discussion. Determining the stability of a government in the future may be challenging due to social transformations which exert unpredictable force on most existing authorities. On the other hand, the systems of governance; the political system practised, together with its supporting institutions may form the basis of appraisal for business and investments in supreme present authorities. Therefore, as the debate of which system of capitalism should be followed by most optimistic business leaders is best thought in the line of social structures and government systems that have stood the taste of changing times and tides (Gitlin 2003, 244).

Paradigm Shift, are the leftists taking over?

Like the great depression, which was followed by authoritarianism, the great recession is likely to shift economic power to the East leftwing capitalist due to their fascism which portrays them as more organised though in a more hierarchical system. As liberal democratic capitalist in the west adopt protective mechanisms due to xenophobia, their proposed liberalization principles are accommodated by emerging totalitarian capitalists in Asia who have since abandoned socialism and communism to practice modern capitalism in fascism style. For example the observed move by the US and UK to “bail out” indigenous companies is seen as a move towards xenophobic response while newer markets are open to investors in the east. The timely opportunity by the nationalists’ totalitarian capitalists also referred to as leftists is highly advantageous since the current world market is mainly controlled by large corporations and transnational companies whose motive is to reap high profits and cut costs. General tendency of such large scale producers to invests in Asia and accept the conditions of these nations is an indication of a new paradigm anchored in a totalitarian capitalism. Market research as noted an adjustment of middle class citizens in this nations towards specific development plans of the countries particularly in the East. (Asher& Ramesh 2000, 37).

The transnational companies and multinational corporations which are the major forces of globalization are thought to be the next precursors of economic power. In the east these companies are attracted to cheap labour and ready market predisposed by increasing number of middle class citizens. Arguing from a totalitarian point of view, it can be noted that the amount of compromise taken by these nations’ in the path of civilization and economic development inclines towards a true capitalism. The level of interest of TNCs in MNCs; countries which were previously dominated by extreme leftwing ideologies impacting even in their markets is a may be the first step towards the shift of power to the East. Moderation of its extreme totalitarian policies to govern capitalism is likely to put the west under difficult challenge due to observable market failure of liberalism. Emergences of metro-cities in south East Asia such as shanghai Singapore and Kula Lumpar as world’s major production centre is deliberately strategic to this process. Modern civilization of population in these countries is another motivating factor. With or without the governments consent individuals are taking over ownership of certain sectors of production at the chagrin of the government and major companies dealing in specialised consumer goods are fast taking advantages of the opportunities created by a people which have been under oppression for a long time that they can work at minimum wage. More over, the decline of communism and traditional socialism has paved way for globalization trade which is networked in the region through its regional organization, ASEAN. In Russia just like in most of the totalitarian states, the citizenry are beginning to act in motives that are likely to minimize governments influence in people’s basic rights and increase their freedom. The consumer society is fast gaining ground even in nations which did not allow trade of certain goods in its territory. Thus the drive to rapid industrialization in totalitarian states may cause and sustain capitalism in the East (Prindle 2006, 258)..

Conclusion

It might not be clearly noticeable, but the end to liberal democratic capitalism is real. Liberalized market economic polices have failed the test of time a number of times. Financial liberalization its ideologies and practice aimed at addressing market changes. While an ideal option of capitalism may be lacking at this time, contemporary leftists’ totalitarian capitalism may be the best option for viable business and investments. The general trend in all countries which have liberalized market is the notion that high consumption is correlated to development. Such is sought by the East economic power houses under their own totalitarian regimes. Since consumption can only be sustained by high production especially in built up areas, this changes justify the positions of totalitarian states to encourage nationalists’ capitalism which acts in favour of massive investors destined to put up their operations in their territories.

Reference

Asher, M.G. & Ramesh, M. Welfare capitalism in South East Asia: social security, health and education policies. New York: PILGRAVE. 2000. Web.

Bello, Walden. De-globalization: ideas for a new world economy. UK: Cox & Wyman, Reading.2004.Web.

Gambe, Annabelle. Overseas Chinese entrepreneurship and capitalist development in Southeast Asia. London: LIT VERLAG. 1999. Web.

Gitlin, Todd. The whole world is watching: mass media in the making & unmaking of the New Left. London: University of California Press, Ltd. 2003. Web.

Prindle, David Forrest. The paradox of democratic capitalism: politics and economics in American thought. Baltimore: The John Hopkins University Press. 2006. Web.

Siegel, Achim. The Totalitarian paradigm after the end of communism: towards a theoretical Reassessment. Amsterdam: Rodopi. 1998. Web.

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