Understanding Economic Systems and Resource Allocation: A Global Perspective

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Investigating the global environment in which organizations operate is very since it acquaints one with different business environments. So as to tackle this task, I shall try discus: economic systems and resource allocation; the impact of industrial policies and social welfare initiatives; and the impact of macroeconomic policy measures and the influence of the economy on Europe-based organizations and stakeholders. I shall then make recommendations.

Economic Systems and Resource Allocation

So as to build the correct decisions in allocating resources, one has to bear in mind three things, one after the other. These include the type of goods and services to create, how to create these goods and services, and who will be the customer (shown in fig 1). The verdict on what goods to manufacture will depend on what clients want to obtain. After deciding on the commodities to manufacture, then one needs to select suitable methods of production and identify suppliers. Lastly, one needs to establish the consumers of the commodity.

Fig 1: Decision making while allocating resources.

Different Economic Systems

Sort of Economy	Decisions on:
	Production	Prices	Ownership
Market Economy	Market demand shown by customers determines production.	The demand and supply in the market influences prices.	Persons are at liberty to buy or sell resources. There exist many types of an individual property. Clients have a wide variety of products and services to select from.
Traditional Economy	Society creates its own commodities depending on its traditional necessities.	Prices are not always applicable. Societies are accountable for their individual necessities, leaving less or no room for exterior exchange.	Typically, products are owned by societies. Hence private ownership lacks.
Mixed Economy	Makes efforts to create what persons want and what the community deems necessary.	Clients majorly influence the prices though basic services are controlled by the government.	A blend of private and public tenure. Government is in control of communal lands.
Planned or Command Economy	Production is done in relation to strategies stipulated by the government.	Government planners control suppliers and prices.	All resources, including land, are owned by the government. Clients lack a variety of products and services to choose from during buying.

Table 1: Economic Systems (Harrison, 2005)

Different states employ different types of economic systems, influenced by their economic structures. Currently, there are four types of economies, as shown in Table 1. They include a mixed economy, command or planned economy, traditional economy and market economy (Harrison, 2005).

To begin with, a mixed economy is usually influenced by both public and private sector bodies. In this type of economy, prices are usually determined after a consensus is reached between the two sectors. When it comes to price reduction, it employs the Maximum Retail Price (MRP). Moreover, key decisions like exchange and interest rate placements are usually carried out by the entrusted bodies of the government.

A study by Sloman (2002) identifies Sri Lanka as one of the countries that employ a mixed economy. In Sri Lanka, the mixed economy is commonly referred to as a balanced economy, since a fair pact between the private and public sector exists in the economy. In this case, neither the private nor the public segment dominates the economy. However, the government is always made aware of the private sector’s actions. Moreover, nearly all infrastructure services, such as education and medical services, are normally supported by the government.

Different from the United Kingdom (UK), Sri Lanka sustains a Maximum Retail Price (MRP) rather than employing the price lowering strategy. This ensures that every vendor observes the set price margin. The financial flow of the state and key exchange and interest rates are controlled by the central bank of Sri Lanka, where extra services such as credit loan interest rates are placed by personal financial bodies upon a mutual accord with the government. The key source of revenue in Sri Lanka’s government is taxation. These taxes are, in turn, invested in the society’s wellbeing.

Second is a command economy, also called a planned economy. Here, the government exercises its full power over the economy with the private sector having little or no influence. Exchange rates, interest rates, prices and all supplementary financial dimensions are influenced by the government’s decisions.

Third, in a traditional economy, the youthful generation pursues the footsteps of its older generation in selecting its business. A small change in model and volume of production may occur in this type of economy. The traditional economy was widespread during the early years of existence. At present, this type of economy is hardly employed due to industrialization.

Finally, a market economy is typically controlled by the private segment, where competition is additionally perceptible. However, the government participates in making vital decisions like price and interest rate determination by employing the price lowering principle. The UK serves as a good example of a state that employs the free market economy type of economic system in its resource allocation (Hill, 1991). Here, a major section of the economy is privatized through all vital decisions are strongly influenced by the government.

The UK government controls the UK’s economy by employing theories of price lowering, reduced taxing and market liberalizations. Regardless of how free the market is, the private sector lacks complete influence over the UK’s price-setting policies, unless under supervision by the government. The governor of the bank of England supervises UK’s interest rates so as to control inflation. Though the UK is usually strong in its competition character, the Competition Commission (CC) controls and supervises all competitions, through eradicating competition defaults such as price conflicts, so as to improve UK’s competition profile.

Impact of Industrial Policies and Social Welfare Initiatives

Industrial policy and social welfare policy have dissimilar aspects, diverse motives and dissimilar impacts on organizations. I will talk about the impact of each of these policies independently.

Industrial Policy

Industrial policy has a vast impact on the running of organizations and the placement of goods and services in the market. So as to tackle this topic, I shall first analyze the broad impacts of the industrial policy and then demonstrate its use in various industrial aspects including new products, competition, and training and skills for employees.

The government impacts most organizations by giving them financial support, following the industrial policy. The government also performs indicative planning which entails identifying industrial fields that face challenges associated with goods supply and restrictions of access. In addition, the government, through the industrial policy, can promote or hinder the development of new industries, especially by making entry of novel firms hard. The government can also achieve this by enforcing product standards that entail a specific level of safety; placing limitations to alien organizations; and promoting domestic organizations that exist in the market.

New Products

The government influences the adoption of novel products in definite areas. For instance, in pharmacy, the government inspects all fresh drugs and medicines ahead of entry into the market; however, it is important to note that each nation has its own principles on this. The government also controls the food industry. Firms that work in this field experience great difficulties whenever the government imposes changes in tools or the product mix that they employ in production. At present, there is a big debate on the safety of genetically tailored goods.

Competition

As a consumer, supplier and supervisor in the assorted economy, the government can cause substantial pressure to put up with the competition in an industry. At times the government investigates the formation of industries so as to ascertain that competition subsists, by use of the competitive industrial policy. At present, the competitive industrial policy has acquired a new agenda that aims at enhancing factors that form the state’s competitiveness. This is being done by decreasing non-wage service overheads; investing in corporal and human resources so as to promote small and medium enterprises; supporting new inventions; enhancing infrastructure, and strengthening copyright and patents regulations so as to motivate the development of fresh commodities.

Training and Skills

There exists a training and skills policy that ensures workers get numerous chances to enhance their skills at all heights through education and training, usually funded by organizations or agencies.

Social Welfare Policy

According to BPP Learning Media Ltd ‘Business Essential: Business Environment’ (2010), social welfare policy attempts to guard and directly enhance the standards of living. The social welfare operates from two viewpoints. In the first viewpoint, social welfare is partially involved in improving social services and welfare conditions. In the second viewpoint, it influences a range of matters that are far beyond the dealings of the government. At present, the welfare policy influences the task of the state in promoting equality and offering services that are aimed at supporting deprived groups in society.

A study by Grant (1999) reveals that social welfare policies have four impacts which include: lessening earnings insecurity with regard to earnings losses; lessening insecurity with regard to uneven and extraordinary spending; lessening income deficiency; and allocating private hand-outs and tax loads reasonably. The study also lists two extra social impacts to which social welfare expenditure can contribute, that is, a decrease in income disparity and enhancement of the social and political atmosphere.

Other impacts of social welfare policies include augmentation in production resulting from enhanced health, education and economic protection of the labour force; augmentation in production resulting from more successful macroeconomic steadiness; productivity impacts; labour supply impacts and resource reallocation impacts.

The Impact of Macroeconomic Policy Measures and the Influence of the Economy on Europe-based Organizations and Stakeholders

The UK administration influences the economy in three chief manners which include: interest rate and taxation policies; public expenditure on goods and services; and general organizations’ policies. Currently, the UK’s economic policy is making efforts of attaining several goals, but the three key goals are: economic development; to be in a position to offer employment to the augmented population with the aim of elevating living standards; and to acquire price stability (Russell and Healthfield 1999).

Conversely, there are two key policies the UK government employs so as to influence the economic condition of the state. These two key policies are fiscal policy and monetary policy.

The fiscal policy entails the utilization of government expenditure, taxation and solicits to control both the design of the economic activity and also the height and increase of cumulative demand, employment and production. Conversely, monetary policy entails the utilization of interest rates to manage the height and rate of increase of summative demand in the economy.

In Europe, the Bank of England is entrusted with the chore of upholding reliability and worth of the currency. The Bank practices this objective via the utilization of monetary policy. In particular, this entails upholding price steadiness, as required by the inflation goal placed by the government, as a qualification for achieving a broader goal of sustainable economic development and elevated employment.

As from 1997, the Bank of England has had outfitted sovereignty in the location of interest rates. The Bank seeks to achieve the government’s inflation goal, presently, 2.0 per cent for the user price index- by placing interim interest rates. Interest rate choices are usually received by the Monetary Policy Committee (MPC) during monthly conferences (Smith, 1999).

The impacts of Monetary and Fiscal Policy on the European Economy

There are a number of dissimilarities in the economic impacts of fiscal and monetary policy, on the constituents of national output, the efficiency of the two types of policy in summiting the government’s macroeconomic goals, and besides, the time delays expected before the fiscal and monetary policy adjustments can take effect.

Effects of Policy on the Composition of National Output

Monetary policy is habitually viewed as a product of a dull policy tool, touching all sectors of the economy though in diverse ways and with an uneven impact. Conversely, fiscal policy can be beleaguered to impact certain groups such as augmentation in means-tested remuneration for little-income households, decrease in charge of corporation tax for small and medium-sized enterprises and investment grants for enterprises in specific regions.

Monetary Policy Expansion

Reduced interest rates will result in an augmentation in business and consumer capital expenditure, both of which boost national revenue. Since investment expenditure results in bigger capital stock, revenues in the future will as well be elevated via the impact on the long-run aggregate supply curve (LRAS).

Fiscal Policy Expansion

An increase in fiscal policy, or else an augmentation in government expenditure, add straight to aggregate demand (AD) but if funded by senior government sponging, this may end in elevated interest rates and reduced investment. The net effect, by regulating the augmentation in government spending, is the same augmentation in existing income. Nevertheless, since investment expenditure is reduced, the capital stock is lesser than expected, so that prospect incomes are lesser.

Time Lags of Monetary and Fiscal Policies

Monetary and fiscal policies in the UK vary in the pace with which every one of them takes effect. This, in turn, greatly impacts the European economy.

UK’s monetary policy is normally flexible. Interest rates can be altered every month, and emergency rate alterations can be done in between conferences of the MPC, whereas alterations in taxation take much time to arrange and execute. Since capital investment necessitates planning for the prospect, it usually takes much time before reductions in interest rates are converted into augmented investment spending. On average, it takes more than six months before the impacts of changes in UK monetary policy are experienced.

The impact of augmented government expenditure is felt as soon as the payments occur and interrupt direct and indirect taxation supply into the economy quite rapidly. Nevertheless, significant time may lapse in between the resolution to assume a government’s spending program and its execution.

In my view, the best way of evaluating a global economy of a country can be obtained by evaluating the economic, legal, political, social and the technological situation of a state.

Evaluating the political position of a nation entails analyzing the power of political parties in that particular nation. Only two key political parties do exist in the UK. The two parties include The Labor Party and Liberal Democrats (Smith, 1999). These parties possess great power in the UK government. Thus any key decisions made by these parties do affect organizations in the UK.

The economic features present in the UK are suitable for running organizations. A study by Grant (2011) reveals that the rate of the UK’s inflation was in last year was 4%. This figure indicates that the economy of the country is quite stable since the deviation was negligible. Thus, running an organization in the UK can offer a good opportunity for development.

The social aspects of the UK are also very favourable. The state has a high-quality welfare policy that takes care of individuals living in the nation. The welfare ensures that people in the UK live in good standards by offering relevant services.

Technological in the UK Is also advanced. This means that business organizations in the UK can use modern technological tools to run their enterprises. Finally, the legal policies of running organizations in the UK, for foreigners, have lately changed. The nation is powerfully supporting English natives to initiate enterprises. This has made it quite difficult for foreigners to initiate enterprises in the UK. Each of the factors discussed above possesses an immense impact on organizations that were established earlier on and those that are entirely new.

Recommendations

Before allocating resources, it is important for one to consider the type of goods and services to create, how to create these goods and services, and who will be the customer. Every organization should adhere to the industrial policy and have a well-established social welfare policy. Industrial policy aids in the attainment of expansion goals while social welfare policy attempts to guard and directly enhance the standards of living. Finally, the UK government should be very keen on its economy since the UK economy influences interest rate and taxation policies; public expenditure on goods and services; and general organizations policies.

References

Grants, S. (2011) Economic growth and business cycles, studies in the UK economy. Oxford: Heinemann.

Guler, I., Guillen, M. and MacPherson, J. (2002). Global competition, institutions, and the diffusion of organizational practices: The international spread of the ISO 9000 quality certificates. Administrative Science Quarterly, 47(3), 507-531.

Harrison, M. (2005) Economic Systems. London: Sage.

Peter, B. (2010) The effects of EU climate legislation on business cycles. New York, GKI Economic Research Co.

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