Economic Development and Crises
The modern day economy is currently confronted with the most challenging contexts since the 1929-1933 Great Depression. The contemporaneous crisis commenced within the United States real estate sector and gradually spread out across the rest of the industry sectors, as well as across the rest of the world.
Thomas Palley recognizes the role played by the and the excessive debts of the American population, but argues that the crisis was also generated by a series of macroeconomic forces, such as the inadequate economic model implemented at the basis of the U.S. economy growth, or the inadequate policies which regulated the economic community. At a general level, it is observed that the modern day financial crisis has been based on the same errors of other crises in the past and that these — including real estate property prices, , inflation, GDP growth and so on — have followed similar paths (Reinhart and Rogoff, 2008). Only that, in 2008 in the United States, the trends were more severely manifested.
The financial crisis which has become internationalized has also generated problems outside the economic sphere, such as tenser international relations and social problems, but the bottom line of the impacts has been represented by the effects within the economy, which gradually generated effects at all other levels of life. At the level of the economic impacts, the most relevant of them include:
A restricted access to funds, which in turn translated into fewer investment opportunities
The restriction of business operations, of the costs or even the closing of firms through the bankruptcy legislations
Increasing unemployment rates
Restricted funds to research, development and technological advancements
Incremental pressures on the state budgets which were forced to offer more state aid in order to ensure the survival of the population.
In such a context, it becomes rather obvious that the internationalized economic crisis has put intense strains on the development of the global economy. The question refers to how the concept to economic crisis impacts the development of the economy. In order to answer the question, several sources would be consulted. The first of them is represented by Calum Miller’s the human development impact of economic crises (2005). In this piece, the author focuses on the means in which the crisis impacts the employees.
This approach — while it is rather specific and niche — is necessary as the staff members represent the engine of economic growth. Traditionally, they were perceived as manual labor force necessary to operate the organizational machineries. Today however, they are regarded as the most valuable organizational asset. The modern day staff members have the ability to influence product quality, to generate customer satisfaction and loyalty, and to as such stimulate revenue sustainability. A change in their behavior would directly impact the final outcome of the company. In this order of ideas, it becomes imperative to analyze the means in which the economic crisis impacts the staff members, and subsequently, the overall economic development. Calum found the following:
Crises generally generate a decrease in the income of households, either through a reduction of the wages of the household members, either through the loss of the wage generated by the household members
With decreased financial resources, people come to spend less on life products and services. Consumption as such decreases, but the health of the population also decreases, especially as the workers spend less on healthcare
The impact on education is mixed, but situations are observed in which the tendency of enrolment in educational programs — for both children as well as adults — is decreased
People are less able to benefit from state services as the governments tend to contract their expenditures on budget services, even if these are more needed in times of crises than in times of economic prosperity.
All these situations impact the overall morale of the staff members, and as such their levels of performance and commitment to the employers. The scenarios are more dramatic for the people who are actually downsized, but the negative impacts are also observed at the level of the remaining staff members, who are presented with fewer opportunities for personal and professional development. The International Labor Office argues that in times of crisis, employers invest less in the training of the staff members, once again limiting their development, as well as the overall development of the firm.
A second relevant source in the search for an answer to the posed question is represented by Andy Kilmister’s the economic crisis and its effects. Unlike the previous source which draws on the economic crises in Mexico (1994-1995) and Indonesia (1997-1998), Kilmister focuses on the economic crisis commenced in 2008 in the United States. At the level of economic development, he identifies the following impacts:
Important devaluation of capitals and assets. This makes it more difficult not only to support economic development, but also to assess it
Financial cost cuts, which materialize in a series of social and economic problems, but also the decrease of production capabilities. This in turn impacts the countries’ export operations and reduces the strength of their competitive positions within the international marketplace.
Prices of basic commodities are also expected to fluctuate. On a first note, they would increase in order to cover for the new costs and risks, but it would then be necessary to decrease them in order to ensure minimum access of the population to the basic commodities.
Aside from the impacts observable at the national level, the crises also impact economic development at an international level. Countries tend to protect themselves and they as such focus on exports, but these are more difficult to complete. As each state promotes its own productions, restrictions on imports would be imposed, and these, alongside with other policies, would generate international tensions. In such a context, it would be expected for the countries to seek stability and growth at an internal level, rather than focus on unsustainable exports. Domestic demand would however be decreased due to diluted purchasing power.
Overall, it is rather difficult to present and discuss all the means in which the economic crisis impacts economic development. And this complexity is raised by the fact that each individual context of economic development is characterized by specific features — such as domestic level of consumption, purchasing power, state of economic development and so on. At a general level nevertheless, the crisis will more often generate negative impacts upon the economic development and will also make it more difficult for the practicing and academic communities to assess the real impacts and the real development of the economic field.
Kilmister, a., the economic crisis and its effects, International Viewpoint, 2008, http://www.internationalviewpoint.org/spip.php?article1581 last accessed on April 7, 2011
Miller, C., the human development impact of economic crises, United Nations Development Programme, 2005, http://hdr.undp.org/en/reports/global/hdr2005/papers/hdr2005_miller_calum_19.pdf last accessed on April 7, 2011
Palley, T.I., America’s exhausted paradigm: macroeconomic causes of the financial crisis and great recession, 2009
Reinhart, C.M., Rogoff, K.S., Is the 2007 U.S. so different? An international historic comparison, 2008
International Labor Office, Adjustment and human resources development: sixth item on the agenda, Issue 6, International Labor Organization, 1992