Business Economics Vincent There Is a Process Term Paper

  • Length: 10 pages
  • Subject: Economics
  • Type: Term Paper
  • Paper: #63207728

Excerpt from Term Paper :

Business Economics


There is a process by which there is both a decrease in the number of jobs that is increasing, and this is coupled with a global transfer of jobs to less developed countries. Both of these have an impact in the decrease in availability of jobs in the advanced countries. The latest news on this front is from the United States. On the 5th of the current month, there was an announcement from the Labor Department that there has been growth in the United States economy and this had led to the creation of 21,000 new jobs. The previous predictions from the economists had been that there would be a creation of 150,000 jobs, and this number is far below the expected growth. The number of jobs created is also far lower then the growth in population that occurred during that period. The rate of unemployment in the population of the United States has however been steady at around 5.6% and that is because a lot of the people are giving up on searching for jobs, as they know they will not find employment. (Puzzling through the Jobless Recovery -- Or Is It a Fundamental Shift?)

Growth but no employment - a paradox of development

This is not some sudden growth and it is taking time for the system to pick up. The economy of the United States has been growing steadily since the last quarter of 2001. This has also been noted by the New York Times, and they have commented "At no other point since World War II has the economy grown for such a long period without adding jobs at a healthy pace." It is not really possible for the employment experts and the economists to give any real reasons for this. A lot of things are thought to be the reasons and that includes productivity gains, the Iraq war, and the fundamental changes in the method of running the companies and so on. None of these are accepted as being the real reason, and they can best be treated as educated guesses. Even the members of the Federal Reserve System like Ben S. Bernanke, have said publicly in meetings at Carnegie Mellon That they are unable to fathom the reasons for this jobless recovery. (Puzzling through the Jobless Recovery -- Or Is It a Fundamental Shift?)

There is now a specific reason being given for this, and that is now also an election issue, and that is called "offshoring." This means that jobs in the United States are being replaced by jobs in countries which have a lower structure in wages like India and China. Yet, according to experts these jobs are not really large in number. According to Ravi Aron, who is a professor of operations and information management at Wharton, and who has been studying the situation for five years, the fears of the phenomenon are far greater than the real effects. The projections of jobs that are expected to be lost due to this factor are expected to be huge, but the actual numbers that have taken place are small when compared with the churn in the economy.

Now it is important to understand the meaning of the churn in economy. This is the characteristic set of changes that take place when an economy is coming out of a recession. The companies try to push the workers harder so that they produce more, and for longer periods. This ends up in increasing the output per worker. This increase in productivity lets the company to delay the hiring of workers at least till the period that the companies are sure of being able to sell the additional quantities that will be produced in the market. (Puzzling through the Jobless Recovery -- Or Is It a Fundamental Shift?)

State owned enterprises

Another important reason for the decrease of employment and change in economies has been the process of privatization. This is the transferring of ownership rights of State-owned enterprises or SOE to the private sector. This is a process that is happening all over the world, especially after the collapse of the socialist model of economy in the Soviet Union. This is now a major change that is happening al over the world, after having been started from the late 1970s. In Britain it started in earnest with the government by Thatcher, and then spread all over the world. It is a feature of capitalism today. It is now common to most parts of the world and in all sectors. The quantum of changes is also large, and during the period from 1977 to 1999, there 2459 deals that were regularized in 121 countries. (Privatization around the world: evidence from panel data)

The value of the deals was a total of $1,110 billion, as per the reports received. The value of the SOE in the world also declined substantially and fell from 9% to 6% from 978 to 1991 as per reports given by the World Bank. In the financial markets also they had a great influence and the market capitalization of the privatized SOE reached a total of $3.31 trillion. The objective of this privatization was gains in welfare for the people, but the transfer of ownership was not total in many cases to the private sector. In all the offerings that were made from 1977 to 1999, the majority share holding was sold in only 30% of the 617 companies that have been considered, and in many countries, the controlling ownership was never transferred. The reasons for privatization are many, but it has already been seen to be associated with high levels of public debt, a domestic stock market with reasonable efficiency to enable disposals of the shares and a right wing government being in power. (Privatization around the world: evidence from panel data)

The shortfall in public finance due to the high public debt is a driver for privatization as the proceeds are used to settle these deficits. The existence of the stock market enables the government to take advantage of buoyant market conditions. This is also a requirement for the government to be able to collect the full value for the SOE. For a right wing government it is a part of their political philosophy, and they can thus encourage "popular capitalism." This helps in the increase of support for market oriented reforms.

The legal position within the country also plays a role and it has been seen through measurement of the reforms that have taken place that transfer of ownership is limited in countries that follow French civil law as opposed to countries following common law. This compels only partial privatization there. The origin from French civil law provides better protection to poor minority shareholders and this may be the reason. The legal considerations have to be carefully judged in the case of new shareholders that are created in the process of privatization, as they may be expropriated by the future managers of the privatized SOE. (Privatization around the world: evidence from panel data)

Unemployment problems from the government directly

The governments also directly contribute their own share in creating the problems regarding employment. A couple of days this was seen in the budget presented by Gordon Brown, currently the Chancellor of the Exchequer or finance minister. He has fixed up his targets and part of that is to reduce 10,500 jobs through a merger of the Customs and Excise department with Inland Revenue and reduce another 30,000 more from the Department for work and Pensions. The government is on a cost cutting spree and another desired method is to move out another 20,000 civil servants from Central London to lower cost locations. These measures are clearly not liked by the people concerned, but this is a cost cutting measure. The people from London may be shifted to East Kilbride near Glasgow, as the Department for International Development has one of the headquarters there. The people in the civil service also have the fear of being left out of their informal information circle if they move out of London. (Brown's red box, full of pink slips)

The discussions and actions regarding the size of the government are going on in a number of countries and within the OECD. There are still disputes in the some of the poorer members like Mexico, but that may be due to an effort at providing employment to the people. The other governments are already quite large as they had been growing steadily up to the middle of the 1990s, and cannot possibly grow any bigger. At the same time, the effectiveness of the public services has been in doubt for some time. To take care of this in Britain, there was the concept of a citizen's charter introduced by the previous government of John Major. This was made into a favorite theme by the satirists. Yet the concept was liked by some countries and implemented there and these countries are from…

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