Managerial Economics the Three Articles

Managerial Economics The three articles analyzed in this paper include the Confucian Consumer: Seven reasons why the Chinese save, when they really should be spending by Nouriel Roubini, Explaining Growth by Douglas Clement, and FDI, Trade, and Product Innovation: Theory and Evidence by Hui-lin Lin and Eric S. Lin. Each of these three article provides a different perspective on the lessons learned in Managerial Economics this semester, and are analyzed below.

Analyzing the Lessons Learned in the article, Explaining Growth The article provides insights into how economic growth occurs across varying sizes of businesses and during periods of economic uncertainty. The author point out that productivity growth has traditionally been the catalyst of sustainable, long-term differentiation of business models and value chains. The premise of the article however is that organizational capital, when combined with productivity growth, delivers economic growth regardless of the firm size, only constrained by market conditions.

This assumption of combining productivity growth and organizational capital is one that is incomplete in assessing the strength and direction of growing businesses. The economic conditions of the last three years have made businesses focus more on value creation, less on the use of transactions to bolster and increase their firm's value. The valuation of organizational capital is only partially correct.

It is the ability to continually invest in employees and have them gain autonomy, mastery and purpose in their roles within the business that is the most effective catalyst of growth. The author fails to bring in the behavioral economics factors of why employees choose to concentrate autonomy, mastery and purpose, three essential elements to enriching personal productivity and making any business more competitive. The blueprint the author mentions also does not adequately mention how effective knowledge transfer and information sharing can be in augmenting and strengthening overall firm performance.

The impact of pricing elasticity as they relate to profitability is not assessed as well. Alluding to organization structure and the inherently greater agility of a smaller business to be more capable at integrating productivity and organizational capital, the author stops short of explaining knowledge transfer, trust and continual value of worker productivity specifically (Clement, 63). Instead, the focus is only an aggregated view of an organization, not the inherent value of a third component of productivity, which is that of workers and the investment in their long-term learning and productivity.

In addition, the finding that larger firms can become more productive over time relative to smaller firms is inconsistent with the concepts of agility and market responsiveness that is so critical in emerging markets. The author has taken a purely theoretical stance on this issue of agility and market responsiveness, again taking out of the analysis the influence of personal productivity.

The reality is that organizational structure and architecture has a direct and significant effect on the extent to which a firm can growth, stay profitable and attain a measure of agility in the market conditions they operate in. The article could have gone another step and analyzed how worker productivity across the business sizes contributed or detracted from the overall level of firm productivity, and that would have been a more accurate measure of firm competitiveness.

Lastly, the issue of value creation and indexing from a managerial economic standpoint is discussed yet only from a productivity growth and organizational capital standpoint. Value creation is the path to profitability many firms have relied on throughout the recession. The analysis presented in Explaining Growth could have been far more effective is value creation indexes had also been included to evaluate the effects of personal productivity on firm resiliency and market responsiveness.

Analyzing the Lessons Learned in FDI, Trade, and Product Innovation: Theory and Evidence In the peer-reviewed article FDI, Trade, and Product Innovation: Theory and Evidence (Lin, Lin, et.al.) provide analysis of how Foreign Direct Investment (FDI) is influenced by organizational and industry structure within the Taiwanese and Chinese high technology industries. Their conclusions illustrate how intensive R&D spending can lead to greater levels of FDI, yet are no assurance of a higher level of patent ownership on a national level.

The authors also show that FDI as a catalyst of economic growth within a given nation is not as predictable of organizational productivity or competitiveness as it is a factor in globalization globally where countries unify to pursue rapidly growing technology markets (Lin, Lin, 454). R&D investments in the form of FDI then are catalyst of rapid globalization that can quickly force cultures together, many of which have diametrically opposed cultural values, mindsets and orientations to power distance and long-term orientation as well.

The Cultural Dimensions Model as defined by Dr. Geert Hofstede graphically portrays these variations in cultures, which are accessible from his website at http://www.geert-hofstede.com / (Hofstede, McCrae, 52). The analysis of FDI investment effectiveness and its implications on economic growth of nations has however not taken into account the architectural and structural differences of organizations for significantly different cultural backgrounds as well (Lin, Lin, 454).

This lack of focus on FDI as either a catalyst or constraint of long-term economic growth in nations with cultures that are vastly different that Taiwan and China are not addressed, therefore the issue of personal and organizational productivity is also not addressed. This is a major shortfall of this analysis on FDI, as it fails to take into account the catalysts of long-term economic growth based on cultural variations inherent in organizational architectures and cultures.

The article FDI, Trade, and Product Innovation: Theory and Evidence however does take into account the validation of four key variables that have the greatest impact on FDI influence on economic growth of foreign nations. These included inward-bound FDI, outward FDI, import aggregation measures of supply chain efficiency and exports and their implied velocity (Lin, Lin, 464). The authors contend that these factors are most critical for a given nations' growth from a productivity growth and organizational capital standpoint.

The missing factors of personal productivity as a determinant of national competitiveness, a key point made in our textbook and by Dr. Michael Porter in much of his research, are not evident in the analysis. This is one aspect of the national competitiveness and if it is strengthened by R&D-based FDI needs further research on a global scale. The Confucian Consumer; Seven reasons why the Chinese save, when they really should be spending. Dr.

Nouriel Roubini is co-founder and CEO of Roubini Global Economics and serves as a professor of economics at New York University's Stern School of Business. He has also taught at Harvard and Yale universities.

In his article The Confucian Consumer; Seven reasons why the Chinese save, when they really should be spending there are many excellent points as to why China continues to have a very high percentage of their Gross Domestic Product (GDP) held in fixed investments, a factor he considers to be a threat to the global economic system (Roubini, et.al.).

His analyses of the Chinese cultural factors that are stimulating high savings rates (30% on average per working Chinese citizen) are prescient of what the United States will eventually have to adopt throughout the latter part of this century, as social security and other forms of government funding become increasingly strained. His contention is that the Chinese government, through its tight controls of FDI and capital investment in capacity, is acting as a constraint on global economic growth.

The structural integrity of industries and the firms propelling them to positive economic growth, he contends, need to consider transaction velocity over pure capital equipment and the build-out of capacity over consumption. In that inherent conflict within the globalized industries that are increasingly relying on China as their engine of economic growth, the article points out that capitalization is having an adverse effect on long-term viability of the global economy (Roubini, et.al.). The article's title is misleading as it seems to implore consumers to spend more, yet Dr.

Roubini is precise in his advice on where and how spending needs to occur for China specifically and the global economy in general. The focus needs to be on building out a more agile and market-driven financial system that can take into account wide variations in transactions within the banking system and can continue to stay agile and resilient in the face of severe economic cycles (Roubini, et.al.).

He is not advocating the privatization of China's nationalized economic structures, but instead a focus on how to make them more efficient. His contention is that by freeing up more capital in China on consumption that these financial systems will in turn become catalysts of economic growth globally (Roubini, et.al.). Dr. Roubini is known for his draconian and often negative views of the current economic climate.

This article however shows how clearly his insights into how the Chinese culture is completely changing that nations; current economic condition, and in turn, affecting the entire global economic ecosystem as well. With consumption at 36% of GDP, China also leads the BRIC nations (Brazil, Russia, India and China) in the lowest level of consumption across all sectors. Dr. Roubini argues that the need for spending to increase the fluidity of funds through the Chinese economy will do much to provide for global economic growth.

It is atypical for him to sound a positive note about growth, yet he sees the investment and acceleration of the Chinese financial system as being essential for growth globally. The cautionary note about capital investment in China to the point of overcapacity is also critical for balance of trade globally. References Clement, D. "Explaining Growth " the Region 1 Sep. 2010: Geert Hofstede, and Robert R. McCrae. "Personality and Culture Revisited: Linking Traits and Dimensions of Culture. " Cross - Cultural Research 38.1 (2004): 52. Lin, H., and E. Lin.

"FDI, Trade, and Product Innovation: Theory and Evidence. " Southern Economic Journal 77.2 (2010): 434-464. Nouriel Roubini. "The Confucian Consumer: Seven reasons why the Chinese save, when they really should be spending. " Newsweek 24 Jan. 2011: Article: The Confucian Consumer; Seven reasons why the Chinese save, when they really should be spending. Nouriel Roubini. Newsweek. New York: Jan 24, 2011. Vol. 157, Iss.

4 Abstract (Summary) [...] no country can be so productive that it can take, every year, half its GDP and reinvest it into more capital stock without eventually ending up with a huge excess capacity and a mountain of bad loans. [...] China needs to radically change its growth model from net exports and investment to reduced saving and more consumption. [...] there is little of a social safety net in China now that the "iron rice bowl" system of cradle-to-grave public services has broken down.

The traditional Chinese model of economic growth required the U.S. And a few other countries to be consumers of first and last resort, spending more than their income and running ever-larger trade deficits -- so that China could be the producer of first and last resort, spending less than its income and building ever-larger trade surpluses. That model is now challenged, if not altogether broken, because the excessive accumulation of private and public debt and deficit by the U.S. has forced a painful deleveraging: the overindebted U.S.

consumer needs to spend and consume less, import less, and save more to reduce debt. Indeed, as the U.S. trade deficit shrinks, the Chinese trade surplus has been sharply shrinking, too.

How has China been able to maintain its high -- 8%-plus -- growth despite the collapse of its net exports? It did not do it by reducing its saving and consuming more; rather, it has boosted further fixed investment in real estate (commercial and residential), in infrastructure (roads, airports, bullet trains), and in manufacturing capacity, which already suffers from a glut. Fixed investment in China is now close to 50% of GDP.

But no country can be so productive that it can take, every year, half its GDP and reinvest it into more capital stock without eventually ending up with a huge excess capacity and a mountain of bad loans. Thus, China needs to radically change its growth model from net exports and investment to reduced saving and more consumption. There are,.