Government-Business Relations - Passive and Anticipatory Industrial Policies - Coursework Example

Gоvеrnmеnt-Businеss Rеlаtiоns: Passive and Anticipatory Industrial Policies Name: Institution: Date Gоvеrnmеnt-Businеss Rеlаtiоns: Passive and Anticipatory Industrial Policies Industry Policies Industry policies refer to the government led economic programs in which both private and public sectors will coordinate to encourage the development of industries and technologies. In this regard, the government will provide capital and financial support, to most private sectors inform of direct subsidies, government –run development banks and tax credits (Bousquet, 2011) It is important to note that although industry policy has been working in some countries such as Japan and Germany, it has been viewed with suspicion in United States. However, during 1990s, the government begun venturing in Advanced Technology program that aimed at research and development, especially in technologies that seemed risky. Industrial policies are considered either passive or anticipatory economics (Horowitz, 2011). Passive Industry Policies and Anticipatory Industry Policies Passive industrial policies refer to those policies in macroeconomics that are conducted under the present rules, which assume that the situations will remain sticky. The policies take into account various macroeconomic variables and will dictate the best direction (Jarrett, 2012). Passive policies in industry normally leave everything to the forces of supply and demand in the market On the other hand; anticipatory policies will take into account the anticipated changes in the economy. For instance, in an army, one will always anticipate changes in the enemy’s strategies (Horowitz, 2011).This presents a challenging task in managing economy, by requiring intelligence in gathering information and techniques that involve such practices to draw up correct models of decision making and judge the results. In this case, anticipatory economists believe, for instance that real wages will not always remain sticky. Since they are indexed on prices, they will be adjusting themselves accordingly and therefore they cannot remain sticky even during .Regarding the two kinds of industrial policies, there have been debates regarding what should be a better policy to prevail in a certain economic scenario (Horowitz, 2011).Therefore, this study will analyze cases from various countries and the recent global recession to realize better policies to ensure economic growth. Interaction between Passive and Anticipatory Industrial Policies and the Economy The Case of Mexico It has been noted that anticipatory policies aims at raising productivity and therefore employment, which is converse as regards passive policies. As from the Mexican case, initially, the country had asserted itself very much on orthodox economic models that had incapacity to generate economic growth. It had also inability to generate employment and raise the country’s industrial productivity (Calderon& Sanchez, 2012). The country had aimed at following the orthodox hypothesis of efficient market coupled with cost- benefit analysis to remove the perceived distortions in the market. In this regard, most economists have argued that the trade policies that were implemented by governments of Salinas de Gortari to that of Felipe Calderon had been passive. For them, they only concentrated on removing obstacles that may hinder the realization of a perfect market. In this regard, they removed all state monopolies and regulations. The governments rejected the idea that industrialization could be a basis for economic development and therefore adopted the notion of regional economic integration and globalization as the major ways for its economic growth (Calderon& Sanchez, 2012). The two aspects obviously would decide which companies would remain and therefore all mercies on the direction of the economy would be left to the outside forces, making the government disabled to implement active and anticipatory industrial and trade policies. In this regard, the state could not deregulate harmful trade, rules, and privatization, human and physical infrastructure and private property rights became negative. The author concludes that any developing nation like the Mexico would need an anticipatory industrial policy to ensure economic development in its country through industrialization (Bousquet, 2011) The Euro zone/ European Countries Case On anticipatory economic policy, Johnson and Turner put it that in mid 1990s, when the European states realized that their steel production could reach overcapacity, they resorted to cutting it. In this regard, in States like France and Britain, they removed subsidies on industries that produced steel. It is also important to note that as many industries were left on their own, there was a remarkable increase in efficiency (Prascevic, 2009). Moreover, to compete effectively on an international scene against Chinese steel firms, the governments encouraged their steel companies in the region to begin merging so that much efficiency could be assured to counter the prospering Chinese firms. By the year 2000, the euro zone had 10% of the world’s biggest steel companies, and represented 20% of the total global production. Furthermore, to continue maintaining their competitive value at the international scene, the EU countries have invested a lot in research and development. This will enable it to compete against high valued steel industries that are in some cases tailor made such as those found in the US (Prascevic, 2009). However, as from 2004, stakeholders in steel industries anticipated that the prices of the steel could rise and therefore firms tended to enlarge their capacities in bid to match with the growing demand. Importantly, although the European Union commission restricts governments’ restrictions on productions, to reduce interventionist approach by firms and enable passive policies, countries have been intervening in their industries when they anticipate adversities in their economies. The Case of United States After revolution, it should be noted that the American government used a wide range of acts to sponsor industries. In this respect, the first period after its independence, the government asserted itself in developing railways, canals, and any conditions that could spur industrial growth. In this regard, since it had built what could stimulate the economy, it has been moving away from interfering with commerce in bid to decentralize its decision making to ordinary citizens and states (Dobbin, 1997). In United States generally, the Federal government practice little interference with one’s freedom to make his choice. Therefore, the locus of decision-making becomes shifted from the Federal government to the individual and his state. Global Recessions As it approached 1920, there were much passive notions towards the functioning of the economy. In this regard, the government and Federal banks did not make any anticipatory policies towards what may have happened in the market. This was because of too much overreliance on fundamental causes. Robert Hertzel in his book, The Great Recession: market Failure or Policy Failure?, notes that taking restrictive monitory policy was the main cause of recession. Likewise, this was also the case of the 2007-8 recessions. According to Johnson, & Turner, (2007). The economy withered well until 2008 and one way by which the monitory policy shapes the economy is by shaping anticipations. When the Federal Bank practices tight monetary policies, the public will begin reducing their economic activities and hence industries will be affected. In the recession, it has been revealed that the then monetary policy was passively tightening, making the economy to deteriorate (Loser, 2009)Although the government saw financial firms such as Lehman Brothers beginning to collapse, it could not reverse its orthodox passive policies and hence, people became fearful about spending, leading to depression . Effects of Passive Policies on Industrial Production Capacities via recession First, by 2009, capital investments had fallen by 23.2% due to the decline in domestic demand. Moreover, as in middle October 2008, the industrial shipping volume as measured by the Baltic Dry Index had fallen by 50% (Johnson & Turner, 2007). In 2009, the Economist Magazine pronounced that the economic recession had caused manufacturing crisis, which had led industrial production also to decline. By 2008, several countries had reported a certain falls in their industrial outputs: Germany -12%, Italy-14%, Brazil-15%, Russia-16%, and Japan-31% (Loser, 2009) Anticipatory Measures after the 2007-2008 Recession For firms and industries, various financial ratios (tools) have been advanced to determine solvency. Therefore, it is important that they employ them to predict the future. At government level, solvency conditions can be predicted and anticipated in five ways: cash solvency, budget solvency, long-run solvency, service level solvency and state fiscal condition solvency. In this regard, cash solvency demands that the state has enough cash to clear its bills (Johnson& Turner, 2007). For budget revenue, the state should have enough revenues to cover all expenditures on its budget. Long-run solvency is used to determine how long a government will take to cover most of its costs. For service solvency, the government should have enough resources to provide services to its citizens. State fiscal condition index incorporates all information concerning the four solvency conditions to determine the overall/ weighted solvency of the government In reference to Kawai & Prasad (2011), On demand side, governments have been implementing social welfare programs such as unemployment benefits and compensation inform of subsidies and retraining. Both fiscal and monetary policies can be instrumental in reducing short-term unemployment scenarios. On supply side, firms should enter in agreement with employees’ unions to alleviate stringent policies so that everybody can be employed. However, specifically, families should ensure that their members acquire necessary skills that correspond with the current market demand (Johnson& Turner, 2007).There should be reduction of powers of trade unions so that high wage hiking is eliminated for many people to be employed. Governments have been improving geographical mobility and information access for industries to get appropriate employees (Prascevic, 2009). This can also involve giving benefits to those who move to work in depressed areas or relaxing taxes on firms that venture in such areas. Conclusion The greater object of the government should be improving the social conditions of its citizens. This should be done in proportions as it anticipates changes in an individual to be somewhat self-sufficient and run his affairs. In this regard, it is important for the government to give subsidies, build roads, railways, and others means of transport and communication so that they can interact with distant individuals. The government is also supposed to protect its citizens from enemies/ excessive competition in anticipation that they hinder industrial growth in the country. Moreover, it should preserve peace, which includes monitory stability and fair contracts, for its citizen to practice trade and industrialization without fear. However, if the conditions have been met, the government can adopt passive industrialization policy on large scale, leaving citizens to practice on their own because too much patronage of the executive may be dangerous. Therefore, no industrial policy can be permanently suitable; it only depends on an economic scenario. Moreover, no policy will sufficiently function alone in the management of the economy; what matters is the proportion of each of them in application when an economic scenario calls. References Bousquet, F (2011) Anticipatory Standards Development and Competitive Intelligence. International Journal of Business Intelligence Research, 2, 1, 16-30. Calderon, C. & Sanchez, I. ( 2012). Economic Growth and Industrial Policy in Mexico. Revista Latino America de economia, 43(170). Dobbin, F. (1997). Forging Industrial Policy: The United States, Britain, and France in the Railway Age. Cambridge: Cambridge U.P Horowitz, N. (2011). Art of the deal: contemporary art in a global financial market. Princeton, N.J.: Princeton University Press. Jarrett, J. (2012). On Financial Markets and Financial Regulation. Journal of Business & Financial Affairs, 01(01), 244. Kawai, M., & Prasad, E. (2011). Financial market regulation and reforms in emerging markets. Washington, D.C.: Brookings Institution Press. Loser, C. M. (2009). Global Financial Turmoil and Emerging Market Economies: Major Contagion and a Shocking Loss of Wealth?. Global Journal of Emerging Market Economies, 1(2), 137-158. Johnson, D. & Turner, C. (2007). European Business. London: Routledge. Prascevic, A. (2009). Global Economic Recession and Change of Dominant Macroeconomic Paradigm. Economic Policy and Global Recession, pp. 1-12. . Read More