Capitalism as a Measure for Economic Development - Essay Example

?Microeconomic Report Table of Contents Summary 3 Article America's Big Banks are Back on Top” 4 Article 2: “Is it too late to Diversify Investments outside Canada?” 6 Article 3: “American Airlines, US Airways closer to Deal” 9 References 11 Summary The notion of economic development has been identified as the common phenomenon of countries in the modern world which depicts the stable growth of the global economy. In relation to the present instability as well as increasing complexities in the conditions of the global economy, it is widely accepted that the countries seek to reform their financial position by encouraging the potential opportunity for its different industrial sectors. It is in this context that mergers, diversifications and rapid expansion at the industrial level are often argued as the symbolic representation of capitalism as a measure for economic development (Pacione, 1985). Notably, this particular understanding has been considered when selecting articles for this assignment. In this regard, it has been observed from the articles reviewed that the government can also play a vital role in terms of formulating adequate guidelines and deregulation systems in order to develop the country’s economic position. Article 1: “America's Big Banks are Back on Top” As revealed in the article by The Economist (2013), after a remarkable invasion of financial crisis in the year 2008, the American banks have re-established their real role in the Wall Street’s financial environment in the current year. The banking institutions of the US have faced dramatic alterations owing to incessant instability on investments since the last five years. The volatility within the financial performance has also been observed in the financial institutions due to the rapid pace of fluctuation on the global financial movements and variations in the financial portfolio of the global banking institutions (The Economist, 2013). Moreover, diminished household saving rates, lower interest rates along with uprising banking service needs and higher amount of risk taking practices by the financial institutions was identified as a major cause of the financial crisis witnessed during the year 2007-2008 (Vukovic, 2009). Consequently, the U.S. government have occupied a number of steps in the midst of the financial crisis in the year 2008 with the intention to deal with the financial crisis faced by the country. The crisis initiated in America’s real estates and banking as well as the other financial institutions expansion to the world economy deciphering greater sustainability (Poole & William, 2010). Few of the major decisions of the Federal Government focusing on considerable changes and development of the financial rules by the banking institutions have made the great recession to an end at a much earlier phase than the expected stipulated period. For instance, the Emergency legislation passed by the U.S. assembly in the year 2008 and in the early quarter of 2009 focused on assisting the financially declining phase of various industries in the economy. Additionally, few of the other major initiatives that developed by the federal government as explained in the article The Economist (2013) have been illustrated hereunder. Avoiding breakdown of the major financial institutions Reducing the impact of the limitations of US financial institutions Providing instant incentives to consumer spending through raising after-tax household income Providing temporary funds to the state and the local government in order to reduce the needs and the spending during the recession period Looking after the newly laid off workers and members of other economically vulnerable populations taking anti-poverty measures Making available of federal endorse for infrastructure investment Source: (Poole & William, 2010) Furthermore, as noted in the article, The Economist (2013), in accordance with the recessionary effects in the global financial position, along with the US, the UK financial institutions have also faced severe challenges. However, the financial institutions of UK have been identified as playing an important role for the global economy through developing and implementing different financial decisions. It is worth mentioning in this context that the financial institutions of the UK have played a major role in terms of bailing out the investment portfolios performed under their financial performances (University of Liverpool, n.d.). Article 2: “Is it too late to Diversify Investments outside Canada?” Diversification of investments has been identified as a growing concern for the modern investors due to the rapid fluctuations of the global economy. The notion of diversification of investments signifies the practice for the investors to perform their financial portfolios into multiple investments for the purpose of reducing different potential risks from the global markets. However, it is widely observed that the investors often tend to perform their financial portfolio in different global financial institutions with the intention of reducing the associated risks through diversification (Whited, 2001). Emphasising on a similar context, Christianson (2013) explained that the investment portfolio of the global players depicted their interest to invest their financials in Canada in order to obtain greater return at a lower rate of potential risks, thus gaining a greater opportunity to obtain higher rate of return. In relation to the recent remarkable growth performance of the Canadian financial institutions, it has been evidently explained in the article that the country has become one of the major investment destinations since past few years. The volume of the stock market of the country has also been experiencing remarkable growth by the developed and developing nations. In this context, a growing demand for the Canadian resources has been witnessed amid the global investors in order to avoid different economic challenges apparently signify a greater extent of cautiousness after the recession of 2008 (Christianson, 2013). Although, it has often been observed that financial value of Canada is identified as lower than 4% of the total of the global stock market, the country has been successful in accomplishing its recognition as one of the most effective industrial contexts for investments deciphering strong financial performances practiced by its giant financial institutions. Moreover, the effortlessly available financial resources and material-related groups of companies have been executing a large proportion of its financial market which can also be considered as the major strengthening factor to accumulate a well-built financial structure for the nation and also for the investors rewarding a better scope for diversification in their portfolio (Christianson, 2013). However, in relation to strengthening the financial performance, it is highly important for a nation to possess adequate resources to empower the financial position of the country rendering better scope of diversification to the investors. With reference to the shortage of adequate financial resources, it can be stated that the aspect can play a vital role for any country to stabilise its economic performances and enable it to acquire diversified investment portfolios. Therefore, it can be stated that lack of adequate financial resources, such as manufacturing industries, professional services and technological industry can also play a major role for a nation to achieve significant economic growth over the long run with better scope of diversified investments. Converse to this notion, despite the shortage of effective financial resources, it can be observed that the financial institutions in Canada are playing a major role to empower the economic performance of the country (Christianson, 2013). Notably, the continuous growth of the financial institutions has been observed due to the greater degree of scope to diversify investments by the giant companies from the different parts of the world in the industrial context of Canada (The Canadian Chamber of Commerce, 2011). Article 3: “American Airlines, US Airways closer to Deal” In accordance with the fiercely competitive scenario in the global unstable economic environment, it can be apparently observed that the organisations today seek to diversify its business operations through practicing various strategies rendering due significance to mergers and acquisitions. With reference to this context, Jones (2013) revealed that significant changes have been occurring in the airline business especially with respect to mergers recently, as can be illustrated among the two giant airline marketers of the US i.e. the American Airlines and the US airways. These organisations are again reported to be potentially finalising the deal of merger which shall make them the biggest airline carrier service provider in the world (Jones, 2013). According to Jones (2013), it has been observed that the merger to be dealt between the two giant airline companies can bring severe opportunities for the country to increase its financial performance depending upon the aviation industry. Moreover, the spectators have also forecasted that the country will further enjoy the opportunity of rising employment through this deal. As further mentioned in the article, in the context of recent airlines business, American Airlines was filed for bankruptcy during the year 2011 due to severe financial problems in the aftermath of the recession. Due to the immense financial breakdown, the company also faced the challenge of decreasing operating route map and increasing workforce friction which had negatively affected its competitive position in the US airlines industry leading to a declination in its profitability as well as competitive stance. Therefore, the decision of the merger with the US Airways is expected to assist in the reform of different business operations along with financial stability in the US aviation industry (Jones, 2013). On the other hand, the business performance of US Airways has been witnessed to perform consistent financial operations even in the great financial recession period. The organisation is also well-known for increasing its highest financial turnover rate during the year 2012 which has been recorded as a profit of USD 537 million. Moreover, the present airlines carrier service of the company was also witness to perform with remarkable growth through its various business diversification strategies (Maxon, 2013). Therefore, it can be stated with reference to Jones (2013) that the merger of the airline companies can play a major role in terms of developing the overall financial condition in the present airline industry of the US. The deal can also provide adequate opportunity for each company to gain substantial benefits in both operational and financial performances. References Christianson, D., 2013. Is it too late to Diversify Investments outside Canada? Columnists, [Online] Available at: http://www.winnipegfreepress.com/opinion/columnists/is-it-too-late-to-diversify-investments-outside-canada-206906711.html [Accessed May 13, 2013]. Jones, C., 2013. American Airlines, US Airways Closer to Deal? Money. [Online] Available at: http://www.usatoday.com/story/money/business/2013/02/07/american-airlines-us-airways-merger/1898067/ [Accessed May 13, 2013]. Maxon, T., 2013. AMR Stock Symbol may not Survive US Airways Merger. Airline Industry. [Online] Available at: http://www.dallasnews.com/business/airline-industry/20130424-amr-stock-symbol-may-not-survive-us-airways-merger.ece [Accessed May 13, 2013]. Pacione, M., 1985. Progress in Industrial Geography. Psychology Press. Pool & William, 2010. Causes and Consequences of the Financial Crisis of 2007-2009. Harvard Society for Law and Public Policy Spring 2010. [Online] Available at: http://readperiodicals.com/201004/2045076841.html#b [Accessed May 13, 2013]. The Canadian Chamber of Commerce, 2011. Enhancing and Diversifying Canada’s International Trade and Investment. Proposed resolution. [Online] Available at: http://www.chamber.ca/images/uploads/Proposed_resolutions/2011/09-Enhancing.pdf [Accessed May 13, 2013]. The Economist, 2013. America's Big Banks are Back on Top. The View from the West. [Online] Available at: http://www.winnipegfreepress.com/opinion/westview/americas-big-banks-are-back-on-top-206906841.html [Accessed May 13, 2013]. University of Liverpool, No Date. The Financial Crisis of 2007/2008 and Its Impact on the UK and Other Economies. National and International Issues, pp. 1-5. Vukovic, V., 2010. Political Economy of 91 the US Financial Crisis 2007-2009. Introduction. [Online] Available at: http://www.ijf.hr/eng/FTP/2011/1/vukovic.pdf [Accessed May 13, 2013]. Whited, T. M., 2001. Is It Inefficient Investment that Causes the diversification Discount? The Journal of Finance, Vol. LVI, No. 5, pp. 1667-1691. Read More