Increased Unemployment in the USA - Case Study Example

Assignment The nations across the world observed worst economic recession and downturn in 2008 - 2009 after great depression of 1930s. The crises began after sub prime property mortgage scheme failure in United States that not only reduced the property prices in USA but also led to many bankruptcies of banks, industries etc. This then increased unemployment in USA that reduced consumption and demand of products. (Pollin, Garrett-Peltier, Heintz and Scharber 2008) In simple words, all economies associated with US felt the pinch of this economic contraction. The crises were further intensified by the unexpected rise in international oil prices that also affected the competitiveness of businesses. Hence, world economies were thrown into deepest global economic downturn after this credit crunch like situation. Many small, medium and large financial institutions, automobile manufacturers, global airlines and others announced bankruptcies including international giants such as Lehman Brothers and General Motors during this economic turmoil. It is worthwhile to mention that most of the emerging economies are dependent (in terms of exports) over advance economies; therefore, low consumption and negative growth in such developed nations also adversely affect the Gross Domestic Growth (or Purchasing Power Parity) rates in these developing nations. It must also be pinpointed that investors, organisations and institutions in developed nations made mammoth investments in USA so debacle of US economy also sabotaged the financial position of investors from other developed nations, which in turn affected the economic growth rates of emerging countries like China, India, Indonesia, Turkey, Egypt, Brazil, Malaysia, South Africa, Pakistan and others. The above nations recorded GDP growth rates in between 4 - 12% prior to recession. (UNESC 2009) This paper, however, will throw light over recent debate on ‘green revolution’ or ‘green economic recovery’ that is aimed to avert severe economic crises of 2008 in future and to ensure sustainable development. This new concept has now become the subject of authentic international financial institutions, Think Tanks, United Nations, Group of top Twenty Nations (G-20) and Governments that want to create more employment opportunities / jobs and to observe economic development without intensifying any environmental threats such as Global warming, carbon issues, acid rains, depletion of natural resources etc. The paper will critically analyse, in the light of relevant literature, whether or not these green industries and jobs can be seen as a solution to today’s global crises. As mentioned by Strand and Toman (2010), a possible definition of ‘green recovery’ can be a set of tactics or strategies that foster short-term economic development (besides long run sustainability) through preservation of available natural resources and protection of environment by minimising pollution, green house emissions and consumption of fossil fuels used for energy. It is worthwhile to mention that the contribution of ‘energy sector in global greenhouse emissions’ is more than 55% (estimated) that has to be thwarted by employing modern sophisticated energy technology. The production and induction of new environment friendly plants would enable to increase energy efficiency (in terms of production) thereby resulting in cheaper tariffs. The low cost energy will then be supplied to industries and commercial businesses so that they could become competitive and create new employment opportunities in their home and host nations. (International Energy Agency Report 2009) and (Pollin, Garrett-Peltier, Heintz and Scharber 2008) Strand and Toman (2010) also pinpointed that there are different areas that proponents of ‘green recovery’ would focus on. The first is to stimulate the ‘environment clean-up’ programme so that pollutants can be reduced from the environment. The globalisation of world, economic growth and higher standard of living have skyrocketed the demand for luxuries (automobiles, consumer goods, electronics and electrical appliances, consumer products and chemicals used in those products) and use of fossil fuels drastically. This in turn resulted in environmental pollution, carbon emissions and depletion of ozone layer followed by the threat of global warming. Therefore, countries must allocate higher amount of funds for ‘renewable production technology’ to foster recycling and conservation of energy and natural resources. In short, the concerned authorities must focus on allocating excessive funds so they could ensure clean-up and protection of environment and reduce the amount of fuels. (UNESC 2009) and (Houser, Mohan, and Heilmayr 2009) Secondly, the funds should be utilized in enhancing and improving quality and quantity of natural resources. This can be accomplished by initiating new exploration and extraction projects with the help of latest available technology that in turn will reduce the wastage of those resources during exploration stage. It must be highlighted that natural resources are used as raw materials and in production of other inputs (intermediary products). Improvement in quantity and quantity of natural resources means improvement in availability and supply of raw materials to labor intensive and capital businesses, which finally enable businesses to smoothly run their business operations and create jobs. (Strand and Toman 2010) and (Houser, Mohan, and Heilmayr 2009) Thirdly, the proponents of Green Economic Recovery has intensified the importance of building ‘human capital’ to produce a large of highly educated, skilled and well trained workers who could make their utmost contributions in maximizing efficiency and effectiveness by enhancing their marginal productivity. Efficiency is achieved when more units can be produced with same level of available inputs or same output can be produced by fewer raw materials and intermediary inputs. This reduces the pressure over natural resources and reduces the demand for energy. In short, the benefits of ‘green’ could be truly obtained. Nevertheless, the infrastructure development (availability of utilities, communication networks and transportation networks) is also a part of this strategy specifically formulated “to yield significant environmental or climate change co-benefits.” (Strand and Toman 2010) and (Pollin, Garrett-Peltier, Heintz and Scharber 2008) The above points can be supported by providing an example of USA’s proposed stimulus package of $100 billion to step forward towards becoming a ‘low-carbon economy’. As mentioned above that debacle of USA’s property and construction sectors was the foremost reason behind its downfall of financial and manufacturing sectors. It must not be forgotten that growth in construction industry (alone) triggers production and manufacturing growth in more than 50 directly and indirectly related sectors. Therefore, US government has an inclination to boost its carbon-economy to conserve its natural resources, protect its environment by reducing carbon dioxide and sulphur emissions and create employment opportunities by improving business outlook. It was estimated that nearly 2 million jobs will create as a result of implementation of the formulated policies and measures. (Pollin, Garrett-Peltier, Heintz and Scharber 2008) Example of USA: The different areas that USA has been focusing on include ‘refurbishment of buildings’ such as educational institutions, hospitals, shopping malls, commercial plazas, industrial homes and multi-story offices so that they become more energy efficient and environment friendly than they used to be in past. This will create both low-paying but skilled (“carpenters, Insulation Workers, electricians, air-conditioning installers, Carpenter Helpers, welders of demanded equipments in production units, Industrial Truck Drivers” etc.) and high paying jobs (such as demand of quality administrators, business managers and executives, mechanical and electrical engineers etc.). Secondly, US authorities will take into consideration the development of Rail / Road networks (as part of infrastructure enhancement) that would create of demand of various workers including white collar “Civil and Locomotive Engineers”, medium pay “Rail Track Layers, Metal Fabricators, Engine Assemblers” and low pay “Bus Drivers, Dispatchers”. (Pollin, Garrett-Peltier, Heintz and Scharber 2008) In addition, the other areas include alternative power generation sources such as Wind mills, Mass Production and Installation of Solar Energy turbines, Production of alternative fuel vehicles such as hybrid cars and those that use ethanol, natural gas etc. (UNEP 2009) Last two areas as specified by US authorities are construction of “smart electrical grid transmission systems” and employment and use of ‘bio-fuel technology’. In simple words, the policies formulated for these manufacturing related sectors will create jobs in both secondary and tertiary (services sectors). It will not only boost the demand for educated workers (offering high pay jobs to engineers, administrators, chemists, ) but also for semi-skilled workers by businesses. This will increase aggregate demand for products (improving standard of living) as well as enable the government to provide better services to people such as ‘low public transportation fares’, ‘tax credits and deductions to energy efficient businesses’, increase tax revenue because of employment generation and business expansions in economy by private sector, use of additional funds towards betterment of state offered heath and educational services and other incentives etc. (Houser, Mohan and Heilmayr 2009) In addition, UNEP report (2009) further highlighted two more sectors including primary i-e ‘agriculture (for organic production)’ and recycling or reuse of water / waste through modern state-of-the-art plants that would enable to produce and supply raw materials for various businesses and in turn reduce burden on natural resources (helps in conservation and prevention). (Pollin, Garrett-Peltier, Heintz and Scharber 2008) and (UNEP Report 2009) In the light of facts presented by UNEP report (2009), it is worthwhile to mention that the concept of ‘green investment and green economic recovery’ is not only promoted by developed or advance Western European and American nations including France, Germany, United States, Mexico, Italy, Sweden etc. but also by Asian emerging economies such as China, Republic of Korea, Japan as well as by South Africa. These countries are among the top contributors and supporters of this ‘green’ concept as they believe that it is not the time to depend on transaction based economy rather to transform towards a more genuine need based / sustainable development concept. This argument will be discussed in detail in following paragraphs. Quoting what UNEP Report (2009) pinpointed about China, “Chinese economic managers and pundits estimated that an investment worth US$ 14 billion (RMB 100 billion) in introducing green projects would soar domestic consumption and aggregate demand of consumers goods and services (household) by US$ 8.6 billion (RMB 60 billion). The increase in demand in turn increases the total manufacturing and services industry output that will result in creation of over 0.6 million jobs. Also, this will benefit government in a way that it would generate tax income of more than US$ 143 million (RMB 1 billion).” Similar is the case with other above mentioned economies that have allocated colossal amount of funds to initiate green projects aiming short term gains and eyeing towards long term sustainability. USA’s per capita allocation for ‘green economy’ is over $3000, highest among all other endorsers. Moving towards the critical analysis of overall discussion and argument that was raised above by the researcher about transaction-based and needs-based economy, it is worthwhile to mention that Developed western and Asian economies depends heavily upon low population, high per capita incomes and increasingly large number of transactions per person compared to developing Asian and African economies that have low per capita incomes and fewer average transactions per consumer. So, if economy contracts due to collapse of financial markets, property and manufacturing sectors, the entire developed nation observes the pinch as the money circulation stops among few buyers due to low population, and as a result, the aggregate demand reduces and employment opportunities plummet. Expensive labor is also a big issue that reduces the competitiveness of businesses. So, these economies are highly Transactions-based economies. In contrast, let’s take example of emerging economies such as China (1.35 billion people), India (1.25 billion people) and Pakistan (18 million people) with heavy population but lower average incomes and thus fewer transactions. However, these economies although have no exposure to highly sophisticated technology, yet they observed economic growth of 7%, 6% and 3% in 2008-2009 (during recession) respectively despite the fact there economies are heavily dependent on exports to USA and Europe. The question arises here is why developed West observed negative growth whereas dependent Asian economies observed relatively healthy growth rates? The answer to this paradox is quite simple. There are more buyers in these nations that have certain level of genuine needs; thus they observe derived demand and growth even in recession. West, therefore, can only observe sustainable development if it creates more jobs through Green Economy initiates so that number of buyers increases, thereby increasing the derived demand of these countries and enabling them to defeat recession and global crises that only hindered the growth of West whereas nations dependent over it for exports / trade were largely stayed out of these crises. Other emerging economies also recorded some growth in 2008 – 2009 besides the three aforementioned nations. References / Bibliography: Pollin, Robert, Heidi Garrett-Peltier, James Heintz, and Helen Scharber “Green Recovery - A New Program to Create Good Jobs and Start Building a Low-Carbon Economy” Centre of American Progress September 9, 2008 http://www.americanprogress.org/issues/2008/09/green_recovery.html UNEP “Global Green New Deal - An Update for the G20 Pittsburgh Summit” United Nations Environment Programme September 2009 http://www.unep.ch/etb/publications/Green%20Economy/G%2020%20policy%20brief%20FINAL.pdf Frances Beinecke “Environmental Community Offers Obama a Green Economic Recovery Plan” The Huffington Post November 26, 2008 http://www.huffingtonpost.com/frances-beinecke/environmental-community-o_b_146451.html HINMAN, JEFFRY “The Green Economic Recovery: Wind Energy Tax Policy after Financial Crisis and the American Recovery and Reinvestment Tax Act of 2009” Law.uorgeon.edu http://www.law.uoregon.edu/org/jell/docs/232/Hinman.pdf No author “The New Agenda: A New Energy Economy and 5 Million Green Jobs” US Green Building Council November 2008 http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1944 Alcorta, Ludovico “Can Asian Green Industry Drive the Economic Recovery?” United Nations Industrial Development Program 9-11 September 2009 http://www.unido.org/fileadmin/user_media/UNIDO_Header_Site/Subsites/Green_Industry_Asia_Conference__Maanila_/Econ_Recov_Asia.pdf Strand, Jon and Michael Toman “Green Stimulus,” Economic Recovery and Long-Term Sustainable Development” The World Bank Development Research Group January 2010 http://www.iadb.org/intal/intalcdi/PE/2010/04556.pdf Trevor Houser, Shashank Mohan and Robert Heilmayr. “A Green Global Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination” WORLD RESOURCES INSTITUTE February 2009 http://pdf.wri.org/green_global_recovery.pdf Robins, Nick, Robert Clover and Charanjit Singh “Building a green recovery” HSBC 22 May 2009 http://www.hsbc.com/1/PA_1_1_S5/content/assets/sustainability/090522_green_recovery.pdf http://www.epc.eu/TEWN/pdf/373530745_Economic%20recovery%20to%20a%20greener%20economy.pdf Johnston, Peter “Economic recovery to a greener economy: mobilising ICT-based innovations” European Policy Centre July 2009 IEA “Ensuring Green Growth in a Time of Economic Crisis: The Role of Energy Technology” International Energy Agency 22-24 April 2009 http://www.iea.org/papers/2009/ensuring_green_growth.pdf No author. “The Global Plan for Recovery and Reform” Group Twenty (20) April 2, 2009 http://www.g20.org/Documents/final-communique.pdf WMRO “WEST MIDLANDS: FIT FOR THE FUTURE?” West Midland Regional Observatory http://www.wmro.org/resources/res.aspx?p=/CmsResource/resourceFilename/2869/Green-Infrastructure-booklet-web_v1.0_report_ON.pdf&r=TaWFJX0fgY OECD “DECLARATION ON GREEN GROWTH” Olis.Oecd.org 25 June 2009 http://www.olis.oecd.org/olis/2009doc.nsf/LinkTo/NT00004886/$FILE/JT03267277.PDF Robins, Nick, Robert Clover and Charanjit Singh “A Climate for Recovery” HSBC Global Research February 25, 2009 http://www.globaldashboard.org/wp-content/uploads/2009/HSBC_Green_New_Deal.pdf UNESCAP “TURNING CRISIS INTO OPPORTUNITY: GREENING ECONOMIC RECOVERY STRATEGIES” United Nations Economic and Social Council February 2, 2009 http://www.unescap.org/EDC/English/Commissions/E65/E65_6E.pdf Read More