Recession in the USA - Free Markets and the Sinking of the Global Economy - Essay Example

Recession in the USA XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Free Markets and the Sinking of the Global Economy XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Name XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Course XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Institution XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Date XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The great economy decline that took place in 2008 across the globe, is greatly criticized on banks whereby there have been great complicity in coming up with a materialistic society. A crisis which initially began in the United States soon turned to bigger problem across the global where millions lost jobs. It is clear that this was not supposed to be the case as it have been argued by Joseph Stiglitz in FREEFALL; “free markets and the sinking of global economy”. The much toted new economy which was characterized by excellent innovation in the 20th century was meant to be a way to risk management bringing end to what was known to be a business cycle. It is evident that if initially there was a combination of new economy and modern economy been implemented then, the economic fluctuation would not have taken place. Joseph Stiglitz argues that rugged individualism and market fundamentalism have done away with any kind of sense leading to great misuse of the unwary. Clearly this gives out reason to search what is known to be an indictment of defining organization strategy as one which profit motivated, ruthless and management as an item of capitalism especially within a financial industry (Higgs 78). The study will widely focus on self regulating a free market economy and the way in which organization are able to handle itself from future financial crisis. Further, the study will analyze culture, motivational strategies and how power is exercised within an organization in relation to moral values. There is a greater implication that majority of government posses little confidence on banks especially on ensuring that financial stability is maintained. This is why currently major government such as those in United States and United Kingdom find it difficult to work together with major banks especially after this financial setback that rocked the globe. As a measure to regain government trust and confidence banks are required to acknowledge their past mistake and behave in accordance to moral or ethical values (Higgs 86). Other than banks being held responsible, the government is expected to play a major role not only through rescuing a collapsing economy but also in regulating markets so as to prevent future reoccurrences of the same. For a strong economy it is evident that a balance between government roles and that of markets is maintained not excluding roles of non governmental institutions and non markets. Financial crisis has widely uncovered several fundamental flaws especially within capitalist, or if not at least on a certain peculiar version of capitalism which emerge as a result of American culture. The culture entails the America belief that their economy is one which is great as compared to other therefore failing in regulating markets. The culture displayed by Americans in regard to their economy does not relate to number of flawed individual nor correcting mistakes that have and are already happening but to accept that other countries may poses great ways to minimize future financial crisis. Culture has been blamed to affect financial crisis in the basis that it tend to create a situation where problems facing world economy are denied. For instance, in the US economy it has been suggested that deeper problems related to societies are connected to financial crises experienced. This societal problems includes; income stagnation in society, increased inequality and constant dramatic exceptions by most individuals (Rauchway, 97). The question arising from society or culture and global financial crisis is one where the society termed to be materialist widely dominates on more rapidly. Materialism has been known to outweigh moral commitment hence creating a situation where the need required by an environment have been greatly been ignored (Sack 68). Clearly, this rapid growth when looked at certain perceptive is a clear indication that nothing has been achieved either socially in addressing individuals needs. Rugged individuality have widely contributed in the erosion of community sense whereby there have been great exploitation of unwary and maximizing divide existing within societies. Unnecessary and unprecedented economics is a clear indication of lack of responsibility especially that which is connected to morality. There is greater misunderstanding existing between the state and market, motivation and strategy, communalism and individualism and means versus ends. Financial crisis began in developed countries and effectively started to spread to any form of emerging market and developing economy due to poor strategy and motivational capabilities. It is cultural notably that whenever an organization or country is being faced with major financial crisis, investors pull out whether the risk is minimal or great. This widely has led decrease in the value of stock and domestic currencies. Slumping downward trend in economy and upward trend being displayed in commodities prices has also pushed global economy into a collapse period whereby there is slow growth in economy. Culture has linked global economy to be played in two distinctive parts where industrialized or developed countries where most losses were from mortgage, leveraging of resources and less or minimal capita. The other level is that which is affecting innocent individuals who are less flexible to changes in economic economies. There are several strategies and motivational aspect that are very essential in ensuring that financial crisis is a thing of the past. For instance, introducing a counter cyclical mortgage products whereby when house prices increases there is greater equity withdrawal hence people are encouraged to take bigger loans. This stand is known as a financial facilitator in the sense that improvement in an economic indicator encourages more spending thus more lending. Similarly, there is clear indication that when the price of houses falls then there is rise in negative equity. A counter cyclical mortgage definitely will make individual pay more capital during increase in house prices where later they will pay less when housing market turns. Apart from counter cyclical mortgage greater usage of fixed rate mortgage can be used as solution towards financial crisis. In United Kingdom it is noted that homeowner do not normally take fixed rate mortgages. When these individuals are made to take fixed mortgages it is obvious that there will be minimal volatility experienced during changes in interests rates (Greenberg 34). Financial crisis in 2008, studies indicate that global banks mane loss totaling to an approximate value of sixty billion dollars. This loss could have been prevented if UK banks would have saved this by way of capital if; staff payout was trimmed by a margin of 10%, minimize dividends paid off by a third and stop paying out dividends especially in years where their is significant loss. It is evident that such distribution of capital would have effectively been insured against financial crisis. An ideal capital in form of mortgage ensures that more mortgages are experienced during boom and less during fall of house rent. It is evident as part to minimize crisis linked to finances in future, there is need for policy markers for industrialized countries to come up with a strategy where there is effective monitoring leveraging by all financial institution such as banks. By so doing these financial institutions will be able to identify financial crisis hence moving them from macro to micro levels. In additions, banks should be encouraged to come up with risk models which will incorporate leveraging ratio and adjusted internal risks especially in sectors which are known to impact on economy such as health and education. Private sectors manager can not be able to invest on risk management fully without the help of banks and other governmental institutions. Evidently, it has been noted that financial parties and their major counterparts has received major disappointments especially during this crisis due to lack of best risk management skills (Manduchi, 234). Power is described as the way of performing functions through other people. It is related with leadership as the two complement each other. Power can either be political or inherent. This authority can either be used positively or negatively. This is because people who are at high levels tend to rate themselves as more influential and authoritative at organizations and vice versa for the low placed individuals in a work place. This clearly indicates that the highly influential persons are able to dictate the way functions are performed in a given organization. This could either be positive or negative. In addition the actions of the leader either influence the attaining of the set objectives (Manduchi, 211). Power is influential in veracity and in the life procedure of the contemporary day firms and work stations. Leaders acquire power and utilize it in the accomplishment of specific visions and goals. Many if not most of the relations at work places engross power and authority. This can also be used to attain interpersonal influence. Leadership through power aims at enabling things done at work the best way that suits the leader. This shares and talks little about the employee as during the financial crisis in the financial institutions was as a result of failure of the leaders to disclose off securities of enclosed subprime credit. The World Bank highlighted the growing uncertainty and the disparity in the local and universal employment markets. The power manifested in the leadership of various organizations failed to see the need to translate the improvement of household incomes from the increases in the economic growth. The management had the power to increase the social welfare of its workers but failed as a result of greed. This was clearly reflected as the leadership through their power had the ability to increase prices of commodities as the level of household consumption rose (Manduchi, 225-238). This resulted into impairment of the economic and existing balances of the affected financial system. Contemporary leaders work in environments where they not only need the assistance of their peers but also of their superiors and other relevant external parties. Leadership structures need to be linked on to strong authority bases and workable approaches. The challenge that existed among the major financial institutions and firms was effective strategies that are able to give rise to dynamic authority. Dynamism in the authority is able to influence and encourage innovativeness which is a key pillar for organizations that are able to survive the strong tides of competitions. Innovativeness comes with the leadership applying the innovative management mode. Unique organizational structures that are willing to compete against the competitive world through risk taking are able to competitively survive change in both marketing and production as they are able to meet the demands of the consumers. The leadership in the American context lacked the support of employees to innovate while taking care of the consumers needs. For instance GM had innovativeness but did not meet the needs of the consumers as their automobiles proved to be very expensive and could only serve the needs of the American citizens. The fuel consumption of the innovated cars was higher compared to the Japanese made cars. The wider society opted for the Japanese cars as they served them for that moment (Nancy, 47). The base of a powerful authority begins with the individual leader’s power. Clout is derived from character and individual source. Authority has to be central, critical, flexible, visible and relevant. Centrality of power is based on the decisions made by the leadership where as flexibility is a choice of making tough decisions that are contrary to the modal way of working but are aimed at achieving the desired goal. This will enable the leader make effective and influencing strategies that are able to help the firm or organization survive the dynamic nature of the competitive market. Flexibility in leadership enables the leader to increase work variety and generate original ideas. The ideas produced have to be unique and be able to stand out from the rest. The financial institutions lacked originality in their financial transactions. Most of the institutions were only aimed at making financial gains at the expense of their customers. As the financial institutions in the USA made maximum profits, the consumers were left with little or no savings. The leadership selfishly made every attempt to reap benefits from the customers by increasing ATM withdrawal rates and increasing the loan interest rates. Most of the loan facilities were out of reach for the customers as they had little finances to secure their personal loans. Most insurance firms reaped lots and lots of benefits from the benefits from their customers’ savings. Possessing a brawny authority base to employ and influence merits little unless one is capable to secure acquiescence, effort, and dedication for others (Greenberg, 76). Personal power involves three personal attributes which include knowledge, information, personal attraction and effort. Knowledge of information can be acquired through the one on one interaction with the consumers and the workers. This enables the leader to be in line with the needs of both the consumers and the workers. The leaders in the world failed in to influencing the financial institutions in to changing their strategies to be in line with the needs of the consumers and the workers. Leadership and the political will failed to preserve the interests of the workers from losing their medical coverage. Despite new workers being able to retain their medical cover temporarily many other workers did not qualify for the continuation of the same. This was lack of the leaders having an interest of workers at heart as all they cared about is the protection of the wealth of few citizens. The leadership had separate business dynamics and focus on failure rather than on success (Higgs, 45). Lack of innovativeness in leadership was evident the companies who produced single design products as they lacked backup when the products fell out of market. The products had no product that was able to cover the losses created by the single creation products. Leaders for this kind of brand operated as brand managers rather than collection managers. Collection leadership is able to sustain competitive environments as compared to brand manager products as they have a wider base catchment (Miller, 107). In conclusion, positive organizational culture is relevant for any meaningful and effective attaining of the formulated goals. Culture is specific to organizations and is the base for. The leadership in the financial institutions had a hand in the recession as they massed wealth at the expense of the normal citizens who depended on them. The effectiveness in the leadership strategies would have prevented the extension of the recession as the products that would have been made would have had the consumers’ needs at heart. Motivational needs for the workers were minimal as no incentives were allocated to the workers to increase their output levels. Much emphasis was given on solidifying the financial base at the expense of the workers and the consumers. References Manduchi, A 2009 The Journal of Media Economics , 22(4):211-238. Greenberg, C 2009 To Ask for an Equal Chance: African Americans in the Great Depression. Higgs, R 2009 Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity Oxford University Press for The Independent Institute. Miller, D 2009 "New York City in the Great Depression: Sheltering the Homeless", Arcadia Publishing. Rauchway, E 2008 The Great Depression and the New Deal: A Very Short Introduction. Nancy, R 2009 The WPA and Public Employment in the Great Depression. Sack, K 2009 “Defying Slump, 13 States Insure More Children” New York Times. Claxton, G. et al. 2008“Health Benefits in 2008: Premiums Moderately Higher, While Enrollment in Consumer-Directed Plans Rise in Small Firms,” Health Affairs, Vol. 27, No. 6, November/December. Read More