Move from Planned Economies to Market Economies - Assignment Example

Name Instructor’s Name Business 22 July, 2014 Business Essay In recent years, many countries have moved from planned economies to market economies. Why do you think this has occurred? Numerous countries around the world began introducing economic reforms in the late 20th century. Previous planned economies they had relied on had its shortcomings, ranging from its contribution to deteriorated standards of living, all through to unsustainable economies under tight control of the central authorities. For countries like China and Soviet Union among others in Asia and Europe, introduced market oriented reforms slowly shifting from the deeply embedded socialism and communism. Though transition into market based economies had brought certain short run costs to their economies, no doubt the benefits out-weighed them. Market economies were boosted by liberalization of trade policies adopted by countries to pave way for the free market. Profit maximization Countries that have shifted to market economies have benefitted through profit maximization, which assists to meet the expenses of the nation and improve development. Firms can be able to enhance their creativity and exploit opportunities to make large profits and maximize the value of their various equity holdings. While production, costs incurred and profit margins are affected by decisions of business owners rather than the government, investors are out to make profit. Profits margins are influenced by the market set price, which leaves suppliers an opportunity to reap large benefits in the capitalist market. Other than benefiting individuals and corporations, governments have increased their share of revenue through taxation of increasing business under the market economies. Competition and efficiency Privatization of property is a characteristic of the market economy that has helped increase competition of firms’ production in the market. With ownership of land and resources for production distributed among individuals, and not entirely to the government, they control and use of these resource, taking strategic decisions that not only demonstrate self interest among investors and business owners, but makes production efficient and enhance competition (“the role of self interest,” stlouisfed.org). Most industrialized and developing countries have turned competitive in the global market for their competitive production of quality products/outputs exported abroad. Decisions concerning production and distribution are easy to make, escaping the vast bureaucracy when central governments’ management is involved. The freedom that comes with market economy enables the highest bidder to acquire tenders/contract and market competition to regulate prices. Motivation and innovation One of the criticized features for planned economies is the governments’ power that limits incentives for employees in the public institutions. To keep employees motivated, high incentives would re-energize them to perform even better. Under market economies, investors/private firms provide extensive incentives to their employees to work efficiently, enhance production, creativity and innovation (“The trend,” inkling.com). This takes business and nations’ economies to a higher competitive position, driving prosperity and setting in technology and economic development. Explain how current economic indicators such inflation and unemployment affect the country like UAE. UAE is known for its huge oil deposits, which are its largest contributors to the nations GDP and internal financier for its development. Unemployment rate in UAE is ranked as one of the lowest in the globe, however factors such the increasing immigration and economic crisis experienced over the last decade further increased the number of the unemployed. The effects of unemployment in UAE are complex with ability to affect both the economy and political realm, than just the social lives. One, the greater the number of unemployed people, the lesser the amount of revenue collected by the government through taxation system. Lack or minimal income reduces their purchasing power, expenditure and leaves the government with no income to tax from. Al- Awadhi states that the government has recently “drafted a federal law seeking to establish a social security system” that would allow unemployed UAE’s nationals some monthly benefit payments (ecssr.ac.ae). Unemployment has been linked to increasing youths’ crime engagement and influence to political instabilities. According to PWC, reduced youths’ absorption in the labor market of UAE has contributed to political uprisings, owing to the widespread economic and social inequality (pwc.com). Over the last decade, the world has witnessed the spread of the political uprising in the Arab countries, which led to destabilization and change of governments. However, UAE has implemented policies like emiratization to fund programmes designed to promote absorption of UAE’s citizens in the labor market (public and private sectors), by giving them a priority in recruitment to perform tasks that would otherwise be assigned to foreigners (Al- Awadhi, ecssr.ac.ae ). Inflation affects the standard of living for UAE’s citizen. When the prices of goods and services escalate yet the income level remains the same, people are forced to spend more in purchasing, which implying less savings. The quality of life is affected especially for low and middle income earners and unless the sources of inflation are under control, it would leave majority of the people financially damaged and in poor standards of living. In what ways do you think your personal code of ethics might clash with the operations of some companies? How might you try to resolve these differences? Responsibility to the community is by far one of the personal codes of ethics for environmental activists in most countries. It has helped to safeguard the environment from pollution and related health diseases, caused by mismanagement of waste products from companies. Some companies’ ways of disposing waste after production are causes of the threatened life on the planet. Cancerous materials continue to be buried deep in the ground or dumped on the land, which people continue to live on and their livestock/wildlife depend on for grazing. Oil and chemical substances through untreated waste also leak into the water bodies, whose effect is damage to the ecosystem. For people who care for the environment and life within, such companies’ operations conflict with their desire and policy to protect the community. Some companies just want to avoid the cost of treating waste before disposal, even though they know the requirement of the law. For such, it requires law enforcement. Recommendation of recycling of products and going green for cleaner methods of production would help reduce pollution and safeguard the community (NRDC, nrdc.org). In some countries like UAE, female population in the labor market is quite minimal. Transformation that has occurred over the last two decades has allowed a ratio of women to enter into employment positions in industries traditionally known to be male dominated. They have become part of strategic decision makers in public and private companies. However, some organizations not only in UAE are reluctant to accept their contributions or in leadership of corporations simply because of the existing stereotype that views female gender as inferior. Some women have been victims of physical, verbal and even sexual abuse in their high ranking positions to threaten their presence in business leadership. It conflicts with personal code of ethics to “respect employees as equal partners and protection of civil and human rights of individuals” (Lagimodiere 1-2). This can be resolved through the law by reporting such incidences either to the labor organization in charge of resolving such abuses, or the court. Such differences can also be resolved internally through HR department, and in the long term raise awareness for equality of employees in the organizations. Explain the reasons why new business start-ups are increasing and identify the main reason for success and failure among small business Most economies in developing and industrialized nations have witnessed increased, but fluctuating business start up. Some of these established businesses either from mergers or new entrants in the market have proved competitive while others have failed or are struggling for survival. There has been an entrepreneurial drive among young people who desire to be their own managers. Increased funding from governments and private investors, and availability of business opportunities has facilitated many people to venture into new business in UK (“UK business,” aston.ac.uk). Considering the increased rate of unemployment, with newly skilled individuals after training lying idle, massive layoffs after re-organizations and factors like the previous economic/financial crisis of 2007/2008, people have enhanced their creativity and proved innovative to create new sources of employment and income. They start up their own enterprises promoting their innovations and supporting social causes they are passionate about. Larger corporation have also made investments in new line of products as new ventures to test the market reactions, before fully launching their brand. These could be a temporary business for market research and development of the products. The difference between the success and failure of small business lies in the foundation (business start up strategy). Most newly business would fail to work when goal/objectives are not clear, when owners do not understand their competitors and what appeals their target customers. Entering into business at the wrong market timing would cost the new business more to frustrations. Others fail due to poor management, inadequate funding to maintain the business until it can cater for itself and failure to meet market needs. Successful small businesses have defined goals and visions, working on a clear strategy in business plans, understand the industry they are competing in and clearly identifies with clients to identify the threats and opportunities. Those that can be able to fully differentiate their products and services can reap the best even in the midst of competition. In your own opinion, what would you prefer, to buy an existing business or start from scratch and make new one? Explain your answer The risks of failure in both start up or existing businesses is relatively equal. However, if you decide to join entrepreneurship, purchasing an existing business is the best way to go. One, you would escape the early business frustrations and accrued costs for maintenance where profits are almost impossible to realize. Second, an existing business is familiar to the customers/market and if it has a good reputation, the owner has an already established ground and name/brand to influence the market. For a failing business, experienced entrepreneurs can seek alternative ways to alleviate the problem, such as mergers, introducing another line of product whose profits can offset other product line’s costs, company re-organization and reduction of operation costs among others to give the business new face of operations. Works Cited Al-Awadhi, A.”Unemployment and Social Security in the UAE.” ecssr.ac.ae. 16 May 2011. Web. 22 July 2014. Lagimodiere. “Personal Code of ethics.” ndsu.edu. 17 August 2011. Web. 23 July 2014. NRDC. “Cost-effective Pollution Prevention in an Industrial Setting. An unlikely partnership between environmentalists and Dow Chemical Achieves Major Pollution Reductions.” nrdc.org. N.d. Web. 22 July 2014. http://www.nrdc.org/water/pollution/ndow.asp PWC. “The Arab World’s Soaring Youth Unemployment Rate Requires Immediate Action by Large Employers.” pwc.com 6 September 2012.Web. 22 July 2014. “The Role of Self-Interest and Competition in a Market Economy – The Economic Lowdown Podcast Series.” stlouisfed.org. N.d. Web. 22 July 2014. “The Trend towards Mixed Economies.” inkling.com. N.d. Web. 22 July 2014. “UK Business Start up Expectation and Activity Rose to New Highs in 2011.” aston.ac.uk. N.d. Web. 23 July 2014. Read More