Political Economy - Case Study Example

Dayo Abbas Ali Dayo Number 10 May Political Economy (Theories of late economy) Every country in general and society in particular has in it two main aspects. These aspects are identified as political aspect and economic aspect. Both these facets are structurally interconnected and have profound impact on one another. Theorists, in connection with understanding political economy, have proposed various theories. These theories help understand political economy a great deal. DECLINE OF AMERCIAN POWER Introduction. It is generally believed that every meteoric rise of fame has its decline. History has in it explicit examples. Nations who made astounding economic progress melted down with the same pace. American economy, also, is no exception to it. For instance, after The World War-2, America emerged as economic giant because of rapid progress in different fields, but hardly a decade had passed that The US confronted Great Depression. It was asserted that stock market collapse was the major cause of the great depression and “as the consequence of this stock market collapse, an unparalleled depression overtook United States” (Majumdar et al 234). The way America made achievements during era of industrialization and during the World War-1; she could not withstand stock speculation and its ultimate consequences. Leading points for the United States’ rise to power. America with its progressive policies marked its existence as economic giant and witnessed economic boom once again after decade of Great Depression was over and particularly in the post World War 2 era. The Dayo 2 leading points which led to the rise of American economy initially include many things. To begin with America gave suppleness in taxation. It made taxation as easy as possible. Secondly, it applied theories of monetary pull and occupied employment financial plan. Thirdly, it included in its economic policy to include quantitative targets for the economy. Fourthly, a growth model of economy was put into practice rather than earlier cyclical model which allowed just transaction of the same. Finally, substitute of the impression of being without a job as a structural predicament by a consciousness of a low down combined stipulate. Mechanisms that Immanuel Waller stein credits with weakening US power. The mechanisms which Immanuel Waller stein consider for the weakening og American superpower are also various. In this pretext, to begin with, geographic expansion of the European world-economy to include the whole of the globe shook US economy. In the second place, the expansion meant the elimination of other world-systems as well as the absorption of the remaining mini-systems. It also caused disturbance in United States’ economic sphere. Further, the domestic configuration of core-states changed essentially. For core areas, industrialism involved divesting themselves significantly from farming behavior. Eventually, the foundation decreasingly provided manufactures, and increasingly provided the machines to make the manufactures and from the actuality that engineering manufacture required raw materials of a character and magnitude which could not be abounding surrounded by the previous boundaries. Finally, the rise of manufacturing created for the first time under capitalism a extensive urban working class. Anti-capitalist mass spirit which was translated into tangible managerial forms threatened the immovability of states and of entrepreneurial forces; also, there was too much additional making. So, by intensifying the purchasing power of the industrial proletariat Dayo 3 of core countries, the world-economy was unburdened of two problems. First, restricted access of demand and , second, the disconcerting division clash of the core states Once again it started to be considered world’s powerful economy to reckon with. Out come of the decline of American power. The turn down of U.S. state domination has furthered the liberty of action of capitalist enterprises, the superior of which have now taken the form of international corporations and are able to contrive against state bureaucracies whenever countrywide politicians become too approachable to domestic worker pressures. (Pate nowpublic.com). It has also been asserted that decline of American power would result in decline of modern state system. Strength and weakness in Immanuel Waller stein analysis for the decline of American power. The work of Immanuel is also criticized and strengths and weaknesses have been found in his work by different authors such as “Only two chapters deal directly with the question of the strength of American power, and neither of those produces many facts about its ostensible decline. Other chapters address such topics as the durability of racism, the relationship of the Islamic world to the Western world, the role intellectuals should play, and strategies for the left” (Sherman 73). Not must strength has been pointed out by critics but there have been many points of weakness have been brought to surface. In this connection, it is argued that his work is not particularly associated with decline of American power, but largely associated with decline of modern world system. Moreover, it is also criticized that Waller stein has not bothered too much extent to speak to his critics. On the other hand, he seems more concerned with calling to attention that the world system, having expanded to include the entire globe, is now at its terminal decline. He seems to have been deeply influenced by chaos theory which asserts that individual acts could have more impacts at this point of no return (White 313). Dayo 4 Furthermore, even previously, but particularly in present crises, apart from numerous economic causes there have been social factors contributing to make recession go from bad to worse. A socio-economic failure of the firm also seems to be a cause of U.S. firms failure to adjust their administration to imperative fresh realities and finance redlining in metropolitan areas. The imperative of this factor is to consider a firm a society as well as an economic institution. This perspective would lead to have comprehensive analysis how the social forces acting on the firm can be very potent equally in contributing to advantageous and disagreeable upshots. It gives us a perception that capitalists driven by social forces did not come up with investment in business promptly thus an increase in joblessness and inflation was a corollary. This, in sociological perspective, is not a market failure but a development failure which implies a dysfunction in the processes necessary for the accomplishment of current monetary growth. To put it simply, downturn in American economic segment is not only because of economic factors, but social ones are also responsible for such recession. Finally, American economy has witnessed a sharp retrogress in financial market and lost its identity as super power. The fundamental reason is Financial Leverage was misused to manipulate markets for decades. Organizations were never regulated and compelled to hire more ethical traders and managers rather than B-School MBA Grads who have just learned to make money at any cost. US officials while rescuing the global giants claim it is just a real estate correction due to bad debts in banking system. Whatever the case, the market sentiment have changed forever, Dayo 5 and valuations will come under immense pressure from now on...be it real estate, equity, debt, bond, products, services, or...anything. (Heilbroner et al. 387) Conclusion. Thus, it can be argued that decline of modern state system was major contributing factor for the decline of American economic power in seventies and presently, distortion of power was a determining factor for controlling and influencing markets. A greedy attitude of organizations was also responsible for this decline because they preferred young graduates rather than skilled and experienced merchant and executive which could have regulated market in an skilled way. Taking an analytical approach of the problem, it can be asserted that these young graduates were more interested in money making rather than market stability. Moreover, complete blame was asked to estate market to take on. It is simply erroneous to cast blames on one aspect and try to hoodwink the world whilst facts are well known across the globe. THE ECONOMICS OF GLOBAL TURBULENCE (BOOM TO DOWNTURN) Introduction. It is asserted and generally perceived that since World War-2, consumerist financial system can be classified into two identical fractions with an assumed span of quarter century. One division being the period of prosperity from 1940 to 1973 and other being period of downturn coupled with increasing fiscal instability after 1973. Here age between 1960s to mid 1970s which is called transitional phase from boom to downturn is under discussion. But before we could discuss latter scenario, it is important to go through points which can be traces for the boom in early sixties Brenner points as he traces the long upturn. It was phase of early sixties that US witnessed economic boom though undersized but considerably important. Manufacturing output marked its existence as growing at an annual average percent of 6.55 percent. Dayo 6 Profitability especially in manufacturing (80%) and private business (45%) also experienced a boom during this phase. It ultimately influenced increase in growth. This phase also marked increase in expenditure on the installment of new equipments which was significant so long as upturn is concerned. Another factor which could be a point of absolute importance is that during this phase rival countries could not have such economic boom and lagged behind. Furthermore, in the strictest sense, the brief phase from 1965 to 1973 which witnessed boom turning into economic slump was a transitional period. Making analysis would reveal why economic boom gave way to downturn which persisted for about a decade and ultimately led to the economic crises of 1997-98. Precisely, “profitability of G-7 economies, taken individually and in aggregate, fell sharply especially in manufacturing . . . of unemployment and much more severe recessions (Brenner 99). Causes for the descent into crises. Having gone through economic history of the world between 1965 and 1973, it comes down that German and Japanese, in connection with seizing increased shares of the global marketplace and importing on it their fairly abridged prices, combined moderately sophisticated techniques and reasonably squat wages which ultimately reduced costs stridently out shadowing their rivals coupled with uneven development. This situation put rivals in dilemma either to withdraw or to continue with low profit share in absence of no other option. The US were particularly hit because it could not secure invested amount even sustaining a decrease of 40% return. Since USA contributed a large share in the economy of G-7, downturn in revenue fraction of industry and investment caused problem of less effectiveness to G-7 economies. USA in turn did not invest in other domains, but continue to have low profit share keeping up their manufacture and retaining their markets. Thus Germany and Japan Dayo 7 as foreign competitors in Japan and Europe challenged the global dominance of American manufacturers, and oil crises in 1973–74 and 1979 shook public confidence in the institutions of both government and business (Westra et al 149). Outcomes of global economic turbulence. Arguing on above mentioned problem, it must be asserted that continuation with having less profit and over capacity and over production results in low aggregate profitability. Investment began to have low share and unemployment increase. Countries of East Asia started to make entrance in the world market and assert themselves significantly as discussed below. Subsequently, this problem expanded through capitalist block and also Germany and Japan did not remain immune from this downturn. During this phase percent of low profit ratio came down to 40.9 and 29.3 in manufacture domain and private business sector correspondingly. Having an analytical approach would make known that foremost grounds for this turn down in abundance was failure of the US makers to become conscious of their speculation because of the increased descending pressure on monetary resulting from way in of lower cost producers in the market predominantly from Germany and Japan. Whatever the reason does remain for the initial fall in profitability it is important to explain why there was no revitalization for so long. Particularly, it is of overriding concern why didnt firms suffering from declining profitability in their lines swing resources of fabrication into other, higher profit lines in order to alleviate overcapacity and overproduction? Had it been realized well in time, the economic downturn would have remained same boom as of after the World War-2. Moreover, crises could have been managed if prompt actions would have been taken in other areas. But the big industries of the capitalists’ market did not look forward for investing in other lines as a result continuation of lower profitability remained constant and they confronted acute recession. It was, indeed, erroneous of them, having possessed a great of means and capital to invest in other lines and earn sufficient capital from there, they remained disinterested. Moreover, relations of these corporations with suppliers and customers were so bonded to be replaced by higher cost and extensive search for market. And knowledge gained regarding manufacture was, most importantly, utilized in their own industries which resulted in fighting the situation rather than switching over to other areas of investment. Crises were further aggravated as low-cost producers particularly from East Asia made entrance in manufacture lines. Such way it not only resulted in over production and over capacity, but also kept uneven development continued. Besides, policies, popular in 1970s, of Keynesians did contribute to upholding of over production and over capacity in further exacerbating downturn. Accordingly, “increased demand, deficit spending, and easy credit allowed many high-cost, low-profit firms that would otherwise have gone bankrupt to continue in business and maintain positions that might have been occupied by lower cost, higher-profit producers” (Wallace 122). Strengths and weaknesses of Brenner’s interpretation of late capitalism. While his work has been perceived hallmark for political economy of the world, it has also earned many critics. Accordingly, his work has been called flawed in, chiefly, three ways. First, his theory of over competition is supposed to be flawed because of same shortcomings, he himself pointed out in profit squeeze. Secondly, Brenners past explanation of the inception of the crisis in the late 1960s is flawed and does not bear rational approach. Finally, his works explains conditions for capitalist recovery, but does not have foundations of historical evidences and facts. The potency of the Brenner’s elucidation is also praised. His assertion that while rising wages and decline in worker effort may result in short-term falls in profitability, does possess high sound and serve purpose. For Dayo 9 this reason, Brenner presents statistics on mechanized net revenue rates from 1950 to 1996 for the United States, Germany and Japan, to hold up "over-competition" theory of declining productivity. Conclusion. Finally, causes for the global economic downturn were many and unanticipated. It was in fact, rivalry of great economies of that era and substantial policy of undermining manufacture and fiscal market of the contemporary. Responsibilities fell heavily on German and Japanese combined policies to cause a downturn in American economic sector by driving them not to withdraw, but to continue pace with over production and less profitability. Hard driven by these competitors as America was, it started to experience boom once again in the last two years of the Reagan’s government. It could be pointed out that America being superpower in all respects have, time and again, witnessed recession causing a global crunch across the world. For it largely influences economies of the world in general and of capitalist countries in particular. Considering this depression’s recurring element, the US needs to evolve a code of conduct which be steered in times of another slump in economic market of her particularly and of capitalist economies by and large. Thus a globally sustained economic policy based on underlying findings of the early crises, is need of hour. Dayo 10 Works cited Majumdar, R.K., Srivastva, A.N, History of United States of America. Print Waller stein, Immanuel. The Decline of American Power: The U.S. in a Chaotic World. Print Pate, James. Nowpublic.com 2007. Web. 13 May 2010. Sherman, Steven. The politics of anti-Semitism Print. White, Donald, W. The American Century: The Rise and Decline of the United States As a World Power. Print Brenner, Robert. The economics of Global Turbulence. Print Westra, Richard. Jessop, Robert. Albritton, Robert. Political Economy and Global Capitalism: The 21st Century, Present and Future. Print Wallace, William, M. The decline and fall of US economy: How Liberals and Conservatives both got it wrong. Print Read More