Relationships between the Governments and the Business Because of Recession - Essay Example

Has the Global Financial Crisis lead to fundamental change in the relationship between government and business? Introduction The recent global financial crisis has drastically affected many countries in the world. Even the developed countries like United States and United Kingdom struggled to counter the threats raised by the recession. Only few Asian countries like India, China were able to escape from recession without causing many damages to their economies. Recession forced many governments to rewrite some of their established policies related to the functioning of organizations in their country. Moreover, many countries declared numerous relief packages to the public in order to assist them to come out from the recession damages. Business is one segment in which governments made some policy changes in order to strengthen the business activities in a controlled manner. In some sectors governments imposed more restrictions whereas in some other sectors government liberalized the rules and assisted the business people to come out from the recession. For example, governments put more control on the activities of financial institutions like banks whereas they assisted other business entities like the automobile sectors in order to save that sector from total destruction. In other words, the relationship between the government and different business entities has undergone contrasting changes because of recession. This paper analyses the extent of changes happened in relationships between the governments and the business because of recession. How recession affected relationship between government and business? The relationship between government and business is important both for the government and the business groups. Governments are primarily operating for safeguarding the interests of the people whereas business always works on making profits. Business always tries to exploit the public resources injudiciously to increase their profits. In other words, the interests of public and business are often contradictory and may not go hand in hand. Governments are fixing the boundaries or the norms in order to reach a compromise between the interests of the people and the interests of business. Government need to protect the interests of both. In order to grow economically, business activities should be increased and for that purpose, more liberalized rules are essential. At the same time, these liberalized rules should never affect the public interest negatively. Thus governments are acting as a bridge between the people and business ensuring that either the people or the business taking any undue advantages. According to the renowned economist John Maynard Keynes, a purely free market system would tend to undermine itself in the long run, and lead to an unstable social situation due to inequalities and contradictions. It was the role of the government to push the private sector into socially desired outcomes, but to leave it alone in terms of how those outcomes should be accomplished. For example, using monetary policy the government can increase the supply of credit in the market, creating incentive for investment over savings and thus "stimulating" the economy. Todays relationship between government and business is thus neither lassez faire nor socialist, but rather a combination of both, essentially what is called a "mixed economy (The Relationship Between Government & Business, n. d) India is one country which succeeded in escaping from recession without causing many damages to its economy. This is because of the mixed economy principles followed in India. Mixed economy is an economic system in which both private and public participation is ensured in the economic activities. In other words, both socialism and capitalism are equally prominent in a mixed economic country. When America like highly developed capitalistic countries, opened their economies completely for private participation, India adopted a cautious approach while opening their economy to private sector. They never opened their critical sectors for private participation and the government never stayed away from the market. Whenever, policy changes were needed, the Indian government succeeded in interfering in the market which brought dividends to them when the recession struck other economies fiercely. Even though, recession impacted negatively on most of the areas of human life, it does succeed in teaching the governments and the business group a lesson. As part of the globalization policies, many governments earlier focussed more on liberalising their rules and regulations with respect to business in order to attract more business towards their country. Governments encouraged the financial institutions to give more loan facilities to the business people in order to strengthen business activities in the country. Business people on the other hand, used such facilities maximum to reap the profit. When recession risen on the horizon, nobody thought that it would attain such frightening proportions. Many of the businesses, irrespective of small, medium or large, failed to survive and collapsed. As a result of such unexpected collapses, financial institutions faced lot of problems as the business people failed to repay the loans they have taken from the banks. “In UK, market capitalism has proved to be heavily dependent on the state for its survival. Capitalism is too feeble and unproductive in most modern economies to operate on its own two feet without massive state assistance” (UK after the recession, n. d). The governments of capitalist countries like United States and Britain were giving immense support to the private business people before the recession. The big companies had lobbyists in the decision making bodies like the American Congress for safeguarding their business interests. The Congress men who took massive funds from the private companies did everything possible to protect the interests of big companies. Such undue advantages enjoyed by the private companies caused severe problems to the government which was evident at the time of recession. Governments forced to make necessary corrections in their policies which resulted in strained relationships between the business sector and the government. The banking sector is one of the prime examples for the above fact. Krish (2010) has pointed out that the current economies are global and interrelated which forced the British government do structural changes in the Banking sector. The aim of these changes is that “banks do not resort to government funding the next time contingency arises” (Krish 2010). “Majority Democrats proposed increasing to $825bn Obamas plan for a second package to stimulate the economy through a combination of federal spending and tax cuts. A prolonged recession would delay any recovery in the value of assets held by banks, particularly in property”(Inman and Kollewe, 2009). When Obama proposed the 700 billion bailout package to the struggling industries in America, many people have raised their eyebrows. Many of them questioned the logic behind utilizing the public money for assisting the private sector. But, Obama and his colleagues were firm on their stand and now the amount of bailout package is going to be increased to $ 825bn. The above move clearly shows the governments sincere efforts to boost the business in America. On the other hand, automobile industry got enormous support from different governments in order to revitalize their growth after recession. This is because of the fact that automobile industry in one of the greatest employment provider in many countries and the destruction of automobile manufacturing industry may result in employment loss to thousands of workers. Even then “the automakers forced by the government to retool, to meet emission standards” (Hart, 2008, p.201). Governments realized that even though it is necessary to support auto industry to protect employment, it is also necessary to ensure that the automobiles manufactured with the support of government aid are strictly in accordance with the new emission standards set by the governments. BBC News (Tuesday, 26 January 2010) has mentioned that With official figures now showing that the UK is out of recession, small and medium-sized companies can start to plan for a brighter future.However, with the economy only growing 0.1% in the last three months of 2009, it is likely to take some time yet before the economy fully stabilizes. For that reason, the various government-backed schemes enabling small and medium-sized firms to either delay tax payments, or more easily secure a bank loan, are set to continue for the foreseeable future (BBC News, 2010) United Kingdom is also taking every measure to assist the small and medium scale industries along with the large industries to put these industries back on the growing track. According to certain economists the recession is almost over. But Duncan (2010) has pointed out that “the figures showed a 1.5% rise in Government spending added 0.4% to GDP growth - meaning without it Britain would still be in recession (Duncan, 2010). Even then “a series of new measures announced in the Pre-Budget Report 2008 have paved the way for increasing Government spending in the interest of maintaining economic stability and supporting UK’s business - including the 4.7 million small and medium sized enterprises (SME)” (Supporting Small Business through the Recession, n. d, p.1) Conclusions It is a fact that the relationship between the governments and the business was not the same before and after recession. Before recession, governments encouraged the private sector blindly and liberalized many rules for boosting them in order to exploit the possibilities presented by globalization and liberalization. But after recession, governments forced to adopt a careful approach towards business sector. Even though governments have assisted the business sector to come out of the recession, they have tightened their control over the business sector after recession which resulted in fundamental changes in between the governments and the business. References 1. BBC News (Tuesday, 26 January 2010), How firms can make the most of the recovery , [Online], Available at: http://news.bbc.co.uk/2/hi/business/7842650.stm, [Accessed 23 September 2010] 2. Duncan, H., (2010), Government spending keeps Britain from recession, [Online], Available at: http://www.thisislondon.co.uk/standard-business/article-23855206-government-spending-keeps-britain-from-recession.do, [Accessed 23 September 2010] 3. Hart, R.M., (2008), Recession Storming: Thriving In Downturns Through Superior Marketing, Pricing And Product Strategies, Publisher: CreateSpace (March 3, 2008) 4. Inman, P and Kollewe, J. (2009), Financial crisis: Bank of America given $138bn rescue package, [Online], Available at: http://www.guardian.co.uk/business/2009/jan/16/bank-of-america-20bn-rescue, [Accessed 23 September 2010] 5. Krish (2010), Banking reforms and government regulations: British banking industry, [Online], Available at: http://ayushveda.com/blogs/business/banking-reforms-and-government-regulations-british-banking-industry/[Accessed 23 September 2010] 6. Supporting Small Business through the Recession, (n. d.), [Online], Available at: http://www.accaglobal.com/pubs/general/activities/library/small_business/sme_policy/business_support.pdf, [Accessed 23 September 2010] 7. The Relationship Between Government & Business, (n. d), [Online], Available at: http://www.ehow.com/about_5427693_relationship-between-government-business.html [Accessed 23 September 2010] 8. UK after the recession, (n. d), [Online], Available at: http://postrecession.wordpress.com/, [Accessed 23 September 2010] Read More