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Global Context of Modern Business
23/01/2014
Tutorial 8
The economic environment
The Credit crunch and the future of capitalism
• Should the individuals be free to earn whatever the market pays them?
• What are the economic arguments for big differences in earnings?
• Why might high salaries in the financial sector give cause of concern?
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The Credit crunch and the future of capitalism
• Individual remuneration
–2008 recession
• How governments intervene in financial markets to make them more efficient?
–Tony Blair speech (2003)
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The Credit crunch and the future of capitalism
• Banks too big to fail
–RBS, Lloyds group and others bailout
• How do you think an economic recession generally impacts on businesses and which businesses will be likely to cope best in such difficult trading times?
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Tax payers’ investment
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The Credit crunch and the future of capitalism
• Assets gambling by the bankers
• American sub-prime mortgage market– People with low credit ratings given loans
• Interest rate hike 1% to 5.35% (2004- 2006)
• Global meltdown– Inter-bank lending decreased or disappeared
– Large deductions in demand and supply of money• Recession
• Capitalism at bay (The Economics, 2008)
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Echoes from the two sides of Atlantic
• I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such that they were best capable of protecting their shareholders and their equality in the firms. I have found a flaw.
(Alan Greenspan, 2008)
• Reduction in bankers’ salaries, greater control and limiting the size of banks is the way forward.
(Mervin King, 2010)
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Recap
•Write 3 things you have learned from last week’s lecture and today’s tutorial about economic environment
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Politics & Business
• Introduction – A clear paragraph to set the background and introduction
• Structure of the essay• Context of discussion• Aims and objectives
• Main body– Definitions of political ideologies, presentation with criticality– Discussion about interdependence between politics and business
• Impact of political systems on regulation, taxation, public services, government, economy, (interest rates), international issues, (relationships) and legal framework
– Brief historical perspectives of ideological frameworks• Left-right debate ( early concepts of Edmund Burke, Adam Smith, Marx Engel leading to work of Robert Owen towards to
working conditions and trade unions)
– Each party’s main belief in relation to the business• Accompanies by examples of left, centre and right
– How they are applied in contemporary situations (privatisation of RM and Northern Rock and energy price freeze from Labour, increase in corporation taxes and cut taxes for small, business )
• Conclusion– A clear paragraph to summarise the ley points from discussion– Restating the main question and/or aim of the essay– Summary of what has been discusses (attributes, relationships and associations discussed)
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Economic Environment: market systems
• Introduction – A clear paragraph to set the background and introduction
• Structure of the essay• Context of discussion• Aims and objectives
• Main body– Exploration the nature of economic environment in which the business operates
• Demonstration of understanding of the competing perspectives about the market systems– The ways to create ideal economics environment
• Discuss four competing schools of economic thought– Neoclassical view (Free market)– Interventionist view– Radical (Marxist) and – Environmentalist (Green) view
» Adam Smith the beginning of the free-market, capitalistic economic system» Marx’s critique of classical political economy, views on the impact of class and class struggle on economic and
political processes
– Explanation of the concept of government intervention and regulation of markets and the rationale behind• Interventionist arguments and regulation of markets• The role of the state to eliminate obstacles and safeguarding the competition
– Specific exploration of market failure to give insights into the advantages of government intervention with specific examples with reference to
• Allocative (value for money” or “in accordance with consumers’ preferences)• Productive (producing at lowest cost)• Distributive efficiency (output is distributed by achieving equity, fairness)• Laws on minimum age for buying cigarettes and alcohol and national minimum wage
• Conclusion
– A clear paragraph to summarise the ley points from discussion– Restating the main question and/or aim of the essay– Summary of what has been discusses (attributes, relationships and associations discussed)
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