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Wednesday, June 27, 2012

Screwed up Global Economy

Current Fundamentally Defective Economy Model

The boost in economy in any country or at the global level definitely gives rise to employment and in turn to the well being of the human beings on this planet earth. That's the whole essence.

The economic growth follows a positive or negative spiral pattern. But since 2008 onwards the positive spiral pattern has almost ended and it has taken a reversal to the negative spiral pattern.

In economy one thing leads to the other but fueling this interdependency in a fundamentally wrong manner screws up the whole positive growth process.

The present model of boosting the economy is largely based on more consumption, more sales, higher prices, more profit margins per sale and overall very high profits to the producer and the seller. The seller gets motivated to sell still more at still higher prices and makes still more higher overall profits. In doing so, he does expand his business and gives employment to many more people.

People (the consumers of goods and services), either from their savings or by taking loans in a reckless manner start buying things even at the higher prices even on those items of consumption that are really not required or needed by him. Also they start buying even the really needed items in disproportionately large quantities or large sizes. A stage soon arrives when their savings get depleted and they are not in a position to repay the loans- the interest burden itself kills them, forget about repaying the principal amount.

The loan sharks (the banks and other financial joints) go on distributing the loans in this mad racket of artificial economic boom to make more and more money out of their greed and lose track of the soundness of the repayment capacities of people and the companies whom they have advanced the loans. They also boost their business by resorting to many unethical and business-wise unsound practices.

One fine morning, the consumers find no money in their coffers for repayment of loans. The banks and other financial outfits are not in a position to realize the money loaned out. The consumption falls down, sales fall down, prices can't be held at artificially inflated levels for a long period, profit per sale drops and total overall profits of the producers and sellers start diminishing at a fast rate. They stop their expansions and growth. They go on a cost cutting drive. The only thing they know under such conditions is to downsize and retrench their employees. Thus many more people who are the actual consumers of the goods and services stop earning the money because of this kind of increased unemployment. They stop buying. The economic activity comes to a grinding halt.

Many producing and selling companies go bankrupt or wind up their shops, others start limping. None of them are in any sound position to repay the loans borrowed by them from the banks and financial institutions. The banks and financial institutions are not able to recover these loans either from such companies or from the individuals whom they had advanced the loans. The banks and financial outfits too declare their sickness and bankruptcy.

The recession goes on and on because even after getting the bail-out money from the governments (actually from the people of the country- because they have been paying enormous taxes), the banks, financial joints and the producing and selling companies keep chasing the same fundamentally defective economic model of consumption, inflation, loan, higher sales volume, higher profit margin per sales and higher overall profit.

This model will always ultimately lead to perennial economic downtrend cyclically.

Also in this consumption oriented model we are depleting the environmental resources of this planet at a very aggressive rate. That is horribly dangerous to any kind of sustainability we are talking about so much these days.

Proposed Fundamentally Prudent Economy Model

To attain a continuous positive spiral of economic growth, for ever increasing prosperity of all the stake holders and for a prolonged sustainability of the environment of earth, the following model of economy needs to be adopted:

1. Consumption should be real- it need not be artificially inflated. Consume what is really needed. It will help not to waste the planet's resources recklessly.

2. Profit per unit sale should be increased not by increasing the prices (by inflation) but by keeping the prices lower and lower and by reducing the costs of production and sale by adopting creativity and innovations, eliminating wastage of all kinds, reduction of overall costs and improved productivity every where.

3. Overall profits should be an outcome of the above-mentioned two points and not an outcome of wrong and corrupt practices often followed by the corporations and financial bodies.

4. Downsizing and retrenchment in effect cut out on the buying capacities of the people and it is detrimental to economic activities and economic growth. Rather than resorting to increasing the unemployment, adopt all those policies and practices that will boost the employment potential and increase the number of employed people.

Monday, June 22, 2009

Recession Management

It will be a good idea to also read an article on recession at URL:

Definition and Meaning of Recession
  • Depression means slump, downturn or decline in economy.
  • Recession is not the same as (economic) depression. Depression is explained separately on this page, later on. Recession is less severe than depression.
  • It is the period, shorter than depression, during which there is a decline in economic trade and prosperity.
  • Recession is slowdown or fall in economic activities and fall in real GDP (gross domestic product) per capita, over a sustained period of time.
  • More specifically, in terms of period, a recession is defined as a period when GDP falls (negative real economic growth) for at least two consecutive quarters. It means that there must be a fall in real output for 6 months.
  • Recessionary trend is further confirmed if there is 1.5% rise in unemployment within 12 months.
  • Recession is normally preceded by several quarters of consistent slow down.
  • In USA, whether the country is facing recession or not is announced by National Bureau of Economic Research (NBER). As per NBER, recession is defined as significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. There is no fixed rule about what weights are assigned to the various indicators or about what other measures contribute information to the process. Most people depend upon NBER for determining the exact dating of a recession's start and end.


  • Colloquially, recession is when other people lose their jobs. Depression is when you lose your job.
  • It is more severe fall in economy for a longer duration- almost collapse of economy.
  • It is very dramatic fall in real GDP. As generally understood, depression is said to have taken place when output falls for more than a year and a half or by more than say 5%.
  • In the Great Depression of 1929-33, output fell by 18%.

Genesis of Recession

Also refer: (Recession)

  • Economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle (there are several reasons for this cycle).
  • Economy generally expands for 6 to 10 years and tends to slow down and may go into a recession for about six months to 2 years.
  • Recession normally takes place when consumers lose confidence in the growth of the economy and are not able to spend or want to spend less. The consumer is not ready to spend as there is a strong apprehension regarding security.
  • Therefore, with lower volumes of sales and lower profitability, growth of businesses slows down or stops. Particularly the businesses dealing with non-essential types of goods and services are adversely affected because this is what the consumers stop buying first.
  • This decrease in market consumption leads to decrease in production.
  • Working capital of the producing organizations start dwindling and they cannot run their organizations effectively.
  • Many time the organizations cannot support their monthly payrolls and lay off their employees which increases unemployment lowering further the purchasing power of the consumers.
  • Demand in market reduces further thus creating a inward winding vicious negative spiral.
  • Companies not doing well, their stock prices start falling and so, the investors stop investing in stocks. This hits the companies further.
  • These days businesses being interdependent locally as well as globally, all of these intertwined events result in local and global global slowdown and recession.

Manifestations of Recession

  • Unemployment: rises
  • Personal savings: likely to rise
  • Consumer confidence: lowers down
  • Consumption: falls
  • Demand: falls
  • Profitability of business: falls
  • Share prices and stock market: fall
  • Investment: fall
  • Inflation: lowers down
  • Government tax revenue: lowers down
  • Government borrowing: rises
  • Government spending: rises

Is Recession Any Good?

  • Disadvantages of recession far outweigh any advantages if any.
  • With some stretch of imagination, we can work out few things to our advantage during recession.
  • Interest rates may be lowered. Borrowers can take advantage of it in borrowing money.
  • Lower inflation may allow one to buy things that they did not buy earlier in normal times since things were pricey.
  • One can start saving in anticipation of job loss or salary reduction. Its a boon in disguise. All you know is one will not lose job and yet accrue lots of money as savings.
  • If one has expendable surplus money, one can invest in shares at much lowered down stock prices during recession. One can buy shares of promising companies that will go up after the economy picks up.
  • Falling revenues of the companies can make them to sit up and review the way they do business. The companies may use this period for introspection and take actions to become more effective and efficient- beneficial to everyone in the long run. Refer: (Cost Management), (Cost of Quality- COQ)
  • Ineffective and inefficient companies may down their shutters for ever; will go out of business. This is also good for every one in the long run.

Fundamentals to Avert Global Recession

If all kinds of organizations (including governments) and people in general, follow the fundamentals given below, all the times (even in good times), recession can be eliminated, averted and tackled.

  • No one should try to exploit the general public in any way.
  • No one should try to exploit the customers in any way.
  • Prices of lands, buildings, goods and services (particularly education and health care) as well as share (stock) prices should not be artificially inflated. If need be, there should be a non-corrupt state control over the prices of land, houses, essential food stuff, health care and education.
  • Buyers should not take loans to buy the things needed by them. They should try to buy what they can afford without taking loans. If at all they wish to take some loans, the loan amount should be absolute minimum which they can return very easily within their income levels.
  • Propelling the economy by way of promoting easy and unsubstantiated loans to individuals and corporations by any financial institution or government is never the sound and lasting way of bringing up economy.
  • Jacking up the motivation among people and corporations for purchases/demands of goods and services artificially and in un-natural ways will never build up strong permanent economy.
  • Profit margins should not be draconically out of proportions.
  • Prices of goods should be an outcome of free economy based on sound principles of supply and demand and healthy competition and should not be an outcome of lobbying and cartels (there should be a strict curb on it by the law). Maintain the spirit of free economy.
  • Corruption of various kinds in corporate- public and private sectors and governments should be eliminated. Corrupt people at all the levels should be severely punished.
  • Real competent (competence includes ethics obviously) people should be put at the helm of affairs of various important and vital organizations like government, banks, financial institutions, life and general insurance companies and even in the corporate- industrial and business sectors etc.
  • The organizations should be run at the highest effectiveness and efficiency levels all the time.
  • This is the real time when all kinds of service and manufacturing organizations and governmental departments should start believing and implementing the fundamental and scientifically established principles and practices like waste reduction, cost control, inventory control (just-in-time management), lead time control, productivity improvement, resource utilization, zero defects (quality management), zero breakdowns (total productive maintenance management) etc. This will release the much needed cash (working capital) in the organizations and all kinds of wastages will minimize. Cost of production of goods and services will reduce and selling prices can be lowered so that people/companies/organizations can start buying. Refer: (A to Z of Management Systems), (A to Z of Quality Techniques)
  • All kinds of non-value adding expenses should be controlled; cost management should be at its peak all the time.
  • The salaries, perquisites and profit sharing percentages/bonuses of people particularly, the promoters of companies, CEOs, directors and other top/senior managers of various organizations, politicians, ministers and top/senior bureaucrats should be decided in proportion, based on their likely long term as well as short term contributions and not out of their greed.
  • The bonuses/profit sharing, particularly to the top brass of all the organizations of any type and even to the other employees, should not be distributed as cash but can be given in the form of the shares of that organization and there must be some controls over the period (number of years) during which they can not be sold/traded. It will put responsibility on the top brass to look after the health of the companies they run on a longer term basis.
  • Rather than removing the people from their jobs in the times of down-trends of the organizations under the notorious garb of downsizing and right sizing, the salaries of the people particularly at the levels where they are paid astronomically high salaries in a lop- sided manner should be curtailed. Thus, people will not be out of employment and this will retain the purchasing power in the system at reasonably stable and good levels so as not to upset the economy and create recession.

What the Employed People Should Do To Beat Recession?

  • Be regular and punctual in going to office.
  • Work honestly and sincerely.
  • Keep doing something worthwhile in office so as to maintain your visibility and indispensability. Be engaged and productive.
  • Do not take vacation during recession.
  • Deliver as per schedules and deadlines.
  • Get trained in new skills. You will be ready for alternative jobs in case of adversity.
  • Don't waste time in gossiping and don't be seen gossiping.
  • Do not resist or complain salary cut if your company decides to do so.
  • Accept extra workload if given.
  • Do not resist or refuse transfer.
  • Do not resist or refuse travel.
  • Do not ask for promotion or raise.

Tips on Your Activities for Personal Finances During Recession

  • Recession is boon in disguise to cultivate the habit of savings. Start saving right away. Knock off your non-essential, non-value adding expenditure on nice to have things. Even review your essential, value adding expenditure on need to have things and exercise strict control over it. Refer: (How to Save Money)
  • You must have reserve cash balance on which you and your family should be capable of surviving in the worst scenario of job loss and not getting the job immediately. Accumulate your savings such that you and your family can live on it for say, two years.
  • Generally during recession the interest on bank loans reduces. So if you have surplus cash with you, you can additionally supplement in with loans at cheaper interest rate and buy a home/land which you always wanted to buy. Of course, you should also have the adequate sources of income for paying back to the banks from whom you borrowed the money.
  • Generally during recession, prices of certain goods and services may fall. In case you really need any such things, this is the right time to buy at cheaper prices provided you have that much surplus money to dispose and also, you are sure that the things you wish to purchase are really essential for you and your family.
  • Generally during recession the stock market gets hit and share prices fall. This is the right time to invest in share of good companies. In due course of time, the value of these shares will go up. Again, you should have surplus money for such an investment.
  • Use your creativity and try to generate additional income for you and your family during the recession time. Also, develop new skills during this period and use them.

For Further Guidance, Assistance, Training and Consultation


Also refer: (Prodcons Group), (Training Programs by Prodcons Group), (Productivity Consultants)

Other Topics of Interest

All Management Topics (General Management, Marketing and Sales, Service, Operations/Manufacturing, Quality, Maintenance, Human Resources, Finance and Accounts, Information Technology, Life Management)

The topics are listed in alphabetic order:

(Home Pages for All the Management Topics) and
(Alphabetic List of All Management Topics)
(Home Page for Writings of Shyam Bhatawdekar)
(5S Housekeeping)
(Activity Based Costing- ABC)
(Anger Management)
(A to Z of Management Systems)
(A to Z of Quality Techniques)
(Balanced Scorecard)
(Behavioral Safety)
(Books- Best Management Books)
(Business Ethics and Ethics in Management)
(Business Process Reengineering- BPR)
(Career Planning within Organizations)
(Case Method)
(CEO Roles, Qualities and Competencies)
(Change Management)
(Competencies- Life Management)
(Competency Matrix)
(Conflict Management)
(Corporate Governance)
(Cost Management)
(Cost of Quality- COQ)
(Counseling at Workplace)
(Creativity and Innovation)
(Critical Thinking skills)
(Cross Cultural Etiquette and Manners)
(Customer Orientation)
(Customer Relationship management- CRM)
(Daily Management)
(Decision Making)
(Design for Manufacture)
(Dining Etiquette and Table Manners)
(Discipline at Work)
(Dream Exotic)
(Effectiveness and Efficiency)
(Effectiveness Management: HSoftware)
(Email Etiquette)
(Emotional Intelligence)
(Enterprise Resource Planning- ERP)
(Entrepreneurship and Entrepreneur)
(Executive Etiquette and Manners)
(Exit Interview)
(Financial Ratios and Financial Ratio Analysis)
(Financial Services)
(Functions of Management)
(Gemba Kaizen)
(Genuine Professional)
(Global Mindset)
(Goal/Target Setting)
(Group Discussion)
(Group Dynamics)
(How to Be a Good Boss)
(How to Get Promoted)
(How to save Money)
(HR Dynamics)
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(Human Capital Architecture)
(Human Relations)
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(Human Software- HSoftware)
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(Interview Skills)
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(Interview Questions)
(Just in Time Management- JIT)
(Knowledge Management)
(Lead Time Management)
(Lean Enterprise)
(Learning Organization)
(Life Management: Competencies)
(Life Management: Effectiveness Management: HSoftware)
(Life Management: I Am Liberated)
(Life Positions and OKness)
(Life Skills)
(Management Anecdotes)
(Management Book- Best Books)
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(Managing/conducting Meetings)
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(Organization Development- OD)
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(Quality Circles History)
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(Quality Gurus)
(Recession Management)
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(Parental Responsibilities)
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(Quit Smoking)
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General Knowledge and Out of Box Ideas
(General Knowledge- GK)
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