economic articles today

7 Myths About Marketing in Economic Downturns

2011-07-24T20:42:00.000-07:00

In an ideal world, marketing activity would be self supporting, always pay back multi-fold what it costs to execute, and be effective in reaching every potential buyer in the appropriate sector all the time. But in the world where the sky is blue, marketing activities are driven by several factors, including perceptions of the company and the head marketer there, economic forces that drive consumer behavior of all types and factors beyond your control.
As a result of these factors, marketing budgets are at the mercy of the reactions of the company to these perceptions. Many of these perceptions are flawed, skewed, marred by history, personal experiences of senior management, and most have no historical precedent or foundation.
Myth #1 - "Our brand is strong enough not to need support for the duration of the downturn."
Fact: Few brands are strong enough to survive without advertising, product promotion and customer service support. Brands are like delicate houseplants - they need attention, support, bolstering, and polishing, (the marketing equivalent of nutrients, light and water) - or they will wither and shrivel to a shadow of their former self. This is not a position you want your corporate brand to be in when the growth engine for the economy revs back up.
Myth #2 - "If we cut back on marketing spending, we can use the money for other things internally, and increase the budget when things get better."
Fact: Studies have shown that once that budget gets cut, it takes a herculean effort and a strong internal champion to boost it back to its former levels, and even if it does increase, there are much stronger conditions of ROI attached to its implementation. Once those funds are allocated elsewhere, they tend to stay there - after all, that other department doesn't want to give them up either.
Myth #3 - "Nobody's buying anything, advertising and promotions are a waste of money."
Fact: Many studies conducted by prestigious business publications and university think tanks have come to the same conclusion based on the data they gathered on U.S. and in some cases global companies: Those that reduce their presence in their key service markets are in a far worse position in terms of profitability, market share and market competitive presence when the downturn eases and profitability growth returns than those that maintain their marketing activity levels. Those companies that are so bold as to increase marketing activity stand a great chance of taking market share from their less aggressive competitors and can rule the category if the downturn lasts long enough.
Myth #4 - "We can cut back [on marketing] now, and then ramp up quickly when things get better."
Fact: This strategy has proven disastrous time and again, especially for companies that have inefficiencies inherent in their design, or product delivery channel. That inefficiency won't allow them to "ramp up quickly", since by that very inefficiency they will effectively always be "late" when timing the market - they are not market leaders but laggards, and thus the ramp-up activity gets started late relative to the buying cycle, and their more nimble competitors have already beaten them to the punch.
Myth #5 - "We should examine what's working for us, and cut out everything else."
Fact: This is not really a myth, but a knee-jerk reaction to a short-term slump in sales gross. Good marketing departments should be doing exactly that on a perpetual basis, not just when times are tougher. Why would any marketer worth their pay continue programs that didn't work, effectively dragging down performance across the board and wasting money.
In addition, there should be metrics built into any campaign so that there is a way to "take the pulse" of its success, and mid-course correction is possible to boost effectiveness and increase ROI on a continual basis. Further, in some channels, there is a cumulative effect that blurs perceptions of what's working and what's not - interdependencies exist between channels that are not planned or scheduled but that live in the customer's mind and trigger sales inadvertently. Cutting out what can't be measured accurately hampers this effect, dragging down results with no apparent reason.
Myth #6 - "Marketing spends more money than any other department, they have the most room to cut budget."
Fact: While spending may be a measure of power in some corporate structures, at least informally, return is really what counts when its budget review time. Marketing is one of the few departments that can actually point to contributions they make directly to the bottom line. There is a proven cause-and-effect relationship between sales gross and marketing expenditure for larger and enterprise-size firms. Increased spending in the IT department might yield long-term benefits, but better servers don't often move more product, unless the product is server space. Cutting the marketing budget only reduces the opportunities available to build market share, boost product awareness and memorability in the mind of the consumer, and dampens profitability in the long run.
Myth #7 - "All of our competitors are pulling back advertising and media expenditures to save money, so we should, too."
Fact: This kind of lemming-like sheep thinking can destroy your company! Your Mom knew better than this when you used the excuse "All the other kids are going, why can't I?" and her response was likely something along the lines of "If the other kids jump off the bridge, are you going to jump, too?" Despite being competitors, their financials likely look a bit different from yours, and it's foolish to think that you can mirror their moves and be successful - at best you will be equal! The smart money here is being used to take market share from your more timid competitors, by increasing presence and exposure, and cutting other less-than-mission-critical expenditures for a short period to accomplish it.
Bonus!
Myth #8 - "We should downgrade the quality of our marketing materials, use a cheaper creative agency, and mail out less frequently to save money."
Fact: This set of moves will actually cost you both in the short- and long-term. You might save a very small incremental amount on cheaper paper, shorter, smaller brochures, cheaper handouts, smaller tradeshow giveaways - but the damage you're doing to your brand and the resulting poor reflection on the company as a whole does far more damage than can ever be repaired by spending those few dollars later to try and fix it.
Not to mention shaking the confidence of your customers by giving them a visual representation of how poorly your company is performing! "Gee, they must be in trouble, this looks like cheap junk. Maybe I'd better take my business to the other company that's likely to be around to support their products down the line," is the thought you're promoting by reducing quality in your publicly released materials.
Good design often costs less than bad design, due to fewer creative iterations, fewer miscues, greater effectiveness and higher return. Jumping ship from the agency you're with if they are delivering on dollars spent just to save a little money is fool-hardy. The ramp-up time for a new agency to learn your needs, your products, your style and your brand will just about be exhausted by the time the average recession is over, and it will have cost you more to get the same level of productivity in that time, just in time to reposition for the new economic conditions.
When times get tough, the tough get going in the marketing department, providing the market with visual evidence of your corporate strength, your leadership role in the sector, your expertise in the market, and the supportive strength you offer for your products and services. Don't believe the nay-sayers who want to slash your marketing budget, reduce your headcount and reduce the quality of your materials. Everything you do here reflects on the health of your company, and cutting here shows the most and helps the least.

David Poulos, Chief Consultant at Granite Partners has been offering marketing guidance to firms for over 25 years. Specialties include non-profit marketing and full-scale strategic marketing campaigns. He can be reached at http://www.granite-part.com or 410-472-4570.

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Global Economic Recession, Lay-offs and Its Impact on You - Survival of the Fittest

2011-07-22T20:42:00.000-07:00

Introduction
Most of the countries all over the world are going through this phase of economic recession. Many old and big companies have already been brought down on their knees to bite the dust. Many companies as well as countries have become bankrupt or are on the verge of it. Millions and millions of people have lost their jobs. Many people have lost millions and billions of dollars. People in general are scared and fearsome. This is not the first time that the global economy is going through recession and this is also not the last time. There is a pattern involved in it. On an average it is happening after every 8-10 years. This article is an attempt to highlight some of the issues involved and some of the possible solutions.
Dynamics Involved
In our life, there is a special place for money (be it in any currency). Most of the problems that we are facing in our life and day-to-day living are linked with it. Food, shelter, clothes, life-style, education, comforts and etc and etc, each and everything involves money. Money should be revolving; it comes, it goes and it comes back again. It should always change hands or else it is useless. It is this nature of the money that drives the economy of a country, a company or our life. And when you are going through recession, it means no money is coming in. Money is not coming in but yet you need to live and hence there is a need for cost-cutting. But you never know how long the recession will continue and hence more cost cutting. People drive the economy and when there is recession then it is these very people who suffer.
...and then you are laid off. Now what? What will you do? How will you survive? How will you take care of yourself and your family? Earlier there was less money coming in and now there is no money coming in, what will you do?
In such times of global recession when everyone is trying hard to survive and pass through one of the toughest phase of their life, no one thinks about making the profit out of adversity. Everyone is trying to survive and it will be survival of the fittest. Anyone who will be able to pass through this will come out as a stronger entity or person or country. Companies are no exception to this rule. They are also trying hard to survive. With them they are also trying to float and swim through as many people as possible but certainly not all. As a part of cost cutting, some of the employees need to be laid off so that the company and others can survive. Similar things happens in a lift, when it is overloaded; ship, when it is sinking and even airplane, when it is overloaded and etc. Something or someone needs to go out for the rest of them to survive.
But, what is the pattern? Who needs to be laid-off? When? How? There are many such questions that need to be addressed. Let's move further and discuss.
The Pattern
There is a set process that needs to be followed at the time of laying-off. I am not sure how many companies actually follow it. Let me elaborate.
1) Freezing the recruitment. No new hiring.
2) Fresh graduates or those who are new to the market will find it difficult to get a job. More so, if they are not from A-grade institutes.
3) Last in, First Out. Among the employees who are already inside the company and are employed, the person who has joined recently will be the first one to go out. To be more precise, all those who are on their probation will be shown the door.
4) Average performers or difficult employee will also be shown the door. Performance records of last three years will be re-examined and reanalyzed and those with average or below average performance will be shown the door.
5) Outsourcing to increase. Most of the routine functions will be outsourced and those departments will be closed.
What more to expect?
1) Training and Development programs to freeze. No more expenditures on company sponsored training and development programs.
2) Perks, benefits and retention allowances to be withdrawn. The company will freeze all perks and benefits that has been extended to its senior employees.
3) Bonuses and incentives to be stopped. For the time being the companies will stop all the bonuses and incentives that are due to its employees.
4) Specialists are out and generalists are in. At the time when economy was booming, companies might have hired different people for different role within a function / department or most likely they have hired more than one person for a role, all these arrangements will go away and only those people who are willing to do the work of more than one person or those who can do multiple roles will stay in.
This is the basic process that is followed in many companies at the time of such economic crisis. What does it means to the people in general and what they should be doing? There is something to be learned from every crisis and this one is no different. Let's discuss further.
Learning
It is not important to know what is happening across the world but it is important to know what is happening in your company. It is also important to keep an eye on the market situation and keep yourself updated with the latest. If you are the one who has been laid-off, then you must be the one falling in any of the above mentioned scenarios. I think you also need to take the blame of your current situation. However, there is no need to get panic. Hold your emotions and look around.
If you are the one who has been laid-off then you must do the following:
1) Time with family. Remember when you were working and working for 12-15 hours a day, how difficult it was for you to find some time for your family. Now is your time to be with your family. Spend some time with them. Strengthen your bond with them.
2) Improve your skills and personality. No one is perfect and there is a scope for improvement in everyone of us. Use this time to work on your areas of improvement and weaknesses. Sharpen your skills.
3) Work on your professional and personal network. Networking is very important for the growth of an individual. Use this time to build and strengthen your professional and personal network, so that whenever the market situation improves, you get the benefit of it.
4) Heading back to school, colleges and institutes. This is also a good time for you to share your knowledge and experiences with new generation and to pass on your intellectual legacy to them. Get associated with some colleges and institutes to do so. There is a possibility that you might get paid for it, which in turn might give you the required financial support.
These are some of the ways you can spend your time during this phase.
Good time and bad time will always be there but when we pass through the good phase of our life we forget to prepare for the bad time. We get carried away. We do not plan for our future and difficult times lying ahead and crisis and adversities are part and parcel of our life that we cannot run-away from. Recession of one such crisis and we need to prepare our selves for all such adversities. We can do it in a following way:
1) Save generously and invest wisely. In such crisis, nothing but only your savings in the bank can save you. More the savings that you might have lesser will be your pain.
It is also important for you to invest wisely. The higher the risk the higher will be the gain and more higher will be the loss. Hence, one needs to think about it.
2) Both husband and wife should be working. In some conservative families, even in this 21st century, only males are allowed to work. But I think if both husband and wife works that also lessens the pain. If one person looses the job, the other will have and hence the money will still come in.
3) Keep updating your existing skills all the time and acquiring new skills. Don't take anything for guaranteed. Learn and relearn. Keep the sword of your skills sharpen, all the time. Learn new things and that can help in your professional growth.
4) Have a hobby that can also be transformed into a profession. We all should have some hobbies. To do things in our spare time that we are passionate about. Painting, dancing, music, writing, acting and etc are some hobbies that can also be transformed as a profession, if required.
Now, these are few things that might help you to overcome any type of economic recession or crisis in your life.
Conclusion
I hope that the points discussed in this article will be of some use to the readers. We are in a situation where no one can actually help and there is no point in blaming the God or the circumstances for our situation. You cannot also blame the Government of your country or the company you was working for this situation. It is just a tough time and the fittest will survive, others will get washed away with the time.
Disclaimer: This article is just an attempt to share the pain of those who has been laid-off in this economic recession. The views expressed in this article are the personal views of the author.

Sanjeev Himachali
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E-mail: ss_himachali@yahoo.com; sanjeev.himachali@gmail.com

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Careers in Economic Field

2011-07-20T20:43:00.000-07:00

If you are interested in studying in the Economics field, there are a wide variety of career choices available to you. Generally speaking, most people with an Economics degree is whatever minor they choose, go for a Bachelor's degree, although a Master's degree will always ensure that you start out higher to the top of the companies food chain, and earn more annual income.
Career choices in the field of Economics can include Economic Consulting with research companies or consulting firms, where you would advise the company on business strategies and help to prepare economic evidence for court cases. Another destination that many Economic graduates find is law school. In the field of Economic law, you would have the chance to influence many decisions based on the economy, and would be able to contribute to many firms and government agencies. And, speaking of government agencies, there is always the choice of working directly with the government through non-profit organizations. The government, local, state, and national, hire Economists to aid with the statistic and analysis portion of business.
A look at the potential annual earnings for majors in Economics shows that, with a bachelor's degree, for instance if you decided to pursue your degree in Economics with a concentration in Finance, the annual salary that you could expect in your first year would be around $45,000, whereas a degree simply in marketing would earn you only $36,000 annually. The low end of the earnings for an Economy major, reported in 2005 was $24,000 for a bachelor's degree, while those with a Master's degree earned $37,000 starting annually. Wages can go up to nearly $100,000 yearly, depending upon whether you decide to seek employment with a private or government sector. The Federal Government's annual salary for economists with a Master's degree in 2005 was $89,441. That's the average salary, so keep in mind that you may have to put a couple of years into the job before you can expect your salary to meet this standard. Overall, Economists are expected to earn a significantly higher income whether they are working with the government or with a private company, simply because the need much outweighs the supply.
Economists are normally employed within larger cities, however some do work overseas for varies companies, either government or private international operations. World Bank, International Monetary Fund, and the United Nations all employ economists from all over the world to work in their facilities.
If you are considering a career in the Economics field, there are a few minor requisites to keep in mind. Those interested in Economics will normally be able to pay great attention to details. This is highly important because you will spend much time on precise data analysis. You also must possess patience and persistence, since you will be required to spend many hours solving problems, and you will have long hours of independent study ahead of you. You must be able to present findings on your studies in a clear manner, both orally and written, so good communication skills are of the utmost priority.
A Master's degree or a PH.D is normally required for many private companies and most government agencies. Although a bachelor's degree will get you in the door to your Economics career, it's best to obtain at least a master's degree if you plan to start in a top position. You will also need at least a master's degree if you plan to teach Economics. Instructors and professors of Economics are among the highest paid career choices, outside of the Federal Government, so if you want to help others to obtain their goal in reaching an Economics degree, a master's degree will be required. The educational requirements and courses that you will need will, of course, vary depending on the college or institution that you attend. Basically, for a master's degree, you will need courses such as advanced economic theory, econometrics, labor economics, and international economics courses. These are the graduate courses that are required by most companies. Undergraduate courses will include microeconomics, macroeconomics, and econometrics, and the history of economic thought. The entry-level jobs for the Federal Government require a bachelor's degree with a minimum of 21 semester hours of economics and at least 3 hours of statistics, accounting, and/or calculus.
You can find more information about the courses required and available at the college or institution that you attend. Economists are a growing number, and will continue to be needed in our society, so if you have an interest, and have the necessary thinking, analysis, and data skills, a career in the Economics field would be a wonderful choice.

Find economic jobs and economic careers at Seek4Jobs.net.

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Economic Recession - Recession Definition and Causes of Economic Recession

2011-07-18T20:43:00.000-07:00

Our economy is in turmoil in the Unites States and this turmoil is spreading world wide. Understanding what is happening can sometimes seem like it is much too complicated. However, you can get a basic idea of a recession definition and the causes of an economic recession.
Recession Definition
An economic recession is a situation in which a nation's gross domestic product or output is maintaining a negative increase for at least two successive quarters or six months. The decline in the economy lasts for more than just a couple of months. This decline also lasts from eleven months to possibly up to two years. A situation which is short lived is known as an economic correction. However, a prolonged recession becomes what is known as a depression.
Causes of Economic Recession
There are complex reasons in addition to simple causes as to why economic recessions occur.
One example is when consumers lose interest in purchasing products. Before a recession, there will usually be an overproduction of products causing supply to exceed the demand of goods. This will drive companies to increase prices, which in turn causes consumers to lose confidence and decide to decrease spending.
Some economists indicate that an economic decline could be caused by events that have a large effect on the economy. Certain events that harm specific companies or industries could likewise induce a recession, such as what is currently happening with the banking, credit and mortgage industries.
Over consumption may also be another reason for a recession. Spending more than what is necessary can contribute to debt. Debt can affect the amount people have in savings an what they have available for disposable income. Economic experts have been advising for years that the United States government as well as the people of this country should be more careful with their consumption and spending in the future.
Government economic policies could be used to fend off problems with the economy, but failure to allow for effective policies can have detrimental effects. If efforts are not effective, those policies could cause the economy to boom and then bust and then lead to inflation. When the policy makers do not pay attention and fail to address to the increasing inflation at the beginning of a recession, and think of it as a slow down in economic growth which will correct itself, additional economic disasters can occur and spread world wide.
Although there are several causes to bring about a recession, the hardest part is recovering from the affects of the economic turmoil. However, there are steps each person can taken to help lessen the impact the economy can have on them personally.

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Economic Rent

2011-07-16T20:44:00.000-07:00

The amount of money received by the owner of a production factor for having rented out the same is known as economic rent. The production factors may include labor, materials, capital and land. Such production factors may be involved in production process to sustain supply. It is the difference between the minimum and maximum amount of money that the owner of a particular asset is eligible to receive. The person who receives is termed as renter. It is different from other sorts of passive income because it has the effects of public revenue and tax policy within itself. The economic rent collected by the government for public finance is less adverse than production or consumption taxes.
The economic rent of a production factor depends on the elasticity of supply of the particular good or service. If the supply elasticity is neutral by being neither elastic nor inelastic, the supply curve soars high and the income is split between economic rent and opportunity cost. If the supply elasticity is inelastic the supply is vertical and the income would contain rent. If the supply elasticity is elastic, the supply would be horizontal and the income would contain opportunity cost.
Economic Rent and Transfer Earnings
Transfer Earnings is the minimum payment done to prevent a production factor to move into different utility. It refers to the satisfaction that a worker has in his compensation amount. If he is dissatisfied, he would seek another job. If the minimum rent of a property is x and the actually rented amount is y, then the economic rent is y-x. Transfer earning refers to the wages that are possible in an alternate occupation.
Economic Rent and Opportunity Cost
Opportunity cost is a type of economic rent which involves political barriers to create and privatize rents. A person may seek entrance in a particular guild through a big training and education investment thus fulfilling the criteria to become a member in the desired guild. In a competitive situation, being a member of the guild would be advantageous compared to the investment made. Those who do not find it possible, try to enter other guilds. An artificial scarcity is created in the members of the guild through the political restrictions.
Examples of Rent
A celebrated sportsperson like a star baseball pitcher may have high marginal revenue value while a servant or a dishwasher may have low marginal revenue value.

This article has been compiled by John J Neilson, a online Homework-Help provider.
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Book Review - The Economic Institutions Of Capitalism By Oliver Williamson

2011-07-14T20:46:00.000-07:00

In this book, Williamson presents a refined and elaborated version of his transaction cost theory that he had first outlined in his 1975 book Markets and Hierarchies: Analysis and Anti-trust Implications. His book attempts to systematically examine those economic issues that classical economic theory simply assumes away. The classical economics believes that markets are perfect, and if they are not then the action to remove market failures needs to be initiated. Williamson, on the other hand, focuses on these economic issues that are acknowledged to be widely prevalent in any economic system. "If complexity is deep in the nature of things economic then that ought to be acknowledged rather than suppressed. An equilibrium approach to economics is thus preliminary to the study of main issues (Hayek on P8)." This book, then, is a scrutiny of such economic phenomenon as market structures, monopolies, anti-trust policies, labor policies, public utility regulation, vertical integration and other economic institutions that have traditionally been neglected by the economic theory.
His basic proposition that most of us are familiar with by now is that the transaction costs should be treated as a fundamental unit of analysis for understanding such issues. Drawing on three streams of research- economics, organization theory and contract law, he repeatedly highlights the need to consider the governance (or transaction) costs. "Rather than characterize the firm as a production function, transaction cost economics maintains that the firm is more usefully regarded as a governance structure (P13)." While his basic argument appeared sound and plausible, I got an impression that Williamson attributed more to transaction costs than it deserved. Why should we regard only governance costs? Why should we think that the firm is only a governance structure? In other words, in my view, instead of correcting an existing flaw in the theory, he seems to be, to borrow the stock market jargon, proposing an over-correction. The field would be better off considering a cost function that combines both production and governance costs or at least choosing the concept based on the specific requirements of the situation or problem at hand.
Having said that, let's now delve into the foundations of the transaction cost economics which is first three chapters in the book. Until this book, Williamson considered opportunism, bounded rationality, frequency and uncertainty to be the building blocks of TCE. However, in this book, he rightly puts forth asset specificity alongside opportunism and bounded rationality as the three legs of TCE. "Any attempt to deal seriously with the study of economic organization must come to terms with the combined ramifications of bounded rationality and opportunism in conjunction with a condition of asset specificity" (P42), which is assumed to be the most critical dimension of TCE (P30). Without asset specificity, markets are believed to be in a competitive world even if people are opportunistic and rationally bounded. This is because buyers and sellers can freely move between market players.
In contrast, uncertainty and frequency drop down a tad bit in the scheme of things. Now, they are supposed to be meaningful in presence of first three elements only. Conceptually, this makes a lot of sense. Take for example, if market players are uncertain about the outcomes, but they believe in the fairness of the parties to contract, the market mechanism would be adequate to deal with all the contingencies since the players would share equitably in the profits. However, we understand that such a behavioral assumption would be wrong since opportunism and bounded rationality are common behavioral traits. What intrigues me, albeit, is that if they are such common traits, then why they should even be made variables in the model. After all, a variable that doesn't vary is no variable at all. It is not surprisingly, therefore, to see most literature to refer only to asset specificity, uncertainty and frequency as the three pillars of TCE. Williamson himself seems to acknowledge this in a subsequent chapter when he mentions that "principal dimensions for describing transactions are frequency, uncertainty and asset specificity (P242)."
After outlaying his conception of economic fundamentals, Williamson proceeds on to explain the boundaries of firm, which is to say what transactions will take place in market and what within the hierarchically organized structures. In his opinion, if the expected costs or risk of transacting in a marketplace are higher than the cost of organizing the functions internally, then such transactions will take place within the firm. If we ignore his exaggerated claims, this is indeed novel and useful approach at looking the firm size and boundaries. No longer is the size of firm held irrelevant as is the case in classical economics. No longer is it believed that the firms will operate at marginal cost whether they produce internally or buy externally. It opens up a can of worms that classical economics under its perfect market and equilibrium economics assumptions puts aside as aberrations. This is a welcome change in the approach to the study of industrial economics.
Next, Williamson moves on to the main theme of the book: providing alternative explanations vertical integration, mergers and monopolies, and joining issues with anti-trust enforcements. He believes that vertical integration results not because of technological determinism or a desire for monopolistic power but from a pragmatic desire to economize on transaction costs. In the similar vein, he contends that non-standard contracting practices such as long-term contracts are not monopolistic practices, but perfectly justifiable attempts at minimizing transaction costs. Further, he attributes such decisions "to a condition of asset specificity (P86)" since asset specificity in conjunction with uncertainty "makes it more imperative to organize transactions within the governance structure that have the capacity to work things out (P79)." The author makes a persuasive case for five out of six hypotheses on the boundaries of firm. However, his fifth hypothesis that claims that "firms will never integrate for production reasons alone" seems a little far-stretched. The fact that some firms organize for efficiency reasons doesn't and can't automatically preclude the fact that some firms organize for monopolistic or technological reasons. Once again, the author's case would have been better served by refraining from such overstatements.
Next, Williamson turns his attention to analysis of such arrangements as can neither be classified as market contracts nor as hierarchical structures, but fall somewhere in between. Also known as hybrid structures, these include credible commitments, joint ventures, relational contracting, hostage models, reciprocal arrangements, and network relationships. His main claim is that even when such arrangements appear to be exercise of monopolistic power, they may be justifiable from transaction cost perspective. "A comparative institutional assessment of contractual alternatives discloses that efficiency purposes are often served by hostages and it is in the mutual interest of the parties to achieve that result. Not only can producers be induced to invest in the mutual interest of the parties to invest in the most efficient technology, but buyers can be induced to take delivery whenever demand realizations exceed marginal cost." Interesting proposition, but it doesn't explain the impact on the hostage (e.g. P&G) if the monopoly (e.g. Wal-Mart) decides to dump it! His second main claim derives from Coase's 1960 article on problem of social cost. Recall Coase's claim that when people are left to bargain among themselves, most economic externalities can be better resolved than when courts or other non-market interventions take place. Williamson develops on this proposition and claims that parties to a contract don't normally take recourse to courts, but try to use "private ordering" to resolve their disputes. I would presume this would chiefly be out of concern for future business relations.
Let's wrap up this review with a summary of strengths and weaknesses. For the strengths, I will let the Williamson speak for himself. To quote him,
"As compared with other approaches to the study of economic organizations, transaction cost economics (1) is more micro-analytic (2) is more self-conscious about its behavioral assumptions (3) introduces and develops the economic importance of asset specificity (4) relies more on comparative institutional analysis (5) regards the business firm as a governance structure rather than as a production function and (6) places greater weight on the ex-post institutions of the contract, with special emphasis on private ordering as compared with court ordering."
-Williamson, P387
While the theory is conceptually persuasive and logically sound, a principal weakness of transaction cost analysis lies in its post-facto nature of analysis. Notwithstanding Williamson's superb efforts, it has been rather difficult to define it in a way that it can be measured and tested. The theory in its current formulation continues to be plagued with a criticism that it's tautological in nature, after all ex-post facto any system can be shown to be economizing on transaction cost or at least that it will be eventually replaced if it doesn't. Therefore, transaction cost economics needs to find variables with predictive powers.
Williamson mentions three limitations of his work- its crude form, instrumentalism, and incompleteness. To me, these appeared more to be challenges for future research rather than any weaknesses in the theory. Besides occasional excessive enthusiasm and exaggerations and the difficulty in operationalization of the concept, a major challenge in reading this book is to be prepared to learn a new language! Williamson's choice of words lives a reader with no less an impression.
Overall, Williamson does a superb job in developing the transaction cost economics that had first appeared in Coase's 1937 article 'nature of firm', but had been left untouched until this work because of difficulties in operationalization and empirical testing. Williamson succeeded in overcoming most of these challenges and it is for the future researchers to meet the rest.
Reference:
Williamson, Oliver. The Economic Institutions of Capitalism. 1st. New York: The Free Press, 1985.

Punit Arora is a research scholar on management and public policy.

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Understanding Economics - Why Is It Important?

2011-07-14T20:45:00.000-07:00

Economics can be best described as the study that defines how people and society make decisions to fulfill their needs and wants with the limited resources that are available to them.
The study of economics can be divided into two major branches which are:

Microeconomics: Microeconomics primarily focuses on individual people and businesses. It explains how individuals react when faced with decisions about spending or investing their hard-earned money and how individual firms behave when their competing with other firms.
Macroeconomics: Macroeconomics focuses on the economy as a whole, looking at various factors which may affect it such as interest rates, inflation, and unemployment. It also concentrates on economic growth and government interventions.

Why Is It Important?
The answer is simple. Economic revolves around our everyday life. We make economic decisions when we're picking a movie or deciding what to eat for lunch. Everything that involves weighing several choices and sacrificing one benefit for a greater benefit is an economic decision. This means that everything we do is related to economics and money in one way or another whether we like it or not.
We are faced with limitations and constraints on a daily basis. Learning about economics can help you understand how people and society use the limited resources in the best possible way to fulfill human needs and wants.
Economics will teach you how to improve your decision-making skills. It will show you how to analyze every possible option and make the best and most rational decision out of whatever limitations that you have.

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Economic Status of the United States in 1950

2011-07-12T20:47:00.000-07:00

Introduction
Emerging victorious from World War II five years earlier, the United States in 1950 was reaping the benefits of a growing economy - benefits that were actually derived out of the country's participation in the War. The destruction and mayhem brought by the global conflict also brought with it several positive contributions to the economy. Some would even argue that the country's participation in World War II actually saved it from the Great Depression.
To understand the economic boom of the 1950s it is necessary to appreciate the positive impacts that were borne out of World War II. The foundation for the economic expansion and growth experienced in 1950 and several years after that were laid during World War II.
To fund and support the country's war time efforts, it had to recruit millions of American soldiers to be sent to the war front as well as to be stationed at home. Factories had to be built to produce war materiel - guns and ammunitions, military transport, tanks, fighter planes and bombers, etc. To man the factories women and older people had to be recruited as most of the able-bodied men were at war. WWII created jobs and gave life to many industries and energized a nation. Among the industries that prospered during and immediately after the war were the newspaper industry, the agriculture industry and even Hollywood. Industries that produced transport and plant machineries also prospered. Throughout the War, women, for the first time, were given the opportunity to work outside their homes and participate in nation building. The participation of the women in the labor force started to increase during this time.
The War also provided opportunities that would later be manifested in the 1950s. Take for example many of America's products went overseas - introducing themselves to new markets.
Many had actually feared that the end of the War would lead the country back to depression. With production of military supplies coming to an end, this fear had its basis - for the entire economy was propped up by all that had to do with the global conflict.
Fortunately, this was not the case. The victory relished by the nation brought about confidence in the government and the economy. The common consumer best exhibited this confidence as the strong consumer demand spurred economic growth after the War.
Leading towards the 1950s, industries that experienced a surge in growth included the automobile industry and the housing industry, and new industries experienced fantastic births - industries such as aviation and electronics.
There was also another outcome of WWII that contributed to post War growth - the Cold War between U.S. and the U.S.S.R.
Many of the military industries that sprouted during the war continued to do big business after it. As communist block emerged as a military power in Europe, America had to arm itself against what it considered as a threat. Huge investments were made in the defense of the country. Such investments meant jobs, factories, huge spending - all contributed to the boom of the 1950s.
The economic success of the country probably influenced its leaders to advocate the replication of an open economy at the international level. This is best evidenced by the country's spearheading the establishment of the International Monetary Fund and the World Bank.
Gross Domestic Product and Per Capita GDP
In 1950, the country's GDP was at $293.8 Billion (in current dollars). At that time, Per Capita GDP was $9,573.00 - making the United States the number one country world wide in this aspect. By 1996, GDP was at $13.194 Trillion. Per Capita GDP was at $43,800.00 - however, the country ranked only at 10th place world wide in this respect.
Post World War II scenario showed that too few economies survive the war while a great majority, especially in Europe, was greatly affected. Many developments starting in the late 1970s toward the early 2000s enabled other countries to overtake the U.S. in terms of Per Capita GDP.
As Per Capita GDP is influenced by population, countries that had significant economic growth coupled with low birth rate were able to surpass the U.S. in this indicator. However, the U.S. remains the most powerful economy in 2007 taking into consideration other indicators.
Employment and Unemployment
In 1950, the civilian labor force was about 58 million strong. Only 5.3 percent of the labor force was unemployed. 41.6 million of the labor force at that time were males, while only 17.34 million were females. By 1996, the labor force grew to about 142 million while unemployment rate as at 5 percent. 76 million were males while 66 million were females in the labor force. In the 1950s, the number of workers in the services sector caught up with workers in goods production industries. The same time also saw the rise of white-collar jobs and the strengthening of labor unions. Awareness on labor rights was on a rise. The biggest impact experienced by the labor force was the increase in women's participation in employment activities. Accordingly, women have literally poured into the labor force starting in 1950. By 1990, women's participation in the labor force would nearly double. On the other hand, men's participation would drop over time.
Per Capita Personal Income
In 1950 the Per Capita Personal Income was pegged at $1,501.00. By 2006 this rose to about $36,600.00. Though marked by huge difference in amount, it can be noted that $1,501.00 in 1950 could by more goods and services than the $36,600 in 2006 as illustrated by the CPI rates for both years.
Consumer Price Index and Inflation
With 1967 as base year, CPI in 1950 was registered at 72.1 - meaning that a basket of goods and services bought in 1950 were 72.1 percent of the price of the same goods and services bought in 1967. By 2006, the CPI was at 603.5. This meant that the same basket of goods and services bought in 1967 would cost 603.5 percent more in 2006. Inflation rate in 1950 was at a steady 1.09 percent. In 2006 the rate was at 3.24 percent.
Emerging Industries
1950 saw the emergence of new industries that were anchored on new technologies. Among these is the aerospace industry. The great success of the heavy bombers during the war emphasized importance on innovation. Improvements in engine design, metallurgy, and arms technology helped advance the industry as well as improve manufacturing procedures.
The onset of the Cold War ensured that the industry was there to stay. At its peak, the industry hired hundreds of thousands of workers in four major factories. The industry was also fueled by a $3 billion government spending.
Other industries that grew during this time were boosted by other industries. Take for instance the housing boom experienced after war. New homes meant additional furniture and appliances as well as new cars. The consumer-led growth likewise spread to other areas. The introduction of television to the masses spurred the growth in electronics.
There were also after effects in the growth of industries. As the demand for homes and cars increased, many Americans were lured out of central cities to the suburbs. The construction of better highways also contributed to these phenomena.
Farmers though were facing tough times. As people left farm lands, lesser people were left behind to do farm work. This led to a drop in the productivity of the farm sector.
Innovations and the Transformation of Business
At a personal level, 1950 saw the introduction of the first hand held T.V. remote control - a device that would be seen as a necessity in many households for years to come. Color TV also emerged thru the issuance of a license to CBS Network. Another innovation is the introduction of the first credit card - Diners - also an item that would come across as a necessity in modern times.
The first pagers were also developed in 1950.
In the business front, 1950 would usher in an era marked by consolidation of large companies. Businesses would combine to create bigger, greater businesses. Example, International Telephone and Telegraph bought Sheraton Hotels, Continental Banking, Hartford Fire Insurance, Avis Rent-a-Car, and other companies.
Notable Events and Personalities
Notable events of 1950 included the following:
Start of the Korean War - influenced greatly by the U.S. and USSR at opposite sides, North and South Korea would tangle in a three-year war that highlighted the tension during Cold War regime.
Development of the Hydrogen Bomb - raged by the atomic bomb testing by USSR, the government pursued the development of a hydrogen bomb.
Senator Joseph McCarthy - started the Red Scare in halls of the U.S. Senate - making accusations that the State Department was filled with Communists or their sympathizers. The Senator's actions led to the adoption of the term McCarthyism - describing intense anti-Communists sentiments.
This period coincided with and fueled the onset of the Cold War between America and the USSR. Thousands of Americans were accused of being Communists or sympathizers during this time - Americans in various sectors of the society. History would later judge these accusations as reckless and baseless. While Senator McCarthy gained considerable media mileage at the start of his "campaigns," he would be later unmasked as a grandstanding antic who had little or no evidence to back up his accusations. Many of the people Senator McCarthy accused suffered greatly. Many loss their jobs, had their careers ruined while some were even unjustly imprisoned.
Conclusion
The end of World War II led to the end of the Great Depression and the start of a long period of economic expansion through the 1950s. It is quite ironical that the most destructive war in history would contribute to the emergence of the strongest and biggest economy in the world. The confidence on the economy was obviously brought about by the country's victory in the War. Tempered by strong collaboration between the government, businesses and the consumers, the U.S. emerged from the War a lot stronger and economically strengthened. Industrial expansion during wartime brought economic impetus that would be carried on even after WWII. The fact that most of the major economies were slow to recover from the after effects of the conflict placed the United States at absolute and relative advantage over both its allies and its enemies.

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World Wide Economic Crisis - Reasons

2011-07-10T20:48:00.000-07:00

The financial crisis has enveloped the entire world these days. All nations of the world the developed and the under developed countries are trapped in this tangle. The countries which have strong enough economic conditions are also suffering from this. They were believed that they will rule the world but now they are suffering a lot. Now a days the era is more advanced and the technologies are more advanced.
The food, science, medicine, weapons are of advanced technology and now these are the major problems facing this world. The truth of the matter is that these economies were based on frail policies which have collapsed, resulting in a global economic crisis. The true controller is The God and following his teachings. The Muslim nations are also involved in similar practices instead following the guidelines laid out according to Islamic teachings. The cause of economic crisis the lending institutions in the western countries use funds deposited by their clients and forwarded this money as loans to those persons wanted to buy homes or automobiles.
The borrower does not pay attention to the amount of money he will be paying in interest during the term of contract, since his income is limited and he has to run the house hold along with re-paying loans. He finds himself sinking in a deep debt. As Middle Eastern countries have claimed that they are not facing any financial crises are just telling not truth, they are also suffering with the same situation as other well developed countries. Most of the funds are used in loans which could not be returned back, similarly the funds are also provided to the institutions for the well fare of countries but it is our bad luck that those funds were misused and resulting into a big economic crisis.
Car sales have plummeted to a record low and air travel is on the decline, individuals are spending less on all that comes under the umbrella of personal entertainment , which again results in the rise of depression. The instability and fraud and frustration and the sense of imminent war that exists in the world today is a result of the wealth of the world revolving. The main reason for the destruction of the world peace also stems from the fact that the richer nations have been eying the natural resources of the under developed countries.
Following are the points to be considered:
1. Learn to stay within your means, at a personal and at a nation level.
2. Refrain from interest
3. Wealthy nations should abstain from trying to gain control over natural resources of other countries.
4. Heads of the nations should be loyal and patriotic to their countries.
5. The rights and obligations of poor must be fulfilled.

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How to Survive Tough Economic Times

2011-07-08T20:49:00.000-07:00

Surviving Tough Economic Times
Are we in a recession? Are we in a depression? For the business owner, does it really matter? No matter what the financial analysts call it, you have to be acutely aware of all aspects of the business in order to do more than survive. After all - you want to thrive! Let's look at some tips that you can use in order to keep your business in the black.
"An inner quality that many entrepreneurs say helps them survive is optimism." Jean Chatzky
Tap Into New Business
This isn't just about increasing direct marketing or cold calling efforts. There are unique ways to find customers you normally wouldn't attract.
Complementary or partner services: For an example, let's say you sell car wash services. If you haven't already done so, find local businesses that perform 30 minute oil changes and create a partnership. Go together on a bundled package or work together to create an advertisement that shows how you complement each other.
Join organization or present papers: There's nothing like expanding your customer base by letting others know you are the knowledge expert. If you do have an area of expertise, sign up at conventions, conferences or organizations to offer some advice free in exchange for advertising directly to the participants.
Do some research: As your needs change in tough economic times, so does your customer's. Their needs aren't the same as they were when money was flush and bills were paid. Find out what their needs are today and if needs be, change your line of products to meet what they will be spending money on.
Grow Your Business
Ask for referrals: If your customers are happy with you, ask if they can be a referral for you. Most customers will completely understand and be more than happy to help provide positive feedback, especially if you also provide some discounts along with a referral.
Provide discounts: If you have a good customer and know that they're struggling a little, provide some discounts to keep them with you. It's cheaper to keep a customer than try to find a replacement one.
Focus on quality: Although quality should always be a priority, when it comes to tough financial times, it should be raised up as probably the most important reason for being in business. Too often, companies cut expenses during financial trouble, but they cut those expenses which leads to a reduction in quality. This means that customers leave in droves.
Customer Service - Improve or increase customer service. Focus on your current customers and give them the best service possible. Even during tough times, people will pay a premium for services that cater to them individually.
You are the model! Your staff will look to you to see how they should act. Be the first level of quality within your organization and show your employees how to treat your customers.
Use the web
Web Presence: Chances are, you already have a web presence, so it's time to look at how you can expend this presence to meet your customer's needs and grow your customer base. Engage in some SEO activities and keep a close watch on your keywords in order to get the most exposure possible. Write some articles for publication or release some press releases about your new activities.
E-Marketing: E-Mail marketing, text message marketing, online coupons, online advertisements are all some of the most affordable marketing tactics available. You can use these tactics with both new customers and current customers in order to keep them engaged and active.
Did you know? Warren Buffet recently stated," I believe that we are already in a recession. It will be deeper and longer than what many think."
Financials
This is the time to do some housecleaning and cut the expenses, but only if it makes sense to cut.
Little stuff: Never underestimate the power of a penny. The little stuff that you spend money on may not make a difference in your quality, your customer service or getting new customers. Do your employees need unlimited cell usage or can you cut back their level of service? Do you really need your offices cleaned 3 times a week or can you live with 2 times per week?
Vendors: Shop around. If you like your current vendor, but another one can beat their prices, try negotiation. See if you can't get your current vendor to cut their costs to be competitive. Check out each supplier and service provider to make sure you are getting cost efficient service.
Have a sale: Last, but not least is unused assets. These items have worth, but aren't being used in a productive manner. Most companies won't have any large unused assets, but if you need a little boost of cash, it's a good idea to review your list of assets.

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An Innovative Solution For the Current Economic Crisis

2011-07-06T20:50:00.000-07:00

The nature of the current economic crisis is such that it cannot be resolved with the standard array of tools at the disposal of the President. What's required is a sustainable, renewable solution, one that transcends the immediate financial crisis and actively - proactively - deals with the new paradigm of economics we are now dealing with.
The Prosperity Mandate offers a brilliant proposal that is both inspiring and doable. The centerpiece of this financial paradigm is to convert net worth (not Government funding) into liquidity, which then funds the economy. What this means is that is that over a trillion dollars can be infused into the banking system as a sophisticated investment without a single dollar of direct government funding. Thus, the current economic crisis is resolved with a sustainable recovery plan and renewable funding mechanism - not through government bailout - with massive job creating capital investment in ideas whose time has come.
In essence, net worth is transformed into liquidity in the following manner: Tax credits are issued to investors for cash deposited into CDs, which are then pledged as collateral on Fund America programs. These CDs earn tax-free interest. The U.S. government will guarantee the CD against bank default on the principal. The CD guarantees generate loans invested in the new economy, creating jobs, developing infrastructure, fostering urban renewal, developing Green energy manufacturing, and funding ecological technologies.
Each loan has a PayBack scenario to pay off and release the collateral CDs. The government does not foot the bill, but rather, provides the incentives for investors to do so. Every time a collateral pledge is released through cash pay back or permanent financing, the CDs can be renewed, and the pattern begins again. This recovery plan requires oversight, risk management, and transparent real time accounting, as well as banking, reporting, regulation, and review.
Imagine, as an example that the parents of newlyweds want to empower their children to lead self-reliant lives. After figuring out how much of a mortgage the newlyweds can afford to pay based on their incomes, the two families go to the bank, deposit CDs, and pledge them as collateral to secure a loan for lot acquisition and home construction. As time passes, a new home is built and a new mortgage is funded, which pays off the loans and releases the security pledges. The families did not give anything away - they merely facilitated a wealth-building process by converting their net worth into liquidity for the sake of economic growth.
The Fund America Trillion Dollar stimulus plan is entirely doable, friendly to both big business and the newly unemployed, ecologically sustainable, and ready to be implemented for a full economic recovery that ushers in a new paradigm of cultural interdependence. Citizens be encouraged! Reach out to your Congressperson and Senator to ask for support for the The Prosperity Mandate Fund America Tax Initiative. Create a Job -- Get a Tax Break! Invest in America - Pay less tax! We are in a period of great transformation, and now is the time to implement a truly sustainable economic and renewable solution for the current economic crisis.

N. Katz is the founder and visionary of The Prosperity Mandate organization. Previous highlights of his professional career include being an entrepreneur who has started, funded, and advised companies from dinner napkin to Fortune 100 companies. He has taken start ups public through Initial Public Offering, served in the Executive suite of two public companies and on the Board of Directors of several companies. Mr. Katz completed the Executive Program in Management at the John E. Anderson Graduate School of Management at the University of California Los Angeles.
When asked how does he continually think outside of "The Box", Mr. Katz replies somewhat perplexed..."What Box?"! He explains, "Most people look at a problem, then at the tools and resources at their disposal, and then try to create a road map from where they are to where they want to go using those tools. I start with the end result and always work to find one logical step back from there until I arrive at the present. It is just a more liberating way of finding solutions." His Prosperity Mandate is an innovative solution to the current economic crisis that is a brilliant example of his out of the box thinking.

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privacy policy

2011-06-24T20:58:00.000-07:00

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