This is the question in everybody's mind. What should we do to get out of this time of global economic slowdown ? To understand this we have to know where did it begin and what has been happening since then. My intent is not to explain the cause of this slowdown but to get rid of it. The current situation is jobs have become unstable, businesses are shutting down, people are afraid to spend, liquidity in market had dried, profits going down, jobs cut, etc.
Global economic slowdown nothing but a cascading effect of a series of events.
Lets take a simple example. One big company goes down and companies associated with them are shut and jobs are cut. People get afraid of the security of their job and start saving more and more and spending less. One may think yes this is what has to be done as you never know that the next day you may be jobless. So let me save enough to protect my family.
This is the beginning of the cascading effect. Example of this is an exceutive earns 50000 per month. Of this he spends 15000 in essentials, 15000 for loans , 10000 for savings and 10000 for luxuries like outing, eating at hotels, a movie, etc. When he fears that jobs will be cut he reduces his expenses and increases savings. This means 12000 for essentials, 15000 for loans,18000 savings and 4-5000 for others. Since people are saving more the bank deposits go up and the bank is unable to pay interest as they are not able to lend it to anyone outside. In the bargain interset rates dip.In the bargain what is happening to the economy. As people are spending less those businesses are impacted. Shopping reduces and malls which survive on volumes are forced to reduce costs which is easily done by reducing resources. Jobs are cut as business does not require that numbers and the cycle goes around.
The aftermath of a global meltdown is increasing crime, faltering businesses, poverty, increase in prostitution, anti social activities, robbery, etc
So does that mean you should not save more considering you might lose your jobs. The answer is no. Its a common man's behaviour to safeguard his family based on the current crisis. However before retrencing or cutting expenses think about people who thrive on that business. Simply speaking one might shop in a Big Bazzar or DMart every month suddenly switches over to a local kirana. What happens is obvious as said above. In this the low income group gets affected bigtime and he can do anything to feed his family.
Let see whats the solution to this. From above you have understood that the starting point is lack of job security. So all the organizations have to promise their employees that they will not cut jobs. In a situtaion which demands job cut they may reduce a % of salaries but job will be secure atleast for the next two years. The organisation can save some costs by cutting salaries of top management as everyone knows that 80% of salaries expenses goes for 20% of the people on top.This will bring some life to the economy and people will slowly start spending. This will not happen in a day but if everyone does it consiously things can stabilize as fast as a year or 6 months.
From a goverment perspective they should try to reduce taxes as much as they can to increase the spending ability of individuals and bring in more foreign investments to gain the confidence in the minds of the people. Talking about recession again and again will not help but working towards coming out of it helps. In such times the worst impacted is the comman man and the only person to get him out of it is he himself.
Its not a one man's job or a one thousand men job. It would require efforts from every person in this economy to contribute his part. This is possible only if this message goes across to everyone in India and the world.
Lets make a beginning and you can make a difference.....Times will change and we will be back from this black night to a bright sunshine if everyone makes the effort.
Posts
