Analysis the Current Economic Crisis - Term Paper Example

Topic: How the current economic crisis is more like the economic upheavals of the late 19th century industrial revolution, rather than the great depression. The Civil war and the period of Reconstruction was arguably the most turbulent period and triggered a number of changes that conclusively shaped the American society. Symbols of uncertainty like slavery, national supremacy and national supremacy were demolished and a period of uncertainty and chaos that had gripped USA for more than 80 years was decisively put to rest. (Introduction, n.d.) However, the end of the civil war did not result in a stable society. As a matter of fact, it marked the initiation of a new kind of change in the society. However, this change was caused by a combination of three powerful factors: i) Industrial revolution, ii) Urbanization and growth of cities, and iii) Immigration. i) Industrial revolution: America had been the epicenter of scientific and engineering innovation throughout the 20 century. While the Civil War triggered off the entrepreneurial spirit in America and witnessed technological and scientific advancement in the 20th century, the period of five decades after the Civil War witnessed a virtual explosion of industrial growth. Additionally, the scale of the war convinced people about the viability of developing organizations of national scale. This belief, coupled with the industrial growth, led to the development of gigantic business organizations. This period also witnessed the growth of nationwide transportation systems, like transnational railway lines and steamships and communication systems, like telephone and telegraph networks. These developments transformed the American economy from a loose collection of city/state based economy to a truly unified and synchronized economy. This unification led to a period of robust growth of the economy and drove the consumption of the society. (Kornblith G.J., 2004) ii) Urbanization: As discussed before, America in the pre-civil war era was essentially a loose collection of local economies. Agricultural was the most important employment generating sector and local communities were more or less self dependent. However, agriculture, due to its inherent dependence on nature, offered an uncertain and often underpaid economic system. The advent of the Industrial revolution led to explosive growth in demand for skilled as well as unskilled laborers. Unlike agriculture, an industrial job offered more stability and sometimes, higher wages. This led to a massive flow of labor from agriculture to the industrial sector. This internal migration led to the rapid growth of existing cities and development of new cities. This massive urbanization led to the evolution of an entirely different kind of society - a society that had a relatively stable income and surplus cash, but was totally dependent on the larger economy for its basic needs. iii) Immigration: The growth of America in the late 19th century and also the surging demand for more skilled and unskilled labors led to the huge immigration of immigrants from Europe and Asia. These three factors led to the spike in demand and changed the very fundamental dynamics of the business environment. For the first time in history, there was ample capital available to drive technological development and build organizations to leverage those innovations. Availability of cheaper and faster transportation and communication facilities allowed companies to grow vertically and also source raw material and human resources required for that kind of a scale. Visionaries like Andrew Carnegie and John. D. Rockefeller utilized these situations to build up large corporations like United States Steel and Standard Oil. The world economy in general and the American economy in particular witnessed equally strong forces in the late twentieth century. Post the Great Depression and the World War II era, the US economy witnessed a steady growth during the 1950s and 1960s. However, rising oil prices and high competition from Asian companies forced the US economy into stagnation during the 1970s. From 1980s onwards, the US economy was rejuvenated by two strong forces. These forces were strong enough to bring in tectonic changes in the world economic order. The two major forces that changed the way the world does business were i) Information technology and the internet. The IT revolution brought about major changes in the dynamics of day to day business. It brought along with it a new level of efficiency in the corporate world. While the entire world was basking in the glory of increased efficiency and productivity, few did actually spare a thought about the nuances of technology. Soon there was a bubble formation and its consequent burst followed by an economic slump down. (Greenwood J., n.d.) ii) Globalization of Asian countries. Globalisation brought the Asian countries to the forefront. These Asian economies inspite of having rich resources could not exploit them to their fullest capacity. With opening up of economies world wide and removing restrictions on trade, Asian countries suddenly emerged from the ashes and posed a threat to the developed and first world countries. A common thread that connects 18th century business leaders like Carnegie and Rockefeller with 21st century leaders like Warren Buffet and Bill gates is the fact that they adapted to the changes business forces and built organizations around the changing needs. In the case of the 19th century business leaders like Carnegie and Rockefeller, they built up organizations that fed the then perpetually hungry US economy with primary resources like fuel and steel. Similarly, Bill Gates developed the operating system that initiated the phenomenon called personal computing. From almost a non-existent market, the personal computing segment has gone on to become a multi-billion dollar industry. In case of Wal-Mart, it leveraged the manufacturing backyard of the World, China, and Information technology to offer products of daily consumption at unbelievably low prices. Stock market manipulations have a major role to play in determining the economic condition of an economy. During the period of Great Depression there were massive bank failures accompanied by stock market crash similar to what happened in the recent past. Stock price manipulation is inherent in the US economy. Manipulation occurs in multiple ways and uncontrolled or unrestrained manipulation can result in causing severe damage to the economy. Influencing the stock prices through creative accounting and earnings manipulation has been exemplified by big named like Enron. Whenever there have been disturbances in the economy, the first warning signs are given out by the stock market. Huge rise in the stock indices is inevitably followed by a slump. (Agarwal R.K. & Wu G.,, March 2003) References: Agarwal R.K. & Wu G., (March 2003), Stock Market Manipulation - Theory and Evidence, retrieved February 5, 2009, from http://www.afajof.org/pdfs/2004program/UPDF/P306_Asset_Pricing.pdf Greenwood J., (No Date), The Third Industrial Revolution: Technology, Productivity, and Income Inequality, retrieved February 5, 2009, from http://www.econ.rochester.edu/Faculty/GreenwoodPapers/third.pdf Introduction, (No Date), retrieved February 5, 2009, from http://ericir.syr.edu/Virtual/Lessons/crossroads/sec2/Intro.html#DEMOCRACY Kornblith G.J., (2004), The Industrial Revolution in America, Oberlin College, retrieved February 5, 2009, from http://www.oberlin.edu/history/GJK/H258S2004/ Read More