Coping with the economic downturn: Strategic and organizational directions

Abstract

The US economy has suffered 10 recessions since the end of World War II. The Great Depression in the United States was an economic slowdown, from 1930 to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high poverty. The trade market was brought to a standstill, which consequently affected the world markets in the 1930s. Industries that suffered the most included agriculture, mining, and logging. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent in 1937 to 19.0 per cent in 1938. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade. This was followed by Black Monday in October 1987, when a stock market collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans. The early 1990s saw a collapse of junk bonds and a financial crisis. The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record. From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91 recessions, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000. The dot-com burst hit the US economy and many developing countries as well. The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed. The latest recession that we see is very different from the ones that are described above. Beginning in the late 2000s (December 2007 in the United States according to the National Bureau of Economic Research)—and with much greater intensity since September 2008—the industrialized world has been undergoing a recession, a pronounced deceleration of economic activity. This global recession has been taking place in a economic environment characterized by various imbalances and was sparked by the outbreak of the financial crisis of 2007–2009. Although the late-2000s recession has at times been referred to as "the Great Recession," this same phrase has been used to refer to every recession of the several preceding decades. The financial crisis has been linked to reckless and unsustainable lending practices resulting from the deregulation and securitization of real estate mortgages in the United States. The US mortgagebacked securities, which had risks that were hard to assess, were marketed around the world. more broad based credit boom fed a global speculative bubble in real estate and equities, which served to reinforce the risky lending practices. The precarious financial situation was made more difficult by a sharp increase in oil and food prices. The emergence of Sub-prime loan losses in 2007 began the crisis and exposed other risky loans and over-inflated asset prices. With loan losses mounting and the fall of Lehman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. As share and housing prices declined many large and well established investment and commercial banks in the United States and Europe suffered huge losses and even faced bankruptcy, resulting in massive public financial assistance. A global recession has resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices. In December 2008, the National Bureau of Economic Research (NBER) declared that the United States had been in recession since December 2007.Several economists have predicted that recovery may not appear until 2011 and that the recession will be the worst since the Great Depression of the 1930s.The conditions leading up to the crisis, characterised by an exorbitant rise in asset prices and associated boom in economic demand, are considered a result of the extended period of easily available credit, inadequate regulation and oversight, or increasing inequality. Fiscal and monetary policies have been significantly eased to stem the recession and financial risks. While this has renewed interest in Keynesian economic ideas, the recent policy consensus is for the stimulus to be withdrawn as soon as the economies recover to "chart a path to sustainable growth". The biggest problem that this recession has brought with itself is the fact that there were many job losses across the sectors and this impact was very severe.