|Type of paper:||Research paper|
|Categories:||Globalization Finance Microeconomics|
The Great Recession was an example of stagnation in economic growth that affected the United States and other global economies starting in December 2007. Although the definitions of recession have been altered based on the type of economic indicators that are used to define it, the Great Recession was characterized by the decline in per-capita global Gross Domestic Product. Furthermore, additional microeconomics indicators such as unemployment, trade, industrial production, and oil consumption were used to determine the impact of the Great Recession to the countries that were involved. The global economic downturn that devastated the financial markets and other commercial industries such as real estate and banking could be accused of causing a wide range of adverse effects on the economies that were involved. Among them is the drop in productivity even after it was over. Among the most considered explanations to the answer include slow adaptation to technology, cut on research and development, not to mention bailout to zombie companies.
Slow Adaptation to Technology
Slow adaptation to technology after the recession was among the reasons that were identified as the cause of the drop in productivity after the recession. In microeconomics, among the significant factors that impact the ability of an organization to maintain and increase its productivity is its ability to identify new ideas, concepts, and technologies that can be exploited. The introduction of advanced technologies that improve the productivity of an industry requires that the competitors in it to identify them and learn how to utilize them to their advantage (McConnell 196). After the Great Recession, many companies were still trying to recover from the losses that they had encountered during the recession. As a precaution regarding their expenditure, the industries cut down their spending and investment in new technologies.
In the discussion regarding the low productivity after the Great Recessions, different economic analysts had fronted arguments claiming that the slow productivity had been evident before the recession; therefore, its consistency after the recession had little to do with the failure to invest in new technology (Fleicher). In an article published in the American Economic Association Journal, titled "Why did productivity drop after the Great Recession?," Chris Fleisher, a researcher and author of the content, argues that although it is accurate productive was relatively low even before the Great Recession, research and analysts affirm that it was not noticeable (Fleicher). The supporters of the idea that the slow in productivity was obvious referenced the "bad luck" theory citing that the failure in growth would not have been asserted. Nevertheless, the most apparent reason was that the companies were already cash-strapped, leading to the cutting of budgets and the funds that would have been used in productivity-enhancing investments.
Cut on Research and Development
Similar to the industries and organizations today, industries after the Great Depression were focused on increasing their revenue margins through short term investments. Considering the lack of certainty of the economy growing, especially after the challenges that had been experienced during the depression, most companies were fearful about investing their capital and resources in research and development projects that they were not confident would materialize and realize the expected returns.
In micro-economics, the best way for organizations to maintain their margins of productivity even after crises such as recession is through the evaluation and elimination of investments that could result in the organization losing more money in the process. During the 2007 recessions, most of the organizations and industries that were affected had experienced the same challenged during the 2001 recession. The lessons that had been gathered in the previous downturn involved the caution in spending and cutting down of expenditure that had little guarantee of a return to investments.
Furthermore, the decision to cut down the investment in research and development was also influenced the availability of consumer and demand. The impact of the recession was not only felt by the big companies and the corporate sector of the economy. Instead, it affected all people leading to a lack of buying power and reduction of purchasing abilities of the consumers (Bunker). Following the observation that investing in new products through research and development would not help increase productivity as a result of low demands, the organizations chose to reserve their resources for investments that would help them recover and sustain their operations.
Bailout to Zombie Companies
The recession affected the productivity of almost all industries that were linked to financial institutions. Through the control of finances and resources, the banking and financial sector, the banking sector helped the companies to stay afloat and continue with their production activities even with the economic problems that were present during the period (Skene and Kidd 66). However, considering the severity of the recession, most of the companies were deep in debts without the ability to sustain the operation, let alone maintain their employees. These companies were referred to as zombie companies.
Zombie companies are described as uncompetitive companies that need bailouts to continue operating as a result of the lack of finance and accumulated debts. On other occasions, zombie companies are only able to clear their debts by paying interest on the debts. After the recession, a majority of the companies that had survived were deep in debts and could not manage to continue with production. The situation prompted a majority of them to seek bailouts resulting in a slower production rate. Moreover, the companies were not financially capable of investing a lot of resources to boost their productivity and investments (Hetzel 296). Based on the financial assessments and analyses that were made after the recession, the lack of financially stable organizations that could withstand harsh economic times, such as the downturn, were among the significant reasons why productivity was slow after the Great Recession.
Cutting of research and development, bailing out of zombie companies and slow adaptation of new technologies are among the significant reasons explaining the stagnant productivity that was witnessed after the Great Recession of 2007. Although these points present solid arguments that help solve the problem of slow growth, there are other opposing opinions as to the reasons that led to slow productivity. Among the most frequent arguments is that slow productivity after the recession was a regular cycle and temporary occurrence that was bound to be experienced in any economy. The proponents of the idea further argue that as a result of the commonness of the case of slow production, the industries were only expected to adapt and wait for the economic changes that would favor faster productivity. The consideration of the opposing opinions regarding the main topic of this discussion affirms the observation that productivity is one of the most crucial issues of economics. Yet, the least understood. However, it is vital for the concepts of microeconomics, especially regarding productivity, to be utilized when dealing with challenges such as slow productivity and recession in the economy.
Bunker, Nick. "Did the Great Recession Reduce U.S. Productivity Growth?" Equitable Growth, Equitable Growth, 24 Apr. 2018, equitablegrowth.org/did-the-great-recession-reduce-u-s-productivity-growth/.
Fleicher, Chris. "Why Did Productivity Drop After the Great Recession?" American Economic Association, American Economic Association, 12 Aug. 2019, www.aeaweb.org/research/endogenous-technology-adoption-productivity-decline-great-recession.
Hetzel, Robert L. The Great Recession: Market Failure Or Policy Failure? Cambridge UP, 2012.
McConnell, Campbell. Microeconomics. McGraw-Hill Higher Education, 2014.
Skene, Leigh, and Melissa Kidd. Surviving the Debt Storm: Getting capitalism back on track. Profile Books, 2013.
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