International conference

On
Global financial crisis and its impact

January 22nd, 2010

Fatima college, Madurai.

Global recession and its impact –

Corporate contribution

-Global financial crisis

Human need to corporate greed

Yaadhav Dheepan.C,
Bala Murugan. J
Final year under graduation in Economics
The American College, Madurai. 2

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 Global financial crisis
Human need to corporate greed

CONTENTS:

Introduction

Evolution of human need to corporate

greed
Industrial revolution-
The blessing and the
curse

How corporate greed paved way to

crisis?

The vicious cycle

Impact of financial crisis in India

What is the way out?

-Shift from huge profit to steady

profit

Conclusion.

Cambridge Advanced Learners Dictionary defines the term “Crisis” as:

- a situation that has reached an extremely difficult or dangerous point; a
time of great disagreement, uncertainty or suffering”
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Introduction
Thanks to Global financial crisis, we, the economists are much sought after.
The world looks towards us to find a way out of the mess.
Like a sick person seeking the advice of a doctor, now crisis hit nations are seeking the advice of
economists for cure.
We are to carry the cross of diagnosing the sickness and suggest remedial measures.
For a clear diagnosis we have to identify the root cause of the problem and have an
understanding of the background of the patient also.
This paper argues that human need has changed into corporate greed which in turn led to global
financial crisis.

Evolution of human need to corporate greed:

To find the root cause we have to look into the past.

In olden days life was simple. Human race were leading the life as barbarians; they hunted and
survived. As time passed, he formed small communities and social living evolved. Societal living
and security concerns made him to invent and improvise the tools and equipments. Man invented
fire, wheels and so on. Agriculture, pottery, weaponry and the like were continuously developed.
Man started meeting other groups. War in fear and trade in need developed. They exchanged the
produced goods among themselves known as barter system. Later instead of exchanging goods,
money was introduced. With the introduction of money, human mind began to change from need
to greed. Unto this stage human race took nearly 4000 years to evolve.

Before industrial revolution, till 16th century, five major activities were carried on by the people.
They are
1) Extraction,

2) Production,

3) Distribution,

4) Consumption, and
5) Disposal.

Governments collected taxes; with the tax money collected, they spent for civic amenities, to
maintain law and order in local administration, to run armies for protection from external threats,
and for other administrative expenses. They also encouraged and increased trade among nations.
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Cross border trade flourished.

Industrial Revolution - the blessing and the curse.

In 18th century came the industrial revolution which completely altered the mindset of the people.
With this industrial revolution, companies and corporations evolved. Money became the driving
force.

After industrial revolution, corporate companies began to dominate the world of trade, and,
slowly, the whole world. A very good example is East India Company which earned more for the
British government.

The shift from need to greed started happening with the industrial revolution. Effects of
industrial revolution can clearly explain this concept.

Effects of industrial revolution:

• Imperialism and colonization gained importance.

• Few nations dominated the whole world and exploited the other world for their luxury
living.

• Growth became primary issue and Sustainable Living was forgotten.

• Overtaking the commodity, money became important in trade.

• Corporations started controlling governments.

• People were considered only as consumers.

After revolution in technology this effects were taken over to the whole world in the name of
Globalization.

By seeing the western development, rest of the world started to imitate them blindly. Even
ancient economies blindly followed the recently developed economies.

How corporate greed paved the way for recession?

The dynamics of capitalism is for production to rise to meet demand–and then keep rising.
As demand is sated, capacity continues to grow because Capital is like a shark–it must move
forward or it dies, and it moves toward what was immensely profitable in the recent past.
But ironically, these massive rushes to the most profitable return guarantees overbuilding and
over capacity.

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The Vicious Cycle
• Demand

• Production

• Profit

• Over Production

• Demand sated

• Production surplus

• Profits down or wiped out

• Recession and the Crisis.

As Marx noted, supply soon overshoots demand and sales plummet, wiping out profits. The end
result is a move to monopoly capital, in which a handful of the strongest players squeeze out or
buy out all the weaker players who fold as the return on capital goes negative (losses). This cycle
of boom and bust is inherent to Capitalism and Marx expected them to steadily become ever
more extreme.

But capitalism “solved” this cycle of overcapacity and crashing demand/income/profits by

turning to new overseas markets.
This is where the blessing became a curse.
Those with a military-backed Empire (for instance, Great Britain) could simply force new
markets for domestic goods into existence overseas.
Those former colonies where foreign capital dominated the productive capacity and commodity
extraction are in essence still exploited colonies.

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With these mechanisms in mind, we can see that the advanced economies have attempted to
‘Save Capitalism’ by colonizing UD nations for production and their own domestic population
for forced consumption.
• Recession and the Crisis.

• Search for new markets. (Globalization) (Export or Perish)

• Satisfy demand, if not, create demand.

• Induce weak countries and communities with the help of

media to spend more. Give Credit to buy and spend.

• UDs fall in Debt Trap.

• Global Recession and the Crisis.

Now that game has expired as the advanced-economy consumers finally reached the limits of
their ability to service their rapidly expanding debts. Even the U.S. government’s massive
meddling and the printing/borrowing of trillions of dollars is not re-inflating the real estate
bubble, and thus there is no collateral left to support the limitless credit global capital now
requires for growth. Advanced Capitalism is thus facing a crisis of unprecedented scale and
scope: the globalization/colonization “escape” from overcapacity has come to a dead end.

Impact of financial crisis in India.

As mentioned earlier, in the recent past, ancient economies like India also blindly started to
follow the new economies.
As a result, the global financial crisis had its adverse effects on India too.
But the heartening factor is that the crisis has affected a few areas, but it has not altered the
personality of India.
It had an impact on merchandise exports and service exports. The decline in export growth may
sharply affect some segments of the Indian Economy that are export oriented. The slowdown in
the world economy has affected the garment industry. The orders for factories which are
dependent on exports, mainly to the U.S have come down following deferred buying by big
apparel brands.

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Rising unemployment and reduced spending by the Americans have forced some of the leading
brands in the U.S to close down their outlets, which in turn has affected the apparel industry here
in India. The U.S accounts for 55 per cent of all global apparel imports (Bageshree and Srivatsa
2008). The global recession will undermine other major export sectors of the Indian economy
like sea foods, gems and jewellery.

Great savings habit among people, strong fundamentals, strong conservative and regulatory
regime have saved Indian economy from going out of gear, though significant parts of the
economy have slowed down and there is a wide variance of opinion about how long it will
continue. It is expected that growth will be moderate in India.

The important lesson that we must learn from the crisis is that we must be self-reliant.
The most important lesson to learn is that we should be cautious that “East India Company is not
given another Lease of Life”.

What is the way out?

After diagnosis, we can understand that industrial revolution is the root cause for the crisis. We
do not say that industrial revolution is bad. All good things and developments around us
happened only because of industry and technology. To meet the needs of 600 billion people’s
demand, the revolution was necessary. Then where do we fix the problem?

The problem arises because of the wrong use of the industrial and technological revolution, by
vested interests.

Corporate greed used these advantages of industrial revolution to earn huge profits. Few
thousand people’s greed was considered to be more important than thousand million people’s
need. People with primitive accumulated wealth got the advantage of this revolution and they
began to earn huge profits: yet they yearned for more and more profits.

But these MNCs failed to understand that if there is more and more accumulation of wealth, the
balloon is blown out of proportion, then at one point it will burst.
The only way out is to control its production.
Companies should change their ideology of huge profit to steady profit.

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It becomes necessary at this point to bring the working cycle
of the devastating greed of the MNCs:

• Extensive Extraction of resources,

• Over Production even after demand sated,

• Distribution as dumping of goods,

• Forced consumption through giving loans, advertisements, and,

• Disposal of waste affecting environment

Conclusion:
• It is inferred that the corporate greed with bad intentions has caused the recession and the
crisis.
• It is the need that should drive the wheels of trade and commerce but not greed.
• It has been strongly contended that India has the resilience and wisdom to withstand this
sort of ill-effects caused by unthinking west.
• It is suggested that:
Production should be in the way that it should exactly meet the demand.
Government should regulate the production.
Companies should have economic advisors as part of the company.
Corporate should give up the ideology of huge profit and should look forward for Steady profit.
Huge profit is an illusion and steady profit is the real fruit


BIBLIOGRAPHY

• From http://www.euromonitor.com.

• Article from /www.bearmarketinvestments.com titled Globalization and China:

Neoliberal Capitalism’s Last "Fix" dated June 29, 2009.

• Bageshree S, Srivatsa S Sharat 2008. Global slowdown hits Garment Industry.

The Hindu, Daily, October 27, 2008

• Article from Times of India titled’ Revolution we missed’ by Gurcharan Das

dated 18 April 2004 Book on Economic Reforms since 1991.

• Article On Deccan chronicle News Journal on Saturday June 27, 2009 titled
India beats recession with 6.7% growth.

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• Data regarding western exports from www.storyofstuff.com “ facts from the
story of stuff” by Annie.

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