Depression 2008: Difficult Times Lie Ahead
Depression 2008: Difficult Times Lie Ahead
INTRODUCTION
Whatever the geography, the travelling path, the process and the story of the depression 2008 may be, we should not hesitate to accept now that it has so far become a problem not only of the developed economies but of the whole world. Moreover, similarly as during the period of the great depression of early thirties, the steps being taken so far to curb the eroding effect of the present depression 2008 are not being proved successful. Interest rates along with other rates such as CRR, REPO rate, SLR etc. are being lowered. Depression stricken banks, financial companies, service companies and manufacturing industrial units are being helped survive by large bailouts. All the same, almost every morning a new company knocks crying for help. The monster of depression is going on advancing on its path to erode employment and income of the world economies, one after another. It implies that the measures taken to fight the depression are either insufficient or incompatible. I think that not sufficiency but compatibility of the measures is rather questionable.
SIGNIFICANCE OF BAILOUTS TO HELP COMPANIES
The so far made bailouts are not making dent on the root causes of depression. These bailouts, instead of making good the gap between supply and demand, are but preserving profits of the employers. But, the profits of employers have come down on account of deficiency in effective demand and financial help through bailouts can not increase demand since ‘Marginal Propensity to Consume’ (MPC) of employers community (the high income group) is almost zero. Therefore, the preservation of profits through bailouts is a time being remedy to provide relief to employers since the root causes of the depression remain unaffected by such bailouts. That is why the way of extenuating depression through such bailouts can not be taken as a compatible technique to fight depression.
FUTURE PROSPECTS
The bailouts and other remedies seem to make insignificant dent on the rampant depressive trend throughout the world. The reason is that all the governments are giving emphasis on the incompatible technique of profit preserving bailouts whereby the other compatible techniques are being either totally ignored or used inadequately. Therefore, the response of overall treatment is unable to check spreading of the depression. Moreover, as per the versions so far coming from the governments of depression stricken countries the strategy mainly based on the bailouts to combat the prevailing depression seems not to experience any significant change in the near future. Therefore, the situation is liable to worsen in the times ahead.
Mr. Juan Somavia, the Director General, ILO also holds, in the ILO report entitled the Global Wage Report 2008-09, that difficult times lie ahead for the world’s 1.5 billion wage earners. He further states “Slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of many workers, particularly the low-wage and poorer households. The middle classes will also be seriously affected.” The report warns that tensions are likely to intensify over wages. Based on the latest IMF growth figures, the ILO forecasts that the global growth in real wages will at best reach 1.1 per cent in 2009, compared to 1.7 per cent in 2008, but wages are expected to decline in a large number of countries, including major economies. Overall, wage growth in industrialized countries is expected to fall, from 0.8 per cent in 2008 to –0.5 per cent in 2009. The report shows that this bleak outlook follows a decade in which wages failed to advance in lockstep with economic growth.
According to the report, between 1995 and 2007, each additional one per cent in the annual growth of GDP per capita led to on average only a 0.75 per cent increase in the annual growth of wages. As a result, in almost three-quarters of countries worldwide the labour share in GDP has declined.
While inflation was low and the global economy grew at a four per cent annual rate between 2001 and 2007, growth in wages lagged behind, increasing by less than two per cent per year in half of the world’s countries.
There were wide regional differences. The growth in real wages was about one per cent per year or less in most developed and Latin American countries, but reached 10 per cent or more in China, Russia and a number of other transition countries. The report also shows that since 1995, inequality between the highest and lowest wages has increased in more than two-thirds of the countries. The inequality in growth rates of the highest and the lowest wages has considerably effected social equations too.
CONCLUSION
It may well be concluded from the ILO report that in the coming future tension may increase between companies and workers on account of the likely wage cut. However, the
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