Economic and Trade Growth of Indonesia

Introduction-

Indonesia is an emerging economy that has the 4th largest population and the sixteenth largest economy which is the largest in the South-East Asian region. It has strong growth but is stained by its history of poor governance of economic policies surrounding development and growth of the economy. This poor governance has caused the economy to be volatile and lose investor confidence.

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Indonesia has a optimistic goal of joining the ranks of the top 10 world’s economies and being classified as a ‘developed economy’. Indonesia will not make this goal if it continues to operate in the way it does, but if Indonesia is governed very well with sound economic policy surrounding their downfalls it should be able to take advantage of its growing region, large domestic market and large low pay workforce to reach its goal.

Economic Growth-

Previously Indonesia was considered a developing economy but now with it’s recent industrialisation and integration into the world economy complemented by its strong growth and prospects is now considered an emerging economy.  Since 1980 Indonesia has growth at an average rate of over 5%, although it is not as quick as some of it’s East Asian neighbours it still places Indonesia well above most of the Economies in the world. In 2011 the government of Indonesia set goals of becoming one of the world’s 10 largest economies by 2025, to achieve this Indonesia would have to rise its annual growth by 2%. If this is achieved Indonesia would be among the world’s greatest emerging economies known as the BRIC economies.

International and regional business cycle has had extreme impacts on the Indonesian economy. For example, during the rise of global oil prices most economies experienced downturn, but Indonesia had an acceleration of growth due to its major oil exporting industry. This was upturned in the 1980’s with the oil prices pushed down by over supply and with them the growth rates of the Indonesia’s economy. The greatest impact of the International business cycle in Indonesia was shown in the 1997 Asian Financial Crisis which saw the in Indonesian economy contract by 13% in one year.

Due to the affects of globalisation Indonesia’s inflation rate has been very volatile because increases in fuel prices(2005,2013) and increases in food prices(2008). Inflation rates are expected to remain stable in the foreseeable future due to stagnant growth reducing demand pressures.

GDP of 1.016 trillion USD

GDP per capita 3,846.86 USD

GDP graph

Source: World Bank

Income distribution

– Globalisation has boosted economic growth and income per capita. This has led to millions of people being brought out of poverty and a higher amount of disposable income with a wealthier middle class which can boost domestic markets due to higher domestic demand. However since globalisation income distribution has been becoming more unequal, this can be seen by the shift of the Gini coefficient from 0.3 in 1990 to 0.4 in 2016. This rapid shift to inequality is due to a range of reasons, some of which is due to entrepreneur’s being able to take advantage of new markets, and new technologies in today’s globalised economy.

-Rich getting richer: As Indonesia integrated into the world Economy it’s businesses gained access to massive markets, this allowed for Indonesia’s best entrepreneurs to make billions which benefited everyone through economic growth, investment in domestic manufacturing and domestic employment but the income from employment was nothing in comparison to the billions given to entrepreneur’s. And after the creation of these corporations as the world’s population grew and the world reduced it’s trade restrictions these tycoons gained immense wealth further creating the divide between wealth. A recent report found that 1% of Indonesia’s population owned 49.3% of the country’s wealth.

-New skills demanded: As the world has become more dynamic and globalised it has become more reliant on new technologies to access remote markets, conduct research and create efficient and cost effective products. This leads to a structural change in the demand of the type labour to higher skill. Due to the rich having better access to education they are more likely to be able to work in these high skill, high demand jobs they will usually gain more pay and work than lower income families. This leads to further income disparity. This is shown in Indonesia’s structural change from agricultural employment to services in the globalisation period.

 

 

Quality of life

-GNI per capita is US$10,355, it is still behind 115 other countries in terms of living standards.

 

 

-The World Bank classifies Indonesia as a lower-middle-income country, suffers from a relatively high incidence of poverty, low economic development and Poor performance of other key indicators.

As Indonesia became more integrated into the world economy their quality of life has been significantly impacted, these impacts can be displayed by analysing the relationship of key indicators of quality of life with the growth of their economy as the economy became more globalised.

This first example shows the positive impacts of integration on quality of life as you can see through the relationship of the economies GDP growth and the growth of Indonesia’s HDI. Between 1990 and now the Economy has become more globalised growing its economy and consequently so does its HDI.

Indonesia’s GDP Source: World bank

                                                                                                                             Indonesia’s HDI Source: UNDP

My second example shows the negative impacts of becoming more globally integrated. Recently the overall unemployment rate has been improving(5%), however integration into the world economy has seen high volatility in unemployment due to their volatile globalised economy this is shown in the spike of unemployment following the massive 13% contraction of the Indonesia’s economy due to the Asian Financial Crisis.

Unemployment Indonesia

Indonesian GDP

 

 

Source: World Bank

 

Trade

The Indonesian Economy is less integrated into international trade than the average East Asian economies, therefore trade is less important for their economy. This means that Indonesia has fewer cyclical impacts through trade linkages. However, Indonesia is most closely integrated at a regional level, which is why the AFC had such a large impact on the Indonesian Economy.

Indonesia’s trade (% of GDP)

Trade in goods and services-

Liberalisation of trade has allowed Indonesia to access global markets which has led to stronger economic growth. Exports have grown substantially since the beginning of Indonesia’s global economic integration in 1985 peaking around 50% before the GFC, which had now significantly dropped recently due to protectionist measures, appreciation of Indonesian currency and poor commodity export performance. Another reason for weak trade performance is due to limited finance access, poor infrastructure, complex regulations and increased trade barriers, Indonesia’s manufacturing sector is not competitive in comparison to similar economies.

Trade Agreements-

As Indonesia has become more integrated with the world economy, they have participated in global, regional and bilateral trade agreements. This has allowed Indonesia to increase economic growth through mutual benefit agreements. One such agreement is the Association of South-East Asian Nations (ASEAN). This agreement which includes 10-member nations uses a Common Effective Preferential Tariff scheme which reduces tariffs between ASEAN nations by 5%. This was made in an attempt to make a single market of 600 million people with free flowing goods, capital and labour. This agreement shows how globalisation, through trade agreements, has allowed Indonesia to expand its’ market access immensely.

Structural Change-

To integrate into the global economy Indonesia had to remove trade barriers to allow for foreign trade and investment. This meant that the highly protected Indonesia in the 1980’s underwent massive change. Between 1987 and 1995 manufacturing tariffs were reduced from 86% to 24% and agricultural tariffs were reduced from 24% to 12%. The country continued to pursue trade liberalisation which has allowed it to thrive in an increasingly globalised economy. However due to this pursuit of global trade integration Indonesia’s agriculture sectors have fallen in importance due to their inability to compete well in a global economy. This has led to a structural change of Indonesia’s economy (as well as new technologies) away from agriculture to towards manufacturing and services.

Investment

A lacking domestic private investment in Indonesia means that Indonesia’s gains substantial benefits from integration into the global economy through foreign direct investment (FDI). FDI had been increasing and was USD32Bn in 2017, but this year have dropped significantly forecasted at USD12bn this year. These inflows are significantly lower than similar economies which is due to inconsistent and poor government policy.

During the AFC Indonesia’s central bank was unable to stabilise their currency, resulting in Indonesia letting it float freely, this caused the rupiah to suffer massive depreciation causing massive disturbance in financial markets and the economy.

Environmental Sustainability

The industrialisation and globalisation of the Indonesian economy has had an adverse effect on the environment. In the past decade and a half Indonesian forests fell by 15% due to logging and land clearing, water and air pollution has increased significantly. This is in part due to the massive increase of demand for natural resources such as coal or wood to continue servicing and supplying the world market. As you can see in this graph at the beginning of Indonesia’s integration into the world economy their Co2 emissions have increased as their economy gained the demand for natural recourses due to the increased stress on production industries.

Indonesia Co2 emissions per capita

Source: World Bank

Due to Indonesia being a cluster of islands coastal inundation and extreme weather events which are side affects of climate change will significantly affect them. So as the world continues to globalise and industrialise the world will produce more emissions. Thus if more environmentally changes are not made Indonesia will have to face terrible impacts from climate change.

Strategies for economic growth/development

Indonesian economic policy has been evolving since the beginning of globalisation in the 80’s Recently they have been attempting to, according to Indonesia’s 2017 growth strategy ‘promote growth and enhance people’s welfare supported by sustainable growth, resilient economic sector, inclusive economic development, and macroeconomic and financial stability. The Government remains committed to continuing structural reforms and accelerating infrastructure development to achieve these objectives’

-response to globalisation policies:

To create economic growth Indonesia’s government orientated their investment from import substitution to export manufacturing in the 1980’s. This has allowed Indonesia to increase its access to the globalising world hence increase access to investment and trade.

During this time Indonesia had also commenced a series of trade deregulations to increase competitiveness of their domestic producers against their global competitors.

Another focus by the Indonesian government in recent decades is the liberalisation of financial markets, beginning by shifting from a fixed exchange rate to a managed in 1978. The rupiah(Indonesia’s currency) was devalued in the 1980s to improve the competitiveness of domestic producers. This managed float backfired in the AFC due to the inability to control the currency during the crisis. This led to a massive depreciation causing extensive disturbance to financial markets and the economy.

-Recent growth policies:

Former President Yudhoyono presented a 15-year plan in 2011 that was designed to boost economic growth from an average of 6% to 8%, through the investment into infrastructure and education. This plan concentrated on developing economic corridors and development of export markets.

Later with the election of President Joko Widodo in 2014 the plan’s priorities shifted. Widodo government has mostly made minor changes to make businesses easier to run. Due to this Indonesia is struggling to maintain growth of 5% much less than Yudhoyono’s plan of 8%.

-Economic Development:

In order to further integrate with the global economy and have a say in global matters Indonesia has joined the UN. Due to joining the UN Indonesia along with all UN members had agreed on a plan to work together to meet the needs of the world’s poorest which was named 8 Millennium Development Goals (MDGs).

Source:UNDP

Indonesia failed to meet the MDGs target by 2015 but made serious advances in most areas The Indonesian government is still planning on completing these goals and is building on the progress of MDG’s.

Examples of Development policies:

-Environmental sustainability

Indonesia pledged to reduce emission by 29% by 2030 but is track to reduce emissions by just 19%. This average attempt at emissions reduction is due to a dependence on fossil fuels and deforestation. Indonesia is attempting to reduce emissions through the increase the supply of renewable energy through geothermal and hydropower. USD200m was used to fund geothermal generators.

-Education

Existing education policies are poor at best. The Indonesian government widened its Program Indonesia Pintar (PIP) policy which provided subsidies for poor children. But PIP fails to account for the increase in cost’s for secondary education, causing high dropout rates.

-Recent Anti-Globalisation:

Recently policies seem to be opposing integration with the global economy, through restrictions on investments and local content rules. These policies are created to boost domestic development but will weaken their economy overall and lower foreign investment confidence.

Conclusion

Indonesia is a showcase for taking advantage of Global and regional integration through trade, finance and investment liberalisation delivering massive economic growth and development. However, it is also a showcase for the extensive damage an economy can receive if their economic policies are not properly assembled.

In conclusion Indonesia has achieved strong growth but is faced with various challenges that it must plan for through well prepared financial and government institutions to create policies to boost the economy through Indonesia’s downfall’s such as infrastructure and education. This will create stronger economic growth and stability maintaining investor confidence and maintaining the recourses to help with economic development such as poverty and environmental sustainability. Whether Indonesia can make strides in these areas will decide on whether it can succeed in joining the worlds 10 leading economies by 2025

BIBLIOGRAPHY

All the information I gained came from these resources:

Child labour defined as economic exploitation

CHILD LABOUR
Child labour is unacceptable in developed countries for its negative impact and should be discouraged in every society. Child labour can be defined as economic exploitation and performing any work that is likely to be dangerous or hinder the child’s education, and harmful to the child’s health.
Children under labour are denied their educational right and a normal childhood. Some children are restricted and beaten; some are denied freedom of movement that is, the right for them to leave the workplace and join their families while some are abducted and forced to work.
Child labour deprives children of their childhood and their dignity. Many of the children in every society today work long hours for low or no wage, often under the conditions harmful to their health, physical and mental development. They are also deprived of an education and they may be separated from families. In my interview with Dr Quaye, a faculty member in American University of Nigeria, he stated that “Children who do not complete their primary education are likely to remain illiterate and never acquire the skills needed to get a job and contribute to the development of the current economy”. It was stated by United Nations Secretary – General Kofi, Annan that “Child labour has serious consequences that stay with the individual and with society for longer than the years of childhood”. Young workers not only face dangerous working conditions but they also face long-term physical, intellectual and emotional stress. They face an adulthood of unemployment and illiteracy.

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Furthermore, child labour occurs because of the high level of poverty and lack of development. For example, there were these two kids in my own town Benin, Osagie and Uwa. Their parents were very poor and had no jobs, because of the level of hardship their parents were facing; these kids were forced to work in a block industry for there were no other alternative than sending their kids to work. At the workplace these kids were tortured by their employers’. They were beaten anytime they made a little mistake and they were given heavy load of blocks to carry. This over a long period of time stunted their growth.
More also, there was a case of an abused eighteen year old girl in Casablanca. She narrates her story
I started working when I was fourteen, my mother died when I was twelve. I lived with my father’s wife. We needed money so I went to work. It was me and my half sister, who is now eight years old. My father’s wife works now [that I don’t work anymore], but I haven’t seen her for a year. A neighbor found me the job. I wanted to commit suicide, but then I thought, “No one will miss me.” So I went to the neighbor and she found me work in Casablanca. We were very poor and I didn’t see a way out. The work was prostitution, and I thought that killing myself would be better morally than dying of AIDS from prostitution but I had no choice, I have to do it. (Human Rights watch 2005).
Therefore, child labour is a source of income for poor families. A study conducted by the international labour organization (ILO) agent of statistics found that “children’s work was considered essential to maintaining the economics level of households, either in the form of work for wages, of help in household enterprises or of household tasks in order to free adult household members for economics activity elsewhere” (Mehra – Kerpelman 1996, pg 8). In some cases, the study found that a child’s income accounted for was 34 to 37 percent of the total household income.
The study concludes by pointing to the population of people living in India “the percentage of the population of India living in poverty is high. In 1990, 37% of the urban population and 39% of the rural population were living in poverty” (International labour organization 1995, 107). Poverty has an obvious relation with child labour, and study have “revealed positive links in some case a strong one between child labour and such factors as poverty” (Mehra – Kerpelman 199, 8). Family that are poor need money to survive and their children are the only solution. They thought by sending their children to work, will yield more income to their financial aims.
In addition, child trafficking led to child labour. Receipt of a child for the purpose of sexual or labour exploitation, severe physical abuse, as in a case cited by Human Rights watch report, Contemporary form of slavery. Pakistan: July, 1995. Two year ago at the age of seven, Anwar started weaving carpets in a village in Pakistan’s province of sindh. He was given some food, little free time and no medical assistance. He was told repeatedly that he could not stop working until he earned enough money to pay an alleged family debt. He was never told who in his family had borrowed money or how much he had borrowed. Any time he made an error with his work, he was fined and the debt increased. Once when his work was considered to be too slow, he was beaten with stick. Once after a particularly painful beating, he tried to run away, only to be apprehended by the local police who forcibly returned him to the carpet looms.
More also, thousands of children are also bought and sold within and across national borders. They are trafficked for sexual exploitation, for begging, and for work on construction sites, plantations and into domestic work. The vulnerability of these children is even greater when they arrive in another country. Often they do not have contact with their families and are at mercy of their employer.
     For child labour to be totally eradicated these things must be fully met. Firstly, the government of every society should ensure that the needs of the poor are met before attacking child labour. If poverty is totally addressed, the need for child labour will diminish. No matter how hard the society try, child labour will always exist until the need for it is removed. The development of the society is being held back by child labour. Children are growing up as illiterates because they have been working all of their life and not attending school. Sequential rate of poverty is formed and the need for child labour is reborn after every generation. Every society that is affected by this act of child labour, need to address the situation by dealing with the primary cause of child labour through the governmental policies and the enforcement of these policies. Only then will the society succeed in the fight against child labour.
Secondly, government should try improving schooling and health care in general will help child labourers because if children are healthy and well educated, they will grow to up to help their society which will become a better place. For instance, making education compulsory and free will motivate most parents to send their children to schools, instead of engaging them in commercial jobs.
Finally, employers should not use child labour in ways that are socially unacceptable and that lead to a child losing his or her educational opportunities. The difficulty of the issue of child labour means that companies need to address the issue sensitively, and not take action which may force working children into more abusive forms of work.  

Monetary Policy and Economic Risk in India

Monetary Policy and Economic Risk in India 

Table of Contents

INTRODUCTION

RBI and Monetary policy

Quantitative tightening and repercussions for India

Operating in India – economic risks

How we can manage the risks? 


Tackling Transaction Exposure via Derivatives

Financial Hedging

Operational hedging

In summary

References

In this era, more and more Indian firms and businesses are globalizing their operations resulting in more imports and exports. In the course of engaging with international firms, most of the firms will trade with multiple currencies. Consequently, these firms are exposed to foreign exchange risks and uncertainties in their bottom line due to unpredictable fluctuations in the exchange rate (Bhaskaran & Priyan, 2015). This report will firstly address the likelihood of the Reserve Bank of India (RBI) in taking a quantitative tightening (QT) approach as of now. Based on India’s current state of economy as well as a current repo rate of 6.5% that the RBI continued to maintain, the central bank may tighten the repo rate in the future. In the event that QT is actually imposed, the economic hypothetical ramifications will be investigated. The types of economic risks that MNCs face will then be explored. Such risks include direct and indirect economic exposure which branches out to transaction, operating and translation exposure. This is followed by a discussion on how such risks can be mitigated to survive the threat of ever-changing exchange rates.

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The RBI sets it monetary policy based on its medium-term expectations of Consumer Price Index (CPI) rates (RBI, 2018A). It operates a inflation range targeting strategy, aiming to keep CPI rates at 4 percent with a band of +/- 2 percent. Prior to the RBI’s monetary policy meeting in October, the RBI’s Monetary Policy Committee (MPC) had consecutively increased the repo rate in the past two meetings by 25 basis points each time. This placed market expectations that the RBI would become more hawkish with its policy, and most believed that the repo rate to further rise by 25 basis points (The Economic Times, 2018; Allirajan, 2018; MINT, 2018). Some Indian banks even preemptively increased their interest rates (Nayak, 2018). Expectations were fueled by the roaring fuel prices (Allirajan, 2018) with prospects of reaching $100 per barrel (Daily News & Analysis, 2018).  The Rupee against the dollar was also plummeting, reaching new lows as the Fed continued to increase its funds rate (Gupta, 2018; Parekh, 2018).

Against market expectations, the RBI decided to maintain the repo rate at 6.50 percent. In this case, the RBI was less aggressive than expected. Though oil prices weighted the MPC’s decisions, the Indian government had provided some relief by slightly cutting prices (Free Press Journal, 2018), therefore was not as significant a factor as market participants had believed. However, the MPC changed its stance on monetary policy from neutral to “calibrated tightening” (RBI, 2018B). This stance signals that there will be no rate cuts anytime soon, and rate rises on the horizon (The Hindu Business Line, 2018). The aggressiveness of these rises will be dependent on the macroeconomic conditions that compose CPI in the medium-term. Main factors to watch out for include oil prices, the falling Rupee, the Indian government’s fixing minimum support prices at 150 percent, and global market volatility. Thus far, with these factors taken into consideration, CPI forecasts have been revised down from the August resolution (RBI, 2018B), suggesting prospects that moderate intensity in policy changes.  

In the case of quantitative tightening, theoretically, increased interest rates could attract foreign investment. It could lead onto an increase in demand for the rupee and subsequently the currency’s appreciation. This could also potentially assist the Indian government recover from its widening current account deficit. However, against the recent Fed interest rate hikes (Free Press Journal, 2018; Sinha, 2018), this strategy may prove to be ineffective stirring much market investors’ interest towards the rupee. It may be the RBI’s best interest to learn a lesson from fellow emerging economies (i.e. Turkey, Argentina and Indonesia) that have failed to resolve their currency’s depreciation via rate hikes (Parekh, 2018).

The current decline in the rupee may prove to be beneficial to the exports sector. Having lower costs comparatively to trade partners and competitors, Indian products may become more competitive in the global market. As it stands, imports are rapidly growing and are likely to offset potential export gains (Bhandari, 2018). If a rate hike does lead to the appreciation of the rupee, the balance of payments is only likely to worsen.

Moreover, quantitative tightening from the RBI is inappropriate given the liquidity stress that the Indian market is currently experiencing. There is trouble in India’s shadow banking industry. A further drain on the liquidity through rate hikes will do nothing to ease the pressures of the collapse of IL&FS (an Indian infrastructure development and finance company). The government has already had to bail out IL&FS (Shukla, 2018), and the RBI scheduled to take on open market operations to relieve the situation with 360 billion rupees (The Hindu Business Line, 2018; MINT, 2018). The current account deficit may be a pressing issue for the RBI and Indian Government. But if the liquidity situation worsens, the government bodies will be forced to intervene even more in the market, and thus further widen the account deficit.  A tightening of policy would also negate the support provided to borrowers via the relaxation in statutory liquidity requirements (The Hindu Business Line, 2018). 

Risks, in general, refer to the variation in business outcomes and performance to forecasts (Miller, 1992). Businesses that operate only in the domestic market face risks such as market risk, liquidity risk, and credit/default risk faced. On top of these common risks, businesses that operate on an international scale also face foreign exchange risk which comprises of operating exposure, transaction exposure and translation exposure (Eiteman, Stonehill, & Moffett, 2015). Companies are influenced by economic risks if the present value of its future cash flows are sensitive to changes in exchange rates (Marston, 2001). Companies that partake in globalised markets are susceptible to changes in the value of the domestic or foreign currency however the effects of economic exposure are not restricted to a particular industry (Marston, 2001). Since, this company operates in multiple countries, our overall exposure to fluctuating exchange rates is lessened.

There are two categories of economic risk known as direct economic exposure and indirect economic exposure (Eiteman et al., 2015). Direct economic exposure affects organisations if they are involved in foreign currency transactions or expecting to have foreign currency transactions in the future (Eiteman et al., 2015). Specifically known as transaction exposure it refers to the variability in a firm’s foreign currency denominated transactions due to exchange rate risk (Martin & Mauer, 2003). Given our company operates on a multinational scale, we are subject to changes in the repo rates that occur between the issuance and settlement dates of our transaction contracts (Martin & Mauer, 2003). Such movements can be either favourable or unfavourable. The potential increases in the repo rate, signalled by the RBI’s calibrated tightening stance, may increase the cost of our long-term borrowings. However, the RBI maintenance of the repo rate 6.50 percent till the next MPC bi-monthly meeting means that our current short-term borrowings (one to two months) will remain mostly unaffected.

Another direct risk affecting our transactions is the value of the rupee. The current depreciation of the Rupee makes our foreign account payables (or imports) more expensive and the increases the value of our foreign account receivables (or exports) (Bhakaran & Priyan, 2015).

On the other hand, indirect economic exposure occurs when a company’s competitiveness is affected by fluctuations in exchange rate (Eiteman et al., 2015). If comparatively, our costs are less than those of competitors because of lower exchange rate against trade partners, our competitive edge in the market strengthens. With the continuing surge in oil prices, Mishra & Debasish (2017) would conclude a continued downwards pressure on the rupee. This may be indicative of our potential to remain competitive by continuing operations in India. On the outlook, our sales margins should be relatively secure because of this competitive position.

In this section, a few risk management strategies are suggested. These strategies aim to reduce the company’s exposure to transaction exposure, operating exposure and translation exposure.

Tackling Transaction Exposure via Derivatives

Transaction exposure is one of the more observable forms of exchange rate risk. Hedging by using forwards, futures or option contracts allows us to offset the changes in value of an existing position and thus minimise, or eliminate, risk (Antoci, 2015).

Figure 1 NCF from hedged position versus unhedged position (Antoci, 2015)

This approach is favourable as it adds more certainty to expected cash flow increases the firm value. (Figure 1) It releases companies from cash constraints and saves agency costs. As can be seen in Figure 3, many other Indian MNCs adopt multiple hedging techniques as risk management strategies.  

Figure 2 Hedging techniques adopted by MNCs in India based on survey on 50 companies (source: Goel 2012)

Figure 3 Derivative used for hedging FX risk in India (source: Sivakumar & Sarkar, 2008)

Although hedging options are concentrated at forward contracts, it is evident that MNCs in India are utilising hedging activities to manage its transaction exposure. As per Figure 3, the most popular foreign currencies include USD, Euro and Pound as the major trading partners of firms operating in India. Forwards are more preferred by MNCs operating in India over futures due to its OTC nature, as they have the requisite bargaining power to negotiate with their counterparties to match their exposures (Sivakumar & Sarkar, 2008).

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Options are a more flexible alternative in the short-term hedging market. it is adopted by TCS to hedge its exposure to USD (Sivakumar & Sarkar, 2008). Because of its asymmetrical payoff regarding volatility, options grant TCS a profitable opportunity due to the high volatility of the exchange rate between USD and the Rupee. However, expensive upfront premiums may deter other MNCs from entering the option market. The implication entails that TCS may have a short planning horizons (Sivakumar & Sarkar, 2008).

Money market hedge may also be exploited as an alternative to forwards as it manifests in firms obtaining a loan agreement and a source of funds to fulfil their obligations under that contract (Goel, 2011). This approach depends more on the ‘differential interest rates’. (Goel, 2011, p 90) Recent fluctuations of the interest rates in the US, EU and India itself have added uncertainty to this approach, which makes forwards the most appropriate hedging technique. (Kim, 2011)

Swaps are also used by several car manufacture companies as long- term hedging strategies, it operates to rather hedge the firms’ operating exposure (Antoci, 2015).

OPERATING (ECONOMIC) EXPOSUREOperating exposure is harder to measure and the mitigating mechanisms depend on the operational structure of each firm. The ultimate goal in mitigating this risk is to maintain a balance between its profit margins and market share in cases of adverse exchange rate movements (Goel, 2012).

PASS-THROUGH The appreciation of Rupee is a downside risk for MNCs operating in India. It results in lower demand in both global and domestic markets for our products. If the firm is able to pass through the changes in the exchange rate onto customers, potentially demand can be sustained. However, our ability to pass-through the rise in value depends on the product’s elasticity of demand (Dumitrescu, 2009).

Financial Hedging

Table 1 Techniques used for hedging operating exposure by 95 MNCs in India (source: Goel 2012)

Figure 4 Pie chart for number of techniques used outlined in Table 1 (source: Goel 2012)

If firms can match up the currency of their cost and with the currency of their revenue, it can reduce their exposure to foreign rate changes. One method is to borrow foreign currency in Euromarkets (Prasad, 2016). Alternatively, it can be achieved by swaps, which is an agreement to exchange cash flows for an agreed period. The later method can be risky when RBI implements a tightening monetary policy, which increases the cost of borrowing domestically.

Operational hedging – FDI

Our firm will need to restructure its operations to manage its operating exposure. MNCs have the requisite resources to set up production lines in multiple foreign countries. Firms are therefore more flexible for production shifting as having their own offshore suppliers or subsidiaries. (Goel, 2012)

GCHL and Shima were Indian textile firms that mitigated its exposure to appreciation of Rupee by finding a cheaper source of cotton and shorting the output at a higher price in other countries (Bhaskaran & Priyan, 2015).

Suggestion:

Along with the QE in America, Trumps protectionism has hindered the growth of FDI in the US market. Therefore, its rival China can be an appropriate destination for FDI according to the OLI paradigm.

Owner-specific: Since our company operates on a multi-national level, it has competitive advantage such as economies of scale.

Location-specific: As China is the largest consumer of raw materials, it has developed a mature mechanism to hedge against their exposure in the market. Other factors including relatively cheap labour and a substantial domestic market confirms that China is a suitable destination for FDI. (Jethmalani, 2018)

Internationalisation: The potential issue lies with our firm obtaining control over the foreign investment. As China is an authoritarian republic, there may be heavy regulations imposed. However, as China loses a portion of its market share in the US, it is plausible for investment policies in China to turn in our favour.

Ultimately, MNCs including our company are victims to exchange rate fluctuations and therefore, it is crucial for firms to know how to hedge the foreign exchange exposure. Having analysed the current situation in India, the central banks are more likely to impose QT in the future than not, and economic repercussions will subsequently unravel. Monetary policy may be the root cause for some of the exposures that we face. Nevertheless, risks can be mitigated through implementation of risk management strategies.

Allirajan, M. (2018, October 5). RBI may rise rates by 25 bps. The Times of India. Retrieved from https://infoweb-newsbank-com.ezproxy.lib.monash.edu.au/resources/doc/nb/news/16EDA3B0C3B704F0?p=AWNB

Antoci, V. (2015, November 18). Managing Transaction Exposure in MNCs. Helsinki Metropolia University of Applied Sciences. Retrieved from https://www.theseus.fi/bitstream/handle/10024/104281/Vitalie%20Antoci%20-%20Transaction%20Exposure.pdf?sequence=1

Bhaskaran, P. B., & Priyan, P. K. (2015). Strategies of Indian firms in coping with forex risk management: an inquiry through case-research method. SDMIMD Journal of Management, 6(1), 13-23. Doi:  https://doi.org/10.18311/sdmimd/2015/3961Daily

News & Analysis (2018, October 4). Inverse growth of crude, rupee. Daily News & Analysis. Retrieved from https://infoweb-newsbank-com.ezproxy.lib.monash.edu.au/resources/doc/nb/news/16ED4D62C980B570?p=AWNB

Debasish, S.S. (2008). Foreign exchange risk management practices – a study in India scenario. BRAC University Journal, 5(2), 81-91. Retrieved from: http://dspace.bracu.ac.bd/xmlui/bitstream/handle/10361/447/Sathya.Swaroop.Debasish(2).pdf?sequence=1

Dumitrescu, D. (2009). Managing Transaction Exposure. Annales UniversitatisApulensis Series Oeconomica,1(1), 1st ser., 359-367. Retrieved October 8, 2018, from http://www.oeconomica.uab.ro/upload/lucrari/1120091/37.pdf

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Relationship Between Government and Economic Strategy

Rough Draft

A strong economic system is key for a striving country. An economic system is the structure of methods that are in society to produce and distribute goods and services. They are different types of economic systems in different countries around the world. The four main types of economic systems are Traditional economy, Mixed economy, Free Market economy, and a Centrally Planned economy. Each of these four types of economic systems have their own guidelines surrounding the production and distribution of goods. The four types of economic systems have their own ways to benefit a country.

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A Traditional economy is an economy that is based on traditions, customs, and beliefs. This economic system relies on hunting, agriculture, fishing, and gathering. You can usually find this system planted in third world countries. Africa, Asia, Latin America, and the Middle East is where you can usually find the Traditional economic system. Many economist say that all other economic systems have rooted from Traditional economic systems. Instead of currency, this system will have barter exchanges. Barter exchanges are simply the exchange of goods between two individuals. Some characteristics of the Traditional economic systems are that is heavily relies on hunting, agriculture, and gathering, barter replaces money, rarely a surplus, people often live in tribes, often nomadic due to hunting, and often people settle for farming so that they can set up a society. This type of economic system is good because everyone knows their roles in society. This means that a person knows whether to hunt, gather, or farm. Also, they know what they’re going to receive for their product. It is hard to destroy this type of economy because it is small. They use everything the produce and this makes them very sustainable. Traditional economies can be bad in certain ways. Weather can plan a big role in whether the system is beneficial or not. A drought can ruin an agriculture thus putting the system in jeopardy. Also, if an animal is scars, then people will lack the production of hunting. An example of this is the Buffalo Destruction. This was an event in which a lot of buffalo were killed by European settlers in upstate New York. This affected many Native Americans because they relied on the buffalo for many things. An example of a country which uses this is El Salvador. El Salvador is located in South America and relies heavily on agriculture. This country relies on trade of their food products. The littlest nation in Central America geologically, El Salvador has the fourth biggest economy in the locale. With the worldwide retreat, genuine GDP contracted in 2009 and monetary development has since stayed low, averaging under 2% from 2010 to 2014, however recouped to some degree in 2015-17 with a normal yearly development rate of 2.4%. Settlements represented roughly 18% of GDP in 2017 and were gotten by about 33% everything being equal. In 2006, El Salvador was the main nation to confirm the Dominican Republic-Central American Free Trade Agreement, which has reinforced the fare of prepared nourishments, sugar, and ethanol, and bolstered interest in the attire segment in the midst of expanded Asian rivalry.

A Mixed economy is a system based on the Market economy, Traditional economy, and Centrally Planned economy. A Mixed Economy has three of the accompanying attributes of a market economy. Initially, it secures private property. Second, it permits the Free Market and the laws of supply activity to decide costs. Third, it is driven by the inspiration of the personal responsibility of people. This allows the government to protect its people and the market. The government has a huge role in international trade, military, and national defense. The role of the government is partly controlled by the wants of its people. It lays down the plan for its economy. Governments can own important industries in the country and programs for the general wealth of people. Most Mixed economies hold qualities of a Traditional economy. Be that as it may, those conventions don’t direct how the economy capacities. The customs are ingrained to the point that the general population aren’t even mindful of them. Advantages of this is it distributes goods and services to where it is demanded. It also give the most efficient the best profit. It gives meaning to innovations because of the profit possibility. It consequently apportions funding to the most imaginative and proficient makers. They, thus, can put the capital in more organizations like them. An example of this in a country is the United States of America. The constitution will regulate business ensuring people’s rights in the market. This could be found in the “Article I, Section 8 protects innovation as property by establishing a copyright clause.Article I, Sections 9 and 10 protects free enterprise and freedom of choice by prohibiting states from taxing each other’s goods and services. Amendment IV protects private property and limits government powers by protecting people from unreasonable searches and seizures. Amendment V protects the ownership of private property. Amendment XIV prohibits the state from taking away property without due process of law. Amendments IX and X limit the government’s power to interfere in any rights not expressly outlined in the Constitution” (Constitution). The Preamble ensures “the general welfare” of all. This will create programs to make equalness in the quality of life. You can also look to the Anti- Sherman Act for government involvement. “Sec. 1. Every contract, combination in the form of trust or other-wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, at the discretion of the court.”(Anti-Sherman Act).

A Free Market economy is ran of the principal of no government interactions. In a Free Market consumers will voluntarily make exchanges in the market. A free market financial is more laissez faire which imply that there is no government intercession in the commercial center resembles a blended economy a free market has a round stream. In a factor advertise the family unit gives the physical stream which is work to the organizations and the organizations gives them cash. In an item advertise the organizations give them a physical stream which is an item the consumer purchases, at that point the family gives them cash for the item they brought. In a Free market maker can create anything they desire and as a lot of it as they want.in a free market individuals have impetuses. The free market additionally has personal responsibility in which makers can get their very own increases. They can make their very own costs to their loving. Rivalry is the thing that likewise makes the free market. focused powers the strain to maintain low costs in control to keep their shoppers. rivalry maintains business dynamic in control to keep the free market. in a free market you will see more business person are truly remunerate in making new innovation and crating new thoughts. favorable circumstances to a free market economy is that there is monetary proficiency. since the free market is kept running by the shoppers and automatic the market changes truly rapidly. makers supply the great and administrations requested by the shoppers and the purchasers get it at their own cost. another preferred standpoint is monetary opportunity, individuals work at whatever point they need. organizations creates anything they desire to deliver and no one can reveal to them how to run their organization. another favorable position is financial development. since there is so much rivalry going on it urges other to think of new plans to begin a business or put their business over the best. business people can develop in a free market because of its opportunity to make new thoughts. A hindrance of the free market is that there is no open merchandise. There is no open merchandise on the grounds that there is no administration to settle for instance a broken road light, or open transportation since no one of a higher power is going to intercede with a free market economy. Another burden to it is that it is just for the individuals who fit in. this means on the off chance that you weren’t profiting you can’t won’t have the capacity to get by in this sort of economy. This additionally prompts many individuals being jobless on the grounds that their range of abilities doesn’t coordinate the economy aptitudes set which is the reason numerous elderly individuals or individuals without an explicit calling will experience considerable difficulties endeavoring to finds a sensible activity. You can’t live in the economy in light of the fact that there is no welfare to enable you to endure or open lodging to keep you in a safe house. The administration can’t give instruction, open lodging, welfare checks, and social insurance in light of the fact that the market is running by the general population. Another burden is the free market economy coming up short. On the off chance that the free market starts to fizzle it can turn into another incredible discouragement. Another impediment is imposing business models. A firm can take all the power from the various firms prompting no opposition. They would run their opposition out of an organization and they will have the capacity to moving things in the higher moving cost as they wouldn’t care for. They would to pitch fundamentals to live at a greater expense since every other person is bankrupt. Without an administration in full power no one can truly stop any of these imposing business models. New Zealand is an example of this. In the course of recent years, the administration has changed New Zealand from an agrarian economy, subject to concessionary British market access, to a progressively industrialized, free market economy that can contend all inclusive. This dynamic development has helped genuine salaries, yet deserted some at the base of the step and widened and extended the mechanical abilities of the modern division. Per capita pay ascended for 10 successive years until the point when 2007 in buying power equality terms, however fell in 2008-09. Obligation driven purchaser spending drove powerful development in the primary portion of the decade, filling a substantial equalization of installments deficiency that represented a test for policymakers. Inflationary weights made the national bank raise its key rate consistently from January 2004 until the point when it was among the most noteworthy in the OECD in 2007 and 2008. The higher rate pulled in worldwide capital inflows, which reinforced the money and lodging market while disturbing the present record deficiency. Rising house costs, particularly in Auckland, have turned into a political issue as of late, and also an approach test in 2016 and 2017, as the capacity to manage the cost of lodging has declined for some. Extending New Zealand’s system of unhindered commerce understandings remains a best outside arrangement need. New Zealand was an early advertiser of the Trans-Pacific Partnership (TPP) and was the second nation to endorse the understanding in May 2017. Following the United States’ withdrawal from the TPP in January 2017, on 10 November 2017 the rest of the 11 nations concurred on the center components of a changed ascension, which they renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In November 2016, New Zealand opened arrangements to overhaul its FTA with China; China is one of New Zealand’s most vital exchanging accomplices.

A Centrally Planned Economy is a framework in which the state or government settles on financial choices instead of the these being made by the connection among shoppers and organizations. Not at all like a Market Economy in which private residents and entrepreneurs settle on creation choices, a halfway arranged economy controls what is delivered and the appropriation and utilization of assets. State-claimed endeavors embrace the generation of merchandise and enterprises. Communism, Communism and Authoritarian are instances of how government based economy take control of everything. Communism a social and monetary regulation that calls for open instead of private proprietorship or control of property and characteristic assets. As indicated by the communist view, people don’t live or work in confinement however live in collaboration with each other. Moreover, everything that individuals create is in some sense a social item, and everybody who adds to the generation of a decent is qualified for an offer in it. Society all in all, consequently, should claim or if nothing else control property to help every one of its individuals. A political hypothesis got from Karl Marx, pushing class war and prompting a general public in which all property is freely possessed and every individual works and is paid by their capacities and requirements. In the book, Karl Marx wrote, “We Communists have been reproached with the desire of abolishing the right of personally acquiring property as the fruit of a man’s own labour, which property is alleged to be the groundwork of all personal freedom, activity, and independence” (Communist Manifesto). Dictator is a standard of visually impaired accommodation to power, rather than individual opportunity of thought and activity. In government, tyranny indicates any political framework that amasses control in the hands of a pioneer or a little tip top that isn’t intrinsically dependable to the body of the general population. An Example of this is North Korea. North Korea, one of the world’s most halfway coordinated and slightest open economies, faces endless financial issues. Modern capital stock is about hopeless because of long periods of underinvestment, deficiencies of extra parts, and poor support. Extensive scale military spending and improvement of its ballistic rocket and atomic program seriously draws off assets required for speculation and non military personnel utilization. Mechanical and control yields have stagnated for a considerable length of time at a small amount of pre-1990 dimensions. Visit climate related harvest disappointments bothered constant nourishment deficiencies caused by on-going foundational issues, including an absence of arable land, aggregate cultivating rehearses, poor soil quality, deficient treatment, and diligent deficiencies of tractors and fuel. The mid 1990s through mid-2000s were set apart by serious starvation and far reaching starvation. Noteworthy sustenance help was given by the universal network through 2009. Since that time, sustenance help has declined fundamentally. Over the most recent couple of years, local corn and rice creation has enhanced, albeit local generation does not completely fulfill request. A vast bit of the populace keeps on experiencing delayed ailing health and poor living conditions. Since 2002, the administration has permitted semi-private markets to start moving a more extensive scope of merchandise, enabling North Koreans to halfway compensate for decreased open dispersion framework apportions. It additionally actualized changes in the administration procedure of mutual ranches with an end goal to support rural yield.

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Mixed economy is the best system in my opinion. This is because it roots from all economies. It takes the best from all and puts it all together. With the competition being regulated by the government to keep consumers safe puts everyone on an equal planning field. Also with the additions of programs to ensure the “general welfare” is a very good system to me.

Works Cited

The Constitution of the United States, Article 1, Amendment 5.

Congress. Sherman Anti-Trust Law. United States, 1890.

Marx, Karl, Engels, Friedrich. Communist Manifesto, 1848.

Leicester’s Economic and Social Experience During and after the First World War

Leicester’s economic and social experience during and after the First World War.

Leicester is a city that is situated in the East Midlands region of England. By estimate, the city lies 160 kilometres to the north-west of London[1]. It had been renowned as an industrial city of Britain for a long history. And its properly networked public transport systems not until the end of the First World war. Researchers have described Leicester as an excellent base that can be used to explore both the United Kingdom and continental Europe. The history of the city has attracted the attention of several scholars, researchers and authors. Most of the available research links its history to the World War One era. Leicester has a population of at least 300000 people[2]. The city’s value was first recognized by the Romans and then the Danes. Until now, Leicester has grown and developed into a commercial and manufacturing centre, best known for the diversity of its trade. The region has also been known for its historic nature, attracting people of different races and cultures to its premises. This paper discusses the economic and social experience of Leicester during and after World War One. In the analysis, the paper concentrates on the details of how the specific regions of Leicester were affected by the war. The paper also details some of the most important contributions of the war in shaping the current situation of Leicester.

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World War One broke out on 4th August 1914. Prior to the emergence of the war, Leicester was known for its religious background, majorly composed of Christian community. Following the war, there was a disruption in the economic activities in the region. A mass recruitment of soldiers took place at the Town Hall. Part-time militants of the Leicestershire Regiment Territorial Force and the Leicestershire Yeomanry were mobilized to take part in the war. Local soldiers were recruited and trained at the Magazine Square. On average, 50000 men from Leicester and Leicestershire took part in the war as soldiers. This led to an economic disruption in Leicester. Since men were the main participants in the production industries, the economy realized a progressive decline during the war. Most of the women could not actively replace men in the manufacturing industries, given the nature of the work and the interference by the activities of the war.

Earlier, Leicester had well set-up industries that could be used in the production of footwear and garments. As a result, the war had made most of these factories surrendered to arms manufacturers. The result was an increase in unemployment rates across the region. The urban centres, particularly, saw massive job losses since most of the workers in these factories had not specialized in arms productions. At first, the recruitment of soldiers was lower in the city due to the fact that most of the men were actively employed in factories. However, with the giving away of these factories to the arms manufacturers, the men were urged to join the army and take part in the War. The war provided a unique opportunity for Leicester to improve its economy. It was during the First World War that industries were mobilized in the footwear and hosiery trade. The emergence of this trade had led to the creation of jobs and slow stabilization of the economy. Even though there were no predictable outcomes, those who benefited from the business were able to cater for their needs and also support the militants during the war. At this point, Leicester was the major source of horses and footwear used in the war among the British colonies and cities.

Most of the women were recruited to work in farms during the war. Angus Stovold was a farmer in Shackleford Surrey[3]. He employed most women from the Women’s Land Army during the war to replace the men who had to be engaged in the war. Without the women, the whole Britain might have starved during the war. There was an acute shortage of food due to the fact that men were recruited to take part in the war. The reduction in food supplies was due to the decline in agricultural production in Leicester and to the whole Britain by extension. Trade was limited and most of the food that was produced was majorly for direct consumption purposes. Large-scale production declined because most of the food manufacturing companies were turned into arms manufacturing companies. Due to the decline in production and economic activities, food was short in Leicester. People queued for food in a few situations. Charitable operations provided little supplies that people scrambled for. In addition, the shortages had led to people using savings to purchase food. The war created a period of starvation in Leicester. Despite women striving to keep the agricultural sector on-going, it was not possible for them to pull up full production level as during the wartime.  The insufficiency of food also led to a situation in which people easily became sick. The East Midlands suffered from acute shortages to an extent that some people even starved and died[4]. The soldiers did not have sufficient food supplies to keep going. Most of the available health facilities were packed with wounded supporters and sick people who could not easily obtain medical supplies due to the war. The declination in economic activities led to Leicester would be about to collapse since it could not fully sustain its economic needs. Military operations remained active in the region until late 1917.

Other than the military impacts of the war, Leicester had also experienced social impacts from World War One. For example, before the war, the region was united under one religion, Christianity. The early presence of the Romans in the city had led to the establishment of strong catholic cultures in Leicester. However, World War One led to a significant interference of the social and religious settings in the city. People paid little attention to religious issues and instead focused on the crisis that was brought about by the war. During the First World War, there was a decline in religious practices in Leicester. The war also led to family separations. Most of the men enlisted in the military to participate in the war. This left behind women and children who struggle to survive. Social disintegration reduced the family unity. Due to the separations, some families did not reunite after the war, especially in cases where some of the members died in the frontline. Most of the male casualties left behind vulnerable families that depended on charitable operations to support their daily needs[5]. Leicester suffered a major issue regarding to social unity and religious organization. There was near total loss of social identity among various families in Leicester due to the implications of World War One.

However, there was a shift in gender roles during and after World War One in Leicester, which had been widely discussed nowadays. Following the enlistment of men to the military, women took over most of the jobs that were initially left for men. For instance, the women worked in the farmlands and the few factories that kept operating. In addition, the women in Leicester were charged with the responsibility of taking care of their families’ needs. They had to engaged into the duties that men left behind. Social reorganization led to the exposure of women to new roles, given the absence of men. Women were involved in cultivation and food production as a way to support their families.

There was an emergence of charitable organizations that aimed to support women and children who were severely affected by the war. Similarly, charities were also established several caterings for soldiers who lost their jobs after the war. The charitable operations commenced during the war period and became more and more important after the war[6]. Women and children were the most enthusiastic to provide charitable services to the men who returned home with no jobs to maintain their living. Following the war, there were many charitable programs set up in 1919 and 1920. Most of the them had benefited from these establishments. Specialist medical facilities were established for disabled miners and soldiers who took part in First World War. The society learned the need to share the available resources to meet the needs of its people. Top in the priority were the servicemen who did not have any pension program due to financial scarcity after the war.

Leicester struggled to restore its lost heritage. In the year 1925, the Arch of Remembrance was set up in Leicester, which we can still find it in Victoria Park nowadays. The memorial arch was built in remembrance of the activities and effects of the First World War. It was after the city received a royal visit from the king and queen that the memorial arch was unveiled. In the year 1927, Leicester was restored as a cathedral city on the consecration of St Martin’s Church as the Cathedral. The economic diversity of Leicester and lack of dependence on single market operations enabled it to restore its production levels. At the end of the war, most of the factories re-emerged and most of the people secured employment. Production was slow in the 1920s, but the political and religious leaders were determined to ensure that Leicester was restored to full operation. It was not until the 1930 Great Depression that the economy of Leicester also experienced significant staggering and decline. However, this was a global economic challenge that did not only affect Leicester though. Periods after World War One saw into Leicester focusing on the restoration and further construction of transport facilities and infrastructures. Even though most of the mass housebuilding operations took place after the 1930s, Leicester began the reconstruction process in the 1920s. The primary focus was on the transport and communication sector that the government focused on with the aim of restoring the industrial operations to full capacity.

After the First World War, Leicester became a major destination for immigrants. Due to the reconstruction of the production industries, immigrants moved to Leicester to search for jobs. The high immigration was majorly because of the economic diversification in the region. Most of the industries emerged, especially those in the agricultural sector. The people of Leicester remained in committing to the rebuilding the resources that were destroyed by the First World War. Both men and women remained united towards restoring the economy to full potential. There was a social reorganization after the war. During the war, women took part in most of the activities that were considered to be meant for men. At the end of the war, therefore, the women realized that they could also engage in social roles that were not “originally” set for them. This led to further speeding up of economic development and social movements in Leicester. Social reorganization of roles and duties among men and women led to the recognition of women as important components of the society. Their social status had been raised. In addition, the women also landed into formal employment position due to the contributions that they made during the First World War in Leicester.

Most of the European countries were left in debt, following the World War. It is only the United States that managed to balance its economy during and after the war. Due to the high European debt crisis after the war, Leicester was among the regions that were negatively affected by the financial crisis. The European nations had to develop alternative means to balance the high debts and making it back to full operation. In addition, Leicester had to further diversify its economy to avoid only depending on a single variety of trade. During the First World War, nations with well-developed transport and communication facilities had advantages over their enemies. For example, the United States’ well-established infrastructure made it more convenient for them. Regions in the European countries had to develop alternative means to advance their transport and communication facilities in preventing a repeat of war. The economic impact of the development of transport and communication networks was enhanced communication and transportation of commodities to the factories. The stimulation of the agricultural sector created a situation that the raw materials had been increased for the industries. Another post-war impact of the First World War on Leicester was the focus on education. Due to the enlistment of men in the military, there was a significant change of specialized labour force. The region, therefore, focused on professional development through education with a view to producing qualified persons to fill the vacancy created by the War. Leicester became renowned for its educational facilities. Until the present, there is a high immigration rate of the students to Leicester in pursuit of higher education certifications[7].

In conclusion, First World War had major economic and social impacts on Leicester. The larger part of the history of Leicester is based on the occurrence of the First World War and the Second World War. However, World War One had a more important impact on the establishment of the economic and social infrastructure in Leicester. During the war, most of the economic activities in the region were interfered with and the social stratification led to the creation of imbalance in most families. It was then that most of the women learned of their ability to participate in activities that were previously preserved for men. Interwar period led to gradual restoration of economic and social activities in Leicester.

Bibliography

BHO, The City of Leicester: Social and administrative history since 1835, (n.d.),  https://www.british-history.ac.uk/vch/leics/vol4/pp251-302 [Accessed January 2, 2019].

East Midlands Oral History Archive, Leicestershire & Rutland Remember the First World War, (n.d.), https://www.le.ac.uk/emoha/community/resources/ww1/index.html [Accessed January 2, 2019].

Historic England, The Impact of the First World War, (n.d.),  https://historicengland.org.uk/research/inclusive-heritage/disability-history/1914-1945/war/ [Accessed on: January 2, 2019].

Leicester City Council, About Leicester, (2015), https://www.leicester.gov.uk/your-council/about-us/about-leicester/ [Accessed on: January 2, 2019].

National Farmers Union, World War One: The Few that fed the Many, (2014), https://www.nfuonline.com/assets/33538 [Accessed on: January 2, 2019].

Story of Leicester, Leicester during the First World War, (n.d.), https://www.storyofleicester.info/civic-affairs/leicester-during-the-first-world-war/ [Accessed January 2, 2019].

University of Leicester, About Leicester, (2015), Available at https://www2.le.ac.uk/offices/international/overseas-exchange/incoming/about-leicester [Accessed January 2, 2019].

Vidal-Hall, J, Leicester: The City of Migration, (2003), https://journals.sagepub.com/doi/pdf/10.1080/03064220308537226 [Accessed January 2, 2019]

Effect of Sustainability on Economic Growth

Protecting the environment, the prudent use and re-use of natural resources and maintaining economic growth all contribute towards sustainable development.

Contents

Abstract

Introduction

Sustainable development examples

Renewable Energy

Case study.1

Case study.2

Case study.3

Energy Efficiency

Energy efficient lighting

Case study.1

Green space

Case study.1

Case study.2

Conclusion

References

This technical report will discuss the use of sustainable development on how the use and re-use of natural resources will affect the economic growth. Case studies will be reviewed and examined, with the include of examples. The examples that will be discussed further in the report are renewable energy, energy efficient lighting, and green space. Case studies regarding these topics will be debated as why there were used.  There are many types of renewable energy that can used, in this report, wind turbines will be discussed and how they have made a positive impact to society. Regarding energy efficient lighting, the old fashion light bulbs which contributes a huge amount in the carbon foot print will be compared with the energy saving blub that most people are starting to switch to. With green spaces two locations in London will looked at and how exactly they were managed to improve the environment and people around them.

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The main objective of sustainability is to make use of renewable resources and reduce consumption. The increase in population has created a stress on the environment, especially with some resources becoming scarcer. Stated by (Brundtland Commission, 1987) ability to make development sustainable-to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs. This description contains much meaning but unfortunately allot of people have misinterpreted it for something else. Although the statement mentioned by (Brundtland Commissions, 1987) doesn’t directly state anything about the environment. Sustainability in society can be achieved if everyone contributes a little. It does not require a dramatic change in lifestyle, but only a small portion of your lifestyle to change to make an impact. There are many alternative resources that can be used. Stated in Brundtland report that sustainable development can be categorized into two concepts, which are known as “needs” and “limitations”. The limitations will be reviewed further in the report. The boundaries that have been set by the state of technology and social organization on the environments ability to meet its now and future requirements. The needs subsequently denote to the portions of the world who are underprivileged in terms of poverty.

Renewable energy is a source of energy that is from a natural process and it can be continuously re used, examples of renewable energy can be; heat, wind, sunlight. This is extremely sustainable and will not run out, as well as it is a non-pollutant and doesn’t contribute to the greenhouse effect.

Energy efficiency has become more and more of a norm in society in the last decade, but it is yet still to be a main option for some people. Energy efficiency is a method of getting the same service but with the use of less energy. This method will be discussed in depth later in the report.

Green space are specific areas which are located away from polluted areas, that allow wildlife and plants to grow without any constraints. Some green space is protected. Natural Environment White Paper will be discussed that was produced by the Department for Environment Food & Rural Affairs.

Energy is the man function of every action in humanity. Without energy we wouldn’t be able to carry out the simple tasks. It gives us food and shelter and warmth and without these variables we wouldn’t be able to survive. Currently in todays society suppliers are reliant on fossil fuels such as coal, natural gas and oil. With the increase of fossil fuel, it has put a strain on the greenhouse gas emissions. As the demand for oil and gas is increasing the price of it has risen too. Many green energy campaigners have asked the government to use more biofuels and solar energy resources. This has taken into effect in some areas in public transport with the use of Green Transport. Using electric and hydrogen buses is a start to reduce carbon dioxide emissions

Renewable energy has positively increased recently with range of 10-50% in different areas of technology. Wind energy has had a rapid growth since 2008 and continuing to grow. Solar PV also known as photovoltaic system uses cells from the sunlight to convert it to electricity, this has been the fastest growing technology out of all the renewable sectors which has had more than 60% of annual growth during the past five years. Two case studies will be discussed below in different locations of the United Kingdom, they are both based on wind farms.

The next two case studies will Discuss uses of wind turbines and why wind turbines have been used buy these local villages. Wind sites are often found in large open spaces which are usually far from cities. Wind is a sustainable source of energy that doesn’t affect the carbon dioxide emissions. Wind is caused by temperature of the atmosphere increasing with the integration of the earth’s rotation.

 

 

Case study.1

Fintry is roughly 20 miles from the north of Glasgow, it’s a rural village which contains about 500 individuals. The households in Fintry does not have any supply to gas mains, fuel poverty has become a serious problem in Scotland. The village of Fintry has fought back and in 2006 plans were made by outside designers to construct 15-wind turbines which would overall generate a capacity of 37.5MW. This was a huge impact to a small village in Scotland, this would increase the fuel energy and reduce the carbon foot print. The community now receives 1/15th of the total income from the wind farm, which they use this money to fund low-carbon projects.

The cost of installation for the turbine was paid by the designers, it was agreed by the community that the sum would be paid back over the first 15 years of the operation. The profits from the wind turbine are shared by Fintry Development Trust, as its commercial partner Fintry Renewable Energy Enterprise receives the profits and owns the turbine. The completion of this project shows that the use of renewable energy can increase economic growth without damaging the environment.

Case study.2

Coldham wind farm is situated at Coldham hall farm in Cambridgeshire. Already containing eight wind turbines they went ahead and added seven more. This plan was agreed by two companies, known as The Co-operative Group and Scottish Power Renewables. The first eight turbines were 8 Vestas V-80, and the rest of the seven were built between 2010 and 2011. The turbines have blades which are 40m long and the height of the turbine itself is 60m. Each turbine would supply around 2MW and around 37M KWh. Facts and figures stated by the Coldham site includes 8,500 homes are now powered by the turbine.

This project shows that the use of renewable energy can power thousands of homes without increasing the carbon emissions. Using wind as a renewable energy in wind farms can have a major impact. There are few downsides that can been seen from the project the initial price of installation can be extremely expensive. It can also be danger to wildlife such as flying animals, but overall it has contributed more into households in Cambridgeshire.

Case study.3

As the Carbon dioxide levels are rising from the use of public transport, it has become a bigger problem to tackle it and reduce these emissions. Before 2006 hardly any care went to considering the emission from public transport. There has been a huge difference in the United Kingdom since the international transport policy. This research has been carried out by Dr Robin Hickman. In more recent times public transport has gone green and become more sustainable.

London has now over 2,000 diesel- electric hybrid busses which are running in the city centre. These buses are now more fuel efficient and reduce emissions around 30-40%. It has been reported that Transport for London is now targeting to have 240 electric buses successively on the network by the end of early next year. All new double-decker buses to be zero-emissions or hybrid. All single-decker buses functioning in central London is expected to be zero-emission by the following year.

London has significantly changed, buses that use to run on diesel are on now alternatives such as hybrid and electric buses, the mayor of London has worked extremely hard to change this.

London has now over 2,000 diesel- electric hybrid busses which are running in the city centre. These buses are now more fuel efficient and reduce emissions around 30-40%. It has been reported that Transport for London is now targeting to have 240 electric buses successively on the network by the end of early next year. All new double-decker buses to be zero-emissions or hybrid. All single-decker buses functioning in central London is expected to be zero-emission by the following year.

London has now over 2,000 diesel- electric hybrid busses which are running in the city centre. These buses are now more fuel efficient and reduce emissions around 30-40%. It has been reported that Transport for London is now targeting to have 240 electric buses successively on the network by the end of early next year. All new double-decker buses to be zero-emissions or hybrid. All single-decker buses functioning in central London is expected to be zero-emission by the following year.

Every household has a considerable amount of energy being emitted but the questions is how much energy is being consumed needlessly, and how much of that energy is being wasted. It’s shows that more than 85% of the suppliers use carbon-based fuels. Coal, Oil and natural gasses how long will this last until it eventually runs out. Leaving a high carbon footprint has consequently caused an increased level of the Greenhouse gas.

Energy efficiency is all about obtaining the same goal but using a lower amount of energy, it’s the process of using less energy in devices and machines. More and more of us have become aware of changing our light bulbs but is society aware of what else can be done. Many homes during the winter increase their heating to keep warm but adding insulation to the attic or into the walls can retain more heat than just keeping the heating on. Double glazing windows can be replaced with windows that cause drafts and hot air to escape. All these factors can be done to make a home more energy efficient. It is vital to lower the consumption of energy in structures because it plays a significant role in combating unsustainable levels of energy. Shown below on Figure 1.1 the energy used within the EU at different function in residential and commercial structures.

 

Figure 1.1 EU building energy consumption for residential and commercial buildings Source (www.intuser.net)

Energy efficient lighting

Energy efficient lights have become more and more common in the past decade, its one of the easiest ways to save energy. The improvement in technology has seen the size of the light bulb decrease. LED lighting gives quick payback and can reduce energy cost up to 70%. Consumers are now able to buy wide range of lights for different variety of households.

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The use of energy saving light bulbs will only consume a quarter of the electricity of a standard light bulb, although using an energy saving light bulb will depend on a few factors. Note older version of a light bulb that not energy saving is referred to as halogen light bulb. The table below shows the comparison of a 5-watt LED against a 50-watt halogen. Halogen light bulbs are soon to become banned by the European Union.

 

Figure 1.2 comparison between LED and halogen. Source(thegreenage.co.uk)

Figure 1.2 indicates that each halogen bulb will save you £175 during a consumer’s life time. This shows how far technology has come and how easy and cheap it is to save energy in your house. Energy efficient light bulbs should be considered not only in residential houses but in industrial facilities too. Some companies have warehouses that run day and night, for example if all the light bulbs in a warehouse was changed to energy saving, they could save up to 60% monthly on energy. It is therefore reasonable to say that the industrial sector and the common household will have a huge impact and reduce greenhouse gas emission if switched to energy saving

Case study.1

A project that was undertaken was at Shuqualak Lumber. It consists of a warehouse that stored lumber. The current lights that was used in the warehouse was a health and safety concern as it wasn’t bright enough and it was also considered a waste of energy due to its inefficiency the scheme involved of changing the interior and exterior lighting from the old fashion inefficient fluorescent to efficient LED lighting. It was reported that the LED lighting would save up to 73% would eliminate lighting maintenance cost up to 11 years because the longevity hours the LED would provide.

Reported by Semco, the new LED lights increased the brightness up to 15% in certain areas. Figure 1.3 shows the difference before and after the lights have been changed. The project was given over $121,000. The annual saving is as shown below.

Figure 1.3 Before and after image of fluorescent light to LED lights. Source (Semco Sustainable energy management

 

 

 

 

Using energy efficient light bulbs are a significant sustainable factor, more companies and households and should use LED lights as they are very efficient. Energy efficiency includes not only the physical efficiency of the technical equipment and facilities but also the overall economic efficiency of the energy system as seen in the case of energy efficient light bulbs previously. It is therefore sensible to say that energy efficiency (such as the one discussed in this section) measures in the industrial sector and built environment will enhance profitability which will help maintain economic growth, reduce greenhouse gas emissions which helps to protect the environment and combined aids in promoting sustainable development

Green space is urban areas in London is an important contribution to the economics growth and health to humans, this section will discuss projects that have taken place in London to improve areas of Green spaces. Almost 47% of London consist of green space. The Committee Environment is planning an investigation how green spaces can be managed and maximise it to our benefit.

Having Green spaces in our environment is an extremely important entity, it contributes to the sustainable development in civilisation. The population is increasing year by year and more land has been chosen to develop flats for commercial use or residential use. Increasing Green spaces can benefit from green spaces, it can help the ecosystem and give good mental health to the people around the green space. It has been reported that green spaces can improve the well-being and can also be a way to treat mental health. Stated by (Jane Jacobs 1961) the death and life of great American cities, parks are volatile, they can and do add great attraction to neighbourhoods that people find attractive for a great variety of other uses.

 

Case study.1

Greenwich Peninsula situated in the south east of London, in the Royal Brough of Greenwich, it is best known for its agricultural fields and marsh lands. Between 1880 and 1900 the area was used for industrial purposes. The construction of the black wall tunnel eliminated any of the remaining marsh lands. During 1970 any chemical works that was taking placed came to an end, causing the marsh land to reappear. From 2002 the area has been managed by The Conservation Volunteers.

In more recent times the landscape has changed for the better, and now it’s designed to be a central park and an ecology park. It now plays a vital role in the regeneration of the Greenwich Peninsula. Whilst planning was taking place to improve the park, it was stated that the natural environment should be protected. The product of this was that all the parks were integrated together.

Central park, Ecology park and Southern park are now all connected, it has been designed so that the green space is protected. The new design of the park was constructed to form an inner lake and an outer lake. The project is still proceeding and not to be fully complete for another few years. From this redevelopment it has shown that over 10,000 tress and over 50,000 shrubs have been planted, this has made a big impact on the ecological environment and for people living in the area.

This urban environment that has been renewed into a green space from what use to be an industrial site. With the impact of all the trees and shrubs that have been planted, it can increase the quality of air and reduce energy consumption by opposing the heat effects of paved surfaces. With over 10,000 tress in the park it can it can reduce on site heat build-up.

Case study.2

The river Quaggy is a river that has a length 17km, also known as an urban river. The location of this river is originating from Lewisham and ends towards Sundridge situated in the London Borough of Bromley, Greenwich and Lewisham. During the 1960’s the river managed by artificial channels and culverts to divert the water. One part of the river that runs through the park use to be fully enclosed underneath the surface in concrete. An arrangement had been designed by the Environment agency to transform the park so that it behave as a natural flood plain. ­

This scheme was proposed by residents who came from the Quaggy Waterways Action Group. It was idealised that soft engineering methods should be taken into place to improve the environment. Many local animals in the area where to be protected while the restoration was to take place. Restorations plans were done so that the river would rise back above ground level again. The was to be lowered and the design of a shape was made so that the flood plain could collect water naturally in downstream channel. By changing the direction of the river in a more natural way, the project created a wetland environment for wild flowers and trees.

Figure 1.4 shows River Quaggy running through Sutcliffe Park. The flow of the river is now directed through reconstructed path of the original route. During adverse weather the increase of water will enter the old trenches and discharge into the park to form as a temporary lake. The restoration of the park included the plantation of waterside plants. This has had an increase in wildlife to the area and will continue to develop. Greenspace is extremely important as it effects the mental health. It has been proven that many individuals have a reduces amount of stress and anxiety when living in an area of more greenspace.

 

Figure 1.4 River Quaggy running through Sutcliffe

In this report multiple case studies were mentioned about and reviewed for different situations locations, for example Green spaces and renewable energy. The whole purpose was to gain a better understanding of the contributing influences in sustainable development so that each study which related to a sustainable approach and would be reviewed. Going back to the Brundtland Report which was mentioned at the beginning of the report, sustainable development was defined as the ‘needs’ and ‘limitations’ of our future and present generations. Looking at the case studies and examples from this report, a clear impact in sustainable development was seen and hopefully more to come of our society. Its clear to say that the economic growth will increase with the more use of sustainability.

Looking back at the green space case studies earlier in the report, it clear to say that it provides us with many benefits to the ecosystem, not only to wildlife but to social health too. Wildlife and vegetations that was endangered and not looked after, are now protected and helped to preserve economic growth. The project that took place in the south-east of London, created a natural flood plain which reduced the risk of flooding to residential areas and business. By integrating the parks so it can be used by people living in the area and so that wildlife can also have a part in the ecological system. This project shows that flood management was carried out and reducing the adverse effect of microclimates.

With relation to renewable energy the case studies demonstrated the impact that wind energy had in terms of protecting the environment from carbon dioxide emissions. One of the downsides to building the wind turbines was the danger to flying animals in the area. It is also a factor of noise pollutions; wind turbines can generate allot noise. Many procedures are taken to install them away from households but sometimes they are impossible to avoid and can damage some residents. Ultimately the reason for installations was to power thousands of homes just with the use of natural source is invaluable and without a doubt contributes to sustainable development. Therefore, as renewable energy is a long-term advantage in terms of maintaining and increasing economic growth. This has definingly helped protect the environment it can be stated that for this example, the criteria for sustainable development to be valid are met and protecting the environment and economic growth are contributing factors.

While discussing energy efficiency was carried out in terms of sustainable development. Energy efficient light bulbs were chosen because of the way to improve energy efficiency. It was noticed that up to 70% savings could be made by using energy efficient light bulbs this reduction in energy consumption would reduce greenhouse gas emissions, which help to protect the environment and since less energy is being consumed this would decreases the amount of fossil fuels being used up. Therefore, the criteria for sustainable development to be valid are met and protecting the environment and maintaining economic growth and protecting the environment are the contributing factors.

Overall after studying and checking through the case studies and examples about sustainability it was noticeable that a surge in sustainable development could be gained using Green spaces. The renewable energy and use energy efficiency made a huge impact in saving money. Making sure that the environment was protected, whilst reusing natural resources to maintain economic growth are all essential contributions in order to promote sustainable development.

Brundtland Report, World Commission on Environment and Development (WCED), Our Common Future (New York: Oxford University Press, 1987), 8.

Coldham Wind Farm: Article 2, http://www.theguardian.com/vestas/coldham.wind.farm, (Accessed on January 17, 2014)

Coldham Wind Farm: Article 2, http://www.theguardian.com/vestas/coldham.wind.farm, (Accessed on January 17, 2014)

Jane Jacobs, (The death and life of great American cities, 1961)

Changes in African Countries’ Structures in Achieving Economic Development

What have the experiences of Africa since the 1960s taught us about the efforts of achieving economic development? Provide a critical comparative analysis of at least two countries by tracing change and continuity in economic and political structures from the 1960s till post 2000.

 

Introduction

If economic development is defined as the process by which low-income national economies are transformed into modern industrial economies, then Africa’s experiences have taught us that this process is not universal, standardised, or neatly theorised under typical Western ideologies of development. Post-independence, Africa was thrust into the global capitalist economy and expected to comply to western standards of development – giving rise to countless contradictions. Africa’s experience can’t be generalised through space or time, but in many cases the experience of African economies has been contradictory to orthodox of development. In contrast to strong capitalist economies with established state legitimacy, the African experience has been one where the presupposed mechanisms for achieving economic development often exist in competition rather than in cooperation. The strong colonial legacy has given way to an unconventional relationship between the efforts of economic development, a functional electoral democracy, the capitalist class and the capacity of the state. With reference to the experiences of Zimbabwe and Uganda, I will show how this relationship manifests and diverges from orthodox theories of development. By tracing the transformation in the political and economic structures of these countries since independence, I will demonstrate how the African experience has not been universal and how it often defies both structuralist and liberalist ideals.

Postcolonial Africa: Structuralism and State-led Development

Postcolonial African governments adopted a structuralist approach in their efforts to achieve economic development. As African economies gained independence, the state’s role was considered integral to achieving development by neo-liberals and Marxists alike (Brett 2008). State-led development was undertaken as it was not only compatible with the diminutive development efforts of colonial officials and didn’t require large restructuring of the economic system (Cooper 2002); but also aligned with populist political aims of nationalist leaders and seemed achievable through increased government revenue from the rise in global demand for commodity exports (Berry 1993). However, efforts were undermined, as African states were weak, and leaders were aware they couldn’t afford to broaden the social base of state power (Ake 1981).

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  The geographic situation compounded social, economic and political failures, constraining development (Brett 2008; Mkandawire et.al 1999). An abundance of scarcely-populated land, poorly performing infrastructure and weak communication linkages posed challenges to administering authority over large territories, making political centralisation difficult to achieve and sustain (Herbst 2001). The institutional inertia of indirect rule increased competition and conflict over government control, posing long-term challenges to state legitimacy (Mamdani 1996; Mkandawire 2014). The neo-patrimonial policies employed used state resources to pursue the political aims of power maximisation (Englebert 2000). Consequently, the capacity of the state was weakened, and developmental policies were avoided (Boone 1994; Berry 1993).

 State-led development saw some short-run success, but eroding political and administrative capacity, authoritarian regimes, civil conflict, corruption and uncontrollable external factors made the growth unsustainable. Many African economies experienced growth and improvements in social indicators on the back of foreign investment. However, the domestic capitalist class remained limited and magnitudes of capital flight made long term investment unsustainable, fuelling a foreign exchange crisis (Mkandawire et.al 1999). World Bank approved policies of import substitution aided growth, but there was little diversification in exports and no improvement in the agricultural sector, enforcing a dependency on global markets, compounding the unmaintainable nature of growth (Mkandawire 1999).

Whilst orthodox theory suggests long term economic development requires state building, in Africa, state building processes suppressed democratic participation and economic development. Consolidating political power was necessary for the state’s interventionist policies but came at the expense of democracy (Berry 1993). The lack of state legitimacy further weakened capacity (Englebert 2008). The demanding conditions for state legitimacy have only recently been met in developed countries, where strong capitalist economies emerged before the introduction of competitive democracy (Brett 2008). Structuralist theory makes heavy demands on state capacity and political integrity. Interventionist regimes have proved successful in Europe, but in Africa, direct control over resource allocation often led to gross inefficiency and widespread corruption (Brett 2008).

 Post-colonial Zimbabwe and Uganda give insight into the inconsistencies within the African experience. In Uganda, structuralism proved incredibly unsuccessful. Obote inherited a disarticulated, premature, ethnically fragmented economy. The insecure regime used patronage and extractive rents to buy political support. Ineffective policies and limited political accountability undermined state capacity and led to a withdrawal of donor support (Brett 2008). Democracy was unrecognizable: Obote used the army to maintain power until Idi Amin formed a military coup to dethrone him in 1971. Eventually, political and economic collapse led to civil war. Zimbabwe’s independence came in 1980, allowing the inheritance of a more sophisticated structuralist economy. The economy grew on the continued use of structuralist policies. Mugabe used violence to create a somewhat successful and democratic one-party state. Unlike Uganda, The ZANU-PF regime did not need to engage in destabilising economic transfers and political manipulation to retain power. However, the rigidities generated by the structuralist regime and pressures of the foreign exchange shortage forced a shift to liberalisation that was soon to destabilise this seemingly successful strategy (Brett 2008).

African Liberalisation: The Era of Adjustment

By the 1980s, the stagnant performance of African economies left them subject to pressures for political and economic reform from global markets, external conditions and international financial institutions (IFIs). Africa’s foreign exchange crisis, stringent US monetary policy fuelled by the Mexican debt crisis, a global rise in oil prices, and the Sahelian droughts presented insurmountable challenges for African governments. The ‘African crisis’ was associated with and exacerbated by intense conflict over political control and resource allocation, and a shift to military or authoritarian rule (Brett 2008). Governments were forced to turn to IFIs for help, but this came with rigorous policy conditionality that weakened government authority and generated a shift from structuralist to neoliberal regimes. IFIs attributed the crises to the interventionist nature of the postcolonial state and ‘inappropriate state dominated policies’ (World Bank 1981). The Berg Report led to the virtual universalisation of market-based reforms through Structural Adjustment Programs (SAPs).

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The procyclical policy packages aimed to promote growth and restore macroeconomic stability but produced very uneven, largely disappointing, results (van de Walle 2001). Between 1980-98, median per capita income growth in Africa was 0.0%, compared to 2.5% in 1960-79 (Easterly 2001). African economies saw falls in investment rates and food production whilst the debt burden increased. The weakened state authority was met with worsened public service provision, salary reductions, and the removal of many subsidies (Cooper 2002). By 1990, it was evident that SAPs had failed, so IFIs added a political liberalisation conditionality which led to an extensive restoration of democratic institutions that were supposed to manage the crisis by improving accountability, reducing corruption and encourage civil sector reform (Brett 2008). However, deep-rooted corruption and the fiscal crisis made the provision of wages and services near impossible, as the political conditionality further reduced administrative capacity. States failed to provide public services for their people, which led to an even greater reliance on patron-client relationships (Cooper 2002). The state’s deficiencies undermined most attempts to build successful liberal democratic capitalist institutions (Brett 2008). The conditionality intended to bring effective democracy to Africa, but in many cases, regimes either remained authoritarian, rigging their way to political success; or effective democracies became ‘choiceless’ and thus, ineffective as they succumbed to the pressures of globalisation and aid conditionality (Mkandawire 1999). Neo liberal theory failed to recognise that weak states governed by clientalistic political regimes could not handle the transition to capitalist democratic society.

Whilst liberalisation was considered the beginning of Zimbabwe’s economic demise, it proved relatively successful in Uganda. The new NRM regime inherited a bankrupt state and was forced to liberalise and democratise by donors. Slowly it removed constraints on investment, monopolies, marketing boards, and reduced fiscal deficits. Opening the market facilitated a rapid return to growth but did little to rebuild state capacity (Brett 2008). In Zimbabwe, voluntary liberalisation reduced employment, worsened public services, alienated key groups and unified the opposition. Mugabe consolidated political support by using extractive state controls and populist anti-colonial policies (Raftopolous 2004). However, this only worsened the foreign exchange crisis, led to hyper-inflation and destroyed state capacity (Muzondidya 2010). The regime shifted back to extractive structuralist policies which led to donor sanctions only worsening economic performance.

Africa Rising? Diverging Success

Africa only regained its pre-crisis levels of per capita income in 2008 (World Bank 2010), but since, has seen considerable growth, though individual country performance has continued to diverge both in terms of economic success and democratic consolidation. African countries are generally more democratic today than they were in the 1980s (Lynch and Crawford 2011) and there is a general positive correlation between economic performance, political reform and market-based approaches (Bates et.al 2014; Jerven 2010). Rwanda is one of few consolidated autocracies in Africa but has experienced relatively high levels of economic success compared to many democracies in Africa (Hayman 2011). Africa’s relative success is largely due to China’s accomplishments. China’s increased demand for commodities have fuelled exports and a huge influx of Chinese FDI helped sustain growth over the last 15 years. In addition, the IMF marginalised African countries and failed to completely integrate them into the world economy, unintentionally protecting them from global financial crisis.

 Despite the general improvement in economic performance, there many weak states that lack legitimacy where the ruling elites find it less destabilizing to adopt neo-patrimonial strategies of power with their attendant propensity for corruption, clientelism and nepotism (Englebert 2000). Primitive accumulation and patrimonial politics continue to dominate the developmental processes in much of Africa and produce an alternative relationship between the capitalist class and the state than that specified in the orthodox model (Brett 2008). Many of these states have seen reduced donor support making liberalisation difficult. The economic and political costs of liberalisation could have been reduced with greater to donor support, but failure to do so has had some distressing consequences (Botchwey et.al 1998). It is arguable that IFIs considered Africa’s economic success unimportant, given the relatively small amount of money that was loaned, and the incredible generalisation of SAPs imposed. Africa is finally recovering but many economies lack the necessary infrastructure to do so effectively – a ramification of the weak adjustment policies. Africa’s varied success leads us to question the simplistic equation of accountable governance, democracy and development that has dominated donor thinking (Kohli 2004).

 The experiences of Uganda and Zimbabwe demonstrate the weakness of the ‘monoeconomic’ strategies inflicted by the IFIs. Uganda is regarded as one of the success stories of structural adjustment. Along period of neoliberal reforms produced two decades of steady growth. Growth has begun to slow at the expense of patronage politics used to consolidate NRM’s position (Singh 2017). Long term democratic prospects continue to be eroded. 2004 saw changes to the constitution and the two-term limit on presidency was removed. Uganda’s success seems unsustainable as it begins to mirror characteristics of its 1960 postcolonial government (Brett 2008). Zimbabwe’s liberalisation efforts chronically failed, producing a shift back to structuralism which included monopolising market boards, appropriating forex and allocating land to finance the state (Harold-Barry 2004). The country has been devastated from the political irresponsibility of the effectively autarkic regime. Output fell by 70% from 1982-2008, where inflation hit 79.6bn % (World Bank). 95% of the economy has been informalized and the current riots (2019) suggest there has been no improvement in the political or economic situation.

Conclusion

The African development experience has been full of contradictions and inconsistencies, both within the continent and with the global economy. The period of state-led development necessitated state-building at the expense of democratic politics. Liberalization weakened state authority and state building, undermining development efforts. The recent African experience has been varied and demonstrates the weaknesses of orthodox theories in explaining Africa’s development efforts. Zimbabwe and Uganda exemplify the diverse range of experiences within Africa, but more importantly, these cases show how economies forced to develop under liberal capitalist democratic ideals can have incoherent political and economic institutions breeding an alternative relationship between state building, the capitalist class, democracy and economic development.

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Singh, S. (2017). Beyond the nation: Global Democratisation in Uganda and the Politics of Dispensation. Third World Quarterly, 38(1), 235-251.

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An economic assessment of the case for charging diesel vehicles to enter Manchester

Microeconomics Essay

An economic assessment of the case for charging diesel vehicles to enter Manchester

Introduction:

“Traffic congestion and pollution are negative externalities caused by various factors. A 2005 American study stated that there are seven root causes of congestion, and gives the following summary of their contributions: bottlenecks 40%, traffic incidents 25%, bad weather 15%, work zones 10%, poor signal timing 5%, and special events/other 5%.” https://en.wikipedia.org/wiki/Transport_economics. Government intervention will be necessary to some extent to fix this market failure. Congestion pricing is considered to be an appropriate mechanism to deal with this problem.

Problems caused by pollution and congestion:

The congestion on the roads of Manchester could cause the productivity of businesses to decrease, as many workers would get late to work due to the amount of traffic which would increase the amount of time it would take to get there. The fact that it would take longer to get to work because of the traffic, some workers may have to wake up earlier than they would if there was less congestion on the roads meaning they would have to sacrifice some of their crucial sleep and would not be able to reach their maximum productivity or not be able to maintain it for as long. Time also has a monetary value. It costs the UK economy over £20 billion a year in lost output and wasted time.

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With congestion comes the increase chance of accidents. There is a higher probability that an accident could occur as it only takes one mistake in a car to crash and with more people on the roads, there are more people that could make that mistake. With a higher amount of car accidents, the cost incurred is higher as there are more vehicles that need to be repaired and more needs to be paid by insurance companies which will increase the price of getting insurance. If insurance prices increase, people will have less disposable income to spend on other things to maximise their utility.

The compounds released by the diesel cars can react to form acid rain. Acid rain can be extremely harmful to some ecosystems such as fish, plants, water or soil. At pH 5, most fish eggs cannot hatch. At lower pH levels, some adult fish die. Some acidic lakes have no fish. Even if a species of fish or animal can tolerate moderately acidic water, the animals or plants it eats might not. This heavily impacts industries such as the commercial and sports fishing industries, meaning that less fish will be able to be sold and will also deplete the food supply.

Acid rain also affects some buildings and bridges and speeds up the deterioration of them, including limestone statues and some metals including bronze, copper, zinc and nickel. This can be dangerous as these bridges may be destroyed which could, in some cases, destroy some lives. The decline of these buildings, statues and bridges can cost the government a massive amount in maintenance and repair costs.

Pollution is a negative externality in consumption. This means that a third party will suffer due to the products of the economic transaction. In this case, the producer (a car manufacturer) would sell the car to a consumer and when the consumer would use the car it would emit many poisonous gases from the exhaust pipes into the atmosphere. A third party (a person walking down the street) would inhale the polluted air affecting them in a negative way. The indirect costs include decreased quality of life, say in the case of a home owner near a smokestack and higher health care costs to treat things such as asthma or lung cancer.

Benefits of charging diesel vehicle owners on entering Manchester:

Government intervention that could be implemented is charging diesel vehicles to enter Manchester. This would make people consider whether it is worth using their car to enter Manchester as it would cost more, meaning they would have less money to spend on maximising their consumer welfare. With less people using diesel vehicles to enter Manchester, the amount of pollution created from said cars would also decrease therefore affecting less people balancing out the negative externality caused.

The diagram above shows the effects of the negative externality, in this case pollution. Social costs grow with the level of pollution, which increases with production levels, so at the point P1, Q1, cars are being overproduced as only private costs are considered in decisions. The minimization of social costs would lead to lower production levels. However, in this case the increase in price in cars caused by the government charging diesel cars to enter Manchester would move the price to P opt. and the quantity to Q opt. At this point, due to the price increase the Quantity would decrease as less people would be willing to spend the extra money to enter Manchester using a diesel vehicle creating a Social Equilibrium and stopping the overconsumption of cars. As the social costs are now being taken into account, less people are using diesel vehicles so the pollution would also decrease.

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Charging diesel cars for entering Manchester is a good way to raise government finance which could be used to fund other parts of the economy which have market failures such as inequality or reduce other taxes such as the lower brackets of income tax which would help the poor. With the additional funds that this policy would bring in for the government more could be spent on public transport which would also increase the amount of people who would use it, further reducing the amount of congestion and pollution on the roads.

Problems with charging diesel vehicle owners on entering Manchester:

However, charging only diesel vehicles to enter Manchester has its own problems. People may decide to start to use petrol vehicles instead. This would not solve the pollution or congestion problem as petrol vehicles cause damage to the environment too. Although petrol cars do not damage the environment as much as diesel vehicles, they still release carbon emissions such as carbon dioxide and carbon monoxide that add to the depletion of the ozone layer.

Also, the demand for diesel vehicles such as cars are price inelastic. This means that when the price changes, the demand does not change as much. In this situation, even if the government charge diesel vehicles to enter Manchester, people will still enter Manchester with their cars not resolving the pollution or congestion problem but still increasing the amount people would have to pay. If demand is price inelastic, the government may try to force the consumption to decrease by charging prices that are too high meaning many poor people may not be able to afford the extra cost, while the rich will be unaffected increasing inequality.

There are other cities that have already undertaken these regulations trying to tackle the problems of congestion and pollution. “London has had air quality charging in place for some time. Its ‘low emissions zones’ already cover most of Greater London and charge between £100 and £200 a day on the most polluting lorries, motor caravans, large vans, buses and coaches. However from next April a new round-the-clock ‘ultra-low emissions zone’ will also be introduced in central London to cover all Class D vehicles From that point anyone with a more polluting diesel car – generally those registered before September 2015 – will have to pay £12.50 a day to drive into the centre of the capital. The introduction of clean air zones has been considerably easier for London than it would be for Greater Manchester, however, thanks to the underlying camera infrastructure brought in 15 years ago to operate its weekday congestion charge.”https://www.manchestereveningnews.co.uk/news/greater-manchester-news/how-would-clean-air-tax-15248346.

Conclusion:

To some extent, charging diesel vehicles to enter Manchester is an effective solution as it would reduce pollution and congestion, therefore reducing the overconsumption of cars, reducing the effects of the negative externality. However, this policy also has its drawbacks. This policy may cost a high amount of money to implement properly and may drive poor people off the roads with their high charges. I do believe that the benefits outweigh the costs and the policy should be passed but the government should give the poor a subsidy/grant to buy a new less polluting car so that inequality is not increased as much.

Word Count: 1369

References:

Economic Issues with Water Distribution

Economics of Water

Environmental Economics

 

 

Abstract

 This paper will show the economic issues that arise with the distribution of water, water rights, usages and models that help to show issues with scarcity. Economics of the distribution of costs is becoming a large topic within environmental circles. Since water has been deemed a human right it cannot be owned by the public or a utility. Nonetheless, no one person, company, or country truly owns the water, they own the water rights.

Economic Issues with Water Distribution 

Access to water is a human right, free to the world, and ergo cannot be marketed. What this means is that there is not a one size fits all model for economists to determine policy costs and incentives to farmers, people, and cities to properly manage water. Existing incentives are out there for controlling pollution, irrigation practices, and agriculture incentives.

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1.     Background

Being the most common and the scarcest commodity on, the Earth. 70% of the Earth is water. Out of that amount, 97% of that is ocean water, only 3% of the that is fresh water. Out of that 3% nearly three-quarters of freshwater cannot be used as it is contained in ice caps and glaciers (Perlman). This means that in the future water may become a driving force for land control and wars. Distribution is irregular and not even, making the market for water fickle.

Water can be found in lakes, rivers, oceans, groundwater and even air. The hydrologic cycle, also known as the water cycle or the way water moves. Water can fall to the earth in the forms of rain and snow, the ground soaks up much of what is not taken in by plants and is then filtered and stored in underground aquifers. This is where most of the water that is used is gained from (Litely, 2018).

There are many areas of study when it comes to water. Many believe that there is not enough water for all the populace, with that being said, there will never be more water than there already is. This means that the amount of water that is on the planet right now will always be the same amount in the future. Distribution is the problem. There are extremely plentiful regions, such as the Great Lakes Regions, and there are regions that it is hard to find water, such as the Sahara Desert (Litely, 2018).

 

2. Economics

The market for water, like the market for any resource, works by generating or preserving ecosystem services and public and private interests, often in exchange for incentives. The mechanisms that are used, often auctions, are primarily one sided, taking into consideration supply of services or conservation (Uchida, et al., 2018).

Water resource projects must be a one-sided endeavor. What this means is that the policies that are made and determine where the water needs to distributed, should be based on the problem at hand. No one policy or idea will fix the entire water problem in the world. No two areas are the same and the policies in those areas need to be tailor-made to suit the problems in that area (Damania, et al., 2017).

A merit good, such as water, means a person is entitled to it no matter income, being determined as a necessity for life and has been deemed a human right. This becomes an issue when treated. This then makes water a private good as soon as it leaves the faucet. If a hydroelectric plant builds a dam to harvest water, they are renting that water and do not own it. Determination of ownership is the most important thing to understand when making policies (Damania, et al., 2017).

Models suggest that water consumption will increase by 30-50% by 2050. This is due to energy needs, population increases, consumption, and urbanization. Water supplies are limited. Whatever water is on the planet now is all there will ever be here for the end of time (Damania, et al., 2017).

 

2.1 Water Use

 2.1.1 Southern Europe

 The Lower Jucar basin of Spain has an exceedingly irregular water cycle. This area is often hit with long periods of drought and dry summers. The lower Jucar basin is a primarily agricultural based area consisting of over 102,000 ha that needs irrigated. This uses nearly 980 Mm3 of water per year. Areas that needs irrigation within this area are: Acequia Real del Jucar (ARJ), Escalona–Carcagente (ESC), Ribera Baja (RB), and Canal Jucar– Turia (CJT) This area also includes the Albufera wetland a very important and protected aquatic ecosystem of Southern Europe (Kahil, Connor, & Albiac, 2015).

(Ferreira, Almeida, Simes, & Prezmartin, 2016)

 With the increased amount of water needed for irrigation and the decreasing rainfall in the area, there have been numorous negative impacts. These include, water that is available to the ARJ district have been reduced by nearly 40% in recent years, as well as lower irrigation returns to the Albufera wetland(Kahil, Connor, & Albiac, 2015).

 This has lead to many researchers and economists to model different scenarios within the area. Climate and adaption scenarios in the area have found that by using grey water and farmers optimizing water applications predictions can be made and results are then presented in terms of irrigation changes, economic impacts, land use, and environmental flows (Kahil, Connor, & Albiac, 2015).

2.1.2 America

 The Scituate Reservoir Watershed located in Rhode Island supplies water to approxamately 600,000 residentes (Uchida, et al., 2018). The providence Water Supply Board (PWSB) controls 25% of the watershed.

(Faulkner, 2016)

The main goal of the PWSB is to improve the water quality of the watershed. The reservoir maintains a decent water quality, accordingly recent studies have found high levels of nutrients in the water. Studies were done to find whether side-supply auctions or demand side auctions would be the most economical actions (Uchida, et al., 2018).              (Uchida, et al., 2018)

 This demand curve shows how much farmers are willing to pay to reduce the amount of phosphorus that is leached into the water compared to the costs they were willing to spend. Farmers were only willing to spend on average $348 per kg of P compared to the amount of return. This means that farmers will only follow these policies if the amount of return is higher than the amount of output. If there is not enough of an incentive to enact these policies the farmers would not implement them (Uchida, et al., 2018).

3. Distribution of Water Costs

 3.1 Natural Monopolies

 Water treatment and distribution will never recover all operational costs for water. This means that many income revenues need to exist in order to make a profit in the water sector. When water becomes scarce in a region due to population increases, urbanization, and agriculture the amount of income needed for infrastructure, treatment and distribution increase (Griffin & Mjelde, 2011).

 3.2 Public Ownership of Natural Water

 Water a right of the public and furthermore cannot be owned by a utility. This means that the public technically rents the water that is supplied by companies that have rented the water from nature. This means that there cannot be a true monetary value placed on water (Griffin & Mjelde, 2011).

A company sets prices based on a scarcity-inclusive principle. A company will take inventory of the costs associated with water and the processing of it and then will offset those costs by charging a consumer for the use of water, not for the water. This is done by considering the opportunity costs that are taken up by a utility based on the rental rates for water within the service market area and then transforms that cost to the consumer in the rates they are charged (Griffin & Mjelde, 2011).

 3.3 Rent Dispersal

One method of rent dispersal is that it can be done wastefully, i.e. at the least cost. Production is often organized poorly and remarkably inefficient. When there is competition in an region for a good, services tend to be done efficiently. Consumers will only pay for the best product at the lowest cost to them (Griffin & Mjelde, 2011).

Another method is to give sudsidized access to excess surpluses. When water is treated as an open access market, the gains to be made are lower. In water scarce regions utilities take excess surplus because they allow for extra investments within an are or they are willing to pay for expansion of water treatment areas. This causes entry fees to overshadow entry, in turn existing users are made to pay the same price for lower amounts of surpluses (Griffin & Mjelde, 2011).

Conclusion

 Water is right. Hence it cannot be treated as a comodity. There are many out there who do not even have access to water on a daily basis. There is only so much water out there, it cannot be created. This means that with increases in urban areas, agriculture, and populations, water will become exceptionally scarce. Distibution tactics should be user friendly and have an offset cost. Utilities need to find a way to lower the costs of water while still allowing for a clean and useful product.

Reflection

 I got the idea for this by watching an episode of Bill Nye Saves the World. He stated in the show that water may be the next oil in terms of wars and money. Well this struck me as a little odd until I started researching for this paper. I am into going into the wastewater treatment sector and this paper just helped to solidify that idea. There is only so much water out there and the more we use, the less is put back into the world. There is only a finite amount of water out there and there will never be any made. By taking this into consideration, there needs to be more policies directed to the proper use of water and making it accessible to the public. Companies only own the rights to water, not water. This was a new concept to me. I also did not realize that the costs passed on to the consumer were considered to be a rent as well. We are paying for the processing and transportation of the water not the water itself.

Works Cited

Damania, R., Desbureaux, S., Hyland, M., Islam, A., Moore, S., Rodella, A., . . . Zaveri, E. (2017). Uncharted Waters: The New Economics of Water Scarcity and Variability. Retrieved January 10, 2019, from https://www.worldbank.org/en/events/2017/10/17/uncharted-waters

Faulkner, T. (2016, November 29). Floodgate Being Considered for Scituate Reservoir. Retrieved January 10, 2019, from https://www.ecori.org/smart-growth/2016/11/28/floodgate-considered-for-scituate-reservoir

Ferreira, D., Almeida, J., Simes, M., & Prezmartin, M. (2016). Agricultural practices and geostatistical evaluation of nitrate pollution of groundwater in the Júcar River Basin District, Spain. Emirates Journal of Food and Agriculture,28(6), 415. doi:10.9755/ejfa.2016-04-346

Griffin, R. C., & Mjelde, J. W. (2011). Distributing waters bounty. Ecological Economics,72, 116-128. doi:10.1016/j.ecolecon.2011.09.013

Kahil, M. T., Connor, J. D., & Albiac, J. (2015). Efficient water management policies for irrigation adaptation to climate change in Southern Europe. Ecological Economics,120, 226-233. doi:10.1016/j.ecolecon.2015.11.004

Litely, C. (2018, September 17). Bill Nye Saves the World – Episode 2 “Surviving In a World Without Water” (Recap and Review). Retrieved January 10, 2019, from https://thegameofnerds.com/2018/05/31/bill-nye-saves-the-world-episode-2-surviving-in-a-world-without-water-recap-and-review/

Perlman, H. (n.d.). How much water is there on, in, and above the Earth? Retrieved January 10, 2019, from https://water.usgs.gov/edu/earthhowmuch.html

Uchida, E., Swallow, S. K., Gold, A. J., Opaluch, J., Kafle, A., Merrill, N. H., . . . Gill, C. A. (2018). Integrating Watershed Hydrology and Economics to Establish a Local Market for Water Quality Improvement: A Field Experiment. Ecological Economics,146, 17-25. doi:10.1016/j.ecolecon.2017.09.003

Social and Economic conditions and their impact on NHS Funding

Introduction:
In the middle ages, access to health care and sanitation facilities was only available to people belonging to a sound socio-economic background. Hill, Griffiths and Gillam (2007) state that in earlier time, even ensuring the supply of clean water and sanitation facilities was a tough task for municipal authorities. It was not until eighteenth century when provision of health services began to get recognition as government’s responsibility.

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The NHS was founded in 1948 and is the currently the world’s largest health service that is publicly funded. The basic idea behind the establishment of the NHS was to ensure that people from all kinds of socio-economic backgrounds receive health facilities without any discrimination. This makes the service free for any individual who is a resident of the UK. According to the official statistics of the NHS, it deals with about 1 million patients every 36 hours. Funds for the NHS come directly from taxation. The NHS budget for 2008-2009 was more than £100 billion, which means a contribution of about £1980 by every individual in the UK.
Considering the fact that health and education are the most important public services on any government’s priority list, however the functionality of these services is directly related to the social and economic conditions. Same goes for the NHS, which has faced management crisis during times of economic austerity, both in present and the past. Although the NHS has seen a sharp increase in funding over the last few decades, however, given the current economic recession, the chances of future funding are quite uncertain. It is feared that either the NHS will go through a funding cut or the government will have to resort to tax-raising measures.
Health Care and Social and Economic Conditions:
Although good health is a need of every individual, however, the access to health care services is greatly dependent on the social and economic conditions of both the individual and the country he is residing in. An individual can either opt for a private health care service, which is subjected to his willingness and ability to pay for it, or is dependent on the services provided by the government. A large proportion of the population goes for the latter option. A poor socio-economic condition of the country means that either a person sacrifices on his health or will forgo any other of his basic needs in order to pay for medical bills. According to the Social Care Report 2008-2009 issued by the Health Committee of the House of Commons, A care gap may occur if people avoid using services wither because of affordability issues or if the services do not meet their requirement. The report also claims that the past three years have seen a significant drop in the number of people using the public sector health services, despite of the fact that the country’s ageing population have increased by 3%. This makes it apparent that either the public cannot afford to pay for the health care services or the government is finding it difficult to ensure the provision of standardized health facilities on equality basis.
At the same time, given the economic crises, the government itself also gets stingy with providing funds due to lack of resources. Consequently, the quality of service provided by the NHS is compromised. Fowler (Taylor and Field 1998, p. 158) states that lack of resources means that new hospital building would not be built advanced medical technology and equipment could not be purchased and the staff would be working under conditions that would demotivate them. This directly questions the value for money provided by the NHS services.
George and Miller (1997) state that in 1960s and 1970s politicians started to doubt the economic viability of a “universalist welfare state”. They argued that achieving economic growth is the government’s primary objective that is being sidelined due to increasing public expenditure. Consequently, they demanded a cut in public expenditure, which meant less funding for public sector health services.
Powell (George and Miller 1997, p. 8) claimed that public expenditure has overshot economic growth by a substantial margin, thus resulting in disastrous financial effects including internal inflation, external devaluation and foreign indebtedness. Lees (George and Miller 1997, p. 8) argued that medical care should be treated like any other commodity available in the private market. This will not only make the NHS more cost efficient, but will also make it less politicized and will offer more consumer choice.
Although while debating on making the public health services free at the point of use, many social scientists and economists agree that it can be easily funded by taxation, they tend to overlook other factors, which may directly or indirectly effect the NHS funding. McLeod and Bywaters (2000) argue that the inflationary pressures on the NHS funding of the pharmaceutical and medical technology industries and the continued presence of private health care services are two major constraints on measures for equitable health care. Moreover, the deteriorating condition of hospital buildings and their repair and maintenance costs also add to the financial pressures.
Funding Public Health Services:
Although the funds for the functionality of the NHS are directly acquired from taxation, however, it should be noted that all the capital works such as building hospitals are funded through Private Finance Initiative (PFI). This means that these capital works are being financed through loans raised by private sector financing institutions. According to Pollock, Shaoul and Vickers (2002) this is a very expensive way of financing the NHS. Using Private Finance Initiative requires the NHS to pay an annual fee including the cost of borrowing. Considering the fact that the NHS is a free service at the point of use, this method leads to an affordability gap for the NHS trusts. As a result, the NHS is forced to resort to external subsidies, charitable donations, sale of assets and even cuts in bed capacity and hospital staff. This in return makes the NHS questionable as the idea behind its establishment was to ensure access to health facilities to everyone without any class difference.
When a large proportion of a service is being funded by the tax payers, then the service providers are suppose to make sure that they are being cost efficient and provide the value for money. Unfortunately, this has not been the case with the NHS. Davies (2007) states that the NHS was provided with unprecedented funds, however it still overspent by a substantial amount. Moreover, clinical outcomes, waiting periods and the level of satisfaction of patients are all less as compared to that provided by private health care services. According to Davies (2007), the government argues that if the NHS manages itself efficiently, the NHS trusts can achieve significantly positive results.
Conclusion:
The problems in the health sector are similar to any other economic problem. It is facing a price hike due to gaps in demand and supply. The list of people waiting to get medical treatments is mounting up but there is a shortfall of resources to cater that list.
One suggestion given to deal with the problem is to impose user charges on the services provided by the NHS. Some critics argue that if user charges are imposed it will give two benefits. Firstly, it will generate funds for the NHS to finance the shortfall. Secondly, people will start taking care of their health and will make healthy choices in order to avoid seeking a medical care. The first argument is a socially unfair argument. The current economic conditions are such that people make sacrifices even when choosing in between the basic necessities. Imposing user charges on health means that they will start avoiding seeking medical treatment not because they do not need it, but because they cannot afford it. The second argument requires one to assume that people are aware and educated enough about what “right” choices they need to make in order to seek minimum medical help. Countries like France and Germany have already tried this approached and it only resulted in undermining the efficiency of public sector health services, rather than helping to achieve the required results. Therefore, imposing user charges for the NHS consumers should not be considered. Instead, the government and the NHS trusts should look for alternative instruments.
In order to deal with the problem the government will have to make both short term and long-term strategies. In short term, it should be ensured that the NHS becomes cost efficient and the consumers get value for their money. This can be done by minimizing dependency on the private finance initiative.
On long term basis, preventive measures should be taken and the emphasis should be on primary care. People should be educated such that take care of their health so that they are least prone to diseases.
REFRENCES
Davies, P 2007, The NHS in the UK 2007/08, London.
George, V and Miller, S 1997, Social policy towards 2000: squaring the welfare circle, Routledge, London.
Hill, P, Griffith, S and Gillam, S 2007, Public health and primary care: partners in population health, Oxford university Press Inc., New York.
McLeod, E and Bywaters, P 2000, Social work, health and equality, Routledge, London.
Taylor, S and Field D 1998, Sociological perspectives on health, illness and health care, Blackwell Science Ltd., London.
Pollock, A, Shaoul, J and Vickers, N 2002, Private finance and value for money in NHS hospitals: a policy in search of a rationale, viewed 21 October 2010,
Thomson, S, Foubister, T and Mossialos E 2010, Can user charges make health care more efficient?, viewed 21 October 2010,
2004, Health Economics, Biz/ed, viewed 21 October 2010,