Discuss About the Social Impact of Financial In Management?
When the financial institutions or assets all of a sudden face a drop in their value, such a situation is called financial crisis. With the help of this article, we are going to analyze the global financial crisis, the reasons for the occurrence of the same, and the actions that can be taken for recovery from the same (IEA, 2009). We are also going to study how the financial crisis can impact the society in financial and other aspects and how the road to recovery from the crisis is full of challenges for the business, the governments world over and the society at large. As a civil society, we need to understand that we are responsible for the economic well-being of our country and the world. It has been stated by various economic leaders and financial analysts that there is little we can do to prevent a financial crisis from happening (Dullien, et al., 2010). What we can do however is to plan and design out financial and political institutions in such a way that the country and the world is able to survive with minimum possible loss. There have been various comments made for the prediction of the economic crisis and shielding oneself from its impacts but it is a widely-accepted fact that the financial crisis has a spiraling and far reaching effect on the economy and the society which has lasting consequences (European Union, 2013). During a financial crisis, the demand for money in the market is less than the supply and this results in the drop in the prices of the assets. This makes the market less liquid and the banks and other financial institutions have to make up for the loss in the money supply in the market (Verick & Islam, 2010). The financial crisis results in large scale unemployment, mergers, drying up of credit lines and bankruptcies. In the society, it leads to polarization as the rich get richer and the poor get poorer and the personal and social consequences of economic crisis also result in a rise of populist endeavors of the political leaders who see an opportunity in this situation. This report covers each of these impacts in detail and critically analyzes them to see the complexities that the business and the society has to face following an economic crisis (Programme, 2012).
Economic crisis: Impact on the society
The financial crisis or turmoil and its effects are not just limited to the economy of the nations and the world. They have societal, moral and ethical impacts as well. The short-term orientation and the capitalistic mentality are considered the most preferred system for wealth creation. A financial crisis occurs when there is a shortage of investment capital in the market and the investors could not obtain any credit source due to this. When we talk about the economic crisis, the one time that stands out is the economic crisis of 2007 – 2008. The largest catastrophe to ever hit the economy was this crisis that uprooted some of the major financial institutions and business houses (Milio, et al., 2014). Although there have been a number of slowdowns in the economy, none has been able to match the massive impact of the one in 2008. The economic crisis of 2008 led to mass unemployment, monetary loss, fall in prices and huge economic loss for all the major economies of the world. In this article, we are going to study the social perspective of the economic crisis and how the slowdown in the economy impacts the dynamics and functionality of the society at large. The economic meltdown, be it for a particular economy or for the world, causes a domino effect. It leads to the deceleration of the economic growth and contraction of the economies and their reach. The housing and real estate market collapse when there are no takers even with the exponential fall in the prices. This eventually leads to contraction of trade among the world economies and causes the reversal of capital flow from private players (Ramesh, 2009). The economic crisis also causes increased volatility and fall in prices for various other commodities. The faith of common public on the financial institutions was reduced as most of them were not able to withstand the unrest. In most countries, the maternal mortality rate as well as infant mortality rate went up for all the nations going through the crisis and the revenues from the travel and leisure industry reduced sharply. There were various steps taken by the countries to cushion the effects of the crisis and stabilize the economies. Most of there were directed towards the economic working conditions, but some were also taken to improve the deteriorated conditions of the society (Organization, 2011). Every change or transition in the society impacts its course of development and changes its path of progression. The economic crisis and its downturn was so severe that the economies continue to suffer from it even about a decade later. The recovery has been very slow and some of the organizations were never really able to recuperate from the blow of the economic slowdown. The weak recovery has fueled some of the major political debates and has inclined the politics towards populism. It has also resulted in polarization and uneven distribution of the wealth among the various sections of the society (Hayashi, 2009).
Social polarization and rise of populism
The society and the economy faces a massive blow at the time of economic slowdown. It results in poverty, unemployment, exclusion and social polarization. The rise in unemployment leads to a steep decline in the faith of the people in economic institutions. The socioeconomic conditions of the nations include the extensive unemployment and loss of hopes for the upcoming generations. The lack of jobs also leads to poverty, discrimination, violence and xenophobia. The rampant unemployment caused the people to take up skills training and self-employment (Anduiza & Rico, 2016). The socio-ecological impact of economic crisis is related the economy and its trends to the ecological transitions and the debt that we are raising due to expansion in the world without a limit to it. The introduction of business ethics and sustainable growth of the economy might guide the world and the developed economies mostly, towards a stable economy. The socio-technical perspective of economic slowdown can be studied by analyzing the technological advancements (Kriesi & Pappas, 2014). Many economists link one with the other. Some of them have even associated the major economic slowdown with the colossal internet and dot com bubble of the 90s. The slowdown definitely has long lasting negative effects on the technological transitions but at the same time it gives the opportunity to the masses to turn towards the green technology and renewable energy sources. The socio-technological paradigm shift and the system with sustainable development might give way to an economy that has less fluctuations and rises with a steady pace and growth rate (Durant & Hirsch, 2013).
The political perspective of this economic downturn can be studied with the change in the outlook of the masses and their shift in perspective towards their leaders. The economic slowdown resulted in an epidemic of mistrust and dissatisfaction towards the leaders. The public lost confidence on their leaders as they were helpless at the time of recession and the public outrage was also associated with the accumulation of money with the highest economic segments and inequality in the distribution of wealth among the various sections of the society. They led to the revision of power structures and hierarchy to better understand and handle the public anguish. The public complained of social polarization and inequality among the masses (Magri, 2016). The cohesion among the societies drops due to polarization and they rift further apart because of this. Polarization impacts the weaker sections of the society the most as they are the ones who suffer a greater loss. When the resources are unevenly distributed and scarce, the poor get poorer and thus they are the ones requiring greater support from the political leaders and the society at large. The threat of polarization gets even higher at the time of economic slowdown. The people tend to turn away from the existing political institutions. Polarization indicated towards risk of an uprising or civil war in the country. This is evident from the examples of various Africana nations when the government was unable to distribute the resources evenly among the population. Urban Poverty is another new concept that has come into picture recently. This is also an outcome of polarization of the society. The vast difference between the high class and lower class in the society leads to deprivation of wealth and resources. Economic displacement and emigration causes the concentration of economic development in few parts of the country and although the entire nation is progressing and developing, the development and progress is limited to these few areas only. Polarization can be tackled with prior planning and reduction in income disparities (Perruci & Sanderson, 1989). This can only happen if the people are provided with the skills and facilities required. The United States, which is the biggest economy in the world, accounts for the highest income disparity. This also leads to voluntary segregation where people of similar economic class happen to live together in a locality. The people belonging to higher economic groups generally tend to move away from the areas where the people belonging to lower economic groups are located. While most of the time this is self-enforced, at times this is also done voluntarily by the economic sections. The governments may try to break this trend, but even the proximity of the poor sections with the rich does not bring about development or any benefit to the weaker sections. The urban polarization is a complex subject and its analysis has brought about a few changes but nothing significant has been achieved out of it. Polarization will continue to haunt the societies and going by the current societal norms, economic slowdown will only hit the middle income groups the worst. This will further aggravate the problem of polarization thus, the business leaders, politicians and the society need to find out a way for remodeling and planning this social situation (Schulz, 2016).
Most of the economic leaders and analysts had predicted a collapse of the faith of people in the political establishments after the economic crisis of 2008. The economic downturn led to collapse of free trade, control of money supply in the economy and deregulation of trade. The public was accepting austerity as a norm and had very low expectations from the market. The trend recently has been inclining towards populism and people centric politics. The populists are identified as the leaders who are plain talkers and one from the masses. The rise of the populist parties in the United States, Canada, United Kingdom, Australia and a few countries of Europe. It has been pointed out on various occasions that the downfall of economic and financial crisis leads to rise in populism in the society. The populist leaders are anti-establishment and strong leaders who voice their opinions undeterred of the consequences. The rise in cultural and societal conflicts has made populism even more popular. The economic issues of the society are no longer treated as a priority and the cultural issues have taken their place instead. . Populism is majorly defined by three principles. The first is an appeal to popular sovereignty over and above liberal democracy. The second being that of the anti-establishment and the third is freedom from mechanisms and political structures. A populist leader has a mass following and stands against the affluent groups of the society and the ones with the liberal values. Populism emerges as a driver for the national economy as well (BBC’s Democracy, 2015). It shapes the economic conditions and impacts the monetary and fiscal policy of the nation. The rise in populism has also led to the ringing of the alarm bells in the financial institutions as they have to additionally secure themselves against the political risks involved. Populism is not a new concept, it dates back to the 1980s, when the rural populations were pitted and the Russian economy witnessed the narodnichestvo movement. At the same time, the Americans witnessed a clash of the Democratic party and the Republican party. The European Fascism and Communism also draw its roots from populism. Populism pits the people of the nation against the corrupt elite class and this can be the biggest reason for its mass following. Populism encourages the people from the weaker sections of the society to join politics and represent the people. Some of the people from the opposition also argue that populism has a firm belief that people are always right. This contradicts the belief of the liberals who stand for the minorities and the rights of the law (Funke, et al., 2015).
In this article, we have analyzed how the economic downturn has impacted the global financial situation. The economic recovery has caused the nations to strategize and plan for the upcoming financial trends and situations. Although there have been a number of slowdowns in the economy, none has been able to match the massive impact of the one in 2008. The economic crisis of 2008 led to mass unemployment, monetary loss, fall in prices and huge economic loss for all the major economies of the world. We have studied about the economic crisis of the year 2008 and tried to examine its impact on the economy of the developed nations and the world. We have also tried to study the impact of the financial crisis and economic situation on the society and the business houses. The society was greatly impacted by the economic downturn and its impacts are still being observed, although in a smaller level, in the society. It gave rise to populism that has led to the dramatic change in the government and its hierarchy. Any economic crisis has large scale unemployment as its biggest consequence. The rise in unemployment leads to a steep decline in the faith of the people in economic institutions. The socioeconomic conditions of the nations include the extensive unemployment and loss of hopes for the upcoming generations. The lack of jobs also leads to poverty, discrimination, violence and xenophobia. The rampant unemployment caused the people to take up skills training and self-employment. As a civil society, we need to understand that we are responsible for the economic well-being of our country and the world. It has been stated by various economic leaders and financial analysts that there is little we can do to prevent a financial crisis from happening. What we can do however is to plan and design out financial and political institutions in such a way that the country and the world is able to survive with minimum possible loss.
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