Politica economica - Appunti

The Keynesian Model

John Maynard Keynes began and ended his life in the employment of the British Treasury. He was also economist called Michel Kalecki, and developed the model of a capitalist economy. He was concerned with the negotiation of reparations that were to be paid by Germany to the victorious Allies at the end of the First World War. According to Keynes this reparations would only harm to the Allies, in fact Germany would use much of the earnings from her exports to pay Allied but in this way their industries suffered. So the capitalist market model suffered for the unavailable capacity to produce goods. Keynes should have continued to work when markets collapsed and this fact created a sort of downward spiral of world trade with the collapse of banks and markets, millions of unemployed etc. Keynes's aim was to rescue the capitalist system.

KEYNESIAN MODEL WITH GOVERNMENT INTERVENTION

Keynes' idea was to increase their expenditure in a crisis. The first country to adopt

This policy was implemented in Sweden after the US President Franklin D. Roosevelt was influenced by Keynes's ideas and introduced the so-called New Deal. The aim was to reduce unemployment in North America by spending government money on road and river development, among other things. Keynes believed that government investments in infrastructure such as roads, schools, and hospitals would not lead to a failure of employment in the capital-goods industries. He suggested that governments could use their own investment programs to balance private investment and could run a deficit or a surplus by spending more or less than they collected in taxes.

The monetarist strategy, on the other hand, focused on cutting public expenditure. It was a revival of the old market model, with inflation becoming the number one enemy instead of unemployment. According to the monetarists, inflation is caused by an excessive increase in the supply of money. They argued that reducing the quantity of money and raising interest rates would be the first steps to combat inflation.

that government spending must be cut. In this way with less money and credit available, firms, and public authorities will have to resist the wage demands of trade unions or face bankruptcy.

The wage rise is the principal element that causes inflation. The resistance of employers can be strengthened by government legislation to reduce the power of the unions. In this way wage pressures will be further reduced and inflation will be finished.

But this model increased the number of unemployed; only later a reduction in payments, especially to pensioners, bring public spending down so that taxes could be cut.

CONSERVATIVE GOVERNMENT'S MONETARIST STRATEGY

The aim of Thatcher's Medium Term Financial Strategy was to reduce monetary growth through cuts in the public sector. This caused a raise of interest rates and a fall in industrial production.

In the UK Unemployment from 5 per cent in 1979 to 12 per cent in 1982 and so the British nation was dived between who had the security of regular

employment and who had not.

MANAGEMENT

The Role of Management

Management and Entrepreneurship

Management is the factor in production which brings together the other three factors: natural resources (land), labour, and capital. At the beginning of capitalism, in small businesses today, the owner of the business firm was also its manager; this person is called an entrepreneur.

One of the characteristics of large-scale business is the separation of ownership and management. The large business corporation of today is owned by thousands of stockholders.

When business started, the entrepreneur must risk his own money but he may be able to get others to share the risks.

Management in the Single Proprietorship

The individual enterpriser (owner-manager) receives the profits and suffers the losses. Generally single proprietorships are small businesses and so we speak about retail trade like shops, repair shops etc. There are many advantages such as if you are the owner and the manager of a business you will

Enjoy being your own boss and there will not be conflicts in the management; but there are also disadvantages such as you probably will be limited in the amount of capital, no single person can be expert in all aspects of the business, the single proprietor have unlimited liability etc.

Management in a Partnership

A partnership is a business owned by two or more persons. It is ordinarily created by a written contract, called articles of partnership. Articles of partnership generally contain the names of the partners, the amount of capital and the manner in which the profits (or losses) are to be shared and so it's very important to choose honest and able associates. If one partner doesn't take an active part in the management of the business, he may be a silent partner; a silent partner receives a share of the profits and losses.

The are many advantages in partnership such as: two or more persons can usually give more capital and credit for a business, certain types of taxes which are

Imposed on corporations are not imposed on partnerships etc. But there are also disadvantages such as debts and other obligations taken on by one partner are binding on (are shared with) the other partners, a partnership may be broken up, or dissolved when a partner dies or when the partners fail to agree, partners may find that they cannot work together harmoniously etc.

The Management of Corporations

Corporation owners usually delegate the management to others. The stockholders elect a board of directors, usually once a year; the board of directors determines the policies of the corporation. Generally the usual officers are a president, vice-president, secretary, and treasurer. Under the direction of an expert manager, a business may be very successful. For this reason, it is important to employ skilled and expert managers and we say also that capital can be given from investors who haven't the responsibilities of management. There are many advantages such as the life of a corporation may continue.

for an indefinite number of years, since stockholders can sell or transfer their shares; stockholders have limited liability, in fact their financial responsibility is limited to the amount they have invested in stock. There also many disadvantages such as the separation of management from ownership sometimes create irresponsible management; corporations are generally taxed more than other forms of business. The Management of Co-operatives A co-operative is a business owned by its customers. Co-operatives are frequently organized in rural areas to buy, for example, supplies economically. Members purchase one or more shares of stock; the board of directors determines general policies and chooses a manager to administer the business. There are many advantages such as democratic control of business; profits divided according to the business each member transacts. There are also many disadvantages such as It's difficult to raise capital; expert managers are not attracted to a small and

“non-profit” business.

THE THREE MAJOR TYPES OF MERGERS

Generally, mergers mean any transaction that forms one economic unit from two or more previous ones (firms). We have a horizontal merger between two firms of the same kind of business activity; horizontal mergers are regulated by the government for their potential negative effect on competition, in fact it can power the monopolies.

We have Vertical mergers between firms of different kind of production; for example in the pharmaceutical industry we distinguish between research and the development of new drugs.

We have Conglomerate mergers between firms engaged in unrelated types of business activity; three types of conglomerate mergers have been distinguished: Product-extension mergers broaden the product lines of firms, a geographic market-extension merger and the other conglomerate mergers.

JOINT VENTURES

Mergers mean complete fusion of two independent firms. Joint ventures represent another form of relationship between two or more

business entities (firms). The characteristics of joint adventures are:

• Contribution by partners of money, property, effort, knowledge, skill
• Right of control or management of the enterprise
• Right to share in the profit

So, joint adventure has limited scope and duration and each partner must have something unique and important to offer the venture.

In the last years, joint ventures have come to be called "strategic alliances". There are a lot of reasons to came in joint adventures:

1. Share or to combine a large company that has money to invest with a smaller company with a product idea but with insufficient funds (money).
2. For a large company, a joint venture is a method of reducing the investment and share the risks.
3. Antitrust authorities may be more willing to permit joint ventures than to permit mergers.

Ian Mackenzie, English for business Studies, Cambridge University Press

THE THREE SECTOR OF THE ECONOMY

The primary sector: is the agriculture, and the extraction of raw

materials from the earth.

The secondary sector: manufacturing industry, in which raw materials are turned into finished products.

The tertiary sector: the commercial services that help industry produce and distribute goods to the final consumers.

MANUFACTURING AND SERVICES

Two hundred years ago, the majority of the population lived in the countryside and worked in agriculture. Today only 2-3% of the population earn their living from agriculture.

THE BANKING INDUSTRY - COMMERCIAL BANKS - INVESTMENT BANKS - UNIVERSAL BANKS - THE CENTRAL BANK

Commercial or retail banks are businesses that trade in money. They receive and hold deposits, pay money according to customers' instructions, lend money, offer investment etc... Banks also create credit, because the money they lend, from their deposits, is generally spent and in this way transferred to another bank account. So when they lend money, bankers have to find a balance between yield and risk.

Merchant

banks in Britain raise funds for industry on the various financial markets,international trade. They also generally offer stockbroking and management services to rich corporate and individual clients. While investment banks in the USA make their profits from commissions that they charge (receive - pay) for their services. The distinction between commercial and investment banking has become less clear in recent years. In some European countries (notably Germany, Austria and Switzerland) there have always been universal banks that combine deposit and investment service. In most financial centres, there are also banks which make Eurocurrency business. A Eurocurrency is any currency held outside its country of origin; so central banks have no control over foreign currencies. STOCKS AND SHARES A successful, growing company can apply to a stock exchange to become a public limited company (GB) or a listed company (US). The act of becoming a public limited company or a listed company allows the company to issue shares to the public, which can be bought and sold on the stock exchange. This provides the company with a way to raise capital for expansion and investment.