WORLD WIDE RECESSIONS AND

THE ROAD MAP FOR ITS REVIVAL

by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
FOR – PGPSE PARTICIPANTS
mobile : 91+9414430763

5 DECEMBER 09 www.afterschool.tk 1
 WHAT IS RECESSION?
In economics, a recession is a stage in
business cycle which shows contraction, a
general slowdown in economic activity over a
period of time. Generally it comes after a
period of boom or massive unplanned
expansion. There are many characteristics of
recession: 1. reducing demand 2. falling prices
3. closing factories 4. credit defaults 5.
bankruptcies
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 What is capitalism ?
An economic system in which investment in
and ownership of the means of production,
distribution, and exchange of wealth is made
and maintained chiefly by private individuals
or companies. Means of production include
machines, labour, and other factors of
production. Here the investors invest money
primarily to earn profit. The USA, the UK, and
most of the Europe follows Capitalism now.
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 BASIC ELEMENTS OF
CAPITALISM

Minimal government intervention

incentives for profit
freedom to business
market forces (demand and supply) dictate
their terms
exclusive control of private sector
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 IMPACT OF CAPITALISM ??

Widening gap between rich and poor

No control on economic system
Minimal role of government
Excessive and negative role of money and
profit motive
Trade cycles – which results in severe crises
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 Link between capitalism and
recession ? ? ?
Recession spreads from the countries which
follow capitalism. These countries dont have
well established government regulations. Here
market forces are allowed to remain
uncontrolled and it is assumed that market
forces will remove all distortions. Market
forces (like demand and supply) create their
own set up. Recession happens when demand
shrinks and supply bubbles up.
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 RECESSION 2008-9
This is the worst recession after 1930. It started
with sub-prime crises in the USA. Many banks
collapsed Many countries failed to meet their
oblligations. The USA, Europe, Middle East,
are the worst affected. Most of these countries
experienced decline in their GDP and increase
in unemployment. In the USA unemployment
rate crossed 10% & over 6.5 million people
lost jobs.
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 REASONS FOR RECESSION?
From SIVA to NINJA
ARM, MBS & CDO
Fannie Mae and Freddie Mac
The Glass-Steagall Act
Community Reinvestment Act
Alternative Mortgage Transactions Parity Act 1982
Liberal mortgage by banks and financial institutions
Lavish Expenditure – borrowing without limits
A lifestyle of consumerism
Lack of proper audit about security and conservatism
Mortgage of housing property – subprime crises

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 How recession spread ???
On 15 September 2008, Lehman Brothers filed
an application for bankruptcy.
Many banks failed. Some 2 dozen banks failed
in 2008 and over 4 dozen banks failed in 2009.
FDIC of the USA had to pay $17.6 billion in
2008 alone due to failures of banks.
Investors lost confidence and therefore their
withdrew their money from banks, financial
institutions and stock markets.
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 Rescue measures

The US Government allocated $700 billion bail

out package to overcome the recession.
Many countries across the world started heavy
public spending and relief to industries to
enable them to survive in recession.

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 IMPACT OF RECESSION

Massive closures
Massive retrenchments
Massive unemployment
US and European banks expected losses $2.8
Trillion
Worldwide 20 Million people suffered directly

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 SOLUTIONS

Search for alternative economic systems

Capitalism has again and again proved to be a
hollow system – where people chase money in
a mad-rush and the entire economic system
works only at profit motive. There is utter
disregard to environmental and societal issues.

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 ALTERNATIVES . . . .

Gandhian philosophy of gram swarajya

Socialism
Trusteeship
Welfare state
Indian Philosophy
Mixed Economic System

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 GANDHIAN PHILOSOPHY
Gram Swarajya is the basic tenet of Gandhian
Philosophy. Here the basic idea is that each
village should be self sufficient. Each village
should work like an autonomous instituiton and
should be an absolutely democratic institution.
People must promote a truly collaborative and
congenial environment in the villages. This
philosophy gives emphasis on eco-friendly
technology, use of manual labour,
collaborative work etc..
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 Socialism
It refers to the theory of economic organization
advocating either public or direct worker
ownership and administration of the means of
production. Here the means of production like
capital, land, labour etc. Are controlled,
managed and supervised by workers. Thus it is
based on the idea of egalitarian system which
spreads equality. So the true owner of the
factory is the worker working in it.
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 Trusteeship
This idea is also given by Gandhi ji. Here each
industrialist has to adopt the ideas of
trusteeship in his life and work. Being trustee
means that each person is a trustee of society
and not the owner of the property. The
property belongs to the society, but a person
merely acts as trustee. Thus industrialists have
to work like trustees of society safeguarding
and using the property for the benefit of
society.
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 Welfare state
This concept was first mentioned in 1941. It
was popularised by scholars like Amartya Sen.
The idea is that the government must spend for
the welfare of the people. Thus the poor and
marginalised persons have to be supported by
government. Thus it is the prime responsibility
to spend money for development of the poorest
of the poor. Thus this will bridge the gap
between haves and have-nots and provide
equal oppportunity to all.
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 Indian Philosophy

Indian philosophy had a philosopher called

Charvaka (the present philosophy of the
CAPITALISM), however, majority of Indian
thinkers disdained the philosophy of Charvaka.
They suggested for a wholistic approach,
giving due respect to enviroment, society and
pursuing goals of Dharma, Artha, Kama and
for ultimate Nirvana / Moksha of life.
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 Mixed economic system

Under this system, we combine capitalism and

socialism. Here there is an equally important
role of both government and private
entrepreneurs.

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