2. management and society

8/2/2019 2. Management and Society

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BUSM4185

Introduction to Management

Week 2Management and Society

Part 1


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Introduction

CLASS OBJECTIVES

Develop an understanding of the term political economy.

Recognise how this has changed over time.

Be able to describe the different theories of 3 main contributors tothe field of political economy.

Understand the difference in these three points of view.

Apply these theories to the Vietnam context.

RMIT International University Vietnam 2


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Textbook


This topic does not correspond with anychapter in the text book.


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Political Economy

Why are some countries richer than others?

Political Economy refers to policy issues arising in thearea where politics meets economics. It has aparticular focus on improving economic performance.

As such we dont just ask Why? but instead we need

to ask What do we need to do? regarding financialcrises, unemployment, rising inflation, and othereconomic issues.



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Political Economy

Who owns what?

How should things be managed?

Who works for who and why?

What is the governments role?

How should laws be made?

Is there fair distribution of wealth?

Who tells who what to do?



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Foundations of Political Economy

There are many people who have been involved in thedevelopment of Political Economy but here we willfocus on three:

Adam Smith

John Maynard Keynes

Milton FriedmanRMIT International University Vietnam 6


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Adam Smith1723 1790

Developed political economy and used it to describe what wenow call economics.

First, to enable the people to supply a plentiful revenue forthemselves and, second, to endow the state with sufficientrevenue to provide public services (Smith, 1776)

The rise of political economy reflects the rise of the state, linking

it with politics. As the modern state developed, so too did thedesire to understand how wealth was created for society, ratherthan just for a reigning monarch.

.RMIT International University Vietnam 7


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Adam Smith1723 1790

The invisible hand of the market produces an efficient use ofresources overall, even though producers and consumers actonly in their own interests.

It is not from the benevolence of the

butcher, the brewer or the baker, that

we expect our dinner, but from theirregard to their own interest. (Smith, 1776)

http://www.youtube.com/watch?v=4FHxpoQqPTU

http://www.youtube.com/watch?v=4FHxpoQqPTUhttp://www.youtube.com/watch?v=4FHxpoQqPTUhttp://www.youtube.com/watch?v=4FHxpoQqPTU


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John MaynardKeynes

1883 1946

The Great Depression of the 1930s saw some countries haveunemployment levels exceeding 25%.

The classical solution was to reduce wages so that employerscould hire more staff, which reduces unemployment. Theproblem was that if people continued to receive lower salaries

they could buy even less products, causing more of a problem.

http://www.youtube.com/watch?v=JppgeksnrdE

http://www.youtube.com/watch?v=JppgeksnrdEhttp://www.youtube.com/watch?v=JppgeksnrdE


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John MaynardKeynes

1883 1946

Keynes suggested that governments should increase publicspending that will circulate through the economy. This wouldrebuild confidence, demand, investment, employment, andeventually the investment would return to the government(through taxes).

For Keynes the fundamental objective was a diverse butharmonious society, in which a balanced economy providedsufficient resources for individuals to live a good life.



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Milton Friedman1912 2006

The 1970s were a tough period for many countries, with rising inflation,government budget deficits, high personal taxation, and declining productivitygrowth.

Keynesian policies had achieved high employment, which increased thepower of trade unions, contributing to price and wage increases.

Milton Friedman argued that when money is plentiful, its value will go down,

resulting in inflation which means a certain amount of money will buy less.

So if money is tight, and supply is limited, its value will stay high resulting instable prices.



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Milton Friedman1912 2006

Friedman's solution was to restrict growth in the money supply and pay theshort term price of increased unemployment. In the long term, economicactivity will recover in response to the stable and predictable environment

which stable money provides.

Friedman does not follow Keynes belief that the policy makers could improvemarket performance. Friedman emphasis returned to Adam Smiths belief in

the wisdom of the market.

Keynes was sympathetic to government involvement; Friedman was not.

http://www.youtube.com/watch?v=R5Gppi-O3a8

http://www.youtube.com/watch?v=R5Gppi-O3a8http://www.youtube.com/watch?v=R5Gppi-O3a8http://www.youtube.com/watch?v=R5Gppi-O3a8http://www.youtube.com/watch?v=R5Gppi-O3a8


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What would they do today?

Group Activity:What would be the reaction by each of theseeconomists to a financial crisis in Vietnam today?

Would Adam Smith try to increase new business? If so, how?

Who would John Maynard Keynes see as responsible for thesituation that the country is in?

What would Milton Friedman recommend?



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What would you do today?

Like many countries Vietnam has both rich and poor people.Whilst there are many programs to help the poor, some peoplecontinue to live in much worse circumstances than others.

What is needed in these situations?

Who is responsible?

Should the government make policies to improve the economicsituation? Or should the market decide?

Watch the following video and discuss the options?

http://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnn

http://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnnhttp://cnn.com/video/?/video/world/2012/02/13/cfp-allen-vietnam-playground-1.cnn


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Questions?



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BUSM4185

Introduction to Management

Week 2Management and Society

Part 2


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IntroductionCLASS OBJECTIVES

Understand the meaning of the term market.

Recognise how is it used in economic discussions?

Develop and understanding on what is required to create a market.Understand what is meant by the term market economy, and beable to describe different types of market economies.

Recognise systems that countries use if they do not have a market

economy.

How does a countries choice of economy affect their managementand decision making?



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Textbook


This topic does not correspond with anychapter in the text book.


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What is a market?

Typically in Vietnam we use the term market to describe aplace where we buy and sell products for everyday use.



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What is a market?


However in this course a market is a collection of all of theactual and potential buyers of a product or service.


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What is a market?


A market can be looked at in many ways. Examples: LocationVietnam is a popular market for tourists

SizeThe Vietnamese insurance market is still undeveloped

GrowthThe real estate market in HCMC is growing each year

InfluencesThe stock market in Vietnam is relatively new

CompetitionThe transport industry in Vietnam is a very competitive market

SustainabilityHanoi is a good market for long term investment

ProfitabilityVietnamese seafood exports are in constant demand in manyinternational markets


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How does the market work?

http://www.youtube.com/watch?v=3shDwU-Y8G4

http://www.youtube.com/watch?v=3shDwU-Y8G4http://www.youtube.com/watch?v=3shDwU-Y8G4http://www.youtube.com/watch?v=3shDwU-Y8G4http://www.youtube.com/watch?v=3shDwU-Y8G4


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What is a Market Economy?

A market economy is one where decisions regardinginvestment, production, and distribution are based on supplyand demand, and the prices of goods and services aredetermined in a free price system.

There are two main examples of these:

1) A liberal market economy

2) A coordinated market economy



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Liberal Market Economy

Usually contracts define relationships for selling products andservices, employing labour or raising finance.

Competing firms operate in a flexible labour market aiming toincrease profitability to give a return to shareholders.

Governments enforce contracts and resolve disputes.

Industry associations and trade unions advise, but do not direct.

Growing companies can take on more labour, knowing they can

be laid off when not needed.



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Liberal Market EconomyEmployees are mobile and willing to move for another job.

Hostile takeovers and corporate bankruptcies are influenced bythe market forces.

Both large corporations and individual employees have

autonomy (freedom/independence), creating potential for rapidmarket lead restructuring when needed.

Failing companies can declare bankruptcy but managers cansimply start another business.



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Coordinated Market EconomyLess aggressive in character with business relationships being

more personal.Businesses are more likely to raise finance through a bankrather than the stock market.

Employment is long term with staff more likely to be retainedthrough hard times. This increases commitment but reducesstaffs capacity to instigate radical change.

The private sector is less independent and is influenced bysocial and political forces, including the government.



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Coordinated Market Economy

Economic competition is subject to political control in order todeliver social stability.

The market operates in a constrained way, with social cohesionand solidarity being core values.

This coordination can come from industry associations, politicalparties, or the government itself.

Wages are often negotiated at a national level rather than withina business.

RMIT University12/03/2012 RMIT International University Vietnam 28


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The Developmental StateAnother variety of capitalism found mostly in rapidly developing economies inEast Asia.

Combines a powerful bureaucracy that determines national economictargets, with private ownership of production.

Governments role is more central than in a developed economy.

Often focuses on export oriented manufacturing.Undervalued currencies encourage exports while high tariffs and tradebarriers restrict imports.

Wages and benefits are low but are distributed evenly, with high job security.

Profits are reinvested and efficient production is essential.



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Communist/Socialist StatesIn a communist command economy, also called a centrally

planned economy, the national government set quotas for state-owned production units and allocated resources to them. Thebureaucracy then implements the plan.

Has proven successful in building industrial development, but

relies heavily on human input.

Government controls major industries and services and is amajor employer in the country.

Essentially the market decides however it is closely monitored.



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A comparison

http://www.youtube.com/watch?v=d8ivuSUfTg4

http://www.youtube.com/watch?v=d8ivuSUfTg4http://www.youtube.com/watch?v=d8ivuSUfTg4


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ConvergenceConvergence means moving towards uniformity.

The convergence thesis maintains that all developed economiesare adopting a common format. The proposition is that a moreglobal environment is forcing a liberal, pro-market response fromeach national economy.

Fewer employees are choosing to join trade unions incoordinated market economies. Over regulation and high labourcosts are reducing investment.

Developmental states are losing their advantages of efficientproduction and are increasingly effected by global crises.



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Finally..

Economic performance typically depends on

the period of comparison chosen: different

economies have appeared to be top dog atdifferent times which in itself should indicate

that there is no one superior model

Perraton, J. and Clift, B. (2004b) Where Are National Capitalisms Now?

Basingstoke and New York: Palgrave Macmillan

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Questions?

2. management and society

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