National Economic Crisis as a Result of Failure by National Governments.

Introduction

A nation or state that is sovereign enjoys a political autonomy, as well as the freedom to regulate the movement of people and goods. In addition, such a nation, by virtue of a sound government management and an implementation of policies, will also enjoy a control over foreign policies as well (Weisbrot 1999). This means that the government of such a nation is able to govern itself, without having interference from other states. As such, sovereignty, in more cases than one, is often looked at as a fundamental tenet, in as far as international laws are concerned (Williams 1992).

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In such a case, governments are almost always courteous, lest they undermine the legal systems that are spelt out internationally. For this reason, most government normally makes calculated decision as regards economic policies; and this practice has now been dabbed as ‘economic sovereignty’. However, with the current hype all over the world to respond to the issue of globalization, the move is now being seen as a major cause of the eroding of national sovereignty (Heo & Sunwoong 1998). At a global context viewpoint, the implication of the ensuing crisis will most likely lead to far reaching consequences and especially in an instance when the instabilities generated by speculative trading are taken into account (Weisbrot 1999).

Analysts have at the same time pointed to the fact that the ensuing crises are far from having reached their climax. At best, these crises have the potential to cause a major disruption to the international monetary system. The ensuing repercussions of course will often reverberate on a global scale. However, the crises that are now being witnessed are not just restricted to the financial markets meltdown. Rather, they also have a repercussion in as far as national and international economies are concerned, leading to a possible jeopardy of international and national institutions, as well as production structures (Heo & Sunwoong 1998).

War and financial crisis

A significant point worth taking into account here is the fact that there is a link between an economic crisis and the instability of a given government. As such, a plunge say, in the stock market will almost always be felt, if and when there does occur as major military adventure (Thorpe 1992). From this perspective, it can be rightly argued that the global financial crisis indeed has a relationship with war. It does not take a rocket scientist to realize that when we have a spiraling defense budget, the economic activities of civilians will usually suffer a backlash, further confirming a known fact; that there is a direct bearing between war economy, and fiscal and monetary policies (Joseph 2002).

While there have been arguments by some financial analysts that war is indeed good for business, this can only be seen as true from the viewpoint of those making direct money from the on goings of war. To this end, there have been instances whereby powerful financial groups have had to manipulate commodity and stock markets, while at the same time helping in both the promotion and continuation of wars in such places as the Middle East. On the other hand, the governments of such countries as in the Middle East do not put in place measure, or for that matter, trade sanction to such traders who are out to fuel the wars.

Ultimately, the very economy of such countries suffers. Given that war is almost always profit driven, it is only proper then, that globalization and war should indeed go hand in hand. In fact, the financing of war has over the years led to a witnessing of a global debt that is usually dollar dominated (Thorpe 1992). As a pointer to this, the US civilian economy is current entangled in a crisis, following a diversion of the country’s resources towards the financing of wars in such places as the middle east, often running into billions of dollars from the military agenda, the US civilian economy is in crisis as the nation’s resources including tax dollars are diverted into funding a multibillion Middle East war often running into billions of dollars (Williams 1992).

The results of decades ob both unprecedented economic conditions, are far and wide reaching.

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Consequently, this has often prompted academicians and policy makers to come together, in an attempt that is geared towards reviewing how best to contain the ever emerging financial crises. In almost all cases, not once has the government failed to have blame heaped on it, owing to its reluctance to institute policies that would more often lead to the emergence of economically sound nations. In his book, “national crisis and national government: British politics, the economy and the empire”, Phillip Williams has taken issue with the British economic failure witnessed in the 1970s.

This failure, according to this author, can be attributed to the existence of a two party state, with both the labor party on the on hand, assuming a liberal stance, while the conservative party maintained a non liberal approach top the economy. However, the antagonism did not end there, and the author has also explored events that were witnessed as far back as the 1932, in Britain, and in which the two parties were again at loggerheads, in terms of their stand in as far as the implementation of economic policies was concerned.

At that time, there was a financial crisis that was witnessed in 1931, and which saw a majority of labor party official pushing for a cost cutting measure by the government. With globalization come global problems as well, at he regional, national and international levels. This then calls for the implementation of financial and policy advices by government. However, there has been a witnessed scenario over the years, in which the individual country government have continued to have a reduce role in as far as the conduction of economic policies that are autonomous are concerned. Such roles have often been relegated to the Breton Woods institutions; the World Bank and the International Monetary Fund (Joseph 2002).

In turn, these financial institutions make it their duty to undertake the role of understanding the economic, cultural and political realities of individual countries. Even in the representation of countries to the Breton wood institutions for purposes of making far reaching economic decisions, there is a growing need for such government to legitimize their practices.

Some of the notable individual nations that have been reported as having faced financial crises include Asia (1997), Mexico (1994), Brazil (1999), and Russia (1998). In the case of Russia, the presence of persistence huge budget deficits, and a consequent defaulting of these eventually lead to a financial crisis in the country in 1998.on the other hand, it as a false for the government not to have been in a position at which it could be able to service Argentina had witnessed some economic contractions ever since 1998, and this was in turn accompanied by massive deterioration of the country’s budget (The Economist Intelligence Unit 1997).

In the long run, the confidence of both the local and international investors was eroded; in as far as the government was concerned. This saw its debts, and this is what had ultimately led to the collapse of an arranged currency board. Owing to globalization, there has also been a transmission of highly integrated markets. This has more often occurred in quick successions across the countries, and this has led to a reverberation of financial shocks. Ultimately, there has also been a change in the confidence level by investors, as a result of a failure by government to put in places measures and policies that would ensure that such investors are offered an inventive to stay (Heo & Sunwoong 1998).

Due to the severe macro economic crisis witnessed in this era of globalization, the result has been that social tensions and poverty has had their toll on the masses, and this has the potential of destabilizing the political situation of such a country (Chossudovsky 2008). The undertaking of unsustainable economic policies by governments will normally lead to economic crisis. As such, the issue of unsound financial policies and high fiscal deficits will almost always lead to inflationary pressures, as well as the skyrocketing of interest rates. Sooner or later, such development will lead to the punishment of such government, by the global markets, as well as those investors that have international interests (Thorpe 1992)..

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To this end, the room for unsustainable policies has today been narrowed, thanks to the existence of a globalised world, and economy for that matter. At the same time, the capacity of fiscal policies as a measure to the ensuring of employment is also affected, by the existence of crises in the economy. In addition, international markets have always been deposited as being very sensitive to the fiscal policy stance of any given country.

This is often viewed as an indicator of the economic responsibility of the individual government. The failure of governments to persistently follow such economic policies that will lead to a satisfied international market, will lead to a further worsening of the prevailing economic cruses (Brittan 2003).

Some governments have also been reluctant to institute cost cutting policies in their mainstream departments, and this has often lead not only to an economic downturn, but could eventually lead to a recession. Ultimately, even the private investments slow down, and this will in return lead to a slowdown in employment. Ultimately, such a government tends to lack credibility both home and abroad. The understanding of the true causes of an economic crisis for a country is crucial; if at all there has to be a resolve for such an economic debacle (Joseph 2002). As a pointer to thus, Thorpe (1992) has been able to hypothesize three views and which have now become popular with regard to the Korean economic crisis of 1997.

In the first one, Cho has come up with what is called the contagion effect. According to this view, the currency crisis which affected such southern East Asian countries as Indonesia and Thailand in the summer of 1997, made Korea vulnerable to attacks by speculators (The Economist Intelligence Unit 1997).

According to his view also, some well known market speculators such as George Soros, were noted top have turned their attention to Korea now, having had their moment of reverence at other East Asian countries. The second view is that which attributes economic crises to internal factors, chief of which was a lack of economic competitiveness, and which was being witnesses in such areas as the banking and other domestic financial sectors. As a result, these institutions overexposed themselves to the issue of junk bonds, which at that moment were being issued by Russian, Latin America and other south East Asian countries (Buckley & Fitzgerald 2004).

At the same time, these institutions lacked p prudent supervision in as far as the foreign exchange reserves at the central bank were concerned. To this end, the hand of the Korean government can be seen as having failed to protect the indigenous institution, by allowing the issuance of illegitimate bonds. At the same time, the major culprit was the corporate sector, as opposed to the financial sector. At this point most of the business policies were on the basis of borrowing of excessive foreign based capitals, and a resultant poor debt management. When the issue of a lack of competition is added to this equation, then it was only a mater of time before the economy tumbled down.

Conclusion

Governments the world over have a major responsibility of ensuring that a sound economic condition are made available for the benefit of its civilians, as well as the local and international investors. All too often, most governments have complicated his picture by going to war with finances which would otherwise have done a better job in as far as the uplifting of its citizens is concerned. It has been documented that the defense budgets of most of the world’s strongest economies are normally a big chunk of the overall government spending (Thorpe 1992). At the same time, some governments in the developed economy have been known to sponsor wars in such areas as the Middle East (Buckley & Fitzgerald 2004).

The worse case scenario is when the government fails to implement policies that would normally lead to the ensuring of investor confidence. In this case, governments have been known to have budgetary deficits and loans that they are reluctant to pay, and this has ked to a mass migration of investors (Joseph 2002). The result is that employment of its people is lost, and the government has to borrow more funds, in an attempt to stay afloat.

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References

Buckley, R., and Fitzgerald, S. M, (2004) ‘An Assessment of Malaysia’s Response to the IMF during the Asian Economic Crisis, Singapore Journal of Legal Studies 96.

Brittan, S. (2003). The changing economic role of government: Contribution to 50th Anniversary Vol. Soc. of Bus. Economists 2003.

Chossudovsky, M. (2008). Global Financial Meltdown. Global research.

Heo, U. and Sunwoong, K. (1998). Financial Crisis in South Korea: Failure of the Government-Led Development Paradigm. Asian Survey. 40(3). Pp. 492- 507.

Joseph, S. (2002) Globalization and its Discontents. New York: Norton Press.

Thomas, M. (2008). world economic crisis: Australia AWL 2008 conference report.

The Economist Intelligence Unit (1997). Country Report, South Korea, North Korea. Third Quarter 1997. P. 32.

Thorpe, A. (1992). National crisis and national government: British politics, the economy, and empire. The journal of modern history. 66 (4). P.81- 88.

Weisbrot, M. (1999) ‘Think Globally, Act Nationally: the Case for National Economic Sovereignty’ The Nation.

Williams, P. (1992). national crisis and national government: British politics, the economy and the empire. Cambridge: Cambridge university press.

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