How West Went Bust

Topics: Developed country, Developing country, Emerging markets Pages: 6 (2315 words) Published: December 6, 2012
The Global Financial Crisis of 2008 is the most serious Financial Crisis after the Great Depression of the 1930’s. Years of Borrowings from Banks, Governments, Households & Companies have led many of people in WEST hopelessly into DEBT. What the west have done is they have funded Unsustainable lifestyle using others money i.e. Debt. Debt was thought as developing Countries’ problem, but it has now become Developed Countries’ Problem. The financial sector was saying the prices of the Houses are never going to fall at least since the Great Depression but actually now they have fallen. Shanghai – China’s Commercial Capital.

China & other Developing Economies produce what the Richer Economies need. For example of the inequalities in the world wide Economies, a person doing a same job for a same company got lesser salary in the developing economies like China compared to that in Developed Economies like UK (may be China not any more a developing Economy as it the 2nd largest Economy after US). For example a Marketing Manager for NVC Lighting gets around mid 40-50k pounds a year whereas a Marketing Manager in the same company in china gets around 15-20k pounds a year. We also need to keep in mind the fact that this manager in china worked all day & even some nights to get that salary. The same inequality exists in the shop floor also. A shop floor worker in china works for around 30-40 hours a month to get 250 pounds a month. Whereas a shop floor worker in the same NVC Lighting company works for 42 hours a week to get 1000 pounds after tax and all without overtime. In today’s world Economy, the developing economies were making goods for cheap rates which satisfied the needs of Developed Economies, everybody seems to be a winner except the economic system we developed contained lethal flaw. The flaw is – the developed economies bought cast quantities of consumer goods for cheaper rates from developing economies like china WITH BORROWED MONEY. These people haven’t worked hard enough or smart enough to compete with economies like China & other developing economies. Households borrowed too much, Banks that have lent to us have also found to be too much of debt & not to forget the likes of Government which have borrowed much more than they can afford. Now the people have started to recognize the fact that they have borrowed too much and are now found to be in too much debt that they cannot afford to pay & now they can understand the fact that this the dawn of the new age where low Growth & austerity measures imposed by the government would be the most common features. So how the West get into this Mess??

We have initially discussed about the cheap salaries in the developing economies compared to the developed ones. So the NVC Lighting’s Unit in UK is merely a distribution unit of products manufactured in China where the economy is booming (obviously cost-leadership is being followed). So we can see that the developing economies are becoming richer & the Developed becoming Stagnant. I think they can blame Greedy Bankers & high spending Governments of the west but also there are deeper causes. So lets go deep.

In 1978 Deng Xiaoping became the leader of China which was disastered for several years. China was just emerging from the lowest point in their growth for the last 100 years. Deng severely transformed China by introducing elements of Capitalism into Communist China. Here is one of his famous Dialogue – “it doesn’t matter if the cat is black or white as long it catches the mouse” which means it doesn’t matter if China is communist or capitalist as long as it becomes richer. In early 1980’s on its way to becoming the world’s 2nd biggest economy under the leadership of Deng, Britain was following the other way round. There were many lockouts, unemployment was a serious concern because of low growth & wage rates weren’t increased. Then Britain got it’s new prime minister who like Deng...
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