Efficient monetary and fiscal policies help countries avert a financial crisis like the one witnessed in 2008.
Different countries have diverse economic policies. Consequently, the magnitude of the effects of a recession varies based on the economic policies that a country has adopted. For instance, Canada experienced slight effects from the global crisis as compared to the United States. This is because of the monetary policy employed by the country which entails spending within current resources. Central banks can make unlimited purchases of assets. However, the type of financial asset the banks decide to buy will determine how the respective country would be affected by a recession. The approach employed by a country from a fiscal perspective is paramount. This fact is demonstrated by the global financial crunch that occurred in 2008. The majority of the nations suffered major obstacles in their economy. The prices of merchandises in the country rose sharply. The principal reason for this consequence is the fiscal policies that the nations had implemented. Spending within the current resources is a practical approach as it keeps a country debt very low. Colossal debt often steals away from the future of a country. This outcome is since the money acquired by the nation is utilized to pay debt instead of being reinvested in the economy. Hence, a fiscal policy that fosters growth while dependent on debt is not an effective. Economic growth that is prompted by the trade taking place within and outside the country is more efficient in protecting a country against future recessions. Lowering taxes is an effective procedure for increasing demand. Therefore, the policies should be structured to allow for tax reductions, particularly during a recession. This is because low tax stimulates people to increase their spending. An increase in spending will result in sufficient money in the economy. However, the policy regarding this action should focus on the low-income earners. This is because they are most likely to alter their spending based on small decreases in price (The economist, 2016).
During a recession, a country may employ favorable policies such as training employees that are laid off by the current companies. These employees are then placed in other jobs that will suit them. This system is particularly effective in developed countries experiencing an influx of cheap labor. This strategy helps the retrenched people obtain new employment so that they can have sufficient money to engage in economic activities. Thus, these individuals do not become a burden on the economy. Also, capital spending is of uttermost significance during a recession. This is because this type of spending induces spending on other areas of the economy. For instance, a government may spend money on new infrastructures like hospitals and roads. As the public aims to access these services, they engage in complementary spending (The economist, 2016). These people would not have spent money if the government did not engage in the capital expenditure. However, this policy is complicated to implement particularly due to political reasons. Vested political interests may initiate capital spending on areas that are not economically active to gain popularity. However, this expenditure does not contribute to growth in economy since it does not cause complementary spending.
Privatization is an efficient policy of boosting economic growth. Over the past years, governments globally have sold publicly owned firms to private investors. This method results in lowered costs, higher quality services, and augmented innovation. Several federal programs in the country can be privatized which encompass Amtrak, airport screening, and electric utilities. Such changes would lower budget deficits, enhance management, instigate quality improvements, and produce economic growth. For instance ATC which is operated by the federal aviation administration activities often fall behind schedules and go over budget. Therefore, this department requires major changes to meet rising travel demands by clients. The best solution is to privatize the institution.
Conclusion
Various economic theories indicate that business will have greater likelihoods of succeeding in the global market when the home-grown rivalry is high. This is since the huge competition will encourage the firms to renovate and invent products that will be embraced by the clients. These businesses will have a better chance of success in the global market as depicted by the economic theories. This is a principal reason economic growth rate America is superior to that of Australia thus making it the strongest economy globally. The United States open market guarantees that the nation sustains the strongest economy in the world. As the theories suggest, the competitiveness the US economy stimulates the firms to develop their service so that they can stay viable. By doing so, the firms better their service and are successful in local and foreign nations. The economic policies have a long-term effect on the countries. Therefore, states should employ strategic policies. For instance, an enormous international debt affects the budget of a country for many fiscal years. A country should thus strive to balance the budget. A balanced budget entails a situation where the revenue is equal to the expenditures. However, the most desired scenario of a balanced budget is when the income are greater than the expenditures. The benefits of a balanced budget include a reduction in interest rates, an increase in savings, reduction of deficits, and faster-growing economy. Nevertheless, this concept is disapproved by the Keynesian theories. It has though been proved to be effective. The United States should thus reduce the international date in a bid to sustain its economy (The economist, 2016).
Ethiopia has the potential of becoming an African powerhouse based on the resources it currently possesses.
However, the current policies adopted by the government in various sectors limit the capacity of growth. For instance, the land policy in the country is very ineffective since all the land belongs to the state. Therefore, private investors cannot develop land since they will not own the buildings they create. This fact makes it hard for privatization to take place within the country. Hence, the country misses out on the benefits that are associated with privatization such as competition which boosts productivity. When the government is in charge of service delivery in all sectors, the region will be characterized by monopolies. Moreover, there are numerous trade restrictions in the country. This fact makes foreign investors keep off from investing in the area. For instance, various retail stores from the neighboring country Kenya have been denied authorization by the government. Electricity provision is not a priority for the government. Therefore, the bulk of the region does not have access to electricity. As a result, the service industry cannot offer certain services that require electricity. For instance, Ben Abeba Hotel, which is located in a magnificent setting, does not provide fish to the guests since the fish require refrigeration facilities. The refrigeration amenities in turn need a steady supply of electricity to function properly. Consequently, the businesses in this region a considerable amount of income from services they do not offer due to the sporadic power. Advances in technology have made it probable for clients to access services via the company’s website. However, the network coverage of the country is indigent. Customers can barely book for services online. Moreover, the mobile phones network is also weak. Consequently, communication in the country is undependable. Business transactions require effective communication. Information conveyed can help clients sought better products and services, and companies obtain numerous clients. Therefore, the weak network significantly hinders the economic growth of the country (The economist, 2016).
Opening the airwaves would help the government acquire money through franchising. Additionally, it will ensure that the citizens of the country get access to various radio and TV stations. The citizens of the country would obtain more channels and subsequently more information. This information would help them in their daily activities and in managing a business effectively. Open markets would ensure the citizens gain access to high-quality products and services while simultaneously accessing capital since foreign investment increases the amount of income in the nation. Therefore, the citizens will now have income and information that they can use to start income-generating activities. As a result, the economy of the country would grow. Moreover, this practice would help the citizens diversify. Diversification helps improve the economy since it involves. An efficient credit card system that works will help the client’s access services whenever they require.
Conclusion
The poor network coverage issue can be addressed by allowing foreign companies into the country. Often, foreign investors have superior technology that the host country can benefit. For instance, foreign telecommunication firms in the country may help to improve the internet and mobile phone network. Moreover, the state will also receive foreign direct investment that can be used to improve the infrastructure. Currently, the country has locked the airwaves from competition since the government aims at using the huge profit from this industry to build the roads. However, this money can be obtained by allowing foreign companies into the country. A good network coverage would improve the business processes within the country and promote economic activities like tourism. The country has numerous tourist attraction features. Therefore, a good network coverage will complement this activity which would, in turn, earn income for the country that will be used in improving the infrastructure. Foreign investors will come to the country when the government sets the market free. Minimal trade restrictions characterize a free market. Many foreign investors are attracted by a free market since they know that their products will have a fair chance in the market. This is because, in a free market, the forces of supply and demand affect the prices of products. Also, consumers have the liberty to purchase the goods that suit them financially. Moreover, the free market enhances competition and productivity. Despite the numerous obstacles to trade and other inefficient policies adopted in the country, Ethiopia had one of the highest growth rates in the region. This fact proves that the country has a great potential to become one of the economic hubs in Africa. Therefore, the government and all other pertinent authorities should help in the implementation of the new policies.
References
The economist. (2016). Unfamiliar ways forward. Fighting the next recession. Retrieved from http://www.economist.com/node/21693205/print
The economist. (2016). Ethiopia. What if they were really set free?
