Business Cycles have a tendency to follow political cycles closely
Introduction
A business can be defined as an activity one undertakes with a view of making profits. A business may also refer to an enterprise that is involved in trading of goods and services for commercial purposes. A business may be privately owned or owned by a group of individual thus making it a company or even stat owned. There are different types of business in existence nowadays and they include; sole proprietorship, partnership, corporations and cooperative. There are also different classes of business for example; agriculture, mining, financial, informational, real estate, service, retailers and transportation among many others (Willett 3). A business cycle may be defined as periodic up and down trend in economic activities that affect business. The business cycle is normally irregular and controlled by economic factors that exist in an economy at any given time. It’s normally characterized by four phases which are recession, recovery, growth and decline. These four phases normally repeat themselves overtime and they are normally influenced by different factors in an economic system. The duration of business cycle can take from two to twelve years before it is repeated again (McClenahan & William 37). Businesses are said to have a going concern that sees them grow and develop over time and continue with their business (Arestis & Malcolm 29).
Political factor have been known to influence businesses across the world as laws and legislations are passed by parliament and congress in different countries. The government controls a large portion of the economy and this has normally influenced how business enterprises in a given country are likely to be affected by the role of government in the economy. Government policies and administrative policies influence the operations of business and other organizations in a country. Investment opportunity can be created by a government initiative to improve the business environment in a country. This paper seeks to find out how political factors in a given economy influence business cycles (Willett 12).
There are four phases of the business cycle and they follow a process which is defined by the operations of the business as economic time shifts. These four phases are divided into stages and they include;
Recession stage refers to the phase or period of reduced economic activity in a business which is characterized by low levels of production, buying, selling and consumption. The stage is also known as the trough as it resembles a depression in economic graph. The economy at this time experiences high un-employment as industries lay off workers and the size of investment in the country declines tremendously. The stage affects both producers and consumers in the economy (Willett 8).
Recovery stage refers to the phase in the economy when the recession stage ends and the economy gains some footing and can be revealed by a change in the trough curve. The curve starts to turn up as the economy starts to show signs of development as it works its way up.
Growth stage refers to the phase in the economy when expansion and strength is experienced in the market. Both producers and consumers increase their production and consumption respectively as they enjoy the new sustained expansion in business operations. It’s characterized by prosperity of both economic players up to when they reach their peak (Willett 8).
Decline stage is the stage that marks the end of the growth period as the economic curve makes a down turn. It is characterized by reduced consumer purchases which will in turn cause a decline in production by business owners.
Relationship between business cycles and political cycles
Government role in any economy is of paramount importance through the measures it puts in place that continue to affect how business organizations carry out their business. Over time business enterprises have tried to change according to different economic times that keep on changing. The power of an economy is in the way their business enterprises thrive and continue to grow despite having other factors that continue to influence the business environment. A business should have an indefinite going concern and should operate and develop as times goes. A business should keep afloat despite economic depression that continues to be at play in different economic systems (Willett 24). Political factors in an economy range from how the government spends its money, business control in exports and imports, monetary policies, economic policy of the government, trade policy and diplomatic events in surrounding countries, government legislation, stability of the government and the type of government (Lamontagne 47-48).
Changes in government are likely to change the business environment at play in any country. A new government is likely to change the business law and that’s why business owners are always keen on changes in government structure. Political stability in the country is likely to influence investors who channel their funds into the economy and help in providing the required capital to start and expand business enterprises. The political atmosphere in a country also influences business operations as it sets the precedent of how people are going to consume and how companies produce and the price set by companies for their goods and services. From time to time government structures changes across the world and new government is put in place, this transition stage always affect the consumption and production rate in the country as citizens anticipate new price changes and new laws that will govern businesses (Powell & Richard 12).
A business that exists in a free economy is likely to develop and expand as it’s able to compete well with its rival in setting prices and delivery of goods in the economy. Political factors affect how business organizations operate through tax systems as high taxes in a country are likely to discourage business organizations while low tax regimes will invite investment to the country. This initiative has been in play in several countries that seek to improve their economic stability and improve the cost of doing businesses. Governments control much of the economic resources and the way government spends is likely to influence consumption and production in the country. Their role is great and thus business operations are mostly influenced by how well the government conducts itself. Cycles of government rule also changes with time and new government’s implements new policies that in one way or the other affect business operations (Vincent 52).
How business cycles tend to follow political cycles
Different political cycles have a big role they play on business and they influence how the operations in the economy are carried out. Business cycles are normally controlled by political cycles that continue to shape the course of doing business worldwide. The four phases of business cycle namely recession, recovery, growth and decline are crucial in the life of a business as they set the success of the business and the time the business will take to move from one phase to another is influenced by political factors at play(Powell & Richard 23). Politics refer to the role of passing crucial bills and implementing them on the country and how well the planned change is managed to realize its set objectives. Governments collect their revenue by taxing their citizens and business organizations in the country. The tax system is likely to affect how businesses thrive in the economy through the kind of tax being subjected on business enterprises and the citizens. High taxes will discourage spending among citizens and this will affect company sales as people will consume very little of their product. High taxes will discourage companies as the tax eats away part of the profit which the company maybe planning to invest in another enterprise of expand its business (Lamontagne 47-48).
Governments are some of the high spenders in an economy and how much they spend is likely to influence the level of investment and in what sector the investment is driven towards. The level of government spending will influence the economic systems as it creates a good environment for investment and this helps to create jobs for the citizens. Government spending affects the issue of tenders in the economy and many business organizations take advantage of this factor to supply goods and services to the government and this helps to boast the business earning through profits that facilitate other business operations (McClenahan & William 47).Variation in the level of government spending will directly affect business operations as during low spending businesses are likely to fluctuate and their profits decreases. This phase leads to cost cutting measures for the business to stay in operations and survive the slow business in the country. A government is known to be stabilizing force in an economy as its high spending in the economy will, likely boost business operations hence wise its low spending will slow business operations in the same way. This is likely to shift business cycle from growth to recession phase. When the government then increases its spending in the economy it will shift the business operations form recession phase to recovery as it tries to increase its profitability index driven by high government spending once again (Greer 89).
Stock exchange and foreign exchange are major elements in an economic system and their operation sis influenced by a number of factors which are majorly political and their success or boom is measured by the kind of internal and external investments. Governments have a major role they play in the stock market through legislations of the market and managing how the market is operated. In instances of bankruptcy in the sector the government usually set aside some funds to finance and revive the market just to keep it away from collapse. During economic recession in the world different businesses are faced with a challenge of keeping afloat as their sales dips and they require the help of the government by bailing them out (Powell & Richard 31). Some of the companies that have applied for government bail include the General Motors in the United Sates that suffered high losses during the economic crisis that started in 2008.
This economic hunchback renders business operations to slow and their cost cutting measures are not enough as they enter the recession stage. The foreign exchange is normally controlled by the demand and supply of currencies across the world and is majorly controlled by government operations in a given country through the central bank. The role of the government in the foreign exchange market affects the value of the local currencies and thus influences the value of export and import in a given country. This factor influence international trade and may change the profitability index of a given company if the local currency loses value against major currencies across the world. This factor may lead to the decline of company profits as a result of a declining currency value (Vincent 52).
Political forces in a country influence the peace and tranquility enjoyed by citizens and other players in a given country. Peace and stability in a country influence the business environment as its givens a nice atmosphere for people to interact and carry out their businesses. Political stability plays a major role in influencing how business organizations are going to thrive and grow as they seek to conquer new markets. Political stability is likely to encourage investment as the financial institutions are safe to operate at various levels of the economy and this encourages business to grow and attain the growth phase. The strength of the market is influenced by political policies that are present in the given country (Vincent 66).
Political policies may be passed to protect the local market from damping by various international organizations that may offer low prices for their products. This protection will help local companies and businesses to thrive and grow as there are the major supplier of goods and services in the market. The local business enjoys more government shielding than the international ones and this gives an edge to grow and establish more than multinational companies. This factor in business may determine the success of a business enterprise by the various laws passed by government to protect local businesses and industry. The tax system also favors them as they are taxed lower than international companies that have set up branches in the country (Bommes, Christina and Gianni 56-59).
Change in diplomatic events among neighboring countries will mostly affect how business is carried out. Peaceful co-existence with neighbors will encourage international business to be carried out and this will help businesses to grow and expand. Increased market for goods in the economy will likely increase the profit margin for a business enterprise and its economic phase is likely to shift to growth phase. A change in government leads to a change in a lot of structure in the economic system as new trade ties are signed and old once neglected and this is influences new and old business deals between two or more trading partners. Trade agreements seek to increase the level of business with other countries while hostile environment like war will out rightly decrease the level of business (Vincent 71).
It is, thus, very important for new governments to encourage multinational trade as it seeks to open up new business venture and improve the economy of a given country tremendously. Trade policy between nations that are beneficial should be encouraged as they led to increased interaction and investment which boosts the economic trends between the two countries. The economic policy of the government will either encourage business operations or discourage them and this may lead to shifting of business cycles as the policies take effect in the economy (McClenahan & William 67).
Conclusion
There are several factors that shape business cycles in the world today. These factors range from political, economical to social cultural factors that continue tot shape the business world. The success of a business is mainly influenced by the management decisions made and the factor present to encourage the operation of the business to continue. Economist has formulated that business operations undergoes through four phases that keep recurring from time to time and they shape how the business will perform. The decline or growth of a business may be caused by changes in political environment in a certain region of the world. The government passes laws that directly or indirectly influence business. Changes in governments play a huge role in ensuring that the existence of economic forces in a country and the changes they influence in the business environment. From the 19th century economist have tried to formulate the relationship that exist between business cycles and political cycles and the finding have revealed a growing trend that shape the business world.
Regions that are governed under a stringent financial direction will tend to thrive more as compared to areas that lack the drive and vision of production and consumption. Peace in a given region influences the business environment by creating the environment that is conducive for businesses and leads to grow of business enterprises. Conducive Political cycles influence the direction of businesses in that they lay the foundation for growth and prosperity by safeguarding the future of business. On the other hand government controlled economies tend to shift from time to tie in line with government spending and tax system and they influence the cycle of business as they shift.
Work cited
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