What is recession, how does this phenomenon come into existence?
The answer might be simple for some and mindboggling for the others. In world economics, recession refers to the general slowdown in the economics of a country over a period of time. The preeminent and most accurate indicators that a recession is about to shake up an economy is a period when a country’s Gross Domestic Product falls (negative real economic growth) for at least two quarters, or simply put, it can be identified by a 1.5% rise in unemployment within 12 months. Recession cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. The Great Depression was a worldwide economic downturn in the 20th century, and still sets an example in the 21st century of how far below the world’s economy can fall. The Great Depression was triggered by a sudden, total collapse in the stock market. However, stock markets being one of the reasons, there are various other reasons for recessions namely currency crisis, energy crisis, war, under consumption, overproduction or financial crisis or a combination of one or more. The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20 years. This indicates the depth and severity of the current recession.
What are the effects of recession?
Recession is an economic condition which cannot always be recognized at the correct time and hence almost always leads to devastating effects not only on Companies, economies and countries, but also on the human resources whose hard earned money gets eroded, with rise in unemployment, values of their houses hitting an all time low and their pension savings decimated on the stock market, leaving no escape route; nowhere to run, no one to turn to. It’s like a cancerous growth on the economic setup of the country; slowly but surely eating away at the health of the economy.
However the unemployment is the first link in the chain of effects. The unemployment rate of US grew to 8.5 percent in March 2009, and there have been 5.1 million job losses till March 2009 since the recession began in December 2007. That is about five million more people unemployed compared to just a year ago. This goes on to show that the first and foremost effect of recession is felt by the working class as layoffs become rampant for cost cutting. Loss of job means people need to cut down on daily expenses, including food, clothing shelter. The current economic slowdown witnessed a 6.4% decline in the spending on non durable goods in the third quarter, the largest seen since 1950.
Besides unemployment, major effects are bankruptcies (causing the wrap- up of ancient businesses at times), foreclosures, credit crunches and deflation.
Effects on the human psyche-
The economic effects of recession can be understood through statistics and analysis. But the major repercussions are borne by the people. All humans love luxury, luxury=money, which is a scarce realization at the time of an economic slowdown. Money is the sun around which the economic solar system revolves. Money makes everyone happy, the loss of money causes sadness. People learn to earn, they earn to lead a happy peaceful life. But the loss of the source of income hits each and every person very hard, directly or indirectly. In recent times crime rates have shot as unemployment hits its zenith. Youngsters fresh out of college have no jobs to look forward to and those who were fortunate enough to get appointed are having their letters revoked, disheartening them, creating angst. In fits of anger drastic steps such as suicides have also become rampant due to the social stigmata associated with involuntary joblessness. The pink slip is causing happy family lives to go haywire. The initial stages of recession witnessed discontent to the level of paranoia amongst people.
Need of the Hour:
First and foremost we must stop looking at recession solely from the IT industry’s point of view. Cheaper IT professionals are available outside India too. Companies have started outsourcing to China.
We need to save the other industries that are just as equally badly hit during this recession. Be it, the small-scale, cottage, automation and automobile industries. India’s economy relies on the growth of all such industries.
If the economy stays the way it is or worsens, the concern that a company’s top employees will leave, is irrelevant, since no one else is hiring either and the CEO is left with a choice between a 10% wage cut and laying off 10% of the work force. Smart CEO’s would look forward to keeping their entire work force while cutting down on costs. It’s a tough task but that is what will define their credibility in the future. A sagging economy can be an opportune time for management to deal with performance problems by backtracking. It will be interesting to see in this recession how companies do it, because a lot of them have lost that skill. These decisions have huge impacts on people and there are no easy solutions as such.
However, if the current economic turmoil is contained sooner than expected, premature layoffs could be a disaster. If not enough employees are laid off and the recession continues, the company’s bottom line could suffer and in any scenario involving layoffs, morale among those employees remaining at the company is sure to plummet further. Companies ought to consider alternatives to layoffs, such as voluntary retirements or salary cuts, hiring freezes, reductions in hours, or the cancellation of business trips etc.
All this comes under financial prudence and most of them are doing so in effect. Also confidence of employees is not lost since afore stated measures are voluntary.
“In September, I am opting for two weeks of unpaid leave as a small contribution towards saving someone’s job in US, within the same company. I wouldn’t have anything much to lose, except half month’s salary, but I at least on returning I would still have my job. Symbiosis, that’s what it is,” said Anurag Mehta, working with a leading It solutions company, when I asked what he would do to help his fellow mates at such distressing times. If some more people actively involve themselves in such measures, the self esteem of the populace might be saved from going on the burner.
We should respect people who have been made redundant at such testing times instead of shunning them. Families need to come together and form each other’s backbones. Youngsters who have been seriously affected by the present turmoil must not be taunted, their expectations should not be crushed but revitalized by encouraging them to take up activities that although might earn them some bucks, but save them the feeling of being ne’er-do-well. Also, it’s high time parents stopped forcing their children to take up engineering, just because it’s believed to be a well paying profession. That myth has been shattered once and for all with the statistics that show maximum number of idle people to be qualified engineers. It’s time to move on and make wise career decisions to avoid such a situation again.
Money should be preserved by investing it wisely. Even if half the money spent on Cricket and political campaigns if wisely invested by the government in starting industries, unemployment can be contained to a large extent by generating jobs.
Some groups have already taken up positive steps such as merchandising the recession. This involves activities such designing T-shirts with tantras almost mocking the layoff scenario through this quintessential marketing tool. They call T-shirts,” egalitarian form of public self-expression”. Catchy liners such as “Pink slip party- Admit one” or “Financial Crunch- on a box of breakfast cereal depicting crushed notes in a bowl” sure make one laugh out loud and lighten the dark atmosphere surrounding redundancy. T-shirts are like walking personal billboards. They are reflective of the attitude and the mood of the people in the light of the era.
I sign off with one message: Arise and Awake….Now is the time for a change.