1. B200 TUTORIAL WEEK TWO

2. By the end of the Environments module you should be able to: recognise key phenomena in business environments use appropriate models and concepts to analyse them recognise and interpret the values underlying different analyses of business environments understand the complex relationship between the behaviour of businesses and their environments identify some of the methods businesses adopt for dealing with their environment.

3. The Economy This area of environments is covered by your study of Chapters 4, 5, 6, 8 and 9.

4. Chapter 4 – Conservative Governments and the economy 1979-97 by Wilks. This chapter relates closely to the UK economic and political scene. Wilks distinguishes between macro-economic policy (direction of economy as a whole - initially focused on reduction of inflation and then largely emptied of any content than the maintenance of low inflation) and micro- economic policy (the management of markets and industries within the economy, with its emphasis upon ‘supply side’ issues). Wilks associates successful economic performance with an absence of Government interference in corporate business decision making.

5. Wilks’ view Wilks view is a liberal view of the economy. Wilks is critical of macro-economic policies but praises the micro-economic policies. He approves of privatisation and labour market reforms. He asserts the role of company autonomy as key to the UK’s relative economic success during that period. Do you agree with Wilks’ view? Can you see a replication of any of these policies in Governments you know?

6. Chapter 5, Finance Unbound by Hutton. Hutton published his work in 1995. His work is a critical analysis of “right wing” free market economics. He criticises the Conservative Government’s policies. Hutton’s views are allied with Keynesian economics (social reformism).

7. Hutton’s view Hutton felt that the economic growth in the 1980’s and early 1990’s was driven by the increases in consumer spending, fuelled by the explosion in credit availability which followed the deregulation of the UK banking industry in 1980. Hutton felt that this type of growth was temporary – and was a “privatisation” of the cycle of “boom and bust” economics characterised by harsh recessions (previously driven by fluctuations in Government spending).

8. Open Questions How would you compare and contrast the views of Wilks and Hutton? Which do you agree with? Why?

9. Chapter 6 – The Management of the UK Economy by Coates This chapter looks at a pictorial model of the economy known as the circular flow of income model. Key terms are agregate demand and the multiplier effect. The chapter considers Keynesian economics in more detail and cover monetarism.

10. Circular Flow of Income Model There are many different examples of this model – see pages 56 – 58 of the reader.

11. Agregate demand Following the examples in the text book pages 56-58: Agregate demand = c (consumer demand) + I (investment demand) + g (Government spending + x (revenue from exports) – m (revenue spent on imports) Keynes argues that the task of increasing agregate demand fell to Government.

12. The multiplier effect The Simple Multiplier Process. (mpc=marginal propensity to consume)marginal propensity to consume

13. Monetarism Monetarism is a school of thought with a belief that the prime task of Government was to control the supply of money. Monetarists believe that control of the money supply is key to price stability, economic growth and full employment. They are linked to the liberal stance that prefers private economic activity to public regulation.

14. Chapter 8 - Living without borders by Rastogi Rastogi identifies the main cause of globalisation as the growth in volume of investment which is now conducted internationally. This is supported by the development of new technology which first makes the capital funds needed for investment easier to transfer across the world. It then helps financial decision makers calculate profit if the investment is successful and even the probability of its success or failure. His interpretation of the economy is that it is increasingly dominated by a growing financial sector.

15. Rastogi’s view. Rastogi is a Vice President of a leading international banking corporation. His view is a liberal supply-side view. Rastogi does not take full account of the influence of Governments in the global economy. Rastogi uses a single model of the economy to predict the future (determinism).

16. Rastogi’s assumptions Everyone will have equal access to funds, equal access to market information and that everyone will behave with the same type and degree of rationality. BUT in reality the market would be heavily influenced by those with the most funds, the best access to market information and ability to work out financial outcomes easily (large corporate organisations).

17. Chapter 9 - Global cooperation or rival trade bloc? By Junne Junne rejects the inevitable onset of the global economy. He widens the debate by examining potential scenarios for the development of regional or supranational trading blocs. Junne constructs 3 possible scenarios based on established research. We can conclude that (according to Giddens in Chapter 1) Junne is a sceptic – he asserts that ‘globalisation’ in the liberal economic sense of the word does not describe what is happening. Instead he examines the forces that drive particular countries into global trading which help maintain a world of separate economies with definite boundaries.

18. Junne’s scenarios The past 3 decades have seen a significant shift toward deregulation of trade and financial markets around the world resulting in increased capital flows. Explosive advances in computing and communication technology have provided the platform for tremendous growth in the scale and complexity of financial markets, thereby meeting the need for international flows. Significant innovation in financial management have produced an unprecedented number of innovations in securitization and derivatives.

19. Who do these affect? Savers Investing institutions Users of funds Broker/dealer intermediaries

20. Activities Activity 4 (page 20 of the Study Guide) Activity 6 (page 25 of the Study Guide)

21. READING TO BE COMPLETED BY NEXT WEEK Please read pages 18 – 22, 25 - 27 of the Study Guide to refresh your study of Chapters 4, 5, 6, 8, and 9. Please read Chapters 10, 12, 14 and 15 of the Text book before the next tutorial (NB you do not need to read Chapters 11 or 13 – these are optional readings).