Causes and effects of slowdown on major

economies of the world

the World As We Know It Is Going
Down
US is under a period of “recession

This type of recession is coming for the second

time in US.

Previously it happened in 1929-1930 after the

second world war.
Recession

A recession is
when GDP growth
slows, businesses
stop expanding,
employment falls,
unemployment
rises, and housing
prices decline
CAUSES OF
SLOWDOWN

BOOM AND BUST IN

HOUSING MARKET
•High-risk mortgage loans and
lending/borrowing practices
Government policies
Policie
s of
central
banks
15 th SEP 2008
The black day for U.S market
Bankrup
tcy of
Lehman
brothers
Stock
market
crashed
 en t
gh o y m
H i p l
n em
u
 a te
st l
l e e l
e a f
R i c es
pr
Increas
e in
 IMPACT ON GLOBAL ECONOMY

• The continuing devastation unleashed by

the US subprime crisis not only impacts
Americans and their investments in real
estate, it is also having terrible effects on
foreign economies. According to Max Keiser
and his excellent reporting for the People
and Power series on Al Jazeera, Iceland is
quaking under the weight of bad US debt.

• The grip of the subprime mortgage crisis is

apparent, as jobs growth has slowed to
much less than half its second quarter
139,000 monthly pace. The risk of
recession has increased to 50 percent.
 AYN
RAND
• Nathaniel Branden a
student of Ayn Rand
says in the book
“Capitalism: The
Unknown Ideal” by
Ayn Rand

• “As to depression and

mass unemployment,
they are not caused
by the free market,
but by government
interferences into the
economy”.
AYN
RAND
"Today, people are beginning to understand
that the government's account is overdrawn,
that a piece of paper is not the equivalent of a
gold coin, or an automobile, or a loaf of bread
—and that if you attempt to falsify monetary
values, you do not achieve abundance, you
merely debase the currency and go bankrupt."
—Ayn Rand, "Moral Inflation,"
The Ayn Rand Letter, vol. 3, no. 12, p. 1
"
WHICH WAY DO WE GO
?
KEYNES V/s ADAM SMITH
PUMP PRIMING V/s INVISIBLE HAND
Intervention V/s Non- Intervention
 Joseph E. Stiglitz and
Y.V. Reddy
IDEOLOGY OR COMMON SENSE
 In the battle of ideologies, what is
often forgotten is ‘common sense’.

 Y.V. Reddy, former Governor of RBI

mentioned to Joseph Stiglitz,
American economist and Nobel
Laureate , when the latter asked the
method of managing the economy
amidst the crisis. Y.V. Reddy
answered, instead of getting enticed
by complicated theories he relied on
simple ‘common sense’.
 THE CRISIS
What one often
ignores about the
propagators of
the philosophy of
free economy is,
it is based on
objectivism.

Objective
decision making
by individuals and
bankers will
regulate the
But what we saw
during the crisis was
the result of
interference of the
Federal Reserve by
lowering the Reserve
The Federal interest
rates persistently.
regulates the credit
availability in the US
economy. Banks were
lending to borrowers
with low
creditworthiness and
engaged in
unscrupulous and
risky investments.
 DECOUPLING THEORY
HAS FAILED
• India in the past years has
globalized rapidly and integrated
with the world through exports and
imports.

• Indian corporate have relied on

external funding to a great extent,
as external funds were cheaper.

• Thus as India remains integrated to

the world economy it continues to
be hit by the crisis.
 How does the Indian
business community
respond to this crisis?

• Solution to the current

economic crisis lies in
INNOVATION

• Austrian economist
Joseph Schumpeter’s idea
of ‘creative destruction’
is an instrument used by
entrepreneurs to sustain
in the capitalist society.
(Theory of economic
analysis)
 CREATIVE
DISRUPTION-Jean
Marie Dru
• Disruption is
breaking away
from the
conventional
practices,
challenging the
rules and coming
up with something
entirely new.
 INSIDE THE BOX
THINKING
• Box 1/VISHNU THE
PRESERVER: Managing the
present

• Box 2/ SHIVA THE DESTROYER

: Selectively abandoning the
past

• Box 3/ BRAMHA THE CREATOR

: Creating the future

VIJAY GOVINDARAJAN
 Capitalism
Ayn Rand refers to the rational
mind in her book ‘Capitalism: The
Unknown Ideal’, is also about the
innovators. She says, “It is from
the work and the inviolate
integrity of such minds- from the
intransigent innovators- that all of
mankind’s knowledge and
achievements have come. It is to
such minds that mankind owes its
survival.”

This is the mind that will help us

make use of the opportunity of
the challenge posed to us by the
crisis.
Path for the Indian companies
BREAKTHROUGH
MANAGEMENT

Prof. Shoji Shiba

DISCOVERING
BLUE OCEAN

W. Chan. Kim and

Renee Maurborgne
 How could the
government help?

REMOVE THE
BOTTLENECKS

TRIPLE HELIX
MODEL
 CONCLUSION:
Decoupling theory has failed and
the developing world is no longer
immune to the economic upheavals of
the developed world.

But the developing world should

set itself on the path of innovation to
make use of the time which the
developed world uses to battle with the
crisis.

The time that the developed world

engages itself in fighting the crisis,
 We need concerted and combined
efforts of the business, university and
government to apply innovation and
make it marketable.

The solution lies, especially for

developing nations in the Joseph
Schumpeterian idea of “creative
destruction”.

Breakthrough management and

disruptive innovation can transform the
challenge into opportunity and make
Indian economy competitive in due
BOOMING AHEAD WITH OPTIMISM
"But we do have a plan. We're working on it. And, I do think
that we will get it stabilized, and we'll see the recession
coming to an end probably this year.“

-Ben Bernanke Federal Reserve Chairman

THANK YOU