The recent economic crisis in the U.S. in 2008 called the “Great Recession” began with turmoil in home mortgage markets in the United States as many homeowners found themselves unable to make their payments. The problems also soon affected businesses as credit markets collapsed. All of sudden, credit was no longer readily available to fund business activities. Due to our globally connected world, it didn’t take long for economic troubles in the United States to spread to other countries.
What led to the massive problems when General Motors went bankrupt? The Organisation for Economic Cooperation and Development predicted that some 25 million unemployed individuals globally and the U.S. unemployment rate hovered around 9 percent. Various factors including excessively low interest rates for a long period of time, fundamental flaws in the U.S. housing market, and massive global liquidity were responsible for Great Recession. All these factors led businesses and consumers to become highly leveraged, which wasn’t an issue when credit was easily available.
However, as liquidity dried up, the worldwide economic system sputtered and nearly collapsed. With trillions lost in home value, millions of home foreclosures, a huge public debt burden in many countries, and widespread social problems due to job losses, it’s clear that the U.S. and global economic environments have changed.
In the U.S. economic system, which is based mostly on capitalistic principles, trade and industry are controlled privately rather than by the government. But as we’ve seen time and time again in such a system, people sometimes make bad, even disastrous, decisions. Despite this cynical view, modern capitalism has created “unprecedented wealth in our lifetime, shown its power to lift people out of poverty, and spread a culture of competitive genius.”
It’s also been called the “most productive economic engine invented.” Since the early 1900s, the U.S. approach has been the most important model for organising business activities. It brought the world the corporate model of ownership and organisation, large-scale operations based on mass production techniques, open markets, formal organisation structures with hierarchies and multiple business divisions, and labour-management collective bargaining.
Business organisations in many countries have patterned themselves after recession period. However, as the economic problems of the past few years have shown, it’s by no means perfect. Experts believe that as the U.S. economy emerges from recession, the way businesses operate will not be the way it’s always been. As the U.S. Secretary of the Treasury said, “Capitalism will be different.”