The development of a market economy does not look like a straight line, where everything goes uniformly and stably. Usually, she experiences regular ups and downs that are locked into successive stages. The cyclical nature of the development of the economy is manifested in fluctuations in the situation, which is periodic.
The economic cycle and its phases
The theory of cyclical development of the economy is described in each textbook on a specialized subject. Industrial periods were analyzed by such famous scientists as Joseph Kitchin, Clement Jugliar and Simon Smith Smith. They argued that the economic cycle is a change in business activity in the economic system, characterized by undulation and a time interval between the same state of the market.
In the economic cycle there are four phases:
- Peak (rise). Power production expanded: new products and services are offered on the market. The population is busy, it has an increase in income.
- Recession (compression). Production is gradually declining, respectively, consumption, investment infusion, GDP and profit are falling.
- Recession (crisis). The economy has bottomed out and has been in this state for some time.
- Revitalization. Production is growing, generating revenue.
The cyclical nature of the economy of a particular country may not coincide with a similar process at the level of the world economy or macroeconomics in general.
Internal causes
The consequences of the cyclical development of the economy are manifested at the level of experience. After all, each new stage is not a copy of the previous one: humanity learns from mistakes and makes changes during the next period. Of course, cyclical events are greatly influenced by events and politics in the country. There are such internal factors that are displayed on the state economy:
- Reduced production due to overproduction. They are set to low demand due to the large availability and high prices. In fact, supply exceeds demand.
- Novelties. For example, with the advent of computers on the market, manufacturers of typewriters begin to close their businesses or transfer capital to the development of other industries.
- Monetary policy. The release of a huge amount of money generates inflation, while their insufficient availability leads to a decline in production and a reduction in investment.
Internal reasons include the demographic situation, the development of the social sphere, the level of education, culture in the country, and so on. All these factors are also displayed on the standard of living of ordinary citizens.
External influence
It also plays an important role. External causes of the cyclical development of the economy include:
- Hostilities. During an armed conflict, the economy is rebuilding on a new “wave” - the release of ammunition and equipment for fighters. Additional labor and resource are involved. When the war ends, a recession ensues.
- Innovation They have a huge impact on prices, investments, demand and consumption.
- The impact of other factors. For example, this may include jumps at the global level of oil prices.
External factors of economic development may include international politics, which the government adheres to, as well as diplomatic relations of the state and its activity in the world market. The combination of internal causes and stimuli from the outside forms the atmosphere in which the economy is located, they also directly proportionally affect its level and qualitative component. It is clear that the cyclical nature of the economy is “embroiled” in this complex process and is completely dependent on it.
Economics and war
A political coup, civil confrontation or the invasion of another country on the territory of a power - all this invariably leads to human, humanitarian and economic losses. Armed conflicts have broken not one economy for many millennia, but the 20th century turned out to be the most ambitious and destructive. Two World Wars and one Civil War shocked more than one state: many people died, factories and factories were destroyed by explosions. Citizens suffered from hunger and lack of shelter over their heads, since all forces were devoted to the production of shells, tanks and machine guns.
War and economy are incompatible concepts. The crushing blow of the first destroys all the achievements of the second. There is no example in world history when, in a state of armed conflict, the state would support the economy at a high level and did not need anything. At the same time, civil wars are especially dangerous: more brutal and destructive not only for the economy, but also for the people themselves. When a brother with arms in hand goes to his brother, this is accompanied by a particularly pronounced aggression and hatred, which directly affects the level of destruction, including economic.
Libya example
Let us analyze how the war was reflected in the life of Libya. The armed conflict in this country has been going on since 2011: between the followers of the assassinated state leader Muammar Gaddafi and the units of the National Transitional Council. During the confrontation over the past four years, 50 thousand people have died, 10 times more refugees. The numbers continue to skyrocket. Estimates of economic damage vary: the IMF talks about $ 7.7 billion, some consulting companies insist on $ 15 billion. The oil industry, which flourished and was the main breadwinner, lost $ 50 billion.
Since the external causes of the cyclical development of the economy are primarily wars, it can be concluded how this factor influenced the situation in this case. With the development of mass protests, power seizures of enterprises, armed battles and bombing, the economy fell to the very bottom of its development. The economy has actually stopped: people have lost interest in production, now their main goal is to achieve the truth and survive.
The role of black gold
External causes of the cyclical development of the economy include the so-called oil shocks - sharp jumps in product prices. For example, in 1973, the unification of states that are suppliers of black gold to the world market into one OPEC cartel led to an increase in the cost of the resource. This marked the beginning of the biggest economic crisis in the post-war period. In the USA, the decline in production continued for two years and amounted to as much as 5%.
OPEC includes the following Arab countries: Qatar, Kuwait, Libya, Syria, Saudi Arabia, Algeria, Iraq, Egypt, Arabia and Abu Dhabi. At a general council, they decided to reduce fuel supplies to states that support Israeli policy. The list, in addition to America, also included Japan and most countries of Western Europe. The economies of the world's leading powers, which depended on black gold, became depressed, because the price per barrel from 2-3 dollars rose to 15. This was the first time in history that an oil weapon was used for political purposes.
