Greed + recession = Job cuts

Profit is the making of gain in business activity for the benefit of the owners of the business. An obvious way for an organisation to make more bees and honey is by reducing its expenses.

Experience curve effects are present in almost every industry and the first organisation that makes its way up the curve gains advantages over others within the industry. Early leadership means that the leader’s costs can be reduced relatively quickly to its competitors; that is one way that organisations get ahead and increase their profits. Continuous improvements of processes help organisations to frequently reduce average costs and stuff like that (economies of scale, etc).

The other obvious way to reduce expenses is through the reduction of labour – that’s why I didn’t find it much of a Thailand surprise to hear that insurance company Friends Provident cutting 600 jobs. The other companies are doing it too in the City of London. The paradox here is that when the fat cats keep doing this, just to make more pony, they set up long-term inconveniences for themselves. When a large firm carries out a reduction in headcount this leads to individuals, who do not manage to be re-employed elsewhere, becoming unemployed and dejected. When so many organisations do this it results in increasing levels of unemployment, thus decreasing the market that these firms provide services to. How does this affect the rest of society? A decline in tax revenue and an escalating number of unemployed individuals to support, this would place a greater burden on the state benefit system. A right pickle ain’t it?

The above scenario is a bit extreme really but it shows the problems these organisations contribute to when they prioritise monetary profit over ethical practise. Everybody wants to reduce costs; that’s how they make profit and the major players wanna split it between themselves (fixed earnings for their workers yet variable competitive earnings for the people at top). They have a strong incentive to be greedy and greed drives ‘em to be more greedy, a self feeding circle of greed. The greedier these big companies in London become the more we, the people, suffer. Something needs to be done. Instead of looking at just economic and accounting profit, they should also give a shit about social profit. In reality this situation is made more apparent with the looming recession, which makes only certain that Londoners need to brace themselves for job cuts. The Labour Government will obviously want the inflation rate to be below the threshold target so they won’t be complaining when loads of hard workers are turfed from their jobs.

This is a basic graph showing that whenever unemployment is low, inflation tends to be high. Whenever unemployment is high, inflation tends to be low. This inverse relationship between inflation and unemployment is called the Phillips curve, the “high” and “low” is all relative to the Non-Accelerating Inflation Rate of Unemployment (NAIRU) of the local economy, otherwise referred to as the natural unemployment rate. It’s only natural to offset inflation with unemployment.

There are many other ways to deal with inflation e.g. reducing demand pressures, cost push pressures and money supply pressures... but don’t hold your breath for anything pleasing. If you’re a Londoner working for a greedy employer and you think the organisation is not one of the few that will benefit from the current turmoil in the markets then you better start looking for another job. Good luck!