The Impact

McKinsey Quarterly early in the morning has become a norm for me now. In one of its latest reports on the public sector - 'The Market State', they have tried to describe the state of the society existing in the market. In the due course of doing the same, a few analysis on the unemployment issues existing across the globe (esp post recession) stuck my thought process.

"While Japan and most European countries don’t share Spain’s punishing 20 percent unemployment rate, they have sacrificed GDP growth to support a robust social-safety net." Well... there are as always two perspectives to this statement.

Looking at the brighter side of the coin, the social welfare is still protected even though the markets have created havoc. The interest of the society is maintained to an extent where people can lead their day-day life without having to bother much about their daily bread. They will have to eventually find a job in the given time span for financial coverage. But with recession hit countries, the span has been stretched after the government has realized the fact of jobs not being available for the locals. Obama tried bringing in a few laws for local employment at US. This did prove to be a success to some extent though there were certain communities apposing it! Even during my days at the UK, I figured out the fact that the government did offer a financial cover to its citizens for a certain period of time so that their daily bread is protected.

But an economists’ counter argument would be ‘Look at it with the magnifying glass of the world! People in the globe are working.’ He is definitely right in his perspective of a boundary less operation. But, with the political scenario existing, it might not be a near possibility. Coming back… With the world getting flatter by the day, it is becoming a very challenging task for countries to create and maintain jobs locally. Hence these measures are proving to be a boon to the society. But by doing this, can the countries sustain for long? Won’t the debt of the countries increase to an extent where it is not returnable? Taking a pessimistic view, to answer these questions, I tried drawing the ‘MR=MC’ curve.



Consider MR (Marginal Return) as a parameter for the income from taxes and other governmental cash inflows and MC (Marginal Cost) as the cash outflows in terms of infrastructure development, Social welfare, R n D etc. Now, if a percentage tolerance to the point MR=MC is provided (point ‘Z’ in the above graph), the countries can probably control the amount of debt which might impair the growth. When the countries have decided to sacrifice the GDP growth due to social issues, the tolerance level just increases and hence the uncertainty of growth.

But whatever be the decision to go ahead with, the complexity in terms of the number of diversified parameters involved in this is huge! Hope that the political heads won’t screw up things by taking undesirable decisions…