How ISIS Will Damage Middle East Economies

Trade is the lifeblood of any nation, and when it is disrupted, there are consequences to the economy. In places where ISIS has taken root, traditional trading activities have been replaced. The risk of economic maladjustment in the Middle East grows by the day. ISIS not only destroys economic freedom in the lands they hold but also hampers the activities of the entire region.

War disrupts economies and ISIS is hardly the first to do so successfully. However, when wars are over many of the previous commercial lines will resume, and with effort, a nation will slowly return to its former self. In a few cases, nations like Iraq can even improve their economy by building updated infrastructure that catalyzes business growth.

ISIS isn’t a typical country engaged in cross-border fighting like we have experienced in the past. It is a a new nation spawned from the villages of other nations that seeks to globalize their brand to create new systems to ensure their empire continues to expand. ISIS ideology comes with new (old) ideas about commerce, economic exchange, and currency based in Eastern traditions and supported by millions of people.

If Afghanistan and Libya are examples, the future of the area doesn’t look bright unless things change. According to the World Bank, the % of GNP growth in Afghanistan and Libya are projecting downward trends until 2017 when problems are expected to stabilize. The difference is that ISIS, with their restrictive ideology, will hold those numbers down much longer.

The economic problems of Syria and Iraq also impact their regional trading partners. Turkey and surrounding countries have experienced slower growth over the past few years. These nations have an economic stake in ensuring ISIS doesn’t remain and should consider putting more effort into collaboration and counter-initiatives.

ISIS is one more challenge the world must overcome as many challenges before. Friedrich Nietzsche eloquently stated, “That which does not kill us makes us stronger.” It is possible that Iraq’s and Syria’s economy could emerge out of this crisis stronger if they resolve their sectarian differences. Overcoming this challenge will require Shia and Sunnis to work together to reconcile their disputes by creating a new national identity that shuns division. Abundance can return again to the Cradle of Civilization between two rivers.

GDP Improves 4% in Second Quarter

The winter chill has thawed and the economy has rebounded 4% in the second quarter surpassing the governments expectations by 3%. In a spat of heightened economic activity improvement marks a continued trend of increasing economic gain after one of the nation’s worst recessions. The numbers provide some relief for those worried about the previous quarter’s retraction.

“Today’s advance estimate of real GDP is a positive signal that our economy is continuing its steady rebound,” stated U.S. Secretary of Commerce Penny Pritzker. She also highlighted that it is necessary to continue work to ensure the rebound is long lasting. 

The plan is to encourage “more companies to export, increase foreign direct investment in the United States, strengthen regional manufacturing and economic development hubs, ensure workers have the skills to find jobs businesses need to fill, and unleash more of our data, all of which helps businesses grow and create American jobs.”

The numbers are complemented by an increase in retail and food services sales, durable goods orders, wholesale trade, new residential sales, personal income, employment and improvement in exports. Housing construction was down substantially but didn’t seem to be creating significant drag. 

Despite the downturn in new construction the overall factors have been positive. Improved international outlook, higher consumer spending, and slack in the system seems to be tightening. Hopefully it will maintain its momentum into the next few quarters.

The Federal Reserve is also cutting its bond from $25 billion from $35 billion. The program was designed to encourage businesses to spend instead of save. As the economy moves to a cruise control stage there is less need for government interference. 

We have a lot to feel thankful for as we move out of the recession period. Increased economic activity will require additional adaptation and investment by companies. With any luck the parity costs of manufacturing with nations like China may provide additional help with investment stimulus and job creation.

Developing Sustainable Marketing to Foster Societal Development

Sustainable marketing is an activity that supports sustainable economic growth. That leaves open the question of what sustainable growth is. To some it may focus on wealth generation while to others it is societal development. Of course, this doesn’t do much if that wealth only makes its way into a few hands. Sustainable marketing and sustainable growth must therefore include concepts of greater system development that makes its way throughout the societal networks to raise the status of all members. A paper by Shelby Hunt helps describe two theories of economics that focus on creating sustainable systems. 

Sustainable economic growth can be seen as improvements in the ecological (environment), social (equity), and financial (economic) arenas (Savitz & Weber, 2006). A collapse or deficiency in anyone of these areas can impact the trajectory of growth. For example, an ecological collapse based upon pollution could lower life expectancy, human growth, and raise costs. Likewise, social in-equity is unstable and can cause riots, fighting, and crime. The decline of the economic engine can cause damage in other areas leading to collapse. 

Two economic models help put together a framework for growth. These include the necoclassical static-equilibrium growth theory (Solow, 1966) and resource-advantage theory (Hunt, 2000). Neoclassical theory maintains that growth comes from investment. As investment increases so does growth. The resource-advantage theory indicates that growth comes from competitive innovations brought about by institutions that foster economic freedom. 

The neo-classical theory attempts to use investment to spur growth. It can be written into a Cobb-Douglass formula:

Y=A(t)K^1-βL^β

Y is the net national product, A is the level of technology, K is the stock of capital, L is the stock of Labor and β relates to the output of labor. Therefore, net national output is a function of technological development, capital available for growth, personal abilities of labor, and labors total output.

The author focuses more on the resource-advantage theory as more valid in creating economic growth. This theory rests on the following premises:

-demand is heterogeneous across industries, within industries and is dynamic.

-consumer information is imperfect and costly.

-firms objectives are related to financial growth.

-firm’s information is imperfect and costly.

-firm resources are financial, physical, legal, human, organizational, informational and relational.

-resources are heterogeneous and mobile.

-management’s responsibility is to create and modify strategies.

-competition is based on disequilibrium. 

 In resource-advantage theory growth comes from societal resources and societal institutions. Resources are things like comparative advantages/disadvantages and parity. These resources lead into a market position that includes competitive advantages/disadvantage and parity. Public policy can foster or damage that growth creating a system of constant disequilibrium that seeks to develop to find an elusive homeostasis. 

The authors contend that resource-advantage theory follows the Schumpeterian model and is proactive in promoting innovation and technology. It strives off of the entrepreneurial mindset in an effort to encourage the highest levels of growth and development. The greater the competitive advantage of companies within the system the more likely they will draw in new resources. The theory promotes positive social responsibility and increasing economic growth. 

Comment: These two theories are not mutual exclusive but work together. Investments are necessary but how and where we use those investments will determine if our process is sustainable. When initial investments create greater wealth than their cost and in turn generate more investment the system becomes sustainable. Technology is a key place for investment because it increases productivity and decreases costs.   It is the chasing of mutual self-interest and reinvestment that creates the highest levels of self-perpetual growth. 

Hunt, S. (2011). Sustainable marketing, equity, and economic growth: a resource-advantage, economic freedom approach. Journal of Academic Marketing Science, 39. 

Hunt, S. (2000). The competence-based, resource-advantage, and neoclassical theories of competition: Toward a synthesis. In R. Sanchez & A. Heene (Eds.). Competence-based strategic management: Theory and research. Greenwich: JAI Press. 

Savitz, A. & Weber, K. (2006). The triple bottom : how today’s best-run companies are achieving economic, social and environmental success-and how you can too. NY: John Wiley.

Solow: R. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70.