Marketing and Economic Efficiency Create Societal Improvement

Artwork: Dr. Murad Abel

The bridge between economic growth and government efficiency is not an easy one to find. There are many factors that go into the process of building stronger economies, better societies, and more accountable government. Research by Sirgy, et. al. (2012) helps to show how marketing activities improvement of economic, social, health, and subjective health of a country is mediated by economic efficiency. As marketing activity increases and government oversight becomes more efficient the economy grows for the benefit of all societal members.

Marketing Activity:  The totality of marketing expenditures throughout society that increase awareness of products and services that speed up economic activity (Wilkie and Moore, 2007). This can be measured as dollar amount of advertising expenditures per GDP.  It is tightly woven retailers that fulfill the needs of customer’s life domains that enhance their quality of life. It improves upon information flow, consumption opportunities and improves job opportunities.  

Economic Efficiency:  When a country has lower levels of corruption, more liquidity in movement of money, the informal market is small, and additional employment opportunities it is said to be efficient (Matel et. al., 2010). The overhead transactional costs related to corruption is low while the political structure of the country allows money to move to those who have the abilities to earn it. This translates into efficient opportunities, government oversight, and skill based earning without a significance presence of the shadow market. 

When marketing activity is high, information is readily available, and people can make proper choices the economic activity increases. This economic activity raises the lives of people and revenue throughout an area. To maximize the benefits, government needs to be transparent, build trust, and gain revenue off of transactions.  Low government efficiency can damage economic prospects for business by strengthening the shadow market that seeks to avoid regulation/taxes. 

Measurements for marketing activity include advertising expenditure as a % of GNP and number of retail outlets per capita. Economic efficiency can be measured from the Corruption Perception Index (CPI), Economic Freedom Index (EFI), and shadow economy in % of GDP. Indicators of economic well-being are seen through the measures of inflation, Consumer Price Index (CPI), and GNI as international dollars using Purchasing Power Parity (PPP). Social well-being is measured in adult literacy rates and net enrollment ratio in secondary rules. Health Well-Being is measured in under-5 mortality rates, maternal mortality ratio, life expectancy, and public expenditure on health.  Subjective Well-Being is the subjective satisfaction of society-the happiness factor. 

Through reviewing data of 133 nations the authors found that economic efficiency has a significant impact on societal well –being. Government efficiency is a mediator of this relationship. Societal Well-being is defined as economic, social, health and subjective factors. As economic efficiency increases so does the opportunities and choices of societal members. Trust with the economy and government rises and this encourages greater economic activity that benefits a whole range of societal members across a broad spectrum. 

Comment: The report helps us to understand there are multiple factors in building a strong economy and society. Marketing gets out the “voice” on products and services and provides opportunities for people to understand these products and where they can be obtained. Government oversight can either damage economic growth or encourage it. When officials are in doubt about when to increase or decrease regulation it is beneficial see this through the lens of how this impacts economic growth, societal development and the basic factors of trust that underlines it all. 

Matei, et. al. (2010). Public integrity, economic freedom and government performance: a comparative study for the EU member states and acceding countries. Theoretical and Applied Economics, 18 (11)

Sirgy, M. (2010). Does marketing activity contribute to a society’s well-being? The role of economic efficiency. Journal of Business Ethics, 107 (91). 

Wilkie, W. & Moore, E. (2007). What does the definition of marketing tell us about ourselves? Journal of Public Policy and marketing, 26 (2).

Saving or Spending for Economic Growth?

Neoclassical growth theory states that higher saving rates can increase long-term wealth while Keynesian economics indicates that higher saving rates can lower consumption. Yun-Kwong Kwok in his paper creates a bridge between the two theories by studying the links of the Solow diagram (neoclassical) and IS-LM curves (Keynesian).  These two concepts are often covered separately in college because they do not easily mesh into a single framework.  People are left wondering if we should save or spend?

The first concept to understand is that the neoclassical model is a long-term model while the Keynesian model is more short-term.  One focuses on a longer-term trend while another focuses more on immediate needs. This is one reason why decision-makers who are looking for immediate results often use the Keynesian model. 

In the long-run Solow model, the total output Y of an economy is produced by capital K and labor L: Y=F(K,L).  Capital accumulates through net investment. Output is absorbed through consumption. Stability occurs when accumulation and consumption match. Standard of living improves to match total accumulation until the system is equal in inputs and outputs. 

An assumption of the Keynesian model is that when prices and wages are flexible the economy will be at full employment. Because prices are sticky, the economy deviates for a period from full employment. When demand for certain products produced by a country declines, so will the employment rate. In other words, you cannot keep producing if no one is buying and that means lay-offs and higher unemployment. 

The author found that an increase in the savings rate will first lead to short-run recession but will eventually create long-term growth. He argues that as the central bank increases the money supply it will decrease the interest rate and increase output. A recessed economy with cash infusion will move toward its long-run potential. If that potential is high then it can create benefits. However, an infusion of money that is working against a poor long-run potential will cause prices to increase and output, consumption, and investment to decline. Policy makers must understand the positive or negative long-term potential to determine if infusion, infrastructure improvements, or other policies will result in higher growth.

Comment: It would appear that a major miscalculation is the long-term productivity of the economy. When an economic system loses its fundamental competitive nature through not keeping up with worldwide competition an increase in debt/liquidity during a recession may improve the short-run situation but damage long-term growth through greater debt servicing expenses and lower productivity.  Yet it is a well-known tool that is easy to use and grab when situations become difficult. The question becomes what do we do with this debt once we get back to a normal economy that cannot afford to service it? Creating sustainable systems that continuously reinvest parts of their working capital and saves a percentage of their profits from lower transaction costs (improved profits) through infrastructure improvements allows for greater cash infusion with long-term liquidity and investment prospects. The problem we face is knowing which infrastructure improvements will raise business prospects, tax capital, and business investment. Since businesses work in an infrastructure platform improvement upon that platform raises their opportunities for success but needs to be done in a fiscally responsible manner. Doing so in a smaller hub allows for the proper experimentation for national policy development. 

Kwok, Y. (2007). To save or to consume: linking growth theory with the Keynesian Model. Journal of Economic Education.

Inter-Organization Collaboration Networks

A publication in the Policies Studies Journal by Lee and Fejock (2012) helps to explain how collaboration networks cluster together to enhance product and service development. These networks move to enhance inter-organizational collaboration and can create economic improvement. Their work suggests that the micro aspects of such collaboration have not been fully analyzed but that the system appears to be based on trust.

Three mechanisms for collaborative alternative governance include centralized authority, mutually binding contracts, and network embeddedness (Feiock, 2009).  Each comes with their own advantages and disadvantages. The greatest amount of flexibility lay in the embeddedness model as it relies on a more social, economic and relationship oriented model without the rigidity of formal oversight (Foiock, 2007). 

Each of the actors within this approach maintains a level of autonomous effort but is still part of a general network that lends support. These collaborative networks are based on purposeful activities that forge relationships in an effort to solve problems through the creation of solutions by putting forward the best use of knowledge, time resources and competition (Agranoff & McGuire, 2003). 

Organizations with limited resources are more likely to work together. Under the concept of Dependency Theory, the more limited the resources the more they would want to work together to survive (Pfeffer & Salancik, 2003). The report does not make the statement that all organizations have limited resources and when that perspective is widened to international competition those limitations become more acute. 

In order to hedge their risks and improve upon their information such organizations will attempt to develop relationships based on trust and information with those partners likely to complement each other (Gulati & Gargiulo, 1999). In this effort, they find those with intrinsic and operational similarities. They use the information and collaboration to improve upon their product and service offerings while having access to talent. 

As an essential element trust followed by financial arrangements bind the system into a coherent whole. If that trust is broken individual businesses may find them punished through a lack of collaborative effort, disappearance of personal connections, lost contracts, and a more hostile environment. Those that are willing to work with others and be equitable about these relationships will gain from the system. 

The authors found that organizations seek to find a place within the network where they can forge collaborative efforts by finding holes in the information networks to increase potential revenue and reduce costs. As organizations interrelate, they create stable and preferential relationships based upon trust, commitment, and shared goals. They do this through engaging in densely clustered networks that are capable of maintaining commitments to collective solutions (Putnam, 1995). 

It is beneficial to think of these information holes, as places were new products and services have not recognized or developed. By wedging themselves into these holes, they have the support of other players within the market and can use their knowledge to enhance their own. The surrounding companies use their new products and services to enhance their own. Likewise, participation in such networks helps to reduce uncertainty in the market, increase development, gain access to information, and find useful connections for economic development. Economic hubs are often seen as the development of these networks across multiple corporate, governmental, and non-profit sectors.

Agranoff, Robert, and Michael McGuire. 2003. Collaborative Public Management. Washington, DC:Georgetown University Press.

Foiock , R. (2007). “Rational Choice and Regionalism.” Journal of Urban Affairs 29 (1): 47–63.

Foiock, R. (2009). “Metropolitan Governance and Institutional Collective Action.” Urban Affairs Review 44 (3):356–77.

Gulati, R. and Gargiulo, M. (1999). Where Do Interorganizationl Networks Come From?

American Journal of.” Sociology 104 (5): 1439–93.

Lee, Y. & Fejock, W. (2012) Interorganizational Collaboration Networks in Economic Development Policy: An Exponential Random Graph Model Analysis.  Policy Studies Journal, 40 (3).

Pfeffer, J. and Salancik, G. (2003). The External Control of Organizations: A Resource Dependence Perspective. Stanford: Stanford Business Books.

Putnam, R. (1995). Bowling Alone. Journal of Democracy, 6 (1): 65–78.

Free Trade Agreements can Foster Economic Hubs

Free trade agreements are a common economic method of increasing trade. Free trade agreements work best where lower value imports are used to create higher value exports. Global hubs  often work with regional hubs in an international supply chain that continues to develop products for exportation to world markets. Effective economic hubs use intellectual capital to create value that cannot be easily copied by other countries.

According to Chong and Hur (2008) each hub has access through trade agreements to the spokes but the spokes only have access to the hub. This means that the hub can sell more products and services than the spokes can themselves. This advantage gives them preferred trading and profitability standards. It also creates a value chain with the highest hub realizing the most benefits.

Because hubs are central locations, they also can have an advantage in investments (Wonnacott, 1996). Those who seek to maximize their investment opportunities will invest their money through the purchasing of stocks or starting businesses within the hub (i.e. supply chain). They are aware that this is the fastest place for them to grow their capital. This in turn spurs additional economic growth in the area and develops opportunities for product development.

A problem occurs when two mega hubs are not competing on the same assumptions. For example, Chinese tariffs on U.S. made automotive products are designed to protect Chinese budding suppliers (Jian, 2008). When this occurs, one country has an advantage as they are willing to sell their products without tariffs to the U.S. but will not accept American products. The free trade cycle is broken.

In order for the mega hubs to operate correctly individual components of production should be purchased at a lower price and then assembled with intellectual labor into higher value products that are sold on the market. If these products are built else ware and sold primarily within the U.S. there is no export advantage, revenue, or growth. A decline occurs because the consumer culture is soaking up the value locally instead of properly exporting.

Hubs should be creators of wealth. They should use both imported and locally generated resources to develop them into higher value products for export. When this does not occur, it is likely that the export gain will turn into an import loss. Those hubs that export products will grow while those that only distribute imported products are likely to decline. It is the total value of the flow that determines growth or decline in regional development.

Chong, S. & Hur, J. (2008). Small hubs, large spokes and overlapping free trade agreements. World Economy, 31 (2).

Jain, Y. (2008). Wto rips china’s tariffs on imported auto parts. Automotive News, 82 (6295).

Wonnacott, R. J. (1996a), ‘Free-Trade Agreements: For Better or Worse?’, American Economic

Review, 86, 2, 62–66.

Economic Hubs in Asia Foster Economic Development

East Asia is increasing as a powerhouse of manufacturing but is also becoming a consumer of finished worldwide products. According to research by Ando (2011), the region was able to recover quickly from the financial difficulties of the recession due to its interconnected business activity. As wealth increases in the area, so will the consumption and needs of the local population.  Companies would be wise to target the growing wealth of the area to sell products and services. 

Direct foreign investment has increased the distinct East Asian industries of general machinery, electric machinery, transport equipment, and precision machinery. These well developed countries that dominated the machinery trade have now been replaced by the growing machinery trades of East Asia. Its dominance is tied to its exportability of products and interconnected manufacturers. 

The advantages of this region rely on interconnected blocks of manufacturing ability that allow interconnectivity, communication, coordination, and effort in production. The costs that would eat up profits in disconnected blocks are lessened when regional hubs are developed. Each industry grows and develops off the others thereby creating synergy in regional effort. 

The U.S. and Europe are important trading partners for East Asia products but their significance is declining as Asian countries increase their consumption of imported products. This means that as a global international trade network Asia countries are coming into a mature market and are beginning to be significant trade sources of their own. Less reliance on European and U.S. market exportation means more varying influence on product customers and final design. 

After the recession, this area of the world has largely recovered while many other still lag behind. The recovery was based on dense industry similarities in the area with global network distribution.  This should act as a lesson for regions and leaders that desire to develop their own industries that can recover quickly from economic fluctuations. At present these Asian countries are focused on infrastructure to foster the growth of future industries.

Development Tips:

-Develop economic hubs of similar industries that create transactional savings in their economic vines.

-Encourage foreign trade and network lines that span to multiple areas where wealth is increasing. 

-Develop economic hubs that foster innovation and development of products.

-Encourage human capital development in the region and culture that sustains progressive values. 

-Maintain and develop infrastructural improvements that cultivate further growth and distribution.

Ando, M. (2010). Machinery trade in east asia and global financial crisis. Journal of Korean Economy, 11 (2).