Chris Pearce's Blog, page 24

History of ten pin bowling

The earliest evidence for bowling is some primitive bowling balls and large skittles of pottery and stone found by archaeologists in 1930 in a child’s grave in Egypt dating to about 3200 BCE. South Sea Islanders played ‘ula maika’ in antiquity, a game similar to skittles. They bowled stones over a distance of about 60 feet, the same length as modern day lanes.

A bowling game called ‘Kegeln’ developed in Germany from as early as the third century using ‘Kegels’ or pins. It was played in the long cloisters of churches and monasteries by worshippers and clerics alike, even by Martin Luther in the 16th century who standardized the number of pins used as nine, thereby inventing the game of nine pins. The pins were set up in a diamond formation with the middle pin being slightly taller than the others.

Bowling spread to nearby countries, including to England in the 13th century where it was initially known as ‘kayles’. Edward III banned bowling in 1366 as young men were missing archery practice, and other kings outlawed it as it became a gambling craze. But royals and aristocrats enjoyed the game too, constructing alleys at their palaces and mansions. The first indoor bowling alley was built in 1455 in London.

Henry VIII reputedly bowled with cannon balls. London’s bishop John Aylmer bowled on Sunday afternoons! Francis Drake kept bowling after his men told him the Spanish Armada was approaching in battle formation; he knocked down some more pins before skittling the Spaniards.

It was the Dutch who introduced bowling to the New World in 1626 at Manhattan Island, although it was the lawn version. English, German and Dutch migrants brought the game of nine pins with them across the Atlantic. Puritans tried to ban the pastime, although in 1658 one of their number confessed that he liked bowling and bet ten pounds on the outcome of a game, which he apparently won.

Bowling was popular in New York in the early 19th century and extended to many other parts of the country by the 1830s. The first indoor center in the US was Knickerbockers in New York City opening in1840. The sport soon became associated with gambling and crime. Huge bets were placed and many matches were rigged. Anyone who declined to play in a fixed match or refused to lose a game was likely to be beaten up. Authorities in New York, Massachusetts and Connecticut classified bowling as gambling and therefore illegal.

A law was passed in Connecticut in 1841 prohibiting the game of nine pins. Legend has it that enthusiasts added a tenth pin to circumvent the law and the game of ten pin bowling was born. However, it should be noted that a painting from about 1810 at the International Bowling Hall of Fame and Museum, at St Louis, Missouri, shows English bowlers using a set of ten pins in triangular formation.

Germans had the most influence on the development of ten pin bowling in the US in the mid and late 19th century, due to their game of nine pins called ‘Kegelspiel’. They formed many bowling clubs before and, in particular, after the Civil War. The ten pin version grew alongside nine pins but the latter remained more popular. Ten pin alleys were built in saloons and clubs frequented by men, whereas nine pins was more family oriented.

This pattern began to change when New York restaurateur Joe Thum founded the American Bowling Congress (ABC) in 1895. This body standardized the rules for ten pin bowling. Thum also led the way in making bowling a more respectable game among the middle and upper classes. His bowling alley, The White Elephant, was one of a number of more elegant and luxurious centers opening at the time. He is often considered the father of ten pin bowling.

By World War I, most alleys had changed from nine pins to ten pins. The changeover became almost complete when a number of US cities banned nine pins in the 1930s when workers went to these alleys instead of to work. Most remaining nine pin centers converted to ten pin bowling in the 1950s with the advent of pin setting machines. Only Texas still has nine pin alleys.

The first women’s leagues were formed in 1907 and the Women’s International Bowling Congress was established by 40 women in St Louis in 1916. This further helped bowling gain respectability and the game went from strength to strength.

In the 1920s, the number of bowling centers in the US rose from 450 to 2,000. Prohibition helped bowling by reducing its association with alcohol and making it a more family friendly activity. The end of prohibition in 1933 also assisted the game as brewers pushed to sponsor leagues, teams and individuals. It cemented bowling’s image as a working class sport, with the fifth frame often still referred to as the ‘beer frame’ or ‘drinks frame’ where the bowler with the lowest score for that frame buys refreshments for the team.

From World War II until the mid 1960s was a golden era for bowling. The armed forces had promoted the sport heavily. Labor organizations lobbied successfully for non-whites to become ABC members, thereby supporting racial integration. Automatic pinspotters, invented in 1945, were first introduced commercially in 1952 and over the next several years steadily replaced the pin boys who were employed by alleys to stand the pins back up.

Television tournaments, which started in 1947, became very popular in the 1950s, helping to make bowling a national pastime. ABC membership grew from 1.1 million in 1947 to 4.6 million in 1963 and the number of lanes in the US increased from 44,500 to 159,000 over this period. By 1960 most centers were air-conditioned and carpeted, and offered services such as restaurants, child minding, billiard tables and pinball machines.

Bowling went through a slump in the late 1960s as the novelty of the game seemed to wear off and fewer young people were replacing the older competitors who treated their sport more seriously than the next generation. There was a lack of investment and many alleys closed, becoming restaurants, bingo halls, and gyms. Bowling waxed and waned for a number of years, having to compete against a plethora of indoor and outdoor sports and activities that grew each year.

A sustained resurgence occurred from the 1980s, with many new centers being built and old ones refurbished. The game marketed itself as a fun recreation with alleys offering parties and disco lighting, while at the same time catering to the serious bowler. Automatic scoring also helped as players didn’t need to know how to score or have to write down the result after each bowl.

Today, bowling alleys are often part of entertainment centers with restaurants, cinemas, night clubs and games rooms. In 2005, the United States Bowling Congress was formed from a merger of the men’s, women’s and youth associations. It maintains standards and rules, sanctions leagues and tournaments, and certifies coaches. The congress had 2.6 million paying members in 2008, more than any other sport. Bowling has come a long way from its time as a gambling activity for crooks and drunks. The sport is enjoyed by millions around the world.

Important things to know about economics

(originally published to Helium writing site, now gone)

The main thing to know about economics is that we need to study it due to scarcity, that is, because our wants exceed the finite supply of resources. We therefore need to determine the best way to allocate those resources. The major concepts within economics can be divided into two groups: microeconomics, which examines how individuals, households and firms allocate scarce resources, and macroeconomics, which studies the structure, behavior and performance of the economy as a whole.

1 Scarcity

Economics is about the production, distribution and consumption of goods and services. The concept of scarcity is perhaps the most important thing to know about economics. If all resources and means of production were infinite or abundant, we’d have all the goods and services we could ever want and we wouldn’t need to study economics.

But resources are finite or scarce and people want more than what is available. This gives rise to the concept of scarcity and is the reason we study economics. Scarcity means there are insufficient resources to satisfy our abundant wants, so we have to find some way of rationing the allocation of resources.

Much has been written on post-scarcity economies where people can have as much of anything and everything as they want. This situation usually assumes that technology has advanced to such a stage where we can have as much of any good or service as we want for free or very low cost. Such utopian societies are often the settings of science fiction, as are dystopian societies where all incentive to lead a normal life disappears.

Allocation of resources in a normally functioning society is determined by price and this will be the focus of the next article on economic fundamentals.

2 Supply and demand

This section examines how economics copes with scarcity, and that is through the pricing mechanism. This is what microeconomics is all about.

Supply and demand is used to determine prices of goods and services. Producers are willing to supply varying quantities of a good or service depending on the price they can obtain for it. Consumers will demand different amounts of the good or service based on the price they have to pay. At the price where the volume produced equals the quantity purchased, with neither a surplus nor any unmet demand, this is the equilibrium price paid and quantity produced for that good or service.

Supply and demand curves

Economists show the relationship between supply and demand on a graph. Price is shown on the vertical axis while quantity is on the horizontal axis. The supply curve for a good or service always slopes upward from left to right. This is because producers will want to supply more of a product the higher the price. By contrast, the demand curve nearly always slopes downward from left to right. The lower the price of the product, the more of it will be demanded by consumers.

Thus the supply curve and the demand curve will form a cross on the graph. Where they intersect will be the price at which all units of the good or service will be sold. In other words, the market is cleared at that price. The model assumes perfect competition with no firm or consumer having an influence on the price.

Changes in demand and supply

For just about any good or service, the quantity demanded by consumers is likely to change over time. Factors leading to a change in the quantity demanded include changes in income, prices of related products, tastes and preferences, and expectations of future prices. An increase in income levels due to a wage rise or tax cuts will usually result in consumers demanding a greater quantity of goods and services.

If the price of a particular good comes down, consumers are likely to demand a greater quantity of any complementary goods. For example, if computer prices fall, not only will demand for computers increase but so too will demand for goods such as computer accessories, printers, and electronic games. Conversely, if two products are clear substitutes, such as butter and margarine, a fall in the price of one will lead to a decrease in demand for the other.

Changes in tastes and preferences will result in shifts in the quantity demanded of various goods over time, for example, different styles of clothing. Expectations of price changes will play a role too. If people feel that the price of a product will soon rise, they might demand extra units at the lower price while it lasts.

Where demand for a product increases, producers will usually move to satisfy that extra demand by increasing supply. This may involve resources flowing to the production of goods and services with high demand and away from those that have lost popularity. Technological advances and economies of scale often push the price down, resulting in further increases in demand. Other determinants of supply will include input costs and expectations of price changes, as well as market expansion through population growth.

In these situations, both demand and supply curves will shift to the right, to reflect larger quantities, and will intersect at a different point on the chart. The new equilibrium price may be lower than before. This is typical of electronic goods. Sometimes the new price might be higher, such as for certain fashion items. This might occur if consumers are convinced that a particular product has become more prestigious and is highly desirable.

3 Price elasticity

Price elasticity is the extent of changes in the quantity of a product demanded and supplied for a given change in its price and how this can vary between different goods and services.

The term price elasticity is used to describe the relative steepness of supply and demand curves for different goods and services and is fundamental to understanding the principles of supply and demand. Economists and business managers need to know how much the quantity of a product demanded and supplied will change when its price changes.

The price elasticity of demand measures the change in demand for a good or service for a given price change and may vary at different places along the demand curve. If the price of a product rises 5% and demand falls by 5%, price elasticity equals -1 or unity. However, if demand falls 10%, elasticity is -2. If it drops by only 2%, elasticity is -0.4. Price elasticity of demand will vary for different products, depending on whether the good or service is a necessity or luxury, the extent of substitute products, the percentage of income spent on the product, and whether price changes are perceived as long or short term.

If, for example, bus fares rise 5%, demand may only fall by 1% (elasticity of -0.2) as there might be few alternatives for those without their own transport, so very few of these consumers will stop taking the bus, which to them is a necessity. This is an example of inelastic demand. Other examples include basic food items, beer, cigarettes, oil and medicines. Conversely, if the price of a particular brand of automobile rises 5%, demand might fall 15% (elasticity of -3) because there are many substitutes and consumers will buy a different brand. Other examples of elastic demand include spirits, many luxuries, and most brand items.

Price elasticity of supply is the change in the amount of a good or service producers are willing to provide for a given change in price and is always a positive number. If the price of a good or service rises 5% and businesses increase their supply by 10%, elasticity equals 2. If companies are only willing to lift supply by 3%, elasticity is 0.6.

There are several determinants of price elasticity of supply. An important factor is availability of inputs and this includes raw materials and suitable labor. Another is how much time and effort it takes producers to adjust their processes to a new level of supply. If there is spare capacity, firms can increase their supply quickly. But if extra machinery is required and new staff need to be recruited and trained, it will take longer. Response time will also depend on how easy or difficult it is to shift resources between industries.

4 Applied microeconomics

This section looks at various areas where the principles of microeconomics are applied, including pricing and supply and demand.

Applied microeconomics has many specialized areas that utilize microeconomic theory and come up with policies appropriate to those areas. Some of the more important ones are as follows:

– Agricultural economics looks at crop and livestock farming, land use, yields, and agribusiness in general.

– Environmental economics examines pollution and environmental degradation, how these lead to market failure, and the policies to address the failure.

– Financial economics examines financial markets, company financing, the stock market, budgeting, investing and saving.

– Health economics studies the supply of and demand for health care, patient outcomes, financial issues, health workers and health insurance.

– Industrial organization and regulation looks at the structure of markets, the strategy of firms, innovation, technological progress, privatization, trademarks, and antitrust policy, and can involve any industry.

– Labor economics analyzes the labor market, employment, the supply and demand for labor, and wages.

– Law and economics uses economic concepts and theories to look at the effects of laws and which ones are economically efficient.

– Managerial economics examines the decisions of firms and other units and makes use of operations research and regression analysis.

– Public finance looks at government spending and revenue policies and their effects.

– Regional economics compares economic activity across geographical areas of a nation, and analyzes issues such as why some regions grow faster than others.

– Urban economics studies city issues such as pollution, traffic, urban sprawl, and poverty.

– Welfare economics looks at resource allocation and income distribution together.

5 Market failure

There are a number of areas where the market, through supply and demand and the pricing mechanism, isn’t the best allocator of resources, and government steps in to rectify or ease the situation. Market failure is thus another important concept in economics. There are several reasons why markets can fail to allocate resources efficiently and easily in the manner described in previous sections.

If one firm is dominant or has a monopoly in a particular market, this can unduly influence price and output, which can result in an inefficient allocation of resources. For example, in the US, antitrust regulations reduce monopoly power.

A second way a market can fail is if there are outside influences or externalities operating, for example, a firm might be polluting the environment or producing unsafe products. Government regulation aims to reduce or eliminate such externalities. An issue we’re hearing more and more about these days is global warming and carbon emissions. Governments take various measures to try and reduce the amount of carbon emitted, such as carbon pricing, emissions trading schemes, and direct regulation.

A third way relates to goods and services that people want but are unable or unwilling to pay for, or private firms might be unwilling to provide, or a product might be unsuitable for them to provide. The best example is public goods such as defense, law and order, health, education, and transport infrastructure, where governments step in and provide them, or provides a large proportion of them.

6 Macroeconomics

Macroeconomics is about the overall economy whereas microeconomics is about the individual players.

Macroeconomics examines the structure, behavior and performance of the whole economy rather than the actions of individuals and firms. It includes things like national income, consumption, investment, exports and imports, employment and unemployment, and inflation.

The two most important areas of macroeconomic research are finding the causes and effects of short-term fluctuations in the economy (the business cycle) and how to achieve long-term growth. This involves analyzing data on things like gross domestic product and its components, as well as inflation, unemployment, retail sales and consumer sentiment. These data can be fed into a macroeconomic model to try and forecast turning points and future growth levels. The findings will influence government economic policy.

The macroeconomic policies of government are fiscal policy and monetary policy and these are examined below. Both aim to stabilize the economy and promote long-term sustainable growth and are often used in tandem.

7 Fiscal policy

Fiscal policy influences the economy through changing the levels of government income and spending. Basically, if the government wants to stimulate a sluggish economy, it can spend more money than it receives (running a budget deficit). Economist John Maynard Keynes first suggested this in the 1930s as a way of beating the economic depression that engulfed the world at that time. Until then, governments had traditionally aimed to balance the budget, but Keynes argued that this caused the economy to shrink even more.

Conversely, if an economy is overheating, the government can increase taxes or reduce spending or both (and run a budget surplus) to reduce inflation and slow down growth, thereby putting money aside to perhaps use in the next downturn and ease its effects.

The effectiveness of government boosting the economy through spending more than it receives is reduced when inflation is high and when government already has a large debt. We have seen this in a number of countries since the 1970s during economic downturns. This was particularly so during the global financial crisis and worst economic downturn since the 1930s.

For these reasons, monetary policy has been used increasingly since the 1970s and this policy is the subject of the next section.

8 Monetary policy

In recent decades, monetary policy has been favored over fiscal policy, because expansionary fiscal policy (where the government spends more than it receives) tends to “crowd out” the private sector by reducing the resources available to it and putting upward pressure on interest rates.

Monetary policy is where government controls the supply of money in the economy. Monetarists, led by Milton Friedman, contend that inflation depends largely on the amount of money in the economy rather than on government spending and revenue decisions. Under monetary policy, a government will increase the rate of growth in the money supply if it wants to stimulate the economy, and decrease the growth rate if it wants to slow the economy (for example, if inflation is pushing up growth to unsustainable levels). The government does this by lowering or raising interest rates.

Since 2008 and the global financial crisis, governments of most economies have cut interest rates, or in other words have made money cheaper, to try and increase the money supply, boost employment, stimulate growth, and prevent a recession or prevent a worse recession as the case may be. However, low interest rates have meant cheap credit, which has led to high debt in both the private and government sectors. Many economies are now treading a fine line between a further escalation of debt if interest rates are kept low, but lower growth and a possible return to recession if rates are increased. There are no easy answers as we’ve seen in recent years in the US, Europe and elsewhere.

9 Economic systems

The way a society organizes itself to produce, distribute and consume good and services is another important thing to know about economics. Two main economic systems are capitalism and socialism.

Capitalism is where the factors of production (land, labor and capital) are owned mainly by the private sector, and where the market determines price. This system has been favored in most places and at most times since the industrial revolution.

Socialism is where there is common or government ownership of the factors of production, and where there is no division of labor and capital.

In practice, most economies are what we call mixed economies, though leaning towards capitalism, with a sizeable government sector but larger private sector.

Since the 19th century, capitalist systems have tended to have an ever growing government sector as economies become more mature and people want goods and services that can’t always be provided by firms and individuals, such as roads, health, education, the arts, social security, and so on. Just about any Western economy is a good example of this.

At the same time, socialist systems have tended to allow more and more goods and services to be provided by the non-government sector. Russia and China are good examples.

What is product placement?

(originally published to Helium writing site, now gone)

Product placement is a type of advertising where commercial products are included in scenes from films or television shows, as well as in video games, music videos, and books. Firms pay to have their products displayed in this way, and it helps producers offset production costs. It can include the product itself, a favorable mention, or a brand’s logo.

A typical example might be a scene in a television series where the characters are sitting at the breakfast table with several products such as a packet of cereal, a milk product and a fruit juice all prominently displayed on the table with labels facing the camera. People see the stars of their favorite shows eating a particular cereal or driving a certain car and will associate the product with those stars. This makes people go and buy these same products, so they can connect with or be like the stars. Sales can be boosted significantly. For example, the 1982 film “ET the Extra-Terrestrial” boosted sales of candy bar Reese’s Pieces by eighty percent. Research similar to ad tracking is carried out to test recall rates for products people saw in a movie or television show.

Product placement has been around since at least the 1940s. The earliest example is perhaps in the 1946 film “It’s a Wonderful Life”, where a boy who wanted to be an explorer clutches a copy of National Geographic. Product placement in episodic television series in the 1940s and 1950s by soap companies is how these types of programs came to be known as “soap operas”.

One of the products most commonly used in product placement is motor vehicles, such as the use of Fords in “The X-Files”. The James Bond film “The Man with the Golden Gun” used AMC cars, including in Thailand where these cars aren’t available, and they didn’t even change the steering wheel to the side used in that country. Other Bond movies have used Fords, BMWs and of course Aston Martins. Three characters in “Desperate Housewives” drive Nissans. The car used in 1960s sitcom “Mr. Ed” was a Studebaker. In all these shows, the car companies paid large sums for product placement.

There are many variations of product placement:

– Brand integration is where the product becomes an integral part of a movie or television show, for example, where a character works for an advertising agency, and its campaign for a particular product becomes an integral part of the show.

– Placement can include advertisements for a product, for example, a Pepsi ad on a billboard seen from a car or during a night time street scene. This is sometimes called advertisement placement.

– Product placement might be spoofed in comedies, for example, the film “Kung Pow! Enter the Fist” featured an out of place Taco Bell. In “Looney Tunes: Back in Action”, a Wal-Mart popped up in the desert.

– An actual television advertisement appeared in a movie for the first time in “Talladega Nights: The Ballad of Ricky Bobby” in 2006.

– Fictional product placement is where a product is invented. Quentin Tarantino’s Red Apple Cigarettes is a good example. Sometimes a fictional product placement becomes a real product, such as Buzz Cola in “The Simpsons”.

– Paid product placement doesn’t always treat a product well, for example, where there is a break-in to a store used on the show, or a car crash involving a placed car.

– Sometimes placements can include a firm lending items such as props, cars or clothes for various scenes, or free products such as a mobile phone for actors and producers/directors.

Just because a firm’s products are used on television or in movies, this doesn’t always mean it’s product placement, for example, Apple’s products often appear in shows as they look better than those of their competitors. In an odd twist, sitcom “30 Rock” had a General Electric oven on the show. Product placement was denied but GE advertised the oven during commercial breaks to take advantage of its appearance on the program.

Product placement is escalating in on-line videos and in video games. There is even product placement in books, such as a brand name being mentioned in the story. A new trend is virtual product placement, where product placement is switchable thanks to computer graphics.

The product placement industry was worth $3.1 billion worldwide in 2006 and was forecast to rise to $5.6 billion in 2010, according to PQ media in 2007. This was beaten in 2009, during the great recession, when $6.25 billion was spent. This jumped to $8.25 billion in 2012. A factor driving the growth is VCRs and people’s habit of fast forwarding the commercials. While there has been a shift to product placement, conventional advertising is safe, with $500 billion a year spend on this, including $100 billion online.

Niche marketing

(originally published to Helium writing site, now gone)

Niche marketing is where a certain product or service is targeted to a particular subset of a larger market. The word “niche” comes from the French word “nicher”, meaning “to make a nest”. Traditionally, “niche” has been used to describe an ornamental recess in a wall, usually rounded or arched, for a statue or other decorative object. In ecology, the word is used to describe an organism’s position in a plant or animal community. In business and in general life, “niche” is often used in a situation where a person has found a suitable or appropriate position or place – we talk about someone finding their niche. A market niche is where a firm has found a particular part of the market that suits its size, expertise and objectives, and it concentrates on targeting that market.

Thus niche marketing is about finding a unique product or service to fulfill unmet needs of a certain group of people, for example, educated 20-29 year old women, or people in a particular location, or people with certain behavioral characteristics. An example of niche marketing is where a firm finds that the market for boarding kennels in an area is saturated and that a proportion of people would like something better for their pets, so the firm opens a pet motel. The firm can therefore offer a specific group of people a particular service that meets their needs. Many markets might not be adequately serviced through mainstream marketing.

A firm that isn’t large enough to compete against the leading companies in a market might search for a niche, or in other words a smaller part of that market, and they might do better in terms of sales and profit than they would otherwise have done. For such a firm, the advantages of specialization can outweigh those of economies of scale. Another benefit for niche marketers is that the main producers might ignore them, as the niche is often too small for them to worry about. Sometimes the product might not be much different from that produced by a mass producer, but the packaging or delivery might be different and the promotional strategy might differ.

A niche marketer might rely more on word of mouth as a promotion tool than mainstream marketers. Customer loyalty is often important for a successful niche marketer. This means they have to know their customers’ needs and wants better than a mainstream provider. A niche marketer will strive for a high level of customer service and customer satisfaction, and will be keen to keep its customers.

Niche marketing can be undertaken by large firms as well as small ones. Large companies can use niche marketing to target certain market segments. An example is Nike, whose sales and profit had plateaued, and they consequently developed various niches by segmenting the footwear market by each sport, and further segmenting within certain sports. Niche marketing is becoming increasingly popular for firms of all sizes as they compete in a marketplace saturated with goods and services of every description.

To be a successful niche marketer, a firm needs to pick the right segment to target. This can be based on potential sales levels, profitability of the segment, whether it’s suited to the firm’s distribution methods, likely competition in the segment, and potential substitute products. The firm should ensure that the target market has their unique needs and wants satisfied. It must identify those needs and wants and develop a particular product for these people and market it in a way that will reach them. In this regard, it is important for the firm to be on the same wavelength as the potential market.

In summary, a niche marketer must have a unique product that is marketable, must be in a market that isn’t saturated, and must promote it appropriately to the right customers.

The principles of marketing

(originally published to Helium writing site, now gone)

Many principles of marketing need to be taken into account when trying to sell a product or service. These principles include an environmental or situation analysis of the firm’s internal and external environments, segmentation of the market, consumer and market research, product development, pricing, distribution, promotional strategy, marketing planning, and measuring the progress of marketing strategies and actions.

An environmental or situation analysis is where a firm looks at the organization itself, its collaborators, its customers, its competitors and the business climate. A firm needs to understand its internal and external environments. The company must know its capabilities, products, image, strengths and weaknesses, and culture. It should look at its suppliers, consultants and distributors, and their respective capabilities, strengths and weaknesses. It analyzes its existing and potential customers, the market such as its size and growth, what consumers want, what motivates them to buy, where and how they buy, and trends in consumer behavior.

The firm examines its industry, including each main competitor in terms of size, products, strategies, market share, and strengths and weaknesses. It also analyzes its business environment, including aspects of the political and regulatory situation that will impact on the firm and the market; the economic situation such as growth rates, cycles, inflation, and employment levels; technology; and the international environment.

Once a firm gets an overall picture of its operating environment, it segments the market. This is necessary as consumers are all different and they have different needs and wants. Sometimes mass marketing is feasible if a product is popular enough across a broad range of consumers. But often, specific segments of the market have to be targeted. A market segment has to be identifiable, accessible, substantial, have unique needs, and be durable.

Consumer markets can be segmented by geography (for example, by country, state, local area, city size, and population density), by demography (e.g. sex, age, family type, education level, occupation, income, social class, ethnicity and religion), by psychographic variables (e.g. lifestyle, interests, attitudes, opinions and values) and by behavior (e.g. brand loyalty, purchase frequency, benefits sought and readiness to buy). Industrial markets can be segmented by company type (e.g. industry and firm size), by behavior (e.g. purchase frequency, purchase procedure and ease of dealing with), and by location (e.g. distance and transport costs). Most businesses are likely to target certain segments, and these will depend largely on the results of the firm’s environmental or situation analysis.

Consumer research will need to be conducted. This allows firms to monitor consumer behavior and preferences. The research can include ad tracking, advertising research, new product research, customer research and feedback, consumer research (including by telephone using random sampling techniques, mail out, focus groups, in-depth interviews and shopping center intercept), mystery shopper surveys, product and branch profitability studies, pedestrian counts and measuring queuing time. Most of this is primary research, whereas analysis of the environment might involve mainly secondary research, that is, using sources already published or otherwise available. Many firms keep all this information in some sort of marketing information system by whatever name.

A firm then needs to come up with an appropriate marketing mix, or combination of product, price, place (or distribution) and promotion, which are sometimes called the four p’s of marketing:

– Product issues can include a brand name, trademarks, functionality of the product, differentiation, quality, safety, packaging, repairs, warranties and accessories.

– Price is determined by costs, competition, market share, consumer demand, substitutes, price elasticity of demand, type of market (e.g. monopoly, perfect competition) and the objectives of the firm. The object might be to increase profits (use a higher price) or gain market share (use a lower price). Aspects of pricing can include a pricing strategy (e.g. skim, aggressive, penetration), a recommended retail price, discounts, seasonal differences and bundling.

– Place or distribution includes distribution channels, branch network, inventory management, warehousing, transport, use of wholesalers and retailers, and of course the internet.

– Promotion is about advertising (e.g. television, outdoor, newspaper, magazine, radio, internet, direct), word of mouth, point of sale, public relations and publicity.

More p’s have been added to make an extended marketing mix in recent decades, such as personalization, participation, peer to peer and predictive modeling. Services marketing also has people, process and physical evidence.

It’s a good idea to put all these things into a marketing plan. This is a written document setting out details of a firm’s marketing objectives. It will include analysis and description of many or all of the issues discussed above, and may include advertising schedules. Marketing planning is usually an annual process and should link to the firm’s overall business plan. A marketing plan may include sections analyzing the internal and external environments, consumer analysis, market research, product strategy, pricing, distribution, promotional strategy and implementation of the plan (e.g. personnel, finances including the marketing budget, and results monitoring).

Lastly, it is important to measure progress of marketing strategies or actions. Sales targets may be set, including by product, branch and month. Other performance analysis might include market share, advertising recall and financial analysis. The results of this performance analysis may lead to reviews of various aspects of the marketing process, and inform the following year’s marketing plan.

With markets becoming more competitive all the time, and often saturated, it is necessary to use these marketing principles effectively in order to achieve planned sales levels and to stay ahead of competitors.

A Weaver’s Web novel excerpt: historical fiction

Here’s another excerpt from my historical novel, A Weaver’s Web. This excerpt was ranked no. 1 of about 60-70 excerpts at Helium writing site (now gone) under the title of Novel excerpts: Historical fiction. Albert Wakefield had been in jail for some time after being accused of stealing two shillings and a court case was coming up …

Nobody had told Albert about a court case. He was bundled into a cart with several other prisoners before he could say anything. The lid was bolted down. He had never been to Lancaster before, though he knew it was somewhere up north and a long way. As the cart left the gaol and bounced along the road, he saw in the gloom one of the other prisoners was Flanders. They locked eyes for an uncomfortable moment.

‘You confounded boy,’ Flanders said angrily but quietly, so the driver wouldn’t hear. Talking was forbidden.

The other two prisoners laughed. But Flanders didn’t and neither did Albert. Tension grew when spit meant for Albert missed its mark and landed on the arm of the man next to him.

‘Why, you filthy scab,’ the victim said to Flanders.

‘No talking,’ the driver called out.

‘I ought to …’ the victim continued. He went to raise his arm to strike Flanders but remembered he was shackled, as were all four of them, to the sides of the cart.

Their only weapons were their mouths and Albert was relieved by this. Words couldn’t hurt him, and he had come into contact with worse things in gaol than another man’s spit. What was hurting him was the way the manacles cut into his wrists every time the cart rode over a bump.

A problem for Flanders was his height. He kept hitting his head on the lid. His cries of pain were met with mirth from the other prisoners, including Albert. Flanders would then swear and spit at them, but this only caused more amusement, and finally he stopped his attacks on them.

The cart hurtled along at what seemed a dangerous speed. Albert hoped Henry was able to keep up. He was sure his father would overpower the driver and rescue him when they had left the city. But the cart kept going. He had no idea for how long. With only a small opening at the front, the air inside got tighter and he found it hard to breathe. It smelt as if one of them had soiled their trousers. He inhaled through his mouth rather than his nose. Just when he wasn’t sure he could take the bumps and the lack of air any longer, the cart stopped. Were they there? he wondered. If not, where? He strained to see out the front, and listened for signs of a town – other horses and carts, voices, factory or workshop noises. But he couldn’t see anything and heard only birds and cows. Suddenly the lid was raised, and again he tried to adjust his eyes to the light.

‘Out. All of you,’ the driver said. He took their handcuffs off but left their leg-irons in place.

They struggled to get to their feet and clambered over the cart’s sides to the ground. They were in the middle of the country and it appeared to be late afternoon.

‘We’ll stop here for the night and complete the journey tomorrow. Water over there,’ he said, pointing with his gun to a stream just off the road, ‘bodily functions over there.’ He gestured to the opposite side.

Albert couldn’t see his father or their carriage. Perhaps Henry knew the prison carts stopped here, and had pulled up a little way back ready to rescue him, he thought. The prisoners had a good, long drink and a wash. Soon they were herded into the cart again and given bread. They devoured it like it was their last meal. At dusk they were fastened to the cart by their irons and barely had room to lie down. The lid was left open so they had some air.

As he watched the stars, shivering and in some discomfort, Albert prayed his father would ride up and ambush the camp and free him. Without Henry’s help, escape seemed impossible, or was it? In the darkness, he saw the outline of the driver stretched along the seat, out of his reach, but not beyond that of Flanders who was snoring loudly at the front of the cart. Albert thought if he could wake him and get him to lean over the rail and ease the keys from the driver’s pocket, where they no doubt were, the four could unlock themselves and abscond into the night. He nudged him on the leg, but didn’t speak in case the driver woke up and caned him. Flanders stopped snoring but stayed asleep. Albert tapped him a bit harder and he woke.

(the front cover of A Weaver’s Web showing the Peterloo Massacre)

‘How dare you,’ Flanders said.

‘The key,’ Albert whispered, gesturing in the direction of the driver, but Flanders wasn’t listening.

‘Driver, driver!’ he called.

The driver awoke. ‘What’s going on?’

‘This beastly boy whacked me in the shin.’

‘Did you?’

‘It was an accident.’

‘No it wasn’t.’

‘Shut up and go back to sleep. You know there’s no talking. I’ll deal with you both in the morning.’

Soon they were all snoring except Albert who couldn’t sleep and was in more and more pain as the hours went slowly by. He wanted to turn over but his leg-irons wouldn’t let him. What had he done to deserve this fate? he asked himself. It was true he had taken two shillings, but why couldn’t he have worked a month of Sundays without pay for Mr Sinclair as punishment? He wished it would get light. Instead, it started drizzling. Rain hit his face and ran down his cheeks and neck. He opened his mouth and let the water moisten it, though he didn’t drink any as his bladder was already bursting. He then turned slightly onto one side, shut his eyes and prayed.

Next thing he knew, birds were singing and he saw the first glimmer of dawn. He didn’t know if he had slept. If so, it was light and disrupted sleep. A few minutes later the driver got up and released their irons from the cart.

‘Rise and shine, you lot,’ he said.

They were so stiff and sore, they had trouble moving. He had to assist each one off the cart and onto the ground. Leg-irons still attached, they hobbled to the ‘bodily functions’ area and then to the stream where they guzzled and splashed. After a breakfast of dry bread, they were warned by the driver: ‘If there’s any more trouble, I’ll flog all four of you,’ and they were on their way.

They rode for hours, bumping up and down, hitting their heads, bruising their limbs, and bloodying their wrists and ankles. None dared speak. They stared at one another though, as if laying blame for their predicament. Flanders fixed his eyes, unblinkingly, on Albert for long periods. Albert returned the stare and couldn’t help smirking whenever Flanders knocked his head on the lid, causing him to wince and roll his eyes in pain as more blood trickled down his face. The journey was so long they gave up trying to hold their bladders. Albert hoped they would stop, not so much to get away from the stench that filled the cart but because his whole body hurt from the constant pounding. When the cart finally stopped, the driver unlocked their arms and helped them get out.

‘Go and wash down there at the stream,’ the driver said. ‘We’re nearly there, and we can’t have you looking like this.’

They waded into the stream, yelping as the cold water hit their wounded ankles, still shackled, and then their wrists as they tried to drink. Flanders dived right under and the water turned pinky brown. Just upstream from this, the driver filled his water bottle several times and poured it over the tray of the cart to clean it. He then loaded the prisoners, secured the lid and off they went again.

Soon they heard people talking, other vehicles, machinery, and the hammering of metal, and they knew they had got to Lancaster. The prisoner now at the front of the cart could see the driver climb down and talk to someone before disappearing through a large doorway into a building.

‘It’s John of Gaunt’s,’ the prisoner said.

‘What’s that?’ Flanders said.

‘A castle. It’s got gaols and a court and a lunatic asylum.’

‘How do you know?’

‘I lived near here as a boy.’

‘Can you escape easily?’

‘The walls are ten feet thick and made of stone.’

Flanders frowned at Albert. ‘You’re the cause of this. I hope they hang you, in front of thousands cheering the nooseman on.’

‘I only took a florin,’ Albert said.

The driver got back at that moment and raised the lid. ‘Boy,’ he yelled, ‘I heard you talking.’

Albert saw Flanders grinning, but looking the other way as if innocent. ‘I …’

‘That’s enough. I’ll have to include this incident in my report to the magistrates.’

With that, they were taken inside the castle and led to the men’s gaol, where they were unshackled and given a blanket and a tin pot for water. Each one was sent to a different cell so they couldn’t fight or collude. Albert’s cell was dark and dank and so full of other wrongdoers he had no room to lie down. He sat on the floor and wrapped his blanket around himself. He was glad to be free of the irons. A gaoler came with bread and water. Albert held the bread to his chest, bent his head forward and ate it. Despite hurting all over, he leant against the bars at the front of the cell and went to sleep sitting up.

(end of excerpt)

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A Weaver’s Web novel excerpt: Friendship

Here’s another excerpt from my historical novel, A Weaver’s Web. Benjamin and Charlotte meet up again after many years …

Benjamin stood for a moment, watching her disappear. He thought of his mother and what a nice surprise she would get when Miss Brody handed her the ten shillings and told her who it was from. His mother surely had more need for the money than he did. It gave him a feeling of satisfaction that he had been able to help her this way. At least she would have decent food for a while, and could pay for a doctor to see her, if she wanted one.

He strode off down the street, wondering how much money it would have taken before Miss Brody let him visit his mother. He thought of his father and how easy it would be for him to offer Brody enough money, not only to see Sarah but to get her out of that wretched place. But Henry hadn’t done it. Benjamin felt sick. And he recalled the party when his mother went hysterical and how Henry and his associates considered her bad for business. It struck him his father might not be interested in her release from the asylum, that he would rather keep her out the way while he made money. Benjamin didn’t want to go home.

Light drizzle fell as he headed to the town centre. He wished he had given Miss Brody only five shillings to pass on, but all he had was a ten shilling note. Now he had nothing.

Why he chose the inner city, he didn’t quite know. He was familiar with it, crisscrossing it often on his visits to merchants and others who dealt with his father’s mill. But he never went there on a Sunday. It looked even worse than it did during the week. The bustling crowds at the market had given way to an assortment of paupers and drunks, wandering the streets, in alleyways, and in the taverns, which weren’t supposed to be open, but nobody was around to check on them, with the police either at home or in a bar having a drink themselves.

A young woman he couldn’t help notice hobbled along the footpath just ahead of him. She reminded him of the cripples in the factories he worked in as a child. Benjamin still feared his father might one day make him work on the factory floor. If it happened, he was sure he would run away for good.

There was something familiar about this girl. He wanted to speak to her, but was worried she might think he was going to rob or assault her. Just then she must have sensed his eyes were on her, for she spun around and faced him.

‘What are you looking at, Mister?’ she said.

He recognised the voice, then the face. How could he ever forget the little factory girl who was caned by the masters, crippled by the system, and fell into the machinery and was almost killed, yet came up smiling and joking. It had to be Charlotte, the orphan who always called him mister. It didn’t matter to him she called all males older than herself mister. He hated master, and boy was even worse. To be called mister made him feel like he was grown up and important, someone who commanded respect.

‘Charlotte,’ he said.

‘How do you know who I am?’

‘We worked in the same factory. Remember?’

She looked at him closely and took a step back. ‘No.’

He could see fear in her eyes. He had forgotten he was dressed in a good suit and hat and she wouldn’t recognise him in such clothes. She was in her rags, and that was how he too had dressed when she knew him. Benjamin realised she might think he was one of her old masters who had been cruel to her in the past and had caught up with her.

‘It’s me – Benjamin,’ he said. ‘I was the one who talked to you and the other orphans at meal times. Don’t you recall?’

(cover shows the Peterloo Massacre)

She stared at him again. Slowly her eyes brightened. ‘Yeah, I do.’ But she became defensive again. ‘Why are you dressed like that, and what do you want?’

‘Nothing. I …’

‘Then go away.’ She limped off.

He stood and watched her and was about to call out, when he asked himself why he would want to have anything to do with an orphan in rags who was crippled and probably slept in the street. She was grubby and small and slow. But he was intrigued. He set off after her and quickly caught up.

‘My brother Albert worked as an orphan,’ he said, walking just behind her, ‘in the same factory as us. I told you about him. Remember?’

She ignored him.

‘He was kidnapped off the street and taken in a cart to the factory. He was kept there, locked up, and he worked nights.’

‘So what.’

‘It must’ve been terrible.’

‘No worse than what I went through.’

‘That’s true,’ Benjamin said, realising she too couldn’t leave the factory. He kept following her. ‘Where do you work now?’

‘None of your business.’

‘You can’t still be a factory orphan, or you wouldn’t be here, walking along the street.’

Charlotte didn’t respond, so he stopped. Again he watched her wander off and again something made him catch up to her. He still wasn’t sure what it was. It wasn’t her appearance or her manner towards him or her gait.

Knowing she wasn’t going to get rid of him, she decided to use her streetwise ways and try and get whatever she could from him. ‘You got any money, Mister?’

He patted his pockets and shook his head. ‘No.’

‘What? All dressed up like that and you’ve no money.’ She sounded upset, but then she turned and giggled at him.

He blushed. ‘I had a ten shilling note, but …’

‘Ten shillings!’ She stopped and looked at him, wide-eyed. ‘I’ve never seen one. Where did you get it from? What did you do with it?’

She was quite pretty, he thought, for an orphan. ‘I … had to give it to someone.’

‘Did you have a debt? It’s not good to have debts.’

‘Oh no, it wasn’t a debt.’

‘You had a ten shilling note, just to give away?’

‘No, it was to … to care for someone.’

‘Who?’

‘Never mind.’

‘When you get your next ten shillings, can you give it to me?’

‘I won’t have any more money.’

‘But you must work somewhere.’

‘For my father.’

‘He must be rich.’ She reached out and touched his jacket. ‘Good quality, but look, it’s got a hole in it.’

Benjamin knew he must have torn it climbing over the asylum wall. He went to brush his jacket where she had touched it, but took his hand away. ‘It’s only an old one.’

‘You mean you have more than one?’

‘A few, for different occasions. Not much good if you’ve got no money though.’

‘I’m broke too.’

They walked side by side along the narrow footpath. He lifted his hat to anyone who did the same or wished him a good afternoon. She acknowledged nobody. He wondered where she was going after they had gone several streets and had left the older part of town behind and were passing endless rough brick terraces. Residents sat outside or stood in groups talking, no doubt to escape the stench and the squalor inside, things that brought back vivid memories for Benjamin. He thought of his family’s house now – two storey splendour and more than a dozen rooms set on several acres.

‘Going home?’ he said.

‘Yeah, it’s getting late.’ Soon she stopped outside some steps leading to a cellar.

‘Who lives here?’

‘Me and a few others. Some of us work at the factory over there.’ She pointed to a nearby mill casting a shadow over the whole terrace. Dirty smoke came from its chimney, the breeze blowing it onto the houses.

‘Can we meet again?’ he said as she hopped down the steps.

Charlotte looked up. ‘Maybe.’

‘How about …?’

But she had gone inside.

(end of excerpt)

My historical novel, A Weaver’s Web, is available at the following outlets:

Amazon US: http://www.amazon.com/dp/B00H52SEEK

Amazon UK: https://www.amazon.co.uk/dp/B00H52SEEK

Amazon Australia: https://www.amazon.com.au/dp/B00H52SEEK

Google Play: https://play.google.com/store/books/details/Chris_Pearce_A_Weaver_s_Web?id=-hlJAgAAQBAJ

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Apple iTunes: https://itunes.apple.com/au/book/a-weavers-web/id775610928?mt=11

Why governments run deficits in an economic downturn

(originally published as a comment to the Business Spectator site two years ago)

The economy goes in cycles. If there’s a downturn, governments will run deficits. If there’s an upturn they will run surpluses. In Australia, the Rudd/Gillard Labor government ran deficits because there was a downturn (worst since 1930s) and revenue went through the floor. The Howard Coalition (Liberal-National) government ran surpluses because there was an upturn (longest on record) and revenue went through the roof.

The Keating Labor government ran deficits because of a downturn. The Hawke Labor government ran surpluses due to an upturn. The Fraser Coalition government ran deficits due to a downturn. (In New Zealand, the previous Labour government ran surpluses due to an upturn; the National government ran deficits due to a downturn.) The pattern of deficits and surpluses is very clear. It depends on the world and therefore Australian economic situation, not on who is in government.

In the last five years of the Howard Coalition government, the average annual increase in federal government revenue was 7.8%. Had this rate of increase continued, the amount of extra revenue in the five years 2008-09 to 2012-13 would have been $298 billion. Most of the decrease in the growth in government revenue (it actually fell in 2008-09 and 2009-10) during the downturn was due to lower company profits and therefore lower taxes.

Let’s assume a company has sales of $10 million in year 1 and its costs are $9 million, leaving $1 million in profit. Assume that the world and therefore Australian economy is buoyant. In year 2, the company increases its sales 5% to $10.5 million. Its costs go up about 4% to $9.4 million. It makes a profit of $1.1 million, up 10% on year 1.

Let’s assume a different scenario for year 2 instead. A downturn in the world and therefore Australian economy means sales only grow by 2% to $10.2 million. The company is able to contain or even reduce some costs but many are fixed costs and its overall costs still rise by 3% to $9.3 million. This means its profit falls 10% to $0.9 million. Government taxes fall. The government can cut back on a few things but most programs are ongoing and cannot be easily cut back, especially in the short term.

Now let’s go to 2008. Large countries around the world are quickly falling into recession; their governments run deficits and build up debt because if they didn’t, they would fall into deeper recession with more companies struggling or going broke and even higher unemployment (so long as debt doesn’t get right on top of them, such as Greece). Australia was in a better position than many of these countries, partly due to the mining boom but also various other reasons, but it knew that it still had to run deficits to avoid going into recession and it had to do it fairly quickly.

Short term programs were needed which, in hindsight could have been done better. But there wasn’t time for longer term programs such as extra infrastructure. As it was, the government was still able to keep expenditure increases at a lower rate (average of 3.9% from 2008-09 to 2012-13) than during the last four years of the Howard government (6.5%).

Had the Labor government tried to balance the books as per the policy of governments around the world up to and including the 1930s, we would have gone into fairly deep recession, with the result that we would now be considerably worse off with many more companies struggling or bankrupt and much higher unemployment.

The effect of the national debt on the US economy

(originally published in 2011 to Helium writing site, now gone; much of the commentary in the article is still relevant)

National debt in the US comprises debt held by the public as well as intragovernmental debt and is currently valued at more than $14 trillion or roughly the same amount as the country’s annual gross domestic product. The US economy is recovering from its biggest downturn since the 1930s depression. The recovery is tentative, with annualized growth in gross domestic product slipping from 3.1% in the December quarter to 1.9% in the March quarter, and national debt continues to climb.

Perhaps the simplest way to see the effect of the national debt on the US economy is to envisage a household with a mortgage. Some proportion of their income has to be paid in interest to the bank. This means the family has less money to spend on other things. The situation is the same for a nation. If it has a substantial debt, there will be less funding for health, education, social welfare, important infrastructure programs, and so on.

The high national debt is one of the things pushing the value of the US dollar down against other leading currencies, such as the euro and the yuan. This puts upward pressure on inflation and increases the possibility of a devaluation, which would in turn put the dollar’s status as a major reserve currency at risk. This means the US would have to pay higher interest rates on its borrowings, pushing the debt up even further. The national debt is expected to rise to $23 trillion by 2019 and the annual cost of servicing the debt is projected to increase more than threefold to over $700 billion.

The US will have to rely on increases in the sale of Treasury bonds and possible rises in taxation to fund the debt. Treasury bonds are a popular investment and the US should have no trouble attracting funds into them, but their sheer volume and servicing costs will take funds from elsewhere. Higher taxes will be unpopular and may further dampen economic activity in the short term. In recent years, the US has had an expansionary fiscal policy to try and boost the economy. However, the Government Accountability Office has said that the current fiscal trend is unsustainable and the deficits will somehow have to be reined in. Any tax increase or spending reduction will be difficult but may eventually be necessary if the US is to reduce debt and return to higher long term growth.

Not only does the US have a large fiscal deficit but it also has a significant trade deficit with imports far exceeding exports. The trade deficit has been running at more than $40 billion a month. This has to be funded by borrowing. The risk is that foreigners might sell off large holdings of US dollars due to its falling value and general economic conditions in the US. This would make it harder for the country to raise funds to service its debt. It could also spark an international economic crisis, with repercussions for all economies including the US.

The higher the national debt, the more savings are channeled into government borrowings, with Treasury bonds having to be made more attractive (including higher interest rates) in order to obtain the extra funds needed. This will shift savings away from more productive forms of investment in factories, shops, and other businesses. Output and incomes would therefore be lower than otherwise. Savings, and consumption, would fall if taxes were increased to help pay the extra interest costs associated with larger national debt.

Not surprisingly, high debt has an adverse effect on growth in gross domestic product. The National Bureau of Economic Research found that over a 200 year period, annual growth in 20 advanced economies averaged 3-4% if debt was less than 60% of GDP, but only 1.6% if debt was more than 90% of GDP. The current US figure is close to 100%. The study found that the relationship between debt and growth in the US was similar to the average for all countries. The study also found that inflation in the US was considerably higher when debt levels were high.

It is quite clear that the large national debt will have an adverse effect on the US economy. It will decrease the value of the US dollar, push up inflation and raise interest rates. High debt will place pressure on the fiscal and trade deficits, at a time when both are already quite large. It will reduce savings and also divert funds away from more productive investments. Economic growth rates will probably remain low for however long national debt stays high.

The global economic impact of the financial crisis in Greece

(originally published in 2012 to Helium writing site, now gone)

The financial crisis in Greece has been building for several years. In 2009, it recorded its first fall in gross domestic product since 1993, and suffered rising unemployment and low international competitiveness. Government spending continued to rise rapidly. By 2010, Greece’s public debt was estimated at about 140% of GDP, rising to 160% in mid 2011. The country also has a very high fiscal deficit, estimated at 15% of GDP, and a large trade deficit. Greece is trying to avoid default and suffers ongoing recession and an unemployment rate of 16%. The financial crisis may have a serious impact on the global economy.

Greece is a part of the Eurozone and uses the same currency, the euro, as the other 16 member countries. Its current high level of debt, fiscal deficit and political instability has caused a downgrading in its credit rating to “junk” status, leading to falls in stock market prices around the world. Uncertainty as to whether Greece can pay its debts has resulted in a hefty increase in the rates of interest it has to pay on its borrowings. The rate on Greek two year government bonds has risen from about two percent in mid 2009 to 10 percent in mid 2010 to 26 percent and higher in mid 2011. This only serves to increase the level of debt.

The situation in Greece has contributed to investor nervousness in other euro area countries, particularly Ireland, Portugal, Spain, Belgium, and now perhaps Italy. These countries are already having their own problems with debt and financial stability. Most other European countries also have high debt. Germany is an exception but is worried because it has a large volume of outstanding loans with Greece and other high debt countries.

The high risk of default by Greece places upward pressure on interest rates in other countries as lenders demand a premium. This reduces demand in these countries. It also takes savings away from more productive investments in manufacturing, services, infrastructure, tourism, and so on. The economies of these other European countries would therefore be worse off than otherwise. Their lower exports and imports mean that their trading partners are worse off too.

Some commentators feel that the global economy would be better off if Greece, and perhaps Ireland, defaulted on their debt, favoring a controlled default or restructuring of debt as the best solution. Greece poses a major threat to the European banks and financial system. Uncertainty stifles financial markets and the best way to reduce or eliminate the uncertainty might be for Greece to default. An alternative would be for Greece to leave the Eurozone and devalue its currency. This would be likely to keep the markets and the banks relatively happy too.

The Greek situation has implications for countries beyond Europe. Financial markets are global by nature, with funds shifting quite freely between countries these days. Stock markets around the world have reacted to Greece’s financial situation and this affects investor and consumer confidence. Countries such as the US, UK and Japan have their own economic, financial and debt problems and these are not helped by what is happening in Greece.

Trading partners of Greece will suffer because of its debt situation. With an increasing level of funds pumped into servicing debt and pushing up interest rates, the rest of the economy suffers, including exports and imports. Greek exports have fallen from $29.1 billion in 2009 to $21.3 billion in 2010 and are predicted to be $21.1 billion in 2011. Main export partners are Germany, Italy, Cyprus, Bulgaria, US and UK. Imports have declined even further, from $93.9 billion in 2009 to $64.2 billion in 2010 and an estimated $44.9 billion in 2011. Major import partners are Germany, Italy, China, France, Netherlands and South Korea. Thus all these countries have suffered a fall-off in trade with Greece.

A positive impact on the world economy that should come out of the financial crisis in Greece is lessons to be learned from taking on too much debt. Many countries around the world have pushed their debt levels up to support their desire for greater consumption and higher living standards. They are now paying the price. They are also seeing the turmoil in Greece when debt levels are pushed over the edge and the populace have to pay with draconian cuts in government spending and services and an ongoing recession.