One of the principles on which the behavior of economic agents in a capitalist economy is based is the search for economic benefits, specifically, profit maximization. For example, if the performance of various activities brings benefits to an entrepreneur, he must only carry out that activity or combination of activities that grant him the highest level of profit; Of course, as long as these activities are legal. Likewise, if the tasks to which it is dedicated throw losses or do not offer a volume of profits that can be considered satisfactory, then the economic agent is free to leave the business, if he considers it convenient.
It is through this mechanism that society allocates the economic resources available to meet its needs; Any other behavior only implies waste and dissatisfaction. That is, the principle of profit maximization is what will allow society to reach the highest possible levels of satisfaction, given the resources that are within its reach. This means that if economic agents decide to ignore the principle of profit maximization, then society as a whole would suffer from the rigors of scarcity. While there is poverty in all capitalist societies, the omission of the profit maximization principle would only create more poverty.
However, given the scenario that most of the planet's economies are approaching, the principle of profit maximization may not make much sense. Indeed, we can predict, with a small margin of error, that a large number of companies of different sizes present in the world will see their profits reduced significantly; while another large number of companies will stop receiving profits and begin to shed economic losses. In this context, talking about profit maximization or loss minimization can only be considered an economic absurdity since a drastic reduction in profits implies the possibility that in the next periods the company will throw economic losses and should close; whereas, a loss minimization strategy will not yield any result since in any case the owners of the company will be requesting the liquidation of the company. So, if within a few months, the profit maximization criterion will no longer make sense, what will be the criteria managers and managers should apply to make the best decisions?
Obviously, when a company begins to shed losses or there are prospects that this will happen soon, one of the best options that managers and owners of the company have is to liquidate it, that is, close the company. In this way, managers take back the invested capital and allocate it to another productive activity that, of course, is profitable.
This is how in a scenario like the one we will find in a few months, such as a global recession, it is expected that thousands of companies across the planet will close their doors permanently in order to convert the global recession into global depression. Government authorities in different countries cannot allow that.
Indeed, the strategy that is most likely to be adopted by the various rulers of the planet is to avoid the massive closure of companies, not to avoid the global recession but to prevent the arrival of global depression, given that, as we have said before , it is impossible to prevent the global recession from appearing.
The company is the productive axis of every capitalist economy; It is the representative institution of capitalism. Thus, a phenomenon such as the massive closure of companies globally not only means a drastic reduction in the amount of goods and services intended to meet the needs of society but also, possibly, the end of the capitalist production system. Hence, with absolute certainty, we can affirm that most economies will take their positions not to evade the global recession but to prevent the massive closure of companies from occurring.
Under normal conditions, that is, under a situation in which the global economy is growing, if economic losses are obtained, managers must decide to close the company and direct productive resources to another economic sector or even to another country where they can continue with the productive activity, but now under better perspectives. Another alternative is to assume losses during a certain number of economic periods since managers can consider the situation of losses as temporary, as transitory.
On the other hand, in exceptional conditions, such as that in which global growth is expected to be negative, entrepreneurs are motivated to liquidate the company at the time when it begins its cycle of losses to protect its capital, but without alternatives since there are no productive sectors or countries that have growth prospects. Thus, a hypothetical situation of global mass closure of companies caused by the commercial war means the withdrawal of immense amounts of economic resources from global production cycles and their immediate conversion into valuable non-productive assets in order to maintain the value of said wealth until it is feasible, again, the execution of investment projects.
In a previous publication it was noted that the Chinese recession should consist of three periods of economic contraction that show the following sequence: -1%, -3% and -5%; followed by a situation of widespread stagnation. Whereas, companies around the world, except the North American ones, should face a "worst possible scenario" that will consist of five consecutive periods of sales reduction in the following order: -10%, -10%, -10% , -5%, -5%; to also culminate in a situation of long stagnation. On the other hand, for the scenario of global depression, China should show up to 10 years of successive economic contractions, meanwhile, the global economy, under the same scenario of global depression, will have to face approximately 15 successive years of economic contractions. ¿ What entrepreneur, before these forecasts can make informed decisions on the principle of maximizing profits ?. ¿ As China you can drag the world into a global economic depression of impressive magnitude?
Recent history shows us the spectacular economic growth that China has experienced since the 1980s. This growth led, in less than half a century, to one of the poorest countries on the planet, with a population that had serious nutrition and education problems , to become the second largest economy in the world and with a road traveled in terms of technological development. Definitely impressive. However, sometimes the postulates wielded by members of elitist and oligarch social circles can be useful: stay away from the new rich and quick wealth.
China's economic growth, like the rest of the Asian economies, was based on the export, specifically, on the export of products to the United States. Selling the most lucrative market in the world and produce in the nation with the cost more on the planet can only result in one thing: abundant and quick profits. These gains were absorbed or appropriated by Chinese political factors who struggled to increase exports to the United States more and more so that their personal fortunes would grow without limit, considering that in China the magnitude of corruption is considered high and is one of the countries where wealth is distributed with great inequality.
Indeed, the colossal gains that the Chinese economy received in recent decades were not used to strengthen the country's internal economy or to create institutions that definitely displace the feudal legacy, repeatedly hidden by communist political praxis, no, that money was allocated to create a legal and political framework, national and international, that protects the Chinese corruption system in its task of capturing income from export to the USA.
Obviously, China's domestic economy grew as violently as the growth of exports to the United States; This increase in the size of the internal economy of the Asian country entails the growth of cities, the increase in the number of communication channels, the increase in the amount of health and education services received by the population, in short, it means a Undoubted improvement in the welfare of the average Chinese citizen, despite receiving extremely low wages and suffering from an excessively unfair distribution of wealth.
That is to say, the work of the Chinese political leaders, given the colossal magnitudes of profits obtained, consisted of creating mechanisms that would raise Chinese domestic consumption even more so that it served as a support for aggregate demand in case of a possible decline in the exports The emergence of a new middle class in China, abundant, strong and consumerist, such as the European or North American middle class that, at the same time, demands a lot of Chinese products, would have protected the Asian nation from the vicissitudes linked to exports to U.S. In the same way, a deep restructuring of Chinese public spending, accompanied by a substantial multiplication in its scale, would have provided the necessary shields to protect Chinese society from external eventualities and would have made available to Asian government authorities from necessary tools to carry out Chinese macroeconomic stabilization policies. Indeed, the Chinese government is completely defenseless against the events associated with the trade war because it lacks the means to implement any economic policy.
The task of increasing and restructuring domestic consumption and Chinese public spending is a much more complex activity than the task of exporting goods to the United States because the former requires the design, creation and operation of institutions that serve these purposes, as it happens in the West. However, given China's extreme dependence on exports to North America, it is obvious that it will not only be an unavoidable task but also an urgent one. Why did Chinese government authorities refuse to take that step ?
First, the Chinese corruption system should be mentioned. Increasing effective internal consumption and effective public spending even more would reduce the income received by the corrupt.
Then, more internal consumption and public spending means the consolidation of a powerful middle class and a professional bureaucracy, which, by their nature, love democracy and deeply despise authoritarian political systems.
Finally, the growth of domestic consumption and public spending means that China becomes a "Western" nation. In a way, it means assuming the values of the West as their own and leaving in the background a culture that is not only native but also millenary.
This is how, given the manifest vulnerability of China to the commercial war, the authorities of that country should seek to create mechanisms and institutions that grant massive subsidies to Chinese companies to prevent them from closing their doors; In this way, China and the world are allowed to enter into a global recession but both China and the world are prevented from reaching the undesirable extremes associated with a global economic depression.
