The economy of a nation could be controlled through two means which are the monetary policy and the fiscal policy. In order to avoid an economic collapse, the need to control the economy of a nation is extremely important. Monetary policy would help companies to grow as this policy is widely used for the fine-tuning of the economy. This policy targets interest rates and the supply of money in circulation which is different from fiscal policy involving taxation target and government spending (Leeper, 2011). The economic cycle of a company could be influenced by making minor changes to the interest rates. Monetary policy would further reduce political influence in the company as the policy is set by banks. In fact, it is quicker to implement monetary policy compared to fiscal policy. This is because interest rates could be set every month in contrast to fiscal policy whereby the increase of government spending may take a longer time to decide where to spend the money (Tirelli, 2019). Although, it becomes difficult to borrow money when the interest rates are increased to regulate growth, companies would be able to afford the rates compared to a higher taxation implemented under the fiscal policy which may affect the business in the long term. The bank could also affect the volume of money, credit and their price interest rates through this policy which influences employment, output as well as general level of prices.
Besides that, monetary policy is used to control the money in circulation as the more money in circulation then it is easier to acquire it. Spending would not be a problem for companies when it is easier to get money. This situation would prove to be good for the company’s growth. However, there are some limitations to monetary policy whereby monetary policies are general unlike fiscal policy which targets a specific sector of the economy (Muscatelli, 2019). For example, the drawback is that everyone will be affected when the interest rate increases. There is risk of inflation getting out of control if more money is released into the economy which could result in the value of money going down. Services would be more expensive as more money would be needed to cover the difference. It may also take a longer time to feel the impact of monetary policy in the economy at national level (Trecroci, 2014). Therefore, it is important for companies to consider both the policies in future as the balanced of both monetary policy and fiscal policy would have the best results.
Overview of Monetary Policy and Fiscal Policy
The direction of economic movements is expected to enter the expansion phase in 2022 as seen in the diagram below.
The best way to understand is through examples and let us explore the tourism and leisure industry since everyone loves travelling and having a good holiday trip. Companies should consider investment initiatives during this expansion phase. Acquisition could be optimal for a company’s expansion if the profit is high whereby the company already has a huge market worldwide and further strengthening the company’s portfolio globally would increase the company’s growth (Ravi, 2015). The company could enter the new market easily as foreign acquisition would benefit the company with the existing employed labour, existing executive management team, brand name, financing access, financing relationships and customer base. Licenses, registrations, building infrastructures and other business assets are already in place through the acquisition resulting in not much of a cost spending for the company (Organisation of Economic Development, 2018).
Technology investment would be good for the company in the upcoming years in terms of energy management. Efficiency efforts would be an attractive proposition in order to yield financial savings as energy is among the top three largest costs for companies. The company could further monitor, get updates and obtain reports on energy consumption with the advancement of intelligent technologies (Keinert, 2015). In fact, Superior Energy Performance certification from the Department of Energy was awarded to Burj Al Arab, Dubai becoming the first ever hotel to achieve such certification (Schlechtendahl, 2018). Investment in technology would indeed cost a lot but the company would enhance its global portfolio through extensive data analysis on energy performance and drive improvements. Companies could also set targets in the area of water conservation, waste diversion and carbon reduction. Usage and consumption statistics could help to optimize the company settings through IoT system and big data monitoring (Verl, 2015). The company could further save leading to return on investment (ROI). This is possible due to the ability to program water control settings besides an eco-mode which automatically engages energy-efficient settings through the adoption of circular economy model and sustainable development initiatives.
Circular Economy Model
Industrial system that is restorative or regenerative by intention and design is best described as circular economy. Through the superior design of materials, products and systems, the model replaces the ‘end-of-life’ concept with restoration, the shift towards the use of renewable energy, elimination of toxic chemicals which impair reuse and aims for the elimination of waste (Circular Impacts, 2017). Resource efficiency and environmental impact on natural capital could be reduced by designing products in a more recyclable way through the circular economy model by adopting efficient technology and turning waste into a resource (UN Environment, 2017). The global community has recognised the importance of a circular economy transition. For example, a low-carbon, resource efficient and increasingly circular economy characterised by high employment, technological innovation and sustainable growth model has been adopted by the European Union. The circular economy is further embodied through the Sustainable Development Goals (Taylor, 2012).
A programme has been implemented in Mexico to increase the uptake of green energy by hotels. The purpose of the programme is to reduce greenhouse emissions through the installation of solar water heating systems with the aim of reducing gas consumption (Vickerson, 2016). Long term loans to finance the replacement of water heating systems with green solar energy are also offered. In Australia, investment finance programme for renewable energy, energy efficiency and low emissions technologies was initiated through clean energy projects in the Great Barrier Reef catchment area. Besides that, to improve energy productivity and lower operating costs for hotels, innovative and affordable finance solutions have been initiated to fund a solar energy project at the Ayers Rock Resort, Australia (Clean Energy Finance Corporation Australia, 2017). On the other hand, a new eco tax was introduced in 2016 for hotels, cruise, ships and holiday rentals in Balearic Islands, Spain whereby the tax revenue would be used to finance investments in maintaining and improving the tourism on the island besides managing environmental impacts. Impact investing has been used to transform a disused office building into an innovative green hotel in London. Pre-fabricated bedrooms from recycled materials are used within the existing structure to reduce environment impact of the hotel build process (Jeffries, 2017). A variety of sustainability features such as solar panels; LED and energy efficient lighting besides water saving features have been introduced by the hotel.
The impact of circular economy or sustainable development initiatives on the business cycles and the company’s investment decision would be a more inclusive, sustainable and competitive economy. The main impact would be in terms of economy growth whereby a combination of increased revenues from emerging circular activities and lower cost of production through more productive utilisation of inputs could be observed. Furthermore, there would be a positive impact on employment due to increased spending fuelled by lower prices, high quality, labour intensive recycling activities and also a higher skilled job scope (Angelakis, 2016). New jobs would also be created through increased innovation, entrepreneurship and a new service-based economy. Companies would benefit greatly by creating a more innovative economy which includes higher rates of technological development, improved materials, labour, energy efficiency and more profit opportunities in the future (Snyder, 2018). The most important impact would be that global climate targets could be achieved.
In conclusion, companies should be able to devise policy options linking sustainable development and circular economy as shown in the diagram below to continue their legacy by moving forward in their respective industries by supporting more sustainable consumption and service patterns.
The Circular Economy System
- Angelakis, A. and S. Snyder (2016). Wastewater and reuse: Past, present, and future. Water 7(9): 4887-4895.
- Jeffries, N. 2017. Applying the circular economy lens to water. Circulate News, 26 January. Retrieved from http://circlatenews.org/2017/01/applying-the-circular-economy-lens-to-water/. Accessed 12 January 2018.
- Leeper, E. (2011). Equilibrium under Active and Passive Monetary and Fiscal Policies. Journal of Monetary Economics, 27, p. 129-147.
- Muscatelli, V. A.; Tirelli, P. & Trecroci, C. (2019). The Interaction of Fiscal and Monetary Policies: Some Evidence Using Structural ECONOMETRIC Models. Money Macro and Finance (MMF) Research Group Conference.
- Organisation of Economic Development. (2018). Trade in Value Added Nowcast Estimates Investment Initiatives in Financing. Retrieved from https://stats.oecd.org/Index.aspx?DataSetCode=TIVA_NOWCAST.
- Ravi, R. et al, 2015, “Worldwide and U.S. Business Process Outsourcing (BPO) 2015-2209 Forecast: Market Opportunities by Horizontal Business Function, IDC Report 33815, August 2015.
- Schlechtendahl, J., Keinert, M., Kretschme, F., Lechler, A. & Verl, A (2018). Making existing production systems Industry 4.0-ready. Production Engineering, 9(1), 143-148.
- Taylor, John B. 202. “Estimation and Control of a Macroeconomic Model with Rational Expectations.” Econometrica 47(5) (September) pp. 1,267-1,286.
- UN Environment 2017, “One Planet Network,” unenvironment.org. Retrieved from https://www.unenvironment.org/explore-topics/resource-efficiency/what-we-do/one-planet-network.
- Vickerson, A. (2016). Transform waste into protein. In Circular economy: Getting the circulation going. Nature 531(7595): 443-446.