Advantages and Disadvantages to Kraft Foods Case Study

Advantages and Disadvantages to Kraft Foods - Case Study Example Therefore, if Kraft Foods starts producing healthier products, it will establish positive relationships with different stakeholders. The move will also depict that the company is committed to corporate social responsibility (Lussier 2008, p. 223). On the other hand, the company is likely to lose some of its customers because the new versions of chocolate will have a different taste. Notably, the esteemed customers of the company have been consuming its products because of their unique taste. However, lowering the calorific value of the chocolate versions will alter the product taste. Many customers may not like the new taste. The company will also incur new costs in production. Worth noting is the fact that the company will need to source ingredients that will be used in the production of lower-calorie chocolates. In addition, the company will need to spend on advertising and promotion strategies in order to introduce the new versions into the market. In my opinion, the UK government is likely to introduce legislation that will require taxation of high-fat food products like chocolate. Since the government has experienced the financial burden resulting from medical costs associated with the high morbidity cases resulting from obesity, it is likely to take new measures. The government is also concerned about the health of children and adolescents who are more affected by high-fat food products such as chocolate bars. Therefore, there are higher chances that the government will intervene (Lussier 2008, p. 223). Denmark repealed its fat-tax law after the realization that it contributed to increased consumer prices for the high-fat products. The tax did not motivate companies to produce healthier products. On the contrary, the tax law increased consumer prices, and the consumers had to bear the financial burden.

Bussiness Communications Essay Example | Topics and Well Written Essays - 1000 words

Bussiness Communications - Essay Example The ones that have existed thus far have relied a great deal on the phenomenon attached with change and consistent upgrading of the needs as put forward by the business and its norms. Organization structure impacts the manner in which work is basically carried out. More than anything else it adheres to the different purposes of the discrete services and the related achievements with the passage of time. This brings to light the notion of discussing the structural basis of the organizations themselves. For starters, these organizations might not be that easy to understand at the very beginning. These can encompass a variety of different aspects, features and traditional mindsets which make up their structures. To start with, we see that an organization can either be formally aligned in its ways and means of doing things and different processes or the same might just be in a way informal in quite a few of its activities and tasks. The manner in which it runs across this paradigm is something that needs to be studied in depth before we reach further consensus on their purposes and the kind of achievements that they have had. The communication within an organization can flow in one of three ways or in all the three directions. This means that these three directions pave the way for the ease of communication and there are as such no barriers to arise from the whole equation. The first communication flow is from top to bottom, which means that the communication starts from the top management and goes down towards the middle and lower management. The second form could be the one that starts from the lower or middle management and goes up towards the top management. The third communication flow could be in the kind of peer to peer communication and interaction. This means that the employees and the workers at the same level communicate within their own capacities

Research Methods College Essay Example | Topics and Well Written Essays - 500 words

Research Methods College - Essay Example Cheerfulness enhances the quality of life and improves productivity. A positive outlook makes one upwardly mobile. A cheerful disposition naturally reaches out to help someone. This person is not sticking out his neck. He knows he is doing something within reach. He knows he is capable. He simply reaches out, achieves the purpose and continues with his course. He radiates life and all the issues that make life happy and purposeful. It is difficult to say if strengths outweigh weaknesses. If it was so easy for strengths to outweigh weaknesses, almost everybody would be happy. Even the happiest people go through bouts of depression and anxiety. However, happy people have the resilience to bounce back. They do not carry forward their depressions to another day. As a matter of fact, going through depressions and anxieties improve resilience. They make a person stronger. It is mentioned that for every 17 articles on negative emotions such as anxiety and depression, there was only one article that dealt with the emotion of joy (Happiness). Basically, it is hope that drives man to live on. As long as man has life, he also has hope. Irrespective of his constant state of mind, there is the urge within man to press on. He knows better days are ahead. Even the most hardened skeptic harbors the notion that there is the silver lining. In the ultimate analysis, one has to learn to live above factors that make for weaknesses.

The Collaborative Network of the Boeing Company Research Paper

The Collaborative Network of the Boeing Company - Research Paper Example Several production and engineering innovations were introduced by the Boeing Company. For example, one of the innovations was the construction of the 787 families of aeroplanes from a plastic resin of carbon fibre in place of aluminium that was traditionally used for the making of aeroplanes till then. This provided the Boeing Company with a way to increase the fuel efficiency of the 787 aeroplanes. The 787 aeroplanes have a communications system based on satellite installed in them to provide the passengers with access to the Internet, help improve the monitoring maintenance with the wireless networks, and make electronic flight bags accessible to the crew that consists of reference data and charts. The windows of the 787 aeroplanes are larger in size as compared to other aircraft made till then. The larger size provides the passengers with additional comfort by increasing humidity and air pressure. â€Å"With the 787, Boeing was dreaming big dreams. They wanted to create a next-ge neration plane – a plan that was everything a 21st-century airline could possibly want. And they wanted to slash the cost of production, as well as the cost of operation. It was a daunting challenge. But Infosys was up to the task, co-developing innovative solutions in Information Technology (IT)† (Infosys, 2006). The customers have responded to the Dreamliner enthusiastically. This can be estimated from the fact that in spite of certain cancellations, the Boeing Company received the orders from 55 customers for 850 aeroplanes in April 2009 (boeing.com, 2009).

Technology is important for us Essay Example for Free

Technology is important for us Essay Imagine yourself a world without the existence of the word technology? How does that world look like? For me it’s a world without evolution and creativity, a place where everyone is closed minded. Like the cavemen where we once was in the Stone age, but this time infinitely. Technology is something very important for our society and mankind. It gives us hopes and dreams to reach out for. Furthermore, it improves our lives by making it more easier and better. For example, take a look around you, the watch, the laptop, the TV and even the chair. Almost everything you see is the track of technology and have you ever imagined you life without those stuff? A good tips is by sitting on a stone an hour in the woods without bringing anything with you. After that you will surely realize how important technology really is. Personally, technology is something I really love and I have been a dreaming about creating a new technology myself. A Time-machine or something unimaginable that will change this world, in a positive way of course. However, a technology is not always something positive. Clearly, weapons and bombs that is used for war and hurting other people. So can we live without technologies? If the technology stops to evolves or improves, the time will also stops. We will lose our creativity and everything we create or produce will look the same. However that will never ever happen, because we humans are curios creature. We like to explore things and make things easier for us. Consequently, it keeps the technology in track and go forwards. To summarize, technology is something important for us and our world. We can survive without it but the world would not be as fun and easy as today. Even though some evil people use technology in bad ways like starting wars. Technology can still be used to stop wars and connect people by helping each other. For example the internet which keeps us in touch with each other even though we are miles away.

Social Security Policy In Hong Kong Social Work Essay

Social Security Policy In Hong Kong Social Work Essay Welfare services are significant elements in a society, which welfare should provide, to what extent the welfare can be provided and how to provide may vary among different society. There are some models help us to understand the factors affecting the welfare system such as the Residual Welfare Model and the East Asian Welfare Model. We will examine whether Hong Kong a typical example of these two models by analyzing the social welfare policies. Social welfare refers to the well-being or betterment for individuals through direct benefits, services or disposable income (Wong, 2010). According to Ronald B. Dear, Social policies are those principles, procedures, and courses of action established in statute, administrative code, and agency regulation that affect peoples social well-being. Social Welfare Policies are some sort of these social policies. They may be thought of as those policies that affect the distribution of resources Richan (1988). In the following analysis, we will 5 main kinds of welfare policies which are housing, education health care, social care and social security to illustrate whether Hong Kong a typical example of both the East Asian Welfare Model and Residual Welfare Model or not. There are various characteristics of the Residual Welfare Model, the individual characteristics, economic characteristics and the characteristics of government and state. For the individual characteristics, people are recognized to be self-independent, self-interested and self-responsible. For the economic characteristics, laissez fair economy and the invisible hand are upheld since people believes that market can solve the social problems and to maintain the well- being of the society. The government and state are the major providers of social welfare and control to what extent the welfare can be provided. Under RWM, the government and state should not over burden itself with social welfare/ services and interfere with individual right and interests. Therefore, only the basic welfare should be provided i.e. law and order, defense, transport and communication infra- structure. Welfare seems as residual, temporary and substitutes of the normal structure of supply which means the family and the market economy. Only when the normal structure of supply breaks down, social welfare and services should be provided. In order to avoid the reliance on the welfare system, some of the welfare/ services may come with the stigma of dole or charity element. The poor is the major group of people to receipt welfare and they always recognized as the incompetent second class members of society. To ensure the welfare can be provided to the people in need, welfare will always have selec tivity. The most common method is by means test. According the Mishra, the main features show that a minimal government or state is preferred. The government just wants to provide welfare for the paupers and poor which is just minority group of the society. The services provided are just serving the basic need for them and range of statutory services is limited. Combining all these elements, welfare is just a safety net, confined to those who are unable to manage otherwise. Main features Residual 1. State responsibility in meeting needs (ideology of state intervention) Minimal 2. Need-based distribution as a value (ideology of distribution) Marginal 3. Range of statutory services Limited 4. Population covered by statutory services Minority 5. Level of benefits Low 6. Proportion of national income spent on state service Low 7. Use of means test Primary 8. Nature of clients Paupers/ the poor 9. Status of clients Low 10.Orientation of the service Coercive 11. Role of non-statutory agencies in welfare Primary Fig.1, The main features of Residual Welfare Model, (Mishra, 1984) Whether Hong Kong a typical example of Residual Welfare Model? We used the 5 main kinds of social welfare policies in Hong Kong to illustrate Hong Kong is adopting the RWM or not. Education Hong Kong provided different schemes for people to pay for their education fee. One of the education subsidy schemes is Pre-primary Education Voucher Scheme. Government will subsidize the parents to meet towards school fees for pre-primary education of their children in the form of Pre-primary Education Vouchers. In addition, Hong Kong government announced 12 years of free education in Policy Address 2009-2010. It provides 12 years compulsory free education to children. For the Tertiary students, Tertiary Student Finance Scheme was released. Government provided larger amount of subsidies to tertiary students. The total amount of grant paid by government is $621.93 million in 2009-10. Fig.2, Publicly-funded Programmes Summary of Statistics The Continuing Education Fund (CEF) subsidizes adults who willing to pursue continuing education and training courses. Adequate applicants will be refunded 80% of their fees, a maximum sum of HK$10,000. Apparently, government pays effort on the education policies and the population covered is really broad. Health Care For the Clinics part, 70 % of primary consultations take place in private sector while others take place in government funded clinics. Moreover, there are 41 public hospitals in Hong Kong. However, there are only 12 private hospitals. And the Hong Kongs 12 private hospitals provide a total of 2794 beds. It less than 10% into the number of hospital beds in Hong Kong. Furthermore, in Healthcare Reform (2009-2010 Policy Address), government decided to increase the healthcare expenditure from 15% of the Governments recurrent expenditure to 17% by 2012. The strategy of healthcare reform reflects the governments direction of healthcare in the follow few years will still highly intervene in the healthcare services. All of these healthcare policies show that government has a quite high level of intervention and these services are open to all the Hong Kong residents without any selectivity. As a result, the health care does not match to the principles of residual welfare model. Housing Government also had launched lot of policies about housing. There are about 710  000 public rental housing in the Housing Authoritys portfolio, housing about two million people. Tenants Purchase Scheme (TPS) was introduced in 1997 to enable at least 250  000 families living in public rental housing to buy their flats at an affordable price which is lower than the market price. Besides, Home ownership schemes (HOS) is another ownership scheme. It is designed to assist residents to buy their own flats and HOS flats are subsidized public housing. It is easily to find that government had interfered a lot in the housing supply. The population covered not just focus on the minority. Therefore, it differs from the principles of residual welfare model. Social Care In the field of social care, it provides a wide range of services taking care of the elderly, children, young people, disabilities, the victims of domestic violence, etc. This is quite different from the RWM since the population covered is large. The most common method adopted by the HK Government to provide the welfare services is to form partnership with non-government organizations. The government give a Lump Sum Grant to the NGOs and they provide the services to those in need. The expense on the Social Welfare Organization occupied the third large proportion of the total expense on welfare in Hong Kong. Fig.3, The expense of the social services organization Social Security Comprehensive Social Security Assistance Scheme The characteristics on providing services on social security seem more close to the RWM. The aim of social security is to provide for the basic and special needs of the members of the community who are in need of financial or material assistance (Social Welfare Department, 2008). It is a short- time help. CSSA is a safety net for those who cannot support themselves financially and bring their income up to a prescribed level to meet their basic needs (Social Welfare Department, 2008). The old age, single parent and unemployment are the three major groups of people of to apply CSSA (Statistics on Comprehensive Social Security Assistance Scheme 1998-2008, 2009). In order to select the most needed, people apply for CSSA should go through the financial tests. They need to pass the income and assets tests. Office interview and home visit will conduct to investigate and verify the applicants circumstances and information provided. Since this is a short-time help, the government do not want people rely on it, there is some special arrangement for those aged 15-59 in normal health to actively seek full-time jobs and participate in the Support for Self-reliance Scheme of the Department (Social Welfare Department, 2008). Sub-conclusion In the 5 main kinds of social policies, only the social security seems to be the typical example of residual welfare model. Social security just provides short-term help and to fulfill the basic needs of the recipients. Moreover, a series and comprehensive investigation and financial test are needed. And the CSSA may cause the Stigmatization. People may have bias on those CSSA recipients. Besides Government pays effort to teach and encourage the recipient to work in other to leave the safety net. In this sense, it conforms to the principle of residual welfare model. On the other hand, the other four categories of social welfare policies are not much like the residual welfare model. They are more like universal benefits and services having no or less selectivity, because benefits available to everyone. Those policies not only provide basic needs of individual but also to improve the quality of life, cultivate the citizens, and so on. Therefore, the expenditure on welfare keeps increasing. Thus, Hong Kong is not a typical example of residual welfare model. The East Asian Welfare Model (the EAWM) Definition There is another model related to social welfare policy which is the East Asian Welfare Model. It shares the Confucian ethics and value emphasizing on education, strong family relations, benevolent paternalism, social harmony, discipline, respect for tradition and strong work ethic. To determine whether Hong Kong is a typical example of The East Asian Welfare Model, we can see if it matches the elements of the model. Dominated on economic concerns In the EAWM, welfare policies are dominated on economic concerns in order to improve the productivity of labour force and provide strong working incentive. As it aims to help increasing the productivity of an economy, it is also called as a productivist social policy. Hong Kong does match this element. There is a concept of from welfare to workin Hong Kong. When more people have their own jobs, the numbers of CSSA recipients will decreases and the productivity of an economy will be increased too. Targeted employment assistance for various CSSA Recipients In Hong Kong, the government targets employment assistance for various CSSA recipients. For example, the Three trial Enhanced Community Work Projects which includes training elements in 2005 to 2006 were aimed to enhance the employability of participants. Up to October in 2006, there were 145 Intensive Employment Assistance Projects which provided intensive employment assistance services to unemployed CSSA recipients. Hong Kong government also supports for Self-reliance Scheme (SFS) that encourages and assists employable recipients to take up paid employment so as to make them to become self-reliant. This scheme includes Active Employment Assistance programme and Community Work programme. They aimed to help people finding jobs and thus increase the productivity of Hong Kong. Regulator rather than provider The Hong government acts as a regulator of welfare policy rather than a provider in EAWM. Hong Kong matches this element since Hong Kong government contracts out the services by giving funds to different organizations and asks them to provide welfare services for it. For example, it provides funds to The Neighbourhood Advice-Action Council to build Family Crisis Support Centres in order to tackle family crisis. It also gives funds to Po Leung Kuk and Childtime International Nursery Limited to build up child care centre so as to provide child care services. It gives funds to St. James Settlement and Hong Kong Society for the Aged to provide elderly services such as building up Elderly Community Centres. Way to maintain social stability and legitimacy In the EAWM, welfare has been seen and used as a key element to maintain social stability, to get the legitimacy of governments which lacked democratic legitimacy and to ameliorate grievances. Hong Kong matches this element. In Hong Kong, the Chief Executive and government officials are not elected by universal suffrage. With less legitimacy, welfare service becomes one of the tactics to pacify the grievances and to maintain social stability. Welfares can keep social stability as when peoples needs have been satisfied, they are expected not to commit crimes. Hong Kong government does do a lot to give financial assistance to the poor. For example, CSSA Scheme gives financial assistance to those who cannot support themselves. Social Security Allowance (SSA) Scheme provides monthly allowance to Hong Kong residents who are severely disabled or 65 years old or above. It shows that Hong Kong government uses welfare as a tool to maintain social stability, and so as to retain the legitimacy of the government. Low social welfare expenditure Hong Kong Government expenditure on social welfare is low compared with the Western countries. The welfare expenditure (% of GDP) of some western countries is above 20%, some are up to 29%. In Hong Kong, the welfare expenditure (% of GDP) is around 8% due to the low tax rate and the reliance on the market and the family to provide welfare. Hostile to the idea of welfare state Hong Kong is also hostile to the idea of welfare state. In the welfare states, the tax rate is high such as the corporate tax rate is 25% and the personal tax is up to 58% in Denmark. The high tax can support rate of large welfare expenditure. Welfare states provide comprehensive coverage of welfare including old-age pensions, unemployment benefits health and childcare services. The welfare is also very favourable since is more than the basic needs. In Sweden, the unemployed will receive 80 percent of his or her normal income under the unemployment benefits. However, in Hong Kong, the tax rates are extremely low compared with the OECD standards. The corporation tax rate is 17.5% and personal tax rate is only 16%, around 1/3 of the OECD standard. Hong Kong is one of the places with the lowest tax rates, named as tax haven. The low tax rates encourage competition i.e. the harder you work and more you gain. In the White Paper Social Welfare into the 1990s, government stated that it worked hard to improve the dependency culture and remind the citizens incentive to work and undermines the productive engine of the economy. It is to encourage self- independence and responsibility. Significant role of the family The family plays a significant role in Hong Kong social welfare. Hong Kong is influenced by the traditional Confucian culture which is family oriented. The role of family is measured not just by its affluence but also by its core values, the kindness, caring for others and mutual support. The family members support and look after each other. The number of elderly living with their son is higher than that in Western countries. The Government policies also promote the family values to lighten the dependency on social welfare system. Under Hong Kong tax system, allowances are given to the taxpayers who taking care of their children, parents and grandparents. It is to encourage family members to look after the youth and the elderly. Besides, the Public housing allocation policy will give special consideration to the family with elderly. The housing policy is family oriented. In the Policy Address 2009-2010, CE suggested to set up a Happy Family Info Hub to promote family core values, and to introduce family education as well as support services for the family. (Policy Address 2009-2010) Piecemeal, pragmatic and ad hoc welfare development Welfare development in Hong Kong is piecemeal, pragmatic and ad hoc. There is no comprehensive long term development plans on social  welfare, for example, the public housing policy in 50s, the aims of the policy is to settle the fire victims of Shek Kei Mei squatter areas. Besides, The Government legitimacy is shattered in the 67 riot. After that, Government started the social security policy including public assistance scheme, old age and disability allowances in the early 70s. The aims of the social security policy are to deal with critical issues and maintain society stability. Social welfare policies are reactive measures to address ad hoc issues without long term planning. Conclusion In conclusion, only social security policy in Hong Kong fit the Residual Welfare Model but other policies such as housing, education, health care and social care do not fit the model. On the other hand, the social welfare systems in Hong Kong fit most of the elements of The East Asian Welfare Model. Therefore, we do not agree that Hong Kong is a typical example of both models since it is not a typical example of the Residual Welfare Model but a typical example of the East Asian Welfare Model.

Dubai Property Market Economic Theory

Dubai Property Market Economic Theory With this dissertation what I would like to achieve is the following: I will carry out extensive research on the economic theory behind booms and bursts. I will look at some of the booms and bursts throughout history. I will attempt to make my own economic model behind what caused a boom and its subsequent burst and see if this model can be applied to the economic situation of the property market in Dubai. If a number of variables existed that suggested a burst might be coming, why was nothing done to stop it? 1.2: A brief history of Dubai Thirty years ago almost all of modern Dubai was desert. In the mid 18th century a small nomadic group settled there and built a small town. This small towns underlying asset being pearls. The pearl trade attracted people from all over the middle east, all with dreams of prosperity. The town was named Daba after a local locust that consumed everything it encountered. This rapidly growing town was soon acquired by the Gunships of the British army. Britain maintained control of the area until 1971(The Independent2009). In 1971 Dubai and five surrounding sheikhdoms (Abu Dhabi, Al Fujayrah, Ajman, Umm al Qaywayn and Sharjah) agreed on a federal constitution and became The United Arab Emirates or UAE. In February 1972 a seventh Sheikhdom, Ras al Khaymah joined the UAE. At this point Sheikh Zayid Ibn Sultan Al Nuhayyan of Abu Dhabi became the first president of the UAE. The ruler of Dubai, Sheikh Rashid ibn Said Al Maktum was named vice president, and his eldest son, Sheikh Maktum ibn Rash id Al Maktum, the prince of Dubai, became prime minister. In 1990 Sheikh Maktum succeeded his father as ruler of Dubai and as vice president and prime minister of the UAE (Library of Congress2007). It was around 1971, as the British were leaving that oil was first discovered. However to say that Dubai relied on oil for its growth would be wrong. Dubai had very little oil relative to its neighbouring emirate Abu Dhabi. So Sheikh Maktum had to diversify. He used oil revenues to create something he thought sustainable. Israel used to boast it made the desert bloom; Sheikh Maktum resolved to make the desert boom (The Independent 2009). It became a hub for tourism and financial services, Attracting capital and expertise from all over the globe. He invited the world to come tax free, and people came in their millions. A city seemed to descend from the heavens in thirty years. Would it be sustainable? (Source : The Independent, The Dark side of Dubai, 7 April 2009) (Source: Country Profile : UAE. Library of Congress Federal Research division, July 2007) 1.3: From Boom to bust over night. I arrived in Dubai in 2007 at a point when it was said that a third of the worlds construction equipment was in Dubai. It was the second fastest growing city in the world (second to Moscow) and appeared to be one big construction site. Skyscrapers were appearing over night to cater for increases in demand in property. However, a large part of this demand for property was merely speculatory. Investments in property appeared to be highly attractive and beneficial, especially to foreign investors earning in non dollar currencies. I say this because the dirham is pegged to the dollar (3.75 dhms per US Dollar). It was around late 2007 early 2008 that the dollar reached its weakest point making property in Dubai cheaper to people earning pounds for example. People also assumed that the dollar would one day appreciate; therefore giving investors that extra incentive. Dubais popularity was rapidly increasing and it was booming in the true definition of the word. However in September of 2008 things changed. See the following line graph of average residential sales prices to appreciate the extent of the crash. Figure 1 Residential sale prices (AED/ft2) Source: Landmark Advisory Board 2010. As you can see in Q408 both the average price of apartments and villas plummet from a mutual peak of 1500 AED/ft2 to around 900 AED/ft2 from one month to the next. This is a massive average decrease of 40 percent. I will attempt to demonstrate why this rapid increase in residential prices occurred and its subsequent decline and decide whether the boom and bust can be considered a bubble bursting in its true economic definition. Literature Review The Economic Theory and History behind Bubbles 2.1 An introduction to bubbles Essentially an economic bubble is an increase in the price of an asset or stock above its fundamental value and its subsequent decrease in value and implosion on the bubble is referred to as a burst. When asset prices increase speculators are overwhelmed by a sense of euphoria, chasing short term capital gains. A phenomenon that former chairman of the federal reserve Alan Greenspan memorably called irrational exuberance (Nial Ferguson, The Ascent of Money). Contrarily, when speculators primitive instincts turn from greed to fear, the bubble created by the initial irrational exuberance can burst with astonishing abruptness; almost overnight. Charles Kindleberger defined a bubble as a sharp rise in price of an asset or a range of assets in a continuous process, with the initial rise generating expectations of further rises and attracting new buyers generally speculators interested in profits from trading in the asset rather than its use or earning capacity. The rise is usually followed by a reversal of expectations and a sharp decline in price often resulting in financial crises (Bubble, Bubble, Wheres the Housing Bubble?) The initial boost in augmentation of the economy acts as a catalyst for both lenders and investors optimism about the future and asset prices rise swiftly. Nial ferguson refers to investors as an electronic herd, happily grazing on positive returns one moment, then stampeding for the farmyard gate the next (Nial Ferguson, 2008, 2009). 2.2 Bubbles in History The big ten economic bubbles (Charles P Kindleberger, Robert Z Aliber 2005) 1. The Dutch Tulip Bulb Bubble 1636 2. The South Sea Bubble 1720 3. The Mississippi bubble 1720 4. The late 1920s US stock price Bubble 1927-29 5. The increase in bank loans to Mexico and other developing countries in the 1970s 6. The bubble in real estate and stocks in Finland, Norway and Sweden 7. The bubble in real estate and stocks in Thailand, Malaysia, Indonesia and several other Asian countries 1992-97 8. The bubble in real estate and stocks in Thailand, Malaysia, Indonesia and several other Asian countries 1992-97 9. The increase in foreign investment in Mexico 1990-93 10. The Bubble in over the counter stocks in the United States 1995-2000. Also known as the .com bubble Over and over again asset, security and stock prices have reached unsustainable highs and subsequently come crashing down. From boom to bust, this process is consistently associated with ruthless insiders exploiting asymmetries of information attempting to make a profit at the cost of first time investors. In Dubai, every three months or so Emaar one of the big real estate developers (of which it is alleged that the absolute ruler of Dubai, Sheikh Mohammed has a thirty percent stake) released property for sale at increasing prices, almost instigating the bubble themselves very similar to what John Law (a convicted murderer and gambling addict) did with shares of the joint stock company named Company of the West (Compagnie dOccident) which resulted in the Mississippi bubble of 1720(Nial Ferguson, 2008, 2009). All these bubbles in History have followed similar paths; Nial Ferguson believes it possible to dissect all bubbles into five stages. 2.3 Nial Fergusons Five Stage Model (Nial Ferguson, 2008, 2009) 1. Displacement: An incident or innovation in the economy that generates new and lucrative possibilities for investors/speculators. Kindleberger refers to this as the expansion stage of the business cycle (Charles P Kindleberger, 2005). In the cases of the Dutch Tulip Bulb, The South Sea and Mississippi Bubbles this displacement was the creation of the Joint Stock Company. In the case of the US .com bubble the displacement or expansion was innovations in technology like the internet. In Dubai It could be argued that the displacement stage of the bubble was when developments were open for sale to foreign investors as opposed to previously when only locals could purchase land and property. This initial process causes a rise in spending which leads to inflated prices and increased consumption which combined translate to economic growth. 2. Euphoria/overtrading: Rising expected profits induce the appreciation in value of assets and shares. Investment soars because credit is in abundance. In Japan in the eighties Japanese investors had access to mountains of credit made available by nave bankers that didnt even contemplate a crash and the Japanese went on an investment spree. In the US in the 1990s, during the time preceding the crash .dom companies had access to almost infinite funds from venture capitalists with distorted perceptions of the future profitability of these firms (Charles P Kindleberger and Robert Z Alibir). Dubai was the same pre crash credit was very accessible; I will asses this further in my analysis segment of the dissertation. 3. Mania/bubble: The anticipation of rapid, easy capital gains entices first time investors and unscrupulous, esoteric brokers cater for this demand, in a ruthless attempt to sell assets and shares before a crash, which a seasoned broker is capable of predicting. 4. Distress: Insiders become aware that prices of assets and shares exceed their fundamental values and exploit the asymmetries of information by selling at profit. 5. Revulsion/discredit: prices begin to plummet and the electronic herd stampedes to exit the market causing the bubble to implode. The value of commodities bonds, stocks, land, buildings and houses decline to levels that are 30 to 40 percent below peak prices (Charles p kindleberger and Robert Z . Aliber, 2008, 2009), this adheres perfectly to residential duelling prices in Dubai (refer to figure 1). (Nial Ferguson, 2008, 2009). The Fundamentals behind this model are asymmetric information, availability to rapid, relatively cheap credit and the capability of capital to flow freely over geographical borders. This five stage model is accurate but basic. I will now progress to more specific models in detail behind the creation and existence of economic bubbles. 2.4 The Hyman Minsky model of instability in the supply of credit. This model created by Hyman Minsky can be used to explain financial fragility in economies. Minsky focuses on changes in the availability of credit. During periods of growth the supply of credit increases and during economic slowdowns this supply decreases. In times of growth, usually following an economic displacement like mentioned in Nial Fergusons model, investors feel more confident about the profitability of a number of investments and seek to finance these investments with credit. In the meantime, lenders become more enthusiastic about providing credit, even for investments, that prior to the expansion, had appeared too risky they become far less risk averse, reducing minimum down payments, minimum margin requirements. For individual lenders the cost of borrowing has to remain competitive too to maintain market share. However, when the mood changes, the economy slows down and fear kicks in, investors act much more cautiously. Lenders react similarly and their risk averseness increases and they supply less credit. Minsky believed that these cyclical changes in the availability of credit are a major catalyst to financial instability and are a factor in causing bubbles (Charles p kindleberger and Robert Z . Aliber, 2008, 2009). I am certain that minskys model was apparent in Dubai and definitely a defining factor of the recent burst. I will go on to prove this in the critical analysis part of the dissertation. Minsky also mentions an over-estimate of prospective returns, or excessive leverage (Charles p kindleberger and Robert Z . Aliber, 2008, 2009) during the euphoric period. Speculation suggests the acquisition of assets for the capital gain from expected surges in their value as opposed to income generated by one of these assets or for their use. The income generated by an asset or the use of an asset is considered to be the fundamental value of an asset and in bubbles the prices of assets fluctuate far from their fundamental values. This point is made clearer in the next part of the literature review. Minsky also states that a sense of euphoria or depression in one country maybe contagious in another country. I believe that the recent housing bubble in the United States and its subsequent burst influenced the real estate bubble in Dubai and was a significant cause of the crash. 2.5 Fundamental Value Researchers seem to concentrate on one of the following elements when considering a bubble: rapid appreciation of assets, overly optimistic predictions of future prices, a discrepancy between price and fundamental value and obviously a vast depreciation of assets when the bubble pops (Margaret Hwang Smith and Gary Smith, 2006). Karl Case and Robert Shiller believe that A tendency to view housing as an investment is a defining characteristic of a housing bubble (Margaret Hwang Smith and Gary Smith, 2006). However, Margaret Hwang Smith and Gary Smith, in their 2006 journal titled Housing, Housing, where is the housing bubble? disagree. They argue that housing can be considered a legitimate investment and that the best way to spot a bubble is to determine the discrepancy between the actual prices of houses and the fundamental value of these houses. Speculators in general do not make an attempt to calculate the underlying value of a house, they respond to expected capital gains. Margaret Hwang Smith and Gary Smith define a bubble as a scenario where the equilibrium price of an asset is higher than the present value of the anticipated cash flow from the asset (Margaret Hwang Smith and Gary Smith, 2006). Nonetheless, fundamental values may rise rapidly (for example an increase in population and therefore an incre ase in the acquisitions of houses for their use as opposed to expected capital gains, or an increase in rent) may stimulate a legitimate increase in the prices of houses. Equilibrium house prices may also increase rapidly and not necessarily be considered a bubble if their actual price is lower than their underlying fundamental value. They state that the real defining characteristic of a bubble is when equilibrium market prices cannot be answered for by the assets anticipated cash flow. Case and Shiller refer to the real estate market as being populated by amateurs making infrequent transactions on the basis of limited information and with little or no experience in gauging the fundamental value of the properties they are buying and selling'(Margaret Hwang Smith and Gary Smith, 2006). If this is true and I believe it was, in Dubai, to a certain extent (through knowing investors on a personal level) how can one expect for fundamental values to equal market prices? Most agents within the real estate market i.e. brokers, buyers and sellers seem to use what is known as comps when dealing within the real estate market. Comps are the latest sale prices of homes with similar specifications within the same area. Comps tell us how much other individuals are prepared to pay but not whether these prices are justified by the fundamental value (Margaret Hwang Smith and Gary Smith, 2006). Attempting to demonstrate whether market prices differ from fundamental prices isnt easy. Figures for average real estate prices are infamously imperfect. This is mainly due to the fact that houses are not homogenous in their specifications and environments. However, the National City Corporation use a multiple regression which considers a ratio of house prices to household income in a given area to mortgage rates, population density, the ratio of household income in the given area to the national average and historical prices to determine how much actual prices deviate from their real values (Margaret Hwang Smith and Gary Smith, 2006). The reason a ratio of house price and household income is used is based on theory by Karl case and Shiller that argue that housing prices are a bubble waiting to pop if the average investor is priced out of the market'(Margaret Hwang Smith and Gary Smith, 2006). There are problems with this model e.g. the historic house prices may not be based on fundamental value. Some economists including Edward Leamer argue that if house prices have increased in a larger proportion than rents a bubble exists (Margaret Hwang Smith and Gary Smith, 2006). I will attempt to look at rents versus house prices in my critical analysis section of the dissertation to determine whether this was apparent in Dubai. I will also attempt to look at the population density because I believe that it is relevant to fundamental value because an increase in population causes an increase in the demand for residential properties that will be used as dwellings. Minsky stated that a fundamental value of an asset was to do with is use and the income (rent) generated from the asset. 2.6 A brief look at the recent financial crisis in the USA. Hyman minsky stated in his interpretation of a bubble that euphoria or depression in one country can be contagious and spill over into another. I believe that the bursting of the real estate bubble in the states and the subsequent lack of worldwide credit was highly influential in the bursting of Dubais housing bubble. As per usual the great real estate and leverage bubble in the US of 2007 was instigated by a pervasive macroeconomic displacement. Prior to the 2000s banks would give loans to home owners and keep those loans as assets in their books (Burton G. Malkiel, 2010). However, post 2000 the entire banking system changed. Banks carried on issuing loans for mortgages but instead of holding them as assets on their books they would keep them for a short period of time and then sell them on to investment banks who would bundle different loans with different credit ratings into mortgage backed securities, also known as collateralized debt obligations (Burton G. Malkiel, 2010). Loans are split into different risk classes or tranches. So, low risk loans and high risk loans are bundled together and sold as one financial product which was deemed a good investment. This caused deterioration in lending standards (Burton G. Malkiel, 2010). Employees in charge of originating loans to clients were reckless when assessing the risk of the individuals potential default especially when dealing with subprime mortgages because they knew that the bank was only going to hold these loans for a short period of time and then pass them on. Insurance companies were also insuring subprime loans with credit default swaps because they were too nave to foresee mass defaults. These innovations in the banking system made credit easily accessible to individuals who may have not been considered credit worthy before these changes (subprime). Many financial institutions held vast amounts of these new bundled securities based around mortgages and held less equity backed securities and increased their leverage ratios (Burton G. Malkiel, 2010) making them very vulnerable in the case of a crash. Highly accessible credit at attractive rates due to lowered lending standards led to a huge bubble in the prices of houses. The inflation adjusted price of a commonplace home was roughly identical in 1999 as it was in 1899; however, between 2000 and 2006 real home prices doubled (Burton G. Malkiel, 2010). This is portrayed in the following line graph based on data from the Case-Shiller home price index in the US. Figure 2 Case-Shiller Home price index, 1989 = 100. Source: (Burton G. Malkiel, 2010) As you can see from the graph there is a rapid ascent in prices from around 2000 followed by a quick fall in prices starting in 2007. Prices began to decline and euphoria turned to fear. Houses were worth less than the amount of money owed to the banks and individuals began to default in mass. With massive amounts of defaults occurring, the value of the bundled mortgage backed securities or collaterized debt obligations (cdos) decreased rapidly. Many highly leveraged financial institutions holding long term assets financed by the short term mortgage backed securities did not have sufficient liquidity to continue to function (Burton G. Malkiel, 2010). All credit markets were frozen, excluding the US Treasury securities markets and financial institutions did not have sufficient liquidity to cover their short term debts. In the case of a bank an example of a short term debt is a deposit and people began to fear for their deposits and runs on banks happened in the US and UK institutions with vast amount of money invested in the US housing market e.g. Northern Rock. The US government was forced to bail out a number of financial institutions to prevent a total financial collapse (Burton G. Malkiel, 2010). Banks all over the world became cautious about lending money. Amlak finance Dubai stopped lending money all together and I think this was significant in the bursting of the bubble; it ties in directly with Minskys model of cyclical changes in the supply of credit. Panic struck and a worldwide financial crisis ensued. 3 Critical Analysis In this section of my dissertation I will evaluate real life data and literature about the situation in Dubai. What caused the rapid increase in price in the housing market? and what caused the resultant rapid decline in prices. 3.1 Displacement. Economists appear to agree that every bubble starts with a displacement. A macroeconomic change, or innovation, that induces pervasive adjustments in how agents within the economy behave and perceive the future. It can also be considered a paradigm shift. In the case of the .com bubble the displacement was the availability of the interweb to mass users. In the case of the recent housing and leverage bubble of the US the displacement was innovations in the banking system and the creation of new bundled financial products and collaterized debt obligations. In Dubai I believe that there were three displacing factors: The first displacing factor occurred in May 2002. Dubai was never rich in oil like its neighbouring emirate Abu Dhabi so it focused on creating a hub for tourism and commerce. It also promoted the development of real estate. In 1997 publicly quoted Emaar Properties and Al Nakheel Properties were setup (http://realestate.theemiratesnetwork.com/articles/freehold_property.php). In 1998 emaar started developing the Dubai Marina and the Emirates Living Community; however, properties within these developments were released on leasehold contracts which mean that properties are leased out for ninety years as opposed to being owned freehold. These developments were not successful in the market. People were sceptical about the leasehold contracts. Things changed in May 2002 when the crown prince General Sheikh Mohammed bin Rashid Al Maktum implemented a new law, stating that ex pats were able to buy property in certain areas of Dubai. The following graph shows all transactions from 1994. The graph is based on data from REIDIN.com a company that provides data and information covering all deals and transactions in Dubai since 1973. The company is an exclusive partner of the Dubai Land Department the real estate registry for the emirate. (REIDIN, DUBAI FOCUS, 2010) Figure 3 Quantity of transactions in Dubai from 1994 (Reidin.com, DubaiFocus, 2010) The graph shows that as of the changes in law about the ownership of real estate from 2002 there is not a significant increase in the quantity of transactions. In fact, there is a decline in transactions until 2005 when quantity of transactions increase rapidly from there onwards. I would still, however, consider the innovations in the legislation behind the ownership of property a displacement because without the changes, ex pats would never have been able to own property on a freehold basis and the bubble would never have happened. I say this because the vast majority of investments into the property market have come from expatriate sources. See the following chart which depicts the value of transactions by nationality. Figure 4 Value (AED) of property transactions by nationality from 1973 (Reidin.com, DubaiFocus, 2010) As you can see from the chart foreign investment is very significant in value and this could never have happened if the changes in legislation had not been made. Also, cross border transactions are a key in the creation of a bubble and as you can see from figure 4 cross border transactions are huge. Another displacing factor was hype generated by the media about talks of a new GCC currency called the Khaleeji. Talks were being had about the possibility of the UAE, Saudi Arabia, Oman, Qatar, Kuwait and Bahrain creating a new currency for their states. These talks were being had around 2006/2007 and nothing was ever finalised but if it was to happen, especially at a point in time when the dollar was weak, this new currency would be valued higher than the specific currencies of the gulf states and investments in these countries would appear even more attractive to speculators as they would rise in value from the creation of a new currency. This ties in with the next displacing factor which is the weakness of the dollar due to financial fragility in the US. In the Spring of 2006 the dollar weakened dramatically due to financial instability in the US. Towards the end of 2006 it looked as if the exchange rate was rising towards $2. In April 2007 the Dollar depreciated to over $2 and on the 27th of July 2007 it got to $2.06 the weakest it has been since 1981, it continued to fluctuate around $2 for the next five months and on the 9th of November 2007 it was $2.11. After this point, on average, the pound began to decline in value as the global recession hit the UK. The importance of this analysis about the dollar exchange rate is that it shows that from around 2006 until 2008 the dollar was relatively weak compared to the pound. Transactions for Real Estate were booming during this period as portrayed in figure 3 and a huge portion of these transactions were fuelled by investment from the United Kingdom as portrayed in figure 4. I therefore believe that the weak dollar was statistically significant in the increase of transactions from UK investors. The exchange rate of the Dollar versus the Indian Rupee shows a similar story. From around January 2007 the dollar declines in value against the rupee to a peak of around 39 rupee to the dollar. Compare this to a value of around 55 rupee in 2003. Again the weakness of the dollar compared to the Indian rupee can be argued to have catalysed vast investment from Indian investors from 2006 as the dollar was depreciating until late 2008 when the global crisis begun to have consequences on other nations e.g. India and the UK. I therefore consider this a displacement which lead to increases in transactions, increases in prices of property and overly optimistic expected prices. Refer to graphs of the dollar exchange rates versus the pound and rupee in the appendix section of the dissertation. 3.2 Euphoria/overtrading If you refer back to Nial Fergusons five stage bubble model you will see that after a pervasive macroeconomic displacement in the economy, if it is tending towards a bubble situation, an economy will experience euphoria, also referred to as overtrading. Rising expected profits induce the appreciation in value of assets and shares. Investment soars because credit is in abundance. If you refer back to figure 1 you will see that prices begin to rise steadily from 2005/2006. The number of transactions also increases rapidly from around the same period. Nial Ferguson also talks about the abundance of credit; this too ties in with minskys model of the pro cyclical supply of credit. It implies that many of these transactions were fuelled by credit or leveraged. Again this is similar to what was happening in the US before their crash. The following line graph shows the percentage of residential transactions fuelled by credit or leveraged. I have also included the percentage of residential transactions that are classed as other. I have put other transaction types into the equation because a substantial amount of transactions are classed as other. other refers to transactions that are none of the following transaction types: sale, mortgage, leasing, valuation, grant, rent, compensation and pre-registration. Im not entirely sure as to what types of transaction would be considered as other. This, I will consider a limitation in my data; however, this is data provided by a governmental entity and censorship is alive and well in Dubai. Figure 5 Percentage of residential transactions leveraged with credit. What figure 5 shows is a steady increase in the percentage of transactions fuelled by credit until 2006 when there is a vast decline in this percentage and a continuous decrease until 2009. I wonder if the global credit crunch caused by the US crash hit Dubai much earlier than people thought, however why did prices not stop falling until late 2008/2009?. There is a visible pattern here; as transactions leveraged by mortgages decreases, transactions classed by Dubai Land Department the real estate registry for the emirate as other increase. This appears to be rather dubious in my opinion; maybe the global credit crunch hit Dubai but in an attempt to maintain high prices until ruthless inside investors with asymmetries of information could leave the market with huge profits the quantity of transactions was kept high by the government, who have invested interests. Emaar Properties and Al Nakheel Properties are publicly quoted companies but ownership is predominately by wealthy governme ntal authorities. We all know that OPEC controls the supply of oil to maintain high prices; maybe something similar happened with property in Dubai. Nial Ferguson does mention ruthless inside investors have played a significant role in past bubbles; I think this could be apparent here. (Nial Ferguson, 2008, 2009). The graph shows that vast amounts of credit were used to leverage investments until 2006 when the amount declines rapidly. Probably because banks were influenced by the credit crunch in the US and feared they may have inadequate liquidity. I will analyse the pro cyclical supply of credit in a later section of my dissertation. 3.3 Mania/Bubble and distress Nial Ferguson refers to the next the next stage as mania or bubble, where first time investors are enticed to the market and seasoned investors who can predict a crash scramble to sell their investments at a profit before the crash. If you refer back to figure 3 that shows the quantity of transactions I would say that the mania/bubble stage was occurring from 2007 to 2008 at when the quantity of transactions are skyrocketing. At this point too, prices are still very high (refer back to figure 1). The closer to late 2008 the sillier the investment, as bubble bursts in october 2008. Therefore transactions around about this time have to be from first time investors who cannot see a crash. This is referred to by Nial ferguson as the distress period. 3.4 Revulsion/discredit Prices begin to plummet and the herd stampedes to exit the market causing the bubble to implode. This is apparent in late 2008 and 2009. Transactions stay high (Figure 3) but prices are declining rapidly (40 percent on average). So, investors are struck by fear and rush to sell properties even if it is done at significant los