VIII. Work in several groups. Sum up the information you have received from the Unit 7.3

IX. Role-play. You are the managers of the company planning to introduce a new product to the market. Think of organizing a successful advertising campaign for marketing the product

Unit 7.4. From Investment Boom to Bust

I. Pre-reading task

What can the text be about? Give your own predictions

II. Read the text to fulfil the tasks. Make a brief outline of the text

1. New areas for investment: for and against. America's productivity gains have been fuelled by a splurge in spending on information technology. What happens if that investment suddenly stops?

Firms in America have spent like no tomorrow on snazzy computers and communications equipment. Indeed, in the past five years, investment in information technology has increased by an annual average of around 25% in real terms, accounting for no less than one-quarter of the country's total GDP growth. The recent profit warnings from high-tech firms are therefore rather alarming: their sales so far this year are well below expectations. Is the IT boom turning to bust?

This question is important, for two reasons. First, a severe slump in investment could turn a mild economic downturn into a deeper recession. Second, a fall in IT investment would dampen longer-term productivity growth. Total business investment has risen to a record level as a share of GDP. If the pace of it investment now proves unsustainable, productivity growth will fall.

Business investment usually falls in a downturn, but this time the risks are greater. A growing number of economists think that the tech bubble that is now popping, along with firms' own inflated expectations about future returns, encouraged excessive investment. As profits fair and tech shares slide, IT budgets are likely to be slashed.

2. Investments: different countries’ experience. Japan enjoyed an investment boom in the 1980s. Japanese firms' investment rose from 13% of GDP in the early 1980s to more than 19% by 1990 - a similar-sized increase to that in America, where business investment has jumped from 9% of GDP to 15% over the past decade. The current conventional wisdom is that Japan's investment was a near-total waste; and that, unlike that in the United States today, it did not yield an increase in productivity growth. After its bubble burst at the start of the 1990s, Japanese business investment collapsed and productivity growth stalled.

One reason why investment in America is unlikely to fall so sharply as in Japan is the different composition of its capital spending. IT equipment has a shorter life than buildings or industrial machinery. A faster rate of depreciation means that to achieve a given reduction in a firm's capital stock, gross investment needs to fall by less. It means that the short-term impact on the economy of a decline in investment is more severe. But any adjustment to the desired size of capital stock may be swifter, so reducing the risk of a prolonged, Japanese-style downturn.

The risk of an IT investment bust is now rising. Profits are shrinking, credit conditions have tightened. In recent years America's capital stock has leapt in relation to GDP. If firms decided to reduce IT spending by enough to slow the growth in the ratio of the IT stock to GDP back to its average pace of the past decade - i.e., still allowing for the capital-deepening process to continue - this would imply an 8% fall in nominal IT spending. What does this mean for productivity? Economists have also estimated that if real growth in IT spending falls to zero in nominal terms, then this would reduce productivity growth by three-quarters of a percentage point compared with where it would otherwise have been. However, a downturn in investment has long-lasting effects on productivity growth.

Text-study

III. Learn the following words

To account for – объяснять

to bust – обанкротиться

slump – резкое падение

downturn – спад, понижение

recession – падение, спад

to dampen – ослаблять, останавливать

pace – темп

unsustainable – непостоянный

bubble – «дутое» предприятие, бум

to inflate – проводить инфляцию

to slide – понижаться

to stall – задерживать, уклоняться

to tighten – ужесточать

IV. Answer the following questions

1. What are the reasons for the IT boom turning to bust being a serious question?

2. How can an unsustainable pace of IT investment affect productivity growth?

3. What is the difference between Japan's bubble in the 1980s and the American one in the late 1990s?

4. What is the main difference between Japan's investment of the 1980s and that in the United States today?

5. What is the reason why investment in America is unlikely to fall so sharply as in Japan?

6. What does a faster rate of depreciation mean?

7. What factor does the rate of nominal IT spending depend on?

V. Complete the following sentences with the words from the box

investment in information technology; the tech bubble; slump in investment; composition of capital spending; to reduce IT spending; a fall in nominal spending

1. A growing number of economists think that … that is now popping, along with firms' own inflated expectations about future returns, encouraged excessive investment.

2. Indeed, in the past five years, … has increased by an annual average of around 25% in real terms, accounting for no less than one-quarter of the country's total GDP growth.

3. A severe … could turn a mild economic downturn into a deeper recession.

4. One reason why investment in America is unlikely to fall so sharply as in Japan is the different … .

5. If firms decided … by enough to slow the growth in the ratio of the IT stock to GDP back to its average pace of the past decade, this would imply an 8% … .

VI. Give Russian equivalents for the following words and phrases used in the text

productivity gains; a splurge in spending; communications equipment; the country's total GDP growth; the IT boom turning to bust; a severe slump in investment; labour productivity growth; business investment; inflated expectations; future returns; excessive investment; vigorous growth; depreciation; a firm's capital stock; gross investment; a glut in capacity.

VII. Translate the following text into Russian in writing

In the past five years, investment in information technology has increased by an annual average of around 25% in real terms, accounting for no less than one-quarter of the country's total GDP growth. The recent profit warnings from high-tech firms are therefore rather alarming: their sales so far this year are well below expectations. The current conventional wisdom is that Japan's investment was a near-total waste; and that, unlike that in the United States today, it did not yield an increase in productivity growth. After its bubble burst at the start of the 1990s, Japanese business investment collapsed and productivity growth stalled. High depreciation means that gross investment is also larger in relation to GDP. It means that the short-term impact on the economy of a decline in investment is more severe. But any adjustment to the desired size of capital stock may be swifter, so reducing the risk of a prolonged, Japanese-style downturn.

VIII. Summarize the text, using the words and phrases given below

to increase by an annual average of around 25%; to account for (no less than one-quarter of the country's total GDP growth); to turn a mild economic downturn into a deep recession; to dampen longer-term productivity growth; to rise to a record level as a share of GDP; to prove unsustainable; to grow at a much slower pace; to shrink (about IT investment); to mirror smth; to slash smth; to enjoy an investment boom; to jump from 9% of GDP to 15%; to shrink (about profits); to tighten credit conditions; to leap (about capital stock in relation to GDP); to imply a 20% fall in IT; to revise smth downwards

IX. Translate into English

1. Число заказов от фирм на электронное и электрическое оборудование снизилось почти на 20%, что является признаком грядущего сокращения инвестирования в область высоких технологий.

2. За последнее время уровень роста производительности труда упал до отметки в 1%.

3. Америка и Япония имеют разные структуры вложения капитала. Вторая половина кризисного периода в Японии характеризовалась гораздо более мощным ростом производительности по сравнению с ростом производительности в Америке сегодня.

4. Снижение уровня инвестирования в долгосрочной перспективе сказывается на темпах роста производительности.

X. Meet as one group. Supply details to prove the following assumptions

1. The risk of IT investment bust is now rising.

2. A downturn in investment has long-lasting effects on productivity growth.

XI. Working as one group, comment on the following statement from the text

America's productivity growth is likely to remain above its level of the early 1990s, unless IT capital spending stagnates for several years.

XII. Work in several groups. Argue for or against the following statement made in the text

Business investment usually falls in a downturn, but this time the risks are greater.

Unit 7.5. Venture Capital