During the pre-consumer era, people produced what they needed and traded the rest. That trade of surplus gave birth to merchant capitalism back in the 16th century. Since then, the capitalist economic system has evolved. In today’s world, economy relies on consumption in order to keep its good health. And to consume goods and services you have to produce them. Thus, production is the first stage in the economic cycle.
First stage. Production
The production process needs at least three factors -the so-called factors of production: land, labour and capital. Many economists point a fourth factor of production, but they don’t really come to an agreement on which one is. Some talk about technology as a fourth factor of production, because in 21st century there are many goods and services that rely on technology in order to be produced. Others point entrepreneurship as that fourth factor, because ambition and ideas are needed to create. Energy and culture are also pointed as possible fourth factors, but human capital is one of the most mentioned.
Production process can be capital-based and labour-based. The latter means the production process relies on labour, on the workers, to be successful. Without workers you can’t manufacture a product that needs a labour-based production. On the other hand, capital-based production does not necessarily need workers, just money and machinery. One good example of capital-based production is the car industry, and construction is an example of labour-based industry. Can you think of more examples?
Capital-based production processes usually locate in developed countries (in the so-called Core of the world), while labour-based production is carried out in developing countries (those from the Periphery of the world). Low-skilled jobs are reserved for those who are not as developed as required by the system, and so are bad working conditions -even child labour.
MORE INFORMATION ➡️ Offshoring: from the Core to the Periphery
Second stage. Distribution
Distribution occurs after production and consists on the delivery of the goods or services to the consumer. This involves the storage, transport, marketing and sale of goods. There are two steps in the sales process:
- Wholesale: wholesalers buy a large number of products and sell them to companies, who then sell the goods to individual consumers.
- Retail: retail businesses buy a small number of goods from wholesalers and sell them directly to the public in shops.
MORE INFORMATION ➡️ Economic flows
Third stage. Consumption
Today’s world is based on a consumer economy. That means economic growth and economic wealth are fueled by people purchasing goods and services (by people’s consumption). If people stop buying, economy fails to keep growing, jobs are lost and crisis emerge. Consumer economy leads to a consumer society, which means people live consuming: consumption is what defines living nowadays.
There’s nothing bad in consumption. Humans have rely on consumption to survive since we habit the planet. Consuming is living (we need to eat, to wear clothes, to have a shelter, a bed, shoes, hobbies…). Consumption is inherent to humans. The problem starts when consumption becomes an illness. When living is consuming we have a problem as society. We were not meant to live to consume, but to consume to live. When consumption gets massive and unnecesary we can talk about consumerism. And that’s really what defines today’s world.
Consumerism leads to overproduction of goods and services, which affects not only the economy with economic growth, but also society (creating a consumer society) and environment (with an unsustainable model of development). There’s no doubt economic growth is a good thing for the economy (thanks to overproduction the stock of goods increases, and so do sales), but the other effects of overproduction -unsustainable development and consumer society- are not so positive for the world.
Consumer society and overproduction power each other. The more consumerism, the more overproduction. The more overproduction, the more consumerism. This cycle is powered thanks to strategies like marketing and planned obsolescence. But consumer society creates an unsustainable way of life: we can’t consume forever. Sometimes we’ll have to stop using and buying so many things!
There are different models of development for societies, but ours has decided to follow an unsustainable one. The model we follow is based on constant growth, constant production and constant consumption, but those processes can’t keep their pace in a planet with limited resources. The Earth has no wood to feed all the IKEAs for an eternity, or enough petroleum to fuel our industries forever. There’s a limited amount of natural resources and we must use them in a sustainable way, that is, in a way that can be maintained in time. We could think about our great-great-grandchildren in order to understand why we shouldn’t overexploit the planet’s resources.
Fourth stage. Disposing
Disposing is the process by which manufactured goods are thrown away to a dump. Periphery’s countries are full of large dumps where millions of products are disposed. Although we could think all those products are no longer useful, actually many of them could still be used by people. Planned obsolescence and constant changes in trends promote the early disposing of goods that could fulfill our needs. But you know, who wants to use the same smartphone every year?
➡️ El consumo
➡️ Crecimiento económico y conservación del medio ambiente