ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Whether it’s a good economy or a bad economy depends on the system of production and distribution

Updated on April 30, 2015
TessSchlesinger profile image

Growing up in a political family, Tessa joined her first political party at 14. Her interest in progressive politics & economics continues.

What people think that economy is...

Most people would be hard put to describe what an economy is. They would, at best, say that it’s a system of buying and selling, and if there is a lot of buying and selling, that would mean that there is a lot of production, and that in a supposedly good economic system, this would result in a lot of sales which would, in turn, result in lots of jobs (which would be well enough paid for most people to live well). In a bad economy, there may or may not be a high level of production, but there would definitely not be a lot of sales, and this would mean lower employment and lower wages/salaries. This is an incorrect definition of an economy.

What an economy really is.

An economy is a system of production and distribution. In the communism of the old USSR , a handful of people decided which products were to be produced and where and how distribution took place. Whether the cost of production was affordable, whether the people wanted the products, whether the products were being distributed to the people who wanted or desired was not taken into consideration, and the system, therefore failed miserably.

In capitalism, the prevailing understanding is what people are buying will be an indication of whether the products are desired or not, and this will indicate which products are to be produced and whether they are to be distributed.

So, to repeat, an economy is a system of production and distribution.

Does free market trade produce a good and fair economy?

Before one can answer that question, one has to define what a free market is.

The free market is a business concept that if government does not regulate or legislate laws that interfere with how business wants to conduct its trade, then business will flourish and everybody will live happily ever after.

The happiness-ever-after module will result because if people don’t buy a product, this will mean that business is producing the wrong product that they will, therefore, discontinue the production of that product, and that will result in only products being produced that the market will need or desire. The other idea is that if consumers object to the way a company runs its business, i.e. by harming the environment, then consumers will boycott the product and, consequently, the business will either go out of business or change its practice.

The holes in this viewpoint are numerous. Firstly, as a result of public relations and spin, most of what companies do is behind the scenes. Consumers don’t know what is being done, and it is sometimes extremely difficult to find out. In addition, it can take a decade or three before the effects are known, and by that time the company or corporation has racked up sufficient money to pay the fines with ease plus have no further need to make any more money. Many companies repeatedly indulge in harmful practice because it is highly profitable. So if there is no legislation against it, there would be an enormous increase in these practices. So a free market might make a tremendous amount of profit for business, but it would destroy our planet as a consequence.

The second objection to the idea that a free market is a happy-ever-after solution is that the only way that most of the products can be sold is to advertise. Without marketing and advertising, there would be no ‘market.’ People would simply not buy the products. So why is advertising and marketing so necessary to so many products?

The major reason for the Great Depression was that the largely rural population of the 20s and 30s did not see any reason to buy yellow rubber ducks (and those kind of products). People of that time were sensible; why buy something that has no long term use?

At the end of the Great Depression, it was decided that there must never be another depression again. So Edward Bernas, the nephew of Freud, came up with a commercial brainwashing solution – advertising. Advertising would work by repeating the same message over and over again, “Buy this red balloon because it will give you a greater feeling of satisfaction.” After repeating it three times in an hour program on TV each day for three weeks, people would be buying red balloons because they wanted a feeling of satisfaction. The fact that red balloons did not bring satisfaction, and the fact that they would all land up in landfills, didn’t appear to be of any concern. So the belief that only products that are desired and needed in a free market is not true. It would be true if there was no commercial propaganda (advertising and marketing.) But that’s not what those who agitate for a free market mean. What they mean is an environment without legislation and regulation that can use brainwashing (commercial propaganda) to promote useless products.

There will be those who say that advertising and marketing play a role. They are correct. Indeed. However, responsible advertising and marketing would NOT utilize brainwashing and/or methods of indoctrination to get its message across. Instead there would be a library of product information available which people could search in order to fill their personal requirements and desires.

The last objection to the concept of a free market is that it products don’t reach areas where they are not sufficiently profitable. That does not mean that those products are not required there. It just means that the five or six people who need a particular product aren’t able to get it without a great deal of trouble and expense because it wasn’t in the interests of the commercial entity.

In other words, the free market works for business; it does NOT work for the general population and it does invite a clean and safe planetary environment.

The for-profit motive

There is a belief amongst many that if people did not make a profit, then there would be no reason to go into business, and if there was no business, then there would be no production or distribution. This argument also has many holes.

Firstly, most people do NOT work for profit. They work for wages or a salary. A profit is something quite different to a wage or salary. A profit is the excess money that is left over after all wages, salaries, and business expenses have been paid. The profit then either goes to the owner or is split amongst shareholders.

The idea that there would be no innovation and that research and development would disappear is not supported by evidence. Tesla worked for no other reason than to uplift humanity. Alexander Flemming did not invent antibiotics in order to become rich. His motivation was not wealth. The Wright Brothers did not find methods of flying because they were after profit. They did it to prove the concept. Charles Babbage did not lay the foundation for computers because he was after a profit. James Watt did not invent the steam engine because he wanted to make a name for himself or pocket some wealth. Indeed, most inventors and discovers have remained poor in the past, and in recent years, while they are better off, they are not the receivers of great wealth. So innovation and research would continue without the profit motive.

Another point often raised it that there would be no investment by shareholders if profit wasn’t on offer. That is correct. However, crowdsourcing is now taking off big time, and so investment is very much available to inventors, researchers, and discovers. In addition, far from being a dominant market for investment, the share market is a vehicle for speculation. Enormous sums of money change hands simply in order to make money out of money. As a result, most people lose money on the stock market in the long term. Those who make money tend to have had insider information, regardless of their denial of this.

Lastly, there is the reasoning that while the inventors and researchers might produce the product, they don’t distribute it. And that is true. But then we come back to whether profit enables an economy that works for all (a good economy) or whether it only works for the few (a bad economy). Quite clearly, we do not have a good economy despite the fact that enormous profits are being made currently. The majority of humanity live in dire straits

Mondragon in Spain that has a unique economic system that has resulted in prosperity for all.
Mondragon in Spain that has a unique economic system that has resulted in prosperity for all. | Source

A sustainable system of production and distribution that works for all

So we know that a centrally controlled economic system doesn’t work in the medium to long term (only a few at the top live well) and we see the same thing in a system driven by profit ( increasingly, only a few at the top live well).

A system that would work for all would have the following attributes.

  1. Commercial brainwashing (current styles of advertising and marketing) wouldn’t be required to sell the product. The product would be needed and desired without having to persuade people to buy it. In this way, far fewer products would be required and our landfills would be more empty. In addition, there would be far less pollution and our use of our resources would slow down. Our resources on this planet are finite
  2. Distribution would reach all people, regardless of whether the people who did the distribution felt that it wasn’t worth the effort. People in far flung rural areas need as much access to products and services as people in central cities do. In fact, it is the height of insanity to have so many people living in cities. For the sake of the environment and human well-being, it is essential that people not only live in smaller communities, but that they are more scattered across the geographical terrain.
  3. That people’s access to products should not dependent on whether they have a job or not. This is particularly true at this time as within the next five to fifteen years, the advent of AI (artificial intelligence), commercial drones, and soft robots, will result in half of humanity being without work. A system needs to be developed that ensures that most of the world’s population does not sink into extreme poverty while the top ten or twenty percent have an extremely wealthy lifestyle. Quite apart from the dystopian horrors of this, it is inevitable that violent revolution would follow.
  4. The cycle of haves and have-nots which has been a part of most economic systems for millennia needs to be eradicated. There is no reason why this cannot be done. We have the knowledge and the tools. We lack only the will to do this.

Are you able to design a new economic system?

See results
People Over Capital: The Co-operative Alternative to Capitalism
People Over Capital: The Co-operative Alternative to Capitalism

If you are starting a business, this has proven to be a successful and community friendly option. In terms of growth, Mondragon is the most successful co-operative in the world.

 

Reinventing economics

The reason that politicians are unable to fix the economy is that the issues with the economy are systemic. That means that it can't be fixed because the system itself is unsustainable and inefficient.

© 2015 Tessa Schlesinger

Comments

    0 of 8192 characters used
    Post Comment

    • pramodgokhale profile image

      pramodgokhale 2 years ago from Pune( India)

      Article is thought provoking and needed to be discussed.

      I am an Indian and enjoying democracy with mixed economy. We accommodate public sector and private sector. In 1991 we opened our economy and embraced globalization and cut the red tape.

      Gen-next of India is enjoying globalization.

      Old fashioned labor intensive industries were bound to be closed and it happened and our socialists leaders started weeping but industry and product which are outdated has to phased out we did it.

      New generation and economy has to withstand global challenges and crises.

      India and China are struggling to eliminate poverty and making of new civilian society is under way.

      Yes production and distribution is important part of economy and success of economy depends on that.

      People's participation is the key for success. I am from third world nation and that is India and so i have limitation to learn and know about developed economies.

    • TessSchlesinger profile image
      Author

      Tessa Schlesinger 2 years ago from South Africa

      Chris57, it will take one generation of educating young people from the day they enter school to the day they leave school. It will take another generation for these people to institute their culture.

      We will all be dead long before then.

      There is no way it can be done unless a very strong leader arises and convinces people that it's either live in an economy that is orientated to all (not profit driven) or die from extinction and violence.

    • CHRIS57 profile image

      CHRIS57 2 years ago from Northern Germany

      Some time ago i ran into a guy in my hometown. He kind of promotes the same ideas as you do in your hub, if i may say.

      http://en.wikipedia.org/wiki/Niko_Paech

      After very enjoyable discussions it became obvious that this guy had no clue of how to get from the growth, free market, capitalist, you name it economy to the desired post growth, not consumption oriented economy. He has his ideas, but he is no pathfinder. This made me "put him into a box" (your words :-).

      So help me to take you out of the box. Are you a pathfinder?

    • TessSchlesinger profile image
      Author

      Tessa Schlesinger 2 years ago from South Africa

      @Chris57. Generally when people ask a question in the context in which you have just asked me, they anticipate a particular answer, and then when they get that answer, they come up with something to contradict what the person has just said. In other words, you've just put me into a box. :)

      Interesting. Perhaps you might like to google me or join me on G+? My followers include people many of whom hold doctorates and range from various governments to the United Nations, geeks, and more. So conversations will never be dull. You might, however, find that your ideas have already been examined and discarded. :) Look forward to seeing you there.

    • CHRIS57 profile image

      CHRIS57 2 years ago from Northern Germany

      "each has died at the point at which they no longer work."

      Well, as my favourite capitalist put it some 150 years ago (my simplified version from the German original): Developments don´t come out of the heads of people, out of their comprehension of truth and justice, nor are they subject to Philosophy. Developments are made by changes in production and distribution, in other words by the economy of the epoch. - Friedrich Engels.

      Tess - your moral standpoint is well understood. Only this will not change a thing.

      Changes in production, changes in distribution - yes this will initiate new economic developments. James Watt´s invention of the steam engine probably did more to abolishing slave work than any good words from good people for centuries before.

      Let me ask the question: Where is the "steam engine" technology of today to initiate more human economic conditions?

    • TessSchlesinger profile image
      Author

      Tessa Schlesinger 2 years ago from South Africa

      @Chris57. Well, let's think about that. Slavery lasted for millennia, and if we think about it, there's no reason for it to continue. As fast as slaves die, they can be replaced. So slavery definitely sustainable. The key question is 'can something be replaced, and is there an endless supply?'

      The problem with problem with capitalism is that there are more and more people and business demands more and more profits and more and more innovation, and the resources of the earth are finite. Once the gold is mined out, it's gone. Once the oil is gone, it's gone. Once the water is polluted and their air is full of toxic radiation, the earth may outlive us, but we-the-people will no longer be here. So, no. Capitalism is NOT sustainable. It requires constant, increasing resources, and they don't exist on this planet.

      Next, Capitalism has been around for about 250 years. Before that it was mercantilism, and before that it was neo-feudalism. Many systems have lasted for hundreds of years, and each has died at the point at which they no longer work.

      Most of the people of this earth have reached a point where they realize that capitalism, just like communism, monarchies, and other elitest systems work for the few at the top, but the rest of humanity suffers in misery because they don't have sufficient resources.

    • CHRIS57 profile image

      CHRIS57 2 years ago from Northern Germany

      Can an economic system that proved its sustainability by outliving other systems for centuries, can an economic system be called unsustainable?

      Please allow me to comment: Even if multiple brands of capitalist economies exist on our planet, they all depend on same principles. The difference is what politics makes out of it.