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Other problems with the economy Other problems with the economy
by Joseph Gatt
2021-01-06 11:53:34
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Last time I discussed a few problems with any economy. This time I'll provide a (non-exhaustive) list of some of the problems any economy can encounter.

What I have in mind is, after many years traveling around the world, observing economies at work, living though boom-and-bust cycles. I ended up realizing that most economists around the world focus on finance and making money, when economic policy should not be exclusively about finances.

Financial planning is an important part of any economy. But, what many economists tend to neglect is the logistics of any economy.

That is in order to make money you need a product of a service. I've chatted with many economists around the world, and I've been to a few dinners with economists. They love talking about debt and finance and financial planning. But, for some reason, they tend to leave production out of the equation.

So this paper, hopefully, will help your economy become more productive. If your economy becomes productive, money will naturally follow suit.

bus001_400_01Scarcity of raw materials: Some raw materials like water are vital to agriculture. Others like petrol or gas are vital to the industry and to transportation.

Dependence or raw materials means a lot of countries have to constantly export agricultural or industrial goods, or provide tourism services, to gain foreign currency with which they import the much needed raw materials.

Other nations just try to survive without the raw materials, and they barely get through, as their agricultural production or industrial production tends to suffer from electricity, water or oil shortages.

Some important raw materials can also lack for production in key industrial sectors. Lack of iron or steel for example can be debilitating if you are trying to launch a canned food industry or a car industry.

More importantly, some nations have industries that are so dependent on raw materials, that any hike in raw material prices can lead their industry to halt. That happened with the oil crisis in the 1970s.

Scarcity of means of extraction and transformation of raw materials: Raw materials don't just lie there in the streets. Often, you have to extract them from underneath the ground, or extract and process them from the ground.

Extraction and processing of raw materials demands expertise. You'll find quite a few experts in the United States or Canada or Europe, but many countries don't have such experts.

Even when some countries do train extraction and processing experts, they tend to either lack the technology. Or they lack the kind of harmony and team work needed to perform such highly skilled and team-oriented extraction and processing tasks.

Abundance of raw materials: Some countries can have too many raw materials and natural resources, and that can be a problem.

Problem 1: who owns the raw materials? Most countries will claim that the government owns them, but then the king or president and his crew get billion-dollar a year paychecks when the local population has to settle for 18,000 a year jobs.

Problem 2: abundance of raw materials means that you get a huge flow of foreign currency coming your way. That naturally means that your country is going to lack local currency, because local production of agricultural or industrial goods can not meet the demands of the local market.

In some extreme cases, you could end up in an economy with imported agricultural and industrial goods. No problem. But you also end up with an economy where services are very, very scarce! Try getting a hair cut of fixing your laptop or getting your plumbing taken care of in those nations.

Scarcity of agricultural products: If agricultural products are scarce, that means you have to import your meat, dairy, fruits, vegetables, grains, spices and so on from overseas.

The problem with agricultural products is that they don't always end up being eaten raw. A lot of times they are processed and re-processed. They could end up in you Cheerios or in your Burger King Whopper. They could also end up being transformed as aromas or powder used in juice or powdered milk and so on.

So one of the problems of scarcity of agricultural products is that your industry is going to depend on foreign nations for use and transformation of agricultural goods. And you also need the hard currency to purchase the agricultural goods that your industry depends upon.

So, a lot of times, countries who face agricultural shortages import both agricultural and industrial goods, often with foreign aid money.  

Bad quality of agricultural products: I've read a couple dozen (or more) thick books about the economy in general. Not once did I encounter the problem of “bad quality” of products.

Once every now and then, an individual farmer could get a bad harvest. Once in a blue moon, a strong agricultural nation could face a very bad harvest.

But some countries don't train their farmers. And farmers don't want to be trained. And you get terrible harvests every year.

So if you own so many hectares of land, but that you can only sell 10% or 5% of your harvest at the market, and that 5% is of dismal quality, you have a problem.  

Too much diversity of agricultural products: People often haven't thought of this one either. Some farmers launch production of agricultural products that are not really in demand.

Of course there are a few marketing techniques out there, and some agricultural products like kale or soursop or guayava do become trendy, but then the trend dies out.

A lot of “mushrooms” or “grains” or “herbs” or “spices” end up being thrown out after harvest, because the mothers and grandmothers don't have recipes that match the herbs or spices or strange vegetables or fruits.

Recommendation: organize lots of events where famers meet agro-industrial producers to discuss their innovative fruits or vegetables or grains or spices. And good PR needed for that as well.

Abundance of agricultural products: Sometimes diversity is not the problem, but abundance is the problem. Agricultural products tend to expire after some time, and need to be sold to factories or to consumers as quickly as possible.

So when there's a good harvest year and that there's an abundance of agricultural products, farmers don't know what to do with them. In some cases they have to find export partners, but the bureaucracy in the world of farming is so rigid that they end up throwing away tons of agricultural produce.

Problem with this: it costs money to produce all that produce. So if you throw away 80% of your harvest, you lose a ton of money!

Scarcity of industrial products: I've been to many countries where the local industry does not produce much of anything, and almost all industrial products are imported.

What does this mean, concretely? This means that when I go to the supermarket in those countries, I don't find much of anything that appeals. This means I have to purchase fresh fruits and vegetables, and a few other basic ingredients like cooking oil and meat and a few spices, and I have to cook up a meal with that. In some cases it means I have to press my own orange juice, because the local juice is un-drinkable (is that even a word?).

It means that in those countries clothes are overpriced and hard to find, clothes that fit are even harder to find. It means that a pair of shoes can cost me up to 20% of my paycheck (true story!). It means that if my laptop stops working, I'll have lots of trouble finding a decent laptop, and my laptop will cost me three paychecks. You see the problem.

Bad quality of industrial products: There's scarcity, and then there's bad quality. I haven't had ketchup in 5 years (did have it a few times at this one restaurant) because the quality of ketchup is... not very good.

Bad quality of industrial products means that the industrial products are available, but they can make you sick. Or they will make your arms itch. Or you will have to walk an entire mile barefoot because your 100 dollar pair of shoes just broke down. Or your 70 dollar backpack just collapses and all your books fell out of it (these are true stories) and then you have to put your books in improvised bags and walk the rest of the track with those bags.

But, from a macroeconomic perspective, bad quality of industrial products means wasted time and money. Here's how the money gets wasted. You operate the factory (money wasted). You pay the workforce (money wasted). The retailer displays the product (money wasted). And the consumer does not purchase the product (perhaps they'll buy it once, they won't like it, and they'll stop purchasing it.)

Scarcity of products vital to industry: Some countries have decent industrial machines. But in some key sectors (medication, food, textile, transportation, furniture, telecommunications, high-technology, household goods) they might not have the industrial products.

This can lead to a dependence on foreign countries for the industrial goods. And when country A knows that country B does not have a car factory or a TV factory, what do they do? They jack up the car or TV prices, and they offer lower-quality TVs and cars. That is country A is going to produce cheap and sell dear to country B.

Scarcity of machines vital to industry: Sometimes people are interested in owning factories, but they just don't have access to the machines.

I once worked at a factory in East Asia where the owner wanted to purchase foreign machines to make a better product. But. In that East Asian country, you could only purchase national machines, and the national machines were overpriced and outdated.

So in the long run, scarcity of machines and inability to update the machines means your products will be outdated, or cheap, or both.

Scarcity of knowledge vital to industry: I love discussing the knowledge part. If your economy does not have the knowledge needed to operate a factory... not that you are doomed.

But a lot of countries want to promote industry and to encourage people to start factories. So John Doe starts a factory. But he can't find anyone to install his machines. He can't find anyone to operate and fix the machines. He can't find anyone to produce and package the product. He can't find anyone with the skills necessary to market and sell the product.

So John Doe could hire people from countries where that knowledge is available. But salary factors and culture shock and family issues and adaptation factors mean that John Doe's work will be more complicated than if he could hire locals.

But then John Doe tries to hire locals. The locals claim they have the knowledge to operate the machine. But the Google search on how to operate the machine is not available in their vernacular. And so you have this machine operator trying to save face by begging John Doe to work in marketing instead.

Big problem.

Too little diversity of industrial products: These are the economies where you go like “I'm tired of eating the same chocolate. Where's the better chocolate?” or “I'm tired of the same spaghetti sauce, get me something that will make my pasta tastier!”

In some countries industry, exists, but it's always the same variety of products. No variety of products, that is.

Too much diversity of industrial products: The opposite can also be true, where you have way too much diversity in industrial production.

This is where the creative minds keep inventing and marketing product after product, when consumers can only handle so many products.

Scarcity of services: This is a problem in any economy. I'm sure you've been to country where finding a plumber or an electrician is a full-time job. Or perhaps you've been to a country where good barbers or hairdressers are hard to find.

Or, more importantly, I'm sure you've been to a country where finding a lawyer is hard enough, finding a good lawyer is even harder. Finding a doctor is hard enough, finding a good doctor is even tougher.

Or you've been to countries where the entertainment scene is almost dead. Where restaurants only serve lunch. Those countries or cities where the only form of entertainment is “hanging out with the kids in the hood” and that are when the drugs kick in and so on.

Scarcity of services makes life hard for any businessman and individual. Yet, many countries focus all their energy on natural resources, agriculture or industry, and completely neglect the service sector.

Abundance of services: This is reminiscent of Mikhail Bulgakov's masterpiece novel “the Master and Marguerita.” You have entertainment everywhere, amazing stunts performed at the circus, elating opera singers, amazing classical music concerts. But no bread on the shelves.

In some countries, the service sector is just overflooded. I remember China, Taiwan and Korea where I received advertisements for all kinds of services where I went like “really? Is that a service?”

For example, you had people advertise “electronic massages” and “American-themed wall paper installation” and “midnight tours” where you would tour Beijing from 9 PM to 9 AM. The guide claimed you could see the ghosts, but no one took pictures of that.

You get the idea.  

Bad quality of services: If you have bad lawyers, bad doctors, bad chemists, bad quality control agents, bad restaurants and bad taxi drivers, the economy can't flow smoothly. Soon enough your economy has the “hiccups” if you know what I mean.  

Scarcity of retail points: In some countries, mainly in Europe, there's a good industrial production, but retail points are really, really scarce. In Europe, the regulations to open a pharmacy, grocery store, supermarket or even a restaurant are so daunting, that even though there are tons of giants of pharmacy or industrial food companies, the only day you can shop is a Saturday where the retail points are saturated with people which makes the shopping experience hell.

In some European countries people even call in sick on certain days just so they can find the time to shop.

From a macroeconomic perspective, this means fewer consumers, and less consumption, and factories that have trouble reaching the consumer, because the consumer has to push his or her way to grab the product.

Abundance of retail points: When you have too many retail points, that's a case of bad distribution.

Consumers tend to concentrate around a few retail points. When there are too many retail points, a lot of the production ends up in the trash. And that's a lot of wasted money.

Bad quality of retail points: In some countries you have lots of retail points. But the retailers are very rude, claim not to have certain in demand products when they have them, inflate retail prices, cheat the customers, and are just plain rude to the customers.

So you can have all the retailers you want, if they don't treat customers properly, that's a lot of the production that goes to waste.

Too much diversity of retail points: In some countries you have stores that specialize in “products for the left-handed” or in “clothes for people who are over 7 feet tall.”

You know what the problem is? Left-handed people purchase right-handed products. And people who are over 7 feet tall purchase their products where everyone else purchases them.  

Bad information channels: Sometimes products and services are available, and the supply chain is good, but people don't talk to each other, and hide information from each other. And you have the press making sensational headlines about politicians rather than inform people in the business.

That can affect the economy. If economic actors can't find each other and talk to each other, that's a lot of money lost.

Bad communication channels: In the old days it was lack of phones. Today it's too many communication channels. You know the story. You call the economic actor and he doesn't pick up. You send him a text message and he doesn't reply. You send him an email and he doesn't reply. You leave a comment on his Facebook page and he doesn't reply. Then he's going to say something like “I was overseas and did not check my accounts.”

The problem with contacting people who don't reply messages or who take too much time to reply messages is that soon enough you get tired of them and do business with other people. And slow communication tends to slow down the economy.

Plus, some companies receive so many messages and emails that their employees no longer read them. In those cases companies should really hire an “electronic receptionist” or someone who is a receptionist, but for online inquiries.

Bad transportation channels: In some countries it's bad roads. In other countries trucks or busses are hard to find. In other countries drivers are hard to find. In other countries there's no address system and streets are hard to find. In some countries it's the traffic jams. In other countries it's the dangerous roads.

All these factors affect the economy.

Administration Disturbing the flow of products: Some countries have it all. Raw materials, agriculture, industrial products, services.

But the government keeps interfering with how you do business. They'll vote a regulation on this, a regulation on that, and so many regulations that in the end the flow of products around the economy will be disturbed.  

Crime disturbing the flow of products: Sometimes the government is laissez-faire but criminals disturb the flow of products.  

Lack of motivation among the workforce: Minor, but important product in any economy. If you hire workers that completely lack any other motivation than receiving a paycheck, we have a problem. Lazy workers are a problem.  

Lack of know-how and training among the workforce: Sometimes people are motivated to come to work, but they just don't know how to operate the machines or perform the tasks.

Too many workforce-related regulations: Sometimes there are so many regulations that you fall in love with a worker or with their skills but you're not allowed to hire them. And you have to settle with someone who matches the regulations but whose profile does not fit the tasks.

Workforce with the kind of knowledge irrelevant to the economy: Sometimes you have countries training their workforce to realities that don't match their local economy.

I've discussed this one before. In the US and Canada for example, we train a lot of researchers and teach them how to do research. But the job market doesn't really need researchers.

Conclusion

In the end, any economy is as much about being productive as it is about handling budgets.

I wrote this paper for two reasons.

First reason is, when I work with foreign governments, a lot of times they hire economists who are experts in financial products, accounting and budgeting. But they rarely, if ever, hire economists specialized in production and distribution.

Second reason is, economic theory has dealt almost too much with financial growth, but in my experience (I could be wrong) I don't recall meeting an economist who focused on the technical aspects of production and distribution.

So when the economy rebounds after this COVID thing, I hope emphasis will be placed on production and distribution. Finance is also important of course and I've discussed it at length in the past, but finance should not occult production and distribution.


    
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