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Easing production and distribution Easing production and distribution
by Joseph Gatt
2021-01-04 11:23:07
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If you read any economics textbook, you'll find that the economy is about supply meeting demand. And you'll find that there needs to be equilibrium between supply and demand.

I see things slightly differently. To me, the economy is about the production of raw materials, agricultural goods, industrial goods (which process raw materials and/or agricultural goods), services and retail.

trad1_400First problem many economies around the world have: they have monster regulations when it comes to production. Why? Because a handful of individuals control the production of raw materials, agricultural goods, industrial goods, service and retail. So they make it almost impossible for everyone else to produce.

Second problem many economies around the world have: lack of expertise in the means of production. That is a lot of countries want to produce and extract raw materials, agricultural goods, industrial goods, services and retail, but they lack the expertise needed and the surveys and studies required to engage in such endeavors. They often lack the expertise because it's a handful of individuals who control the production means, and one single person can only have so much knowledge and expertise.  

Third problem many economies around the world have: good production means, but bad distribution means. In some countries, namely in East Asia, a group of individuals’ controls production, but distribution is “democratic” and anyone can work in distribution. The problem when you have few companies in production and many companies in distribution is a cacophony between few production channels and too many distribution channels. If you go to Tokyo, Beijing, Shanghai, Taipei or Seoul, you'll find a lot of retailers right next to each other selling the exact same products. How does the consumer choose which retailer to pick?

Fourth problem many economies around the world have: bad distribution channels. This is the problem of Latin American countries from Colombia to Guatemala to Mexico to Brazil to Argentina. Lots of good farms and factories, but no logistics. Because of geographic and security and cultural factors, your farm or factory can produce lots of goods, but the trucks or ships to ship the products to retailers are very much unreliable, in some cases scarce, and always unpredictable.

Fifth problem many economies around the world encounter: too much focus in one area. This is the problem of African nations and the Arab and/or Muslim Middle East, which tends to focus on raw material extraction and little else. Little or no agriculture, no industry, few services, and relying on exported goods for retail.

Sixth problem many economies around the world encounter: scarce production. This is the example of Israel, could also be said about Singapore, Australia and New Zealand. That is these countries have raw materials, agricultural products, industrial products, services and retail, but the production is too scarce to meet the local demand. So prices tend to be very, very, high, and a small bottle of mineral water costs 4 Dollars.

Seventh problem many economies around the world encounter: no production bureaucratic hassles, too many distribution bureaucratic hassles. In those countries, you can produce all the raw materials or agricultural or industrial products you want, but when you want to create distribution channels as in retail, you need way too much paperwork, and the regulations make it impossible for you to sell your products. This is the case of many European Union countries, especially France, but Italy, Spain and even non-EU states like Switzerland and Norway and most EU member nations.

Eighth problem many economies around the world face: lack of security to protect production and distribution channels. Because the government does not police the streets properly, production and distribution channels are often the victims of theft, extortion, threats, executions, seizures and so on. Sometimes by government and army officials in uniform, sometimes by organized crime gangs.  

Ninth problem many economies face: Outsourcing production and focusing exclusively on distribution to animate the economy. So all raw materials are produced in foreign country A, agricultural goods in foreign country B, industrial goods in foreign country C, and even services are imported from foreign country D (services could be data entry, translation, ground surveys, and even legal services in some cases). So you have an economy where it's all distribution and retail, and no production.

Why can't an economy work if it imports everything? The economy loses all its foreign currency. And when an economy loses its foreign currency, if production halts (as in COVID-19 times) there are no national and local production centers. And you have no foreign currency to import more products. In sum, in this model, nations tend to run out of foreign currency, which leads to local currency hyperinflation because of scarce production and high demand. Happened to Turkey in the 1990s. Happened to Israel in the 1980s. Happened to Zimbabwe in the 2010s. Happened to Latin America in the 1980s.

So for the economy to work, you need light policies that enable production, light policies that enable distribution, good information channels, good communication channels, good transportation channels, as little crime as possible, and there, the economy works!

There are of course other problems, such as governments targeting specific production or distribution channels and shutting them down, officially for strategic purposes, but really because those production or distribution channels did not provide sufficient bribes. And other problems, namely excessive production or excessive distribution channels (more production than is needed by consumers), which leads to production and distribution to end up in landfills. And other problems, but I'll save those for another day.

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