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Monday, April 21, 2003

Too Much Stuff?

The BBC World Service's Global Business program recently examined an odd theory about global deflation:

Consumers used to wait cap in hand for the products that manufacturers and retailers would permit them to buy. But now scarcity has disappeared, and competition is bringing proliferating choice and cut throat prices to the global market place.

Manufacturing companies in many industries are reeling from the impact, and it's spreading to service companies too.

No, no, no. Commoditisation, which is what the program really discussed, does not mean the "disappearance" of scarcity--only that overcapacity on the supply side is making markets much more competitive, making product differentiation much harder. This combined with a general deflationary outlook (demand is no longer growing) is squeesing margins. This is a real problem--well, as some would simplify, the economic problem in today's world--but putting it this way does not make it sound nearly so alarming. This process is by no means ubiquitous, either--it is not happening everywhere, in all industries. All that it illustrates is a need for industrial adjustment in the medium run.

There is much to look at in devising an approach to the world's economic situation, not least looking at the impact of economic change in China and East Asia (check out Edward Hugh's excellent page on this). To say that the world is awash with "too much stuff", however, is almost a reductio ad absurdum.