The modern economy every year moves only forward. However, movement is impossible without barriers. That is why a number of problems arise on the way to achieving key goals. This article discusses such an attribute of a market economy as overproduction.
Interpretation of the concept
Overproduction should be understood as an increase in stocks of final commodity products. This happens because of the inability (relatively low aggregate demand among consumers) to cover the entire national product produced in the country. According to the classical model, overproduction is the first reaction to the fact that aggregate demand has declined. Immediately after it follows a decrease in prices for commodity products and end-use services, after which wage rates are also reduced. The situation leads to the fact that the aggregate supply returns to the level of natural GDP.
Problems of Overproduction in History
A mixed market economy appeared in Russia after 1991. Overproduction was revealed at that time due to a sharp drop in aggregate demand, in other words, a transformational decline. At the beginning of 2000, there was a background overproduction, which was due to an increase in supply. How could this happen? It's simple: it was beneficially influenced by the actions of supporters of the bureaucracy and entrepreneurs, as well as cooperation with investors from foreign countries.
Overproduction crisis
The crisis of overproduction is one of the varieties of the crisis in a market type economy, which is characterized by a violation of the balance of supply and demand (the former prevails over the latter), actualization of problems in the credit sector, unemployment, a significant deterioration in the investment activity of structures, a drop in GDP and GNP, as well as the level life in general.
The crisis of overproduction 2008-2010 was marked in Russia and China by a noticeable decline in export volumes. In the represented states, the role of planning institutions in a market economy has intensified. Nevertheless, the Chinese bureaucracy was able to change the orientation of manufacturers of different product categories to meet domestic demand. Most likely, this is due to the characteristics of the structure of the economic system of the state.
After comparing the results of the reforms in China and Russia, it turned out that the “shock” and “gradualist” methods turned out to be quite adequate to the goals set by the bureaucracy. Nevertheless, changes in the market economy in Russia had rather serious consequences of a socio-economic nature and caused the emergence of fuel and raw material dependence.
Overproduction is a global problem that needs to be addressed if it occurs. That is why the key method of preventing new crises and weakening overproduction of the background type is the modernization of the state economy.
Summary
So, overproduction is a violation of the balance of supply and demand. The following problems are behind it:
- Increasing the amount of unsold product.
- Decrease in production scale.
- Decrease in investments in state structures.
- The growth of unemployment.
- Decrease in the salary of the population.
- Price drop.
- The relevance of underloading production facilities.
- Interest rate increase.
- Bankruptcy.
When studying the economics of overproduction, it should be understood that in this case there are two key trends. The first will lead to disturbances in balanced growth. The second will ensure the stability of this growth.
It must be remembered that often the overproduction of goods is a temporary phenomenon, because sometimes the economy of any country goes through a crisis, but after a certain period of time it returns to its origins. The material base of the phenomenon under consideration is the renewal of fixed capital. In a crisis, one way or another, favorable conditions for sale are formed.
A key method to overcome the crisis is to upgrade production as a whole, that is, both technology and capacity. In a crisis of overproduction, as a rule, entrepreneurs suffer most, the expense items of which were too large, and the technology still lagged behind current requirements.