The crisis of overproduction is World, economic and cyclical crises, examples and consequences

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

The crisis of overproduction is one of the types of crises that can occur in a market economy. The main characteristic of the state of economies in such a crisis: the imbalance between supply and demand. In fact, there are a huge number of offers on the market, and there is practically no demand, respectively, new problems appear: GDP and GNP are declining, unemployment appears, there is a crisis in the banking and credit sector, it becomes harder for the population to live, and so on.

The heart of the matter

When overproduction begins in a country, after some time there is a decrease in output. If the government of the country does not take any measures, the enterprises go bankrupt due to the inability to sell their products, and if the enterprise cannot sell the product, then it reduces the staff. A new problem appears - unemployment and a decrease in the level of wages. Accordingly, social tension increases, because people find it harder to live.

In the future, there is a fall in the securities market, almost all credit ties are collapsing, the share price is falling. Businesses and ordinary citizens are unable to pay their own debts, and the percentage of non-performing loans is growing. Banks have to write off debts, but this trend cannot last long, sooner or later banks have to admit their own insolvency.

How it happens

It is clear that the crisis of overproduction is a phenomenon that does not happen in one moment. To date, economists have identified several stages of the crisis.

It all starts with problems in the wholesale market. Wholesale companies are no longer able to fully pay manufacturers, and the banking sector does not make concessions. As a result, the credit market collapses, wholesalers go bankrupt.

Banks begin to raise interest rates, issue loans less often, stocks fall in price, the stock market "storms". Problems also begin in the consumer goods market, essential items disappear from the shelves, but at the same time, huge commodity stocks are formed in warehouses, which wholesalers and manufacturers are unable to sell. This entails a lack of expansion opportunities: it makes no sense to increase production capacity, that is, investment activity stops completely.

Against this background, there isa reduction in the production of means for production, and this inevitably leads to massive layoffs of employees, mass unemployment begins and, as a result, a decrease in living standards.

The decline in the level of GDP affects everyone who lives in the country. Not only workshops are conserved, but entire enterprises. As a result, a period of stagnation begins in the entire production sector, nothing is happening in the economy, unemployment, GNP and prices remain at the same level.

Stages of crisis

The crisis of overproduction is an imbalance in the economy, which is characterized by four phases:

• Crisis.
• Depression. At this stage, stagnant processes are observed, but demand gradually resumes, excess goods are sold, production increases slightly.
• Revitalization. At this phase, production rises to pre-crisis levels, job offers appear, interest on loans, wages and prices increase.
• Rise and boom. On the rise, there is a rapid increase in production, rising prices, unemployment tends to zero. There comes a time when the economy reaches its peak. Then the crisis comes again. The first signs of the coming crisis are being noticed by manufacturers of durable goods.

Types of cycles

For many years, there has been economic science and economic practice has been analyzed. During this time, there have been several global crises of overproduction, so experts have identified many cycles. Mostcommon:

• Small cycle - from 2 to 4 years. According to J. Kitchin, the reason for this phenomenon is the uneven reproduction of capital.
• Large - 8 to 13 years old.
• Building cycle - from 16 to 25 years. Most often associated with a change of generations and an uneven distribution of demand for housing.
• Longwave - 45 to 60 years. Occurs against the background of structural adjustment or changes in the technological base.

In addition to this classification, there are long-term cycles with a time interval of 50 to 60 years, medium-term - from 4 to 12 years, short-term, lasting no more than 4 years. The characteristic feature of all these cycles is that they can overlap each other.

Possible causes

Today, there are several causes of the overproduction crisis. In fact, these are the theories of individual economists with worldwide renown, but they all reflect the nature of the origin of crisis phenomena in the economy.

Marx's Theory

This theory is based on the law of surplus value, that is, producers achieve maximum profit not by raising prices, but by improving quality and optimizing the production process. Simply put, revenues increase due to increased turnover, while the price and costs remain at their original level.

This may seem like an ideal environment for everyone to have a good life. Nevertheless, manufacturers are not at all worried about the level of demand. They notice that goods are stale in retail, that is, the level of demand falls and, as a result,a crisis is coming.

Monetary theory

According to the theory, at the beginning of the crisis in the economy there is real order, the conjuncture is at the highest level, money is invested in all sectors. Accordingly, the money supply in the country increases, the stock market becomes more active. Lending is becoming an affordable financial instrument for any person and enterprise. But at some point, the volume of cash flows increases so much that supply exceeds the level of demand and a crisis begins.

The theory of underconsumption

In this case, the crisis of overproduction is an almost complete lack of confidence in the banking system, which leads to an increase in the level of savings, although this behavior of the country's citizens may be associated with a constant depreciation of the national currency or with a high probability of a crisis.

Theory of excessive accumulation of assets

According to the theory, the crisis comes against the backdrop of economic stability, enterprises are actively engaged in capitalization of profits, expanding production capacity, purchasing expensive equipment and hiring the highest paid specialists. The management of enterprises does not take into account that stability and positive market conditions cannot be permanent. As a result, the recession and the consequences of the crisis of overproduction are not long in coming. The company completely stops its investment activities, dismisses staff and reduces the volume of production activities. Quality suffersproducts, so it completely ceases to be in demand.

Views

Economic crises of overproduction can take on a global (worldwide) scale along with local crises. Economic theory distinguishes several types that are most often found in practice:

• Industry. It occurs in a separate sector of the economy, the reasons may be different - from structural adjustments to cheap imports.
• Intermediate. This is just a temporary reaction to the emerging problems in the economy. Most often, such a crisis is local in nature and is not a start for a new cycle, but only an intermediate phase at the stage of recovery.
• The cyclical crisis of overproduction covers all sectors of the economic sphere. It always starts a new cycle.
• Partial. A crisis can begin both at the moment of recovery and during a period of depression, but, unlike an intermediate crisis, a private one occurs only in a separate sector of the economy.
• Structural. This is the longest crisis that can begin, covers several cycles and becomes an impetus for the development of new technological production processes.

Highlights

There are a lot of examples of the overproduction crisis. The most striking is the Great Depression, which began in 1929. Then most of the capitalist countries suffered, and it all started with a crash on the stock exchange in America, which lasted only 5 days - from October 24 to 29. However, this was preceded by a speculative boom, namelythen stock prices soared so much that a “soap bubble” in the economy simply formed. The Great Depression lasted until World War II.

The first crisis in Europe began in 1847 and lasted for 10 years. It all started in Great Britain, which at that time maintained industrial and trade relations with all European countries. Problems appeared simultaneously in many sectors of the economy. Then traditional measures were taken: layoffs, minimization of production costs, and so on.

What is going on in Russia? In recent years, there has been a trend towards the fact that the volume of sales of housing stock is constantly decreasing, while construction sites are not closed, new residential complexes continue to be built. This is a vivid example of the crisis of overproduction in a particular industry. For example, in Moscow last year alone, sales fell by 15%, and the cost of one square meter fell to 62,000 rubles from 68,000 rubles. According to some reports, the remains of unsold housing in the country amount to more than 11.6 million square meters.

This year, the Ministry of Agriculture started talking about the fact that soon there will be a crisis in the industry for the production of curtains. There is so much poultry meat on the shelves that poultry farms are no longer able to reduce prices, therefore, enterprises are balancing on the verge of profitability. One of the solutions to the problem is the development of export potential.

Crises of overproduction and their social consequences threaten society not only with unemployment, but also with great riskthe occurrence of a riot. The most interesting thing is that in such periods the surplus of goods is completely different from the actual needs in society. During the crisis, the people are actually starving, although a huge amount of food and other goods has been produced.