Tag: Consumerism

GDP Conclusions: history of world GDP and its side effects

Posted on by Ramesh's Space

Continued from GDP 7: the third threat – Environmental Choke

CONCLUSIONS:

  • GDP increase does not necessarily mean that the income is equally distributed. A Pareto principle of 80:20 distribution of income is true for most societies.
  • With turning point in the 1950s, the dramatic GDP increase of the countries can be attributed to consumerism.
  • In a consumerist supply chain, you are the consumer and at the same time the worker too!
  • Right wing surge is obvious, but they have to choose the economic model wisely
  • Automation is not the answer; employment with guarantee for a minimum salary is!
  • Economic models should focus more on reducing the need for money than insisting to make more money i.e. to promote savings in a household, the costs can be cut rather than traditionally having the salary increased year by year. A sharing economy will automatically facilitate this than an economy focusing on increased ownership of products
  • A sudden stop of materials supply is a plausible scenario. Individuals can prepare by getting rid of their credits ASAP and increasing their savings. Governments can support only so many people and their reaction can be delayed.
  • Governments should practice and promote the sense of Co-existence with Nature and other species, rather than showing an outright “Domination”
  • Veganism may not be the answer, but meat consumption has to be regulated down to minimum.
  • Quality of life will be determining factor for the health of future generations: population increase, density and air emissions have to addressed with an attitude of applying an “Emergency brake”

 

FINAL THOUGHT:

Change begins from self!

 

———————–Fin – Thanks for Reading——————-

If you like my posts, please acknowledge your motivation by Following/ Liking/ commenting on this blog. Thanks for reading.

GDP 3: Rise of consumerism

Posted on by Ramesh's Space

Continued from … GDP 2: Supply chain of a television, a case study

1950’s marked this beginning of Consumerism with America probably being the torch bearer! After 1 AD world GDP reached $1 trillion or $1000 billion in 1890’s i.e. it took 1890 years to reach that mark. By 1950 it had reached about $4 trillion at a growth rate of 2.65%. From then on production of goods and thereby the growth rate doubled year by year to a current world GDP of ~$80 trillion or ~$80000 billion!

5

Figure 11

How much money do you have?

If a country has resources in their access, if it’s government could raise the educational level and facilitate the infrastructure to produce, any country can enter themselves on the world power list very soon. The treasury of such a developing country would multiply and the per-person salary would also increase. This aspect is called GDP per capita i.e. if the GDP for a nation is divided equally to its population. The GDP per capita for the whole world is $17,300 i.e. when the world income would be equally distributed to the whole world population, this will be our earning per year. In reality, every country has its own GDP and thereby the income per person differs with the world average $17,300 too. It follows a pattern called “Pareto principle” where 20% of the nations hold on to 80% of the wealth in the world. So the GDP per capita between each country can have drastic differences. As of 2017 a Qatarian has the highest income in the world of $ 125,000 [i]per year and Central African Republic earns the least in a year with $ 681.

6

Figure 12

Also within each country the distribution will differ based on government structures and policies. For example: In Qatar, not everyone would equally earn $ 125,000 per year, it will follow the same Pareto principle within the country where 20% of the population would hold on to 80% wealth in the country. Apparently the richest person in Qatar is the Sheikh of Qatar [ii]himself with a worth of $ 2 billion. In a country with a GDP $167 Billion, just that one person holds on to 1.1% of the wealth. Qatar has enormous resources of oil which it is able to capitalize.

A country is lucky if it should be abundant in resources that could be capitalized. For countries who don’t have that luxury, they usually would focus on improving their education skills and offer services to the resource rich countries i.e. the income from service sector can drive such economies. Once the money source has been organized, the role of a government then is purely to facilitate the money flow within the country and ensure a sustainable distribution to each of its population i.e. not letting people suffer in poverty. Just this one factor of “sustainable distribution” is the goal which all the different kinds of economic ideologies like Capitalism, communism, fascism etc. compete for and try to achieve. Diverse governments and political parties frame their policies based on these ideologies, to make sure that the GDP per capita saves its final citizen from poverty.

Capitalism correlates mostly to the consumerist society and it goes with the assumption that there are ample jobs constantly created in the market. Whoever earns tends to survive and the role of the government would be mostly to make sure that enough jobs are available. Communism promises a better distribution among the population and the state itself might hold a significant part of the income and distribute only what is needed; Fascism is dependent mostly on the ideology and beliefs of the country’s leader, which makes it unpredictable. Although China makes a communist propaganda on the outside, the happenings in the last couple of decades seem to incline more towards capitalism.

As soon as a country would have the opportunity to tap into a resource, it would be like opening a treasure. Anyone who would touch it will start to mint money. All world politics lies on who taps the resources first. Dominant countries can play the game in a way that they gain access to resources of other nations. Poor countries would be put in a helpless situation, where they would be forced to sell their nature areas, to generate a credit. Two world events in the last decades stand proof to this fact: the American century long politics for Middle East resources and China’s hasty and strong investments and acquisitions in Africa. They have been offering so much “Flash news” over the decades that a media company can see profit just by reporting just these two happenings and the issues surrounding it. China is one such country who started facilitating its infrastructure from 1990’s and since then they were just on the roll. But why is the west afraid? Let me narrate a second story which attempts to simplify the fight for resources

To be continued…GDP 4: The chocolate river: on how the first world is having withdrawal symptoms!

References:

[i] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

[ii] https://www.qatarday.com/blog/information/richest-people-in-qatar/12384?pg=5

If you like my posts, please acknowledge your motivation by Following/ Liking/ commenting on this blog. Thanks for reading.

GDP 2: Supply chain of a Television, a case study

Posted on by Ramesh's Space

Continued from 1. GDP 1: A look into World’s GDP until now

Making a television!

Let’s take an example: a television. A television is made from many minerals[i]. Usually plastics or aluminium make the most weight in a television amongst the hundreds of minerals used in it. To simplify the imagination, let’s assume that the whole television is made out of just one mineral – Aluminium. Aluminium is the second-most abundant metallic element in Earth’s crust [ii]after silicon. It makes to about 8 percent of the Earth’s crust by weight. It is found in Bauxite, a sedimentary rock with relatively high aluminium content. It is the world’s main source of aluminium and contains only 30–60% aluminium oxide.

1

Figure 6: [iii]Bauxite with US Penny for Comparison

The aluminium oxide must be purified before it can be refined to aluminium metal. To process aluminium existing in it’s natural form into an usable form, it takes in reality many companies. This sequence of companies with each company processing one or more steps and handing over to the next company is called supply chain. A simplified supply chain for Aluminium processing can looks like in the following paragraph.

Supply chain of Aluminium[iv]

Company 1 establishes in the market as an Aluminium extractor. It employs labour and uses machines to mine bauxite. The bauxite is refined to white powder called Alumina and sold to an Aluminium smelter, the Company 2.

2

Figure 7 & Figure 8

Company 2 uses energy to heat up the ore to extract its metal. Some two tonnes of alumina are needed to produce one tonne of aluminium through an electrolytic process. A smelter gives out Aluminium as slabs.

3

Figure 9

Slabs are transported to a Casting company 3 which cuts it to billets that are convenient for storage and shipping.

4

Figure 10

Company 4 then buys these billets, extrudes and stretches it to flat plates and sells it to Company 5 which cuts it into size and polishes the surface. The manufacturer of products which we use in daily life is the company 6 – a television manufacturer in our case, who usually places orders to Company 5. They explain the shape and size of their need in the product, and company 5 prepares them accordingly. The television manufacturer assembles it into their final product and hands it over to a distributor or showroom company 7 which takes the product to the end user who is you and me.

Sample Scenario

Each company on the supply chain, if they would increase the volume of production, they will earn more money as long as there are takers. Increase in money with all the companies in the chain means that the government can also make lots of money by taxing them. For an interested government to multiply their wealth, the only problem in the puzzle is that in the end of the supply chain, there will be too many televisions coming out. If no one buys it, the company 7 will not earn money and it will not make orders to company 6, company 6 will not order from 5 and so on till the company 1. Either the factories will be shutdown and workers will lose all their jobs or if they should continue to produce, there will be humongous unsold inventory of aluminium somewhere along the chain. In such a case, the Government cannot risk to lose too many jobs, else it will have to support the people from its own pocket. The solution to avoid this loss would be to have more and more televisions get sold in the market. The government, to motivate the people to buy television, can give tax benefit to company 6 to make sure that the televisions could be produced and sold in the market for a cheaper price. The government would also support company 6 to come up with more innovative products provided they have better acceptance in the market than televisions. With support for funding or subsidies, Company 6 then will invest a lot in Research and development and simultaneously they could also hire the topmost celebrity to endorse their products.

You as the consumer

Given their investments to drive innovation, the company 6 will manage to release a new product successively every few months or years. Their product catalogue will add a tablet, a play station and a smart TV. You, your wife and kid would see people around starting to buy them, having benefits and fun with the devices and now you might also want to have them. Your doctor will want to have those devices too and will start to increase the bill to the patients. Likewise your kid’s teachers and other service providers will slowly increase their bills too. Because of the higher bills that you will have to pay for your services, your budget will increasingly start to hurt and at the same time you want the devices too. Every year your salary will have increased due to your performance and you would even get an additional bonus from the company. Still this wouldn’t be enough. When more people will get into this trouble, things will escalate and will necessitate the government to interfere in the process. The government already had reduced the taxes for the company before and now it will have to support the consumers and get them these benefits. It will then set a minimum wage to increase the wallets of people so that they can also add these products to their lifestyle. You will start to receive a higher salary. The people who did not get a raise, will quit their job and take a second job by negotiating a higher salary at the first place. With successive increase in salaries, you would have bought a tablet for your wife. Two years later, you would have saved up more money and got a play station for your kid. Soon enough with successive increments in your salary, you would buy a smart TV and you would even get a second television to yourself too as your old one had started to perform slow. The common point in all those products is that all of it has aluminium. With increase in sale of televisions and the new innovations, more and more Aluminium got to be produced.  Although the products could last for 10 years, every new product got increasingly attractive, that the consumers will choose to dispose the old ones and replace it with new ones every couple of years. The new products will have aluminium too and in this way we as active consumers will be driving the whole supply chain upstream till the company 1!

You as the worker!

Now the twist in the story! In reality you are not just the consumer, you are likely to be a worker in one such industry too!. Every time you or the labour union has been asking for more wages, the industry gave it. In our example, as the Aluminium industry was thriving, the government was able to set a minimum wage and ask the companies to increase the wage of their employees. The companies were able to afford, as consumers were increasing willing to buy televisions and other products which had Aluminium.  The sample scenario above considered, for the sake of discussion, just one mineral in the product, while in reality we have multiple minerals in any product. In 2018, just the world aluminium industry directly employed about a million people and indirectly supported 5 million jobs. This is just for one mineral. Take all the minerals in the world; it could cover over 22% of the total employments in the world. Taking this supply chain as a reference and drawing parallel to what happened in the 1950s, world governments decided with every consecutive year to drive mineral extraction as much as possible. It earned money through Income tax from the company, Income tax from you as a worker and Sales tax from you as a consumer too. Because televisions and other innovative products were produced in humongous quantities, the government decided to export them and earned even a lot from selling to the foreign markets! The market thrived and there was more and more money getting generated. Households got increasingly filled with diverse products. This never-ending cycle is the phenomenon called consumerism: a market where there is no regulation or limits on how much a consumer can buy!

To be continued … 3. Rise of consumerism

References:

[i] http://www.answers.com/Q/What_metals_are_used_in_a_television_set

[ii] https://www.livescience.com/28865-aluminum.html

[iii] https://en.wikipedia.org/wiki/Bauxite

[iv] https://www.aluminiumleader.com/economics/how_aluminium_market_works/

If you like my posts, please acknowledge your motivation by Following/ Liking/ commenting on this blog. Thanks for reading.