Scarcity be a Problem in the Capitalist Economy - Essay Example

? Scar be a Problem in the Capitalist Economy Contents Contents 2 Introduction 3 Discussion of the position 3 Conclusion 10 References 12 Introduction Most of the economies of the world aim at allocation of the resources in the most optimal manner. The amount of resources in a particular economy is limited. On the other hand the needs of the human beings are unlimited. Thus the demand for the goods like grain and butter would always exceed the supply. Now there are different types of scarce resources. One country may have an abundant amount of a particular resource but may have limited amount of the other. Thus the concept of exchange arises here. The capitalist countries on one hand have enough amount of capital but they have scarcity of labour which the socialist or the developing economies have. Thus there arises a concept of exchange that would ensure that the production takes place in both the economies in a successful manner. There have been paradoxical evidences however which shows that even in the capitalist countries there is excess supply of labour and the level of unemployment is quite high. This essay is an analysis of this paradox that arises in the context of capitalist economies and the level of scarcity. Discussion of the position In order to proceed with the main problem of the essay it is important to look into the different theories that are necessary to build up the argument. The economic system is a method of the allocation of limited resources of the necessary goods like grain and butter to the economic agents that make up the society. There are various types of economic systems like the socialist system, the capitalist system as well as the mixed economy system. In the socialist system the entire decision regarding the allocation of the resources lies with the government existing in the economy. The government acts as the owner of the means of production in such a case (Snooks, 1999, pp. 393-399). Thus the distribution of the grain and butter is mainly done by the government of the country to the people of the country. The production of even the basic grain and butter is done by the factories that are under the ownership of the government. Erstwhile China as well as Cuba and North Korea are examples of such economics where the principles of communism are being practised. The government in such countries is the sole decision maker regarding the level of production and the allocation of resources (Conklin, 1991, p. 427). Alternatively, in case of the capitalist economies the process of production is undertaken by the private players. In almost all the capitalist economies there is a government but the function of the government is restricted to the regulatory aspects of the country and to ensure that the laws are obeyed. The main function is limited to the collection of the taxes and the protection of the citizens (Stephen, 1998, pp. 31-49). The market power lies mainly with the players that are dominant in the market. The UK, the US as well as the German economies constitute the capitalist nations (Slater and Tonkiss, 2001, pp. 31-40). The characteristics of these nations are that free market is allowed to operate and the prices in the economy are determined by the forces of the demand and supply. The prices of grain and butter would be determined by the market forces of demand and supply. Thus the optimal production would take place at the point where the quantity demanded would be equal to the quantity supplied. Therefore the intervention of the government is this context is almost zero. Source: Winch, 1984, p. 14 The optimal price of bread in this economy would be $2.50. However the buyers would be able to buy 2 breads at $3. But this would be subject to the budget constraint of the consumers who buy the product. Alternatively a developed country is one in which the major part of the GDP is contributed by the industry or the services sector rather than the agricultural sector. Thus the developed countries are those which have passed through the various stages of development and thus have reached the stage of an industrialised economy. The economy of USA for example had been industrialised a long time ago. Thus although sufficient amount of food grains are produced they meet the requirement of the basic needs of the citizens of the country. The people would not require excess amount of grains than what they consume. For spending the excess income the person would indulge in industrial products like mobile phones laptops or services like hospitality travel etc. The developing countries are the ones which depend on the agricultural production mainly and the main contributor to the GDP is this sector. Erstwhile China was basically an economy that was dependent on the agricultural production and hence it was considered as a developing nation in the pre-industrialisation age. Most of the labour force of the country is dependent on the agricultural production. Thus it is clear that in a developed country like the UK the major contributor of the means of production is the industrial sector as well as the services sector. UK being an advanced economy and a capitalist one there are existence of the ownership of the private means of production and there are several markets that operate in the economy of UK. Since most of these markets are free markets and it is assumed that the competitive forces work, a demand and supply framework has been used to throw light on the dynamics of the process. Source: Varian, 2010, p. 298 The downward sloping curve in the figure above depicts the demand curve of a particular market. On the other hand the upward rising curve is the supply curve the equilibrium in the demand and the supply curve would depict the actual price and quantity that the market offers. The same market dynamics would be applicable in case of the labour markets in the UK. Demand and supply in the market for labour would determine the optimal wage and the level of employment in the economy. Most of the macroeconomic policies of the government are aimed at reducing the level of employment in the economy. Scarcity Problem even when the shops are well stocked The problem of scarcity cannot be judged simply by allocation point of view. It may be the case the shops of well stocked. Therefore there is not problem in allocating the resources but somehow the stocks are not reaching to the people. One of the primary reasons behind the scenario may the rise in prices. As discussed earlier the problem of unemployment is acute. The unemployed does not have the amount of money to buy the stocks and are left unsold in the shops. In this case the problem of scarcity still prevails although literally the shops are full. The unemployment rate in an economy is determined by the number of people who are eligible for joining the workforce but are not employed. According to the Keynesian school of economists the reason for this is the cyclical fluctuation of the business. The rate of unemployment in an economy increases as a result of recession in a business cycle. In times of recession the aggregate demand in the economy decreases. As a result of this the firms stop producing to their maximum capacity as the demand from the consumers increases. This would lead to a fall in the production. Therefore the number of people engaged in the production process would also get reduced and would lead to a higher level of unemployment in the economy. Thus the interventions on the part of the government according to the school would reduce the level of unemployment in the economy. The economic resources would be utilised to the full capacity when the government would encourage the firms to recruit more employees in their production process. As the labourers earn wages they would demand for the products and services. This would help the aggregate demand in the economy to surge. Thus the employment level will again increase. Source: Hoffman, 1998, p. 41 In the above figure the demand and supply of labour has been shown. The supply of labour is the average cost of labour that the firms need to incur. At the point of intersection of the demand curve and the supply curve the equilibrium price and quantity has been determined. The market determined wage rate at which the labourers would work is at W1. This is the wage that the labourers would work for if there is not intervention on part of the government. In the socialist economies the presence of the labour unions helps in the collective bargaining for the wages of the labourers and therefore they act as the major determinant of the market wage that would be set. The government generally tries to make a standard wage setting so that the firms have a less chance for exploitation of the workers. Thus this is one of the pros of unemployment that the employed people get a standard wage for the labour they supplied. Thus in the above figure W2 is the wage set by the government of the country. Since the wage set would be higher, i.e. the price for labour would be higher than what the market would have actually set; there would be excess supply of labour in the market. DE would represent the excess supply and the level of unemployment in the economy. With every person losing a job the standard of living of the people in the economy gets deteriorated. This is because the objectives of the governments of most of the nations are the achievement of full employment in the economy. One of the major reasons for the unemployment of the people of this advanced country is the high degree of automation. The introduction of the advanced technologies in the work processes has made the use of the human labour limited. A huge amount of work which in the initial days was conducted by the employees is now done by the machines (Abel and Bernanke, 2005, pp. 78-96). This has done away with the use of the human labour in the production methods of bread, butter and other goods. For example, in the previous days butter used to be made by human beings with the use of the physical labour. Each of the individuals was engaged in the process of production. At the present day there are advanced machines which are used for the production of butter. This has reduced the requirement of labour in the butter factories. Though the productivity in such cases is increasing the amount of people involved in such production process is less. This implies that although the level of employment in the economy is less the country has remained ahead of the other nations in terms of economic production. This argument is true for all the sectors but is mainly applicable to the industrial production (Besanko and Braeutigam, 2010, pp. 51-78). This has a detrimental effect on the level of employment in the economy. With the advent of globalisation the companies are in the practise of outsourcing their work to the other countries where they would have the access of cheap labour. For example a company which has its chief operations in the UK would outsource a section of the value chain to the developing countries like India which is a labour abundant country. Thus unit cost of labour for producing in India would be less compared to that of the UK. Thus the companies would be able to maintain a greater profit margin by outsourcing the work to India. This in turn has reduced the amount of production that is actually taking place in the UK. Therefore the level of employment in the economy would go down because of the pressures of outsourcing. This is one of the cons of the advancement of technology and unemployment. The level of employment in the country is also not fulfilling because a huge percentage of the people who are employed can be categorised as underemployed population. This is because this section of the people are being forced to accept part time jobs or the less paying jobs due to lack of income. Along with this another category of people are included in the population of the UK who can be claimed as the discouraged employees and though he is in the search of jobs he has not been considered in the unemployment calculation. Conclusion From the above analysis of the employment scenario of the country of UK in the light of the economic theory, it is clear that there is very little correlation between the stock of butter and grain that a country has and the level of employment in the economy. The modern era of technology has both positive and negative facets. This means that though technology has made the economic production faster and increased the scale, it has also led to a huge level of automation in the industry. The inequality in the distribution of income in the economy of UK is increasing. Hence although UK is considered to be one of the nations with high GDP and had huge amount of capital resources, 2.4 million of people of the country have remained unemployed. The income accumulated by the country as a whole is neither the contribution of the entire population nor the income gets distributed equally among the citizens. References Conklin, D. W., 1991. Comparative Economic Systems. Cambridge: Cambridge University Press. Snooks, G., 1999. Global Transition: A General Theory. London: Palgrave Macmillan. Varian, H. R., 2010. Intermediate Microeconomics: A Modern Approach. New York: W.W. Norton and Company. Stephen, G. H., 1998. Comparative Economic Systems. Oak Brook, IL: Dryden Press. Print. Abel, A. and Bernanke, B, 2005. Macroeconomics. London: Pearson Education. Slater, D. and Tonkiss, F., 2001. Market Society: Markets and Modern Social Theory. Cambridge: Polity Press. Besanko, D. and Braeutigam, R., 2010. Microeconomics. New Jersey: John Wiley & Sons. Winch, D. M., 1984. Microeconomics: problems and solutions. Oxford: Oxford University Press. Hoffman, E., 1998. Microeconomics with Calculus. Harlow: Addison-Wesley Longman. Read More