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 is the imbalance between supply and demand. In fact, there are a huge number of offers on the market, and demand is practically absent, respectively, new problems appear: GDP and GNP are falling, unemployment is appearing, there is a crisis in the banking and credit sectors, it is becoming more difficult for the population to live, and so on.
Essence of the question
When overproduction of products begins in the country, after some time a decrease in output is observed. If the government of the country does not take any measures, the enterprises go bankrupt because of the inability to sell their products, and if the company cannot sell the goods, then it reduces staff. A new problem arises - unemployment and a decrease in wages. Accordingly, social tension is increasing, because people are finding it increasingly difficult to live.
In the future, there is a fall in the securities market, almost all credit relations are collapsing, the stock price is falling. Enterprises and ordinary citizens are not able to pay their own debts, the percentage of bad 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 does this happen
It is clear that the crisis of overproduction is a phenomenon that does not occur at one time. Today, economists distinguish several stages of the crisis.
It all starts with problems in the wholesale market. Wholesale companies are no longer able to pay fully to manufacturers, and the banking sector is not making concessions. As a result, the lending market collapses, wholesalers go bankrupt.
Banks begin to raise interest rates, less often give loans, stocks fall in price, the stock market is "storming". Problems also begin in the market of consumer goods, basic necessities disappear from the shelves, but at the same time huge inventories are formed in the warehouses, which wholesalers and manufacturers are unable to sell. This entails a lack of expansion opportunities: there is no point in increasing production capacities, that is, investment activity is completely stopped.
Against this background, there is a decrease in the production of means for production, and this inevitably leads to massive reductions in employees, massive unemployment begins, and, as a result, a decrease in living standards.
The decline in the level of GDP applies to everyone who lives in the country. Not only workshops are preserved, but also entire enterprises. As a result, a period of stagnation in the entire production sphere begins, nothing happens in the economy, unemployment, GNP and prices remain at the same level.
Stages of the crisis
The crisis of overproduction is an imbalance in the economy, which is characterized by four phases:
- The crisis.
- Depression. At this stage, stagnant processes are observed, but demand is gradually resuming, excess goods are being sold, production is slightly increasing.
- Revitalization. At this phase, production rises to the volumes that were before the crisis, job offers appear, interest on loans, wages and prices increase.
- Rise and boom. On the rise, there has been a rapid increase in production, prices are rising, unemployment is tending to zero. There comes a time when the economy reaches its highest point. Then the crisis comes again. The first signs of an impending crisis are noticed by producers of durable goods.
Cycle types
For many years there has been an economic science and economic practice has been analyzed. During this time, there were several global crises of overproduction, so experts have identified many cycles. The most common:
- Small cycle - from 2 to 4 years. According to J. Kitchin, the reason for this phenomenon is the uneven reproduction of capital.
- Large - from 8 to 13 years.
- The construction cycle is from 16 to 25 years. Most often associated with generational change and uneven distribution of housing demand.
- Longwave - from 45 to 60 years. It arises against the background of structural adjustment or changes in the technological base.
In addition to this classification, long-term cycles with a time interval of 50 to 60 years are distinguished, medium-term - from 4 to 12 years, short-term, lasting no more than 4 years. The characteristic features of all these cycles are that they can overlap one another.
Possible reasons
Today there are several reasons for the crisis of overproduction. In essence, these are theories of individual economists with world renown, but they all reflect the nature of the origin of crisis phenomena in the economy.
Marx Theory
This theory is based on the law of surplus price, that is, manufacturers seek to maximize profits not by raising prices, but by improving quality and optimizing the production process. Simply put, revenues increase due to increase in turnover, while price and expenses remain at the initial level.
It may seem that these are ideal conditions that allow everyone to live well. Nevertheless, manufacturers are not at all worried about the level of demand. They notice that in retail goods are stored, that is, the level of demand falls and as a result a crisis ensues.
Monetary theory
According to the theory, at the beginning of the crisis the economy is in a very real order, the situation is at the highest level, money is invested in all sectors. Accordingly, the money supply in the country is increasing, the stock market is being activated. Lending is becoming an affordable financial tool for any person and company. But at some point, the volume of cash flows increases so much that supply exceeds the level of demand and a crisis begins.
Underconsumption theory
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 such behavior of citizens can be associated with a constant depreciation of the national currency or with a high probability of a crisis.
Theory of over-accumulation of assets
According to the theory, the crisis sets in against the background of economic stability, enterprises are actively engaged in capitalization of profits, expand production capacities, purchase expensive equipment and hire the highest paid specialists. The management of enterprises does not take into account that stability and positive market conditions cannot be constant. As a result, the recession and consequences of the crisis of overproduction are not long in coming. The company completely stops its investment activity, dismisses staff and reduces the volume of production activity. Product quality suffers, so it completely ceases to be in demand.
Kinds
Economic crises of overproduction can take global (world) proportions along with local crises. Economic theory identifies several types that are most often found in practice:
- Industry. It arises in a separate branch of the economy, the reasons can be different - from structural changes to cheap imports.
- Intermediate. This is just a temporary reaction to problems in the economy. Most often, such a crisis is local in nature and is not a start for a new cycle, but is only an intermediate phase in the recovery phase.
- The cyclical crisis of overproduction covers all sectors of the economic sphere. It always gives rise to a new cycle.
- Partial. A crisis can begin both at the time of recovery and during a period of depression, but, unlike an intermediate crisis, a particular one occurs only in a particular sector of the economy.
- Structural. This is the longest crisis that can begin, covers several cycles and becomes the impetus for the development of new technological processes of production.
