GuidoWorld

Capitalism and Waste

June 18, 2007 on 7:07 pm | In General |

In the previous two posts I’ve talked about the limitations of our current recycling system and what would need to be changed in order for recycling to have a significant positive impact on the environment.

In this post we will look at how much waste is built in to the very fabric of a free market economy. Competition and choice are hallmarks of our free market economy.Yet, we often overlook the close relationship market competition has to the proliferation of waste.

Let’s say we owned a company that mass produced a product to sell to the public. The amount of the product we produced whether that be cars, books, furniture or appliances would be based on our anticipated market share.

Businesses do not want to limit their profits and possibly alienate their potential customers by under estimating sales and not producing enough of their product. This means that almost every manufacturer and business over produces. This excess inventory is of course waste.

The average company compounds the problem by either destroying the excess of the product or just letting it sit dormant. Sure many companies unload a portion of their excess thru sales and discounts, but at some point they decide it is more profitable to eat the losses rather than set the precedent of lower prices.

Each year uncountable tons of new and unsold merchandise is entered into our landfills and waste management system.

All the companies are competing for the same customer. Since they all can’t win, they all can’t successfully sell their merchandise. In the literary world how many books are thrown out of stores and warehouses to make room for the optimistic sales of new releases. The odds of getting hit by lightning have to be higher than producing the exact number of books to be sold.

The grocery market is a good example of creating waste in order to protect current and future profits. A grocer dealing with produce with a short shelf life faces this dilemma every day. When the bananas being sold at 59 cents a pound are getting a bit too ripe he needs to decide how much to reduce the price to move the merchandise.

Let’s say his research indicates that if he sells the bananas at 45 cents a pound he will be able to sell 80% of his remaining bananas. Yet, if he sells them at 50 cents a pound he will only sell 70% of the remaining stock. In order to make the most profitable decision he looks at the profit he will make on the two prices. In many cases he will end up making more money by selling only 70% of his stock rather than 80% of his produce at the lower price. Therefore, from a strictly profit oriented point of view it would be better to let 30% of his produce rot than 20%.

This fact of economics gets played out daily in products with both long and short shelf lives. Waste is an essential aspect of a free market and profit based economy.

Often times like in the example of the bananas the amount of the old product put on sale at a low price will be small to protect the profits of the new stock of the product. If everyone is buying the older bananas at the discount rate, than the new bananas offering the highest profit margin would not sell. This would cause the new bananas to not sell until they got riper and continue the chain of lower profit sales.

Likewise if the new unsold 06 cars were sold at a huge discount while the new 07 cars hit the market, it could hurt the sales of the new 07 cars which have the higher profit margin.

Now I’m not saying that these dynamics occur in every situation or that there are some people who will only buy the newest greenest bananas no matter what the price, yet it would be foolish to imagine that what was here described doesn’t play a major role in the excessive waste production of our society.

In tomorrow’s post I will give one last attempt at trying to demonstrate how our economic system is dependent on waste.

I hope that you all don’t view this discussion as a “waste” of time.

Guido