Summary of Key Points
This article analyzes the roots of the current economic difficulties from a historical perspective: humanity is transitioning from an era of scarcity to one of abundance, with material demands gradually reaching saturation, making traditional growth models unsustainable. Coupled with the expansion of production capacity due to de-globalization, this has led to a situation where "industrial hollowing out" and global overcapacity coexist, triggering issues such as deflation and trade wars.
Detailed Breakdown
1. The Historical Transition: From Scarcity to Abundance
In the past, the biggest problem for humans was a lack of resources—such as food; during most of the 20th century, 1.4 million people died from famine each year, whereas now this number has dropped to 4,000 per year. After the Industrial Revolution, material wealth such as housing, cars, and household appliances exploded in availability. However, the question arises: Is there a ceiling to material demands? It's not that no one goes hungry (there are still 673 million people suffering from hunger in 2024), but "having enough food and clothing" is no longer the most urgent concern for all of humanity. Just like when you were a child, you looked forward to getting new clothes; now that your wardrobe is full, your desire to buy more diminishes—this marks the transition from an era of scarcity to one of abundance.
2. Demand Saturation: Why Do Material Demands Reach a Limit?
Traditional economics suggests that human desires are endless, but reality shows otherwise:
- Engel's Law: The higher your income, the smaller the proportion of your income spent on food (for example, if you earn 3,000 per month and spend 1,000 on food, you might only spend 2,000 when you earn 30,000), indicating that the demand for food saturates first.
- Rostow's Observation: The demand for durable consumer goods like refrigerators and TVs follows an "S-curve"—initially surging, then gradually stabilizing (for instance, once almost every household has a refrigerator, sales stop increasing).
- Diminishing Margins: Essential needs (such as food) are necessary for everyone, improved needs (such as cars) are desired by some, and luxury needs (such as yachts) are only purchased by a few. Therefore, overall material demands reach a saturation point; not everyone wants more things.
3. The Dilemmas of an Era of Excess: How Does Industrial Hollowing Out Occur?
Once demand saturates, the economy moves from an "incremental era" (where everyone is competing to buy new goods) to an "excess era" (where competition focuses on existing markets), leading to two consequences:
- Declining Manufacturing Profits: Domestic demand is sufficient, so companies cannot raise prices and must engage in price-cutting competition; at the same time, people prefer to spend money on services (education, healthcare, entertainment), shifting funds to the service sector.
- Industrial Relocation or Financialization: Companies either move their factories to countries with growing demand (for example, the U.S. moved production lines to China) or enter the financial and real estate sectors (which generate quick profits). As a result, the U.S. manufacturing industry's contribution to GDP has dropped from 28% to 10%, leading to "industrial hollowing out."
4. Global Overcapacity: The Accumulation of Three Major Problems
Overcapacity is not a problem specific to one country but results from the accumulation of production capacity in three areas:
- Old Capacity in Developed Countries: For example, Germany and Japan's high-end manufacturing (cars, precision instruments) rely on exports to sustain their economies due to limited domestic demand.
- New Capacity in Developing Countries: Countries like China, known as the "world's factory," produce a large portion of global goods—52% of steel and 35.8% of cars, with enough shoes for the entire world's consumption for a year. This capacity was initially intended for the global market.
- Additional Capacity Due to De-globalization: Geopolitical tensions have led countries to seek supply chain autonomy (for example, the U.S. moving factories back home, while Vietnam and India add new production lines). This is not just a transfer of capacity but an increase in overall production, adding more to the existing problems.
5. De-globalization: Adding Fuel to the Fire of Imbalance
De-globalization has not solved the overcapacity issue but made it worse:
- Developed countries are reviving traditional manufacturing (e.g., the U.S. rebuilding car factories), but these industries already face intense competition.
- Offshore outsourcing (e.g., the U.S. contracting production in Mexico and Vietnam) has increased capacity in those countries, further diluting global market shares.
The result is severe global overcapacity; when goods cannot be sold, prices fall (deflation), companies compete for markets (trade wars), and even geopolitical conflicts arise—this is what the article refers to as a "capacity war."
In One Sentence
The essence of the current economic difficulties lies in the transition from an era of scarcity to one of abundance, combined with de-globalization and the resulting overcapacity. To solve these problems, we cannot rely on increased production but must find new sources of demand or adjust the structure of production capacity.