NCPA - National Center for Policy Analysis

The Problem Of Plenty

November 30, 1998

Is the industrialized world producing too much? Some observers think so. They contend that factories are spinning out many more products than consumers can buy. Steel, auto and semiconductor makers have been grappling with surpluses for years. But now they are being joined by a long list of other manufacturers producing goods as diverse as Cold War weaponry and jewelry.

  • In fits of national pride, countries around the world -- particularly in Asia -- have invested in their own domestic auto industries, leading some experts to estimate a worldwide over-capacity of car production of 18 million cars annually.
  • textile factories are spinning out so many excess garments that the country could practically clothe its entire population out of inventory, observers report.
  • Thailand has an embarrassment of idle golf courses, while Hawaii is swamped by an overcapacity of hotel rooms and South African mines produce more gold and diamonds than the moneyed classes can buy.
  • More than 100 U.S. cities soon will have six or more competing wireless-telephone providers -- leading experts to predict a shakeout among those companies.

Overcapacity has created oversupply, some economists contend. When unbought goods clog the system, prices fall and some producers are forced out of business -- at which point supply diminishes and equilibrium returns. Some observers think the first phase of that process is now underway.

The producers who will survive are those who run low-cost efficient operations, economists predict.

Source: Marcus W. Brauchli, "More Manufacturers Face Race to Survive as Cup Runs Over in the Industrial World," Wall Street Journal, November 30, 1998.


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