Surplus

This brief discusses a basic economic idea of surplus as an economic driver. Surpluses in production produce wealth that allows the development of other industries that, while not purely productive in nature, enhance the quality of life in a society. Because these other industries rely on productive industries as the backbone of an economy, economic development plans within public policy should focus almost exclusively on production industries.

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Not long ago, I drove past a riding stable, and, in the state of mind I was in, I wondered how the stable came to exist. More directly, if the people and the horses in the stable do not produce a product, how is this a viable business. I thought, “perhaps the original owner had horses that were used for farm labor, or perhaps the original owner had horses used to deliver messages or people from one place to another more quickly, providing a service to the local community. In time, the owner bred the horses and expanded the business, eventually developing a surplus – horses that could be available for recreational riding and were no longer required for labor.” This idea awoke a realization. If the horses were used for labor, eventually they were replaced by mechanized farm equipment. If used for travel, eventually they were replaced by cars and trucks. In the meantime, if the community around the stable grows to have sufficient recreational income, the recreational stable is now self-sustaining. However, the local community has recreational income because there are people in the area who work and profit from their work developing and manufacturing the farm equipment and cars that replaced the labor horses. In this microcosm, this progression is how I imagine the community developing.

On a larger scale, communities, cities, states, and nations amass wealth by their work. In time, surpluses develop, and recreational industries can develop that cannot exist without the backbone of the productive work that is being done. This, in my opinion, is a great development – producers supply the needs of a community; service people facilitate communication and transportation, allowing systems to run smoothly; and workers in the recreational industries enrich the lives of everyone involved. Each facility compliments the others.

A precarious situation arises if the producers are removed from the situation. Any wealth that has been amassed will keep circulating around the rest of the service and recreational industries, but will ultimately be channeled to wherever the production is coming from. Therefore, when a locality loses its production capabilities, it is likely to suffer a significant economic decline. If reliable transportation is available to a neighboring locality that still engages in production, travel will become a necessary expense to sustain the economy of the non-producing area, rather than being a facilitator of further growth and expansion of the local area.

This view provides many potential tangents within the realm of economic development. Regarding public policy, it would seem that any investment of public funds and public policy with the intention of economic development should be directed toward maintaining a productive sector, with minimal if any funds provided to other facilities. In other words, investment in new technology manufacturing will eventually provide economic benefits to the entire society. Investment in the service industry will distribute resources more quickly, which may be of public value, justifying some investment. Large scale investment in recreational industries for the purposes of economic development, however, would seem foolhardy.

Many case studies are available for analysis with respect to these ideas. In Michael Moore’s documentaries, specifically Roger and Me, he shows the connection between the departure of manufacturing jobs from Flint, Michigan, and the city’s ensuing downfall into one of the most poverty-stricken areas in the country. In contrast, during the baseball strike in 1994, many leaders cried out for their economic plight, projecting massive economic losses to their cities from the loss of the sporting revenues.[i] In actuality, the strike had little if any impact on the cities that lost baseball revenues. Much of the recreational income that would normally be spent on baseball was instead spent on other forms of entertainment.[ii] Similarly, retail big box stores often argue for access to public assistance due to the large numbers of jobs that will be brought to an area. Instead, these stores merely divert funds from other retail stores rather than producing any new jobs because they do not produce anything new.

This brief is not a support for protectionism, or purchasing domestic products only. Instead, it is an argument for a public policy that supports trade and at the same time supports manufacturing products with sufficient value to balance the imports and exports of such trade. An economy cannot survive at length without the “backbone” of a productive sector.Public policy may provide support for any industry for any number of reasons. Public welfare or support for valued cultural institutions, to name a few, may be reason enough for public support. Economic development, however, should be critically assessed if an industry other than production is proposed.

[i] The U.S. Conference of Mayors, The Economic Impact of the Baseball Strike. Washington DC, (August 1994)
[ii] Zipp, John F, The Economic Impact of the Baseball Strike of 1994. Urban Affairs Review, v32, n2, 157-185 (1996)