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A local bakery of a village is happily baking 100 breads every night for his 100 customers. The breads cost 1 euro a piece and the daily turnover is 100 euro. All 100 families in the village are loyal customers. It has been like this for many years and everyone is happy.
One day the wheat salesman came by to say that there is a growing shortage. The price of the key resource has to go up. The baker can still get the usual supply but the situation is critical. The salesman said that everything was done to bring the situation back to what it was before. The baker had no choice and raised the price of his bread with 10 cent. The loyal customers understood and paid the difference gladly, knowing that is was only temporary. The turnover of the bakery raised by to 110 euro per day.
The situation did not change. The wheat salesman returned to say that the prices did not only go up further, he would also have to half the supply. The baker was desperate and went to the local politicians. They promised that everything would be better if they were re-elected but meanwhile he would have to cope with the dip. The baker raised his bread price to 2 euro but could not make more than half the usual amount. He decided to sell the bread in halves. The loyal customers were furious but had little choice. They bought the half’s for 1,50 euro. The turnover of the bakery had risen to 150 euro even though he had produced only half his usual amount. The local newspaper was talking about an economy of growth and certain local business people taking good benefit.
The resource problem continued and got worse, despite the promises of the suppliers and the politicians. In the end the half’s would cost 3 euros and the baker even sold bread by the slice. His turnover went further up, his productivity down and his customers became less and less loyal. They could not afford it anymore. Newspapers report that “the market was grimm”.
One day certain wealthy local citizens decided to make the bakery the deal of a lifetime. They were fed up with the half’s and slices of bread. They wanted their entire loaf of bread every day and were willing to pay 10 euros per piece. The bakery accepted, of course. He had been tought about market working in business workshops. His turnover shot up to record sales. The baker even became entrepreneur of the year and was invited to membership of the local Rotary to discuss “common interests” among the “powerful” every week. His status had grown but in his shop many people could not buy slices anymore, not even breadcrumbs. There were people now living in poverty and hunger in the village. And they are angry…….but the economy was growing.
Now you can think of your own happy ending of the story. What will happen?
Moral of the story: When you hear powerful people say that the economy needs to grow and that it is going to solve all the problems, please think twice, unless you are this baker of course and you have not thought yet of a happy ending 😉
Just imagine a baker in a village of 100 people. Every day he bakes 100 loafs of bread that he sells to the villagers for 1 euro per bread. Every one is happy, every villager has bread to eat every day and the bakery has an economic situation of 100.
For some reason one day there is a shortage of wheat and the bakery cannot make 100 breads, he makes only 80. Due to the wheat shortage the cost price went up and the baker had to sell his bread for 1,50 euro. People were not happy but paid the difference. 20 of them came late and were left without bread. The baker did not really care. His turnover had gone up to 120. The wheat shortage continued. The local population reacted by purchasing half a bread instead of one whole. They had become conscious of the shortages of wheat and realized that they could perfectly well survive with half a loaf since they had been throwing away part of the other loafs anyway. They called their social responsibility “sustainability” but the bakery was not happy at all. He had sold 100 halfs at 75 cents = 75 euro. His economy had dropped despite the rise of the price and he had to throw 30 unsold breads away. Thinking that the market had reduced he decided to stimulate the market again with some marketing and kept the reduction of his production due to the wheat shortage. Due to the marketing costs he had to increase the price a bit more, to 2 euro.
Half the people bought half’s and half bought whole breads. So 50 halves against 1 euro = 50 euro and 50 whole breads against 2 euros = 100 euro. The baker was happy. Marketing works he said. His turnover had grown to 150 euros, double the previous sales! And he only had to throw 5 breads away this time. Market working they call that in economics, and all the consumers had something to eat.
The world market of wheat was struggling further and he had to compete to get his resources. The energy costs were rising too so he ended up reducing his average production to 50 breads against a sales price of 5 euros. Some angry people were buying bread by the slice now and some could not afford bread at all anymore. The 20 richest people of the village did not want to reduce their consumption and offered 8 euro per bread. The baker loved this deal and sold all his bread every day now with a turnover of 20 x 8 euro = 160 euro for the rich people and 30 x 5 euro = 150 euro for the normal people. The economy of the bakery had grown to 310.
The local village council was worried because a number of people had no bread to eat but happy with the growth economy. They could raise the local tax on bread to help the 50 people that were starving and gave them some social help with money. The baker was making a lot of money after all. Government treasury was doing fine as a consequence too. With all his profit the baker had bought a nice house with a large mortgage. The city council had invested in a bit more bureaucracy to assure that the growth economy was properly taxed and invested. People complained about to increase of the cost of living and blamed the baker. He blamed the increasing costs of wheat, production and marketing. But also the tax pressure. The government hammered on economy of growth to be able to tax more and cover the expenses of the socially needed. Meanwhile poverty and social unrest was rising. People were meeting to see what they could do about it and someone threw a stone through the window of the bakery. The next round of baking the baker could make only 30 breads but the population was already in front of his door claiming the entire production for equal distribution. He had no turnover that day and his bakery was damaged. The rich got no bread that day and were furious. They lobbied with the local government to see if their taxes could properly used and get bread from elsewhere. The baker went broke, couldn’t pay his mortgage anymore so the bank went broke too. The government had no one to tax anymore while the bread market got into the hands of the Chinese. After a period of economic growth the village got into a severe recession and chaos.
This simple, funny but realistic story gives a view that economic growth does not solve anything when resources are running out. The only option left for the villagers would be have been to grow their own wheat to eliminate their dependency on outside forces. But what did they know? If they can’t produce their own they have to find something else to eat. But for all they new everything was fine, the economy was growing after all, wasn’t it? How do we deal with this in the big cities around the world where money rules the systems and the dependencies of the people? How aware are people of the world wide shortages if the only point of measurement is the local supermarket and one’s own cash availability? How aware are governments when the economy of growth, tax and social welfare is their only worry?
Moral of the story: A growing economy does not necessarily get you a daily loaf of bread.