3.2.6 Supplies: Materials, Goods and Services
The creation of wealth depends upon the availability of raw materials and essential supplies of goods and services: a supply chain
Individual people need supplies – materials, goods and services – to survive and most businesses need supplies as an input to wealth creation. The possession of supplies is therefore a form of power, over individuals or companies who wish to buy them.
Not all supplies are purchased. Minerals can be extracted from the ground and crops can be grown on suitable land, and these products can be used as raw materials in the manufacture of other goods and services. From a national perspective, a country’s Gross Domestic Product (GDP) is directly increased by the raw materials it is able to provide for itself.
Individuals spend money as consumers, as discussed earlier (3.2.2). They can buy more, and better quality, if what they want is easily available and if they have sufficient money to purchase them. From this perspective, access to supplies is a key component of people’s economic well-being.
The prices of supplies of goods and services clearly affect a business’s competitiveness. As discussed later, the operation of supply and demand (3.3.2) determines where the supplies come from and their price: if they are scarce, their price is higher.
From a global perspective, the availability of raw materials puts a theoretical limit upon the total amount of wealth that can be created – though this limit is changing:
● Supplies of oil, for example, must be finite and many people foresee problems – but this is over-simplistic. Professor Donald Boudreaux, in a blog post ‘Substances, Resources, and the Future’, pointed out that there is considerable elasticity of supply as less accessible resources are tapped and substitutes are found. Failing that, the laws of supply and demand will cause consumption to fall.
● The use of renewable sources of energy – the sun, wind, waves and tides – will diminish the world’s need to burn fossil fuels.
● Recycling is becoming more sophisticated. Flash-heating efficiently recycles precious metals from e-waste, for example.
● There is still a substantial opportunity to improve the productivity of land, to feed people – as described in The Economist article, The 9 billion-people question: in 2011, a field could produce 10 tonnes of wheat per hectare if best practice was used – but only 1 tonne per hectare with typical African farming practices and 4 or 5 tonnes a hectare with ‘Green Revolution’ farming practices in India and Argentina.
Environmental considerations, rather than absolute shortages, are likely to place a limit on the use of raw materials in practice (3.5.7).