Comment by babybjornborg
12 days ago
Apparel firms exist not to clothe people as common sense would suggest but to make a profit, and this practice of erring on the side of overproduction is more profitable than under production. The perfect solution would be to produce exactly the number of goods they will sell, but forecasts aren't perfect so they overproduce. Firms are already incentivised by profit to not waste, so this adds another incentive and removes the pollution externality they have been enjoying. So now either they err closer to under-production and risk missing out on sales or secondary market supply of their goods increases leading to possible brand dilution. So in the end the value of these companies ends up lower than before, less pollution, and apparel is cheaper. I'd like to know more about the equity and carbon effects of the process they will need to now follow. So they trade destruction with shipping a crate to Africa. What is the difference? Firms will be less profitable, manufacturing is reduced, who is impacted by that?
> Firms are already incentivised by profit to not waste
Anecdotal but my perception is that clothing has become so extremely low quality, and I assume dirt cheap to produce, that they have less of an incentive to let it go to waste. When I buy socks they get holes after wearing them 7 times, and then they go in the bin too.
If you can make a shirt for $1 and sell it for $10, you can throw out literally half of your inventory and still make $5 per shirt.
Update: I made a silly math mistake. That's $9 profit per shirt. So if you make 100 shirts but only sell 50 and burn the rest, that's $450 profit. You make $4.50 per shirt manufactured.
Stated another way: you can total up the manufacturing cost of the shirts you destroyed ($50) and distributed evenly among the ones you sold (50/50=$1 each) and just add that to the cost of each shirt you sell when calculating profit. Same result.
This would been that more competition would be good for the environment because it would drive down prices and margins, and thus the incentive to overproduce. But this rule actually decreases the competitive pressure and increases margins because market exit barriers = market entry barriers
If you throw some plastics into a coal fired power plant it is almost the same as if you would burn oil.
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How will apparel be cheaper? When they lower production runs, it'll be less available, which will mean prices will go up.
This isn't exactly a supply and demand situation that might cause prices to increase by restricting supply, like what you sometimes see with global commodity cartels such as oil.
What's happening in this case is that they are overproducing because profit margins are high enough that they can overproduce and still be happy with the profit after discarding the extra, in the hope of capturing the stochastic upside of extra sales from never being out of stock.
This might cause various random fast fashion junk items to occasionally go out of stock when they wouldn't have in the past, but it's not like you're going to see long waiting lists or high aftermarket prices. People just won't buy that stuff because there will be lots of alternatives, are they just won't buy anything at all and realize they don't need it.
So yes, in an abstract textbook sense, the price might go up in the sense that you might experience some probability of your desired items selling out when that probability was lowered before. But I don't think anybody in their right mind would argue that's a serious economic detriment.
Maybe there's a case to be made that this is a crude way to address what is essentially an allocation failure. But that alone doesn't mean that we shouldn't try it or that it's bad policy.
Economically, producing less to start with is not very different from what is currently done, destroying excess inventory. Therefore I don't think it's at all a given that prices will go up.
Destroying the inventory has a cost though.
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The only error in the whole post. I think it's more productive to ignore that and focus on the important stuff... which is about why this kind of market interference isn't going to work out the way a naive optimist would hope.
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Overproduction is not an issue. The issue is that they damage unsold things instead selling them for a market price dictated by supply and demand.
This is not only clothing and apparel, also sporting goods and many other items.
This should be forbidden across all industries. Unsold stock should be delivered to non-profits at no cost for further distribution.
If you can't prove that you either sold or transfer to non-profit an item you manufactured then you should be fined for each unaccounted item proportionally to their market price.
And suddenly the EU becomes #1 in private non-profits, the first ever non-profits to turn up revenue and reinvest them into stock from Gap and H&M.
Also the first non-profit to build gigalandfills in Africa.
Obviously there would be some rules for non-profits eligible for those donations.
> so this adds another incentive and removes the pollution externality they have been enjoying.
Displaces it. And adds other externalities like C02 to do so.
If they ship unused crates to Africa then they get cheap clothes. Win win all around.
Not always a win. There have been a few reports that sending large numbers of clothing donations to areas that don't specifically need them has the result of harming local industry that would otherwise be able to produce and sell clothes.
OK, send them somewhere else or sell them at a discount
but brand dilution
I don't care. If you over produce then you made a bad economic decision, tough luck. Destroying goods for accounting reasons is an abhorrent policy driven by greed.
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The appearal industry is among the most exploitive in the world. It's good to kill it before it springs up. Bangladesh is not anyone's example of a model country.
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Assuming there was no /s there:
The US and I assume Europe have laws against "dumping" - selling a product for below cost - because it drives local competitors out of business. That is exactly what shipping containers full of clothes to Africa does.
I think GP was referring to donations, which are not subject to dumping rules AFAIK.
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more market economics framing of life, as if numerous very smart people haven't already tried to make this paradigm work for society, and failed.
The funny thing is that textbook economics has all of the answers about why laissez-faire market economics doesn't work as a foundation for economic policy. It's almost as if it's never been about making good policy and always about doing whatever is best for big businesses and the small number of wealthy people who stand to gain the most from minimizing consumer surplus.
totally. In fact the current monopoly-coddling dispensation is antithetical to market economics, which clearly espouses real competition. It's kinda been coopted and hijacked.
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If firms prodice less, prices will be higher.
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