by Mario Fabbri
3 Ibid., pp. 105-104.
4 Ibid., p. 31.
5 Ibid., p. 109.
6 FRANK, Robert, The Mysterious Disappearance of James Duesenberry, in New York Times, 9 June 2005.
6. Answering two objections
Let us consider two objections that might be raised on what we have said so far.
The first that springs to mind is that people who get rich have no difficulty in increasing their consumption not by 2 or 3% in a year, but 10- or 100-fold in a short space of time. Does this not demonstrate that consumption limits are only set by available income?
This objection does not hold water because it confuses two different subjects: the individual and society as a whole.
A single person in a lower social bracket may well be blessed by good fortune and rise rapidly up the social pyramid to ever-higher levels, finding increasingly opulent ready-made forms of consumption on each one.
The situation is very different for society, which can only rise as a whole if new forms of consumption come into being and – to avoid any poverty-triggering social contrasts or conflicts – if it maintains its ordered pyramidal structure, with the top classes introducing new, and initially ‘exclusive’, forms of consumption.
Here we are not discussing the rise of an individual but of the entire pyramid. This is why annual progress of 2% is already hard going.
Second objection: what should we say then about economic miracles, in which a whole country can grow at a rate as high even as 10% per year for several years.
Here too confusion arises between two cases where the difference is absolutely fundamental but is usually not remarked upon.
One is autonomous development: the invention and adoption of new forms of consumption, as the United States did in the last 150 years, and another, quite different, imitative development: the adoption of these new forms, keeping the United States as a model before our eyes.
Imitative development can be much faster than the autonomous development achieved in the past by the model society, because from it the imitator can extract sweeping, consistent complexes of elements: take the example of the ‘car civilisation’, with cars, petrol stations, motorways, motels, weekends…
The imitating society can learn new ways of consumption together with the techniques necessary to produce the goods to be consumed.
But the main point is that development can be very fast because stress from change is much less when proceeding toward a visible point of arrival one wants to reach, rather like an adolescent who, in a few years, acquires lifestyles that it has taken centuries to develop.
Many countries are therefore able to replicate to a large extent the way of life of the United States, but they would not know how to replace it as the ‘world’s trailblazer’ in the invention of new forms of consumption, because they lack a propensity towards innovation similar to that of American society, which has long been the world’s only great source of consumption innovations.
So, after completing the imitative phase, their further development remains dependent on the consumption novelties the United States introduces at a rate of 2% per annum. And their growth falls to 2% or even less:1
The case of Japan is particularly illuminating; the extraordinary growth rates it enjoyed in the 1950s and 1960s, during the imitative development phase, declined rapidly when the range of consumption of the American model was fully ‘translated into Japanese’.
For a few years the end of Japanese growth was masked by an exceptional increase in exports, but this pursuit of foreign outlets was the visible effect of the slowdown of consumption growth in the domestic market.2
I speak of translation because, as I point out in Rovina delle nazioni,3 it is precisely cases like Japan that make apparent the presence of fundamental character differences.
Non-Anglo-Saxon populations cannot faithfully reproduce ways of life and institutions made to measure for the individualistic American morality: they can only create ‘apparent copies’ that work in a different way than the original.
However, nearly all regions of the world today converge on ‘American-inspired’ lifestyles at the speed each of them is capable of.
But in their speed differences too, the primacy of sociological factors is visible, because the rise of consumption levels appears to be subordinate to differences in the type of pyramid prevalent in each society.
To raise their living standards, societies like the Japanese and Chinese that are little stratified, encounter far fewer obstacles than those with a highly differentiated structure, like India, which came into close contact with the West long before, but where growth is hindered by the difficulties of moving a pyramid in which the distance between the top and the base must remain large.
According to the American economist Simon Kuznets, during fast development – like that triggered by imitative development – social distances increase,4 before subsequently shrinking again.5
In La fabbrica delle illusioni I explain this as a case of normal group dynamics:
A scale model of this phenomenon could be a group of hikers setting off on an ascent. The strongest start off fast and soon open up a gap with those behind, but then group spirit takes over; the leaders slow down and those in the following group speed up as much as they can. The gap narrows and the group continues to climb together, albeit in order of physical prowess.6
Curiously, the inertia in consumer habits can smooth the way for the economic take-off of less developed countries.
Since consumption expectations take time to expand, ‘consumed’ wages and profits are lower and the resources remaining available to bolster the production system and infrastructure can be more substantial.
This is the scenario orthodoxy proposes when extolling saving as the generator of beneficial investment.
1 US DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, OFFICE OF PRODUCTIVITY AND TECHNOLOGY: http://www.bls.gov/fls/home.htm Real GDP per capita converted to U.S. dollars using 2011 PPP.
2 There was also a huge increase in land prices.
3 cf. Rovina delle nazioni, p. 230.
4 Exceptions to the rule have been noted in countries like Hong Kong, Taiwan and Singapore. But even here the role of non-economic factors emerges: these are countries with disciplined oriental populations and ‘small’ too, in which the transition resembles a collective decision to change way of life but without upsetting social order. But in a country in which control over individuals is weaker for reasons of geographical distances or people’s character, a large gap inevitably opens up between the more ambitious and innovative that rapidly adhere to new ways of life, and the traditionalist areas that remain anchored to the old.
5 KUZNETS, Economic Growth and Income Inequality, in The American Economic Review, vol. 45, n. 1, cit. in Fabbrica delle illusioni, p .161.
6 Fabbrica delle illusioni, pp. 160-161. But regarding these aspects cf. more generally pp. 147-167.
7. The disadvantages of specialisation
The academics of the Department of Macroeconomics have never noticed that there is a ‘speed limit’ for the growth in consumption.
Yet their colleagues in the nearby Marketing Department, less prestigious but better informed about what happens in the world, have been aware of it for over seventy years.1
They know that the introduction and subsequent dissemination of a new product typically follow the ‘logistics curve’ shown here – in their language the first phase of the so-called product life cycle.
This is its description from an authoritative text. Italics added:
When a new product appears, it must overcome the resistance of existing purchasing patterns. Steps must be taken by the company to stimulate awareness, interest, trial, and purchase of the new product.
This takes time, and in the introductory stage only a few persons (the innovators) will buy it. If the pr
oduct is successful, larger numbers of buyers will be attracted…
Then even more buyers will come in mainly by way of imitation as the product is legitimated. Eventually the growth rate decreases because the proportion of potential new buyers approaches zero.2
That is: changes in habits involve a social process of suggestion-imitation, and thus a technical time for the new product to propagate from the innovators, to the conformists, to those most loath to change.
Now, the difference between the consumption of a man of today and that of one of his ancestors is that today’s individual has acquired as habits numerous and diverse forms of consumption that were unknown to his ancestor.
That is, modern society’s standard of living did not improve because instead of one car an individual has two, three, four cars, but because after the car, televisions, computers, smartphones have come into use…
And each of these innovations has required the process just illustrated to be accepted not by young people aiming to imitate adult behaviour, but by adults often disinclined to change their entrenched habits in favour of expensive new and ‘superfluous’ forms of consumption.
This chart3 shows the times of adoption of the main forms of consumption American society acquired during the 20th century, when the average American income increased almost seven-fold:
In the case of electricity the technical delays in constructing grids in the country were relevant, but in the other cases the shape of the logistic curve is clearly visible.
But if a new form of consumption requires a technical time to come into use, we are forced to conclude that the speed of growth in the standard of living is limited.
In my work life I have had some experience of the dynamic with which novelties spread and I can personally testify that it takes time to overcome the resistance to change of the less innovative:
In 1981 I was working at the headquarters of a multinational corporation and had obtained an Apple computer to try, with VisiCalc, the first electronic spreadsheet, which had only recently been invented in the USA.
I had got hold of it to solve a problem of economic simulations I was told was very important, but, as is normal in big companies, when an unexpectedly immediate and ‘perfect’ solution was found, it proved entirely non-existent.
So, having some weeks to experiment with this tool whose enormous potential I had quickly realised, I looked around to see which of the many offices at our headquarters might want to use Dan Bricklin’s extraordinary invention.
It did not seem like a difficult task in an environment full of people performing economic calculations and drawing up ‘plans’, who would be able to extend their projections over the columns of spreadsheets, month by month or year by year.
All the same, I was surprised by the almost total lack of interest on the part of the many people to whom I showed the new tool. I received replies like “No, I just look for the cost data in the printouts and the calculator is fine to do the sums.”
But news of my survey got around and an employee whose job it was to keep South American country budgets updated contacted me. As soon as he understood the logic of the spreadsheet his jaw dropped and he immediately persuaded his boss to buy the tool.
This innovator was a Lombard accountant with an exuberant personality and without delay he began to transfer the many tables he kept on paper on to spreadsheets.
He worked on it all day long and was so enthusiastic that he kept a small clock next to the monitor to see how much time remained before having to go for the company bus which took him home, at the end of working hours.4
Thanks to the open plan architecture, his colleagues would watch him grinding away tirelessly until, a few months later – the reader will have understood that the environment was not particularly innovative – I received a request from a second unit and then a third that I equipped in the same way…
By this time it was already 1982, and the IBM PC had been launched with the super-powerful Lotus 123 which was adopted in many offices from then on. I helped the process by organising some training courses, but by now it was evolving by itself, like a fashion.
People were using spreadsheets even to keep track of the debit and credit of the coffee machine tokens, and the manager of the company’s huge mainframe was, like his US colleagues, upset by the anarchic spread of so many small computers beyond his control.
The spreadsheet was indeed the great promoter of the diffusion of the personal computer, which had previously only been seen as a training tool for those keen on computer programming or as a rough text editing device.
But the spreadsheet was so much better than any other solution for economic calculation and simulation that in 1981 no rational financial analyst could not have wanted to get his hands on one as soon as possible.
And yet the adoption of VisiCalc and its first successors was by no means almost instantaneous, but met with inertia and resistance even within the highly innovative US society.
Adopting new ones that might spring surprises is never pleasant for the less flexible and self-assured.
For this reason the PC industry took a longer time than was technically necessary to develop and bring production to its ‘logical’ dimensions.
As a consequence, the US national income increased more slowly than it would have done in a hypothetical society devoid of inertia and resistance to new ways of doing things.
This is a particularly clear case in which economic growth has been slowed by attachment to habits.
It was, in fact, precisely the perception of this economic development slowed by psychological resistances that triggered the reflections I present now in this text.
1 The first to describe these phenomena were, in 1943, the ‘agrosociologists’ Bryce Ryan and Neal C. Grossin, who studied the times and methods of the dissemination of the new hybrid maize seed.
2 KOTLER, Marketing Management, Analysis, Planning and Control, pp. 432-434.
3 Economic Report of the President – (US) 2000, p. 100.
4 With regard to his “exuberant” character… after a while his boss said to me: “Had I known he would become silent, I would have bought it for him ages ago.”
8. The central role of the upper classes in the introduction of new forms of consumption
The introduction and initial spread of new forms of consumption in society usually occur first among the upper classes before extending downwards, made desirable by the prestige of the association with their first users.
It is the effectiveness of this social prestige that encourages the use of celebrities as testimonials in support of commercial products or new initiatives.
To give to upper class leisure time a form as refined as that of 18th century French high society, a great many ‘inventions’ were necessary: playing cards appeared in the 14th century, theatre began to take hold in the 16th, and opera in the 17th and 18th centuries…
Even such an ethereal form of consumption as idle conversation was the conclusion of a long process of refinement.
Compare the rather infantile story-telling of the 14th century Decameron, with the more evolved dialogues of the 16th century Book of the Courtier by Baldassarre Castiglione and then with the elegant art of salon conversation of the French ancien régime in the 18th century.
It is thanks to the previous work of invention performed by the nobility that the affluent 18th century North European bourgeoisie were able to choose from a wide range of pastimes: playing chess, going to the theatre, attending salons…
And still today many forms of consumption are practised and highly valued just because they originate from the ancient nobility: fine art paintings, antique furniture, country estates, riding and so on.
This is fairly logical because innovation in consumption, whether an original creation or an imitation of what is being done elsewhere, is easier for those whose elevated socia
l position makes them safer from the disapproval of conformists or moralists who are always opposed to breaks with traditional customs.
And here, of course, the ambition to outclass their social peers, which is more intensely felt in the upper classes, is of great importance.
But even more relevant is that members of the upper classes enjoy an overabundance of resources, and often find it difficult to come upon something gratifying they do not have yet.
This drives some of them to explore new, at times bizarre, forms of consumption, which then sometimes come into common use.
The logic of this process is well described by the Austrian economist-thinker Friedrich von Hayek:
… only from an advanced [socio-economic] position does the next range of desires and possibilities become visible, so that the selection of new goals and the effort toward their achievement will begin long before the majority can strive for them… If today in the United States or Western Europe the relatively poor can have a car or a refrigerator, an airplane trip or a radio, at the cost of a reasonable part of their income, this was made possible because in the past others with larger incomes were able to spend on what was then a luxury. The path of advance is greatly eased by the fact that it has been trodden.1
That is: a society that raises its consumption can be equated to a group of people advancing over an unknown terrain, among whom the upper classes are the vanguard that looks for and explores the route which the pursuing masses will tread.
A spectacular confirmation of the centrality of consumption dynamics and of the correctness of the concepts we are now proposing is provided by the evolution of US per capita income between 1929 and the early 1950s.
After the losses there was a recovery which brought the consumption growth rate perfectly into line with the previous trend.