I. Economics
13. The consumer in the age of coronavirus
The Sarasota Institute is focusing on how Covid-19 may affect some of the
ten categories listed across the top of this web site. We are having virtual
mini-symposia on several of these during April and May. In addition, we are
publishing thought pieces taking a look into the future.
Here is a column about consumerism by Phil Kotler, often referred to as
‘the father of modern marketing’, the single greatest thought leader and author
on marketing in the world today. [Phil is a fellow co-founder of the
Institute.] It is an in-depth look into the past and present of consumerism. It
is a must-read as we start to think about how and how much consumerism and the
role that it plays in the future will change.
Covid-19
is spreading relentlessly through the world leaving a trail of death and
destruction. The world is in danger of falling into a Great Depression, with
millions of unemployed workers across the globe. The impact will especially hit
the poor – both in terms of health and economics; many cannot even afford to
wash their hands because of the lack of water. What will happen to the millions
that cannot practice social distancing? The slum-dwellers, the prison
population and the refugees huddled in tents?
Businesses
are closing down and people are urged to stay home, practise social distancing
and vigorously wash their hands. People are stocking up on all kinds of food
and sundries that are part of daily living. Some are hoarding masks, toilet
paper and other necessities should Covid-19 linger on for weeks, months or
years.
While the
US has just passed a $2 trillion dollar aid package, the details seem to once
again point to socialism for Wall Street, in the form of bailouts, a small pay
check for the working poor and little else for Main Street. Income inequality
is poised to increase yet further.
I predict
that this period of deprivation and anxiety will usher new consumer attitudes
and behaviour that will change the nature of today’s capitalism. Finally,
citizens will re-examine what they consume, how much they consume and how all
this is influenced by class issues and inequality. Citizens need to re-examine
our capitalist assumptions and emerge from this terrible period with a new,
more equitable form of capitalism.
Capitalism’s dependence on endless consuming
Let’s
begin by taking a long view back to the emergence of the Industrial Revolution.
The
Industrial Revolution of the 19th century greatly increased the
number of goods and services available to the world’s population. The steam
engine, railroads, new machinery and factories and improved agriculture greatly
increased the economy’s productive capacity. More production inevitably led to
more consumption. More consumption led to more investment. More investment
increased production in an ever-expanding world of goods.
Citizens
delighted in the availability of more goods and choices. They could
individualise their personalities through their choices of food, clothing and
shelter. They could shop endlessly and marvel at the innovative offerings of
the producers.
Citizens
increasingly turned into consumers. Consuming became a lifestyle and culture.
Producers profited greatly from the increasing number of active consumers.
Producers were eager to stimulate more demand and more consumption. They turned
to print advertising and sales calls and as new media arose, they turned to
telephone marketing, radio marketing, TV marketing and Internet marketing.
Business firms would profit from the degree they could expand consumer desire
and purchasing.
From the
beginning some onlookers had misgivings about the rise of consumerism. Many
religious leaders saw the growing interest of citizens in material goods as
competing with religious attention and spiritual values. The legacy of
puritanical values kept certain population groups from acquiring too many goods
and getting into too much debt. Some citizens were particularly critical of
wealthy consumers who used goods to flaunt their wealth. The economist Thorsten
Veblen was the first to write about ‘conspicuous consumption’ that he saw as a
malady taking people away from more meditative life styles. In ‘The Theory of
the Leisure Class’, Veblen exposed this sickness of status display. Had he
lived long enough, he would have been aghast at the news that the former First
Lady of the Philippines, Imelda Marcos, owned 3,000 pairs of shoes that
languished in storage since her exile from the Philippines.
The growing number of anti-consumerists
There are
signs today of a growing anti-consuming movement. We can distinguish at least
five types of anti-consumerists.
First, a
number of consumers are becoming life simplifiers, persons who want to eat less
and buy less. They are reacting to the clutter of ‘stuff’. They want to
downsize their possessions, many of which lie around unused and unnecessary.
Some life-simplifiers are less interested in owning goods such as cars or even
homes; they prefer renting to buying and owning.
Second,
another group consists of de-growth activists who feel that too much time and
effort are going into consuming. This feeling is captured in William
Wordsworth’s poem,
‘The world is too much with us…
Getting and spending, we lay waste our powers:
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon!’
De-growth
activists worry that consumption will outpace the carrying capacity of the
earth. In 1970, the world population was 3.7 billion. By 2011 it grew to 7.0
billion. Today (2020) the world population stands at 7.7 billion. The U.N.
expects the world population to grow to 9.8 billion by the year 2050. The
nightmare would be that the earth cannot feed so many people. The amount of
arable land is limited and the top soil is getting poorer. Several parts of our
oceans are dead zones with no living marine life. De-growth activists call for
conservation and reducing our material needs. They worry about the people in
the emerging poor nations aspiring to achieve the same standard of living found
in advanced countries, something that is not possible. They see greedy
producers doing their best to create ‘false and unsustainable needs’.
Third,
another group consists of climate activists who worry about the harm and risk
that high-buying consumers are doing to our planet through generating so much
carbon footprints that pollute our air and water. Climate activists carry a
strong respect for nature and science and have genuine concerns about the
future of our planet.
Fourth,
there are sane food choosers who have turned into vegetarians and vegans. They
are upset with how we kill animals to get our food. Everyone could eat well and
nutritiously on a plant, vegetable and fruit diet. Livestock managers fatten up
their cows and chickens to grow fast and then kill them to sell animal parts in
the pursuit of profits. Meanwhile, cows are a major emitter of methane gas that
heats our earth and leads to higher temperatures, faster glacial melting and
flooding of cities. To produce one kilogram of beef requires between 15,000 and
20,000 litres of water as well as so much roughage to feed the animals.
Fifth, we
hear about conservation activists who plead not to destroy existing goods but
to reuse, repair, redecorate them or give them to needy people.
Conservationists want companies to develop better and fewer goods that last
longer. They criticise a company such as Zara that every two weeks produces a
new set of women’s clothing styles that would only be available for two weeks. Conservationists
oppose any acts of planned obsolescence. They are hostile to the luxury goods
industry. Many are environmentalists and anti-globalists.
The
anti-consumerism movement has produced a growing literature. One major critic
is Naomi Klein with her books ‘No Logo’, ‘This Changes Everything’ and ‘The
Shock Doctrine’. See also the documentary film ‘The Corporation’ by Mark Achbar
and Jennifer Abbott.
How businesses sustain the consumer sentiment
Business
firms have an intrinsic interest in endlessly expanding consumption for the
purpose of higher profits. They rely on three disciplines to boost consumption
and brand preference. The first is innovation to produce attractive new
products and brands to enchant customer interest and purchase. The second is
marketing that supplies the tools to reach consumers and motivate and
facilitate their purchasing. The third discipline is credit to enable people to
buy more than they could normally buy on their low incomes. Businesses aim to
make consumption our way of life. To keep their productive equipment and
factories going, they must ritualise some consumer behaviour. Holidays like
Halloween, Christmas, Easter, Mother’s Day and Father’s Day are partly promoted
to stimulate more purchasing. Businesses want not only purchase of their goods
but fast consumption so that objects burn up, wear out and are discarded at an
ever-increasing rate.
Businesses
use advertising to create a hyper-real world of must-have products that claim
to deliver happiness and well-being. Businesses refashion commodities into
compelling brands that can bring meaning into the consumer’s life. One’s brand
choices send a signal of who the person is and what he or she values. Brands
bring strangers together to share carefully designed images and meanings.
How will anti-consumerism change capitalism?
Capitalism
is an economic system devoted to continuous and unending growth. It makes two
assumptions: (1) people have an unlimited appetite for more and more goods; and
(2) the earth has unlimited resources to support unlimited growth. Both of
these are now questioned. First, many people become jaded and satiated by the
effort to continuously consume more goods. Second, the earth’s resources are
finite, not infinite, and would not meet the needs of a growing world
population that comes with growing material needs.
Until
now, most countries have used only one measure to assess the performance of
their economy. That measure is the Gross Domestic Product (GDP). GDP measures
the total value of the goods and services produced in a given year by the
country’s economy. What it doesn’t measure is whether GDP growth has been
accompanied by a growth in people’s well-being or happiness.
We can
imagine a case where GDP grows by 2 or 3% by workers working very hard and even
at overtime. They only have two weeks of vacation a year. They have little time
for leisure or renewal. They might be stressed by unexpected medical bills that
hit their savings. They might be unable to send their children to college,
leaving their children with lower skills and lower earning potential. Those
students who manage to go to college graduate with huge debt. Graduates are
carrying a college debt of $1.2 trillion. They cannot buy furniture or a home,
or even afford to get married. In such a case, we would guess that the GDP went
up but the nation’s average well-being and happiness went down.
We badly
need to add new measures of the impact of economic growth. Some countries are
now preparing an annual measure of Gross Domestic Happiness (GDH) or Gross
Domestic Well-Being (GDW). We know that citizens in Scandinavian countries
enjoy a substantially higher level of happiness and well-being than American
citizens and run good economies. Is our addiction to consuming, consuming us?
Part of the
problem of economic growth is that the fruits of gains in productivity are not
shared equitably. This is obvious in a country with a growing number of
billionaires and a great number of poor workers. Many CEOs are paid 300 times
what their average worker earns and some take home as much as 1,100 times the
average worker. The economic system is rigged. Corporations have succeeded in
emasculating trade unions and leaving workers with no say in what they or their
bosses should be paid.
Even some
billionaires are unhappy with this greatly lopsided pay arrangement. Bill Gates
and Warren Buffet have publicly called for raising the top income tax rate.
This top rate is now down to 37% as a result of the 2018 Tax Reform. Meanwhile,
wealthy citizens in Scandinavian countries pay 70% and manage to run a good
economy, one with free health care and free college education. One citizen
billionaire, Nick Hanauer, has spoken about this on TED. He warns his fellow
billionaires that ‘the pitchforks are coming’. He pleads with them to pay
higher wages and taxes and share more of the productivity gains with the
working class. The working class should earn enough to eat well, pay rent and
retire with adequate savings. Today there are too many workers who couldn’t
muster $400 to pay for a pressing payment they must make.
Capitalism faces the Covid-19 crisis
Capitalism
will change for other reasons as well. If more consumers decide to be
anti-consumerists, they will spend less. Their spending has traditionally
supported 70% of our economy. If this goes down, our economy contracts in size.
A slowdown in economic growth will lead to more unemployment. Add the fact that
more jobs are being lost to AI and robots. This will require capitalism to
spend more on unemployment insurance, social security, food stamps, food
kitchens and social assistance.
Capitalism
will have to print more money. We see this happening with the $2 trillion
outlay voted by Congress to help support desperate workers in the face of the
Covid-19 crisis. And $2 trillion is only to tide over people in the short run.
More trillions will have to be spent. This means huge deficits that can’t be
covered by existing tax revenues. To the extent possible, tax rates will have
to be dramatically increased. The lives of the rich are normally not affected
by the grief and hardship of the poor. But now it is time for the rich to pay
more and share more. In our current crisis, CEOs and their highly paid staffs
have to take a cut in their pay. Boeing’s executives recently set an example by
saying they will work with no pay during the coming crisis.
When the
Covid-19 crisis is over, capitalism will have moved to a new stage. Consumers
will be more thoughtful about what they consume and how much they need to
consume. Here are possible developments:
Some
weaker companies and brands will vanish. Consumers will have to find reliable
and satisfying replacement brands.
The
coronavirus makes us aware of how fragile is our health. We can catch colds
easily in crowds. We must stop shaking hands when we meet and greet. We need to
eat more healthy foods to have a greater resistance to germs and various types
of flu. We are shocked by the inadequacy of our health system and its great
cost. We need to stay out of the hospital and play safe.
The
sudden loss of jobs will remain a trauma even after workers get jobs back. They
will spend and save their money more carefully.
Staying
home led many consumers to become producers of their own food needs. More home
cooking, more gardening to grow vegetables and herbs. Less eating out.
We place
more value on the needs of our family, friends and community. We will use
social media to urge our families and friends to choose good and healthy foods
and buy more sensible clothing and other goods.
We will want
brands to spell out their greater purpose and how each is serving the common
good.
People
will become more conscious of the fragility of the planet, of air and water
pollution, of water shortages and other problems.
More
people will seek to achieve a better balance between work, family and leisure.
Many will move from an addiction to materialism to sensing other paths to a
good life. They will move to post-consumerism.
Capitalism
remains the best engine for efficient economic growth. It also can be the best
engine for equitable economic growth. It doesn’t change to socialism when we
raise taxes on the rich. We have given up on the false economic doctrine that
the poor win when the rich get richer. Actually the rich will get richer mainly
by leaving more money in the hands of working class families to spend.
As the
coronavirus crisis shows us, a robust public health system is in the best
interest of all – rich and poor alike. It is time to rethink and rewire
capitalism and transform it into a more equitable form – based on democracy and
social justice. Either we will learn to share more like Scandinavian countries,
or we will become a banana republic. We are all in this together.
(Source: The
Sarasota Institute – By Philip Kotler – 6th April, 2020)
