Misunderstanding the Role of the Consumer

24 April 2014


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What is the role of the consumer in the economies of advanced industrialized nation-states? The question is not as easily answered as one might suppose. In my last post, Global Debt Market Roundup I mentioned, “It seems that China’s transition from an export-led growth model to a consumer-led growth model based on internal markets is re-configuring the global commodities markets, as producers of raw materials and feedstocks are hit by decreased demand while manufacturers of consumer goods stand to gain.” This is a familiar talking point in contemporary economics, and I will assume that everyone is familiar with the distinction between an export-driven economy and a consumer-driven economy.

China achieved several decades’ worth of year-on-year double digit growth through the pursuit (some might say “single-minded pursuit”) of an export-led economic model, but China was already the largest nation-state in the world by population, so it had enormous resources to bring to bear upon its export-oriented model. As new workers streamed into China’s burgeoning cities to work in factories, China became the workshop of the world. (This is a migration that has produced some nearly apocalyptic images of manufactured landscapes.) China’s workers accepted uncomfortable living conditions as an investment in a better future for themselves and their children. This is a theme taken up by Kevin Kelly in What Technology Wants, in which he quotes Suketu Mehta, author of Maximum City:

“Why would anyone leave a brick house in the village with its two mango trees and its view of small hills in the East to come here?” Then he answers: “So that someday the eldest son can buy two rooms in Mira Road, at the northern edges of the city. And the younger one can move beyond that, to New Jersey. Discomfort is an investment.”

The emerging structure of the global market seemed to offer a series of steps toward accession to global markets, and hence economic growth. A nation-state begins by greatly discounting its labor; investors build manufacturing facilities in the country to take advantage of the inexpensive labor to lower its production costs. As investment enters the country, and an increasing number of persons are earning regular wages, the local population has the resources to invest in education while the local government has the resources to invest in infrastructure (or the infrastructure is gradually put in place by investors). With a more highly educated workforce and improved infrastructure, the nation-state is prepared to move the next step up the value-added chain in manufacturing. With each stage of value-added manufacturing, the workforce becomes more sophisticated and the local infrastructure improves, leading to a virtuous circle.

Moving up the chain of value-added manufacturing, however, remains within the paradigm of an export-driven economy, and while this model served China well for several decades, it also has structural vulnerabilities. The Great Recession reduced the buying power of wealthiest regions of the world (Western Europe and North America), which led to a drop in demand, which led to factories in China being shuttered. This was a big problem, but it was not the only problem. The investment in discomfort mentioned above eventually needs to be redeemed, and the millions of Chinese who have made this investment want more from life. The Chinese communist party is not about to give up its stranglehold on political control, so it has turned to the tried-and-true model of a consumer-driven economy, in which workers will have the opportunity to join the rat race for material abundance.

The consumer-driven economic model would seem to place the consumer at the center of economic activity, but is this the case? Is the consumer central to consumer-driven markets, especially in comparison to export-led markets? Certainly the consumer plays a much more important role in the consumer-led economy as compared to the export-led economy, but it would be misleading to say that the consumer is central to a consumer-driven market, though this is a common misconception. The transition from an export-driven to a consumer-driven model is not a play to make the consumer central to the operation of a market economy, but to shift to an economic model less vulnerable to global demand fluctuation and which sufficiently placates workers that they can be counted on not to riot.

Ideally (from the perspective of the nation-state), the consumer is a ratepayer who receives some infrastructural service in exchange for regular payments to the service provider. The essence of this transaction is its fungibility and anonymity: any ratepayer might contract with any provider to meet the need for goods or services. In practice, the transaction is constrained by so many factors that the market is reduced to Hobson’s choice: the choice between what is offered or nothing.

In late industrialized capitalism we have seen a considerable departure from this ideal model as industry has sought to personally engage consumers and has invested considerable resources into “branding” in order that consumers should develop specific preferences not only for specific products, but also for specific producers of goods and services. The competition among brands for loyal and reliable consumers has led to industries pouring money into studying the buying habits of consumers, and this in turn has led to the idea that the mere idiosyncrasies of consumers and their tastes are what drive the market.

Industries have turned market research into a deceptive fetish, often based on distorted and misinterpreted statistics (sometimes willfully misinterpreted, as consultants, conscious of their own need for an income, need to justify ongoing market research). The most obvious example I can think of to illustrate this is how market researchers systematically look to buying habits among the youngest consumers, on the assumption that these youngest consumers will grow up, get jobs, and then spend real money on goods and services. The result has been to drive the infantilization of consumer products, such that industry produces what teenagers want, not realizing that teenagers grasp at whatever trend happens to be hot at the moment, in adolescent desperation to be part of whatever is “happening” at the moment.

It is this kind thinking that has led to idiotic predictions of the “death of the PC” because many young people use their smart phones and tablet computers, communicating through instant messaging services and not bothering to exchange emails. At one time, if you wanted a computer, you had the choice between a PC or nothing. Now consumers have many choices. That does not mean that PCs will disappear, but they will have a smaller proportion of market share as those who had no need for a fully functional PC turn to smaller, lighter devices for their needs. So don’t expect a diachronic extrapolation of the decline in demand for PCs to continue down to zero. And don’t expect adults in the workplace to abandon email in favor of exchanging messages through Facebook or some other social media site.

It is this kind of limited thinking that has also given us the operating system of Windows 8. Because of the fetish for handheld devices, on which “apps” predominate, the wizards at Microsoft thought that this is the trend that is defining the future of computing. Because teenagers are using apps, that must mean that everyone will be using apps in the future, and that everyone will want their PC set up with a touch screen with the apps being the first thing you see when you turn it on. Recently I read a columnist humorously make the claim that no one over the age of 18 thinks that One Direction is the future of music (I don’t recall who wrote this). We recognize the humor in this, and laugh at it, but it is exactly this kind of thinking that is being taken seriously by software engineers and computer manufacturers, and this may be yet another reason that computers may become completely useless to us.

Microsoft still won’t admit it made a mistake with Windows 8; probably they will never admit it, but there is a humorous photograph making the rounds of the internet of a shop sign advertising the service of “downgrading” a Windows 8 operating system to a Windows 7 operating system. I don’t know if the photograph is for real or if it is Photoshopped, but we understanding the joke immediately, in the same way that we understand the joke about One Direction and the future of music. The only question is how long we will have to suffer from suboptimal products driven by misguided consumer research before the technology industry passes out of its own adolescence, painful and conflicted as it is.

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Grand Strategy Annex

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