For consumerism to work as an economic model, there has to be enough money flowing through the economy to enable consumption. Adland’s out-of-the-box thinker and monthly columnist, Rory Sutherland, has a surprising solution.
I am nearly sixty years old.
Something which has happened in the course of my lifetime is a slow but ultimately enormous change in patterns of spending and consumption. It is much less visible to anybody under the age of 30, which is not me suggesting that young people are imperceptive: you simply haven’t completed enough decades of adult life to provide the chronological context within which to spot the trend.
The monumental change over the last 60 years is this: Goods that are mass-manufactured in some shape or form have almost all become either significantly better or significantly cheaper, or in many cases both. The same applies to air travel, holidays, restaurant meals and many parts of the competitive service economy.
At the same time, certain scarce commodities and assets, some of them necessary for everyday life, have become worse or more expensive. In housing’s case, it is worse and expensive.
If you’re under 40, the kind of house you could buy today in the South East of England for three times your income would be somewhere between atrocious and imaginary.
The net effect is that consumer capitalism has become a victim of its own success. It has become so good at providing people with their basic needs that it now accounts for a smaller and smaller part of people’s discretionary income. This is only partially true for people who are poorer; among people who are richer, it is overwhelmingly true.
In 1950s America, a family of median wealth, possessed of a television, a music centre (ask your parents), a reasonable wardrobe, a washing machine, a dishwasher and a car might well have totted up the cost of their possessions and arrived at a figure roughly adjacent to what they paid for their house.
This was comparatively normal.
Back in the 50s, my grandparents (an unusual boast, this) were the fourth family in Wales to own a dishwasher: it cost about £200. I think they paid about £4,000 for their very nice house.
I suppose it is conceivable that today, someone on the outskirts of Abertillery who owns a brand new Porsche and a 95-inch, 8K Samsung TV might own goods worth more than their house.
But they would be a freak.
In London, this would be more or less impossible unless you lived in a slum and bought a Bugatti Veyron, which I cannot in good conscience recommend.
Things are slightly better when you go up north, where lower house prices leave people with more disposable income, but in London, I know plenty of people whose house is worth 1,000 times more than their car. Or in some cases infinitely more – since the tragic metropolitan tossers don’t have a car at all.
This trend, where consumption accounts for a smaller and smaller part of people’s available income, is much more pronounced among the rich. The richest quintile among high earners in the United States earns 14 times more than the poorest quintile. Yet they spend only four times as much on consumption. In that gap is where the opportunity is.
The reason is simple and is explained by a simple economic concept known as diminishing marginal utility.
For every additional unit of something you might acquire, you benefit less and less. Just as there is a limit to the number of calories you can eat, there is a limit to the number of televisions you can buy. Making rich people richer does not make them spend more pro rata. For example, Jeff Bezos spends less on shampoo than I do.
This is exacerbated by the fact that many consumer goods are effectively impossible to premiumize, and God knows, we’ve tried.
However rich you are, you can’t beat HP sauce.
As Andy Warhol said of Coke: “A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good.”
A person on a low income could feasibly own the same smartphone as a billionaire, play the same computer games and watch the same Netflix shows. (My brother is an academic; I always joke that he owns exactly the same stuff that I do, just three years later.)
The net effect of all this is that very little of economic growth is translating to higher consumer spending except among the poorer half of the population. Instead, the gains overwhelmingly get channelled to the rich to translate into asset price increases, most notably residential property. The dissident economist Gary Stevenson has written extensively about this.
What this means is that an ever greater part of any growth in the economy ends up making rich people richer by propping up an inert and utterly unproductive real-estate bubble, which then acts as a brake on further economic growth. To make this worse, we tax income aggressively and tax wealth very little indeed. If you go out to work, earn a stack of money and then spend it on stuff, which is kind of what a proper economy looks like - you’re taxed at 40% on the income and then 20% again on the stuff you buy, more still if it’s booze. By contrast, if you sit on your arse in a fuck-off house in Berkshire, which trebles in value, you get to keep all the gains tax-free.
So, clearly, one way to get the economy going is to tax wealth more and tax income and spending less. And to redistribute money from rich old people who don’t spend it to poor young people who do.
And here is where I expect to win some of you over. The most immediate beneficiaries of such wealth redistribution would surely be consumer goods companies, which would benefit much more from a large population of fairly prosperous spenders than from a small percentage of very rich savers.
I can understand why Sotheby’s wouldn’t like the idea of wealth taxes. But seriously - and I speak as someone who is fairly right-wing by the standards of the advertising industry - I don’t understand why we don’t hear more calls for wealth redistribution from the likes of Coca-Cola, Unilever, Samsung, Procter and Gamble, Ford, Molson Coors and Diageo. It will be entirely in their interests if wealth gets transferred in this way.
Why the silence?
I do have a theory.
Could it be that the people who run these companies are planning to spend much of the rest of their lives in their fuck-off house in Berkshire? Seriously, isn’t it time you put the shareholder interest first, like you always claimed you did?
Rory Sutherland is a British advertising exec, behavioural science advocate, and author. He is now known as the vice chairman of Ogilvy UK, where he worked since 1988. He co-founded the agency’s behavioral science practice, focusing on harnessing psychology to find innovative solutions and “unseen opportunities” in marketing and consumers.