Tuesday, November 18, 2008

Re-visiting Veblen

Some time ago I wrote about Thorsten Veblen and his thesis on conspicuous consumption. In almost all economic news of late, the overt intention of most governments is to implement stimulus packages that are intended to stimulate consumer demand.

What kind of consumption is are governments talking about?
Do governments want consumers to consume anything and everything that they can afford? Or, do they mean basic necessities? Basic necessities have to consumed anyway to provide humans with a comfortable living.

Do the governments also hope that consumers will also consume luxury goods also? That would appear to be the case. Consume. Consume. Consume.

Maslow's hierarchy of needs
Abraham Maslow was quite a guy. You can read about his theory on the hierarchy of needs here. This basic construct of the psychology of consumption has influenced generations of management and marketing people.


http://talkingtails.files.wordpress.com/2007/07/800px-maslows_hierarchy_of_needssvg.png?w=399&h=266.

Where are your needs within this hierarchy? In our modern society, unless you are poverty-ridden, we head straight for the top. We always perceive ourselves at the level of self-actualisation.

Beyond the brief language of the pictogram above, modern corporations have adopted a detailed understanding of the need for Esteem and Self-actualisation even more than we can imagine.

Advertising stimulates conspicuous consumption
Maslow's pyramid is the foundation upon which the entire advertising industry frames their marketing and promotional campaigns for corporations.

The idea is to tell the consumer that he or she will have better self-esteem if they are seen to own and consume certain luxury products. Thus, a Perodua Aviva is different from a Toyota Camry. Thus, a Poh Kong diamond is different from a Lazarre diamond.

The idea is to tell the consumer that he or she is seen to have arrived at the peak of the socio-economic ladder, self-actualisation, when they are are seen to own and consume even more expensive products. Thus, a Toyota Camry is different from a Mercedes S320. Thus, a Lazarre diamond is different from a Tiffany diamond.

The production trap
The role played by advertising to stimulate desire and, therefore consumption and demand is only one aspect. This is where I will try to get to what I believe to be the structural problem with modern capitalism, the production trap.

This expression, production trap is an expression that I hope to have just coined. And, if some great economist has coined it earlier I will immediately offer my apologies.

What do I mean by production trap? Briefly, I want to draw your attention to the ridiculous situation where almost every product undergoes model and design changes within very short periods of time.

Just staying with the car analogy. I seem to recall that prior to the 1980s, a new car model launched will stay the same for at least four to five years with some very minor modifications. Since the 1990s, car models are changing every two years.

Even if you don't have any inkling of production costing, you will know that when the shape of the car model changes, when the dashboard changes, when the headlights and rear lights change, all these mean that a lot more money is being spent on industrial design, production of new parts and even more advertising and promotion.

The basis for this trend of quickening model changes is competition.

This leads to ever more rapid consumption and discarding of old models. Multiply this phenomenon a billion-fold to every single product (other than meat and vegetables) and you will get the picture of the production trap i.e. the reckless and continuous production of similar goods and services in the name of capitalistic competition to meet the redundant wants of consumers whose needs have been more than fulfilled.

The RM64 billion question (it used to a RM64 question but, now got hyper-inflation) is, how does modern humankind get off this careening and bumpy wagon?

Now, THAT would be a thesis that is worthy of a Nobel prize.

6 comments:

Patricia said...

Ok, CT, I think I got this one ;)

I can see this production trap of yours in action with almost every product there is out there. With cars, cos they're so expensive, it is ridiculous. With my cosmetics - it's diguised as a 'fall collection' or a 'spring collection' - it isn't so obvious, but ridiculous just the same.

My husband drives a 10 year old Volvo station wagon - the family plus dogs' car! - and I drive a bashed up 12-year-old Wira. Everyone asks us when we're going to change them! UPgrade lah! But why? They work fine!

Pat

myop101 said...

well, well...

can't be helped because KPIs are set on annual basis and along with it the performance bonus and promotions.

walla said...

Another thoughtful piece by de minimis.

I am reminded of Gillette, acquired by Merck, a pharma giant. displayed at the check-out counters. They've engineered it until it is so costly now that it is sold only under lock and key. The holder may be cheap but, as with printers and their refills, the consumables are where they make back everything and some.

Just as for the perfect shave, driving machines are made with parts that have almost precisely preset lifespans. In some cases, the automatic window of the automobile can malform to cause cardiac arrest.

The world call it progress. We should instead right-size if only to be able to listen to a small cute bird appearing out of nowhere to sing us a welcome song in the morning, one that it had composed on its own.

In each person's cycle of life, there is ebb and tide between material craving and value realization. When one loses almost all the former, the latter will surface to the fore. Even then, there are recurring tests. With little left, you make a bit and it slips through the interstices of the fingers like water before you can even pass it on to help someone. And if that happens thrice, you will look skyward and ask 'Are You trying to tell me something?'. In the still of the night, the answer comes, 'Yes, lose everything you have and the residue that is left where you least expect it will present you the peace that has escaped you despite all your efforts'.

But..but does that mean one has to scratch the wish-list called HWFCHC?

(hot women, fast car, hard cash)

;P

Jarod said...

Can I compare Made in Malaysia (MIM) and Made in Japan (MIJ) transportation? Of course, when we do not have xtra cash to spend, we have to opt for the MIM... Else, I would have opt for MIJ.

What I need is of good quality and peaceful life. Middle chart would suit me. In terms of transport, the above explain what I would want if i am capable of.

The whole idea is to make people feel they can have a lavish and grand life... but , there are cost behind it.

or like the song "I feel good" :)

Making people feel good is what some are trying to do.

chapchai said...

The British govt. has just announced that it will reduce taxes in order to encourage people to spend, with Christmas just round the corner. These tax cuts will benefit people on lower incomes. What I fear is that in this euphoria of tax cuts people may get carried away and stretch the limits of their credit cards if they are not already maxed. Surely this can't be a wise move on the part of govt.?

de minimis said...

chapchai

Lowering taxes will leave people with more disposable income. That's not a bad fiscal policy. Businesses will also have more funds to re-invest. It's certainly a better policy and, more effective, than forcing people to reduce their EPF savings by 3% and forcing them to apply NOT to have the reduction. This is an evil psychology knowing that most people dread the idea of going to EPF to "isi borang".