Can we have an economy without spending?

You are familiar with Zen koans like “What is the sound of one hand clapping?”. They are designed to open up consciousness with paradoxical or impossible questions. Well here’s one: Can we have an economy that is not so dependent on rampant consumer spending?

After 9/11, Bush’s solution was to exhort consumers to spend more as the way to propel ourselves out of the downturn. Today we are hearing similar advice.

Problem is, people are saving (or at least not spending, which I don’t think is quite the same thing) rather than spending.

According to a report on today’s radio show Marketplace, this is causing serious problems. On the heels of today’s announcement that Macy’s is laying off thousands of workers:

Chalk the Macy’s announcement up to a number out from the Commerce Department. Consumer spending fell for the sixth straight month in December. See, the financial crisis has convinced Americans to try something a little different — it’s called saving. But now this sudden attack of thrift is having dire economic consequences.

As Marketplace’s Steve Henn tells us, the worst part is that it could be habit forming.

STEVE HENN: It’s good to save some money. But when everyone starts saving at the same time, it can be an economic disaster. Goods pile up on store shelves, companies cut back on production and lay off workers. Then consumers pull back even more.

[…]

Greg McBride at Bankrate.com says the unemployment rate is only 7 percent, however …

GREG MCBRIDE: The other 93 percent think they might be next.

Economically secure consumers should be buying more. But McBride says fear is a powerful thing. It quickly changes economic behavior and might even break America’s shopping habit.

I actually have great faith in the resiliency of the American shopping habit - despite downturns it has continued ever upward. But that’s not necessarily a good thing. The past decade of consumer spending was unsustainable in two ways:

• We were spending beyond our means, on credit and using inflated house prices and equity
• We were (and continue) to buy at a rate unsustainable for the planet. The US is 5% of the world’s population but consumers 25% of its resources. The domino effect is that China and others produce massive quantities of stuff for us in the US, which feeds their economies, their resource usage, their environmental impacts.

Neither of these can be put back in place as we re-tool the economy. We need to figure out a way to have a large economy (nationally and globally) that does not rely on us buying more than we can afford, and making more than the planet can supply.

No answers here. We need to all put our thinking caps on.

What China's Rising Costs Mean for Design

Thoughtful post from Chris Byrne, co-founder of loudspeaker manufacturer NHT:

The amazing thing about China is the speed at which it caught up in manufacturing and design capability.  By 2001 you could find some of the finest craftsmanship the world has ever witnessed, and on a huge scale.  It was intoxicating.  Factories were going up in a matter of weeks throughout the province.  You could discuss an idea for a new part in a morning meeting and it was not uncommon to find a prototype, still warm from manufacturing, on the conference room table upon returning from lunch.  For the first time in years we were no longer bound by cost constraints.  Any design, no matter how complex, was possible to produce and often at mass market prices.  It was so easy.  We got lazy and complacent.

In 2008 the hammer fell.  Costs in our industry increased by 30% or more this year. Consumers have not even seen the impact of this yet, but soon will.  A substantial part of the sudden increase is due to the rising standard of living in China, but it also came from the rising prices of the world’s dwindling natural resources.  Some believe manufacturing companies will move to the next low cost, underdeveloped country.  I think not.

In my opinion there are a specific set of circumstances that made China the powerhouse it is and those same circumstances are also the reason we have run out of practical places to go next

Western Europe and the US watched Japan’s prowess in manufacturing efficiency emerge over a period of 30 years.  As the standard of living rose in Japan, the crown moved to Taiwan where efficiency met lower cost labor.  This lasted 15 years or so, then it all moved to China where the investment and skills of the automated world met the largest, untapped and under paid labor pool.  This combined with the existing logistic infrastructure in the Pacific Rim and the proximity of Hong Kong, the world’s largest free port, makes China the perfect location.

Certainly there remain countries with abundant low cost labor.  However most of them have little or no infrastructure in place to support mass manufacturing and are geographically difficult to get to.  The investment required would be many times the amount used in building China.  And don’t forget that our declining and increasingly expensive  natural resources only exacerbate the problem, making costs higher no matter where products are made.

So what does all this mean to you and I?

It means that manufacturers are going to have to become clever again about design. We are going to have to choose what is important and give up on the “nice to have” features if we want to remain affordable.  It means we are going to have get smarter, work harder and maybe for the first time learn real marketing.

For consumers it means mainstream products are going to be more expensive, or they are going to lose desirable cosmetic and feature elements to which we have become accustomed.  It means that people will have to make choices that they will live with, not throw away.

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