What motivates people to save and spend money, and thus make the global economy grow? As people around the world become richer, they spend their newfound income in vastly different ways. Yet there could still be common factors, and finding them is crucial to making economic models work.
In the past couple of months, I’ve travelled around the world, hearing and seeing how and why people strive to improve their economic lot. In Seoul, for example, echoes of nationalist fervour were everywhere. Imported cars are a rare sight, and locally produced ones bear aspirational names such as “Grandeur” and “Statesman.” One professor told me earnestly that a major goal was to “beat the Japanese” in economic terms.
In Mumbai, the attitude is somewhat different. The city is filled with immigrants from all over the country, and a feeling that they could gain a real stake in its growing prosperity permeates the air. Advertisements for colleges and universities are everywhere, and the top students’ faces appear alongside their exam scores in newspaper advertisements. There is an intense confidence in India’s future greatness, and to deny its inevitability is akin to sacrilege.
Urban India: A family walks past a clothing store in Mumbai. (Photo:Prashanth Vishwanathan/Bloomberg)
Moscow presents another contrast. Showy consumption is everywhere, from shoes and wines costing hundreds of dollars to luxury cars costing hundreds of thousands. Imports boast an extra cachet, not just because of their brands, but because of the heavy tariffs they carry. In one anecdote I heard, a merchant had found he could sell more of the same goods by raising his prices. Russia, too, wants to be seen as powerful and great—and it puts the evidence on the street for all to see.
Meanwhile, in London, people are wondering if their comfortable lifestyle will last. Just a year ago, the city was crowing about being the world’s financial capital. Now it has been silenced by gloom and doom about the housing market, inflation and the weakening pound. A country that once stood proudly apart from the rest of Europe, trumpeting its “Third Way” to prosperity, is having serious doubts about its policies and economic leadership.
In these countries and half a dozen others, I saw broad differences in how people spent their money, the careers they chose and the ways they invested for the future. But could these superficial observations actually mask a deeper commonality?
They could and they do, according to Marcel Fafchamps, a professor of development economics at Oxford University. “I don’t really believe in cultural differences,” he said. “Once you start accepting the fact that cultural differences could drive fundamental differences in human behaviour, such as growing or not growing, then you can explain anything with cultural differences. And we’ve been so wrong about that in the past.”
History does indeed reflect poorly on some of those who placed culture at the heart of economics. “I remember when I started grad school, people said, ‘Oh, China will never develop because of this Confucian attitude’,” Fafchamps recalled. “In the 1950s, they said the same thing about Japan: ‘Oh, Japan is a basket case.’ It’s very dangerous to go down that route.”
The core belief of economics, he said, is that all people make rational decisions in the interests of themselves and their loved ones.
They save and invest in their capacities through education, medical care and nutrition. What can differ, he said, are their expectations and opportunities. Within this framework, Fafchamps said, the same economic model always applies.
If the economic model is truly universal, though, it raises some striking questions about the countries I visited. Are young Russians spending like there’s no tomorrow because, in their expectations, there actually isn’t one? Will there really be enough jobs for all the Indians with university degrees? Does South Korea have to invest in national stature, not just higher productivity, in order to compete economically? And will Londoners’ anxieties lead to a long period of retrenchment, like the one from which Japan is finally emerging?
If the answers to these questions end up surprising us, we may have to give that economic model another look.
© 2008/INTERNATIONAL HERALD TRIBUNE