by While visiting Germany in the summer, I was struck by the prevalence of adverts saying something on the lines of "Sie sparen können". I've never seen a society so obsessed with saving, not in the sense of putting money away (though they do that too) but in the sense of reducing costs. Never mind the quality, look at the price. "You can save". Always.Penny-pinching is by no means limited to German households. Ever since we collectively decided, on September 16th 2008, that the money had run out, we have all - households and businesses - been scrimping and saving like mad, reluctant to spend money in case we too run out. We look for bargains, delay purchases until end-of-season sales, and avoid paying for things unless we absolutely have to. We have become a "something for nothing" society.At an individual level, this seems sensible. Most people have limited incomes, and wages have stagnated for a long time now. Businesses, too, have felt the pinch: sales have fallen, and they have been forced to reduce prices and cut costs to the bone. Money is scarce, so we must use it carefully. Thrift and prudence are the way to prosperity. Generosity is a luxury we can't afford.But this is the madness of crowds. When everyone is cutting costs, hunting for bargains and trying to get something for nothing, no-one can make any money. And this bears down on incomes.
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Frances Coppola considers the following as important: abundance, austerity, Economics
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While visiting Germany in the summer, I was struck by the prevalence of adverts saying something on the lines of "Sie sparen können". I've never seen a society so obsessed with saving, not in the sense of putting money away (though they do that too) but in the sense of reducing costs. Never mind the quality, look at the price. "You can save". Always.
Penny-pinching is by no means limited to German households. Ever since we collectively decided, on September 16th 2008, that the money had run out, we have all - households and businesses - been scrimping and saving like mad, reluctant to spend money in case we too run out. We look for bargains, delay purchases until end-of-season sales, and avoid paying for things unless we absolutely have to. We have become a "something for nothing" society.
At an individual level, this seems sensible. Most people have limited incomes, and wages have stagnated for a long time now. Businesses, too, have felt the pinch: sales have fallen, and they have been forced to reduce prices and cut costs to the bone. Money is scarce, so we must use it carefully. Thrift and prudence are the way to prosperity. Generosity is a luxury we can't afford.
But this is the madness of crowds. When everyone is cutting costs, hunting for bargains and trying to get something for nothing, no-one can make any money. And this bears down on incomes. If businesses are forced to cut prices, they won't increase wages and they may lay off staff or cut working hours. When the employed find their incomes squeezed, they stop using the services of small businesses and the self-employed. When small businesses and the self-employed can't find work, their incomes crash and many go out of business. Miserliness doesn't lead to prosperity, and deflation is not benign. It causes depression and poverty, particularly among those who lead precarious lives.
Nowhere is this more apparent than in today's internet-based small businesses. People have come to expect expect things they find on the internet to be free, or nearly so: music, writing, statistics, apps.... It has never been so easy to create and publish original material, and never so difficult to earn an income from doing so.
Journalists worry that their industry is dying, because of competition from millions of free blogposts and the growing tendency of internet surfers to dip into lots of publications rather than concentrating on a few. The days of being able to rely on subscriptions from devoted readers are over: if you put your publication behind a paywall, you lose readers. Most online journals have learned to allow access to at least some articles free. The biggest exception to this is the academic publishing world, which still manages to keep most of its publications gated. But there are moves to undermine this, as academics themselves publish ungated working papers and new sites spring up that help them to do so.
There is a real dilemma here. Information is a social good. Arguably, it should be free. After all, what is the point of academic research if the only people who can read it are those who can get past an academic paywall, which generally speaking means other academics? What is the point of data that is difficult and expensive to obtain? What is the point of articles that are only read by a few people? But if information is completely free, the labour of those who produce that information goes unrewarded. Intellectual property becomes worthless.
This has, of course, long been a problem in the entertainment world. People love to be entertained, but they really don't want to pay for it. They don't see entertaining people as "work". After all, performers love to perform, don't they? Why should we pay them for doing something that they love?
This creates a real dilemma for performers. Most do, indeed, love performing. If they refuse to perform unless they are paid, therefore, they risk not doing what they love. They also risk not eating. Whether a performer gets paid well for their work depends on two things: whether they are bloody-minded enough to refuse to perform if the pay isn't good enough, and whether they have another source of income that pays the bills, so they don't have to take badly-paid jobs. Performers who are either too devoted to their art or too poor to survive without it don't earn money.
Journalism and the performing arts are, of course, service industries. We still seem wedded to the idea that proper work is "making stuff", and working in a service industry isn't proper work so doesn't deserve proper pay. But as "making stuff" increasingly becomes the province of robots, service industries are the future of employment. And at present, we haven't got our heads round the idea that people in service industries should be well paid. It's not just in the entertainment world that making a decent income is next to impossible. The worst paid workers in society are those in the care sector and the hospitality sector. We really don't want to pay people to look after our children, our elderly parents and our sick and disabled relatives. Nor do we want to pay people to clean our houses and offices and serve us meals. Apparently we can't afford it.
But pushing down prices in service sectors has unfortunate consequences, not just for those working in that sector but for society as a whole. If everyone expects to pay rock-bottom prices, or preferably nothing at all, price is no longer an indicator of quality and Gresham's Law prevails. Why put in the time and effort to produce good writing or deliver good care? You won't be paid for it. There is no point in being more than perfunctory. If you love your work, and feel that you can make a difference by doing a good job, you will simply be exploited. Might as well sell lemons.
The tendency for poor work to drive out good when prices are very low degrades service industries. We decry the declining quality of online articles and long for something better written and researched, not seeing that this is the inevitable consequence of avoiding paying for good writing (I confess, I avoid paywalls too). This is bad enough. But in the care sector, reluctance to pay for quality is disastrous. When good quality care is driven out by bad, the result is abused children, neglected elders and suffering among the sick and disabled. And when benefits are cut because well-off people with good jobs object to those less fortunate than themselves apparently getting something for nothing, suffering is amplified. Miserliness creates misery.
Scrimping and saving in the private sector can be offset by generosity in the public sector. When people and businesses won't spend, government must. But we have now convinced ourselves that government has run out of money too, and so must scrimp and save like us. When government becomes as miserly as the private sector, the only source of income becomes external trade. This can work well if other countries are enjoying the good life, as Germany discovered in the mid-2000s. But when the whole world decides that there is no money left and everyone - government, business, households - must scrimp and save, the result is global misery.
When every country in the world is pursuing an export-led growth strategy, export-led growth becomes impossible. We simply end up with competitive monetary easing as countries try to steal demand from each other, falling global trade and declining global growth. That is where we are now. Historically, such a position has been followed by growing use of tariffs and barriers to trade and restrictions on the movement of goods and people. And since everyone likes to find someone else to blame for their own problems - and governments are particularly keen on this - global miserliness tends to lead to social and political unrest, cross-border skirmishes, local conflicts and outright war.
We desperately need a change of attitude. And I think that attitude change must come from the micro, not the macro, level. From individuals changing their behaviour. We need to stop scrimping and saving and learn to enjoy the good life again.
So if you are in the habit of bargain hunting and trying to get something for nothing, think again - especially if you are fortunate enough to be in a secure well-paid job. Look for quality, not price. Expect to pay for quality goods and services. And be generous. It is generosity, not miserliness, that creates prosperity.
Related reading:
Generosity
IMF World Economic Outlook - IMF
Image (unsurprisingly) from http://www.letssavemoney.com/news/article/1225/free-stuff-get-something-for-nothing/. Since they are advising people on how to get something for nothing, I didn't pay for my use of the image. I'm sure they won't mind, will they?