Classical Economists have always been advocating the doctrine of saving, not just to provide for personal future benefits but also for the benefit of the country’s economy. But as times change, so do people’s perspectives. And thus, the Economic theory has undergone a paradigm shift towards what is now known as neo economics...
The Indian economy is also gradually advancing towards the culture of Spend More-Save Less. With diverse insurance and loan schemes available, people’s future needs are provided for. The burgeoning middle-class having more and more disposable income has become the potential target for the manufacturers of consumer durables and non-durables. With a plethora of retail shops, supermarkets and hypermarkets replacing the old mom-n-pop shops, individual customer needs and conveniences are all taken care of. Everything from cakes to clothes is available under one roof. Even the non A and B SEC segments have started living out of their wallets. Everyone is plunging into living a higher standard of life. This has in turn resulted in foreign retailers eyeing the Indian markets for their share in the pie. With retail giants like Wal-Mart and Marks and Spencer venturing into the Indian lucrative markets, the consumers are now more into the buying blitz. The cycle thus continues… More retail FDIs, more known brands, broader sphere of selection, more insatiable demands and finally more credits.
Taking illustrations from the two major giants - Japan and the US, each adopting a saving culture and a spending culture respectively, we can study the impact of each of them on the economy.
Japan comprises old working population. Their modus operandi is thus simple, conventional, mainstream and orthodox. The Japanese are hard-working, less risk-taking and believe in saving rather than spending. Every move of theirs is planned with substantial calculations and analyses. This started ever since the country was devastated in 1945 by the US bombings in Hiroshima and Nagasaki. Their growth curve post World War II has been tremendous. Their well-planned avenging strategy on the US is much evident from their ‘dumping’ policy in the 1980s and 1990s. Their automobile sales targeted the US markets in such a way that they sold their automobiles at much lower prices than the automobiles manufactured in the US. As a result, GM and other American automobile manufacturers suffered distressing losses. They also disallowed US access to Japanese markets.
The Indian economy is also gradually advancing towards the culture of Spend More-Save Less. With diverse insurance and loan schemes available, people’s future needs are provided for. The burgeoning middle-class having more and more disposable income has become the potential target for the manufacturers of consumer durables and non-durables. With a plethora of retail shops, supermarkets and hypermarkets replacing the old mom-n-pop shops, individual customer needs and conveniences are all taken care of. Everything from cakes to clothes is available under one roof. Even the non A and B SEC segments have started living out of their wallets. Everyone is plunging into living a higher standard of life. This has in turn resulted in foreign retailers eyeing the Indian markets for their share in the pie. With retail giants like Wal-Mart and Marks and Spencer venturing into the Indian lucrative markets, the consumers are now more into the buying blitz. The cycle thus continues… More retail FDIs, more known brands, broader sphere of selection, more insatiable demands and finally more credits.
Taking illustrations from the two major giants - Japan and the US, each adopting a saving culture and a spending culture respectively, we can study the impact of each of them on the economy.
Japan comprises old working population. Their modus operandi is thus simple, conventional, mainstream and orthodox. The Japanese are hard-working, less risk-taking and believe in saving rather than spending. Every move of theirs is planned with substantial calculations and analyses. This started ever since the country was devastated in 1945 by the US bombings in Hiroshima and Nagasaki. Their growth curve post World War II has been tremendous. Their well-planned avenging strategy on the US is much evident from their ‘dumping’ policy in the 1980s and 1990s. Their automobile sales targeted the US markets in such a way that they sold their automobiles at much lower prices than the automobiles manufactured in the US. As a result, GM and other American automobile manufacturers suffered distressing losses. They also disallowed US access to Japanese markets.
Like many other Asian nations, Japanese exports have always surpassed the imports. They enjoy an annual trade surplus. Yet their economy is considered to be not very strong... To inculcate a spending culture, the Japanese government also reduced the deposit rates and even charged the savers (negative interest rates), but people’s outlook did not change. They preferred saving in deposits to even holding back the money with themselves. Neither the trade surplus nor the domestic savings have helped the economy.
Au contraire, the US government provides the citizens with Social Security schemes – future life securities, employment securities…even unemployment securities! Reassuring schemes as these left no reason for people to save. Thus, the US is one of the countable few nations flourishing on credit culture. Contrary to Japan and many other countries, the US has banked mainly on imports. They have an annual trade deficit. Their investments in other countries is also far less than others’ investments in the US. Yet, the economy is expanding and is believed to grow stronger... The US economy is thriving on the back of the savings of the rest of the world. Countries like Japan, China and India invest most of their forex earnings through exports, etc. in the US Treasuries which in turn help US consumers' spending.
Au contraire, the US government provides the citizens with Social Security schemes – future life securities, employment securities…even unemployment securities! Reassuring schemes as these left no reason for people to save. Thus, the US is one of the countable few nations flourishing on credit culture. Contrary to Japan and many other countries, the US has banked mainly on imports. They have an annual trade deficit. Their investments in other countries is also far less than others’ investments in the US. Yet, the economy is expanding and is believed to grow stronger... The US economy is thriving on the back of the savings of the rest of the world. Countries like Japan, China and India invest most of their forex earnings through exports, etc. in the US Treasuries which in turn help US consumers' spending.
What would you do if you were not to spend?
You would deposit your money in banks or in any other avenues for investments. Your money in turn would be used by these institutions to give credits and loans. In other words, you are saving so that others can spend! Give it a thought…This is precisely what capitalist countries like the US have banked on.
To get more into neo economics, here is what Dr. Jagdish Bhagwati, an Indian-born Economist in the US, a Professor of Economics at Columbia University has to say. ‘Don't wastefully save. Start spending, on imported cars and, seriously, even on cosmetics! This will put all nations on a growth curve. "Saving is sin, and spending is virtue." Before you follow this neo economics, get someone to save so that you can borrow from him and spend.’
So go ahead guys… spend...
……but not your money… :)
