The Virtue of Consumerism

I thought that this article at Tech Central Station (thanks to Bret, who blogs here) was really interesting. William Lewis and the McKinsey Global Institute did a huge study of wealth and productivity around the world, and they came up with some interesting, and often counterintuitive results. I found three particularly interesting:

First, Mr. Lewis found that education levels really don't matter to productivity—or, at least, they're not a major factor. Back in the early '90s when we were panicking about Japan kicking our collective ass at manufacturing, we thought it was because Japanese workers were so much better educated. Then the Japanese companies opened up factories over here with American workers, and they got results that were nearly as good as the results they got in Japan with Japanese workers. Conversely, American companies using immigrant Mexican labor get much better results than Mexican companies do:

We compared the construction industry in the US to construction in Brazil and found that in Houston, the US industry was using Mexican agriculture workers who were illiterate and didn't speak English. So they were not any different than the agricultural workers who were building similar high rises say in Sao Palo. And yet they were working at four times the productivity.

So far more important than the workers' education level is the structure and management of the company.

Second, the Institute concluded that much of America's wealth advantage stems from the presence of "big box stores" like Wal-Mart. The wealth of a country is largely determined by its citizens' productivity; most of a country's economy—especially in a developed country—is concentrated in service and retail industries. These industries aren't glamorous, don't generally get focused on, and are often nearly invisible; but an advantage in retail productivity, say, is a huge advantage in overall productivity. The US trails other nations, especially Japan, in manufacturing productivity, which gets written about a lot. But we have a huge advantage in retail, because

innovations have occurred in retailing and new formats of much higher productivity then these former formats have developed. The most obvious being the so called big box epitomized by Wal-Mart, which has productivity something like five times the productivity of a normal general store of the 1950's.

We've taken advantage of these innovations; other countries have not.

But the most interesting part, to me, was the reason most other countries haven't taken advantage of these innovations. The obvious reason is the old public choice dilemma: big box stores and the like—most of the innovations that have increased the productivity of service and retail industries—hurt consumers and help established producers/retailers (Mom-and-Pop stores), and the producers have a much more concentrated lobby. But the fact remains that somethign happened here in America; we have an environment much friendlier to these innovations, and much more consumer-friendly in general. Mr. Lewis says that this happened largely because we've always been a nation of consumers.

What he showed was that at the time of the [American] revolution, consumerism exploded in the US. And it was associated with the fundamental notions of individual rights. That prior to that, at least in the feudal societies of Europe, consumption was viewed as a luxury to which only the land owning class was entitled. And everybody else was entitled to subsistence -- enough food and enough shelter to survive and that was it. And at the time of the revolution, because the revolution was so rooted in ideas of individual rights and equality of opportunity and equality of desire and equality of demand, everybody said, 'why not me?'

So you suddenly had a few million farmers beginning to view themselves as consumers.

Because we have such a deeply-rooted history of consumption, we've taken steps to preserve an environment where consumption can occur—where consumers have power to a much greater extent than they do anywhere in Europe. I found this very interesting, because people often complain about how damnably materialistic Americans are. And if the Global Institute and Mr. Lewis are right, our consumerism is actually what's made us as rich and powerful as we are--it's the engine that makes our economy strong.

So next time you hear someone complain about how darned materialistic and immoral we Americans are, you know what to tell him: "Sure, we're materialistic; and it's a damned good thing."