Towards the end of the 20th century it was clear to leading economists and sociologists that capitalism as it was experienced in the United States had taken a turn and was heading into uncharted waters. On the positive side, as it were, Jay Galbraith referred to entering The Affluent Society. On the less positive side Daniel Bell described The Cultural Contradictions of Capitalism. A key element of this change was the shift in the economy from dependence on production to the dependence on consumption; from a spirit of asceticism to a spirit of acquisitiveness (Bell, p 283).
Two facts confirm the persistence of this trend: The continued out-sourcing of production to developing countries and the increasing share of GDP represented by consumer discretionary spending.
Ironically this turn of events has become a double-edged sword for a portion of the population originally believed to benefit the most: The Upper Middle Class. (For sake of argument consider this segment to include anyone living in a household with $150,000 or more of annual income and $1.5M in assets.). The dilemma is that if they continue discretionary spending they are pillioried in the popular press; if they don't the economy enters (or stays in) a recession and there is an increased possibility that their position will be eliminated .
In the near term upper middle class consumers are avoiding the problem by using any excess cash to pay down debt and/or to increase savings. As the rate of savings and the rate of indebtedness return to more tolerable (or at least more historic) level, the question about spending will become more insistent. We already see this in the automotive category where the age of the vehicle parc is at abnormally high levels and for sheer safety and maintenance reasons replacement by new vehicles are worth rational consideration. The last time they bought a new vehicle it might have been to "keep up with the Jones." Today it will be to keep on the road.
What is the solution that will allow this segment to resume discretionary spending without fearing social criticism? Even though they constitute only a small fraction of the population they are responsible for a much larger portion of the GDP. If they continue saving (as recommended historically by classical economists who favor capitalism) they will further lower production, create unemployment and reduce the attractiveness of investment overall. If they spend they will be accused of hedonism.
This is a strange version of what has been called "The Adam Smith Problem." Smith is known for two books. One has been interpreted as promoting self-interest (Wealth of Nations) and the other for promoting moral conduct (The Theory of Moral Sentiments). It was not immediately clear to his readers how to reconcile the two objectives. What decision-process would affluent consumers use to make personal decisions about the acquisition and eventual allocation of their discretionary economic capital that would enable them to balance the apparently conflicting needs of society? How could they reconcile the attainment of rewards justly deserved by their individual effort with the social criticism they received when they dispersed those rewards on anything other than charity?
Our research into the motives of affluent consumers provides very useful insight into this question. It provides guidelines for individuals as well as the companies (and philanthropies) that market to them.
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