Managing shrinkage

We may be consuming less, but it doesn’t mean death to companies

by Kevin Potvin <kpotvin@republic-news.org>

The Euro has recently been losing value compared to the US dollar. This is surprising and alarming for people working in the finance and business sectors. The slide also carries a lot of significance for residents of Vancouver, those of British Columbia more generally, for all Canadians in fact, and really for all people who make up the populations of the developed world.

The slide indicates we are moving now into an era across the developed world in which our governments, run by businesses, will begin acting more explicitly and more obviously at counter purposes to our own interests and desires. The most salient feature of our time will be the emerging split between us and our governments around the word “consumption.”

Our businesses always require us to consume more of their goods and services. Up till now, our interests dovetailed nicely with that requirement: we wanted to consume more too. But for the first time in perhaps all human history, a significant portion, if not an outright majority, no longer wish to consume more. This means that businesses need to commandeer our governments into pressuring or coaxing us into further consumption. It is as though the restaurant owner requires its existing customers to order more food even though they are by now full. Now the waiters, instead of only suggesting dishes to help the restaurant owner along, need to start stuffing our mouths with dishes we never ordered. The signs of a society gagging are now everywhere to be seen, and heard.

Despite European governments’ best efforts to shove more consumption down the throats of increasingly bloated populations, market demand in Europe continues to fall. In Japan, the phenomenon of declining consumption is over ten years old. In North America, we are just now pushing the plates away. But because of the way the economic system is constructed, businesses and the governments that work for them cannot allow plates to be pushed away without risking the collapse of that system.

There are some Canadians, including the poor, the mistreated and the ignorant, as well as striving new immigrants, who are still driven to improve their economic lot in life, and there are even still those who think in terms of living a better life than their parents did. But they comprise a smaller number of us every year. Even our immigrants, increasingly plucked from the higher and educated classes in foreign countries, are not as driven to overcome generations of poverty back home the way new immigrants to Canada used to be.

Though our political leaders continue to try selling themselves and the policies they represent with those old slogans from an earlier era about us striving to improve our lot or live better than our parents did, a growing majority of us are not responding to that call. For the present economic system and those operating it, there is a frightful majority of people who think they have attained a high enough lot in life to be happy, and who look at their parents life and do not think of living better than them. They lived fine: to do as well is good enough, say a larger number of us.

This is deadly news throughout the conventional economy. Despite setting conditions with interest rates and trade policies that ought to have everyone consuming way more, in Japan, Europe, and increasingly in North America, consumption remains slack. We simply don’t want anymore: lower the price of running shoes to zero at the Walmart, and a growing number of us still won’t buy. Offer rebates and zero financing on new Cadillac Escalades, and we pass the car lot by. Yes, we still need and want what we need and want: lots of food, lots of clothes, lots of escapist entertainment. But there is little growth anymore. With so many carrots already eaten, another one dangled in front of us barely opens our eyes.

The phenomenon is exacerbated by the average aging of the populations in developed countries, and the actual decline in some countries’ overall population. Older people often have all they want, have acquired wisdom about the hollow fulfillment of still more stuff, and generally are happier anyway not doing or buying the sort of things that cost a lot of money.

So is it possible to operate a strong, prosperous economy in which consumption per capita remains the same or declines? Can companies make money for investors and keep workers in jobs while sales fall and customers turn away? Can the economy be reconstructed so that the latest trend toward simplicity and less consumption can be as accommodated and as successfully responded to as all the other trends that have come along?

This paper believes it can be, but it will take a widespread understanding of what tools government actually has in the economy, and what they have been used for in the past, and what they can be made to do in this new future.

The problem cannot be ignored. If governments instead succeed in causing us to consume more, we will exhaust key resources soon as a result. If they fail to make us consume more, an unprepared range of businesses in the economy will fail catastrophically, denying us what we need just as surely as removing from the market what we don’t need. The only option is for our governments to reconstruct the economy in such a way as to maintain healthy business enterprise in the markets even while consumption not only declines but is invited to do so. If it’s possible for traders to invent the means by which to make money off declining stocks, then surely we can create sustainable prosperity in a shrinking economy. It should really just take a bit of thinking.

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