Tag Archives: consumerism

Spending Too Much on Brand Names; BMW, Coach, etc.

Interesting that it’s a car webzine (thetruthaboutcars.com) that has written the best commentary I’ve seen on the trend of the past few years in which young people have been spending well beyond their means on brand-name cars, purses, clothes and other consumer products. There was a time when buying a BMW, or an Armani suit, or $1,000 purses and shoes, was something done by people in their 40’s and 50’s, who had been well paid for decades. Now 25 year olds PR account executives making $40,000 are buying Jimmy Choos and putting them on their credit cards. Or as the article says, a few years ago “the idea of spending four figures on a handbag when one worked at an entry-level white collar job would have been seen as irresponsible and reckless at worst, crass at best.” The pre-financial crisis debt binge wasn’t just about mortgages. People were overspending on all kinds of goods, and they still are.

Silicon Valley Shakeout: Yes, Many Startups Fail

The press is going crazy here in Silicon Valley with pieces about the coming shakeout in startups. The basic story is that over the past few years, the growth in angel investors led to a lot of mediocre ideas getting seed funding, and now that the froth is off the market, those mediocrities are finding it difficult to raise additional money from venture capitalists.

PandoDaily gives a good summary here. Dan Lyons, a well known tech journalist (and creator of Fake Steve Jobs), has a more savage take here. The following quote kind of summarizes his piece:

For the past few years we’ve had people calling themselves “investors,” who have no experience investing, swanning around the Valley, slinging money at people calling themselves “entrepreneurs” who have never held an actual job, let alone run a company.

My view is that this shouldn’t surprise anyone. The current social/mobile bubble has been obviously following the trajectory of the 1999-2000 dot.com bubble (see my prior posts on this topic here, here, here and here), and any rational observer could see how it was going to end. Just like a decade ago, the promise of quick riches drew hordes of young, aggressive tech wannabes who launched me-too companies, features posing as companies, or simply bad ideas. And just like a decade ago, huge amounts of capital desperate to be put to work meant that bad ideas got funded. But bad ideas become bad companies, and bad companies start to fail, and VCs don’t put more money into failing companies.

Ten years ago, the mantra was “let’s dot.com category X.” Now it’s “let’s take category X social. Or mobile. Or both.” But either way, good ideas with good execution get traction, and bad ideas don’t. PandoDaily looks at the travel space and explores it as a microcosm of everything that’s happening. Bad companies with bad names ( Dopplr, Tripl, Gtrot) are all going away, because they never should have existed.

This is really a standard Silicon Valley cycle; it’s just getting worse. There was once a time when VCs funded one hundred disk drive companies, which also ended poorly. Now it’s that the cycles are stronger and draw more wannabes from further away. More press and more billionaires mean more people coming to enter the lottery. I mean, now we have a reality TV show about good-looking young entrepreneurs (or perhaps I should say “entrepreneurs,” since the folks on that show are exactly the people Dan Lyons savaged). Back in the 1980’s nobody made a reality TV show about 45 year old engineers starting disk drive companies.

Is Corporate Culture The Same As Country Culture?

I recently posted about corporate cultures, and how the only way a corporation can change its culture is from the top. Based on some of the feedback I received I’ve decided to expand my scope and explore a larger cultural change: how the United States might change some parts of its culture. For example, one aspect of America’s current culture that seems problematic is that we want all kinds of services (Medicare, Social Security, strong defense, good roads, etc.) but we want the lowest taxes possible. Those two desires are incompatible; a culture that emphasizes taking without giving will prove challenging in the long run.

In my prior post, I discussed that a change in corporate culture requires a CEO who is willing to push that change. In the case of a country, who might play that role? You would naturally think the president, but we know that won’t work. Plenty of recent presidents have talked about changing the culture, but none have succeeded. Hell, none of them could change the culture of a few hundred people in Congress, let alone a whole country. And that’s not really surprising; a country is not a hierarchical structure the way a company is, so people have no reason to necessarily follow what the leader says.

The president could try to lead by example, or by using the bully pulpit, but I can only imagine the furor  that would erupt  if a president (or governor, or senator, or mayor) announced that “OK people, your constant desire to get lots while paying little is complete crap; going forward we are all going to be more realistic.” No, that wouldn’t work at all.

What if all our leaders teamed up? Suppose a whole slew of politicians – national and local, democrat and republican, male and female – got together to announce an initiative aimed at realism. This could be risky, since taking a stand isn’t really what politicians do; they hate being out on limbs by themselves. But that is why they would team up with members of the other party. After all, as I noted in my prior post, cultural change requires leaders to actually lead. Then they could get business leaders on board; everyone from Warren Buffett to Charles Koch. Throw in some celebrities – nothing happens in America without celebrities – and then maybe we’d have something.

It’s possible that this is nothing but a pipe dream. Can we really expect politicians to team up in order to lecture voters? Probably it will never happen. But maybe we should expect more from our leaders.

More Tech Bubble Data

Come on people, you’re making it too easy for me. A social network for people with curly hair?

How Wall Street Captured Main Street

If you have the time, read James Kwak‘s interview in The Straddler. He has some interesting things to say about how our culture is oddly enamored of the idea of the swashbuckling wall streeter, and yet intimidated by economics and finance, and how that has influenced policy decisions. He’s a smart cat.  Here is a small sample:

“And Wall Street’s argument that it has this mysterious power, that you have to trust it that it’s using it for good, and that if you take it away, the world will end, is obviously obnoxious—but it’s a hugely successful debating point.  Congressmen are afraid of it.  They’re afraid that they don’t understand what’s going on, and they’re hearing these lobbyists say that if you push too hard on the banking industry, the world will end.”

The Sad History of Lobbyists

I recently finished reading a great book called An All-Consuming Century by Gary Cross, a professor of history at Penn State. In this book Professor Cross traces the history of American consumerism in the 20th century, exploring the various roles of consumers, marketers, politicians and temperance movements, and teasing out theories of why America is so much more consumery (my word, not his) than other countries.

There is too much in his book to summarize, and I’d prefer that you buy it anyway, because it’s a great book. It’s currently number 330,562 on Amazon and I’m sure that we can get it up in the two hundred thousands. Suffice it to say that in a society founded on egalitarianism, consumption can be a method of both differentiation and assimilation.

One of the side themes that emerges from Cross’ book, and the one this blog entry is actually about, is the role that corporate lobbying has historically played in keeping consumption up. At a time when the role and power of Wall Street and insurance company lobbying are being much discussed, it seems appropriate to note that it’s nothing new for big business to use its money and lobbying clout to push around the little guy.

In particular, Cross discusses how after a rush of consumer rights legislation in the 1960’s (Hazardous Substance Labeling Act, Child Protection Act, Clean Air Act, etc.), corporations figured out how to lobby in order to limit the scope of those laws. “By 1976, they had begun to learn how to lobby a more decentralized Congress and to use Public Action Committee funds and grassroots pressure groups to regain dominance.” (p. 158)  Moreover, as Cross makes clear, the deregulation that marked the Reagan era was the nexus of laissez faire ideologues and corporate lobbying, and it encouraged consumption by limiting constraints on corporate marketing and product safety as well as environmental impact. Cross: “…deregulators were not friends of the average consumer, for they allowed higher bank fees, cable TV rates, insurance premiums, and child care and health costs.” (p. 205)

The fact that corporate lobbyists have been harming our hypothetical little guy for decades doesn’t make it right. I’m sure that the moneyed and powerful have been pushing their interests for longer than that. But in a US congressional system that has become so driven by the need to raise vast sums of money, the power of lobbyists is greater than ever. Solutions? Campaign finance reform and term limits are both possible answers. But the strongest answer is for voters to be aware of what their representatives are doing and act accordingly. Hey Montanans: if you don’t like that Senator Baucus took millions from the insurance industry while writing the health care reform law, then vote him out. We the people have a fair amount of power, but we have to work to exercise it.

A New American Sense of Responsibility?

Over the past few months I have seen more and more data indicating that Americans are cutting back their consumption in the face of the deteriorating economic situation. Retailers, restaurants, car companies, airlines – it seems as if everybody is feeling the pain. Just last week the Wall Street Journal called the trend “U.S. Retools Economy, Curbing Its Thirst for Oil.”

I am wondering if maybe this trend will last beyond the current economy and represent a new, or renewed, sense of responsibility in America. The past few decades have been an orgy of consumerism in America (and much of the developed world, but I’ll focus on America simply because I know it best), as people lived beyond their means, purchasing things they didn’t need and couldn’t afford. Possibly the best quote I have heard on this trend came from Art Wong, a worker at the port of Long Beach, who was on NPR’s Marketplace:

You know, we’re being stretched, and I turn to my kids every so often and I ask them, how many more pairs of jeans do they need? How many more handbags can they buy? And how much room do they have in their closets? And they keep going, and they keep buying, and the port keeps seeing more and more cargo coming through here.

This consumption frenzy brought with it a number of problems. There were environmental considerations, both from the production of consumer goods and from the gasoline sucked down by the SUVs that were a major outlet of purchasemania. There were price dislocations from people purchasing items (homes, Tiffany bracelets, fancy meals) that they couldn’t afford. There were macroeconomic impacts as we financed our purchases with overseas capital. Finally, I think there were moral and psychological consequences (not surprising to regular readers of this blog) from an entire population giving up on any sort of self-restraint or thought for the future.

With gas prices above $4 per gallon and economic growth stagnating, our reduced consumption is not surprising. But maybe, just maybe, this decline in purchasing represents a broader change, a sense that untrammeled consumerism is simply unsustainable. Perhaps people were jolted awake by the impact on the environment, or the national security ramifications of our addiction to oil, or the deflation of the housing bubble. Are Americans now looking beyond their own material wants?

Maybe, and maybe not. Perhaps there is no broader sense of responsibility, but rather the inexorable force of economics. Maybe people still don’t care about the environment or national security, and all they really want is a bigger Jet Ski, but they simply no longer have the money to satisfy their wants. That is certainly what the economists think. “We’re going back to the good old days of living within our means,” said David Rosenberg, chief North American economist for Merrill Lynch. Adds another:

We’re seeing the birth pangs of a new economic structure,” said Neal Soss, chief economist for Credit Suisse First Boston. “The next year or two or three will be about the transition to a new equilibrium. Consumption by households will grow more slowly than their incomes, which is the exact opposite of the last 25 years when consumption grew faster than incomes.”

Although I would prefer to think that we are getting more responsible, and that issues larger than our checkbook are driving these new spending patterns, I suspect that A) the economists are right; and B) it may not really matter. Even if economics are behind the change, those economic conditions show no signs of changing in the near future, or possibly the medium future. There is even a theory that this shift is permanent, and that America’s days of being an economic powerhouse are over. “The world has become multipolar,” according to UC Berkeley economist Barry Eichengreen. “Our dominance will decline.” Jared Diamond, of Guns, Germs & Steel fame, even says that the developed world only has 30-50 years of first world living before we outstrip our own resources.

Either way, this change in spending, this “retooling of the economy,” looks like it will be with us for a while. This has tremendous implications for companies that sell to consumers. Think about:

  • Utilities dealing with decreased demand for energy
  • Car companies finally forced to produce smaller cars
  • Construction with a focus on energy efficiency and green materials
  • Appliances that are cheaper, smaller and use fewer resources
  • Consumers actually turning down credit card offers because they aren’t buying things
  • Retailers changing their product assortment
  • Discounters (Wal-Mart) gaining market share at the expense of stores that catered to the overreachers (Neiman-Marcus)