Story of three consumers

  «The consumer is king» is an aphorism that has come into use in English. This is particularly true in the United States since in the Fifties the development of production-line manufacturing and marketing techniques began to substantially change values related to consumer spending and household savings. It is not now an exaggeration to state that it is the US consumer who is driving the world economy. Households no longer are saving, they spend all their income on consumer products and the odd month they even have recourse to borrowing to fill in where the pocket-book does not quite reach. The domestic manufacturing sector does not manage to meet demand and to fill the shopping centre aisles it is necessary to bring in foreign products. The result is an enormous deficit in the trade balance (more than 700 billion dollars in 2005) which is covered by the Asian economies, with China in the lead, Europe and neighbouring Canada and Mexico. It is said that the United States consumes and China produces. The imbalance troubles the main international bodies but the balance is more stable than may be thought. In any case, it is the countries that sell to the United States that are financing the excess spending and they are well aware that any decrease in that credit would hurt their sales.

  On this side of the Atlantic, the story is quite different. In the European Union, and more precisely, in the large economies on the Continent, the consumer has a sadder look. The future is unclear because unemployment is much greater than a few years ago, the average age of the population is higher and higher and some are fearful that the Welfare State that ensured a comfortable old age may be dismantled. The economy is growing much less than in the buoyant United States and grows only thanks to orders from other countries (Asian and American) which allow industry to operate at an acceptable rate. The public sector is in the grip of an excessive deficit but in any case those responsible for economic policy are aware that the traditional Keynesian prescriptions for stimulating demand that had worked at other times today bring more problems than otherwise. Spain is an example. In the past five years consumer spending has grown by an average of 3.6% real, a figure even higher than in the United States, thus constituting the main engine of demand, along with the buying of houses.

  If the European consumer remains downcast and, on the other hand, it is felt that the US consumer no longer has much margin to keep driving the world economy, we may wonder about the future. The answer, of course, lies with China. This is not something for the immediate future but over the medium and long term the Chinese consumer will come to change the world. At this time, the Chinese consumer represents only one third of the economy whereas in the developed countries the norm is for it to account for two-thirds. The Asian giant is deep into industry and investment in infrastructures. But this will change. It is hard to imagine the number of cars, refrigerators, cell phones and tourist package tours that a population of 1,300 million will be able to consume when they begin to come close to the levels of the developed countries. And, of course, this constitutes a real environmental challenge. But, why not? This is the route Japan followed a few decades ago and that followed by what we now call the «Asian Tigers». The consumer will remain king, here, in the United States or in China.

  April 27, 2006

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