Economists have explored relative prosperity as a determinant of personal happiness for quite some time. A challenge to the rational expectations theory appears when despite being richer in absolute terms, a young adult in a poor urban neighbourhood in the developed world may be unhappier than the elite in many developing countries. Discussing necessities in this context of relative poverty, Sen, for example, points out that the television is a need for the school education of a British child in a way it isn’t for a Tanzanian child. The resolution of relative poverty therefore does little to address absolute poverty (and vice versa).
The resolution of relative poverty is nevertheless important – if not for the evasive goals of happiness then for the risk-aversions and social equity that severe economic inequalities can bring. Taking a centrist position in a provocative book, Robert H Frank argues that status competitions are ingrained in our hormones. Exploring incomes amongst professors competing for grants – he notes that neither the Permanent Income model nor the productivity models explains the distribution of income. What offers a better explanation is the presence of status competition among the professors.
Focusing primarily on crowding in the Western society, Fred Hirsch had given similar forewarnings of the effects of intensifying status competitions [7, 10]. In modern society, he argues, the needs had expanded manifolds since the time when Adam Smith’s invisible hand was known to work. In Europe of the eighteenth century, whereas the rich could pursue their interests while the poor gained mobility in exchange of their participation, in modern times, through immense success of capitalism in the twentieth century, this exchange is no longer appealing[3, 11]. In the absence of social mobility to offer for exchange, the distribution of resources was to occur through status competitions – a post-war process where positional goods and advertisement had a major role to play.
While Hirsch does seem to engage some in prophetism as he warns of rationing of living spaces and other public goods through status competitions, there are two key phenomena that are relevant to the mechanics of status competitions – scarcity and congestion. With physical scarcity of goods largely conquered (food and amenities), scarcity appears largely social in the developed countries. More commercialization leads to more scarcities and more competitions – hence congestion for goods provides a measure of the degree of social scarcity.
In my opinion, the difference between physical and social scarcities seems unclear in his analysis. That is not just because it is a difficult classification problem but also because, according to Hirsch, the boundary between physical and social scarcity can get blurred by the positional goods creating a market for themselves(?). In context of the developing world, the creation of scarcity through “overuse” (which Hirsch stresses as the engine of social scarcity) is less relevant as the congestion for goods is less often for status needs (physical scarcities are severe in the developing world). That said, with recent developments in the underdeveloped world we are more likely to see a mixed effect of commercialization and physical scarcities with an increasing effect of status competitions. The distinction between physical and social scarcity is less relevant in this regard.
Frank’s interpretation of social scarcity provides a more pragmatic view. In Frank’s model, social interaction amongst participants is a proxy of congestion. Focusing primarily on income distribution, his axiomatic claim – that in the absence of monopolies, corporations cannot survive by rewarding talent alone and are thus compelled to depend on status competitions for income distribution – provides a microeconomic illustration of social scarcity (wherein attributes such as workplace safety get overpriced because of status maximization goals). The role of social interaction is equally relevant in the developing countries where industrial development and societal competitions have interacted and clashed very recently(See Section4.2↓).
Like Schumpeter, Hirsch had also viewed industrial revolution as a legacy of liberal capitalism – a race amongst the middle classes to achieve the higher social positions once held by the feudal elite[7, 11]. Developments of the last century in Africa and Asia bear similarity to this phenomenon where a new working class has clashed with feudal and colonial systems of the century before. The growing status competitions amongst the nascent working classes have been a subject of sociological study. In India of the 1950s, this competition was termed as Sanskritization when erstwhile lower classes emulated higher social classes with newly acquired economic freedoms .
Incidentally, both Hirsch and Frank have argued for policy control of status competitions for positional goods. Hirsch summarizes the problems of controlling distribution as an “adding-up problem” [sic] – where a group of individuals fail to pursue a common goal as their common goal (e.g. defence of public goods or safety) isn’t broken down into individual responsibilities (“when everyone stands on tiptoes, no one sees better”). in the developing world has hardly followed the route of Georgian England. The industrial class in the countries is indeed small in size and poor in absolute terms. The problems of extreme poverty have remained largely unresolved in large swathes of Asia and Africa.
It would be inaccurate though to draw wide conclusions based on economic poverty. Modern poverty is of a different nature than that of the Georgian England. The administrative successes and stabilities of post-colonial governments in Africa and Asia are varied and have depended largely on the extent of agrarian empires that had existed before. The extractive administrative frameworks of Ottoman or Moghul empires, for example, could be adapted well by European colonists in Asian countries when compared to the administrative units (as much as the political boundaries themselves) created in sub-Saharan Africa.
What we see more often in Asia and Africa are the effects of decolonization – a process that encompasses the loosely similar post-war political voices in Asia and Africa aspiring to establish nation-states. While centralization had been attempted for decades in both Asia and Africa (curtailing local-level status competitions and individual freedoms alike), their limited reach and success has prevented the institutional expression of status competitions. As the barriers are broken since the fall of the Berlin wall, the competitions that may have otherwise been limited to tribal or local levels have just started expanding to urban settlements. The study of urban vs rural communities in Africa (see section 4.1↓) – esp in the context of Base of the Pyramid (BoP) initiatives is of particular interest.
Let’s look into a little bit of history for a few sub-Saharan African countries. Starting with Nigeria, we see some effects of the missionary education in the country- where regional disparities exist in current education levels between the North and the South. North has had a higher Islamic influence and the uniformity desired by the post-colonial government had initial challenges.
Having been a British colony, which have historically welcomed the participation of native authority, the market forces had been left relatively untouched in the country. Little was done to improve the conditions of the wage-driven peasantry – a trend that continued well into the post-colonial era. Then came African socialism and the power of merchant class also became limited. In more recent decades, when MNCs could have brought more power to a working middle class, their presence didn’t change the state of capital being controlled by a small minority either – an environment where only the state monopolized industries and an informal sector seem to have expanded.
While the BoP initiatives may not have created sufficient base for entrepreneurs, they have revived a focus on education and expanded the market for industrial goods. An average of 42% workforce in Nigeria have secondary education or higher. Upto 28% of those in mere survival activities have a secondary school certificate, and 12% have post-secondary qualifications . Newly urbanized indigenous tribes and newly educated classes have taken up jobs that had earlier required a much lower level of education. The crowding hardly resolves the underlying problems with the economy – as the formal sector is in doldrums. It would be fair to say that the state of economy, rapid population rise and the resulting migration from rural areas has given rise to conditions where social scarcities may thrive.
Let’s go over to the next country – Tanzania – which was no less than an epicentre for the African socialism movements. In 1974, it even offered help to Mozambique in its liberation movements. Like in most of the post-colonial world, planned economy seemed the way forward under influence of Nyrere. However, once the political independence was achieved, the membership of nationalist parties declined and slowly on the side, the separation of civil service from political institutions became less important.
The reduction of private sector was not to experience much opposition under Nyrere’s leadership. Thus with a lack of support from workers and a ban of producer-consumer societies, a few inconsistencies appeared in the socialist model. The import subsidies seem to have underdeveloped the industrial sector – the approach of import substituting industrialization (ISI) leading to an oversubsidizing. A rent-seeking bureaucracy allowed the oversubsidizing to spread across other sectors – letting capacity utilization fall for the industrial sector.
Only public officials seem to have had the advantage in becoming entrepreneurs – and the problems around corruption have always posed limitations to trade reforms in the country (particularly in the energy sector). With a state regulated economy having had no ways to expand, the growth of parallel economy has been inevitable.
Electricity is only available to 10% of the population (~10% of their household income of users of electricity in rural countries is spent on its bill). The use of internet communications is higher in Tanzania than in Africa’s average but access to finance is low (albeit rising) for the private sector. Quality of life differs significantly between urban and rural regions and the size of the informal sector (60%) is significant. It should’t be surprising that life-style differences exist in the country.
Going over to Angola, next – the country achieved independence from Portugal in 1975, after which the competition between different movements that were vying to lead the country descended into civil war. The Popular Movement for the Liberation of Angola (MPLA), a Marxist-oriented group that included urban intellectuals, nominally led the country. Similar to the other post-colonial developments, state-controlled companies were to thrive. Sonagol, the state oil company, seems to play a quasi-fiscal role according to economists from the Western economies. The economy’s dependence on oil revenues also makes economic diversification difficult. Business with China is booming and the urban changes have finally arrived in Angola.
In Kenya, the political conditions have appeared to be an equilibrium of multiple ethnicities – clan dynamics playing a big role in social spheres. When resettlement was attempted under Kenyatta’s leadership, the non-Kikuyu population was quick to express their discontent. Other attempts at nationalization – taking control of foods sales and establishment of purchase centres – met with similar disappointments. The institutional problems persist. The prevalence of small-scale independent works and lack of support offered to them has not been addressed by the governments and private sector.
In summary, the outreach and resources of the governmental institutions in the developing world are limited and a large industrial sector at the scale of China has been out of reach for most African countries. The small-scale private enterprise – which forms the majority of non-agrarian workforce in sub-Saharan Africa – receives little governmental assistance. The expansion of informal economy has continued and the migration to urban areas multiplied. Urban migration is often seen as a necessary phase of urbanization which is followed by the competition between industrial and agricultural sectors for labour and food . The side-effect of this development we’re concerned with is the complex interaction between tribal identities and economic developments.
With the investments pouring in from South Africa and Western countries, education has become part of a healthy competition in the African countries. At local levels, as the indigenes displace the non-indigenes and the newly educated displace the less numerous previous workforce, the increased trade is expected to homogenize the varied identities.
Urban migration is difficult to control in African countries. From the point of view of the rural migrant, a flight to urban areas is often an escape from despondent circumstances as well as an opportunity of improbable social mobilities. In the developing economies, cities provide a range of products that are entirely absent from the agrarian rural settings. Overcrowding and massive informal sectors in the urban indicate possibly irrational obsessions with industrial goods and a lifestyle with global appeal.
Given these conditions, more specifically the failed project of homogenisation of the recent past and a sudden rise in the services sector , an obsession with industrial goods is likely to develop in the African countries.
Before we look into the demand for status goods (iPhones and such), let’s think a bit about what we mean by a status or signalling product. If only the rich could afford electricity in a society, wouldn’t electricity also be a signaling product (does it really have to be an iPhone or a watch). One way the economists define a status good is the Veblen good – whose demand would go up even though the prices go up (since the good is even more appealing to its consumers when it’s pricier). In the same spirit, Hirsch considers “overuse” as a criterion for phasing out of a Veblen good – whose signaling qualities decline when individuals use a commodity too much. These definitions would imply that electricity is not a signaling product. It’s price would clearly decline if there is just more of it and it’s certainly not getting less attractive with overuse (although it would be less important for status if there is more of it).
Another reason why an economists would not consider electricity a status good is that it is supposed to be actually good for society. Electricity – in Hirschian terminology – is a direct physical scarcity and it follows that the rich spending more on electricity wuld potentially fund employment and other opportunities (including expansion of power plants) – by putting the invisible hand to work and trinkets can be turned into bread.
In my opinion, the conditions in the developing countries is not that different from that of Georgian England – if one considers the relative poverty. Despite the disparate political climates, it is difficult to deny that more resources (through income and assets) are more important for status than are any industrial goods. The role of income differences should thus be considered in any study of status-related consumption. This is a point that is missed in much of the literature on conspicuous consumption that has been extended on to developing countries.
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