Consumption is the blood line of any economy but the real issue is its pattern and effects. The consumption pattern of a country depicts the aggregate demand for goods and services in the country and in most cases constitutes about 60% of the total GDP. In Nigeria, at 61%, household consumption remains the largest single component of GDP as at 2016.
The more developed a society becomes, the less it spends on food and the more its consumption is skewed towards non-food items. In a developing country like Nigeria, the consumption pattern is often dominated by food. To provide an insight, in 2009/2010, Nigeria’s total expenditure on food and non-food is N24trillion with about 64% spent on food and 14% on clothing and footwear.
Over the years, economists found it methodologically difficult to explain the causal relationship (which may be 2-directional) between consumption pattern and economic growth. Price and income are the only determinants of consumption behaviour addressed by orthodox economic theory. The unexplained residuals are often attributed to “taste”.
The reason for the little understanding of this complex reality is not far-fetched. Behavioural economists have found that all sorts of psychological or neurological biases cause people to make choices that seem contrary to their best interest. People tend to copy others. They do not act in every instance in their long term self-interest. They may not have weighed all the costs and benefits of their action before taking decisions. This explains why some of the simplifying assumptions of economics are not always correct.
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Despite the difficulties in achieving empirical robustness in the study of consumption pattern, the fact that the consumption patterns of all income levels matter is not in dispute. This is crucial because they will ultimately determine the pattern of production. Research suggests that consumption patterns are an important factor in explaining economic performance. For instance, the economic success of Japan can be partly attributable to their slower speed of preference shifting – they did not closely follow the path of consumption behaviour marked out by rich western nations. On the opposite, the collapse of the Puerto Rican economy has been attributed to the reshaping of the island’s consumption into the ‘American way of life’.
The consumption patterns of the rich matter. The rich believe that consumption is an evidence of wealth and the failure to consume is an indication of poverty. With this mindset, most of our rich people tend to embark on consumption pattern that will either publicly display their economic power or provoke the envy and admiration of other people. This “my Mercedes is bigger than yours” mentality has serious consequences for the economy. Consumption motivated by the desire for prestige and public display of social status rather than by the intrinsic utility of the goods and services is not only socially irresponsible but also unnecessarily reduces the natural resource base for the future generation. This behaviour is evident in our rich people’s “society” weddings, burials and birthdays. It is also evident in their preference for designers’ products and exotic wines. To give an idea on the magnitude of this expense on the aggregate level, in 2016, Nigeria spent N6.7trillion to import consumables and household items of which food and drinks alone account for N1.09trillion. Currently, Nigeria is occupying the second position on the list of the world’s biggest drinkers of Champagne and Cognac (Moet and Hennessy) far above several advanced nations like Canada, UK, and Russia. This is absurd for a country where majority is still struggling to meet the basic needs of life.
It would be naive to imagine that these rich people will voluntarily reduce their consumption and change their wasteful habits out of deference to the sustainability of our planet and the conditions of the poor. However, Nigerian billionaires can be persuaded to emulate the American billionaires’ style of conspicuous consumption. The authors of the best seller “Millionaire Next Door” revealed that billionaires in USA are now pursuing a variant of consumerist behaviour which denotes the practice of publicly donating great sums of money to charity as a means of enhancing the social prestige of the donor. Through this method, the personal satisfaction associated with public display of their wealth will be met while contributing to humanity.
The consumption patterns of the very poor equally matter. If they are rational, they are expected to use their meagre resources efficiently. But in most instances, their ‘traditional’ consumption patterns are far from optimal.
Research findings have shown that poor people behave in ways that are imprudent and counterproductive. Literature search highlights that lower socioeconomic status is associated with a range of self-defeating behaviours, including more risk taking, non-compliance to rules and regulation and poor financial management (impulsive and credit purchases etc.). The poor are perpetually in a reactive mode. Among the non-food items that the poor spend significantly on are alcohol and tobacco. They also spend more on festivals (weddings, funerals, traditional and religious festivals). Nigeria is one of the few countries in the world where three marriage ceremonies (court, church and traditional) are required for one to be properly married. The willingness of the poor to participate in these ceremonies represents huge economic loss to them considering their lean resources.
The poor are more likely than other people to make bad economic decisions. This is not because they are irrational or foolish but because of the economic pressure they are under. They are likely to lack the basic information needed to make good choices. They are also more likely to live in communities which hold mistaken or harmful views such as the belief that girl-child should not go to school.
The poor simply live on bargain purchases. They often make second hand market their first choice for almost all non-food items. Without a doubt, the importation of second hand goods harm the economy and weaken companies (especially the manufacturing industry). The potential for second hand markets to decrease demand for new goods has been observed in textile industry, automobile industry, electronics market amongst others.
Analysts say textile industries are relatively easy to develop and the success stories from South Korea, China and other Asian countries confirmed that. The industry can provide the first step in the ladder towards economic growth. A booming clothing sector is labour intensive and generates national revenue through taxes. Unfortunately, Nigeria lost all the benefits of having a thriving textile industry in a developing economy mainly because of the penchant of the nation’s poor majority for second hand clothing. It is therefore not surprising that the demise of Nigerian textile industry preludes the national economic downward slide. According to a 2006 report, Nigeria‘s textile industry direct employment drop from over 200,000 to an insignificant number in 2002.
Today, Nigeria rank 15th among the top 50 destination countries for used cloths export from OECD countries despite the official ban on used cloth importation. As second hand clothing market continues to grow, local manufacturers lose growth opportunities and the nation loses its ability to protect our own clothing industries. Our citizen seems to forget that though the second hand t-shirts may be cheap, it is far better to buy a locally manufactured t-shirt in order to keep the money within the economy and help generate jobs.
Apart from strangulation of the local industries and associated loss of jobs and government revenue, some of the second hand goods may have faults which are not apparent even if examined. Some may even cause problems beyond their value. In fact, second-hand goods can benefit the purchaser only if the reduction in price more than compensates for the possibly shorter remaining lifetime. But according to Interpol, much of the second hand goods falsely classified as used goods are in reality non-functional. The importation of second hand items could actually be the transfer of waste from developed to developing countries. In the end, the poor becomes the ultimate loser struck in the vicious cycle of poverty.
The poor must desist from behaviours which will not only keep them poor but are also likely to keep their children poor. The government has role to play in reducing the transmission of poverty from one generation to another by spending on common needs. For instance, it is an aberration that agriculture which engages the majority of workforce receive small and declining share of our commercial banks’ lending.
The likes of John Kenneth Galbraith have shown that increase in public wealth and infrastructure help everyone including the rich and poor. Unfortunately, this economic reality is often relegated to the background by the politicians in government. Under the guise that “man matter more than the market”, our government now pursues the policy of “stomach infrastructure” for the sake of electoral success. The neglect of key public goods contributes to societal decays including increased crime which affects both the wealthy and the poor alike.
The ultimate goal of national development is improved welfare for the citizens. This implies changing consumption patterns as well as attaining higher levels of consumption. To achieve this goal, what happens in the palace of the billionaire and in the thatch house of the labourer matters. The top 1% might have the best houses, education and lifestyles but their fate is tied up with how the other 99% live.
EJIKE NWOLISA
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