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MANAGERIAL AND DECISION ECONOMICS Manage. Decis. Econ. 21: 123–132 (2000) Conspicuous Consumption and the Positional Economy: Policy and Prescription Since 1970 Roger Mason* School of Management, Uni6ersity of Salford, Greater Manchester, UK In more recent years, the social significance of consumption has increased to such an extent that activity in the so-called ‘positional economy’ is now seen to threaten prospects for sustainable, long-term economic growth. In particular, the demand for status goods, fuelled by conspicuous consumption, has diverted many resources away from investment in the manufacture of more material goods and services in order to satisfy consumer preoccupations with their relative social standing and prestige. This paper looks at the policies and prescriptions which have been proposed in order to reduce levels of ‘conspicuous waste’ in the positional sector, and to redirect resources back into more productive economic activity. Copyright © 2000 John Wiley & Sons, Ltd. INTRODUCTION Theories of economic growth have traditionally focused on the productivity and efficiency of or- ganizations which exist to meet a demand for goods and services which is both rational and ordered. In particular, purchases are assumed to be made for the direct personal satisfaction that product consumption offers to buyers. Similarly, the perception of product value is seen to be an individual, self-centred process in which the con- sumption behaviour of other people plays little part. This ‘material economy’, free of any concerns that consumption could be significantly influ- enced by social rather than by purely utilitarian considerations, is still recognized and accepted, either implicitly or explicitly, by macroeconomic analysts and econometric model-builders. More recently, however, the assumption that consumers are not greatly influenced in their purchase deci- sions by the consumption patterns of ‘relevant others’ in their social environment, has not been sustainable, for as discretionary incomes have risen at all levels, so consumer expenditures have increasingly reflected society’s growing preoccu- pations with style, with identity, and with a social standing and prestige based, in a large part, on the conspicuous consumption of status-conferring goods and services. By the 1970s, it was already becoming clear that, in more affluent societies, two economies were running in parallel with respect to consumer demand and the supply of consumer goods and services. The material economy, the principal en- gine of economic growth and investment, still explained a significant part of consumer demand and preference formation. At the same time, how- ever, an increasing proportion of purchase and consumption was now being undertaken not for conventional utilitarian purposes, but for social and psychological motives associated with at- tempts to improve relative social standing and prestige. Hirsch (1976) used the term ‘positional economy’ to describe this socially-determined eco- nomic activity which, in his view, was now too significant to ignore, and which needed to be recognized as a major determinant of investment, saving and consumption. * Correspondence to: School of Management, University of Salford, Greater Manchester, UK. E-mail: r.s.mason@ salford.ac.uk Copyright © 2000 John Wiley & Sons, Ltd.

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Page 1: Conspicuous consumption and the positional economy: policy and prescription since 1970

MANAGERIAL AND DECISION ECONOMICS

Manage. Decis. Econ. 21: 123–132 (2000)

Conspicuous Consumption and the PositionalEconomy: Policy and Prescription Since

1970Roger Mason*

School of Management, Uni6ersity of Salford, Greater Manchester, UK

In more recent years, the social significance of consumption has increased to such an extentthat activity in the so-called ‘positional economy’ is now seen to threaten prospects forsustainable, long-term economic growth. In particular, the demand for status goods, fuelledby conspicuous consumption, has diverted many resources away from investment in themanufacture of more material goods and services in order to satisfy consumer preoccupationswith their relative social standing and prestige. This paper looks at the policies andprescriptions which have been proposed in order to reduce levels of ‘conspicuous waste’ in thepositional sector, and to redirect resources back into more productive economic activity.Copyright © 2000 John Wiley & Sons, Ltd.

INTRODUCTION

Theories of economic growth have traditionallyfocused on the productivity and efficiency of or-ganizations which exist to meet a demand forgoods and services which is both rational andordered. In particular, purchases are assumed tobe made for the direct personal satisfaction thatproduct consumption offers to buyers. Similarly,the perception of product value is seen to be anindividual, self-centred process in which the con-sumption behaviour of other people plays littlepart.

This ‘material economy’, free of any concernsthat consumption could be significantly influ-enced by social rather than by purely utilitarianconsiderations, is still recognized and accepted,either implicitly or explicitly, by macroeconomicanalysts and econometric model-builders. Morerecently, however, the assumption that consumersare not greatly influenced in their purchase deci-sions by the consumption patterns of ‘relevantothers’ in their social environment, has not been

sustainable, for as discretionary incomes haverisen at all levels, so consumer expenditures haveincreasingly reflected society’s growing preoccu-pations with style, with identity, and with a socialstanding and prestige based, in a large part, onthe conspicuous consumption of status-conferringgoods and services.

By the 1970s, it was already becoming clearthat, in more affluent societies, two economieswere running in parallel with respect to consumerdemand and the supply of consumer goods andservices. The material economy, the principal en-gine of economic growth and investment, stillexplained a significant part of consumer demandand preference formation. At the same time, how-ever, an increasing proportion of purchase andconsumption was now being undertaken not forconventional utilitarian purposes, but for socialand psychological motives associated with at-tempts to improve relative social standing andprestige. Hirsch (1976) used the term ‘positionaleconomy’ to describe this socially-determined eco-nomic activity which, in his view, was now toosignificant to ignore, and which needed to berecognized as a major determinant of investment,saving and consumption.

* Correspondence to: School of Management, University ofSalford, Greater Manchester, UK. E-mail: [email protected]

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These concerns over the status and importanceof the positional economy came from a recogni-tion that, while both material and positionaleconomies could be seen to run in parallel, theywere by no means disengaged or complementary.Growth in the material economy not only gener-ates increased wealth and prosperity, but alsoserves to intensify ‘positional’ competition amongindividuals seeking to improve their social statusand prestige. Ultimately, the two economies be-come competitive rather than complementary, asthey make conflicting demands on the allocationof scarce resources (Hirsch, 1976, pp. 52–54), andthe degree to which the positional economy issuccessful imposes a social limit on economicgrowth by diverting resources into satisfying so-cial rather than economic needs.

The significance of activity in the positionaleconomy is made greater when it is recognizedthat competition for relative social advantage isnecessarily a zero sum game—one person’s socialgain can only be at another’s expense. Demandfor status, prestige and social advantage, there-fore, not only diverts investment away from moreefficient drivers of economic growth, but alsoadds nothing of value to the overall well-being ofsociety at large. Further, by encouraging competi-tion for socially visible goods when resources arefinite, it produces crowding and congestion and,ultimately, can destroy the social value of thegood or service in question at considerable eco-nomic, social and environmental cost to the widercommunity.

The nature of activity and competition in thepositional sector of the economy is complex.First, many positional goods are desired not onlyfor their social prestige, but also because theyadd, at the same time, to the prosperity, securityand longer-term social and economic advance-ment of a family or household. Competition forstatus-conferring occupations and employmentand for private education advantages at primary,secondary and tertiary levels are examples of suchpositional activity. While the significance of suchactivity, and their social costs and benefits, arerecognized and must form part of any inclusiveattempt to manage the positional economy, thispaper focuses on what is generally seen as themost wasteful and destructive form of social com-petition—the conspicuous consumption of goodsand services of no recognizable long-term invest-ment value, undertaken only to secure immediate

gains in status and prestige and in relative socialstanding.

CONSPICUOUS CONSUMPTION INECONOMIC THEORY AND THOUGHT

Conspicuous consumption is no recent phe-nomenon. Preoccupations with status-directedconsumption on the part of the rich and powerfulare found in the earliest societies, and the extrava-gances and excesses of ruling elites have been welldocumented (Hunt, 1996). Sumptuary laws wereoften introduced to suppress excessive levels ofostentatious display, but met with little success.At the same time, conspicuous consumption re-mained the preserve of a privileged minority whoreinforced their wealth and social superioritythrough often outrageous levels of conspicuouswaste.

Only in the last 50 years, with the advent ofmore egalitarian affluent societies, has thismonopoly over ostentatious economic display ef-fectively ended. But as the traditional power andprestige of former elites waned, there was nocorresponding decline in the appeal of conspicu-ous consumption—only a change in its natureand direction. Today’s consumer societies, charac-terized by high levels of discretionary income andconsumer spending power, exhibit consumption-linked preoccupations with status, identity andstyle at all social and economic levels which deter-mine, in part, the allocation of scarce resourceswithin any given economy.

The significance of modern-day conspicuousconsumption is not in dispute, but there is stillcontroversy over the degree to which such eco-nomic behaviour could or should be managed.Traditionally, luxury expenditure and ostentatiousdisplay were condemned by church and state alikeas self-indulgent and unproductive, but theseviews came under increasing attack after 1700.Mandeville (1714) was first to argue that eco-nomic activity of whatever sort can only add toeconomic growth and social well-being, and thatthe ‘vice’ of vanity, translated into ostentatiousconsumption, should be welcomed as a force forgood. His views outraged the establishment of thetime, and his treatise was declared ‘a public nui-sance’ in England in 1723. Classical economists ofthe period also distanced themselves from thisdefence of conspicuous consumption, but through

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the 19th century, as the benefits to industry andcommerce of socially-inspired consumption be-came more tangible, Mandeville’s views were,either implicitly or explicitly, endorsed by thosecloser to the manufacturing interest than to eco-nomic theory (List, 1841; Roscher, 1854). Thedebate as to whether conspicuous consumption is,in economic terms, a force for good or evil contin-ues to this day, with many free market economistsstill holding to the view that there is no case forintervention, on moral, ethical or economicgrounds, against the legitimate activity of status-seeking consumers. By the later 20th century,however, the scale of conspicuous consumptionwas such that some greater management of thepositional economy was seen by many to be nec-essary if sustainable increases in productive, long-term growth were to be achieved.

Arguments that excessive, status-led consump-tion in today’s affluent societies distorts economicactivity and is too significant to ignore are nowgiven greater credibility, but policies and prescrip-tions have been slow to develop. In particular,there were disagreements as to how the demandfor status goods could be successfully reduced orchannelled into more productive areas ofconsumption.

Hirsch (1976, pp. 179–180) believed that theonly long-term solution to the perceived misallo-cation of resources resulting from status-seekingconsumer behaviour was to engineer a change insocial ethics which would ensure that the socialinterest came to condition self-interest. In thisway, social benefits could then be secured whenindividuals acted as if they put the social interestfirst, even if their primary interest was still selfish.Hirsch’s prescription was not new, for as early as1907, Marshall had argued that the answer tostatus-seeking conspicuous waste was to changepublic attitudes so that such activity was con-demned rather than admired, while at the sametime conferring status only on those who chose todisplay their wealth and success in ways whichcould be seen to be of direct benefit to society atlarge. This appeal to link status-conference morestrongly with philanthropy still finds echoes todaybut, for many, Hirsch’s belief in the malleabilityof consumer culture and values was considerednaıve.

In contrast to Hirsch, Frank (1985) held thatany attempts to engineer changes in the pattern ofdemand for status-linked positional goods could

not succeed in significantly changing consumerbehaviour with respect to the goods and servicesthey chose to buy, and that consumer aspirationsto improve their social standing through the con-spicuous display of status goods had to be recog-nized. His preferred policy (Frank, 1985, pp.249–250) was to accept the realities of the mar-ketplace, but to mitigate the effects of such con-sumer behaviour by introducing a consumptiontax on those consumption categories which im-posed significant (negative) external effects onothers. Such a tax, it was argued, would clearlyact as a disincentive to indulge in more wastefulstatus-seeking activities: at the same time, where itfailed to act as a disincentive, tax receipts couldbe used in the wider social interest to offset someof the more damaging consequences of suchconsumption.

Frank’s proposal for the introduction of a con-sumption tax nevertheless raised several questionsrelating to its implementation and effects. First, itwas not clear who or what would determine thosecategories of consumption which were to be con-sidered sufficiently ‘negative’ in their effects onothers. Second, it was argued that the impositionof a punitive tax would only serve to raise theoverall price of the product in question and so,paradoxically, increase its attractiveness to thoseseeking to display wealth through consumption.While it may, therefore, have succeeded in raisingadditional revenues, its effectiveness as a deterrentwas called into question. Finally, worries wereexpressed concerning the risk of recession andunemployment among suppliers of positionalgoods if demand was successfully and significantlyreduced.

Frank countered this last criticism by arguingthat money not spent on conspicuous consump-tion would, in all probability, be saved and in-vested and put to more productive use. Byimplication, any risks of unemployment amongstatus good suppliers would be offset by employ-ment opportunities created elsewhere in more pro-ductive areas of the material economy. The Frankproposals were, nevertheless, treated with somescepticism, particularly with regard to their abilityto make significant inroads into the growing de-mand for status goods and services. Nonetheless,he had raised the subject of excessive demand forpositional goods at a time (the mid-1980s) whenconspicuous consumption in the United Statesand elsewhere was reaching levels which began to

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heighten political interest in the short and long-term social and economic effects of such activity.By the end of the 1980s, calls for some greaterpolitical intervention were increasing.

The taxation of status goods was, in itself, nonew issue. Classical and neoclassical economistshad advocated levying taxes on status-conferring‘luxuries’ as a relatively painless way of raisingadditional revenues for the Exchequer. After1970, taxes on status goods continued to be seenby some as a burden-free way of raising revenueswhich could then be employed in the wider publicinterest (Miller, 1975; Ng, 1987). Importantly, theimposition of such taxes on individuals whosepurpose was to conspicuously consume for statusgains seemed to many a fair system of revenueraising from those most able to make a relativelygreater contribution to society. Public resistanceto any proposals from the legislature concerningthe greater ‘management’ of excessive status-seek-ing consumption was, therefore, judged to beminimal, not least in the United States.

In 1990, the Omnibus Budget ReconciliationAct introduced a Luxury Excise Tax in the UnitedStates, with the intention of moderating excessivestatus-seeking conspicuous expenditures. A 10%excise tax was introduced on a limited range of‘conspicuous’ products (automobiles, boats, air-craft, jewellery and furs), where the retail priceexceeded a given sum and the purchase could,therefore, be (subjectively) considered to be astatus good. The tax was originally intended toapply to all sales made before January 2000: inthe event, the legislation was repealed in 1993 inresponse to claims that the bill was both damag-ing and ineffective. The official explanation forrepeal was that manufacturers of status goods hadbeen hit particularly hard by the industrial andcommercial recession of the early 1990s. The real-ity, however, was that the tax had produced manynegative side-effects not envisaged by thelegislators.

First, the tax was held to be distortionary to anunacceptable degree, for rather than reducingtheir levels of conspicuous consumption, con-sumers simply altered their spending patterns inorder to avoid the goods on which the tax waslevied. With hindsight, this had been predictable,for research in the 1970s and 1980s (Douglas andIsherwood, 1978; Solomon and Assael, 1987) hadestablished that status-seekers recognize ‘con-sumption constellations’, defined as clusters of

complementary products, specific brands and/orconsumption activities, which they use to define,communicate and enact social roles. By limitingthe United States tax to only five categories ofstatus-conferring product categories, the legisla-tors had, in fact, failed to recognize the impor-tance of constellations and the ease with whichconsumers could avoid the tax without compro-mising their ability to consume for status.

Within the five product categories liable to thenew tax, manufacturers reacted in one of twoways to the legislation. First, and most positivelyin the eyes of those seeking to secure moves awayfrom the manufacture of positional goods, somevolume producers, worried that the new tax her-alded the beginning of a sustained long-term at-tack on excessive conspicuous consumption,shifted design and production into more main-stream (i.e. less expensive) product lines. At thesame time, however, other producers stayed tofight for market share within the luxury goodssector by running promotional campaigns whichoffered to reimburse United States customers thefull amount of the tax. In this way, they guaran-teed that real post-transaction prices to consumerswere unchanged, while the tax-inclusive ‘conspicu-ous’ price remained impressively high in perceivedstatus terms.

Overall, the 1990 Luxury Excise Tax must beconsidered a failure in terms of seeking to securean ordered shift of consumer and supplier activi-ties out of the positional sector of the economy.At the same time, it was unknowingly introducedat a most inopportune moment, at a time whenthe United States economy was entering a signifi-cant (if relatively brief) downturn in overall eco-nomic activity. In addition, the bill was badlydrafted, based on incomplete information andwith no real understanding of predictable marketreactions to the introduction of the tax. The fail-ure of the 1990–1993 experiment, therefore, wasfar from conclusive and lack of success was, in alarge part, attributable to factors for which thetax itself could not be held to account. Betterdraftsmanship, informed by a greater understand-ing of status-seeking social consumption, couldhave produced a more productive out-turn (Ma-son, 1998, pp. 157–159).

While policies and prescriptions relating to thebetter management and control of conspicuousconsumption within the positional economy have,for the most part, focused on the status seeker, it

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has not gone unrecognized that socially-directedconsumption has, for many years, been activelyencouraged by the suppliers of status goods. Ar-guments that an individual’s desire for sociallyvisible, status-conferring products and services isartificially contrived by advertising agencies act-ing on behalf of manufacturers and retailers arewell represented in the economic literature. Gal-braith (1958) was among the first to argue thatthe ‘need’ for status goods is given a false urgencyby producers and advertisers who, in pursuit ofsales, invest products with social and psychologi-cal properties deemed essential to those con-sumers concerned with their relative socialstanding. As societies become more affluent, itwas argued, so wants are increasingly created bythe process by which they are satisfied. In thisway, a ‘dependence effect’ necessarily develops asproducers come to rely on the consumer’s desirefor products which are believed to add to socialstatus and prestige (Galbraith, 1958, chapter 11).

Some 40 years later, Galbraith’s observationson the promotion and supply of positional goodsare confirmed by the most cursory analysis ofmarkets which have become increasingly relianton the social engineering of demand. Today, man-ufacturers, retailers and their advertising agenciesactively encourage consumer preoccupations withsocial status and prestige. Advertising, in particu-lar, has come to play a key role in creating socialimages around products with a view to maximiz-ing their appeal in status-sensitive markets. Retailoutlets, also, increasingly cater quite explicitly toconsumers who are shopping not for utility per se,but for goods and services which offer socialstatus, identity and ‘style’. Today, market preoc-cupations with conspicuous consumption are self-evident, and no longer open to question.

In essence, attacks on ‘want creation’ are oftenrooted in moral and ethical objections to themanipulation of consumer demand in the interestsonly of corporate sales and profitability (Mason,1985). In particular, it is argued that, by encour-aging preoccupations with status and social pres-tige among lower income groups, seriousdeprivation can be caused by channelling demandaway from necessary commodities and towardsgoods of little or no real value. Claims that suchactivity is a matter only for the individual, andthat deprivation resulting from consumptionchoices is a personal decision best left to theconsumer do not, it is argued, recognize the rights

of those who can be considered to be third partiesto such transactions—especially children whomay be denied many necessities as a result of theirparents’ consumption preferences. By raising thedemand for status goods, therefore, business orga-nizations stand accused of pushing conspicuousconsumption so high that they trigger real socialdeprivation.

Moral and ethical criticisms of manufacturers,retailers and their advertising agencies have, inreality, met with little success. In their defence,business interests have argued that promotionalcampaigns are concerned only with establishing agiven brand as socially acceptable and that theyhave no real influence on generating the primarydemand for status goods which is seen as cultur-ally rather than commercially inspired. Second,they point to the fact that there is no hard evi-dence to suggest that suppliers seek, through theiradvertising, to establish that their products’ socialattributes are more important than their real util-ity value. As an example, demand for prestigeautomobiles is often claimed to be inspired, inlarge part, by considerations of status and pres-tige: equally, however, such purchases can be seenas a desire to possess a product made to thehighest standards of performance, comfort andtechnology, with little or no concern over anyperceived status value (Lancaster, 1971, p. 174).

While manufacturers have marshalled defencesagainst charges that the status attributes of prod-ucts are assuming, with their connivance, an evengreater importance in the eyes of consumers, theirreal motives are often still suspect. Certainly, sup-pliers can lay no claim to being unaware of themarket power of conspicuous consumption, ifonly because there is now clear evidence thatindividuals will buy for status alone, in the knowl-edge that a product’s true utility and quality isclose to zero. The profitable counterfeiting ofstatus goods offers particularly robust evidence inthis respect, for it highlights the distinction madeby consumers between a product’s tangible qual-ity (measured in classical utilitarian terms anddetermined by product excellence in use) and itsquite separate social and prestige value.

Consumers who knowingly buy counterfeitproducts, in fact, value only the prestige associ-ated with a particular brand name, and are fullyaware that the goods they buy are ‘fake’ and oflittle or no quality. Counterfeits, in effect, allowconsumers to separate out the status attributes of

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a brand from its real utility, and to then purchaseonly the status element. As Grossman andShapiro (1988, p. 82) point out ‘the counterfeitingof a status good . . . deceives not the individualwho purchases the product, but rather the ob-server who sees the good being consumed and isduly (but mistakenly) impressed’.

If supplier arguments concerning the need toinvest any and all goods with minimal acceptablelevels of tangible product quality are correct, thencounterfeit goods offering only social visibilityand a superficial status value would find no mar-ket. In fact, the market for recognizably counter-feit goods is now worldwide. In the 1980s, it wasestimated that counterfeits then accounted forapproximately US$ 60 billion of world trade an-nually, and that a significant part of this businessrelated to demand for counterfeit status goods. By1995, ‘made in Italy’ counterfeit designer goodsenjoyed sales in Italy alone of £2.2 billion, provid-ing jobs for some 20000 Italians (Comite Colbert,1992).

The worldwide success of counterfeiting andcounterfeit goods poses a serious threat to thelegitimate business interests who manufacture andpromote the genuine brands which are routinelycopied and exploited. In defending their interests,these producers rightly apply the strongest pres-sure on government and other agencies to increasepenalties on counterfeiters and to confiscate coun-terfeit goods whenever and wherever possible. Atthe same time, it is difficult to argue that manu-facturers themselves do not initially invest theirbrands with the high status values which are thenexploited by others. Critics have argued thatmany businesses, their denials notwithstanding,actively promote their brands, first and foremost,as socially visible products of high status value, inthe knowledge that this allows them to chargepremium prices to an ever-growing market ofconspicuous consumers to whom high prices canbe seen as positive product attributes.

POLICY AND PRESCRIPTION FOR THEFUTURE

Attempts to introduce greater elements of man-agement and control into status-driven economicactivity, whether demand led or supply led, have,to date, met with little success. At the same time,the analysis of consumer and supplier behaviour

on which policies and prescriptions have beenbased has not, in itself, been fundamentallyflawed: rather, the difficulty has been in decidingupon measures which would be sufficiently robustin engineering changes in consumer attitudes andvalues. Equally, there have been no attempts toco-ordinate measures in order to bring pressure tobear on demand and supply simultaneously.

On the demand side, any success in achieving ashift away from conspicuously wasteful status-seeking and towards a greater emphasis on chari-table or philanthropic expenditures, as Hirsch andothers have proposed, would clearly be sociallybeneficial and would, over time, reduce levels ofactivity in the positional sector. In essence, thisapproach acknowledges the inevitability of status-seeking behaviour, but argues that it need notnecessarily be against the public interest—a viewendorsed by Congleton (1989) in his analysis ofsocially productive ‘macro-status games’.

The case for encouraging status-seeking whichpromotes positive externalities is persuasive in thecontext of diverting resources out of positionalgoods and into wealth creating activities moreclosely associated with the material economy. Atthe same time, exhortations to status-seekers toredirect expenditures into socially acceptablechannels will continue to fail for, with the excep-tion of the very rich (whose philanthropic activityis certainly recognized and socially visible: person-ally financed foundations and charitable trusts,carrying the name of the benefactor, have alwaysbeen seen by the wealthy as ideal vehicles forconsolidating and displaying social rank), the con-tributions of less wealthy donors typically conferno recognizable social gains. There is, in short, noreal incentive for the great majority of status-seek-ers to consider philanthropic investment as a cred-ible means to achieving a higher status withinsociety.

Given these limitations, philanthropic activitycan only be encouraged through economic incen-tives. In particular, tax concessions and specialfinancial subsidies could be used to foster in-creased socially productive expenditure and in-vestment. While such incentives are already inplace in many countries, they are typically notsignificant enough to persuade less affluentstatus-seekers that the financial (non-status) gainsare sufficient to offset more conspicuously waste-ful expenditures intended to secure increases insocial standing and prestige. To be effective, tax

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concessions, as a minimum, would need to bebased not on actual expenditure totals relating toactivity designated as philanthropic, but on somemultiple of these sums. In this way, donors andbenefactors would receive substantial financialbenefits in recognition of their investments inphilanthropic and charitable schemes—benefitswhich could be made significant enough to drawmoney away from more wasteful conspicuousconsumption in the positional economy.

A further initiative intended to dampen eco-nomic activity in the positional goods sector re-lates to proposals that a consumption tax belevied on those persisting with socially unaccept-able levels of conspicuous waste. As has beenshown, such taxes, specifically targeted at luxuryexpenditure and conspicuous consumers, havebeen introduced in the past, but have met withlittle success. However, these reverses have en-couraged proponents of the tax (Frank, 1997,1999) to revise rather than abandon such schemesin the light of experience and to propose morerobust schemes.

One reason for the failure of the 1990 experi-ment in the United States was that the legislatorsmistakenly tried to identify and to tax expendi-tures on certain categories of products deemed tobe luxury goods. As these categories were by nomeans comprehensive, consumers had little diffi-culty in avoiding the tax by switching spendinginto other perceived categories of status goods.Suppliers of the taxed categories also resorted tooffering financial incentives in order to retaincustomer loyalty. These actions demonstrated thatit is not feasible to attempt any specific identifica-tion and targeting of status goods by brand orcategory. Revised taxation proposals now concedethat any consumption tax must relate to totalspending, and not to any particular patterns ofpurchase. And because of the relative attractive-ness of high (tax-inclusive) prices to the intendingstatus-seeker, the tax rate must be high (andpainful) enough to discourage ostentatiousdisplay.

Current arguments in favour of the introduc-tion of a consumption tax make no attempt,therefore, to identify categories of status goods.Rather, they propose the introduction of a con-sumption tax which does not discriminate be-tween different goods and services, but whichapplies a steeply progressive tax rate, geared todifferent levels of income, on positive taxable

consumption above a given threshold. In this way,it is argued, individuals are made aware that theymust pay considerable financial penalties for in-dulging in high levels of conspicuous consump-tion, a recognition which puts downward pressureon excessive status-directed consumption.

Earlier attempts to introduce consumptiontaxes were also criticized for underestimating thenegative effects which any significant cutbacks inconsumption might have on productivity and em-ployment. To counteract these concerns, today’sadvocates of the tax now insist that alternativeoffsetting employment opportunities will be as-sured if the tax rate on savings and investment issimultaneously set and held at zero. Moreover,the direction of new investments, it is claimed,would benefit the material, as opposed to thepositional economy, so bringing about the shift inmacroeconomic activity that the consumption taxis intended to secure.

Incentives to save and to invest in materialsector enterprise could be further strengthened ifstronger mechanisms existed to award status onthe basis of an individual’s relative holdings ofproductive capital. In addition, a status-awardingculture which promoted the accumulation of pro-ductive wealth would also reduce the relativeprices of non-status goods—in contrast to statuscompetition which, through conspicuous waste,promotes wealth destruction, so reducing the poolof productive capital and consequently causingthe price of non-status goods to increase relativeto status goods. In short, wealth-destroyingstatus-seeking actively encourages unproductiveconspicuous consumption, in contrast to wealth-creating activity which lowers material economyprices, and so encourages the consumption ofnon-status goods (Congleton, 1989).

In contrast to the tax incentives and penaltiesassociated with attempts to manage and controlthe demand for status goods, policies and pre-scriptions directed at supply-side activity havebeen more difficult to devise. First, suggestionsthat ‘want creation’ generated by and throughstatus-promoting advertising could be statutorilyreduced have met with little support, as legislationintended to restrict or control such activity isconsidered both impractical and unenforceable.Second, ethical and moral arguments against thepromotion and sale of products knowingly mar-keted as status goods are difficult, if not impossi-ble, to translate into managerial policy. It is

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theoretically possible to attack the premium pricescharged for status goods on the grounds thatbusiness organizations should be required to seekonly a ‘fair’ return on capital employed. However,many manufacturers have claimed that their pre-miums reflect only the higher levels of productquality demanded by their customers and thatthey are not leading, but are led by, a quality-con-scious market. While such arguments are oftenmet with considerable scepticism, it remains thecase that ethical objections to the supply of goodsintended primarily for conspicuous consumptionfind no easy expression in policies geared to re-striction or legislation.

Third, those seeking to moderate positionaleconomic activity through the better managementof conspicuous consumption are, predictably, am-bivalent about counterfeiting and counterfeitgoods. On the one hand, the right of legitimatemanufacturers to protect their brands and brandnames from unlawful exploitation is not contestedand they have every right to protection under thelaw, both through the confiscation of counterfeitgoods and the prosecution of counterfeiters. Para-doxically, however, counterfeit brands intendedonly for social display are offered at significantlylower prices than the corresponding ‘legitimate’brands and, for many conspicuous consumers in-terested only in social visibility and the attendantprestige value associated with (de facto bogus)consumption of the good or service, it is oftenefficient for them to buy counterfeits. In addition,the manufacture and distribution of counterfeitgoods intended only for conspicuous display doesnot draw significant resources and investmentsaway from the material economy and into posi-tional activity. In short, policies designed to dis-courage counterfeiting need not improve overalldomestic welfare.

Given these difficulties and limitations, policy-makers have, instead, focused their efforts onundermining the perceived status value of brandsoffered primarily as prestige symbols. By attack-ing selective distribution and increasing productavailability, the social ‘cachet’ of such goods issignificantly reduced, and has the additional bene-fit of driving down product prices by exertingpressure on both supply and demand. Lowerprices, in turn, reduce the profitability of manu-facturers and retailers trading on margin ratherthan on volume, so securing a longer-term switchout of positional and into material economy com-mercial activity.

The policy decision to increase productavailability in order to undermine status con-sumption is a relatively recent development for, inthe 1990s, arguments in favour of exclusive deal-erships and the need to restrict channels of distri-bution for luxury goods of high status value werestill being received sympathetically. In 1991, as anexample, the European Communities Commissionjudged in favour of the French company YvesSaint Laurent, which had claimed that selectivedistribution and resale price maintenance wereessential elements in securing their long-term fu-ture as manufacturers and suppliers of fine fra-grances. Similarly, the UK Monopolies andMergers Commission (1993) recognized the legiti-macy of the conspicuously high prices charged formany status goods. By the later 1990s, however,the protests of many excluded potential distribu-tors that they should be allowed easier, unre-stricted access to luxury and status goods, andshould be allowed to offer such products at dis-counted prices were beginning to change attitudesat a time when status spending in the positionaleconomy began to reach new heights. In theUnited States, data showed that, by 1996, luxury,status-linked spending was rising four times fasterthan spending overall, and similar, if less em-phatic, rises were recorded elsewhere.

Policy-makers are now increasingly persuadedthat status consumption and conspicuous wasteare creating serious macroeconomic problems forthe future, as demand for socially visible productscontinues to draw significant resources out of thematerial economy. Some manufacturers of statusgoods continue with campaigns to preserve the‘exclusivity’ (and high prices) associated with tra-ditional channels of supply and distribution. InFrance, the Comite Colbert, established to protectand promote the interests of French luxury goodsmanufacturers, still emphasizes the importance ofexpensive, socially exclusive goods used, theyclaim, by their customers ‘to express membershipof a certain milieu’ (Comite Colbert, 1992). Thoseinterested in seeing a significant shift of resourcesin favour of material economy activity, however,are now responding not with legislation but withwhat they would see as the ‘benign neglect’ ofmarket infringements which collectively reducesthe status value of those goods whose real worthto consumers lies in their perceived social prestige.As a result, in more recent years, a so-called ‘greyeconomy’ has emerged which has successfully

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exploited global buying and distribution systemsin order to secure status goods for sale at muchreduced prices and through non-exclusive outlets.In the longer-term, policy-makers will ‘unoffi-cially’ hope that the status value of productsmade more widely available and sold at a dis-count will, over time, erode, and that, subse-quently, the demand for, and promotion of,conspicuously wasteful status goods will reducepro rata.

CONCLUSIONS

Historically, conspicuous consumption was seenby economists as a relatively trivial phenomenon,of little importance and of interest only as acuriosum within economics. For many years,mainstream economists continued to believe thatthe macroeconomic consequences of such be-haviour were overstated, and of little or no realconcern. Analysis and discussion was remarkablelargely by its absence.

This reluctance to take a more serious view ofconspicuous consumption as a potentially signifi-cant field of study was reinforced by the fact thatsuch behaviour generated a demand for goodsand services which was motivated by consider-ations of social standing and prestige rather thanby any classical or neoclassical notions of valueand utility. It, therefore, followed that the explo-ration and understanding of motives underpin-ning consumer choices which were clearly socialor psychological in origin were the proper busi-ness of other behavioural sciences and not ofeconomics. Conspicuous consumption, moreover,did not lend itself easily either to quantification orto mathematical precision and so lacked any po-tential for economic (i.e. econometric) rigour. Asa result, the economic consequences of status-seeking consumer behaviour received little atten-tion over the years. By 1970, however, marketrealities were making such neglect increasinglyuntenable.

After 1970, the need for some greater recogni-tion of the economics of conspicuous consump-tion became more apparent, and a growingnumber of economists were prepared to recognizethe importance of a ‘social’ phenomenon whichwas having significant effects on the economics ofdemand and of resource allocation. At the sametime, this recognition was tempered by a reluc-

tance to endorse many of the policy recommenda-tions which began to emerge in the 1970s and1980s—policies which often ran counter to long-held economic beliefs and principles.

Opposition to policies and prescriptions di-rected at status-seeking consumer behaviour camefirst from many free market economists who re-jected such interventions as a matter of principle,arguing that economic policy-makers could haveno mandate to seek to control an individual’sright to consume goods and services as he or shesaw fit. Equally, for many who were prepared toconcede the principle in the interests of the greaterpublic good, policies based directly on the man-agement of consumption were held to be unac-ceptable on the grounds that any form ofconsumption tax was distortionary and inferior toprogressive income taxation as a means of de-mand management. Similarly, on the supply side,business economists were quick to attack pro-posals which appeared to constrain the rights oforganizations to supply goods and services inresponse to free market expressions of consumerdemand.

Faced with such opposition, analysis and pol-icy-making after 1970 was often confused anduncertain and open to sustained attack. At thesame time, the need to recognize the growingeconomic consequences of status-directed con-sumption and to acknowledge its ability to drawfinite resources into ‘positional’ activity, and awayfrom initiatives which contributed more directlyto sustainable long-term economic growth wasbecoming more urgent. Early policy proposalswere inevitably revisited and, by the 1990s, a moreeffective and coherent set of policy recommenda-tions began to emerge.

In seeking to manage and control the excessesof conspicuous consumption more efficiently, em-phasis is now placed on the need to addressdemand and supply simultaneously. On the de-mand side, prospects for the introduction of aprogressive consumption tax to contain excessivestatus-seeking expenditures remain remote. At thesame time, while the perceived need to indulge inconspicuous consumer behaviour is widely ac-knowledged as social and psychological in origin,it is now generally recognized that effective de-mand management will only be achieved througheconomic incentives and penalties. Similarly,while moral exhortation, selective taxation andprice regulation were initially favoured as ways to

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achieve better supply-side management, these arenow rejected in favour of policies which aim towiden distribution and to increase the availabilityof status goods in order to drive down prices andto begin to reduce the status and prestige tradi-tionally associated with socially exclusive, pre-mium priced brands. As the decade progresses,policies intended to manage the demand and sup-ply of status goods will be measured primarily bytheir success or failure in achieving a shift ofresources out of the positional economy and intomore sustainable activity in the status-free mate-rial goods and services sector.

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