The Rise of Mass The Rise of Mass Consumption SocietiesConsumption Societies

Kiminori Kiminori MatsuyamaMatsuyama

Northwestern UniversityNorthwestern University

About the context

Flying Geese patternA series of industries take off one after another

Created by Japanese economist Kaname Akamatsu intending to explain the catchi

ng-up process of industrialization of latecomer economies

It works through 3 different channels---Intra-industry aspect, Inter-industry aspect and International aspect

An graphical interpretation of FG pattern

About the context (continued)

The mass consumption society (George Katona, 1964)

The broad masses participate in enjoying all these things and generate most of the demand for them.

Other evidence comes from

Rostow(1960) “the age of mass consumption”

Fourastie(1979) “les trente glorieuses”

Uchino(1978), Kosai and Ogino(1980)

Hypothesis from history

About the Dutch Republic in the seventeenth century, a question is raised about the relationship between mass consumption and the rise of powers. Specifically, it is a question that whether it is the mass consumption help the Dutch Republic to prosper or it’s just the consequence of the nation’s prosperity.

The evolution of consumer products

The spread paths of consumer goods A new concept of what are necessities and n

eeds Stokey, Nancy’s idea (Stokey, 1988)

What does the paper analyze?

The mechanism behind the rise of mass consumption societies and what condition is necessary to make such a transformation possible.

What isthe essence of the whole story?

A Two-way causality between Productivity Improvement and the Rise of Mass Consumption Society

Productivity gains

Expanding markets

reinforcement

A sketch of the model

Identical, nonhomothetic preferences

(well-defined priority over the space of consumer goods )

The implications of this specification

About the dynamical system

The Flying Geese pattern

The trickle-down & trickle up processThe set of steady states is a lattice

The economy is trapped into the lowest steady state

the dynamical system (continued)

Its dependence on income distribution

too much equality or too much inequality may stop the dominos

Endogenous technological changes

the determining power of market size on technological improvement

Related Literature

On Income Distribution On Demand Complementarity On the Evolution of consumer goods

The Model

Goods and preferences

The utility function

note

Discreteness & satiated after the consuming one unit

There is a subsistence level Households have a well-defined priority over

the set of manufacturing goods

The budget constraint and Individual Demand

The budget for household with income I

To maximize

subject to

01

J

j jj

p p x l I

1

1 1

c if cU

k l if c

01

J

j jj

p p x l I

With the assumption of small marginal

utility and the well-defined priority of

consumer goods, we have

Income distribution and aggregate demand

The aggregate demand for good j is equal to the mass of households whose income is higher than Pj.

0

1 ( ) 1 ( ) ( 1, , ).j

j j ii

C F P F p j J

K

0

j

j ii

P p

note

C depends on the distribution of income, i.e. the fraction of households whose income exceeds .

It is bounded by one.

A decline in the price of good i does not affect the demand for good whereas it generally increase the demand for good .

( / 0)ji j ij i C C p

( 0)jij i C

0

j

j ii

P p

Technologies

Competitive industries & constant return to scale

Industry-specific learning by doing

note

Cumulative experience in consumption

Learning effects in production Dynamic

increasing returns

The dynamical system

The demand function

The asymmetric demand complementariy

Dij differs The dynamics of Q

01

( ) 1 ( ( ( ))) ( ( )) ( 1, , ).j

j i i ji

C t F a A Q t D Q t i J

K

( ) [ ( ( )) ( )] ( ( ))j j j j jQ t D Q t Q t Q t &

Some general properties

Property 1. [0,1]J is positively invariant.

(The system is bounded.)

Property 2.

Recursive & Cooperative

recursive---Asymmetry in demand complementarity

cooperative---The improvement in one industry never reduce demand in other industries

/ 0 ,

( 1), .

ij i j

ii i ii ij i ij

Q if i j

D and D if i j

Property 3. The sets M+, M++, M-, and M–

are positively invariant.

All industries move together. Property 4. The set of steady states,

is a nonempty, compact lattice with supM+ as the greatest element and infM- as the least element.

{ [0,1] ( ) 0} { [0,1] ( )}J JS Q Q Q Q D Q

Property 5. For any initial condition

The system is globally convergent; the economy converges to a steady state without any exception.

(0) [0,1] , lim ( ) .JtQ Q t S

Property 6.

There is monotone growth in productivity of all the industries but it is likely that the economy fail to reach its potential.

Property 7. There are two steady states

accompanying with an unsteady state Q*.

The Case of J=1

The model

The economy starts at Q(0)=0 and converges to the lowest steady state.

[ ( ) ]Q D Q Q &

0( ) 1 ( ( ))D Q F a A Q

Shifts in the D Curve

Two possible ways in which the D curve can be shifted is a change in agriculture productivity and food aid.

The Effects of Income Inequality

If the income is equally distributed, as is shown in (a), Q must reach some quantity then the price of product begins to be accepted by all the households. It should be noted that after this ‘leap’, the demand of product can reach its full potential.

The Effects of Income Inequality (continued)

And if the income distribution is completely unequal, the income gap is so large that only a small fraction of households have the purchasing power of certain products. Then the Demand curve is horizontal(a constant).

The Case of Four Classes

Income and the demand function

Note that with the decline of prices, each group orderly have purchasing power of the consumer good.

rich → upper middle → lower middle

What would happen if the redistribution policy is executed?

When some members become rich and enter the rich group, the benefits of increased productivity trickle down from the rich to the upper middle to the lower middle classes. And this process helps the economy develop.

With the income transfer from the upper middle to the lower middle, the trickle-down process is cut short because of wider income gap between the rich and the upper middle class.

The Case of J=2

The model

1 1 1 1 1[ ( ) ],Q D Q Q &

2 2 2 1 2 2[ ( , ) ],Q D Q Q Q &

1 1 0 1 1( ) 1 ( ( ))D Q F a A Q

2 1 2 0 1 1 2 2( , ) 1 ( ( ) ( )).D Q Q F a A Q A Q

Trickle-up process (J=2)

The trickle-up process transmits the productivity gains from one industry to another.

There are three steady state levels of Q1 which form a lattice. And the economy converges to the lowest states which is illustrated by the thick trajectory.

a ‘leap’ in agriculture productivity

Market size for good 1 expands

Trickle-down process of good 1

Emerging market for good 2

Four-class analysisThe increasingly booming markets

stages Good 1 Good 2

1 Rich Rich

2 Rich+Upper Rich

3 Rich+Upper+Lower

Rich

4 Rich+Upper Rich+Upper

5 Rich+Upper+Lower

Rich+Upper

6 Rich+Upper+Lower

Rich+Upper+Lower

Positive effect Negative effect

Forces behind it

Narrowing the gap between the two middle classes will make good 1 affordable to the lower(Ⅱ→ )Ⅲ and good 2 affordable to him, too. (Ⅴ→Ⅵ)

Or the upper middle class could gain from redistributing its income to the lower middle class. In that case, upper begins to consume good 2 and lower begins to consume good 1.(Ⅱ→Ⅴ) Even it is possible for both upper and lower to consume .(Ⅱ→ Ⅵ)

Forces behind it (continued)

One negative possibilityBy widening the gap between the rich and the upper middle class, the transfer could block the trickle-down process from reaching the upper middle class, making good 1 unaffordable for the upper( → ) Ⅱ Ⅰ or good 2 unaffordable for the upper( → ).Ⅴ Ⅲ

Robustness

Inter-industry Spillover of Learning by Doing Different Ordering of Goods across

Households Alternative Specifications of the Preferences

Concluding Remarks

Two-way causality between productivity improvement and the rise of a mass consumption society.

The role of income distribution

Extensions

Two-factor economy International trade Country-specific learning by doing Intertemporal substitution of consumption

Some possible omissions

What exactly is the initial push of the rise of mass consumption society?

The exclusion of technological restrictions, especially in developing countries, makes the model basically sensible for developed economies.

Neglecting the role of saving may well attribute the development to unrestricted consumption.

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