Our obsession with Western lifestyle and its consequences

I would like to start this post with Nobel Laureate Paul Krugman’s quote “Much of the past 30 yrs of study in Macroeconomics was spectacularly useless at its best and positively harmful at its worst”. 

The word ‘Globalization’ has been misunderstood by almost all of us.  Liberalization, Privatization and Globalization (LPG) does not necessarily mean that we must mindlessly follow the Western way of living and bluntly implement the economic policies formulated in the West (which are in any case proving to be a disaster).  Our policy makers fail to understand the Indian society and the Indian way of living.  India is different from the West (America and Europe) and policies formulated in the West before 30 years will not deem fit to the Indian economy which is structurally different.  

The economic policies that are declared obsolete in the West are being re-branded as big ticket ‘Reforms’ by our policy makers, the best example is FDI in retail.  The common man like you and me must go the extra mile to understand and question the policies that are thrust upon us, rather we like ‘herds’ accept whatever is propelled on us without any due diligence.  The present generation seems to be carried away by the western lifestyle, which is largely fueled by the new found so called ‘economic prosperity’.  

Sayings like “Live within your means”, “Save for the rainy day” have become old fashioned.  India that has traditionally been a savings driven economy is now fast turning to be debt driven.  I could see school / college students flaunting mobile phones that cost anywhere between 30k and 60k, young executives parading with 1500cc motor bikes and ultra luxury cars that cost a Bomb!!  Thanks to the easy availability of Credit (read EMI).  The culture of saving that has been the backbone and face saver of our economy is dying a slow death.  High disposable income in the hands of irresponsible youngsters has adverse impact not only on themselves but also on the nation at large.    

A young executive (from a middle class background) who earns Rs. 60,000 a month has a credit card outstanding of 3,00,000, car loan of 4,00,000 and a personal loan for 2,50,000 and savings….  ZERO!!  The new mantra is spend over and above your means, enjoy life and make merry.  Such reckless attitude towards money has larger implications that impacts the economy at large and not just the individual.  Read on.  

The Market driven economic policies formulated and propagated in the early 80’s by the then British Prime Minister Margaret Thatcher (Thatcherism) and American President Ronald Reagan (Reaganomics) that are proved to be the root cause for most of the current economic woes in the US and Europe, are re-labeled as ‘Economic Reforms’ in India.  To put it in simple words, Economic policies that are considered outdated and discarded to dustbins by the Western nations are cherry picked by our ivy league educated policy makers and put to use in India.

Free markets, foreign investments, control over public expenditure, huge tax cuts and rebates to multinational corporations, privatization and deregulation of the economy are the strategies of Thatcherism and Reaganomics to revive their respective economies from depression.  As a consequence, no doubt the West reached heights in terms of economic prosperity, but it is these very policies that perpetuated the current global economic meltdown.

Well, now let us understand the economic model for growth and development the west has been relying and advocating for decades.  Shop for growth, spend for development was the sole mantra of the US government, the policymakers and the so called intellectuals were literally running a campaign “Shop for America”.

As an extension to this, the Fed (like we have RBI in India) started to cut down the interest rates to near zero levels.  In the 1980’s the US prime rate was as high as 21.50% which has dwindled to 3%.  The policymakers were encouraging the alarming trend of not just spending, but even went to the extent of propagating “borrow and spend”, it is with this intention the interest rates were curtailed and brought down to near zero levels.

The infamous Fed chairman, Alan Greenspan once in his speech said that people in the 3rd world Asian countries like India save because they feel insecure, he further said that the government of such countries were not capable of providing social security to the poor, unemployed and the aged. 

Mr. Greenspan failed to recognize the fact that in countries like India and Japan unlike the west, it is the family and society which forms the basis for social security and not the government.  In India, the father takes care of his son till he finds an employment, the son takes care of his aged parents, the disabled siblings are taken care by the family, the orphans and the left alone oldies are taken care by the society.  Therefore people in India SAVE, they do so not because they are insecure of their future but to support their family and society.  A father saves because he has to fund his son’s education and daughter’s marriage; a son saves because he has to take care of his aging parents.  This family and society driven economic model is the structural difference between the West and the East.

In the West, we can find that the families are awfully disrupted, statistics say that 51% of the 1st marriages end in divorce, 65% of the 2nd marriages end in divorce and a whopping 70% of the 3rd marriage end in divorce, therefore there is no ownership or obligation for the citizens towards their family, neither a necessity to save.   

The savings to GDP ratio is a stunning 35% in India which is one of the highest in the world, whereas the savings to GDP is negative in the America.  There is absolutely no necessity for the Indian government to rely on foreign investments to fund the burgeoning fiscal deficit or to finance infrastructural, industrial development.  For all those who think it is the dollars from America that is fueling growth in India, the ground reality is different, it is a mere 2% of India’s investment which is funded by the FII’s and the FDI’s, the rest 98% is generated from within the country by “domestic household savings”, while the West is compelled to borrow money from India, China, Japan and other emerging economies to lend its citizens who are used to ‘borrow and spend’ culture.  It’s high time we take pride in being a savings driven economy unlike the west that is consumption driven.

It is our family, society and the culture of saving that saved us from all the economic catastrophes that our country had faced earlier.  Unfortunately the current generation seem to think and act like westerners, spending over and above one’s income is considered fashionable.  This culture of borrowing and spending is a perfect recipe for disaster.  There is no doubt that India is an emerging economic power, there are 100’s of reports that suggest that India will emerge as the supreme ‘soft’ power in the future.   In order to be a more matured and responsible super power, we must stick to our basics, learn from the mistakes of our western counterparts and not try to ape their way of life, a copy paste will prove to be a tragedy.

Try to live within your means, spend what is left after saving, avoid wasteful expenditure, never borrow to spend, be simple and charitable, appreciate and live the “Indian way of life”.  Jai Hind.