Conspicuous Consumption

The last Mint Saturday Supplement (Lounge: 29/March) was devoted to the topic of luxury. That is one area where we can expect to see a lot more discussion in the coming years.
A strict economic definition of a luxury good is one that has a high income elasticity of demand, i.e. demand increases faster than the growth in income. And as we are in the middle of an unprecedented salary boom (at least for the readers of Mint), it would seem logical that luxury is dragged out of the closet and lists of the latest objects of desire or envy (depending on where you are on the elasticity curve) are drawn up.
In India, we tend to be a little apologetic about wealth - call it a hangover from Nehruvian socialism and/or Gandhi's 'pastoralism'; or more realistically, the fact there was too little of it going around for the last 50 years or so. And so the tendency has always been to look down upon it (nothing riles the intellectual snobs more than the naked display of wealth) and for the ones who did have it, the best thing to do was to stuff it in a pillow or at least, not admit to having too much of it. None of the chest-thumping variety of consumption (have it, flaunt it) that is common in the US. I would like to imagine that some of it was also the effect of religion as well - but the fact has been that has been more preaching than practice.

The story, however, is changing - in the last few years, people are increasingly not averse to spending more on discretionary items - including luxury goods. An interesting sub-category of luxury goods is what are called 'Veblen goods' (after the rabble-rousing Thorstein Veblen of the 'Theory of Leisure Class' fame). These are goods where demand actually tends to increase with the price. Apparently, this is because of the envy factor - if you believe that your social standing will go up in proportion with the price-tag, you would be willing to put down that premium. In effect you are buying social prestige - how very noveau riche, some would say.

It would all be very nice, if luxury consumption was just an economic oddity. However, social scientists have been pointing out for sometime that envy as a benign force with salutory effects may work in developed economies but in case of developing economies, where income (and wealth) disparities tend be very large, this could have social implications. Much has been written about this - what remains to be seen is how as societies, we cope up with these kind of trends. This will probably be capitalism's greatest test - can it ensure that economic growth is rapid and inclusive enough to offset the potential for social unrest and such pangs that growth brings along with it?