It is shop-till-you-drop week. We have passed Mega Monday, back on 2 December, the biggest day for online shopping, and are just entering the biggest week of the year for high street sales. One of the more endearing features of the great British public, one we share with Americans, is that we like to shop.
It is not just that we make a higher proportion of our annual purchases in the run-up to Christmas than people in other countries. We also have a predilection to spend rather than to invest. When the Japanese government gave cash back to its citizens in the 1990s in an effort to boost their spending, they saved it instead.
No danger of that here. Britain is second only to the United States in the proportion of gross domestic product that is consumed: 66 per cent of GDP against 73 per cent in the States. By contrast, the Germans and French consume 58 per cent, and the Italians and Japanese 61 per cent. And while Chinese visitors spend huge amounts when they travel abroad – they have now passed Americans as the heaviest hitters at Harrods with an average spend of £3,500 per head – the country as a whole has very low consumption relative to GDP, only 36 per cent.
There is something else. Not only are we energetic shoppers; we are also hugely innovative ones. Nearly 13 per cent of all retail sales last year were online, the highest proportion in Europe, and higher even than the US, at around 9 per cent. Last month, UK non-food online sales were just under 20 per cent of the total, which may be the highest proportion in the world.
It is a massive story, and one that raises a string of questions. At a national level, there are concerns about the quality of our economic recovery: are we too dependent on consumption, rather than exports and investment? Looking further ahead, are we investing enough on infrastructure, housing and the like? At a personal level, are we saving enough for our own future, our pensions and so on? And perhaps the deepest question of all: is our society overly materialistic – would we be happier if we sought fulfilment in other ways?
I don’t think we should beat ourselves over the head too much this Christmas over any of these. We probably are consuming rather too large a proportion of our national output, but, at this stage of the economic cycle, that is only natural. Our current account deficit has crept up to around 4 per cent of GDP, double the comfortable level, and that will have to come down in the months ahead. But demand in Europe, our main export market for goods, is very flat and, until it picks up, domestic demand will be the main motor of growth. Given the mountain we still have to climb, I don’t think we are in any position to be snooty about the source of growth.
In the longer term, however, we will certainly have to invest more. Whatever view you take about the quality of our public investment – and my own is that we make some pretty crumby choices – we are going to have to build more homes, improve roads and airports, and encourage our companies to get investing again. So consumption will inevitably shrink as a proportion of GDP over the next decade. Put the other way round, we need 10 years of decent growth to finance the investment we have to put in.
If we have to invest more, we will inevitably have to save more. We cannot rely on foreign investors to finance everything we need – or rather, if we do (as we are doing with power generation), there will be a big bill to pay in the years ahead. In any case, everybody will have to save more for their pensions, and making people aware of the mathematics of this is going to be one of the great public policy challenges of the next 20 years. Thanks to compound interest, a pound put into a pension in someone’s twenties will probably buy around four times as much real pension income as a pound set aside in their fifties. But pensions, unfortunately, are not fun things to buy.
So there is a short-term/long-term thing. Short term, we need spending to keep the economy moving; longer term, we will have to save more. I find myself hoping that we could use technology to become as competent savers as we are spenders. Here we are, the most tech-savvy consumers in the world in the sense that we lead the on-line shopping tables. So surely we could apply that competence to other aspects of our life. Sadly, and for all sorts of reasons, there is a huge trust gap, one that both the financial services industry and the authorities have hardly begun to close.
And excessive materialism? Economists have tried to get to grips with this – for example, by asking whether greater wealth brings greater happiness. The broad answer, and I know this disappoints some people, is yes. The World Values Survey, a global network of social scientists, plots life satisfaction against GDP per head, and while there is quite a wide scatter, the happiest countries are usually the richest. Some, such as Mexico, are happier than you would expect given their level of wealth, while others, notably Russia, are less happy than they should be. Britons, you will be relieved to know, are pretty happy – happier than the French but less happy than the Danes. If our shopping habits are part of the reason for our happiness, then we know what we have to do this week. As they say in New York, when the going gets tough, the tough go shopping.Reuse content