Hamish McRae: Never mind the price, just look at the goods

If there are enough new must-have products, then we will have to find a way to pay for them, won't we?
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The Independent Online

A good Christmas in the shops and suddenly, for the retailers at least, spring has sprung. For embattled Marks & Spencer, at least, it seems to have sprung big.

This not just a British thing. The first couple of weeks of the year are the time of global consumerfest, when two of the world's biggest consumer industries set out their wares. In Detroit the world's biggest manufacturing industry, automobiles, is showing how it hopes to keep the world's biggest market buying its products. And in Las Vegas the world's fastest-growing industry, consumer electronics, has just wound up its annual show. Next week comes the Macworld Expo in San Francisco, where Apple is expected to showcase something new.

The point is simple. If the world's consumers - and particularly American ones - can be persuaded to keep spending, the world economy will keep growing. In the run-up to Christmas there were a lot of doubts here, and some in the US and on the Continent, about our willingness to keep spending. Now these seem to have evaporated a bit.

Most of the time, when economists talk about what will happen to the world economy they focus on the big macroeconomic forces. They ask questions about what might affect people's willingness to go on spending. These include things such as the trend in house prices, whether unemployment is rising or falling, what happens to interest rates, and whether taxes might go up.

There is nothing wrong with this sort of analysis, for it is the basic building blocks out of which we have to figure what might happen to the world economy. But there is another altogether different influence, which is whether the world producers can come up with things we consumers want to buy.

There are two seismic forces affecting the supply of goods for Western consumers. One is the drive of established manufacturers to develop new products; the other the drive of new countries in the global economy to bring ever cheaper goods to market. You can get a feeling from those two trade shows for the way in which both an "old" industry, motor cars, and a "new" one, consumer electronics, are frantically trying to develop the next generation of must-have products.

In Detroit, the mood was down-beat. The US motor industry is in trouble, with Americans being forced to switch out of their four-wheel-drives by high fuel prices. Instead they are buying hybrids, in which Toyota and Honda have scooped the pool, or smaller and less-profitable US products.

So, nothing terribly enticing there. Indeed the most intriguing bit of news was that this was the first Detroit Auto Show at which a Chinese company exhibited. Geely Automotive Holdings showed a rather boring car and does not propose selling on the US market for a couple of years. But given the fact that China is selling cars on the home market at two-thirds of the price of imported ones, you can see how things may go in a few years' time.

By contrast, in Las Vegas, the beat was clearly up. There was lots of new stuff, including products that even Americans surely find superfluous. But if you really want a digital pen that stores what you write electronically, or an intelligent oven which is connected to the internet, then Las Vegas was the place to see them.

More important, though, was the launch of several co-operative ventures between companies in different parts of the electronic forest. For example, Netgear is joining with Skype to offer a new sort of low-cost mobile phone system via wireless hotspots. Given that some US cities are becoming completely wired up for wireless (so to speak), you could envisage global mobile telephony coming down to a near-zero cost.

As for the new killer products, well let's wait and see what rabbit Mr Jobs produces from his hat in San Francisco next week. The manufacturers can create a bewildering array of stuff, but the truly thrilling thing is that no company, however grand, knows whether people want to buy something until it rolls it out and sees if it sells. This is consumer democracy in the raw.

If you can't sell on innovation, you sell on price. The prime reason why so many prices in the shops are getting cheaper is the impact of the two new kids on the block, China and India. Of course they are not new at all - they are much older civilisations than we are - but they are new in the scale of their impact on the world economy.

The simple test is to see where your Christmas presents were made. Check the label on that sweater or that portable radio, for China pops up in the most surprising of products: last year was the first in which China exported more than Japan. In the coming months that flood of exports from China will grow ever greater. The country is growing at 10 per cent a year, exports growing even faster and quality will go on improving. It may be another three or four years before the first Chinese cheap mass-market hatchback hits the British roads, but meanwhile we will be enticed by the price of a string of smaller items.

So this year will be a tug-of-war. On the one hand, consumers throughout the developed world will worry about their finances. Here in Britain we will worry about our pile of debt, while in the US they will worry about their even bigger pile - or at least consumers in both countries should be worrying. On the Continent, the main thing holding spending back has not so much been debt but rather a fear of losing one's job, as unemployment has remained stubbornly high. Given reasonable confidence about the future, people like spending money, but there are rational reasons for caution.

On the other side of the tug-of-war is the great machinery of our consumer age. There are the giant companies - and the clever little ones - with these new products. There are the banks eager to lend us money to buy them, and the agencies with their genius for fostering that must-have feeling to do so. And of course there is that multitude of lower-wage workers on the far side of the earth, making the stuff.

So which side will tug the harder? A few weeks ago we might have thought that caution would win. A lot of our retailers certainly thought so, and I think their own caution was quite widely reflected in boardrooms in other developed countries. Now the rope has been pulled back a bit and the producers have gained confidence. I think that for a few months more their confidence will remain.

But whoever gains ground, you have to admire something, and that is the huge, wondrous ingenuity which market capitalism displays in thinking of new things that we might want to buy. I don't want an internet-connected wall oven, but I wouldn't mind free mobile phone calls.

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