Filipino shoppers and the paradox of thrift

Christmas season is shopping time and for most Filipinos it is just more shopping time. Middle-class Filipinos, those earning P25,000 to P100,000 a month or a combined family income of P70,000 to P200,000 per month, which accounts for 70% of the population, are also the main drivers of the Philippine economy which is 70% consumption-driven. These includes families of OFWs who are recipients of at least $1,500 a month, BPO workers who are earning more than P30,000 a month, salaried persons in the public/private sector, and the business people with these amounts of cash flows. Informal surveys have shown that Filipinos own more clothes per capita compared to other nationalities. This is probably also true with cosmetics and other personal products. The 20% in the lower class are lesser shoppers due to income constraint, and the 10% upper class shop less for demographic reasons.

The “Paradox of Thrift” is an economic axiom by economist John Maynard Keynes, that thrift is a private virtue but a public vice. Individual savings or thrift is a desirable virtue to accumulate capital for emergencies and investments; but if many or a majority of the people will save, it will reduce aggregate demand for the goods and services in the economy, so the whole economy will shrink or recede which may lead to recession or depression. The current Philippine and the US economies are examples of two economies that have large consumption components in the demand side of their GDP. In the Philippines it is 70% while in the US it is 65%. The Philippine GDP has been growing annually in the 6% to 7% range for the past 11 years, and the US GDP at 2.5% to 3.5% in the past seven years. China, on the other hand, has been growing at 9% to 11% for 16 years, but their growth has been fueled more by government capital expenditures and exports. Now that their exports and government spending have slowed down, they are now encouraging domestic Chinese consumers to shop and spend more, and save less to sustain their GDP growth in the 8% range.

Apart from the above empirical data, Keynes theory on aggregate demand is supported by economic consumer behavioral data. The marginal propensity to spend actually increases faster at the lower end of the disposable income and decreases at the higher end. This means that, as people get more income beyond their threshold living income, they start spending more and saving less. Then, as they reach an even higher level of income, they start spending less. Therefore, a country with an expanding or large middle class tend to have a higher consumption component in their GDP compared to other countries. This is even compounded in the Philippines because of the demographic age distribution of its population. A large portion of the Filipinos are in the 16 to 45 age bracket (about 72%) who are in the productive labor force here and abroad, and these are the age bracket that are shoppers and buyers. When the US was in a recession some years ago, I half-jokingly suggested that they should just give Filipinos a short-term shopping US Visa, and the Filipinos will buy all the comforters, blankets, towels, bedsheets, small appliances, and other consumer products even if it is hot in the Philippines.

I have lost count of how many shopping malls there are in the Philippines, and more are being built. Even with online shopping growing and already affecting brick and mortar retailers in other countries, it will be a long time coming in the Philippines. For Filipinos, shopping is actually a family outing and adventure, even if it is just going to the grocery.