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What shampoo tells us about the economy

Perhaps because it is hard to link the story to Brexit, the news that shampoo sales fell by £23 million in the past year will have been missed by most readers.  The news may, however, by far more important that a great deal of the Brexit-linked winging that has passed for economic journalism since 24th June 2016.

At first glance, the news seems unimportant.  The main reasons given for the fall in sales are that more women are working from home and that fewer people are smoking.  Both result in less need to wash hair as frequently.  Only later in the story do we discover that there is a wider trend away from general levels of grooming and cleanliness.  The ongoing fashion for male facial hair has resulted in a two percent fall in sales of razors and blades.  Deodorant sales have fallen by £3.1 million, and soap sales are down 6.6 percent.  Only oral products – toothbrushes, toothpaste, mouthwash, etc. – saw an increase in sales.

In the grand scheme of things, shampoo sales look trivial.  Brexit, Donald Trump and the rise of the European far-right all look far more urgent.  But the political froth that is currently manifesting in the form of right-wing populism is merely the product of seismic shifts in economic processes that were put in chain decades ago.  In something as complex as a global economy, it is precisely emergent behaviours – like a shift in people’s personal hygiene habits/preferences – that signal that the tectonic plates are shifting once more.

Nearly a decade of austerity cuts has served to usher in a new economic structure in which only the top 20 percent have enjoyed an increase in living standards.  Forty-percent have just about maintained their standard of living, while the bottom 40 percent has seen their living standards plummet.  In an economy that grew up around mass consumption, this leads to marginal shifts in discretionary spending patterns; like the amount of soap, shampoo and deodorant that we buy.

It is not that poor and middle class people stop washing.  Rather, they shift to cheaper products and/or use them less frequently.  For example, those who work from home may economise by going an extra day before washing their hair.  When they do, they may opt for the cheaper shampoo sold by the discount retailer in preference to the expensive top of the range brand.

The important point here is that even a marginal shift of this kind in the behaviour of individuals and families translates into a major economic headache for companies whose business models depend upon mass consumption.  At first glance this may appear inconsequential.  After all, why should we care that a handful of personal hygiene manufacturers go bust?  In the end, the market will shrink.  There will be fewer brands and fewer companies.  But life will go on.

The problem is not with the personal hygiene products, but with the infrastructure that we depend upon to purchase them.  Supermarkets have for decades used our collective spending power to beat down the price of all of the goods – including soap and shampoo – that we buy.  The same supermarkets have seen a generalised curbing of discretionary spending across the economy.  Perhaps most importantly, we now generate less than a third of the food waste that we had done before the 2008 crash.  Austerity has caused enough of us to buy less and to manage more of what we buy to the point that this is impacting on supermarket profitability.  The shift in shampoo and soap sales is just another manifestation of the problem.

So what happens when, say, Asda and Tesco go bust?  Their customer base gets divided up between the remaining supermarkets, with Sainsbury’s and Waitrose picking off the more affluent consumers and the discounters picking up the rest.  Less obviously, the huge competitive pressure that has kept prices down will have disappeared.  That means that the inflation that governments and economists have long feared will become a reality.  The result is a self-reinforcing downward spiral as households are forced to cut back even further on what is left on their discretionary spending.

The greater danger is that a collapse in discretionary spending will infect our critical infrastructure.  The communications network, for example, depends upon all of the frivolous cat videos and drunken tweets being posted to social media to remain profitable.  The banking industry depends on new borrowing for consumer spending.  The transport network depends on sufficient non-essential travel.  The energy grid depends on marginal consumption.  As with shampoo, this risk is not that people will stop using these things entirely.  It is simply that, as with shampoo, if enough of us choose to make relatively small shifts in our patterns of consumption, the entire infrastructure can be rendered unprofitable.

What might an infrastructure collapse look like?  For a week in September 2000, the UK was brought to the brink of collapse by a small but focused fuel blockade.  Panic buying resulted in the collapse of the fuel network and left supermarkets without essentials like bread, eggs and milk.  Less obviously, public transport began to break down as a combination of raised demand and inadequate fuel supplies disrupted services.  Health services struggled with the delivery of essential medical supplies.  In the wider economy, workers could not get to work, and firms were unable to secure supplies.  When it was all over, it turned out that just 10 percent of commercial deliveries had not been made.  Ninety percent of the economy had, in fact, continued to operate.  Nevertheless, the ten percent that was disrupted was enough to bring the country to the verge of a state of emergency.

Were enough of us to shift our patterns of consumption so that a similar ten percent of the economy failed, we would see a similar economic collapse.  The key difference would be that, unlike fuel blockades, there would be nobody for the government to negotiate with and nobody to call off the protest before things fell apart.

This may sound implausible.  But it is worth considering that the era of mass consumption in the UK only really began in the 1950s as the country emerged from the austerity of the post-war years.  The boom of the 1990s and early 2000s marked the peak of UK consumption.  In the grand sweep of history, then, mass consumption is the anomaly – granted, 50 years is a large part of a human lifespan, but it is a mere blink of an eye in historical time.  There is no universal or social law that states that mass consumption must go on forever.  Indeed, the logic of austerity – which seeks to cut the real income of the masses – is designed precisely to bring mass consumption to an end.  Any indicator that the policy is having that effect should be taken seriously.  That is why falling shampoo sales matter far more than you might think.

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