How to increase consumption

Juan Pablo Vázquez Sampere. Professor. IE Business School

5 October 2009

Governments can be the best marketing managers in the world using the broad range of tools they have at their disposal to influence consumers. In Spain, the need to start focusing on “retailers” (workers) rather than “wholesalers” (banks and businesses).

Governments are probably the best marketing directors. Examples of how they change consumption include health and traffic safety campaigns and tax policies to encourage certain types of consumption.

We have been under the effects of the crisis for one year and VAT collection fell by 55% in April. However, the government fights against unemployment with policies that are "wholesale" in terms of marketing, such as the ICO lines of credit and bank guarantees, etc. The Keynesian economy applied by the government is based on injecting public spending into manufacturers so that they create employment. These measures may be necessary to prevent manufacturers from going bankrupt but, when it comes to creating employment, the way the system works is often questionable. It is also a very inefficient system, especially if it is measured by jobs created per euro spent.

However, the government has had a positive experience with a retail policy: the subsidy to buy a car. This action was so successful that it is soon to be implemented in North America. If it worked so well why doesn´t the government repeat the process with another retail policy?

I propose the first consumption plan aimed directly at enterprise. The plan would consist of consumption coupons to be paid by the consumer, enterprise and the government. For example, the government could pay 20%, enterprise another 20% and the consumer could pay the rest. The government would allocate a specific amount for the plan. The coupons would be given by the business to its employees as payment in kind with no additional tax burden. The expense of the coupon would also be deductible. The coupons would expire after one or two months and be for specific types of consumption, e.g. food coupons and clothing coupons, etc.

This coupon mechanism would benefit enterprise by increasing salaries without additional tax burdens. The coupons method, with co-payment by the government and without tax burdens, should be a temporary measure. For the business, it would represent a minimum investment and produce good returns in the form of solidarity with workers and the desire to cooperate. It would also help consumers because it would mean discounts on consumer products and encourage them to use them before the expiry date. In addition, the mechanism would help the government since it would be a much more efficient way of creating employment and increasing the consumption that helps manufacturers. By emphasising the temporary nature of the measure, there would be no debate on its possible negative effects in the long term. The unions would support it since it would not affect any right and it would increase workers´ purchasing power. Finally, if the concept were to be truly social, a special version of coupon could be developed for the unemployed.

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