1. The Rise of Mass Consumption Societies Kiminori Matsuyama Northwestern University

2. About the context Flying Geese pattern A series of industries take off one after another Created by Japanese economist Kaname Akamatsu intending to explain the catching-up process of industrialization of latecomer economies It works through 3 different channels---Intra- industry aspect, Inter-industry aspect and International aspect

3. An graphical interpretation of FG pattern

4. About the context (continued) The mass consumption society (George Katona, 1964) The broad masses participate in enjoying all these things and generate most of the demand for them. Other evidence comes from Rostow(1960) “the age of mass consumption” Fourastie(1979) “les trente glorieuses” Uchino(1978), Kosai and Ogino(1980)

5. Hypothesis from history About the Dutch Republic in the seventeenth century, a question is raised about the relationship between mass consumption and the rise of powers. Specifically, it is a question that whether it is the mass consumption help the Dutch Republic to prosper or it’s just the consequence of the nation’s prosperity.

6. The evolution of consumer products The spread paths of consumer goods A new concept of what are necessities and needs Stokey, Nancy’s idea (Stokey, 1988)

7. What does the paper analyze? The mechanism behind the rise of mass consumption societies and what condition is necessary to make such a transformation possible.

8. What is the essence of the whole story? A Two-way causality between Productivity Improvement and the Rise of Mass Consumption Society Productivity gains Expanding markets reinforcement

9. A sketch of the model Identical, nonhomothetic preferences (well-defined priority over the space of consumer goods ) The implications of this specification

10. About the dynamical system The Flying Geese pattern The trickle-down & trickle up process The set of steady states is a lattice The economy is trapped into the lowest steady state

11. the dynamical system (continued) Its dependence on income distribution too much equality or too much inequality may stop the dominos Endogenous technological changes the determining power of market size on technological improvement

12. Related Literature On Income Distribution On Demand Complementarity On the Evolution of consumer goods

13. The Model Goods and preferences The utility function

14. note Discreteness & satiated after the consuming one unit There is a subsistence level Households have a well-defined priority over the set of manufacturing goods

15. The budget constraint and Individual Demand The budget for household with income I To maximize subject to

16. With the assumption of small marginal utility and the well-defined priority of consumer goods, we have

17. Income distribution and aggregate demand The aggregate demand for good j is equal to the mass of households whose income is higher than P j.

18. note C depends on the distribution of income, i.e. the fraction of households whose income exceeds. It is bounded by one. A decline in the price of good i does not affect the demand for good whereas it generally increase the demand for good.

19. Technologies Competitive industries & constant return to scale Industry-specific learning by doing

20. note Cumulative experience in consumption Learning effects in production Dynamic increasing returns

21. The dynamical system The demand function The asymmetric demand complementariy D ij differs The dynamics of Q

22. Some general properties Property 1. [0,1] J is positively invariant. (The system is bounded.)

23. Property 2. Recursive & Cooperative recursive---Asymmetry in demand complementarity cooperative --- The improvement in one industry never reduce demand in other industries

24. Property 3. The sets M +, M ++, M -, and M – are positively invariant. All industries move together. Property 4. The set of steady states, is a nonempty, compact lattice with sup M+ as the greatest element and inf M - as the least element.

25. Property 5. For any initial condition The system is globally convergent; the economy converges to a steady state without any exception.

26. Property 6. There is monotone growth in productivity of all the industries but it is likely that the economy fail to reach its potential.

27. Property 7. There are two steady states accompanying with an unsteady state Q*.

28. The Case of J=1 The model The economy starts at Q(0)=0 and converges to the lowest steady state.

29. Shifts in the D Curve Two possible ways in which the D curve can be shifted is a change in agriculture productivity and food aid.

30. The Effects of Income Inequality If the income is equally distributed, as is shown in (a), Q must reach some quantity then the price of product begins to be accepted by all the households. It should be noted that after this ‘leap’, the demand of product can reach its full potential.

31. The Effects of Income Inequality (continued) And if the income distribution is completely unequal, the income gap is so large that only a small fraction of households have the purchasing power of certain products. Then the Demand curve is horizontal(a constant).

32. The Case of Four Classes Income and the demand function Note that with the decline of prices, each group orderly have purchasing power of the consumer good. rich → upper middle → lower middle

33. What would happen if the redistribution policy is executed? When some members become rich and enter the rich group, the benefits of increased productivity trickle down from the rich to the upper middle to the lower middle classes. And this process helps the economy develop.

34. With the income transfer from the upper middle to the lower middle, the trickle-down process is cut short because of wider income gap between the rich and the upper middle class.

35. The Case of J=2 The model

36. Trickle-up process (J=2) The trickle-up process transmits the productivity gains from one industry to another.

37. There are three steady state levels of Q1 which form a lattice. And the economy converges to the lowest states which is illustrated by the thick trajectory.

38. a ‘leap’ in agriculture productivity Market size for good 1 expands Trickle-down process of good 1 Emerging market for good 2

39. Four-class analysis The increasingly booming markets stagesGood 1Good 2 1Rich 2Rich+UpperRich 3Rich+Upper+ Lower Rich 4Rich+Upper 5Rich+Upper+ Lower Rich+Upper 6Rich+Upper+ Lower

40. Positive effect Negative effect

41. Forces behind it Narrowing the gap between the two middle classes will make good 1 affordable to the lower( Ⅱ → Ⅲ ) and good 2 affordable to him, too. ( Ⅴ → Ⅵ ) Or the upper middle class could gain from redistributing its income to the lower middle class. In that case, upper begins to consume good 2 and lower begins to consume good 1.( Ⅱ → Ⅴ ) Even it is possible for both upper and lower to consume.( Ⅱ → Ⅵ )

42. Forces behind it (continued) One negative possibility By widening the gap between the rich and the upper middle class, the transfer could block the trickle-down process from reaching the upper middle class, making good 1 unaffordable for the upper( Ⅱ → Ⅰ ) or good 2 unaffordable for the upper( Ⅴ → Ⅲ ).

43. Robustness Inter-industry Spillover of Learning by Doing Different Ordering of Goods across Households Alternative Specifications of the Preferences

44. Concluding Remarks Two-way causality between productivity improvement and the rise of a mass consumption society. The role of income distribution

45. Extensions Two-factor economy International trade Country-specific learning by doing Intertemporal substitution of consumption

46. Some possible omissions What exactly is the initial push of the rise of mass consumption society? The exclusion of technological restrictions, especially in developing countries, makes the model basically sensible for developed economies. Neglecting the role of saving may well attribute the development to unrestricted consumption.

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