Credit card cum personal loan sales pitch is ubiquitous these days. You almost invariably have to face it when you visit a shopping mall or sign in to your mail box or answer your phone. Many of us wonder why banks try hard to persuade us to apply for one more credit card or avail one more personal loan. It is because the consumer credit business, as per many economists, is obscenely profitable.
Promotion of credit-fueled binge
In this rampantly consumerist society a person’s status is judged by the kind of products and services he/she uses, and therefore savings are derided, conspicuous consumption is admired and frugality is looked down upon. Business corporations invent new needs on a regular basis and release new products that supposedly meet those needs. Moreover, our leaders and economists, who are obsessed with the GDP growth numbers, keep prodding us to shop more to promote consumption-led growth. So a large chunk of the society, especially the urban dwellers, have transitioned from ‘save and invest’ mode to ‘borrow and spend’ mode.
It appears that this neo-liberal world runs on perpetual debt. The availability of cheap money is the most important hallmark of this economic system. The laissez-faire capitalism, epitomized by jobless growth, proliferation of sweatshops, technological unemployment and marginalization of the working class, empowers the rich to turn super-rich and entraps the poor in perpetual impoverishment. Though the neoliberalism appears to strengthen the middle class in the emerging economies, the very fact that it weakened it in its epicenter, the United States, bears testimony to the fact that it will ultimately weaken even the middle class in every country that embraced it. So the sum total effect of all the above things is concentration of economic power in very few hands and reduced purchasing power for the rest. So the only way the politicos and plutocrats can push the consumption spending and thereby GDP numbers up is to promote credit-fueled consumption.
Credit card – an ingenious invention
Many governments, including India, are paying a lot of attention to supply side economic policies such as corporate tax cuts and deregulation combined with fiscal rectitude, in the expectation that those measures increase investment and result in a raise in economic activity. They, however, are increasingly turning a blind eye to the phenomenon of jobless growth, and as a result the wages of the working class in most of the countries are either getting flattened out or going into a downward spiral. But neither the politicos nor the lords of big capital are ready to pay heed to the problem as they both are happy with the current arrangement, where lobbying and campaign financing play a major role in policy formulation.
The owners of big capital treat the working class only as creatures who provide them with labor and never hesitate to get rid of them. They, however, seem to be unmindful of the fact that the working class also provides them with the much needed mass market and by nurturing them they actually nurture themselves. But they seem to ignore this fact and blindly moving ahead with their plans of robotic automation. They might be feeling that the humanoids can better serve their interests than the ‘emotion afflicted and union infested humans’. The problem, however, is unlike humans, humanoids don’t have any wants, and therefore can’t spur consumption-led growth.
Marx had predicted that the capitalism will meet its end when the owners of big capital, in their greed for more profits, will squeeze workers’ wages until they lose their power to purchase the goods they created. The unceasing exploitation and marginalization of the working class and the resultant deterioration of their purchasing power has created a ripe situation for the collapse of neoliberalism. However, the plutocrats who have a lot at stake in the preservation of the system, are inventing ingenious methods to postpone the collapse, and credit card is one among them.
Banks, from time to time, come up with various offers to tempt the people to get their credit cards. They, however, levy excessive charges and late fees on customers. Moreover, they like customers who pay minimum dues and never repay the original amount due. This results in the middle class and the lower middle class getting stuck in perpetual debt and the investors of banks and credit card companies getting even richer. So in a way credit cards are playing a vital role in facilitating the ‘gush up’ effect where the money travels up from the middle class into the hands of the rich to further widen the economic inequalities.
The urban middle class in India appear to be going on a credit fueled spending binge. According to the monthly data released by the Reserve Bank of India (RBI), the outstanding credit card loans increased 39 percent year-on- year to Rs 59,900 crore in September 2017, while the overall retail loans rose 16.8 percent year-on- year to Rs 17.5 lakh crore.
Indebtedness has been a constant companion of rural India, where an overwhelming majority of the households still depend on agriculture for their livelihood. According to India Spend, a data journalism website, “nearly 70% of India’s 90 million agricultural households spend more than they earn on average each month, pushing them towards debt, which is now the primary reason in more than half of all suicides by farmers nationwide”. Government, instead of working towards improving the farmers’ lot and providing them with remunerative prices, issued Kisan Credit Cards (KCCs) to them, implying that farmers don’t have any other way except depending on debt. With the prospects for an increase in farming incomes thinning, all this debt may someday end up turning into NPAs.
Promoting common good
Henry Hazlitt, considered to be one of the most important public intellectuals of the 20 th century, stated, “the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups”. Today’s economists, however, enthusiastically advocate the policies that facilitate credit-fueled instant gratification of wants that will ultimately prove to be beneficial to the rich and pay scant attention to either sustainability or inclusiveness. But there appears to be no end to this undesirable phenomenon as the people who are at the helm of affairs are happy with the current system, and the people who are at the receiving end of it are either blissfully unaware of what is happening or withdrew into an apathy.