Veblen was Right: Why People Seek Unaffordable Cars

Abstract

We study the connection between financialization and consumerism, and claim that greater availability of consumer loans affects consumerist culture and promotes the institution of conspicuous consumption. We extend the ideas of Thorstein Veblen who coined the term of “conspicuous consumption” to illustrate our thinking with the empirical evidence on car purchases financed through bank loans in Russia’s Rostov Region. We find that leveraged car buying has become embedded over the past 20 years. Social positioning drives people to seek more expensive cars, whereas getting a bank loan allows to buy an otherwise unaffordable car. We see a sign of conspicuousness in the fact that household income grows slower than the average price of a new car financed by a car loan, as well as the amount of loans. Our contribution is that a basic concept of institutional theory (conspicuous consumption) is combined with elements from other research approaches, namely the social significance of bank lending, functional differentiation of credit, and the effects of financialization.

Keywords:

• consumerist culture
• institutional theory
• conspicuous consumption
• social positioning
• household debt

JEL Classification Codes:

• B52
• B55
• G51
• R22
• Z13

Disclosure Statement

No potential competing interest was reported by the authors.

Notes

1 Rostov Region is one of the largest regions in Southern Russia. It is the sixth most populous region of the country, with a population of 4.181 million people, or 2.9% of Russia’s total. Despite a substantial gap between Rostov’s gross regional product and the Russian national average (RUB 403,949 and RUB 640,519, respectively), other socio-economic indicators relevant to this research are consistent. Per capita income for 2020 was RUB 31,519 and RUB 36,240, consumer spending per capita amounted RUB 16,654 and RUB 18,579, respectively. The number of passenger cars per thousand inhabitants has exceeded the Russian average since 2012. By the end of 2019, 33% of Rostov inhabitants owned a car. Therefore, in terms of wealth and income, Rostov Region is in line with the national average, whereas the GRP gap is attributable to income underreporting (“shadow economy”). Car credit sales in the region amounted 2.4% of the Russian total in 2020. Rostov Region ranked tenth among top ten Russian regions by the number of new cars registered in 2020, and fifth by used car sales. Rostov is featured by ethnic diversity (157 ethnic groups), adding an additional dimension to further sociological and anthropological analysis. In 2020, the region ranked fifth in terms of net migration, which amounted 11.6 thousand people (9.6% of Russia’s total).

2 Often referred to as “Old,” “Original” institutional economics, or American institutionalism.

3 Our sample of banks includes those with the largest car loan portfolio as reported by CBR for 2013–2020. The share of these banks in total car loans ranges between 66% and 82%, depending on the year. Taken for the Russian average, these data were used for our region-level estimates.

4 Data were reconstructed on the basis of country-level and regional-level statistics.

5 The Russian weighted average is used as a proxy for the regional level.

6 Annual percentage rate of charge includes all extra payments and hidden fees on a car loan.

7 Estimated by the authors relying on the reports provided by Banki.ru.

Additional information

Notes on contributors

Anna Kurysheva

Anna Kurysheva is at Southern Federal University, Rostov-na-Donu, Russia. Andrei Vernikov is at the Institute of Economics RAS, Moscow, Russia. The authors are indebted, without implication, to the participants of the conferences held by HSE University in Moscow, Southern Federal University in Rostov-na-Donu, the Society for the Advancement of Socio-Economics, and the European Association for Evolutionary Political Economy, as well as to William Waller, Susan Evans, an anonymous Reviewer, and Timothy M. Spence. This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Andrei Vernikov

Anna Kurysheva is at Southern Federal University, Rostov-na-Donu, Russia. Andrei Vernikov is at the Institute of Economics RAS, Moscow, Russia. The authors are indebted, without implication, to the participants of the conferences held by HSE University in Moscow, Southern Federal University in Rostov-na-Donu, the Society for the Advancement of Socio-Economics, and the European Association for Evolutionary Political Economy, as well as to William Waller, Susan Evans, an anonymous Reviewer, and Timothy M. Spence. This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.