Veblen was right: Conspicuous consumption and car loans in Russia

Abstract

We study the connection between the social pattern of conspicuous consumption, on the one hand, and financialization, on the other. Our claim is that greater availability of consumer loans from Russian banks feeds consumerism and promotes the institution of conspicuous consumption. Cars have long been recognized as status symbols or ‘positional goods’ whose utility goes beyond their core functionality as a transportation means. The perception of social identity drives people to seek more expensive and fancy cars, while auto makers and car lenders deliberately foster consumer demand for them. We operationalize financialization with empirical evidence of bank financing of car purchase in the Rostov region of Russia. We find that leveraged car buying has taken root over the past 20 years. Getting a bank loan to buy an otherwise unaffordable car has become an acceptable social pattern. We see a sign of conspicuousness in the fact that the monetary income of households grows slower than the average price of a new car financed by a car loan, the amount of loans issued, and outstanding bank debt on car loans. Thus, households incur such expense by sacrificing other items including basic needs and their human capital development. The phenomenon that we study occurs among less affluent citizens rather than more affluent ones that Veblen focused on, and the range of cars serving as status symbols is broader than just luxury brands usually believed to be the object of conspicuous consumption. Our contribution to the literature is that a basic concept of institutional theory (conspicuous consumption) is combined with elements from other research approaches, namely social significance of bank lending, functional differentiation of credit, and the effects of financialization.