Frugal economy

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(Image : CNN.com)

Jaideep Prabhu, professor of Cambridge Judge Business school argues about bottom-up approach to value creation,large companies are already being challenged by new consumer-orchestrated value ecosystems, which allow consumers to design, build, market, distribute, and trade goods and services among themselves, eliminating the need for intermediaries. (WEF, 2015)

Out of the three leavers suggested in the CISL paper, I would focus on design and innovation. The rise of peer to peer economy, suggests strong trend in consumer attitudes and transition to frugal economy.  Reuters reported that in world’s third largest economy in Japan, millennials have shown a reluctance in spending money and desire to lead minimalist lifestyle. Japanese millennials throw around words like “cospa” — short for “cost performance,” or value for money — to rate anything from cosmetics to hotels.  They want to be viewed as being frugal rather than generous with money, according to a survey by Dentsu Innovation Institute, a marketing and consumer research company. (Reuters, 2016). This is the generation who has grown up in the economy that never seems to grow.

Two key factors are fuelling the frugal economy’s growth: a protracted financial crisis, which has weakened the purchasing power of middle-class consumers in the West, and these consumers’ increasing sense of environmental responsibility. (Project Syndicate, 2015).

It’s all about diching traditional pyramid model, moving away from large scale state level intervention to developing accessible and affordable innovations that meets the basic needs of large number of people while moving away from consumption based mind set to minimalistic mind set. According to the conversation, innovations in the frugal economy can also help reduce inequality. In India healthcare sector is bringing affordable services to large number of people through reduced rate in heart surgery, while in Africa solutions such as m-pesa are increasing financial inclusion.(Prabhu, 2018). Bike sharing, car sharing, home sharing schemes across the world are good examples of innovations in Frugal economy while reducing climate impact.

Some of the key challenges that works against frugal innovation are, measures – primary measure for growth GDP is based on consumption, means – current trend of the economy seems to be heading towards consolidation where large organisations are getting larger, that promotes pyramid structure, model – policy level solutions are encouraging increased regulations, again top down model that works against frugal model.

Economy is complex system but often solution can be most effective if interventions or solutions are not contradicting or counter productive but works in the same direction. Top down and bottom up approach could work together to promote ‘fugal economy’ in order to solve climate challenge.

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4 thoughts on “Frugal economy

  1. This is a very interesting post! Well done.

    At first (after probably reading the post a bit too quickly), I wondered where the link to the transition to the low (or no) carbon economy resided and thought it was a blog on responsible consumption but I then realised that there is obviously a strong link between the frugal economy and its positive impact on climate change. By consuming less (e.g. overseas holidays and unessential products), one definitely decreases one’s carbon footprint.

    I do not think I have ever been into high consumption but I have personally lowered my personal carbon footprint even further in the past few years and in a similar way to Japanese millennials, I now take a certain pride in avoiding waste and leading a minimalist lifestyle.

    Personally, I wish this trend continues and more of us adopt a frugal way of life. The sum of individual effort will also create change and this trend will definitely contribute to this.

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  2. I really enjoyed your blog and was completely taken by the brilliant innovation in the photo you posted. One of my lasting impressions from living in North India for 4 years was of the extraordinary innovation that companies and social enterprises are undertaking to serve those on low-incomes at the ‘base of the pyramid’.

    Much of this centers around frugal innovation and, on reflection after reading your blog, much of this also contributes to addressing climate change. Whether through distributing solar panels for sale in remote villages, creating solar powered ATM machines, low-energy water filters, bamboo bike frames or reducing the water required for rice cultivation.

    Such innovation wouldn’t be a surprise to anyone who’s driven on one of India’s many crazy highways; witnesses the original ‘Jugaad’ – roughly translated as ‘hack’ – but mostly visible in the weird but wonderful – and functional – vehicles that often come rolling (or hurtling) towards you (often on your side of the road…)

    (See http://jugaadinnovation.com/ for some other fantastic examples of frugal innovation).

    However, observing (North) India’s’ growing middle class, and yes, I know this is a generalisation, there doesn’t seem to be much taste for the frugal innovation such as you describe in Japan. Conspicuous consumption, on the surface at least, seems to be the order of the day as one grows richer. This is a major concern in a country who’s enormous population continues to grow – in size and wealth.

    I often reflected on this chugging along in an auto-rickshaw in Delhi (run on CNG gas I should add); sometimes literally chocking on the polluted toxic air around me. Some days it seemed that Malthus would eventually be proved right on the streets of Delhi. But on other days I was truly inspired. India surely has the entrepreneurial spirit, determination and brain power to fix its problems and share cost effective ‘Jugaard’ solutions to address climate change with the rest of the world.

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  3. Thanks for the interesting and encouraging blog.

    The idea of a frugal, low consumption lifestyle is one that certainly appeals to me but, from looking around me, appears to be a niche pursuit. I had to walk through Westfield shopping centre the other day and was amazed by how busy it was. Shopping, far from being a purely practical pursuit when needed, has become a leisure activity in its own right. Westfield is like a full blown leisure park with hotels, casinos, restaurants, cinemas etc. It’s really a cathedral to capitalism in which consumption is key.

    I’m a trustee of a small environmental charity called Hubbub and we’re doing what we can to challenge this concept. One project of ours is to develop community fridges in towns across the UK- reminiscent of the photo on your blog. The fridges are set up in a public place and allow people to share food for free before it goes to waste. We’re also working on an experiment called ‘the street that shared’ in which people are encouraged to share skills, tools, food, appliances etc, rather than each by their own. In addition to the environmental benefits, it also serves to bring communities together and instil a sense of community spirit.

    These small examples of sharing and caring give me some hope that we can break the pyramid structure that you describe and begin a movement in community based, sustainable lifestyles.

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  4. Nirav,
    After reading your blog with great interest, I researched this topic further to find out the reasons behind this trend.
    I understand that the frugal economy is not only due to a willingness of consumers to be move towards more environmentally friendly consumption but also due to the fact that the economic structure of Western countries has changed substantially since the economist Ronald Coase argued in an essay in 1937 that transaction costs explained why Western economies were organised like a pyramid with a few large producers at the top and millions of passive consumers below.
    However, the internet, social media and new technologies are now eliminating these intangible costs and there will soon no longer be a need for vertically integrated value chains controlled by large firms. Instead, consumers will be able to design, market and distribute their own products and services and no longer need intermediaries. All this is already fuelling the frugal economy and having a positive impact on the environment.
    Examples of this are car sharing schemes, the use of 3D technology by consumers to produce their own products, Airbnb and many more.
    As a member of Nextdoor, the free private social network for your neighbourhood community, I have noticed that in the past few years, people have definitely become more frugal. One can find numerous examples everyday of this phenomenon with people sharing anything from skills, products, garden tools, cars and even their dog! I now very happily dog-sit for free for a few people around the neighbourhood since our lifestyle and family commitment does not allow us to look after a dog regularly but our children definitely enjoy having one over now every now and then.

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