Here’s an interesting debate on the role of luxury in our currently struggling economy. Recently on NPR’s Day to Day, Robert Frank of the Wall Street Journal talked about how the wealthy have curtailed their spending, not just on handbags, watches, jewelery, and designer clothes, but also on big-ticket items like yachts, private jets, and mansions.

Frank noted that this reduction in spending has an economic consequence–if the wealthy aren’t spending money, they aren’t creating jobs and supporting the economy. He also said those who are still spending are doing it on travel (to create memories), more sensible cars, things that are not as visible and could be considered to be ‘conscientious consumption’ rather than conspicious.

Then Frank made a slight dig at luxury magazines like Robb Report, which had been celebrating spending when so many people have become ashamed of it. This prompted Robb Report writer Jack Smith to respond in an op-ed in the Philadelphia Inquirer, saying that the rich are indulging too little and shouldn’t be ashamed — reiterating how their spending supports the economy. He had an example: stays at the penthouse suite at the Four Seasons New York cost $35,000 a night, and keep 12-15 staffers employed.

Frank in turn responded on his WSJ blog by agreeing that the wealthy should spend, but noting that the sales of personal helicopters, palatial mansions, polo ponies, and other big-ticket items might do more to make those who can’t afford such luxury upset at the fatcats who took advantage of bailouts and didn’t earn their wealth.

I think this was an interesting exchange, but it’s worth remembering that the true nature of luxury depends on how people interpret it. The wealthy might have a ‘responsibilty’ to spend to support the economy, but they also have a responsiblity to themselves to know what they want and make sure their spending is truly worthwhile.

Photo by mafic

Another doom and gloom story about the diamond industry, this time from Reuters. Its highlights (or more accurately lowlights):

• (Anecdotally) trade in Antwerp’s diamond district is down to a tenth of usual levels
• Several Israeli diamond houses have failed
• In India, the center of manufacturing, about 500,000 (out of around 800,000) workers have been laid off
• Top-end demand from the rich and super-rich, such as Russian oligarchs or Arab sheikhs, has dried up completely and only smaller gems for engagement rings are keeping the market alive

These are not encouraging observations. The article also touches on the amount of debt in the industry–it peaked in mid-2008 at $14-15 billion. The article implies that the industry has always relied on debt. This is incorrect–the diamond trade used to always be on cash or on short terms (up to 30 days). People started to use the banks heavily since the collapse in 1980–and now we can see what this reliance on debt has brought to the industry.

The Indian Reserve Bank recently set up a task force to look into “distress arising on account of problems faced by diamond industry.” While there is still demand for goods from the diamond industry, nobody really know what exactly the demand is. In addition, once workers leave the diamond industry, they will not come back so easily, especially if they find work elsewhere. I believe that growing the industry again after the downturn will be problematic. Since India controls about 60% of the market, a serious reduction in production there will have a great effect on the producing companies: they’ll soon suffer from cash flow issues.

My colleague Randy believes that it’s good that the Indian industry is at least acting. He says:

One sure way to correct is to cut off the new inputs of polish into the pipeline. It is painful, but necessary. Attitude change is also a necessary step–I now see this as a major impediment at the retail end. The jeweler is still arrogantly treating the supplier like a banker with free interest. This is driving me crazy, and the shift is coming around the bend: I’m starting to hear cries from jewellers of not being able to get their hands on merchandise.  My wish would be that all suppliers would pull back and only release goods to people who are truly credit worthy.

I agree with Randy’s assessment–the jewellers’ attitude is what concerns me most. This is not arrogance though; rather, it’s a problem of responsibility. Since jewellers were educated by their suppliers that they do not have to take any responsibility for their actions (as long as they pay at the end of the day), they would not like to have to start acting responsibly now. This is actually the reason for the current economic crisis, when actors did not have to take any responsibility for their actions. We had lenders who did not check the risk, risk controllers who never met the borrower and the entire industry that hid behind regulations and rules. Lack of responsibility leads always to unethical behaviour.

Photo by *spud* via Flickr

Janusian Thinking is derived from the concept of paradox.

Janus, the Greek god of doors and gates and beginnings and endings, was most often depicted with as man with two heads, each facing in opposite directions.

The obvious benefit of such a dual perspective – and the underlying power of Janusian thinking – is that it provides the ability to consider multiple perspectives simultaneously. Failure to do this results in decision-making paralysis, depression or in wasted effort, pursuing false goals.

Variants of Janusian thinking are applied in contemporary contexts to military planning, corporate strategy, and academic analysis.

Janusian thinking can be a valuable tool in everyday life. Our modern existence requires us to weigh complex, competing phenomena concurrently and make decisions we can stick by, despite having incomplete information.

In this blog I often apply the concepts of Janusian thinking to luxury marketing and to the behaviour of the diamond industry, but it offers us many more valuable insights into human behaviour. Mastering Janusian thinking holds the key  to moving beyond personal and institutional blockages and becoming a committed, purposeful leader.

In my PhD I offered descriptions of two predominant ‘worldviews’, which I termed Theta and Lambda.

People tend to prefer one of these two Theta or Lambda worldviews in their pursuit of life purpose, and thus also in the pattern of their purchasing decisions.

The Theta-Lambda worldview is particularly applicable to one’s consumption of luxury products as this category of goods and services aims to tap into our desire to reflect externally what we see as our internally derived identity.

While we can only see the world from one perspective, we can strive to respect and understand that there may be a different perspective, thus also respecting the person who has adopted that viewpoint.

Handling this apparent paradox – of holding one view to be true while allowing for another valid perspective to exist – is the key to achieving a rich and full interpretation of the world.