Why Pay More? When Radosław Sikorski, Poland’s foreign minister, went to Ukraine for talks last month, his Ukrainian counterparts reportedly laughed at him because he was wearing a Japanese quartz watch that cost only $165.

Peter Singer is Professor of Bioethics at Princeton University and Laureate Professor at the University of Melbourne. He is the author ofPractical EthicsOne World, and The Life You Can Save, which is also the name of an organization that he founded.

Why Pay More?

09 May 2013

PRINCETON – When Radosław Sikorski, Poland’s foreign minister, went to Ukraine for talks last month, his Ukrainian counterparts reportedly laughed at him because he was wearing a Japanese quartz watch that cost only $165. A Ukrainian newspaper reported on the preferences of Ukrainian ministers, several of whom have watches that cost more than $30,000. Even a Communist member of Ukraine’s parliament, the Rada, was shown wearing a watch that retails for more than $6,000.

The laughter should have gone in the opposite direction. Wouldn’t you laugh (maybe in private, to avoid being impolite) at someone who pays more than 200 times as much as you do, and ends up with an inferior product?

That is what the Ukrainians have done. They could have bought an accurate, lightweight, maintenance-free quartz watch that can run for five years, keeping virtually perfect time, without ever being moved or wound. Instead, they paid far more for clunkier watches that can lose minutes every month, and that will stop if you forget to wind them for a day or two (if they have an automatic mechanism, they will stop if you don’t move them). In addition, the quartz watches also have integrated alarm, stopwatch, and timer functions that the other watches either lack, or that serve only as a design-spoiling, hard-to-read effort to keep up with the competition.Why would any wise shopper accept such a bad bargain? Out of nostalgia, perhaps? A full-page ad for Patek Philippe has Thierry Stern, the president of the company, saying that he listens to the chime of every watch with a minute repeater that his company makes, as his father and grandfather did before him. That’s all very nice, but since the days of Stern’s grandfather, we have made progress in time-keeping. Why reject the improvements that human ingenuity has provided to us? I have an old fountain pen that belonged to my grandmother; it’s a nice memento of her, but I wouldn’t dream of using it to write this column.

Thorstein Veblen knew the answer. In his classic The Theory of the Leisure Class, published in 1899, he argued that once the basis of social status became wealth itself – rather than, say, wisdom, knowledge, moral integrity, or skill in battle – the rich needed to find ways of spending money that had no other objective than the display of wealth itself. He termed this “conspicuous consumption.” Veblen wrote as a social scientist, refraining from rendering moral judgments, though he left readers in little doubt about his attitude toward such expenditure in a time when many lived in poverty.

Wearing a ridiculously expensive watch to proclaim that one has achieved an elevated social standing seems especially immoral for a public official in a country where a significant portion of the population still lives in real poverty. These officials are wearing on their wrists the equivalent of four or five years of an average Ukrainian’s salary. That tells Ukrainian taxpayers either that they are paying their public servants too much, or that their public servants have other ways of getting money to buy watches that they would not be able to afford otherwise.

The Chinese government knows what those “other ways” might be. As the International Herald Tribune reports, one aspect of the Chinese government’s campaign against corruption is a clampdown on expensive gifts. As a result, according to Jon Cox, an analyst at Kepler Capital Markets, “it’s no longer acceptable to have a big chunky watch on your wrist.” The Chinese market for expensive watches is in steep decline. Ukrainians, take note.

Wearing a watch that costs 200 times more than one that does a better job of keeping time says something else, even when it is worn by people who are not governing a relatively poor country. Andrew Carnegie, the richest man of Veblen’s era, was blunt in his moral judgments. “The man who dies rich,” he is often quoted as saying, “dies disgraced.”

We can adapt that judgment to the man or woman who wears a $30,000 watch or buys similar luxury goods, like a $12,000 handbag. Essentially, such a person is saying; “I am either extraordinarily ignorant, or just plain selfish. If I were not ignorant, I would know that children are dying from diarrhea or malaria, because they lack safe drinking water, or mosquito nets, and obviously what I have spent on this watch or handbag would have been enough to help several of them survive; but I care so little about them that I would rather spend my money on something that I wear for ostentation alone.”

Of course, we all have our little indulgences. I am not arguing that every luxury is wrong. But to mock someone for having a sensible watch at a modest price puts pressure on others to join the quest for ever-greater extravagance. That pressure should be turned in the opposite direction, and we should celebrate those, like Sikorski, with modest tastes and higher priorities than conspicuous consumption.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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