The key question Sheldon Garon, Professor of History and East Asian Studies at Princeton, tries to answer is why are some countries thriftier than others, and in particular, why is the US saving so little? Through a comparative historical analysis, Garon tracks thriftiness back in time in Western Europe, Asia and the US. The central argument is that, in contrast to theories emphasising the role of culture and economic growth, savings are driven predominantly by government interventions and institutions.
Countries’ savings levels reveal wide variation and raise a number of puzzles. Common explanations imply that people save either for a ‘rainy day’ or with an eye towards retirement. So, it should be expected that countries with less of a social safety net and younger populations would be the keenest savers. But Garon finds that European countries with generous welfare states have high savings, and the US, with its limited welfare spending, has much lower savings, and the younger populations of the US and the UK are spending when in fact the ‘life cycle’ theory suggests they ought rationally to be saving for old age.
Also, a number of East Asian countries that have high saving rates today used to be low and even negative savers. Indeed, China, which has extraordinary high household savings, was de-saving in the 1980s. So can such disparities through time be explained by culture?
Garon argues no. He demonstrates that thrifty cultures are the result of government institutions and policies, including post office saving banks and national saving campaigns. Japan used aggressive savings campaigns in order to save for catch-up development in the post-War period. Indeed, although savings grew together with GDP, he demonstrates that high savings were in many ways a precondition to growth, and that those institutions, rather than growth per se, was the main driver of savings.
Although he disproves overly simplistic and a-historical cultural theories of savings, he does not disregard culture. Garon’s comparative historical approach instead provides an interesting view of the porous and changeable nature of cultures. He considers it a malleable force that can be changed, and that changes stemming from conscious government interventions can explain differences in savings behaviour. So we find that institutional frameworks and deliberate borrowing and imitation of others are key determinants in understanding why and how savings rates vary across borders.
Garon’s interesting use of international history serves to problematize simplistic categories of ‘culture’ or even ‘historical experience’ which are sometimes employed as explanatory tools. The process shown in this book, whereby certain modes of social action, thriftiness and responsible consumption, come to be seen as intrinsic to a ‘national character’ are found to be more susceptible to policy interventions than one might have assumed.
Nevertheless, despite its rich historical analysis, a few things were missing in this book. First of all, why are savings so important, and why should a government target it as a public policy, instead of, lets say, more direct welfare policies? It is evident that indebtedness is not good for society, as the financial crisis clearly demonstrated, and also that high saving households are more resilient. Nevertheless, a few pages devoted to arguing why this policy should be favoured would aid his argument.
Second, even though the US is the focus of the book, depictions of the role of savings in East Asia throughout the 20th century begs the interesting question of what saving campaigns might do for developing countries today. In particular, hearing Garon’s view about the relation between savings and development would be valuable. His analysis covers Japan, and also a number of other Asian savers, who initiated saving campaigns at very early stages of development, demonstrating that such campaigns played a central role in these countries’ development. Indeed, financial inclusion was key not only to increasing investments, but also as a tool of social policy and state building; through savings, citizens acquired a financial and emotional stake in the state.
The book’s last chapter, in many ways the most interesting, asks what the US can learn from other higher saving countries. However, from the many success stories depicted throughout the book, it would be interesting to hear what the contemporary world can learn from the history of household savings.
Garon combines culture, historical economics, institutionalism and political economy. Anyone interested in the history of capitalism and comparative political economy is very likely to enjoy it.