The High Cost of Luxury: How It Impacts Social Inequality

Lena Kashyap in Culture & Society September 2025 • 4 min read.

"Luxury goods consumption isn't just about individual indulgence; it has profound implications for social equity and the well-being of marginalized communities."

Luxury goods and trade in them have existed for centuries, spanning the Middle Ages with silk, spices, and precious metals, to modern times with designer brands and exclusive experiences. The consumption of luxury goods continues unabated, with a dramatic increase in recent decades. A study showed a staggering 350% surge in the number of luxury consumers between 1995 and 2013.

Emerging economies in Asia and Latin America, alongside those in Eastern Europe, now constitute about 40% of the global luxury market, and this share is projected to grow. Asia alone could account for 50% to 60% of global luxury revenues, with China and India contributing significantly to this growth. The availability and allure of luxury items are no longer confined to the aristocracy or leisure class, but are increasingly sought after by the middle class, particularly in developing nations where the desire for luxury consumption is prevalent.

While luxury consumption continues to rise, there are sections of society that face deprivation and social exclusion. For these populations, mere subsistence is the primary concern. Examples of social exclusion include marginalized groups like Dalits in India, indigenous populations, and the working poor in many countries who have been excluded from global development and urbanization processes.

How Does Luxury Spending Affect the Disadvantaged?

Surreal illustration of luxury cityscape contrasting with impoverished shantytown, symbolizing economic disparity.

The contrast between luxury consumption and the deprivation experienced by socially excluded groups is stark, particularly in developing countries. This disparity raises critical questions: What happens to the welfare of socially excluded groups as urban sprawl and luxury markets expand? How does the desire for luxury impact those struggling to meet basic needs?

A trade-theoretic model helps break down the relationship between luxury consumption and social exclusion. Imagine a society divided into two groups: the 'controlling group' (owners of capital, landowners, skilled workers, and non-excluded migrants) and the 'socially excluded group.' Social exclusion is modeled across three dimensions:

Production Exclusion: The socially excluded lack ownership of productive assets (physical and human capital).
Consumption Exclusion: They cannot afford the goods and services enjoyed by the rest of society.
Political Exclusion: They are unable to participate effectively in political decision-making.

In this model, the controlling group possesses political power and optimizes national welfare without considering the well-being of the socially excluded. The consumption exclusion further leads to a disaggregation of the economy's demand side, where a significant portion of society enjoys a wide range of goods and services (including luxury items), while others struggle to consume even what is necessary for subsistence.

The Path Forward: Addressing Social Exclusion

While luxury consumption is deeply ingrained in modern society, its negative impacts on social equity cannot be ignored. Changes to trade terms, capital accumulation, and urbanization can exacerbate these disparities, reducing the welfare of socially excluded groups. To create a more equitable future, it is essential to address social exclusion and ensure that the benefits of economic growth are shared by all members of society.

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Everything You Need To Know

In what specific ways does the consumption of luxury goods affect socially excluded groups in developing countries?

Luxury goods consumption significantly affects marginalized groups through what is known as social exclusion. This exclusion manifests in three key dimensions: production exclusion, where marginalized groups lack access to productive assets; consumption exclusion, where they cannot afford essential goods and services; and political exclusion, where they are unable to participate effectively in political decision-making. The expansion of luxury markets exacerbates these exclusions, widening the gap between the affluent and those struggling to meet basic needs.

According to the trade-theoretic model, how are different societal groups defined, and how does this model explain the dynamics of social exclusion related to luxury spending?

The trade-theoretic model divides society into the 'controlling group' and the 'socially excluded group.' The controlling group, comprising owners of capital, landowners, skilled workers, and non-excluded migrants, holds political power and optimizes national welfare without considering the well-being of the socially excluded. This leads to a skewed distribution of resources and opportunities, where the controlling group benefits disproportionately from economic growth and luxury consumption while the socially excluded are left behind.

How are emerging economies like China and India contributing to the growth of the luxury market, and what are the potential implications for social equity?

Emerging economies like those in Asia and Latin America are witnessing a surge in luxury consumption, driven by a growing middle class eager to acquire luxury goods. This trend is projected to continue, with Asia potentially accounting for 50% to 60% of global luxury revenues, with China and India contributing significantly. This rapid growth, however, also raises concerns about the potential for increased social inequality and the exclusion of marginalized groups who do not benefit from this economic expansion.

What steps can be taken to address social exclusion and create a more equitable future in the context of growing luxury consumption?

Addressing social exclusion is crucial for creating a more equitable future. This requires ensuring that the benefits of economic growth are shared by all members of society, including marginalized groups like Dalits in India, indigenous populations, and the working poor. Specific strategies to address social exclusion might involve interventions aimed at improving access to education, healthcare, and economic opportunities for marginalized groups. Furthermore, policies that promote inclusive governance and empower marginalized communities to participate in decision-making processes are essential to ensure that their voices are heard and their needs are met.

How does the widespread desire for luxury goods potentially undermine efforts to improve the welfare of those struggling to meet basic needs?

The desire for luxury goods can impact those struggling to meet basic needs by diverting resources and attention away from essential services and social programs that could benefit marginalized communities. When significant resources are allocated to luxury markets and the wealthy, it can reduce the availability of resources for investments in healthcare, education, and other crucial services that address the needs of the socially excluded. The focus on luxury consumption can also create a culture of aspiration and discontent, where those struggling to meet basic needs may feel even more marginalized and excluded from society.