To Pay What Feels Right
How Free Are Your Choices?
Everybody who has taken high school economics will be familiar with Adam Smith’s theory of the “invisible hand”, a concept which, very simplistically said, states that if consumers are allowed to choose freely what to buy and producers are allowed to choose freely what to sell and how to produce it, the market will settle on a means of production and prices that are beneficial to a community as a whole. When Smith wrote his Wealth of Nations in 1776 this theory was probably true. Back in those days most products were produced in the household by private tradesmen and new products were purchased on a needs only basis.
However, that was almost 250 years ago! Despite the ongoing references to Smith’s words by modern-day economists, in today’s markets, very few products are produced by mere households and most products are now bought on a want, not necessarily a needs, basis. Of course, customers searching for the products they want can still choose freely and companies can still decide what to sell and how to produce their goods, but is the system still beneficial to a community as a whole?
“We’re Lovin’ It”
I don’t think so. We have become a community of selfish consumers. Our primary identity has become that of a consumer, not parents, teachers or farmers, but consumers. The primary way that we value ourselves is by how much we contribute to the economy, how much we consume. To paraphrase McDonald’s catchphrase, “We’re Lovin’ It,” but only if the price is right. We expect, for example, to get our next iPhone for free with a new Mobile Service Plan, we don’t intend to actually pay the real price. To be able to allow this, many corporations feel the market has forced them into externalising their true costs of production. So who actually does pay for your phone?
Well, many in the developing world do. Some by sacrificing their country’s natural resources base, others by the loss of clean air and increased cancer rates. In the Congo people actually pay with their future, in parts of the Congo many kids have had to drop out of school to mine coltan (columbite–tantalite), a metal essential for the production of smartphones and other electronic goods. Even back here in Singapore certain people are paying for your free iPhone by accepting minimum wage jobs and living in cramped, shared and over-priced apartments. In the end, none of these contributions are recorded or taken into account when a sales price is set. That is what it means to externalize the true costs of production. We buy more and more new useless toys, but refuse to pay the real price or accept any responsibility for the damages done to others in the process of creating them.
How did we end up in this situation? It wasn’t always like this. The average person today consumes at least twice as much as previous generations. Ask your grandma. In her day, resourceful repair and re-usage of products were still valued. So, what happened?
Remember the first part of the theory of the invisible hand, the conditional part that mentions consumers being allowed to choose freely what to buy? In a world in which more than USD 500 billion is spent annually on advertising and where the revenue of an American company like Wal-Mart ranks on par with the GDP of oil-rich Norway, how free can our choices really be?
This didn’t just happen, it was planned. Until the 1920s the world’s economies operated on a needs only basis, a product was bought simply because the consumer had an actual need for it. When it broke, it was repaired and once a product became damaged beyond repair, the consumer would try to re-use some of its components before heading back to the store and buy a new one. It doesn’t take much imagination to see that this kind of consumer behaviour wasn’t very good for business.
Enter Edward Bernays, a nephew of psychoanalyst Sigmund Freud.
In 1919, after an initial career as press agent for US President Woodrow Wilson, Bernays opened an office as Public Relations Counsellor in New York. His largest contribution to Public Relations came in the late twenties when he introduced the idea that it was possible to persuade people to behave irrationally if you linked products to their emotional desires and fears. Instead of needing the product, consumers would now buy a product because of the way it made them feel about themselves. Over the next decades, Bernays and his colleagues successfully “trained” the American consumers to switch from a needs to a desire economy. Another breakthrough in this process came shortly after the World War II as US President Eisenhower’s Council of Economic Advisors were figuring out how to ramp up the economy and came to the conclusion that, “The American economy’s ultimate purpose is to produce and sell more consumer goods.” Before long, the rest of the Western economies eagerly followed suit.
Today, after almost a century of marketing conditioning, we find ourselves in the ridiculous situation where we go to work, maybe two or three jobs even, come home and we’re exhausted so we plop down on our expensive designer sofa and watch TV, but then the commercials tell us “YOU SUCK!” so we go to a shopping centre and buy something to feel better. As a result, we have to work more to pay for the stuff we just bought, so we come home and we’re more tired so we sit down and watch more TV and it just tells us to go shop again!
We’re on this crazy work-watch-spend treadmill which forces us to buy things we don’t need, with money we don’t have, to impress people we don’t like.
We could just stop, but the question is how? Originally, Smith’s theory of the invisible hand stated that the means of production and the prices of goods were the result of an interaction between consumers and producers. However in today’s markets we can make an argument that because of the producers’ effective marketing techniques, consumers have lost control over their power to freely choose what products to buy, and so this market interaction has become one-sided. For this reason, the most essential step for us to get off the consumption treadmill is to make the invisible hand visible again by reclaiming our right to choose. To do this, we need to re-learn what the true personal value is of the products we buy.
I recently bought the book Reinventing Organizations online. Once I got to the site’s checkout page, I was confronted with an interesting experiment regarding this re-learning of true value:
Pay What Feels Right
If you are open for an experiment in abundance, you can choose to download the book for free. You will receive an email a month after the download inviting you to consider giving the author whatever value you’ve gotten from the book (what you give will go integrally to the author). If you haven’t read the book, or it didn’t match your expectations, you can choose to give nothing. If you like the book, feel free to gift whatever amount you feel is right for you.
The cynical point of view towards this experiment would be that the author is taking an irresponsible risk, why would anyone pay for his book if they can get it for free? I disagree. I think that by being forced to think about the real value of the product for an individual consumer, and having been given the individual responsibility to place a monetary amount on this personal value, most people will pay a fair price. My experience is that if people are treated with the assumption that they will live up to our expectations of them, they usually will.
So is this the path we should take, unclouding the invisible hand of the market by placing individual values on its products? Of course a lot of research still needs to be done on this topic, but it’s definitely worth reflecting on the idea.
[T]here you are.
