Manufacturing Discontent
Source Michael Perelman
Date 05/05/04/01:41

I have a new book coming out in July, Manufacturing Discontent, which
might relate to Gene's question. Here are two short sections:

_Planned Obsolescence_

The economy dissipates enormous energy in creating a steady stream of
new products, most of which, like the finlets and Dagmars, offer no
advantage other than novelty. In this vein, centuries ago, Adam Smith

How many people ruin themselves by laying out money on
trinkets of frivolous utility? What pleases these lovers of toys is not
so much the utility, as the aptness of the machines which are fitted to
promote it. All their pockets are stuffed with little conveniencies.
They contrive new pockets, unknown in the clothes of other people, in
order to carry a greater number. They walk about loaded with a
multitude of baubles ..., some of which may sometimes be of some little
use, but all of which might at all times be very well spared, and of
which the whole utility is certainly not worth the fatigue of bearing
the burden. [Smith 1759, IV.i.6, p. 180]

Smith concluded that the desire for luxury is little more than a
"deception which rouses and keeps in continual motion the industry of
mankind" (Smith 1759, IV.i.9, p. 183). Smith's contemporary, the
philosopher, Immanuel Kant, told a young Russian nobleman, "Give a man
_everything_ he desires and yet at this very moment he will feel that
this _everything_ is not _everything_" (Karamzin 1957, pp. 40-41).

The self-deception and disappointment to which Smith and Kant
pointed undoubtedly predates market economies. Even so, no previous
economy has ever used this conundrum as a central organizing principle.
At the time in which Adam Smith wrote, he had no idea that the deception
he described would involve anybody but the upper classes, who without
the prod of new demands would satisfy themselves with greater leisure.
A century and a half later, the great advertisers have successfully
encouraged the majority of the population to dissipate resources on
"trinkets of frivolous utility."

Hemlines rise and fall in order to make people dissatisfied with
last year's wardrobe. Fashions change so fast that secondhand stores,
such as Goodwill or the Salvation Army, cannot keep up with the flow of
discarded clothing, even though much of it is of high quality and
relatively new. These agencies have little choice but to export much of
their donated clothing to impoverished nations.

Nobody knows the horrendous resource cost of rapidly changing
fashion, but again the experience of General Motors and the rest of the
automobile industry is instructive. In a classic study of the economic
costs of automotive design changes published in the conservative
_Journal of Political Economy_ the year before Sloan's account of his
work with General Motors appeared, three quite prominent economists,
Franklin Fisher, Zvi Griliches, and Carl Kaysen, estimated that more
than 25 percent of the selling price of a car came from the cost of
model changes that were unrelated to performance (Fisher, Griliches, and
Kaysen 1962). Since 1962, the speed with which new models of consumer
goods proliferate has accelerated dramatically. The automobile industry
pioneered planned obsolescence; it continues to push that strategy
today. People who purchase a car can select from more than 1000 models.

Nike offers a clear picture of how planned obsolescence has
evolved. The first Nike shoe had a promotional life of seven years. By
1989, the marketing cycle was down to ten months (McQueen 2003, p.
187). Now, Nike creates 250 new shoe designs each season. The Swiss
company that manufactures Swatch watches creates 140 different watch
styles each year (Jenkins 1998). I doubt a new model watch is much more
accurate than the model that preceded it. According to Jeffrey Madrick
the Gap retail chain revamps its product line every six weeks, and
changes its advertising frequently as well (Madrick 1998, p. 32).

The Productscan Online database counted 33,678 new food, beverage,
health and beauty aids, household and pet products introduced during
2003, up from less than 22,000 in 1994 (Productscan 2003). Madrick
reported that the number has increased fifteen- and twenty-fold since
1970 (Madrick 1998, p. 32). Relatively few of these new products
actually represent an improvement; they are simply marketing strategies.

Paradoxically, constant style changes can actually limit the
variety of products available to the public. When companies, such as
Nike, go to great lengths to shower markets with a wide array of
products, part of their strategy is to limit competition by filling the
shelves with as many varieties as possible in order to prevent stores
from stocking products from other brands. For example, when the Federal
Trade Commission looked at five food products -- bread, hot dogs, ice
cream, pasta and salad dressing -- it found that a foodmaker could pay
anywhere from $2,313 to $21,768 per item to get onto the ideal shelves
in a major metropolitan area (Federal Trade Commission 2003). Small
producers complain that this practice prevents them from competing.

According to the promise of consumer sovereignty this wide array of
choices benefits the customer. The reality is somewhat different.
Consider the 250 new shoe designs that Nike creates each season. From
my personal perspective, this quest for novelty is quite detrimental.
Writing as an aging basketball player with tender feet, I know that if I
find a pair of shoes that fits well, I will never again be able to find
a replacement with the precise feel and fit, since the style that I buy
today will soon be discontinued. So, every time my shoes wear out, I
must begin another search for a shoe that feels comfortable. Alas, in
the end, consumer sovereignty turns out to be a quite constricted form
of sovereignty.

These "search efforts" represent a serious cost. John Helliwell,
an economist who has studied the relationship between economics and
happiness, noted: "psychological studies show that increasing the range
of product choice becomes costly to buyers at a fairly early stage:
they find it harder to make decisions when faced with many alternatives,
take longer to reach their decisions, and are more likely to later
regret their decisions" (Helliwell 2002, p. 34).

For example, two psychologists set up tasting booths in an upscale
grocery store, offering the opportunity to taste a number of jams --
either 6 or 24. In the case of the 6-jam experiment, 40 percent of
shoppers stopped to have a taste and, of those, 30 percent proceeded to
purchase a jam. In the 24-jam experiment, a full 60 percent stopped to
taste, but only 3 percent actually purchased a product. They described
this difference as a "phenomenon of choice overload [in which] ....
people ... are burdened by the responsibility of distinguishing good
from bad decisions (Iyengar and Lepper 2000, pp. 1003-04).

Obviously, this problem is even more true when the commodity
involves a more complex set of considerations than the taste of a jam
sample. Think of the intense study required to select the best HMO
plan. I doubt that many people find that experience particularly
pleasurable. Perhaps more revealing, consumers, even the 40 million who
do not have health insurance, never get to consider the choice of a
national health care program that could avoid the excessive overhead
costs of profit-making HMOs, especially when clear and reliable
information is so hard to find.

So, in many, if not most cases, the number of new varieties offer
no substantial advantage -- just a variation in style. In fact, some
companies are now finding that a reduction in the choices that they
offer consumers actually increases sales (Iyengar and Lepper 2000).

_Prosperity and Happiness_

I want to take a moment to consider what light economic theory might
throw on the relationship between prosperity and happiness. Economists
who believe in the harmonious functioning of the market construct
beautiful theories to show how the economy works to maximize happiness
and human welfare. Well, not quite. Because of the technical
difficulties that economists encountered in elaborating this theory,
they had to satisfy themselves merely by "proving" that a market will
eliminate a very limited sort of inefficiency -- that the market will
never reach an outcome in which you could somehow give someone something
without making someone else worse off. Even this modest "proof"
requires a large number of assumptions that are never met in the real world.

In this theoretical context, within a market society, all
individuals will attempt to maximize their happiness -- economists use
the term utility -- given the limitations of their budgets. Firms will
then adapt their business to accommodate individuals' desires. At the
very least, because of economic growth over time in this world of
consumer sovereignty, we should expect that each generation in advanced
market economies would be far happier than its predecessor. Yet,
nothing of the sort seems to be happening.

Most people would expect that an increase in a society's income
would bring about an increase in happiness, but these expectations do
not pan out. Instead, modern research seems to bear out Smith's
intuition about the illusory utility of luxury. Societies do not seem
to become happier with an increase in income after their basic needs are
met. Instead, "once a country has over $15,000 per head, its level of
happiness appears to be independent of its income per head" (Layard
2003; see also Frey and Stutzer 2002, p. 8; and Easterlin 1995).
Germans and Nigerians seem to be equally happy. A similar equality
holds for Cubans and Americans (Frank 1985, p. 31).

Of course, if the German standard of living fell to a Nigerian
level, Germans would not be indifferent. German happiness does not
exceed that of Nigeria because Germans have different material
expectations than Nigerians do. These expectations shift as people
experience a different standard of living. Similarly, if the Nigerians
were brought up to a German standard and then fell back to their earlier
level, their happiness would also decline below where it stands today.

In short, as people reach a higher level of prosperity, the
standards by which they measure prosperity also increase. As a result,
prosperity becomes an ever receding goal. For example, in 1986 the
Roper polling organization asked Americans how much income they would
need to fulfill all their dreams. The answer was $50,000. By 1994 the
"dreams-fulfilling" level of income had doubled from $50,000 to $102,000
(Schor 1998, p. 14; Stutzer 2004).

Corporations serve as a vehicle to accumulate wealth in an ever
smaller number of hands. Those who enjoy the greatest wealth within
this system raise the income aspirations for others. Corporations play
a substantial role in fueling higher expectations. I might add another
consideration in this discussion of happiness. A number of studies have
found that nations with greater income equality enjoy better health,
measured by longevity (Wilkinson 1997, pp. 1-2). Even within the United
States, people in those states with greater income equality live longer
(see Kaplan et al.1996; Ross et al. 2000). I am fairly confident that
the link between inequality, advertising, unfulfilled expectations, and
poor health would be fairly strong.

I should add that just because societies do not report more
happiness with increases in income beyond a certain threshold does not
mean that money and income are unrelated to happiness for individuals
within any society. Rich people do tend to be happier than the less
affluent, but their happiness depends less on the extent of their riches
than on how rich they are relative to others around them.

Nobody understood the relationship between money and happiness
better than Thorstein Veblen. Although his ornate language makes for
difficult reading, his analysis still holds:

the end sought by accumulation is to rank high in comparison
with the rest of the community in point of pecuniary strength. So long
as the comparison is distinctly unfavourable to himself, the normal,
average individual will live in chronic dissatisfaction with his present
lot; and when he has reached what may be called the normal pecuniary
standard of the community, or of his class in the community, this
chronic dissatisfaction will give place to a restless straining to place
a wider and ever-widening pecuniary interval between himself and this
average standard. The invidious comparison can never become so
favourable to the individual making it that he would not gladly rate
himself still higher relatively to his competitors in the struggle for
pecuniary reputability. [Veblen 1899, p. 39]

Such then is the "happiness" of the rich. Modern markets, however, may
be particularly destructive of happiness. A number of social scientists
have tried to analyze happiness. Their results are consistent. In the
United States, happiness seems to have peaked in the 1950s. According
to a report compiled in the mid-1990s, since 1957, the proportion of
those telling surveyors from the National Opinion Research Center that
they are "very happy" has declined from 35 to 29 percent (Myers and
Diener 1996; see also Lane 2000).

In the 1960s, people increasingly began to question about the value
of increasing material affluence. People who had never known the
hardship and deprivation associated with the Depression were coming of
age. For many young people, accustomed to a comfortable standard of
living, merely accumulating more material goods seemed pointless. Many
instead chose to distinguish themselves in a "counter culture" that
shunned ostentatious consumption, although for the majority, this
seemingly principled stance turned out to be a passing phase -- or
perhaps more accurately, a fad.

I should add that although material goods may not be a guarantee of
happiness, one particular type of commodity may be an exception in its
ability to ward off unhappiness -- at least consumers seem to think so.
In particular, many people turn to medication in an attempt to make
their lives happier. In the 1960s, illegal psychedelics became
popular. In the 1970s Valium topped the charts as the most widely
prescribed drug in the United States, only to be replaced by Xanax in
1986. Today, Prozac is the world's most widely prescribed drug.

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