Engineering and Freedom, Part 10

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The marketing/advertising economy is generally conceived in terms far removed from the welfare/social economy.  

In fact, both offer goods and services at very low cost to the ultimate consumer, subsidies that must be borne elsewhere in the economy. Governments pay for their social programmes through borrowing or tax revenue. Industry pays for its entertainment programmes by incorporating the cost into the price of the products it creates. In both cases, the expense of the goods on offer is socialized. 

For both the social economy of government expenditure, and the promotional economy of advertising subsidy, then, the normal rules of the cash or price economy do not apply. 

The irrelevance of price, the primary source of data for productive decisions, is the reason both government and marketing agencies must collect so much “intelligence” on the everyday habits of their clientele. 

Post-Keynesian economics has outlined in great detail how the expropriation of wealth from private hands to finance the social economy has proven deleterious to the cash economy as a whole, in large measure because the irrelevance of price in the social distorts demand and supply decision-making. 

Yet little systemic analysis has undertaken as to how what one recent book called the “entertainment economy” may, too, distort the overall cash economy, even though the mechanism for the subsidy of the latter is the same as the former. 

The main argument against the social appropriation of capital investment, advanced by neo-classical economists, is that non-private interests are much less efficient in marshalling resources than are private concerns. But couldn’t this be said equally of the appropriation of actual investment in capital, for the purposes of advertising promotion through mass media? 

Marketing funds must be borrowed from the total of that available to produce a good in the first place. It is an expense without any necessary return. If advertising improves sales, that is well and good, but if an ad campaign does not do so, its expense cannot be recouped by selling it to someone else (as is the case with say, unneeded capital goods). 

Advertising, by its very nature, represents a potential wasteful expense of resources by private capital, in the same way as does wasteful government social spending. The money spent on marketing (as is the case with government programme-spending) does indeed create jobs, often well-paying ones in both cases. 

The question is whether the jobs created are worth their value to the economy overall. For the bureaucracy that must be established in order to administer state spending, the answer that has been returned by the neo-classicists has been a resounding, “No.” But for the industry-dependent marketing sector, few have even wondered to inquire if it is worth its value at all to the economy. 

Textbooks talk about “economies-of-scale,” or the savings achieved with mass production. But contemporary manufacturing concerns have grown into continent- and globe-sized monsters less to achieve economies of scale, than to afford the vast cost of mass-media advertising. 

Oligopoly or monopoly might be a matter of course in certain industries, notably resource-extraction, where there are inherently high fixed costs of exploration, etc. The only inherently high-cost factor of production that consumer-goods manufacturers must deal with is advertising and marketing. 

Where the consumer-goods sector ought by now to be highly competitive, sensitive to price fluctuations, instead there is oligopolistic concerns the size of Coca-Cola and countless other firms of the same proportion. The fact is, the largest consumer-goods firms long abandoned reliance upon crude supply and demand measures to make production decisions. 

The development of large industries devoted to consumer goods, while relatively free from government intervention (especially in the U.S.), did not otherwise rely solely on the “invisible hand” of the unregulated marketplace. Instead, consumer-based industries sought to inspire market demand by doses of propaganda through all available mass media. 

The author Susan Strasser has traced the development of the marketing economy during Victorian times, detailing in particular the selling of the Crisco brand by Procter and Gamble. She writes, “The corporations that made and distributed mass-produced goods did not necessarily set out to create needs, nor did they do so in any straightforward way. Procter and Gamble made Crisco in order to sell it. The company employed home economists to develop recipes, but did not in fact care what consumers did with the product as long as they bought it. Its goal, in Thorstein Veblen’s words, was the `quantity-production of customers’, the making of consumer markets. Sometimes manufacturers produced needs among children for products that parents bought. Those with goods in established product categories put most of their marketing effort into producing a demand for a particular brand, not a need for the product itself.” (Strasser, Satisfaction Guaranteed: The Making of the American Mass Market, 1989, p. 17) 

Strasser observes the economic mechanism of the marketing economy: “The manufacturers who adopted the conveyer belts and gravity slides of low production... needed to dispose of their huge outputs. Because mechanization demands large amounts of capital, they sought predictability and control; they could not afford large overstocks and they wanted to free themselves from dependence on wholesalers. They took their cue from a few industries, such as book publishing and patent medicines, where manufacturers courted customers directly, placing advertisements in magazines, selling by mail, or offering commissions to salesmen who went from house to house and put on public displays, the fabled medicine shows. Copyright and patent holders held monopolies on their products, and the largest and most successful flow producers could purchase Uneeda biscuits or Ivory soap only form the National Biscuit Company or Procter and Gamble, they would have to pay the manufacturers’ prices.”[ii]. (Strasser, Satisfaction Guaranteed, 1989, p. 19).

Thus it is that the mass media grew up in tandem with the inception and development of large industrial trusts devoted almost entirely to the consumer marketplace. Printed books and other materials were the first goods produced for a mass marketplace, and periodical literature in particular was crucial to the creation of an abstract marketplace for the sale of mass-produced goods. 

In the nineteenth century, when printing was industrialized under factory conditions, the new mass-circulation dailies and periodical weeklies or monthlies were economically sustainable through revenues provided by consumer advertising. So it was with the later development (in America) of broadcast radio and television. 

The commercial messages delivered through these media, while not literally brainwashing, employ many of the techniques of psychological manipulation. Advertising conditions consumers to accept the machine-technological way of life, the necessary apparatus for the creation of mass consumer goods. 

The goods and services offered by industry, submitting to the whimsical and “trivial” of everyday concerns and anxieties, are the salve, the tonic for the personal and social estrangement which occurs in society governed by technological imperatives. Mass-media entertainment, paid for the advertising of goods and services, is a crucial part of this nexus. 

The main difference between advertising expenditure and programme expenditure by governments is that while the former is financed on a private, volitional basis, the latter is not. 

However, the state is deeply implicated in the business of advertising. First, the main vehicle for it, broadcast media, are legally public utilities in most jurisdictions. Private concerns that lease these utilities, and the industries that finance these concerns through advertising dollars, do so at the pleasure of the state. Second, business tax law in most places allow corporations to write-off the expense of advertising, so that, while only large concerns can afford to spend the big bucks necessary for a really effective ad campaign, they can also profit from by eliminating the cost from the total taxes they must pay. 

Thus, consumers pay for the expense of the marketing industry twice, in the greater expense of the goods they buy, and in the larger chunk of their personal incomes taken by governments to make up the shortfall in revenues caused by ad-expense tax write-offs. More generally, though, the culture of the “entertainment sector” (the fortunes of which is completely dependent on advertising revenues) resembles that of the social economy rather than that of the regular price economy. 

This is no less true in spite of the fact that firms in the marketing industry compete vigorously for their clients’ business. In a state-dominated economy, private firms also compete assiduously with one another for the right to government business. This does not mean, however, that private companies’ revenues that come from state coffers are automatically more efficient, just because they are private firms. 

It is competition, not the mere fact of private ownership, which promotes efficiency and improved goods. Where one’s largest or only customer is the government, there is far less pressure to offer goods and services at a premium, precisely because the threat of competition from other firms is absent. 

Similarly, marketing firms win business for reasons having to do far less often with rational supply and demand decision-making, than with their ability to persuade clients of the probability of success of the “campaign” (the analogy of that word with army generals’ pursuit of the enemy in battle is entirely appropriate). 

However, since the exact relationship between any marketing campaign and any increase in sales cannot be established (it is said that half of advertising campaigns fail to have any influence at all, positive or negative, on sales), the success of any marketing firm relative to others depends not on their ability to produce anything, or carry out some service with demonstrable success, but on political connections and active lobbying. 

Advertising as often as not has no influence whatsoever on sales. But the fear that a competitive rival will usurp their market position is enough to encourage modern captains of industry to continue to perennially invest in the marketing of their goods, rather than in the goods themselves. 

The same logic has kept junta regimes throughout history expropriating the “surplus” of actual wealth-creators in order to finance their arms races. With regard to the entertainment or marketing sector of the economy, however, it is not only that business people feel constrained by competitive forces to spend such a great amount of their capital on advertising. 

The marketing/consulting industry is responsible, as we noted above, not only for representing clients from other parts of industry, but also for collecting vital information on the public. This information is the bread and butter of the marketing economy. It is also proprietary; as those who have the responsibility of handling it usually have to sign some sort of legal agreement not to reveal its contents to anyone. If they do, they could face expensive lawsuits. 

The term “information economy” is usually associated with computers and related technology, but in fact the information sector of the economy first took off after the war, when the average computer was still the size of a room. “Information” is exactly what the marketing sector of the general economy trades in. 

The social and cultural position of those who staff it, is roughly analogous to that held by scribes in the Latin church during the Middle Ages, which is to say, it has a monopoly hold on the vital data needed to operate the primary media of communication. Since people who work in this sector of the economy are recompensed handsomely by their clientele, they have plenty of cash to spread around. 

Those not directly involved in the “information” economy thus again lose out, as producers and middlemen pay less attention to the manufacture of more utilitarian things affordable to the common people in favour of baubles favoured by information professionals and those directly employed by them. 

The socioeconomic position of those within the information economy of advertising/marketing is also analogous to that of functionaries that staff the institutions of the social economy. Both groups are economic parasites, imposing their own distinct sorts of tithes on the productive activity of others. Any sophisticated economy requires some sort of non-productive parasitism, of course. 

But is the degree of parasitism evident with the contemporary information economy serving a socially useful good at all, except for enriching a relative few at the expense of many others? Advertising/marketing, at least through mass media, are financed by private business, but its principles are contrary to those of rational self-interest. Moreover, “the media,” or electronic means of communication, would never have achieved the primacy that they have without the vast sums spent on subsidizing them by advertising promotion. 

Thus, any consideration of “the effects of television” (and more broadly, all mass media) and “the influence of advertising” are really inseparable. These cultural forms are, however, generally analyzed not only in isolation, but primarily in terms of their content. 

Thus, there has been the constant worry, since the introduction of television, about how violence depicted on TV inspires actual violence in real life, or about how advertising encourages people to buy things “they don’t need or don’t want.” 

But if we assume, correctly, that human beings, as physical and social animals, have indigenous needs and wants, a fuller understanding of how “the media” condition their audiences will be gained. 

 Thus, the information/marketing economy is not, as depicted by some observers, an inevitable opponent of the state economy. In fact, both sectors have the same object of subsidizing certain forms of consumer activity at low or no charge, in order to maintain a dominant social, economic and political position. Advertising, as with “corporate sponsorship,” is indeed the alternative means of subsidy when government subsidies are insufficient or unavailable. This is the case with art and sport events, as noted. 

Television and radio networks that don’t survive on advertising subsidy, do so on government subsidy instead. The Internet functioned for many years on the subsidy of the U.S. Department of Defence, long before anyone but defence analysts or scientists had ever heard of it. 

The Internet has been a boon to marketing intelligence, however, because with the active participation of consumers in a mass computer network, companies can track their actual Web-surfing behaviour, right down to the name and number of Web sites they visit, even the contents of their host personal computer. 

Goods or services subsidized by taxes or by advertising revenue (which is a tithe on the cost of the product itself) are “in common” in that rarely could their activities be sustained by supply and demand means. 

The significant part of the workforce that now earns its living from the marketing economy, while officially employed by the private sector, are no necessary enemies of the public sector. All government departments, as well as their political masters, now are big clients of the marketing/information economy. 

Moreover, big business, by placing their stock not in a product but in an advertised image, have attempted to bury under a mound of mass-media propaganda their actual motivations for selling their product in the first place, that is, to make money. There is a fundamental symbiosis between the marketing and welfare sectors, as complementary methods of managing markets and people. 

The theoretical foundations of the modern welfare economy, laid down by Maynard Keynes and others, specifically identify the state as agent to encourage broad consumption, to avoid the catastrophic loss in spending confidence as occurred during the Great Depression. For their part, firms dependent on marketing aim to increase consumption, as well, the more so the better. 

While big business has long called for smaller government, in rhetoric, in actuality it long reconciled itself to the social economy and the consumers it made out of the bottom fifth of the population. 

The model information/welfare economy is not the United States, Canada, Britain, France or Germany, but tiny Sweden. There, the government for decades levied heavy personal and surtaxes to support a very generous welfare regime. The state does not, however, own very much of the general economy. Beyond strict health and social regulations, Swedish firms are able to do business as they wish. 

The government’s role in the marketplace is mainly to provide big tax-breaks to firms that invest in research and development. The tax savings accrued provide the capital for R&D, but also enforce industrial concentration. The Swedes have socialized not production, but consumption. The result, given the aims, has been very successful. Swedes live in social-security, and Swedish firms have burgeoned into global consumer giants. The Scandinavian experience shows that consumerism and welfarism, far from being adversarial, are mutually-dependent pillars of the modern engineered society.

Engineering and Freedom, Part 8

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Classical economists assume that the “market” will most effectively regulate prices and production. 

However, markets can certainly exist outside the classic supply and demand principles. The state can, by subsidizing whole or in part the costs of some product or service, create markets.  This is what occurs when governments spend billons on welfare and industrial programmes, for example. 

Markets created by these expenditures are distinct from those under conditions of laissez-faire, because demand and supply exist without price regulation (as the costs of production and consumption are subsidized). 

Economic decision-making in the welfare state sector are subject to political, not mercantile, competition, as the many varied clients of the government organize to ensure the maintenance of their programmes and subsidies. 

This social economy is the “bread” to the “circuses” that are subsidized by the marketing economy. Advertising has provided for free, through the mass media, entertainment that few among its audience would pay for voluntarily. The very fact that it is available for free means that people will watch and listen to it: this audience is the market created by the advertising industry. 

The masses attend to mass-media product simply because it costs them little but their time to do so. There is a psychological disconnect between their consumption of mass entertainment, and the great cost of this entertainment. 

Ordinary consumers in most countries are surtaxed each time they make a legal purchase. They are also subject to a hidden tithe, the added expense of the advertising and promotion of any good or service. 

The profession of marketing has the aim precisely betraying and denying the market. Susan Strasser, a historian of the advertising industry, wrote that, 

In creating the techniques to make people want things, marketers developed principles that belied neoclassical economic theory. According to that theory, price — determined in the marketplace by supply and demand — functions as an information feedback system, telling producers how much of their product to make. When prices go up, the rational manufacturing firm (which can theoretically regulate supply but not demand) will increase output; when they go down, it will cut back on production. In actual practice, manufacturers operate on the new principle that demand could be created by the manufacturer. They initiated market research in order to procure direct market information that might make planning possible before production. Market investigation supported market creation... Furthermore, manufacturers attempted to set prices directly, not only to their own wholesale customers but also to retailers and consumers; price became, in modern jargon, an element of the `marketing mix’, an attribute of the product. With heavy investments in the machinery of mass production and in massive quantities of raw materials, no manufacturer could afford to be the passive actor of neo-classical economics... (Susan Strasser, Satisfaction Guaranteed: The Making of the American Mass Market, Toronto, Random House of Canada, 1989, pp. 27-28) 

Advertising thwarts competition in several ways. First, by inciting a conditioned response among consumer to the mass-media repetition of brand name, slogan or jingle, advertising encourages impulse-buying. Second, advertising is a costly part of doing business, an expense which does not contribute directly to efficiency or productivity. Advertising costs discourage entry by smaller, novel actors into the marketplace. 

The expense of marketing also contributes to the consolidation of industrial operations. Nearly all the major mass-media advertising brand-names belong to multi-divisional, multinational corporations. Only such large concerns can afford the vast costs of promotion and advertising. 

By subsidizing the expense of radio and television (the infrastructure, programming and advertising), consumer-goods firms have created a market for their products — the mass-media audience — that would not exist without the mass-media themselves. 

Commercial broadcasting provides entertainment, and the casual viewer or listener is estranged from the sophisticated infrastructure responsible for creating mass entertainment. He doesn’t pay for it directly (the costs of marketing being hidden in the price of the advertised goods and services), and so he doesn’t attach any monetary value to it. 

The average viewer becomes as dependent upon the mass media as the “client” of the welfare states does to his hand-out, because both offer rewards without much effort. 

The sponsorship of cultural and sports events by large corporations, which has grown steadily in recent years, is of interest here. In effect, corporate sponsorships have come to subsidize these events (often, as governments once did).  

They are popular; obviously there is a “market” for jazz festivals, certain athletic events, and so on. Yet, without the sponsorship either of government or corporations, they would be economically unsustainable. 

A corporate sponsor of a cultural event does not get, and does it expect, a profit from the expense of sponsoring it. What they hope to create is a market, not for the jazz, which already exists, but for the product and brand being advertised. Corporate event-sponsorship is just the latest twist on how business has insinuated itself on the public sphere through the subsidy of goods and services that cannot be sustained by a paying marketplace alone. 

In the past, media of communication were subsidized or otherwise held as legal monopolies by the state, a tradition which holds today for publicly-financed broadcasting or publishing in some countries. Commercial broadcasting, by definition, has always operated courtesy the subsidy of the advertising monies of industry. 

Vast new markets for radio and television were created during the earlier part of the twentieth century, not because there was such a such great demand for these media beforehand, but because the costs of the production of the home appliances necessary to consume their programme content, as well as the programming itself, were “sold” to the public at far below their actual material cost. 

The means were different, but the goal for big business of spending millions on advertising was identical to the vast expenditures governments have undertaken in the past to subsidize previous forms of media, that is, to monopolize the means of communication. In essence, advertising-financed media are propagandists for the gospel of big business, just as government-subsidized media tend to be biassed in favour of the state. 

However, commercial programming has proven far more adept at attracting the attention of the masses, because it is in the interests of the advertisers to provide for free or at low cost content that will bring viewers to watch the ads. Broadcast media have always been legally public utilities. The subsidies given them by the state and especially big business have created a demand for the programming and the requisite equipment for viewing it, that probably would not have ever existed if the full cost of the programming and the infrastructure necessary to create it were borne exclusively by the viewership. 

They were thus established as a distinct sort of utility, one subsidized not mainly by taxes or state-debt expenditure, but by the expense of advertising. Information is always been essential to the conduct of war. Generals need accurate data about the shape of the battlefield as well as the strength of the enemy. They also want to be as secretive as possible with their own activities, so as to surprise the enemy. In the twentieth century, when the conduct of war spread to the whole population, so too did the need of state to begin again to regulate the flow of information. For the junta regimes that were created to fight the Great Wars, the traditional practice of collecting accurate information was employed, but extended also to the “battlefield” of the civilian population, many of whom could have had divided loyalties. 

The censorship of information, to keep the activities of the regime secret from the enemy, was achieved by the rigid control of all media of communication, in both the Axis and Allied countries, and on both sides the general population was “censored” from understanding the enemy by liberal doses of propaganda. Modern propaganda and counter-intelligence methods were developed not by the Soviets or Nazis, but by the democratic West. 

During the First Great War, Allied governments succeeded in re-making the Germans and Austrians into “Huns,” through depictions (in the new cinema medium) of “kaisers” spearing babies on their helmets, before raping their mothers, and so on. Commercial artists were drafted to encourage the masses to sign up for battle, donate to the war cause, go to work in the factories, etc. 

Western governments also put together the first systematic internal espionage operations, to track the movements of enemy aliens. By the Second Great War, intelligence agencies in the U.S., Canada and Britain became institutionalized, and continued with the advent of the Cold War. All the countries fighting the original Great War, no matter what their relative consumer sophistication, experiencing war-induced deprivation, temporarily mocking the conditions of past civilizations. 

However, commercial advertisers drafted to work in the war cause came to understand more fully the persuasive power of propaganda, and applied it to civilian life. The 1920s thus saw a great boom in the consumer economy, guided by advertising in mass-circulation magazines as well as the new medium of radio. 

Radio had been around since the early century, mostly as a hobbyist’s tool. The medium’s spread to the civilian population was blocked by its requisition by the military governments fighting the First World War. However, radio’s technological evolution was speeded by the technological selection pressure of wartime. By the end of the conflict, radio was sophisticated enough to be used for civilian broadcasting. Unlike the mass-circulation magazine, however, the character of the broadcasting audience could not be readily discerned. 

Periodicals have subscription lists, for example, but anyone at all could be listening to a radio broadcast without a trace of who they were. There was no way of identifying just who was and who was not liking a particular programme. Thus it was difficult to sell sponsors on the popular merits of any particular programme content. Broadcast firms had to roll up their sleeves, go out and ask the public what they liked to hear. 

From this, modern marketing techniques were developed. Marketing seeks to divine the greatest amount of information from the smallest possible exposure to the general public. The goal of marketing espionage, like its military counterpart, is to gather accurate, secret information about competitive rivals, while carrying on public campaigns of disinformation in the form of advertising. 

Like traditional espionage, market intelligence requires collecting detailed information from the general public to ensure that their “loyalty” is assured. Commercial broadcasting is essentially the utilization of the media weapons used by all governments during the Great Wars, to the same end of brainwashing the general public, and reducing pressure from competitive rivals. Advertising, especially through electronic media, is as conducive to oligopoly as armaments production is to the creation of a relatively few large-scale states, and for the same reason. 

Only highly-populated societies can afford to sustain arms production indefinitely, just as only large companies have the resources to pour into the production of ads in magazines, radio and television. The costs of both advertising and armaments encourage predation in commerce and politics, so that the going-concerns have the resources to pay for their costs. 

Both arms and ads help maintain the market hegemony of large concerns simply because smaller concerns can ill afford the expense of either. Both advertising and arms have the ultimate effect of managing or denying consumer demand. The junta state does this simply by expropriating all or most resources to the creation of arms so that the means of satisfying consumer demand goes unfulfilled. 

Oligopolistic industry does so by pouring resources into media of persuasion which are aimed at conditioning the public to the normalcy of their status in the first place. These media, which are virtually all electronic means of communication, supply a market which could not be sustained by the conventional laws of supply and demand. 

The commercial development of all the broadcast media, as well as mass-circulation magazines, and most recently Internet “e-commerce,” has been undertaken by industrial concerns subsidizing a want — entertainment — in order to find a market for to advertise their wares. The logic behind the big-business sponsorship of media programming is identical, on much larger scale, to what prompts liquor and tobacco concerns to underwrite arts and sport events. 

Industry, by paying the cost of entertainment production presented through mass media, is guaranteed a big audience because the programming, and the media as well, is offered so cheap. However, if this programming, and the media that are necessary to consume it, were offered on a regular market basis, effectively there would be no market for it, because it would too expensive. In reality, the programming would not be produced at all, nor would the mass media be as “mass” in their scope as they in fact are with the advertising subsidy. 

Part 9 of Engineering and Freedom