Mass Consumption to Absorb Surplus

Download: MOLOCH: Mass-Production Industry as a Statist Construct.

I. The Origins of Sloanist Mass Production

A Fork in the Road

A Wrong Turn

The Role of the State in Tipping the Balance

II. The Institutional Imperatives of Sloanism

Economies of Scale, Economies of Speed, and Push Distribution

Microeconomic Institutional Forms for Providing Stability

Mass Consumption to Absorb Surplus

Political Capitalism

State Action to Absorb Surplus: Imperialism

State Action to Absorb Surplus: Creation of New Industries

III. Conclusion

Mass production divorces production from consumption. The rate of production is driven by the imperative of keeping the machines running at full capacity so as to minimize unit costs, rather than by customer orders. So in addition to contractual control of inputs, mass-production industry faces the imperative of guaranteeing consumption of its output by managing the consumer. It does this through push distribution, high-pressure marketing, planned obsolescence, and consumer credit.

Mass advertising serves as a tool for managing aggregate demand. According to Baran and Sweezy, the main function of advertising is “waging, on behalf of the producers and sellers of consumer goods, a relentless war against saving and in favor of consumption.” And that function is integrally related to planned obsolescence:

The strategy of the advertiser is to hammer into the heads of people the unquestioned desirability, indeed the imperative necessity, of owning the newest product that comes on the market. For this strategy to work, however, producers have to pour on the market a steady stream of “new” products, with none daring to lag behind for fear his customers will turn to his rivals for newness.

Genuinely new or different products, however, are not easy to come by, even in our age of rapid scientific and technological advance. Hence much of the newness with which the consumer is systematically bombarded is either fraudulent or related trivially and in many cases even negatively to the function and serviceability of the product. [86]

….In a society with a large stock of consumer durable goods like the United States, an important component of the total demand for goods and services rests on the need to replace a part of this stock as it wears out or is discarded. Built-in obsolescence increases the rate of wearing out, and frequent style changes increase the rate of discarding…. The net result is a stepping up in the rate of replacement demand and a general boost to income and employment. In this respect, as in others, the sales effort turns out to be a powerful antidote to monopoly capitalism’s tendency to sink into a state of chronic depression. [87]

Although seemingly less state-dependent than the expedients discussed elsewhere in this paper, mass advertising had a large state component. For one thing, the founders of the mass advertising and public relations industries were, in large part, also the founders of the science of “manufacturing consent” used to manipulate Anglo-American populations into supporting World War I. For another, the state’s own organs of propaganda (through the USDA, school home economics classes, etc.) put great emphasis on discrediting “old-fashioned” atavisms like home-baked bread and home-grown and -canned vegetables, and promoting in their place the “up-to-date” housewifely practice of heating stuff up out of cans from the market. [88] Jeffrey Kaplan describes this as the “gospel of consumption”:

[Industrialists] feared that the frugal habits maintained by most American families would be difficult to break. Perhaps even more threatening was the fact that the industrial capacity for turning out goods seemed to be increasing at a pace greater than people’s sense that they needed them.

It was this latter concern that led Charles Kettering, director of General Motors Research, to write a 1929 magazine article called “Keep the Consumer Dissatisfied.”… Along with many of his corporate cohorts, he was defining a strategic shift for American industry — from fulfilling basic human needs to creating new ones.

In a 1927 interview with the magazine Nation’s Business, Secretary of Labor James J. Davis provided some numbers to illustrate a problem that the New York Times called “need saturation.” Davis noted that “the textile mills of this country can produce all the cloth needed in six months’ operation each year” and that 14 percent of the American shoe factories could produce a year’s supply of footwear. The magazine went on to suggest, “It may be that the world’s needs ultimately will be produced by three days’ work a week.”

Business leaders were less than enthusiastic about the prospect of a society no longer centered on the production of goods. For them, the new “labor-saving” machinery presented not a vision of liberation but a threat to their position at the center of power. John E. Edgerton, president of the National Association of Manufacturers, typified their response when he declared: “Nothing… breeds radicalism more than unhappiness unless it is leisure.”

By the late 1920s, America’s business and political elite had found a way to defuse the dual threat of stagnating economic growth and a radicalized working class in what one industrial consultant called “the gospel of consumption” — the notion that people could be convinced that however much they have, it isn’t enough. President Herbert Hoover’s 1929 Committee on Recent Economic Changes observed in glowing terms the results: “By advertising and other promotional devices . . . a measurable pull on production has been created which releases capital otherwise tied up.” They celebrated the conceptual breakthrough: “Economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants, as fast as they are satisfied.” [89]

Chandler’s model of “high-speed, high-throughput, turning high fixed costs into low unit costs,” and Galbraith’s “technostructure,” presuppose a “push” model of distribution. Here’s how it was described by Paul Goodman:

… in recent decades… the center of economic concern has gradually shifted from either providing goods for the consumer or gaining wealth for the enterpriser, to keeping the capital machines at work and running at full capacity; for the social arrangements have become so complicated that, unless the machines are running at full capacity, all wealth and subsistence are jeopardized, investment is withdrawn, men are unemployed. That is, when the system depends on all the machines running, unless every kind of good is produced and sold, it is also impossible to produce bread. [90]

The same imperative was at the root of the hypnopaedic socialization in Huxley’s Brave New World: “ending is better than mending”; “the more stitches, the less riches.” Or as GM designer Harley Earl said in the 1950s,

My job is to hasten obsolescence. I’ve got it down to two years; now when I get it down to one year, I’ll have a perfect score. [91]

The older economy that the “push” distribution system replaced was one in which most foods and drugs were what we would today call “generic.” Flour, cereal, and similar products were commonly sold in bulk and weighed and packaged by the grocer (the ratio had gone from roughly 95% bulk to 75% package goods during the twenty years before Borsodi wrote in 1927); the producers geared production to the level of demand that was relayed to them by the retailers’ orders. Drugs, likewise, were typically compounded by the druggist on-premises to the physician’s specifications, from generic components. [92] Production was driven by orders from the grocer, as customers used up his stock of bulk goods.

Under the new “push” system, the producers appealed directly to the consumer through brand-name advertising, and relied on pressure on the grocer to create demand for what they chose to produce. Brand loyalty helps to stabilize demand for a particular manufacturer’s product, and eliminate the fluctuation of demand that accompanies price competition in pure commodities.

The problem was that the consumer, under the new regime of Efficiency, paid about four times as much for trademarked flour, sugar, etc., as he had paid for bulk goods under the old “inefficient” system. [93] Under the old regime, the grocer was a purchasing agent for the customer; under the new, he was a marketing agent for the producer.

Distribution costs are increased still further by the fact that larger-scale production and greater levels of capital intensiveness increase the unit costs resulting from idle capacity, and thereby (as we saw in the last chapter) greatly increase the resources devoted to high-pressure, “push” forms of marketing.

Borsodi’s book The Distribution Age was an elaboration of the fact that production costs fell by perhaps a fifth between 1870 and 1920, even as the cost of marketing and distribution nearly tripled. [94]

The modest reduction in unit production cost was more than offset by the increased costs of distribution and high-pressure marketing. “[E]very part of our economic structure,” he wrote, was “being strained by the strenuous effort to market profitably what modern industry can produce.” [95]

Distribution costs are far lower under a demand-pull regime, in which production is geared to demand. As Borsodi argued,

…[I]t is still a fact… that the factory which sells only in its natural field because that is where it can serve best, meets little sales-resistance in marketing through the normal channels of distribution. The consumers of such a factory are so “close” to the manufacturer, their relations are so intimate, that buying from that factory has the force of tradition. Such a factory can make shipment promptly; it can adjust its production to the peculiarities of its territory, and it can make adjustments with its customers more intelligently than factories which are situated at a great distance. High pressure methods of distribution do not seem tempting to such a factory. They do not tempt it for the very good reason that such a factory has no problem to which high pressure distribution offers a solution.

It is the factory which has decided to produce trade-marked, uniform, packaged, individualized, and nationally advertised products, and which has to establish itself in the national market by persuading distributors to pay a higher than normal price for its brand, which has had to turn to high pressure distribution. Such a factory has a selling problem of a very different nature from that of factories which are content to sell only where and to whom they can sell most efficiently. [96]

For those whose low overhead permits them to produce in response to consumer demand, marketing is relatively cheap. Rather than expending enormous effort to make people buy their product, they can just fill the orders that come in. When demand for the product must be created, the effort (to repeat Borsodi’s metaphor) is comparable to that of making water run uphill. Mass advertising is only a small part of it. Even more costly is direct mail advertising and door-to-door canvassing by salesmen to pressure grocers in a new market to stock one’s goods, and canvassing of grocers themselves by sales reps. [97] The costs of advertising, packaging, brand differentiation, etc., are all costs of overcoming sales resistance that only exist because production is divorced from demand rather than driven by it.

And this increased marginal cost of distribution for output above the natural level of demand results, in accordance with Ricardo’s law of rent, in higher average price for all goods. [98]

For those who can flexibly respond to demand, also, predictability of consumer demand doesn’t matter that much. Of the grocer, for example, Borsodi pointed out that the customer would always have to eat, and would continue to do so without a single penny of high pressure marketing. It was therefore a matter of indifference to the grocer whether the customer ate some particular product or brand name; he would stock whatever goods the customer preferred, as his existing stocks were used up, and change his orders in keeping with changes in customer preference. To the manufacturer, on the other hand, it is of vital importance that the customer buy (say) mayonnaise in particular — and not just mayonnaise, but his particular brand of mayonnaise. [99]

And the proliferation of brand names with loyal followings raises the cost of distribution considerably: rather than stocking generic cornflakes in bulk commodity form, and replacing the stock as it is depleted, the grocer must maintain large enough stocks of all the (almost identical) popular brands to ensure against running out, which means slower turnover and more wasted shelf space. This is another illustration of the same general principle we’ve already seen: push distribution results in the costly disruption of flow by stagnant eddies and flows, in the form of ubiquitous inventories. [100]

The advantage of brand specification, from the perspective of the producer, is that it “lifts a product out of competition”: [101] “the prevalence of brand specification has all but destroyed the normal basis upon which true competitive prices can be established.” [102] As Barry Stein described it, branding “convert[s] true commodities to apparent tailored goods, so as to avoid direct price competition in the marketplace.”

The distinctions introduced — elaborate packaging, exhortative advertising and promotion that asserts the presence of unmeasurable values, and irrelevant physical modification (colored toothpaste) — do not, in fact, render these competing products “different” in any substantive sense, but to the extent that consumers are convinced by these distinctions and treat them as if they were different, product loyalty is generated. [103]

Under the old regime, competition between identifiable producers of bulk goods enabled grocers to select the highest quality bulk goods, while providing them to customers at the lowest price. Brand specification, on the other hand, relieves the grocer of the responsibility for standing behind his merchandise and turns him into a mere stocker of shelves with the most-requested brands.

The process went on until — decades later — the very idea of a return to price competition in the production of goods, instead of brand-name competition for market share, would strike manufacturers with horror. Price competition is the worst nightmare of the oligopoly manufacturer and the advertising industry:

At the annual meeting of the U.S. Association of National Advertisers in 1988, Graham H. Phillips, the U.S. Chairman of Ogilvy & Mather, berated the assembled executives for stooping to participate in a “commodity marketplace” rather than an image-based one. “I doubt that many of you would welcome a commodity marketplace in which one competed solely on price, promotion and trade deals, all of which can be easily duplicated by competition, leading to ever-decreasing profits, decay, and eventual bankruptcy.” Others spoke of the importance of maintaining “conceptual value-added,” which in effect means adding nothing but marketing. Stooping to compete on the basis of real value, the agencies ominously warned, would speed not just the death of the brand, but corporate death as well. [104]

It’s telling that Chandler, the apostle of the great “efficiencies” of this entire system, frankly admitted all of these things. In fact, far from regarding it as an “admission,” he treated it as a feature of the system. He explicitly equated “prosperity” to the rate of flow of material through the system and the speed of production and distribution — without any regard to whether the rate of “flow” was twice as fast because people were throwing stuff in the landfills twice as fast to keep the pipelines from clogging up.

The new middle managers did more than devise ways to coordinate the high-volume flow from suppliers of raw materials to consumers. They invented and perfected ways to expand markets and to speed up the processes of production and distribution. Those at American Tobacco, Armour, and other mass producers of low-priced packaged products perfected techniques of product differentiation through advertising and brand names that had been initially developed by mass marketers, advertising agencies, and patent medicine makers. The middle managers at Singer wee the first to systematize personal selling by means of door-to-

door canvassing; those at McCormick among the first to have franchised dealers using comparable methods. Both companies innovated in installment buying and other techniques of consumer credit. [105]

In other words, the Sloanist system Chandler idealized was more “efficient” because it was better at persuading people to throw stuff away so they could buy more, and better at producing substandard shit that would have to be thrown away in a few years. Only a liberal of the mid-20th century, writing at the height of consensus capitalism, at a time when the first rumblings of New Left critique were only just issuing from Port Huron, and when his own establishment liberalism was as yet utterly untainted by the thinnest veneer of greenwash, could write such a thing from the standpoint of an enthusiast.

The overall system was a “solution” in search of a problem. State subsidies and mercantilism gave rise to centralized, overcapitalized industry, which led to overproduction, which led to the need to find a way of creating demand for lots of crap that nobody wanted.

Notes:

86. Paul Baran and Paul Sweezy, Monopoly Capitalism: An Essay in the American Economic and Social Order (New York: Monthly Review Press, 1966), pp. 128-129.

87. Ibid., p. 131.

88. This is the theme of Stuart Ewen, Captains of Consciousness: Advertising and the Social Roots of Consumer Culture (New York: McGraw-Hill, 1976).

89. Jeffrey Kaplan, “The Gospel of Consumption: And the better future we left behind,” Orion, May/June 2008

<http://www.orionmagazine.org/index.php/articles/article/2962>.

90. Paul and Percival Goodman, Communitas: Means of Livelihood and Ways of Life (New York: Vintage Books, 1947,

1960), pp. 188-89.

91. Eric Rumble, “Toxic Shocker,” Up! Magazine, January 1, 2007 <http://www.up-

magazine.com/magazine/exclusives/Toxic_Shocker_3.shtml>.

92. Ralph Borsodi, The Distribution Age (New York and London: D. Appleton and Company, 1929), pp. 217, 228.

93. Quoted in Ibid., pp. 160-61.

94. Ibid., p. v.

95. Ibid., p. 4.

96. Ibid., pp. 112-113.

97. Ibid., p. 136.

98. Ibid., p. 247.

99. Ibid., pp. 83-84.

100. Ibid., p. 84.

101. Ibid., p. 162.

102. Ibid. pp. 216-17.

103. Stein, Size, Efficiency, and Community Enterprise, p. 79.

104. Naomi Klein, No Logo (New York: Picador, 1999), p. 14.

105. Chandler, The Visible Hand, p. 411.