Wednesday, 8 December 2010

Does capitalism "create" demand?

You may have heard this one before. At the end of an interesting BBC programme this evening (The Foods That Make Billions) a commentator suggested that the problem with modern capitalism is that it sustains itself by creating desires in consumers, instead of simply satisfying desires they already have.

Is this true, and if so is it a bad thing?

Certainly our preferences are not simple, static attributes, waiting in the back of our heads to be satisfied by the products we buy. Preferences - insofar as they even exist - are formed dynamically, influenced by biology, cognition, the environment and the social groups we are in. Would it be surprising if they were also influenced by people who sell products?

To understand if that's a good thing, let's think through some of the things that happen in a consumer's mind. Not the rational consumer which generates stable continuous utility from consumption, but a real consumer with the cognitive patterns we see in actual people. The key insight here is the idea of hedonic adaptation.

Typically, enjoyment comes from satisfying a preference that was not previously satisfied. Think of the feeling you have when you've been hungry and you eat something, or you're tired and you get to go to bed. Or if you've had a headache and it goes away...what joy.

In comparison, it's very hard to maintain any level of continuous enjoyment from a preference that is satisfied permanently. If you are never hungry, you won't enjoy food so much. And if you never had the headache, you don't take any delight in your lack of pain.

In this relatively wealthy world where our basic material needs (in the rich countries at least) are pretty much fulfilled, there's little enjoyment to be had from satisfying those fundamental preferences. So it could be argued that consumers are actually better off having an unfulfilled desire artificially created, giving them a feeling of joy when it is ultimately satisfied. Not only does the consumer gain utility from satisfying the preference itself, but the process of working towards it and the sense of achievement from gaining their goal can add to that. It may be that the secret to achieving the most enjoyable life is to repeatedly depart from a basic state of neutral comfort by discovering a new unfulfilled desire, satisfy it to return to your comfortable state, and then after a pause, set out to find another new desire.

In fact, if new, volatile preferences are going to be constructed on the fly, it may be better to have it done by someone who has an interest in making sure the consumers can actually satisfy their constructed desires. Companies benefit from creating a want and giving consumers the means to fulfil it; consumers do too. This cooperative dance of imagination, communication, influence and commerce could be the best possible world for us all to live in.

I'm not necessary fully convinced by this argument. I set it out to illustrate that it might be in a consumer's interest to be manipulated by advertisers and salespeople. Presumably there are times when this goes too far and the consumer's interests are damaged. But in principle, there's nothing wrong with a system in which companies artificially create desires in their customers. It is in the best tradition of commerce and perhaps there's a good reason that consumers, and voters, have gone along with it for all this time.


Steve Waldman said...

Suppose you buy this line of reasoning. What does it suggest for policy? After all, if desires are artificially created for the joy of sating them, isn't there a public interest in what kinds of desires are created? Those gorgeous car commercials, by this line of thinking, create artificial desire for machines that use very scarce resource and contribute to global warming. If our desires are not constrained by at least some "natural" predisposition to preferences, if they are are truly artificial and arbitrary, shouldn't public policy insist artificial desire be engendered for dance or theater rather than cars? maybe luxury perfumes and expensive clothing are "good" objects, as they use few resources (other than the joyful creativity of designers and perfumers) but people can be made to desire them strongly (we know this by revealed artificial preference, given the prices they command).

I'm not advocating some Orwellian office of artificial demand, just following implications of the reasoning. If it is "in a consumer's interest to be manipulated by advertisers and salespeople", would it not be in everybody's interest for advertisers and salespeople to be manipulated in their manipulations to promote low externality, resource-preserving consumption?

Sales Training said...

Since the government wants to measure happiness, it is fair to assume they also want to increase it. So they can make us happier by encouraging advertisers and salespeople to generate even more artificial demand and to satisfy it. I propose the prompt sale of the bank stakes and nationalisation of JML and Lakeland.

Anonymous said...

"In this relatively wealthy world where our basic material needs (in the rich countries at least) are pretty much fulfilled..."

Is this true? I'm not so sure. Do you actually get enjoyment from fulfilling a basic life necessity or does that just move you to a more neutral position, out of panic and in a position to seek enjoyment? Some argue that at a basic level, there is no place for pleasure or enjoyment when trying to address base needs- that survival doesn't come with pleasure (or inversely, the lack).

So then in the definition of enjoyment coming from satisfying a preference, why should one assume that consumption is the only route to this aim? Or is it just a relatively cheap and easy route? There are certainly times in history (and examples from non-western cultures) where pleasure came from mastery of some craft or skill. Of course this takes time, and practice, and isn't just something you can buy and throw away. Like fad diets, crash courses, and any other shortcut, does this obsession with consumerism just mask an inherent human quality of laziness?

Lastly, is modern capitalism a sustainable position? Generally history also says no, but then, history says no to most societal/cultural longevity for diverse and not always predictable reasons, so who is to say what's better or worse? Does such simplistic judgment even apply to these issues? Probably not. Or at least, it's a completely relative construct.