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Tuesday, September 15, 2009

Galbraith's Affluent Society Revisited

Recently, I ran into someone who was waxing poetic about John Kenneth Galbraith’s Affluent Society (1958). Fifty years after publication, he said the book held up beautifully, he was eerily prescient in his forecasts about the dangers of consumerism, and he spotted advertising as being a dangerously manipulative force in our society.

The gentleman was clearly more left of center than I (not hard!) but I told him that Galbraith’s thesis was flawed and tried to say why. I had not read the book since I was 20 years old so I just reread it and would like to take you through my thinking. Why bother? Since his death at age 97 in 2005 his muddled arguments seem to be getting more traction than they have in a generation.

It all starts with the concept of Consumer Sovereignty. This concept was popularized by the great Austrian economist Ludwig von Mises who said that, in a free market economy, the consumer was king. In his book Bureaucracy (1936), Mises says “The real bosses under capitalism are the consumers. They, by their abstention from buying, decide who should own the capital and run the plants……They determine what should be produced and in what quantity and quality. They make poor men rich and rich men poor…As soon as something is offered to them that they like better or is cheaper, they desert their old provider.”

This idea permeated economic thinking until Galbraith unleashed The Affluent Society.
Galbraith was a fascinating character. Born in Canada, he was a towering six foot eight at a time when the average American was five foot seven. A brilliant scholar, he had a long teaching career at Harvard, served as Ambassador to India under President Kennedy, and was an advisor to many Democratic candidates over the years. He was a prolific writer but was not taken seriously by many other high profile economists as he was hard to categorize. Ken, as he was known, did not appear to belong to any specific economic school (Classical, Austrian, Marxist, Monetarist, and Keynesian). He liked to criticize the mistakes of contemporary economic policy but unlike the giants in economics such as Adam Smith, Marx, Schumpeter, and Keynes he did not provide his own model which anywhere near matched the scope of the Big Four.

He was glib, sarcastic but funny, and a wonderful guest on TV or NPR even into advanced old age. With a wide circle of friends he popped up everywhere and was frequently seen skiing in Switzerland with conservative icon William F. Buckley, Jr.

In The Affluent Society, Galbraith rejects the Misean precept of Consumer Sovereignty. In the post World War II era, Galbraith said that as things gradually got better, businesses must “create” consumer wants via advertising. While this create lots of jobs the artificial affluence through the production of unnecessary good and services forces the public sector to be ignored to a certain degree.

He went further by stating that “advertising mitigates shifts in consumer tastes by controlling tastes. The size of many consumer brand companies allows for product diversification which mitigates the consequences of a shift in tastes.” Galbraith said that a “techno-structure” was developing in the US that “closely controlled consumer demand and market growth through advertising and marketing”.

The idea got a lot of attention in certain political circles and all of us in advertising have probably at one time or another been accused by a relative or new acquaintance of working in a manipulative business.

The world did not accept his comments sitting down. Businesses quietly went about doing their thing and the years 1958-1968 were extremely prosperous in the US. Perhaps his most effective critic was one of my heroes, University of Chicago and Nobel Laureate Professor Milton Friedman. Uncle Miltie said that those who felt they had higher minds wanted to take choice from the American people because they knew better. In a review of The Affluent Society, Friedman said “many reformers, Galbraith is not alone in this—have as their basic objection to a free market that it frustrates them, because it enables people to have what they want, not what the reformers want. Hence, every reformer has a strong tendency to be averse in a free market.” This was brilliant as it crystallized that Galbraith’s criticisms were about his political agenda not economic theory.

Galbraith stated that as things got better, wants are “not real or genuine”. Who are they created by, then? The ad agencies and their wicked clients? That seems to be his drift.

In the early 1970’s I was at a conference where Libertarian lightning rod Dr. Murray Rothbard was asked about Galbraith and advertising. He answered with great vehemence and then later I found a Rothbard essay on the topic. His central theme was “If they buy a product that does not fulfill its claims, the product will soon fade into oblivion. Any advertising claims for products can be and are quickly tested by the consumer”.

Here is where I come out on Galbraith’s thesis. He did appear to foresee the consumer consumption gone wild that has helped to put us into the deep economic hole that we now face. And, if you look at our crumbling infrastructure of roads and bridges and many of our public schools that are an international joke, he makes some points about public sector neglect in recent decades. Remember, however, to do those public improvements would largely come from increasing local property taxes and state income taxes which had nothing to do with advertising spending.

His point of bigness dominating things has some truth as we accelerate in to the fragmented world of communications in this new century. The cost of reaching people will soar although targeting is getting much tighter. Big companies will do line extensions and have the marketing muscle with a few large retailers to effectively keep smaller players out. There will still be strong competition in most major categories even under this scenario.

However, he really never studied advertising closely. By any yardstick, most new products fail. That is, those that are rolled out across a wide piece of geography. Most put the death rate in the 50-55% range. But, there are thousands of products that never make it out of the first two test markets. If all of us in the advertising/marketing game are so powerful and manipulative with our irresistible messages, we should have a success rate far higher than what I have observed. My panel members who worked on rollouts to a person all admitted that most of their new product development introductions were failures.

The simple truth is that freedom works. Ignore your customers’ needs and wants and they will go away. Someone one told me that advertising was “Art with a message.”
We are not evil people. We serve, survive, and prosper at the mercy of the consumer.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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