Adam Smith Has Left the Building

bob_mcd The rather Cardassian-looking personage at right is Robert A. “Bob” McDonald, Chairman of the Board, President, and CEO of the Procter & Gamble corporation. He was interviewed recently by Advertising Age on the topic of why P&G continues to pump out dividends to its shareholders, despite the Great Recession. The answers he gave are textbook confirmation of the profound difference between corporate and classic capitalism.

Recall that, despite the centrality of price-slashing to the ideal capitalist system described by Adam Smith, in practice, nobody hates price reductions more than capitalists. Explaining his 1892 decision to sell Edison Electric to the investment ring that was seeking to form the General Electric corporation, Thomas Alva Edison confided to The New York Times:

Recently, there has been a sharp rivalry between the [existing] companies, and prices have been cut so that there is little profit in the manufacture of electrical machinery for anybody. The consolidation of the companies will give the added advantage that a large concern has over a small one. It will give a larger working capital. It will do away with a competition that has become so sharp that the product of the factories has been worth little more than ordinary hardware… I do not know that there will be any increase in prices, but there should be an increase of 3 or 4 percent in the profits by the simple advantage of placing all of the interests under one management….I simply want to get as large dividends as possible from such stock as I hold.

Big, conglomerate, merger-forming, unregulated corporations (a.k.a., our ruling institutions today) were knowingly sought and obtained by frustrated capitalist investors precisely as a means of restricting price competition.

Within a few decades, the newly empowered investor-barons found that their success in this direction also made it possible to launch what we now know as marketing, a.k.a. studied managerial manipulation of the off-the-job behaviors of prospective customers, and to thereby further accelerate profit-making.

By diverting to marketing some of the steadily rising revenues made possible by constant price increases, big businesses could have their cake and eat it, too. People paid higher and higher prices, funding not only expanding returns on shareholder investments, but also the ever-expanding brainwashing effort on which those returns were increasingly premised. In essence, the new pricing power permitted corporate capitalists to collect a private tax and spend it on the marketing race, to the primary benefit of their owners’ portfolios.

I mention all this again because, in his Ad Age interview, Mr. McDonald confirms how the whole thing works.

“[W]e don’t signal pricing to competition, which is illegal and unethical,” says McDonald, in the mandatory pro forma nod to the prevailing agreement that a lack of old-fashioned price-fixing klatches somehow means co-respective pricing isn’t the norm.

So what do P&G managers do instead?

McDonald explains:

They make price increases, then “it takes competitors about a month or two to recognize you are pricing and about a month or two to decide to execute their price increase and then another six months to actually execute their price increase.”

In other words, they “don’t signal pricing to competition,” but they do make price changes then pay very close attention to whether competitors will co-operate on the hikes (and they usually do).

So, no (or at least not usually) secret meeting, but everybody knows how the system works, and very few ever buck it. Different process, same intent and same results:

P&G plans additional price hikes early next calendar year to recoup commodity costs and currency changes, but is about two-thirds of the way through price increases, he said.

Overall, P&G posted results in-line with analyst expectations, with organic sales up 4% to $21.9 billion and fully diluted net earnings per share up 1% to $1.03, as commodity costs continued to eat into margins despite price increases.

Under Bob’s leadership, P&G has grown sales by an average of nearly four percent per year over the past two years; core earnings per share an average of nearly seven percent; and adjusted free cash flow 106%. The Company has delivered these results despite significant economic headwinds, including slow to no growth in developed markets and rising commodity costs.

On the strength of these results, P&G has paid about $5.5 billion in dividends, returned over $6 billion to shareholders through the repurchase of P&G stock, and marked the 121st consecutive year that P&G has paid a dividend.

P.S. Bob also makes a highly interesting comment on the continuing polarization of American society:

“I don’t really see a dramatic change in consumer behavior,” Mr. McDonald said, compared to what consumers have been doing since 2008. Unemployed consumers continue to look for good value and sometimes trade down, he said. “But at the same time you’ve got people at the higher end of the economic pyramid doing extremely well and continuing to trade up.

In mainstream politics and media, it’s still a “middle-class” society. At the commanding heights of “the economic pyramid,” they know better.

And a Triplet…

If you doubted the accuracy of yesterday’s twin quotes, the second of which suggested that the overclass is enjoying a luxury boom even as the mass of the population sinks toward and through 99er status, consider this item from today’s edition of The New York Times:

The nation’s workers may be struggling, but American companies just had their best quarter ever.

American businesses earned profits at an annual rate of $1.66 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history.

This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less.

“Consumer” Training

Big business marketing is inherently totalitarian.  It can’t stop.  It must commercialize and commodify everything.  If it didn’t, the mega-rich investors who are the primary beneficiaries of corporate capitalism would stop getting richer than they already are.  And that is intolerable to them.  Completely off-the-table.

As I’ve been reporting here, one of the latest trends in this advancing piranha-munch on human culture is the corporate effort to get men to buy and use as many “beauty” commodities as women (whose training in corporate cosmetics began a century ago) do.

In the marketing press, they are increasingly explicit about this push, now that it’s gathering steam and seemingly bearing behavioral and financial fruit:

[I]t’s a long battle. Ed Shirley, vice chairman of beauty and grooming for P&G has been an advocate for men’s skin care since the late 1990s, when he could see how much more developed men’s skin care was outside the U.S. “North American guys are less involved [in skin care], but it’s up to us to help them.”

What they should be doing — in the long-term marketing scheme of things — is washing their faces and using moisturizer before bed. “We know that if you had a full regimen of morning and evening care, your shaving experience would be better,” Mr. Shirley said. “And we have that right to have that conversation with guys, because the shaving experience is the anchor grooming event.”

Not that Gillette is going to bring up that moisturizer-before-bed subject just yet. But it’s moving the discussion in that direction in part through the line of shave-preparation products coming to market in June with its Gillette Fusion ProGlide razor system, which includes a heating face scrub and moisturizing aftershave with sunscreen protection.

“We’re committed to winning with men,” said Mr. Shirley.

Procter & Gamble Co. recently has reorganized its beauty-marketing ranks largely to help capture the growing potential of the men’s market, and recently got San Antonio-based supermarket chain H-E-B to try a men’s personal care section. Unilever has made men the focus of its biggest 2010 launch for its biggest personal-care brand, Dove. Unilever sees a $700 million opportunity to grow the men’s personal-care market in categories where it competes — essentially personal wash, hair care and deodorants — a market currently measured by Nielsen at $2.1 billion that the marketer expects will hit $2.8 billion by 2012.

And, as always, as they manipulate gender and sexuality to rake in dollars, the marketers can’t dare do anything but remain loyal to the lowest common denominator, for fear of losing customers and sparking right-wing flak storms (the left being not only too fragmented to act, but generally confused and ultra-tame on the actual use of ideology in advertising).  Hence, this:

It all hearkens to the heady days of 2002, when personal-care marketers of all sorts were fixated on men as their new frontier, even coining the concept of the “metrosexual” grooming and fashion-obsessed male. The enthusiasm faded into what seemed like vague disappointment, as brands such as L’Oreal, Nivea, Neutrogena and Gillette tried launching skin and in some cases hair-care lines for men that had trouble keeping their space on U.S. shelves.

It’s been at least six years since any marketer could be caught uttering the M word. Marketers who had heralded the arrival of the “metrosexual” last decade found the term tended to pigeonhole their products with a relatively narrow segment of upscale, fashion-conscious men. The reality is that the segment exists and has kept growing, but marketers seeking to sell such products as shampoo and bodywash to men are appealing to a much broader audience, too.

In other words, we all know that metro-sexual is halfway to homo-sexual, right?  Mum’s the word, then!

And the overall impact on gender relations, despite the rank “femininity” of using lotion and, presumably, eventually, make-up products?  Probably more male media tropism and sexism:

Boon for male-centric media
The male call by marketers has also been a boon for media that cater to the demographic, like ESPN. “It’s definitely a growth area for us,” said Ed Erhardt, president of ESPN and ABC Sports, which is positioned to reap much of the uptick in competitive spending.

Such are the corporate capitalists’ plans for the 21st century.  Beautiful, indeed.

[Quotes from Advertising Age, March 8, 2010]

Forbidden Fruit: Domestic Reconstruction

tgv-duplex

In their 1966 classic, Monopoly Capital: An Essay on the American Economic and Social Order, economists Paul A. Baran and Paul M. Sweezy explained how corporate capitalism restrains public spending even as it grows increasingly dependent on it.  The problem, Baran and Sweezy noted, is that, from the perspective of the investing class, only certain forms of government spending are tolerable.  The sorting mechanism, argued Baran and Sweezy, is “the stability and cohesiveness of the country’s class structure.”  And, thanks to their very usefulness and economy:

[M]ost governmental activities designed to satisfy collective needs involve either competition with private interests or injury to the class position and privileges of the oligarchy, and…for these reasons opoosition is quickly aroused and rapidly reinforced.

Whenever a possible avenue for public spending threatens established investor interests, Baran and Sweezy predicted that “roadblocks” would “be encountered long before socially rational and desirable goals have been attained.”

What kinds of spending, meanwhile, could make it past the roadblocks and become actual, relatively unchecked government projects?  The answer, according to Baran and Sweezy, is spending that “neither creates nor involves competition with private enterprise,” either economically (in terms of sales) or ideologically (by undermining the system’s core dogmas).

One of the prime forms of public spending that does pass the corporate capitalist roadblock, Baran and Sweezy observed, is military spending.  On the economic/sales side:

There are no private military establishments with a vested interest in keeping the government out of their preserves; and the military plays the role of an ideal customer for private business, spending billions of dollars annually on terms that are most favorable to the sellers.  Since a large part of the required capital has no alternative use, its cost is commonly included in the price of the end product.

Meanwhile, on the ideological side, business interests don’t at all dislike military spending’s ideological impetus:

[M]ilitarization fosters all the reactionary and irrational forces in society, and inhibits or kills everything progressive and humane.  Blind respect is engendered for authority; attitudes of docility and conformity are taught and enforced; dissent is treated as unpatriotic or even treasonable.  In such an atmosphere, the oligarchy feels that its moral authority and material position are secure.

So, why do I mention this classic, largely (and extremely foolishly) forgotten social-science prediction? The answer is this recent blog comment by Stephen M. Walt (yes, THAT Stephen M. Walt), who writes:

I was struck by Louis Uchitelle’s article in the Sunday NY Times on the dearth of big public works projects here in the United States. “For the first time in memory, the nation has no outsize public works project under way,” he says, and then reports that:

Some economists argue that the continual construction of new megaprojects adds a quarter of a percentage point or more, on average, to the gross domestic product over the long term. Again, cause and effect aren’t clear, but the strongest periods of economic growth in America have generally coincided with big outlays for new public works and the transformations they bring once completed.”

One might add that we aren’t spending enough to maintain our existing public infrastructure, and state and local governments across the country are facing deep budget deficits (and in some cases, a very real risk of bankruptcy).

But it’s not as though the United States hasn’t started some big public works projects over the past decade or so; it just hasn’t been doing them here at home. We’ve spent billions constructing military bases in Iraq and Afghanistan, for example, and another billion or more on a giant embassy in Baghdad and another one in Pakistan. Needless to say, those “public works” projects are a drain on the U.S. economy rather than a source of additional productivity.

As I’ve said before, Americans have come to believe that spending government revenues on U.S. citizens here at home is usually a bad thing and should be viewed with suspicion, but spending billions on vast social engineering projects overseas is the hallmark of patriotism and should never be questioned. This position makes no sense, but it is hard to think of a prominent U.S. leader who is making an explicit case for doing somewhat less abroad so that we can afford to build a better future here at home.

It is indeed hard to think of a prominent leader who is making a case for screamingly obvious public works projects here at home.  That’s because, promise of “change” notwithstanding, THERE ARE NONE.

For the exact reasons Baran and Sweezy named over 40 years ago, major, screamingly obvious public works projects are doubly forbidden here in “the land of the free.”  Despite their huge economic and ecological benefits, things like building a genuinely modern railroad infrastructure and reconstructing our cities and towns to emphasize cycling and walking are both bad for private business sales and ideologically dangerous.

Modern, comfortable, reliable trains and walkable, sociable towns would not only kill the car business, but would require comparatively little upkeep, once finished.

Meanwhile, what might the public conclude if it had blatant evidence that 23.7 trillion dollars could do something rather more helpful than restoring Wall Street bonuses and refueling Detroit marketing machines?

From 1984 to 2010: The Emergence of “Household-Level Addressability”

big_brother Regardless of the state of the wider human and ecological world, corporate capitalism pushes market totalitarianism ever farther up the asymptote.

Advertising Age is reporting that addressable television advertising, long coveted by corporate marketers, has reached the point of being “an emerging concept.”  2010, Ad Age says, is the year when TV addressability will move from small test runs to full implementation into the broadcast streams for millions of U.S. households.   “Next year is when you’ll start to see how addressability gets sucked into a more core marketing strategy,” said Visible World President Tara Walpert Levy to the long-running marketing journal.

So what is “addressable TV advertising” and why does it matter?  Ad Age explains the technique:

Two types of addressable technologies are available: zone addressability and household. Zone refers to a group of ZIP codes or neighborhoods that can often be bundled demographically, so a marketer can target a predominantly upper-income neighborhood or a predominantly Spanish-speaking area. Household addressability can target TV viewers based on specific data ranging from age to sex to current ownership of consumer goods.

In other words, big business marketers are about to gain the ability to send customized advertisements to specific geographic and demographic targets, down to the level of the individual household.

Thanks to cable television’s progressive replacement of old-fashioned ether-based broadcasting, corporate marketers have long been able to collect detailed viewing-behavior data from individual households.  Now, their customers (big business advertisers) will also be able to tailor the marketing communications going back into those households according to what they’ve learned from their prior analysis of not just viewing, but also shopping, demographic, psychographic, and financial data.  Corporate capacities for creating and measuring the effects of behavioral stimuli are poised, once again, to expand.

Will it actually work?  Will ad-addressability bring our already comprehensively commodified, commercialized, and deskilled personal lives into still tighter compliance with the dictates of the bottom line of the world’s private-jetting overclass?

Ad Age again:

Ad Age, Visible World and Cablevision’s poll found over 59% of respondents considered addressable advertising to be at least 50% more effective than a non-targeted campaign.

Cablevision’s Optimum Cable recently advertised its triple-play subscription packages in New York with household addressable ads that targeted customers based on current subscriptions. Households that subscribed only to wireless and phone packages received ads offering a package that included cable, while cable-only households were offered a package that included phone and high-speed data services. David Kline, president-Rainbow Advertising Sales Corp., said the company saw a double-digit lift in subscriptions among the targeted households. In zone addressability, Cablevison’s recently launched Optimum Select allows viewers to interact with an ad to request information or request a product sample, “We’ve seen really phenomenal response from consumers in our first month,” Mr. Kline said. “We often run out of product.”

Though capitalism remains comparatively subtle and anarchic, the arrival of “household-level addressability” constitutes a real step beyond the telescreens of Orwell’s Big Brother.  Those could only look in on you.  Nobody in Oceania sat in front of their telescreen for fun.  Certainly, nobody was addicted to sitting in front of them.  People didn’t stand around the water cooler talking about what they saw on the telescreen last night.  Oceanians didn’t purchase giant, energy-sucking, room-dominating plasma telescreens and hook them up to telescreen recorders.

We “Americans,” the supposedly privileged residents of the allegedly history-ending, best-of-all-possible-worlds, do.  Meanwhile, our Earth-wrecking masters are laughing all the way to the bailed-out bank.

The Trickle-Down Bailout

As Dr. King wrote from Birmingham City Jail, “We know through painful experience that freedom is never voluntarily given by the oppressor; it must be demanded by the oppressed.”

That’s as strong a sociological law as there is.

Despite protestations to the contrary by the powerful and their political and media lapdogs, it applies in spades to the phenomenon currently being called “the bailout.”

Read moreThe Trickle-Down Bailout