Consumer Activism: Sleeping Giant or Passing Fancy

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activism, boycott, buycott, capitalism, civic engagement, consumer activism, consumer behavior, consumerism, political engagement

This week I was reading part of the book “A New Engagement? Political Participation, Civic Life, and the Changing American Citizen”. While reading I came across something that got me thinking. It was about what the authors called consumer activism which is when people select the products they purchase based on political or social ideals. Two types of consumer activism were distinguished in the book; boycotting and buycotting. I assume most of you are familiar with boycotting where a person refuses to purchase a product or service in retaliation against the practices of company or country. The opposite of that is buycotting where an individual specifically purchases products or services because they support the practices of a company.

The authors performed the National Civic Engagement Survey (NCES) in 2002 that asked 3,200 respondents about their civic and political engagement such as voting, volunteering, contacting public officials, donating to campaigns and other such political and civic activities. While they found that 79% reported that they were registered to vote and 51% reported that they voted the next most common civic / political engagement was boycotting with 38% and buycotting with 35%.

What I found surprising is that boycotting and buycotting were far more prevalent than many other types of civic / political engagement such as non-electoral volunteering (23%), signing petitions (23%), contacting a public official (18%) or volunteering for a political group (6%). That means that with the exception of registering to vote and voting, boycotting and buycotting are the most common forms of civic / political engagement. In fact “49 percent say that political and social concerns have influenced retail decisions in the last year”. That immediately leads to the question of why it isn’t having a massive effect on business practices.

Well digging deeper it seems that boycotting and buycotting is largely unorganized. “People engaged in consumer activism overwhelmingly see it as an individual activity rather than as part of an organized campaign. Among those who’ve boycotted or buycotted in the past year, only 7 percent each (and 9 percent overall) tied the most recent occurrence to an organized campaign; the rest said it was something they just decided to do on their own… The vast majority of people who boycott or buycott – 79 percent – say they do it for altruistic or self-expressive reasons.” “In response to a question about where people got the information that helped them make a decision to boycott or buycott, a plurality (35 percent for boycotting, 33 percent buycotting) mentioned the news media. Fewer (16 percent and 23 percent, respectively) mentioned friends or family members, and only around 1 in 10 (9 percent and 11 percent) mentioned groups or organizations. The Internet was also mentioned, but by only 7 percent for boycotting and 6 percent for buycotting.”

Now here is the kicker, those that have boycotted or buycotted report volunteering and contacting public officials at a much higher rate. While only 23% of the population surveyed volunteered, among those that report boycotting or buycotting 63% report volunteering. Furthermore only 18% of the population surveyed reported contacting a public official yet among those that boycott or buycott 75% report contacting a public official. 

For me this paints a picture of those that boycott and buycott. While they may see boycotting and buycotting as an individual choice they are clearly people who are involved in trying to solve public and civic problems through volunteerism and direct contact with public officials. That is they are civic and politically engaged. Yet the most common source of information for boycotting and buycotting is the new media (35% and 33% respectively). At the same time very few are acquiring information for boycotting and buycotting from organizations (9% and 11% respectively).

Well when you think about it the new media has a vested interest in preventing or mitigating boycotts and buycotts. The media’s revenue is based on advertising so if the media encourages a boycott then that news source may loose advertising dollars from the company being boycotted as well as associated companies. Anymore so many companies are owned by parent corporations that a boycott of toilet paper could result in the loss of advertising for office products, chemical companies, textiles and even steak just because of the parent companies. This leaves news media with a conflict of interest when it comes to informing the public about social or political concerns over corporate behavior, their revenue is driven by advertising by the very companies which people may not agree with.

This leaves us with sporadic and unorganized consumer activism. But that does not mean that it must always be that way. It may be possible to organize people into more long term and concerted efforts at boycotting and buycotting. The people that report boycotting and buycotting show a willingness to get involved by their high rates of volunteerism. The difficulty is to get the message and information out to people so that boycotting and buycotting is more than just an individual choice, so that it can become a organized campaign which can challenge the practices of companies.

Though it would be unfair if I did not bring up some counter information. When those that boycott or buycott are probed about the frequency of that behavior 23% of those boycott and 19% of those that buycott have done so in the past week. While 18% of those that boycott and 25% of those that buycott have done so in the past month. The remainder (more than half) have boycotted or buycotted less often. That may indicate that people are not really dedicated to consumer activism or that may indicate that people have difficulty in figuring out what they should boycott or buycott. Furthermore all of the statistics cited here are based on self reports which can be quite biased. It would be good to measure this behavior in a more direct manner such as surveying people who are shopping to see how frequently people select products based on social and political ideals. When it comes down to it people may only boycott or buycott sporadically because they are not really dedicated to it or they may just find it difficult to engage in without good information or due to time constraints.

But even with these problems in the data and it’s measurement I still think that the information presented is a reasonable reflection of reality. It would appear that those who boycott and buycott are more involved socially and politically. Even if self report data can be skewed it is clear that those boycotting and buycotting are far more likely to volunteer and contact public officials as compared to the rest of those surveyed. It is also clear that a subset of those who boycott and buycott do so frequently even if a majority don’t. Finally it is clear that news media is the single largest source of information used to boycott and buycott. Thus there is the potential that these people could be organized and unified into a powerful force for change. The biggest question is how to wake the sleeping giant of consumer activism.

 

*Note: All quotes and statistics are from the book  “A New Engagement? Political Participation, Civic Life, and the Changing American Citizen”.

Don’t Blame the System: Why Capitalism Must be Saved from the Capitalists

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capitalism, competition, economics, free market, government regulation, laissez-faire market

* This is a piece I read for class and wanted to share. While I do not fully agree with everything here I do like the general thrust of the piece and wanted to share it.*

 

Research by Raghuram Rajan and Luigi Zingales

Capitalism has always been seen as an instrument for the rich to get richer. A new book turns this view upside down: Capitalism is instead a system that fundamentally benefits everyone, especially the have-nots.

“The paradox we are suggesting is that true capitalism is very much a threat for the rich,” says Luigi Zingales. “As a result, the rich are the greatest opponents of competition, which is a key part of the capitalist system.”

Zingales and Raghuram Rajan, both professors at the University of Chicago Graduate School of Business, address misconceptions about capitalism and the role of government in their new book, Saving Capitalism from the Capitalists (Crown Business, 2003).

To illustrate their main argument, Rajan and Zingales use the example of a poor Bangladeshi villager who needs 22 cents to buy raw material for making stools. For lack of better alternatives, she has to borrow the money from a middleman, who forces her to sell the stools back to him as repayment for the loan. He, of course, sets the price. As a result, the stoolmaker receives only two cents for her day’s labor.

This example points to one of the worst ills of capitalism: exploitation of labor. This exploitation, however, is not an inevitable consequence of the system. The true essence of capitalism is embodied in equal access and competitive markets. It is the lack of access to funds that keeps the stoolmaker’s labor captive.

The authors suggest that in many countries, true capitalist markets and institutions do not emerge for the simple reason that capitalists oppose them. The business elites (the middlemen in the example) would risk losing their position if access to finance became freer and they faced competition. In order to protect their positions, the capitalists may turn against free markets.

Free markets are the single most important tool to eliminate poverty and spread opportunity. Breaking from the traditional view that any government regulation hinders the development of free markets, Rajan and Zingales suggest that competitive markets are not well served by this laissez-faire approach.

The authors point to the airline industry as a key example of the complicated balance between regulation and competition. If there were no supervisory authority and no regulations enforcing safety standards, people would be very reluctant to fly fledgling airlines and would stick with established airlines. Having no safety regulations in the airline industry would favor established firms and make entry impossible, therefore killing competition.

However, if regulation required every airline to have a proven five-year track record of profitable flying before being allowed to accept passengers, new entry still would be killed off. How can new entrants have a proven record? The authors argue that it is on this delicate middle ground that competition flourishes-with enough rules so that people feel confident in flying the new entrants, but not so many rules that the new entrants can never compete.

“Once you accept that some rules and regulations are needed but not too much, the old mantras are useless,” note the authors. “One cannot adopt the posture of the traditional right that any government suffocates markets. Neither should one adopt the posture of the traditional left that markets are terrible and governments should replace them. The right position is the Goldilocks position-neither too little nor too much of the government is best for markets.”

“It is because this middle ground is so narrow that capitalism in its best form is very unstable,” write Rajan and Zingales. “It easily degenerates into a system of the incumbents, for the incumbents, by the incumbents.”

Who Makes the Rules?

Rajan and Zingales point out that even in democracies where it is assumed that rules are made by the people through their elected representatives for the common good, governments tend to act in the interest of the business elites.

One pertinent example they cite is the recent case of President Bush levying tariffs on imported steel. The alleged reason for the tariff was to protect American jobs. However, there are only 190,000 workers producing steel and 9 million workers in steel-consuming jobs. While steel prices in the United States have indeed gone up, steel prices in the rest of the world have fallen as exporters redirect their steel away from the United States. This hurts U.S. industries that rely on steel as an input: they can no longer compete with foreign manufacturers who now enjoy cheaper steel inputs. As a result, some U.S. manufacturers have threatened to move their facilities abroad. Far more American jobs were put at risk outside the steel industry by the tariffs than were saved.

The tariffs were a subsidy not so much to the steel workers, but to the owners and top managers of the distressed steel firms, who benefit handsomely from the tariff. The 30,000 workers who were bussed to Washington to press for tariff protection were effectively used as human shields to protect dominant firms’ interests at the expense of the vitality of the free market system. The reason they prevailed is that the concentrated lobbying power of the powerful private interests often outweighs the public interest in all countries, not just the United States.

It is because rules are made in the interest of business elites that free market economists have traditionally opposed government regulation.

“We need to find ways to ensure that rules are made to enhance the access to free markets and encourage competition,” says Zingales. “We do not want to tame the creative power of markets, we want to liberate it. But to liberate this powerful force, we need to strengthen political support in favor of capitalism.”

Tenets of an Ideal System

What ensures that political action is public spirited and that rules and regulations are not made to protect the interest of a few business elites? Rajan and Zingales propose four pillars to help promote the public good, recognizing that politics and economics cannot be kept separate in modern democracies.

First, they advocate a series of measures to promote the transfer of ownership into efficient hands. Inefficient owners tend to oppose rules that promote competition, seeing the downside of free markets rather than the upside of opportunity that those markets bring. Since taxes on income subsidize inefficient owners (who do not produce much income), while property taxes penalize them, one step in the right direction would be to substitute some of the taxes on income with taxes on property.

Studies also show that firm owners who inherit their control tend to be particularly inefficient. An inheritance tax levied on the transfer of active control of corporate assets would also support efficient ownership. In this respect, estate taxes also perform a useful role. Rajan and Zingales note that they do not support the recent move to eliminate estate taxes.

Second, the authors advocate open borders. Borders open to trade and capital flow force domestic firms to compete with foreign firms, essentially creating competition between domestic rule makers and foreign rule makers. Domestic incumbent interests can no longer prevail since inefficient rules favoring certain segments will jeopardize the entire economy.

Open borders provide a country’s people with the best chance that their country’s policies will be made to enhance the public interest. When regulation faces competition across borders, the result is better regulation in every country.

“We can’t let anti-globalization protestors on the street determine the agenda, because they have the argument backwards,” says Rajan. “There is a moral ground to oppose the protestors, since open borders prevent us from being at the mercy of the current political elite and large domestic firms.”

A third component of their prescription is a safety net. Competition creates winners and losers, which is one of the biggest sources of tension between democracy and free markets. People who don’t fare as well in the economy still have their political power. The problem, however, is that the have-nots may use their political power to lobby for deep-rooted change that would destroy the foundations of the capitalist system. Worse, the incumbent powers may ride the coattails of the anti-free market protest and pressure for protection as well.

Therefore, a safety net is needed to give the have-nots hope so that they do not turn against markets and become easy political prey for the incumbents. However, much of the safety net in developed countries is focused on protecting firms not people, while in developing countries there is too much reliance on family as a safety net.

Rajan and Zingales caution that the safety net should not come in the form of handouts. Crucial elements of the safety net they propose include a good education system and sound healthcare to enable the average citizen to take advantage of opportunities. A well-developed financial system will give people resources to create their own wealth. With these support mechanisms, people will have the tools to reinvent themselves for the job market. The capitalist system in turn is then better able to survive crises such as economic downturns.

The fourth important pillar in their prescription is awareness. Collective belief in the power of free markets and knowledge of the implications of faulty government regulation will help keep business leaders and politicians in check.

Keeping Capitalism Alive

Recent corporate scandals have added to the perception that the capitalist system is unfair. Combined with the general economic downturn, these perceptions can turn into anger against the system. If unchecked and egged on by politicians, such anger could result in a movement against free markets.

Instead of enhancing the power of large corporations and domestic elites, free markets actually curb that power and channel activities into more productive pursuits.

“People feel guilty about the capitalist system when they see the poor,” says Rajan. “There is no reason to feel guilty, because capitalism offers the poor the best access to opportunities. For those who care about the well-being of others, the goal should be expanding access to everyone and making it possible for even the have-nots to participate in the capitalist system.”

 

Raghuram Rajan is Joseph L. Gidwitz Professor of Finance at the University of Chicago Graduate School of Business. Luigi Zingales is Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago Graduate School of Business.

>>For information about Saving Capitalism from the Capitalists, visitwww.savingcapitalism.com.

Glenn Beck and Freedom

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2nd amendment, capitalism, Constitutional rights, free speech, freedom, GE Capital, Glen Beck, loss of liberty

Sometimes Glenn Beck is too busy ranting about the loss of freedom to remember his own deeply held beliefs about capitalism.

Ayn Rand and Video Games Part 2: The Market and Human Nature

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Ayn Rand, BioShock, capitalism, collectivism, communism, free market, games, gaming, human nature, individualism, market self-regulation, philosophy, political philosophy, political theory, politics, psychology, socialism, video games, videogames

In the previous installment of Ayn Rand and Video Games I examined the effects of isolation and a top heavy society to show the destabilizing effects it could have on society. In this installment I will examine the role human nature plays in a free market. But first I will include a brief review for those that have forgotten or haven’t read part 1 of this series. Those that remember the previous post can skip the section labeled Background and move on to The Market section.

Background

This series examines the theories of Ayn Rand through the lens of the game BioShock. BioShock is a first person shooter but the plot is crouched in commentary on Ayn Rand. So I am going to use the game as a spring board for discussion of Ayn Rand. The following is a bit of background plot for the game BioShock.

In 1946 an industrialist and electrical engineer Andrew Ryan establishes Rapture, a city under the Atlantic ocean in order to free himself and society from those he labels as parasites.

“To build a city at the bottom of the sea! Insanity. But where else could we be free from the clutching hand of the Parasites? Where else could we build an economy that they would not try to control, a society that they would not try to destroy? It was not impossible to build Rapture at the bottom of the sea. It was impossible to build it anywhere else.” – Andrew Ryan

“A man has choices, I chose the impossible. I built a city where the artists would not fear the censor, where the scientist would not be bound by petty morality, where the great would not be constrained by the small.” -Andrew Ryan

Well Andrew Ryan succeeded in building Rapture and creating a society free from parasites, moochers, looters and those that would use force to take the property of another. This leads to great prosperity and advancement for Rapture, in particular scientific advancement leaps decades forward in a few short years. Unfortunately the society founded by Andrew Ryan was unstable and would collapse less than 15 years after being established.

Previously I examined how isolation and a top heavy society can create destabilizing effects on the society. For a full discusion of those issues see Ayn Rand and Video Games Part 1: Initial Conditions.

The Market

Adam Smith’s idea that markets could be self-regulating due to individuals acting in their own self interest was brilliant and revolutionary. That idea alone irrevocably altered economics, philosophy and political theory. Individuals acting in their own interest can regulate a market simply through their choices in the market place. In a free market there is always pressure from consumers for lower prices since lower prices directly benefit the consumer and each consumer is acting in their own interest. So if all things are equal a consumer should opt to chose the least expensive choice for a product. Though not all things are equal, some products are better quality, others have better customer service, some products have different features. But the same basic idea still applies. Consumers measure the choices of products against their personal value judgements about features of the products. Some decide they prefer lower cost and lower quality whereas others chose higher cost and high quality. Regardless each individual weighs the product and price to determine the value of the product for them then they chose the best value.

I believe in no God, no invisible man in the sky. But there is something more powerful than each of us, a combination of our efforts, a Great Chain of industry that unites us. But it is only when we struggle in our own interest that the chain pulls society in the right direction. The chain is too powerful and too mysterious for any government to guide.

– Andrew Ryan

Consumers picking the best value pushes the market to supply those types of products. That is because business is also focused on self interest. It is in the interest of the business to produce products which the consumers will purchase so that the business can make money. Businesses that create products which appeal to the most people will be able to earn more money since more consumers will want those products. Thus consumers drive of the market through their choices in the market.

Now if a company creates a product that is poor quality and high costs compared to other similar products then that company will be driven out of business. People will not chose to spend more in order to get less. Also if a company creates a product that ends up hurting people then people will decide not to purchase those products which forces the company to stop producing those products. Likewise if the company engages in practices that consumers find negative then they will opt to purchase products from another company. Thus the market is able to regulate itself through the individual self-interested actions of the consumers. This mechanism of market self-regulation has become central to the idea of a free market system.

Human Nature

The idea of market self-regulation is a good one and it can be shown to have effects in the market. Companies do try to produce items which the consumers want. When consumer choices shift then companies shift in response. An excellent example is the smart phone market. Prior to the iPhone there was no real market for smart phones. Yeah there was Blackberry but few people even wanted one. After the iPhone came out and companies realized the amount of demand for smart phones they began developing their own versions. Now we have many smart phones with different features and apps and everything. The smart phone market was driven by the consumers after the initial release of the iPhone. Markets can and do respond to consumer choices.

Though there are several requirements in order for consumers to drive a market. First there must be choices for the consumer, second the consumer must be well informed about the product and third the consumer must rationally evaluate their choices.

The consumer’s choice between competing products can drive changes in the market like the smart phone example above. Also if a product is not necessary then the consumer always has the choice of purchasing the product or not. If fact this is probably more common than people think, products fail every day because nobody wanted to buy them. Those just fade away and are replaced by other products. But if the product is necessary and there is no choice then consumers can’t drive the market which means the market can’t self-regulate.This is a current problem with health care. Everybody needs health care at some point or another but we have few choices. Most people get health insurance through their work so they have no choice of insurance plans or companies. Also people are restricted on what providers they can see under their plan which further restricts consumer choice. Since consumers have little choice they can exert minimal influence on health care because their choices of providers no longer reflect the consumer’s judgement of value, instead it only reflects the necessity of health care. If health care consumers were free to choose insurance plans and providers then those businesses with the best value would pull in more people and grow larger whereas those businesses that provide poor health care would loose clients. Thus it would push the best up while pushing the worst down. For a more detailed discussion of this you should read my post “The Market, Transparency and Medical Costs“. But the primary point here is that consumer choice is required for consumers to drive the market and thus is needed for the market to self-regulate.

As mentioned in part 1 of this series isolation and a top heavy society have the potential of reducing competition and choice for consumers. Reduced choices in turn reduce the influence of consumers over the market.

Well Informed Consumers

The next requirement for a market to self-regulate is that the consumers be informed about their choices. It is a basic assumption that for a free market to operate consumers need to be informed about the products. It is not possible for a consumer to determine the value of a product as compared to another similar option unless they know about both products. Even a basic comparison of two products requires that the consumer knows the cost of each and the quality of each. Then the consumer can weigh the cost and quality of both products against each other to determine which is best for the consumer. But in determining quality the consumer may need to know more specifics about the product like durability, cost of repair, usefulness and much more. Without being well informed on the cost or quality of a product it is impossible for a consumer to rationally compare two products. There are two factors that may prevent a consumer from being well informed; time constraints and knowledge constraints.

Time is a major constraint for most of us. We only have so much time in the day and plenty to accomplish. On top of that we all use a wide variety of products. It takes a good deal of time to research each and every item we buy. So most people don’t research most items. Few people care to research extensively about something like ketchup to decide which one to buy. Instead frequently our evaluation is based on personal experience, we try a few types of ketchup (or catsup) then decide what we prefer. This is a reasonable method though has flaws. Personal experience is limited, you can only evaluate functional aspects through this method. So if you care about where your products come from or the conduct of the business providing them then personal experience will be of no use. For that you have to do some real research. Also personal experience is limited to the small sample you have experienced which may not be representative of the whole. But for normal everyday issues like ketchup or soda it is completely reasonable to go with personal experience.

Though some people select the products they purchase based on their moral code. Some will not purchase cosmetics that were tested on animals. Some do not condone the sale of fur. Some people will boycott or support a business over a political or social issue. In those cases it could take extensive research to ensure compliance with the moral conditions. For most people product choices have no moral bearing.

In reality most people do not spend any time investigating the products they use unless the product is of particular importance like a car or a home. Even then many people do not spend a lot time researching the product and even less time researching the producer of that product. This can cause issues with a market self-regulating. Take for example clothing made in sweat shops. Most people tend to think sweat shops are bad but they still buy products made in sweat shops. That is because clothing is not important enough to those people for them to spend time researching the companies that produce clothing. This is especially true when the negative consequences of production are distant from the consumer either physically, psychologically or temporally. If a company abuses it’s employees but they are in another state or country then few consumers really care when it comes to making purchases. Also if the consequences are difficult to comprehend like the risky financial instruments which were a major cause of the recession then they are unlikely to effect consumers choice of purchases since they can’t fully grasp the consequences. Additionally if the consequences are temporally distant such as slowly degrading the environment through CO2 output then few people will take that into account. By our very nature humans have a strong tendency to focus on the immediate moment as opposed to the distant future. Yes we are able to focus on the future but overall we tend to focus on the here and now. So if a company’s method of production will result in negative future consequences then it is far less likely to influence consumer behavior.

When you put all of this together it is clear that markets can self-regulate but don’t always self regulate. That is because consumers are not always well-informed about their consumption choices which means that consumers do not drive the market in those areas.

Rational Consumers

In order for a free market to self-regulate it is necessary for the consumers to rationally evaluate the products and their choices. They must weight the costs and benefits of each product. Also they must consider any pertinent factors about the company producing the products. Then they must compare all of their choices to determine the best fit for their particular situation and needs.

Unfortunately humans are not rational creatures, we are emotional creatures that can be rational on occasion. Research is showing more and more than people spend most of their time on auto-pilot. We don’t really think about what we are buying at the store, we are simply getting groceries. We don’t really think deeply about our actions as we go about our daily lives instead we just react in our normal manner to normal events. Most of the time we don’t have any real reason to invest more thought into our actions so it doesn’t matter.

Furthermore there are a variety of mental shortcuts that we take when reasoning. Those shortcuts save us time and energy but cost us accuracy since they can lead to incorrect evaluations. These shortcuts are quite beneficial especially when we have to make very quick decisions that can have massive consequences. In life and death situations you don’t want to waste the time over-thinking things rather you want to  react.

But cognitive shortcuts can get us in trouble at other times. Marketing and business have spent a great deal of time and money to develop methods for convincing consumers to purchase their products. It is in the best interest of a business to sell as much of their product as possible so they exploit the cognitive shortcuts that are inherent in our psyche. To a business it doesn’t matter if you buy their product for a moral reason or due to manipulation because in the end you bought the product. The 6 fundamental principles of persuasion that are used are reciprocity, scarcity, consistency, social proof, authority and liking. You see these all the time. A company may give you a free sample in the hopes that you reciprocate by purchases that product. Some offer products only for a limited time or in limited quantities in order to increase scarcity. Others offer testimonials in order to build the idea that many other people enjoy their product thus you should too. You see ads that involve authority figures or those in the trappings of authority promoting a product. Also it is not uncommon for salesmen to try and develop a positive rapport so they can use your liking of them to convince you to purchase from them. All of these can get consumers to purchase a product without having to make the rational argument for the product, instead they exploit facets of our psyche to obtain compliance. If you would like to learn more about these 6 principles of persuasion I recommend you get “Influence: The Psychology of Persuasion” by Robert Cialdini PhD. Cialdini is a world leader in persuasion research and is the person who directly taught me these principles.

The problem is that when business uses persuasive tactics to influence our behavior then they can bypass rational evaluation of that choices. Yet rational evaluation is necessary if consumers are to drive the market. Thus business can flip around the equation so that they drive the market instead of consumers.

Conclusion

Self-regulating free markets are possible but only if the consumers have choices and are rationally well-informed about the products. The problems is that these 3 conditions are not always met. Sometimes consumers lack choices. It may be due to a monopoly or it may be due to the nature of a specific industry like health insurance in the US. Also not all consumers are well-informed. Most people don’t care to spend the time researching every product which limits the consumer’s ability to drive the market. Finally consumers are not always rational. We may be rational when something is important to us but otherwise humans tend to run on auto-pilot. On top of that companies have a vested interest in exploiting non-rational cognitive shortcuts in order to increase sales. So when all is said and done consumers can drive  a market but frequently don’t.

 

Ayn Rand and Video Games Part 1: Initial Conditions

Tags

Ayn Rand, BioShock, capitalism, collectivism, communism, games, gaming, individualism, philosophy, political philosophy, political theory, politics, socialism, video games, videogames

Most of you are probably unaware of the up coming BioShock Infinite release(March 26th) but I can’t wait. So I am playing BioShock 1 & 2 once again and I just have to say I love the Ayn Rand commentary throughout the games. I was a hard core Ayn Rand follower for years only to slowly realize the flaws in her theories. In BioShock there is clear exposition of both individualistic and collectivistic thought. There is also capitalistic and communistic expositions. But it is crouched in a First-Person-Shooter (FPS). Bioshock 1 focuses primarily upon individualistic and capitalistic ideas and exposition which will be the focus of my first two posts. BioShock 2 has a much greater focus on collectivistic and communistic ideas and will be the focus of my later posts on this topic.

Background

In 1946 an industrialist and electrical engineer Andrew Ryan establishes Rapture, a city under the Atlantic ocean in order to free himself and society from those he labels as parasites.

“To build a city at the bottom of the sea! Insanity. But where else could we be free from the clutching hand of the Parasites? Where else could we build an economy that they would not try to control, a society that they would not try to destroy? It was not impossible to build Rapture at the bottom of the sea. It was impossible to build it anywhere else.” – Andrew Ryan

“A man has choices, I chose the impossible. I built a city where the artists would not fear the censor, where the scientist would not be bound by petty morality, where the great would not be constrained by the small.” -Andrew Ryan

Well Andrew Ryan succeeded in building Rapture and creating a society free from parasites, moochers, looters and those that would use force to take the property of another. This leads to great prosperity and advancement for Rapture, in particular scientific advancement leaps decades forward in a few short years. Unfortunately the society founded by Andrew Ryan was unstable and would collapse less than 15 years after being established.

There are 4 major factors that led to the fall of Rapture, each of which illustrate inadequacies in Ayn Rand’s theories. The first two were problems created at the founding of Rapture. By necessity Rapture was isolated from the outside world so as to prevent the parasites from controlling or destroying it, yet this isolation brought with it the first set of problems. Second Ryan invited the best and brightest from the world above. He recruited the greatest minds, artists, inventors, scientists and businessmen. But his selection for the best led to a top heavy society with great inequality which destabilized Rapture’s sociopolitical structure. The next two problems leading to Rapture’s downfall are related to the nature of man. Andrew Ryan believed that the market would regulate itself and thus no regulation should be imposed by the government. This allowed the proliferation of business practices which would greatly destabilize the city. The final problem faced by Rapture is the corruption of Andrew Ryan himself. As Rapture began to decline Ryan became desperate which led him to violating the central tenets of his own philosophy.

Isolation

By necessity Rapture required isolation; outside communication and goods were prohibited. This is the same as Galt’s Gulch in Atlas Shrugged where the gulch is hidden from the rest of the world and communication with the outside world is prohibited. Isolation is necessary is to prevent the outside from using force to take control of Rapture or to destroy Rapture. Ayn Rand was very concerned with the prospect of looters and parasites using force to control or destroy Galt’s Gulch. The population of Galt’s Gulch (or Rapture) is very small when compared with the other countries of the world. No matter how capable each individual was at defending themselves there would be no way to defend against such odds. That is why Galt’s Gulch is hidden by mountains in an unpopulated area with a defensive field that camouflages the whole valley. Rapture is hidden in the middle of the ocean making it equally difficult to locate.

The next reason for isolation is that building a completely individualistic / capitalistic society requires that the society is not infiltrated by socialists or collectivists. If collectivism were seep into society it could fester and lead to collectivistic actions and policies which according to Ayn Rand are immoral. To deal with this the residents of Galt’s Gulch are screened extremely thoroughly. Each person was watched carefully for extended periods of time. Their words and actions were studied for any sign of collectivism. Even after that they were screened in an interview before it was decided that their moral code was sufficiently pure enough. Through this selection process the world’s population was reduced to a single small town. But since every individual in Galt’s Gulch had rejected collectivism and socialism completely then they only had to worry about collectivism entering the gulch from the outside. Thus isolation helped to maintain purity of morality and inhibit the disease of collectivism from spreading to Galt’s Gulch.

The problem is that Rapture is a vast metropolis not a small town. Since Rapture needed so many more to build it there was no way to screen each individual as carefully as Galt’s Gulch. Far too much manpower was required so Rapture had to be far less selective. Therefore many entered Rapture who may believe in part or whole that collectivism is the correct route for society to follow. Though isolation helps to combat this issue. Since there is no contact with the outside world it is easier to utilize propaganda to sway the people. In fact Andrew Ryan brought many artists, singers and writers with him to help spread his ideals and convince Rapture that his way is the best way.

Though isolation brings with itself whole new problems. Despite Galt’s Gulch being populated by the best and brightest of the world there is no way it could have developed modern industry and science. There simply were not enough people there. The town was rather small and there was no way that there would be enough people to deal with both maintenance of the society (growing food, maintaining buildings, producing clothing and items necessary for survival) and advancement of science or technology. In order to produce a single hinge for a door the iron would need mined, smelted and forged. But Galt’s Gulch did not have a bunch of extra laborers to mine and work menial jobs. Rather everybody there was somebody of superb skill, intellect and knowledge. It is a huge waste if the greatest electrical engineer in world spends his time wiring light switches and maintaining the power grid because there aren’t enough people to do that for him. That would take away his ability to improve the system and innovate since his time would be taken up with lesser tasks. In fact a society needs to have a certain level of population to support specialization. The greater the specialization the greater the support structures need to be. If a great inventor has to produce each and every item s/he works with then s/he has far less time to invent and improve designs. But if the same inventor has others producing the components then s/he can focus on inventing.

Rapture dealt with this issue by including more people than Galt’s Gulch. Unfortunately isolation still inhibits the productivity of a place like Rapture for the same reason it does in Galt’s Gulch. Yes there are more people to create the materials for great inventors or scientists to work with. But all of those are limited to the materials produced in Rapture since no outside goods were allowed. Now consider that it is rare that a single city can produce all of the goods and products found in modern society. Instead modern cities rely on trade with others to gain raw materials and components in order to produce many of the goods we see today. Without that trade it would be extremely difficult if not impossible to produce everything we have today. Yet Rapture (and Galt’s Gulch) propose that a single city could mine all raw materials, process the raw materials, produce components and parts as well as create final products. All the while having enough time to feed the population, develop new products and advance science. This is simply not possible when you consider the labor force you would need to accomplish all of that. Beyond that there are few if any locations on this planet with access to all raw materials needed for advanced technology. The issue isn’t just with minerals, metals and oil but also with things like rubber and uranium.

Without all of the raw materials and constituent components / parts available the society looses much of the benefit of capitalism. People are no longer able to focus purely in their specialty and advance the field. Rather they are forced to produce or process parts and raw materials in order to get to the point of trying to advance the field. Or they are forced to work without certain items which can completely eliminate the potential for advancement in some field. For example if radioactive material is not available then there is no way to develop medical radiology.

Additionally isolation reduces competition since trade is restricted to a single city’s businesses. Every business depends on a consuming population and the size of the population heavily influences the rate of consumption for various items. Yet isolation restricts the size of that consuming population. If the population is too small it may be unable to sustain multiple businesses of the same type due to lack of demand. How many vineyards do you think a small town can sustain? How many foundries could a town sustain? The limited population due to isolation restricts the amount of competition that can exist in the market. Without competition there is less incentive for efficiency and innovation which are two of the primary benefits of a free market system.

Finally isolation leads to black markets. There will always be people who want products from the outside and there will always be somebody who will get it for them at a price. Consider that despite everything the US has done it still can’t stop illegal immigration or drug smuggling. Ayn Rand is able to deal with this because everybody in Galt’s Gulch voluntarily chose to live there fully knowing the consequences of their decision. So they would not chose to violate their oath and seek outside goods since everybody there has such high moral integrity. But that is an unrealistic model; not every man is a perfect saint. People lie, cheat, steal and hurt each other. To expect every person to hold true to their word is foolish. In Rapture smuggling became a major problem, it got to the point that anybody caught with contraband was executed.

Realistically smuggling is a problem because it creates an underground market. Black markets lead to problems with violence since they are unable to appeal to legal authorities to solve disputes. Rather those involved have to take things into their own hands. Acquisition, transportation and sale of contraband is much easier operating in a group. Thus smuggling can lead to the formation for criminal organizations which is dangerous in itself. Criminal organizations have a tendency to expand and diversify their activities. With smuggling providing money and manpower for the organization they can expand to things like extortion, rigging games and sports, blackmail, counterfeiting or identity theft. The smuggling itself does not necessitate that organized crime will expand to those operations but it does provide an infrastructure to do so. That is it brings together criminals and provides them with the resources to expand should they chose to.

Top Heavy Society

Both Rapture and Galt’s Gulch was built on try to recruit the best and brightest of all humanity. Both focused on obtaining top industrialists, scientists, artists, bankers, inventors, doctors and all other of great skill or intellect. The problem is that this creates a top heavy society to start.

In Galt’s Gulch this is mitigated by the fact that everybody there is a great person. They are all inventors, bankers, industrialists, scientists and such. Also they were all wealthy. But when everybody is both wealthy and brilliant then there is little difference between individuals in the population. Since most people in Galt’s Gulch are relatively equal in those regards then there is not much inequity. For that reason Galt’s Gulch doesn’t really even take notice of the fact that it is completely populated by the best of the best.

Yet in Rapture not everybody could be a great person. There is simply too much need for workers of all types. Rapture needs janitors, repairmen, cooks, labors, factory workers, nurses and everything else. The whole city could not operate just with scientists, inventors and doctors. So many people came to Rapture to fill the various needs and try to scrape out a living for themselves and their families. Yet the heavy recruiting of the upper echelons of society to join Rapture led to a disproportionately large upper class. While at the same time huge portions of the population were extremely poor and had not government safety net to fall back on. This creates a bleak contrast between those with wealth and those without. It is precisely this contrast which makes inequity of wealth distribution salient to the public as a whole.

Though salient inequality may create discontent in the population, but if there is a great deal of socioeconomic mobility then people will not take extreme actions. Social mobility provides an individual route to address inequality, that is people can work toward improving their own situation rather and trying to change the whole system. Unfortunately in Rapture social mobility would be limited due to the top heavy society. With so many people already at the top with tons of wealth which weighs the whole game in their favor. Even somebody as intelligent and skilled as Andrew Ryan would find it difficult to climb from the bottom to upper class in Rapture. The wealthy already own or control so much that it is difficult for others to work their way in. As mentioned before, a isolated society has a limited population to market to which limits the number of businesses of a particular type that it can sustain. Thus if a well established business supplies the needs of the market it could be extremely difficult for a new competitor to break into the market. The market would not be big enough that the competitor could slip in and establish itself without challenging the larger better funded business. Instead the market is small so any gains by a new business would be taking away from the larger corporation which gives the corporation good reason to drive the small business out. This has been shown in regards to monopolies and how they drove out competition in order to maintain control of a market. Though there need not be a monopoly, even if there are two or three established competitors in a market they can use their power to drive out any new businesses. They all would have a vested interest in eliminating their competition in order to maintain a higher market share so they all have reason to drive out new businesses.

So now Rapture is in a situation with a disproportionately large wealthy population, a huge wealth inequality and minimal social mobility. This is an unstable situation for any society. This creates malcontentment in the masses as they see inequity in the system yet have no means by which to improve their own situation. This is further compounded by the isolation of Rapture. People are not free to leave Rapture and seek opportunities elsewhere, they are physically trapped. But they are not free to move up in society, they are socially trapped. As dissatisfaction builds the chances of population taking drastic actions increases. Which in the end is what caused the downfall of Rapture. The poor rose up in a revolt against the existing system.

Though in reality free market advocates would say that capitalism allows for social mobility by providing all an equal opportunity. Also they would point out that the real world is not a closed system like Rapture or Galt’s Gulch so new businesses can break into the market. Yes it is true that it is not exactly like Rapture but in laissez faire capitalism like espoused by Ayn Rand there are no public schools or libraries. The only job of the government is to maintain military, police and courts. This leads to a similar situation as Rapture. Those who start with more have greater opportunities than those who start with less even if everybody plays by the same rules. The wealthy can afford better schools and education. The poor can’t afford as good school if they can even afford to educate their children. So wealthy children start with an advantage purely based on their parents. Also parents with wealth can help get their children started when they become adults. They can support them or provide them with a college education or a loan to start a business or even something as simple as a car. It is difficult for an individual to work their way up in the world if you start with debt from college and buying a car and everything else. If you start with debt you spend so much of your time and energy simply paying back that debt while getting nowhere. If you start without debt then all of your energy can move you forward. Furthermore wealthy individuals tend to know more wealthy individuals. So they have connections that can get their children ahead. My mom was a nurse and at one point hooked me up with some people she knew so I could try and get a job as a psychiatric technician. It paid $13/hr and helped me get through college. Somebody with wealth could do the same thing yet their kid could start at $100k not $13/hr.

My point here is that even if the rules of the game are the same for everybody those who start at the top have an easier time staying there. Whereas those that start at the bottom have a difficult time making it to the top. It is not purely a matter of personal attributes that make one successful. Sometimes it is simply being born to the right person and having access to resources not available to most people.

 

At this point rather than engaging my last two points I think I will post this and finish it later. I already have 3100 words and I have been working on this for a couple days. The issues of market self regulation and human corruptibility will be addressed in the next part to this series.