Corporations and Their Customers

CORPORATIONS AND THEIR CUSTOMERS

By Roland Watson

I will now consider the effects of corporations on what is arguably their most important public of all: their customers. Corporations exist to earn profits, and they accomplish this by selling us things. And, as they do this, they exhibit three basic tendencies. First, they attempt to create a market structure that gives them absolute power, through which they can dictate to us all of the terms of a transaction: its price, quality, etc. Secondly, once they have this power, they charge what the market will bear. There is no natural limit to the amount of money that they will try to make. Without some barrier, such as a competing supplier, they will be unconcerned with the affordability of their products. Said another way, given that a customer needs a product, they will increase the price to the absolute limit of what he or she views as affordable.

For instance, consider the manufacturer of a life-saving drug. Without any other sources of pressure, the manufacturer would try to charge the people who need the drug their entire personal wealth. They would effectively ransom these people their lives, for all of their wealth and possessions, including varying the price by customer. (This is called dynamic pricing.) The constant would be: to get the drug, to save your life, you have to pay everything that you have.

(Pharmaceutical companies do have a policy, called compassionate use basis, where they make drugs available free or for reduced prices. However, through their actions - the policy is almost never applied - they demonstrate that they are opposed to it.)

This also raises the issue of the linkage of profits with the goals of the company owners and executives. Both own stock, so they want a higher stock price. And stocks are traded on Wall Street, which assigns the value - sets the price - of a stock almost completely on the basis of the company's short-term, or quarterly, profits. Wall Street pays much less attention to long-term, sustainable profits. (For one reason, companies which in the long-term have weak profits are usually acquired by stronger competitors, to increase the latter's market share, and in the process of being acquired this generally inflates their stock price.)

Because of the characteristics of financial markets, companies no longer believe in the idea of sustainable profits. They attempt to make as much money as they can right now, and if at some point this ability weakens, they can then grow through acquiring new businesses. (This is a second motivation for acquisitions.) So, as to the customer, and his or her needs, we are farther than ever from them.

To return to the example of the life-saving drug, consider the companies that sell the drugs that are used to fight AIDS. One could easily ask, why don't these companies - since so many people are dying from the disease right now - apply compassionate use basis, worldwide, and sell the drugs at cost? Even after paying for research and development, production, interest on debt, and executive salaries, the prices would still be relatively low. (And the public good will they would earn would be phenomenal.)

The answer to this is that the companies have to make the highest possible return on invested capital. They are obliged to make as much money for their shareholders as they can.

In this instance, which is not that unusual, capitalism is clearly inimical to the social good.

(In the autumn of 2000, the manufacturers of AIDS drugs, under United Nations pressure, began negotiating to provide their drugs at reduced prices country-by-country - this is a stall tactic - in the developing regions most affected by the disease. Also, because of this, AIDS patients in developed regions may be forced to take "vacations," to get the drugs that they need at a reasonable price.)

Actually, such a consequence is so significant that it is worth a short detour to consider the relationship between corporations and financial institutions more fully. And, at this point it should be noted that financial institutions have also been selected as a new form of organization best adapted to survive. For example, we have seen in recent years, with the Asian and Russian currency crises, that the traders in financial institutions have the power to bring nations to their knees, and basically to take their accumulated savings.

We shouldn't shed too many tears for these countries, though. Almost all of them are totalitarian, and much of the money that changed hands was the wealth of the elites, which wealth we have already seen was stolen from the people. Now it has been taken again, this time by a tight global network of thirty-year-old currency traders. (Too bad for the dictatorial elites!) The strong prey on the weak, but the stronger prey on the strong. (What is tragic is that in some cases substantial national wealth, stored as not yet looted government surplus, was lost in misguided attempts to defend the local currencies. Also, many people, particularly in Asia, lost their jobs in the crises, and not all of them, by any means, were unethical.)

Financial institutions are also transnational; they effectively operate outside national borders. And sometimes their interests coincide with those of corporations, as with banks which give them loans, but at other times their interests diverge. Companies prize stability, especially currency stability, but financial institutions - their proprietary traders - regularly create, and profit from, currency volatility.

To return to the effects of corporations on their customers, the converse of their behavior with life saving products is their behavior with the products that they manufacture which cause death. If a company has a defective product, one that has led to fatal accidents, it inevitably seeks to cover up the flaw, even if this will lead to more such accidents. The common pattern is that the companies hope that such flaws will never be identified. In addition, they make an extremely cynical calculation. They compare the cost of the product recall and redesign with the legal judgments that they are likely to face, and if the former is greater, they allow the deaths for which they are responsible to continue to occur. Their position is that the litigation with the heirs will take so many years to complete, that the financial impact of the settlements they will eventually have to pay will, in terms of today's dollars, be negligible.

(How many decades have airlines known about the deaths caused by deep vein thrombosis, or "economy class syndrome," on long-haul flights, and not said or done anything about it? How many other cover-ups, such as with defective tires and automotive design, have there been?)

Finally, the third basic tendency of corporations toward their customers is that they attempt to condition us to buy what they have to offer. And this is where they engage in the standardization and manipulation of consumer needs, desires and preferences. But in this regard it is not the case that companies explicitly appeal to the lower classes, or to the lowest common denominator (LCD). Rather, they are systematically trying to lower the LCD, and then convert everybody to it. To a corporation this expands market size, and it simplifies production and marketing processes. In financial terms, it leads to the greatest sales and the lowest unit costs.

Unfortunately, the objective of these efforts is not only standardization (which we now understand extends even to gender, to conditioning men and women to be alike); it is also submission. Corporations want docile customers who will accept whatever they have to offer. To accomplish this, they now design their services to reshape or even eliminate those customers who make, to them, unreasonable demands. For example, when airlines reduce the amount of allowable carry-on luggage it is not, as they say, to improve your safety, and certainly not your convenience. It is solely to satisfy their needs, to make their job easier by enabling them to provide less service, but at the same price.

Corporations regularly discriminate among their customers. Preferred customers have always gotten better service and the best rates, but this has now been taken to new extremes. The worst customers, those customers who make the greatest demands, and hence who yield the lowest returns, are now being charged more to get them to stop being customers. In other words, they are being culled. Meanwhile, the submissive customers, those people who make no extra demands and who never complain, are granted special deals (although after the culling is completed the deals are rescinded). For instance, this is clearly happening in banking. Banks do not want customers, even credit-worthy customers, who are infrequent users of bank services, or who use high cost services (to the banks) such as tellers. So the banks are redesigning their product pricing, to drive such customers away.

Of course, such steps have been noticed, and there has been a reaction. Some people have fought off these forms, and are demanding that their needs be satisfied, and in the way that they want them to be satisfied. And, the corporations are being forced to respond, to this residual individuality, this residual will, which refuses to be extinguished. Also, many companies are trying to meet needs, not create them. (Competition is the usual force in leading them to do the latter.) Many companies even have a general policy, although it is usually unwritten, to be ethical, or at least to pay lip service to the idea. And finally, not all corporate executives are rogues.

In addition, companies have realized that products designed for mass markets are effectively "commodities." Anyone can make them, and hence they offer only small profit margins. Indeed, much company effort nowadays is directed to creating false distinctions, which can then be used as the basis for demanding higher prices. There may even be a cycle in corporate product strategy, from standardize, to diversify, to standardize, etc.

However, it is still the case that there has been consistent movement toward the lowest common denominator. Through the above what we can see is that this movement is most persistent not with products, but with values. Products may go through cycles, but the trend in values is unidirectional. What we have also seen is that the basic underlying value is determinism: you should be a sheep; do what you are told; and wait in line for your turn (which likely will never come).

The corporation's allies in all of this are the media and the advertising industry. We will consider them shortly, in their own section, and the actual processes by which customer brainwashing is accomplished. But at this point we should recognize one thing. It is a common practice to malign the media, and they are seriously culpable. However, and more importantly, the media are the fall guys for the corporations. (This is another way that the latter escape criticism.) Virtually everything the media produce, everything they create, including their most pernicious effects on social welfare, is at the behest of their corporate customers. When the media sensationalize life, and when they present the most despicable content and programming - content and programming that appeal to our worst tendencies and characteristics - this is done solely to attract more viewers and readers, and hence more corporate advertising dollars.