Cheap (35 page)

This is true not only of groceries but of every retail sector from electronics to clothing to children’s toys to sporting goods. On one side are the quaint boutiques and high-end chains offering service, quality, and (one hopes) social responsibility up and down the supply chain. On the other side are the discounters, Big Box stores, and category killers that devalue service, skimp on quality, and treat their workforce like a disposable commodity. Consumers are left to choose between discount retailers whose practices they find questionable and high-end stores whose prices they cannot afford. Given that these same consumers are laboring in a low-price/low-wage economy, their choice is not really a free one. “Voting with your feet” doesn’t apply when your values are so completely out of line with your budget.

It has been well over two hundred years since Adam Smith, the father of modern economic theory, coined the term “enlightened self-interest.” A professor of moral philosophy, Smith was a deist who believed that world events are guided by a benevolent system of natural laws. He reasoned that the common good was best served not by government regulation but by individuals making economic decisions that served their own interests. Given this, he said that good would be done as if by an “invisible hand.” In his words:

Smith’s work is frequently evoked by free-market evangelists promoting deregulation, but their arguments seem to ignore the obvious: that Smith’s world was quite different from ours. In the late 1700s, most money-making operations were small family-run businesses where labor, capital, and management all gathered under the same roof—or at least in the same village. Most people lived and worked on farms too small to have much of an influence on the marketplace as a whole. Generally, market transactions involved a direct interchange between buyer and seller, and as a consequence, personal reputation was key to success. You can only cheat your neighbor once. A dishonest merchant was unlikely to remain in business for long, and acts of unfettered greed were kept in check by strong cultural and moral standards enforced by laws so draconian that even debtors were jailed. Smith railed vehemently against mo nopolies by which merchants might conspire to cheat the public, and he had no tolerance for a society in which the welfare of the poor would be ignored by men of means. As he wrote, “No society can surely be flourishing and happy, on which the far greater part of the members are poor and miserable. It is but equity besides, that they who food, clothe, and lodge the whole body of people should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.”

Smith would not have thought kindly of the low-wage economy. Like Henry Ford, he advocated a system by which the worker earned a sufficient wage to purchase a decent life. Smith did not—could not—foresee a world in which multinational corporations dominate every sector of local and global economies, and where the basic units of labor, capital, and management are distanced not only philosophically but literally by thousands of miles. Nor could he have predicted a marketplace where producers and merchants do not know their customers—in fact, do not see them—and where consumers know so little about the things they buy. The great irony is this: In Smith’s time, most adults could not read, let alone use technology to access information. Yet consumers then generally knew more about what they purchased than do consumers in the Internet age where information is both ubiquitous and free.

Smith’s hero was the prudent man who behaved virtuously even when it was in his material interest to do otherwise. A prudent man, a practitioner of “frugality, and even some degree of parsimony” would likely not squander $7.99 a pound at the Whole Foods salad bar. But that doesn’t mean he has no interest in where his food is grown or in his community, or is out of reach of the “invisible hand.” Rather, a prudent man is likely to shop where his interests are best served. In Boston, for example, he might be at the Haymarket, a raucous open-air market favored by foodies on a budget. Every Friday afternoon and Saturday morning fifty or so vendors vie for business by hawking fruit, vegetables, and fish from ramshackle stalls. The place is packed with regulars, many of them newcomers to the United States who would no more patronize Whole Foods than they would a Rolls-Royce dealership.

The Haymarket has its own logic and its own rules. When tomatoes cost 50 cents a pound, you don’t argue, and those foolish enough to squeeze that tomato or test its weight are lucky to avoid getting cursed while the offending object is wrenched from their hand and dumped back onto the pile. There are rotten tomatoes at the Haymarket but also excellent tomatoes, and the prudent man knows where to find them. Generally, this means seeking vendors who charge a reasonable price—maybe 65 cents rather 50 cents a pound. And that is precisely what the prudent man does: He uses his knowledge and instincts to ferret out value for himself and, by extension, for society.

Like the Haymarket vendors, discounters prefer that customers do not poke too hard at their merchandise. But unlike the Haymarket, discounters don’t employ a two-tier system whereby knowledge and prudence pay off. Discounters shroud their offerings, selling virtually identical products as different brands, and B-grade versions of national brands. Or, like IKEA, they hide shoddy construction—and questionable practices—with clever image making and design. The cheaper the goods, it seems, the harder retailers work to keep us from knowing about them. And the more narrowly we focus on price, the easier we are to fool.

Sixteenth-century British merchant Thomas Gresham had some thoughts on this. You may recall Sir Thomas, the friend of Queen Elizabeth who devised the theory to explain how bad money drives out good. The example he used was watered milk. If customers know the milk is watered, there is no problem; they pay less for it and get precisely what they bargained for. Customers who prefer their milk without water can choose to pay a higher price. No one is cheated, no one is fooled. But when dishonest brokers add water to the milk and sell it for less without telling customers they’ve watered it, the unwitting public believes it is getting a great deal. If enough dishonest merchants water their milk, more and more customers will forget what normal milk tastes like and buy only the cheaper—watered down—variety. Eventually, honest brokers are forced to water their milk, too, or get pushed out of business. Whole milk becomes no longer available, and eventually the price of watered milk goes up. Good money and good milk are driven out.

After years of experiencing little else, American consumers grew accustomed to watery milk, developing if not exactly a taste for it, then at least a tolerance. Shoddy clothes, unreliable electronics, wobbly furniture, and questionable food have become the norm. We pay less for these products than we would for their quality counterparts, but not so much less that we are getting a really good deal. As good stuff drives out bad, the market for quality goods shrinks, making the good stuff all the more costly.

 

 

 

“CHEAP MERCHANDISE,”
President William McKinley said over a century ago, “means cheap men.” Cheap undermines us, gives us less control over our lives, and weakens our resolve. It cloaks concerns of ethics, sustainability, and social responsibility in a shroud of unaffordability. Yes, we’d prefer to enforce environmental protections and human rights; yes we’d prefer to eat wholesome food and purchase well-crafted, long-lasting goods. But aren’t these luxuries for the few? In times like these, how can we afford to put our money where our hearts are?

This argument begs Smith’s point, that the prudent man is a thrifty fellow who follows his head and his heart on a path toward prosperity. But the prudent man had protections. In his day social norms determined what was acceptable and what was not. The choices were clear. Today, societal norms are much less compelling, and we rely far more heavily on the blunt instrument of law to determine right from wrong. Stretching morality to the breaking point, businesses rationalize their behavior by insisting they are “within the law.” What was impossible in Smith’s day is, in the Age of Cheap, a matter of course.

As I said in this book’s introduction, in the Age of Cheap, we are all tourists. The ever escalating demand for lower prices puts us under extraordinary pressure to be ruthlessly competitive and engage in endless self-deception to feel okay about it. But that era is passing. We know from painful experience that a cheap world—with cheap food, cheap fuel, cheap credit, and cheap men and women—is not sustainable. With even China shuttering its factories and laying off millions of its workers, we have no choice but to find an alternative route to progress.

Regulation is vital, of course, but it does not set a simple path. We cannot overnight undo the wrongs of decades of steady deregulation. Tariffs to keep out foreign-made goods may offer a short-term fix, but over the long term the United States would be poorer and weaker were we to snub international markets. Unions offer workers protections, set minimum wages and benefits, and enforce job security. But what worked for the manufacturing economy has not found wide favor in the information age: Fewer than 8 percent of private sector jobs are unionized. Despite recent gains in some sectors and surveys that show public support for organized labor, it is unlikely that unions will retrench to their glory days anytime soon, if ever. Given these realities we must set a new course for the twenty-first century.

The genie of globalism has escaped the bottle, and it will never squeeze back in. Trade is and must be free. But globalism means more than the system of mutual exploitation it has become. Preying on the developing world’s vulnerabilities to feed our penchant for Cheap is neither defensible nor sustainable. As Ricardo so elegantly revealed, nations thrive in a symbiotic—not parasitic—relationship. International environmental and human rights protections should be enforced and over the long term must be enforced, but doing so will require the mustering of public will around the world and an enormous infusion of funds unlikely to be available in the short term. For now we must begin at home.

A first step is to revisit Adam Smith’s concept of enlightened self-interest, the idea that fulfillment of individual wants in the aggregate can serve society’s needs. Smith lived in a smaller world that had more sharply defined boundaries. He could not have anticipated the relentless pursuit of low-cost labor around the globe or a disposable economy. Still, his idea is flexible enough and universal enough to expand to fit our time. There are many examples of enlightened individuals and organizations working toward this goal, but for brevity’s sake I will focus on just one to offer evidence of both Smith’s enduring good sense and what the end of the Age of Cheap might look like for all of us.

 

 

 

ON A DREARY Sunday morning in November, Wegmans Food Markets was preparing to celebrate the grand opening of its newest store in the small city of Manassas, Virginia. The opening was not really grand. No bands played, no ribbons were cut, and rumors of a free breakfast were quickly laid to rest. Still, as the morning mist gave way to a tentative sun a steady procession of pickup trucks, sedans, and minivans, headlights blazing, pulled into the parking lot and disgorged a rumpled sleep-deprived cargo. Piling out were college-aged kids in hooded sweatshirts, young families with baby carriages, and middle-aged couples in baggy jeans—husbands in baseball caps beside wives hugging windbreakers close against the chill. Some were from far away, and others were from the neighborhood. Most stood in a silent daze, shuffling their feet, drinking coffee from paper cups, checking their watch or cell phone. A few gathered in clusters to chat. After a while, a trio of women stepped forward in response to the essential question: Why rise hours before dawn to queue up outside a supermarket? “We’re small-town folk,” one said, smiling. “This is an event for us.” Manassas is only 25 miles west of Washington, D.C., a commuter town. Things were plenty eventful—for one, Barack Obama was scheduled to be in Manassas the following night, presiding over his final campaign rally. Come clean. What was their real reason for coming? Looking a tad flustered, even embarrassed, one hurriedly confessed: “Okay, I guess it’s just that we love Wegmans.” The white-bearded guy standing behind her let go with a hearty “Damn straight.”

At 6:45 the line snaked around the building as a phalanx of police officers in knee-high leather boots kept watch from a safe distance. At 7:00 a sharp roar rose from inside the store. Those near enough to the entrance squinted through the glass to catch a glimpse of Wegmans’ employees with name tags and aprons waving their arms in what looked like a parody of a Village People routine: “Give me a W!” “W!” “Give me an E.” “E!” “What does that spell?” “Wegmans!” Bells pealed (it was Sunday morning, after all), the automatic doors slid open, and the cheering throng pushed forward into a carnival. Shopping carts nearly collided at the brass and marble patisserie, where a brick oven filled the air with smells of cinnamon and caramel. At what might pass for a Parisian from agerie, a distinguished-looking “associate” in a black beret offered advice and samples of brie-slathered apple bread. In the seafood department another associate opined on the art of grilling tilapia, while in the eight-thousand-square-foot wine shop, customers toasted one another with complimentary mimosas. Beaming company reps in suits shook hands and slapped backs.