Consumer Waste is Profit for Firms but a Loss for Society

Natuurlijk willen bedrijven geen verspilling in hun productieproces, want dat kost hen geld. Wat overigens niet betekent dat er geen verspilling optreedt. Want heel veel vormen van ‘afval’ worden niet verdisconteerd in de prijs, voornamelijk doordat het collectieve goederen betreft (denk aan geluidsoverlast bij een festival).

Nog dramatischer is de verspilling aan de afzetkant. Om hun afzet op peil te houden, hebben bedrijven een voorkeur voor een korte levensduur van hun producten. Kan deze vorm van verspilling worden voorkomen door niet langer te denken in goederen die consumenten in eigendom hebben, maar in dienstverlening en verhuur?

by Dirk Damsma

It is commonly believed that markets enhance efficiency. Markets prioritize companies that make bigger profits. To keep your profits high, you have to keep your costs low. As wasted resources add to cost, but not to the value of the final product, a profit maximizing firm will minimize waste. Problems may occur when resources are not appropriately priced, leading to market distortions. Economists call a market distorted if a firm does not have to pay for all the damage they are causing (in the form of noise pollution or environmental degradation). In economists’ parlance it is then said that the public cost borne by society at large is not fully internalized in the private costs the firm bears. According to most economists, a tax should then be levied on the use of the (public) resources to make up for the difference. Once the market distortion is thus corrected, firms will be properly incentivized again. If so, the market will reward the most efficient, waste minimizing firm.

As far as productive processes are concerned, this story may well hold up (but only if waste is properly prized). However, most companies benefit from the waste produced by households. Every item that a household throws away has to be replaced, which is good for business. Thus, the shorter the economic life span of consumer products is, the bigger the potential sales volume. Depending on their product, they can either limit the physical or technical life span or create hypes and fashions.

Why don’t we have everlasting light bulbs and washing machines?

Limiting physical life spans is attractive for consumer products in which further innovation is incremental at best, such as light bulbs and washing machines. It is technically possible to make a light bulb that lasts a life-time. They aren’t produced, though. If they were, it would put all bulb manufacturers out of business. Similarly, washing machines lasting 25 years could easily be made. Yet, the ones on sale last no more than 15 at maximum. This almost doubles the sales of their producers. It also doubles household waste and the strain on the environment.

Food waste is also great news for business. Sometimes packaging will make it very hard to consume all of its contents. A more effective (and more frequently used) way to make people throw out perfectly good food, however, is manipulation of the expiration date. It is usually safe to consume eggs and canned foods well past their sell-by-date. Tea and coffee also do not stale as quickly as the packaging tells you. Yet, the sell-by date will entice many (and I am no exception) to throw such food away prematurely and replace it by ‘fresh’ new products.

Phasing of innovations and creating addiction

When innovation goes fast, it is the technical, rather than physical life span that companies seek to shorten. The textbook example here is the mobile phone. When new innovations are possible, they are only incrementally integrated in the new phone. If a manufacturer can at some point enhance the phone’s processor speed, its camera and its memory, he is unlikely to implement these changes all at the same time. It is much more profitable to implement and market each change in turn. Thus, consumers buy a ‘new faster’ phone first. Next, a phone ‘with the speed you are used to but with a much better camera’. A while later, the enhanced memory ‘allows you to store everything always’. A consumer that wants to keep up with those innovations has now trashed two phones and bought three.

Fashion will also increase household waste and thus company sales. Personally, I do not have a gene for fashion (and people frequently tell me it shows). People that do, feel physically uncomfortable wearing something that is ‘soooo last season’ and they just ‘have to go shopping’ to get their ‘fix’. The overtones of addiction in this last sentence are no coincidence. Fashion-sensitive people frequently describe themselves as shopaholics. Let’s face it: spreading addiction makes perfect business sense. An addict is a very loyal customer after all.

If spreading addiction is the goal, you will have to start as young as possible (and legally allowed). Toy producers know this. Classic toys, like wooden blocks and old-fashioned Lego, last a life-time and thus make poor business sense. Modern toys (and modern Lego is no exception) therefore usually perform some kind of trick, like repeating what you say to it. Or they showcase some fancy light and/or sound effect. These tricks and effects make the toy irresistible to kids so they will nag for it till their parents cave. After having seen the one trick their new toy is capable of thirty times, kids are bored with it and never look at the toy again. In a maximum of three months it will be relocated to a landfill. The next one-trick pony will be advertised and the cycle begins anew. Thus the pattern is trained in at an early age: happiness can be bought and if you get bored, it is time to go shopping for your next fix.

Changing incentives

Firms using those techniques are not evil. They are not conspiring against our ability for true fulfillment or the environment. They are simply responding to incentives. Thomas Rau (in Tegenlicht and Room for Discussion) proposes a radical shift in thinking to change these incentives. Why, he wonders, do we try to solve our problems and run our businesses on the basis of buying and selling? What would happen if we focused on performing services for each other instead? This would radically transform the business model of most producers.

Imagine what would happen if instead of buying a washing machine, I rent the washing service. In that case, the washing-machine-manufacturer-turned-service-provider will have every incentive to keep his machine running at as small a unit cost as possible. That is, s/he will make a durable machine that takes little resources to produce and little energy and water to run. Similarly, fashion producers may revamp themselves into service providers that make you look sharp (sounds fancy? At least one company already does this). Toy producers could reinvent themselves as providers of fun and learning services instead of dealers in boredom and addiction.

The single most important obstacle is likely cultural: many people associate property with status. So, they will not want to hire their fashion. Instead they want to show people around in their walk-in closet. In fashion this problem may be real, but it is unlikely to exist when it comes to washing or lighting services. In addition, not having to worry about the washing machine breaking down in the midst of financial troubles will be a huge advantage of renting services rather than owning a machine. Where cultural obstacles do persist, the government can always step in and simply forbid people to own e.g. toys. This sounds paternalistic, but it is quite likely that our kids will adjust quickly and feel more satisfied and less restless to boot. There is nothing wrong with a government taking measures to prevent addiction from spreading.


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