Cheap (2 page)

In the world of Cheap, “design” has become a stand-in for quality. Companies such as Target, H & M, and Zara offer consumers the look they love at a price they can live with—but at what true cost? In Sweden we visit IKEA, the global furniture retailer made famous and fabulously successful by a scheme of designing not just
for
low price but
to
low price. The consequences of this are both obvious and subtle. IKEA makes furniture available to all at a low price, which means college students, young couples, and others on a budget can furnish their homes in style. But IKEA does not overly concern itself with what Homer Simpson calls “fall-apart.” The company designs for easy construction, uniformity, cheap production, and transportability around the globe. Ultimately, what it markets is disposable, with everything that implies. The genius of IKEA and other cheap-chic purveyors is that they have made fashionable, desirable, and even lovable objects nearly devoid of craftsmanship. The environmental and social implications of this are insidious and alarming.

Taking a hard look at the impact of discounting on the family budget raises the inevitable question: Does shopping at Wal-Mart and its like make us wealthier? Discounters have helped to keep inflation at bay, and that in itself is a victory. But the Great Depression was characterized not by inflation but by deflation, particularly wage deflation. In recent decades, wage stagnation and growing debt made discounting all the more compelling. Yet discounts don’t compensate for the staggering and rising costs of essentials—housing, education, and health care. A terrific deal on tube socks does not keep foreclosure and bankruptcy at bay. Nor will it sustain us.

Food reflects our culture, traditions, and values; nothing is more personal or more intimate. But what we put in our mouths often comes down to price. Americans pay less for food than do citizens of any other developed nation. The puzzle of how restaurants can possibly turn a profit selling one-dollar cheeseburgers and “all you can eat” shrimp platters led me to the question of how food is grown, processed, and sold in America and around the world. While small family farms are no longer adequate to supply the burgeoning global population, overreliance on factory-farmed and factory-processed foods has made food scarce in many parts of the developing world while forcing down the price of food in the United States to unsustainable levels. As agricultural economist Peter Timmer told me, “I’m quite concerned about what the large food companies are doing to the quality and safety of our diet.”

Without China, there would be no Cheap. Still, predictable generalizations about this vast and fascinating nation do not apply. In Shanghai and Taizhou the role American business interests have played in keeping prices low and conditions difficult is crystal-clear. The Chinese call those who make, sell, and profit from substandaard and counterfeit goods the
heixin,
or “small, black-hearted ones,” and as we will see, the
heixin
come in many nationalities. What I hope to convey is that we have more in common with the people of China than many of us would like to believe. As one trade expert told me: “The severe exploitation of China’s factory workers and the contraction of the American middle class are two sides of the same coin.”

Cheap fuel, cheap loans, cheap consumer goods do not pave the road to salvation. On the contrary, our Faustian pact with bargains contributed to the worst recession of two generations. The economics of Cheap cramps innovation, contributes to the decline of once flourishing industries, and threatens our proud heritage of craftsmanship. The ennoble ment of Cheap marks a radical departure in American culture and a titanic shift in our national priorities. Tracking the trail of the low price imperative, I’ve tried to take an unflinching look at the roots, the reasons, and the consequences of bargain hunting—as hobby, as public policy, and, most of all, as blood sport.

On a personal note, I can honestly report that writing this book has changed me. I approach factory outlets with trepidation, and remainder racks with extreme caution. I no longer comparison shop for chicken thighs or buy wristwatches from street vendors. But I am still a thrifty person. I save papers bags and rubber bands and gift wrap; haunt flea markets and vintage stores. As for nabbing a free parking spot in New York on a late Friday afternoon? Well, for me that is and will always be priceless.

If you know how to spend less than you get, you have the philosopher’s stone.

|
BENJAMIN FRANKLIN

Our pleasures are not material pleasures, but symbols of pleasure—attractively packaged but inferior in content.

ALAN WATTS

 

 

 

 

 

Airport Mesa is a popular spot to gather in Sedona, Arizona, especially at dusk. It is a mystical time when the faithful perch on sandstone boulders and meditate as the sun slips below the western horizon. Native Americans believe Sedona is sacred, and for good reason. How else to explain its stark unearthly beauty and the splendor of its red-rock vistas and sandstone canyons?

Or, more to the point, how else to explain the vortexes? Vortexes, I’m told, are where the earth’s magnetic lines merge into a tingling energy that frees the mind and renews the spirit. A staunch empiricist, I try hard not to believe this. But as the sun burns down to a fuchsia smudge, the earth cools and my will weakens. Reluctantly, I’m sensing the vibe. At the same time, though, I can’t help but be distracted a little by the loot gleaming like trophies from Navajo blankets strewn fetchingly across the rocks. There are necklaces and rings and bracelets made of silver and semiprecious stones, crafted by the same weathered hands that hold them up for inspection. A silver chain hung with a turquoise pendant costs eight bucks! Who can resist? I chose one for each of my daughters. The Native American artisanal jewelry maker drops them into a plastic sandwich bag. “For you, two for fifteen dollars,” she says, smiling. Ah, a bargain.

On the drive back to our hotel, a colleague confides that what I took to be silver and turquoise appears to be tin and glass. He estimates the worth of these trinkets at just a bit more than the Baggies they’re carried in. Although I feign disappointment, this revelation is no surprise. I wasn’t really expecting quality jewelry; quality wasn’t the point. Maybe I didn’t get value, but I did get a “good deal.” Those very same trinkets, I reasoned, would have cost much more at a tourist boutique in downtown Sedona. Most important, I hadn’t done the unthinkable. I hadn’t paid
full
price.

Americans are enamored of bargains, a love that does not go unrequited. Paying retail today is a sucker’s game. There are more discount and warehouse stores, more bargain basements, more dollar stores and closeout stores than ever before in our history. Most of us buy many things at discount every week—from discounted laundry detergent to two-for-one Ram trucks. Given this reality, one would think that shoppers would believe what we’ve been told for decades: that the consumer is king and queen of the marketplace. But despite discounts galore, Americans habitually fret that we are paying too much. Lisa Bolton, a professor of marketing at the Wharton School of Business, said there is good reason for this confusion. Most of us, she said, have absolutely no idea of what goes into setting a price. “Consumers don’t think about the costs behind what they buy,” she said. “They link price to profit, and they grossly overestimate profit margins.”

The skyrocketing cost of fuel and food in mid-2008 seemed to confirm our deepest fears that unchecked inflation would be our ruin. Now we really were paying too much! And how could we not worry given that in recent years corporate profits and wages had become a zero-sum game? Despite astonishing productivity growth, median family income, adjusting for inflation, dropped by $1,175 between 2000 and 2007, at the same time that average family spending on basic expenses grew $4,655. Meanwhile, corporate profits doubled. As the gross domestic product ballooned, ordinary Americans lost both ground and faith—and rising prices seemed to be at the heart of the matter.

As financier Leon Levy once wrote, “Change creeps upon us incrementally . . . often as not rationalized but as part of business as usual. Only later do we realize that the world has been turned on its head.” This especially holds true when it comes to money. The fear of inflation-driven price hikes is so deeply engrained in the national psyche that many of us believe we pay far more for goods and services than our parents or grandparents. We barely notice that prices of most consumer goods—even food and fuel—have been trending downward for decades. The rather astounding facts are these: Compared with the early 1970s, in 2007 we spent 32 percent less on clothes, 18 percent less on food, 52 percent less on appliances, and 24 percent less on owning and maintaining a car.

 

 

 

TECHNOLOGY-DRIVEN GLOBALIZATION has pushed real prices to rock
bottom in almost every category—a trend that verged on the desperate in late 2008 when even tony retailers such as Saks and Nordstrom engaged in an orgy of price slashing so extreme that it threatened to tarnish the reputation of their own brands. Meanwhile, television beams into our living rooms the handiwork of entire networks devoted to feeding the frenzy of more for less. The Internet bristles with bargains. And why not? Isn’t the bargaining instinct branded into society’s DNA? Where would civilization be without the haggling rug merchants of Istanbul or the teeming bazaars of Marrakesh? Are these venerable institutions so different from Home Shopping Network, Filene’s Basement, and eBay?

In a word, yes. The ancient marketplace was built on a balance of power between buyer and seller that is all but gone today. A cascade of corporate scandals and screwups from Enron to Halliburton to Citibank to Michael Madoff ’s audacious Ponzi scheme has shaken whatever faith we once held in corporate responsibility, and this mistrust has dripped down to the retail level. Even on the sacred rocks in Sedona, it seems, we get taken for a ride.

Martin Neil Baily, senior fellow at the Brookings Institute, said that the suspicion that we are being charged more than we should be is entirely rational. After all, plenty of retailers charge staggering sums for their goods. “The consumer economy is bipolar,” he said. “Some of us count our pennies, while others pay $2,500 for a handbag at Barneys.”

To be fair, most of us have barely heard of Barneys, let alone shopped there. Still, many of us hold the belief that retailers from supermarkets to hardware stores follow Barneys’ pricing strategy. That is, we believe that merchants habitually overcharge us just because they can, and the difference among products represents not a difference in quality but in the varying ability of salesmen to fool us. There is a general consensus that “prices are unfairly high,” said Lisa Bolton. “People really believe they are being ripped off.”

Such mistrust leads to miscalculation. Anthropologist Clifford Geertz once wrote that information in the traditional marketplace is “poor, scarce, mal-distributed, inefficiently communicated, and intensely valued. The level of ignorance about everything from the product quality and going prices to market possibilities and production costs is very high, and . . . the search for information is the central experience of life in the bazaar.” Geertz’s insights into the Middle Eastern bazaar apply even more emphatically today. Poorly informed shoppers (which is to say most shoppers) instinctively attribute differences in price among stores not to differences in service or quality or design or materials, but to what we believe are variances in salesmanship. The formulation, essentially, is that the greedier the retailer, the higher the price. Bolton calls this a “sticky” belief, a belief that persists despite rather than because of the facts. “It’s very difficult to dislodge the idea that prices—very reasonable prices—are unfair,” she told me. Muddling things even more is that in our “bipolar” marketplace the disparity between the value of the product and the asking price is sometimes quite real. Take that Barneys handbag, a leather confection that cost the store far, far less than the selling price. (While retailers guard their markups like state secrets, luxury handbags at some stores sell for more than thirteen times their production price.) Barneys will fight hard to keep its buying price low, but Barneys’ customers have no such leverage: No ordinary customer can haggle with sales associates to get a break on that brazen markup.

The traditional marketplace had no such limitations. Bazaar culture assumes a symbiosis between buyer and seller, because whether or not they trust each other, the buyer and seller need each other. Each is a member of the same community, and the game of offer and counteroffer is a ritual over which each exerts a high level of control. The traditional marketplace relies on both buyers and sellers benefiting from transactions for the good of the community at large. Wrote Geertz, “Whatever the relative power, wealth, knowledge, skill or status of the participants—and it can be markedly uneven—clientship is a reciprocal matter, and the butcher or wool seller is tied to his regular customers in the same terms as he to them.” Overcharge a man for your lamb, and he’s sure to overcharge you for his pots or give you a bad haircut when you patronize his barbershop. Merchants in the bazaar want the best possible price, of course, but they also rely on return customers—and those customers are their neighbors, family, and friends. As those of us who have visited bazaars well know, tourists and other outsiders not in on the game are easily and frequently fleeced.

It is easy to conjure a scenario that mimics this dichotomy in our own everyday experience. Imagine you are looking for a used car of a particular year, make, and model. Now imagine that your good friend and neighbor is selling just such a car, as is a dealership 50 miles from your home. It is likely (though not certain) that you would prefer to buy the car from your neighbor for several reasons. Hopefully, you trust this neighbor, but even if you don’t, you know where he lives and it’s not far. Also, by buying his car you enrich him and therefore your neighborhood; perhaps your neighbor will apply the proceeds toward fixing his sagging garage or patching his roof. Purchasing your car from the dealership, by contrast, enriches only the dealer and his business while exposing you to a number of unknowns. There are pluses and minuses to each option, of course, but it boils down to this: When we buy a used car from a friend or neighbor, we feel like an insider. When we buy a used car from a dealer we don’t know, we feel like a tourist.