Mar 26, 2013

How Advertising Undermines Freemarket Capitalism & Liberty

This article attempts to argue that advertising, by creating an unequal playing field and entry point, leads to corporate capitalism and inequality for businesses. The advertising phenomenon in the age of Google and Facebook also jeopardizes liberty through consumer decision tracking and manipulation and undermines democracy through turning political campaigns into fundraising and advertising competitions.
It is hard to ignore the impact of advertising in an age where Google, Facebook and other advertising-supported tech companies are worth more than the annual budgets of many developing countries combined. Aside from the economic benefits of the coming together of tech, media, advertising and corporate sectors to dissect, mine, categorize, target, nudge and commodify every consumer decision-making data point, this evolution has great implications for our economy, liberty and democracy. 

The Myth of Supply & Demand Theory: Information Asymmetry
One of the implications of this shift is the evolving definition of the Supply and Demand theory, one of the cornerstones of freemarket capitalism. This theory as traditionally understood, assumes commodity prices are simply a function of supply and demand, and the access to information by both consumers and sellers is equal and symmetric. This is simply not the case. The supply and demand equilibrium has an 'information' variable that often favors suppliers or sellers and big business. Not only businesses can withhold certain negative information about their products but they can also exaggerate and overstate the positive aspects through advertising and marketing. Additionally, the seller has always had the upper hand in terms of having access to information that the buyer never had. As such sellers use this asymmetric advantage to sell their product at a higher price dependent somewhat on demand but more so on what the buyer doesn't know (information advantage) or is advertised (information manipulation). So simply put the Supply and Demand theory would be correct if and only if everyone had access to the same information or data, which is simply not the case. 

Big Data: The Confused Consumer
But wait a minute, the internet has democratized information (See Yelp, Amazon reviews, CNet, etc). Yes, true, but just like the internet has given a platform for consumers to share information and review products, it has also become an advertising and marketing heaven for 'sellers'. Now advertising banners follow us across the web and thanks to all the cookies stored in our browsers, advertising agencies have profiles on each person to best tailor ads to match our consumption and browsing history. Additionally, even in the absence of advertising, with access to information being equal, corporations have access to advanced and complex data analytics and mining software and algorithms to make sense of Big Data, while the consumer is handicapped and constantly overwhelmed by information.

The Advertising Variable And The Rise of Corporate Capitalism
It is obvious then, that the advertising industry has changed demand from being just a function of scarcity of a product or service that consumers need or desire to how much and how well a product is advertised or marketed with a popular meme to create a demand that was never there to begin with. By increasing advertising and marketing of a certain product, demand goes up and as such prices can be set by the seller as the entity who controls the demand through advertising. This evolution is dangerous to freemarket capitalism because as described above, the advertising epidemic tends to favor big businesses with bigger marketing and advertising budgets while drowning out the smaller businesses with possibly more superior products or services. In this new Corporate Capitalism environment, then we must ask: How can a small business get the word out about its products when the highway of mainstream media is dominated by the voices of the big corporations? Perhaps Nassim Taleb is correct to suggest that if a produce or service is good and needed it does not need to be advertised: 
I wonder why people don't realize that, by definition, what is being marketed is necessarily inferior, otherwise it would not be advertised. As the saying goes, it is hardest to be a great man to one’s chambermaid. And marketing beyond conveying information is insecurity. We accept that people who boast are boastful and turn people off. How about companies? Why aren’t we turned off by companies that advertise how great they are? We have three layers of violations: First layer, the mild violation: companies are shamelessly self-promotional, like the man on the British Air flight, and it only harms them. Second layer, the more serious violation: companies trying to represent themselves in the most favorable light possible, hiding the defects of their products—still harmless, as we tend to expect it and rely on the opinion of users. Third layer, the even more serious violation: companies trying to misrepresent the product they sell by playing with our cognitive biases, our unconscious associations, and that’s sneaky.
The Advertising Market: Consumer's Attention Span As a Traded Commodity
Aside from the inequality and monopolies advertising can lead to by creating an unequal entry point to mainstream media, this epidemic is reaching a crisis of its own, that is the consumers' ever limited and scarce attention span. In the mobile and social media age, with so much content, information and advertising that each consumer is exposed to, the consumer attention span or Facebook Newsfeed become very valuable commodities or real estate for advertisers and businesses. As such, as companies compete for this scarce resource they have to continuously outdo one another to get our attention and often have to invoke and excite some of our worst unconscious instincts. The rise of Reality-Drama TV is a great examples of how the advertising-profit-hungry media has captured the attention of millions of viewers by mediocre but sensational content, repackaged this attention and sold it as a commodity to big corporations. In this case Reality and extreme opinion-based talk shows only cater to our lowest common denominator (extreme emotions) with no intellectual or rational thinking required. What the junk food industry has done to our stomachs, health and waste lines, the advertising industry attempts to do to our brains and attention with cheap, unhealthy but tasty content. This trend is also evident in Silicon Valley's technology-focused / advertising-dependent business mindset where 'cool' Apps or social networks (Facebook) attract users (their attention) just to sell their feeds, information and attention to advertisers. It is no longer, "build it and they will come" but rather "create a hype, they will come so you can bombard them with advertising and make money". Attention [as a commodity] trading is the new housing bubble. 

The Over-Advertised Consumer: A Passive, Unintellectual Society
It's evident that advertising is not going away anytime soon and it shouldn't. It's a form of free speech and people and corporations should be able to express themselves as they like. The problem is when competition between marketers and advertisers leads to ever more extreme attention grabbing-content and media with hidden marketing pitches for a product or an ideology What happens when in desperation, corporations invoke unreasonable fear to sell their products? (i.e. Defense contractor paying journalists to write articles to emphasize the dangers of unrealistic threats that next generation of weapons will protect us from). What happens when banks advertise loans, credit cards and debt as a means to more consumption and happiness? What happens when food or soft-drinks are advertised as a means to a joyful experience? What happens when the pharmaceutical industry advertises prescription drugs as magic pills that will cure all of our ills?

The Over-Advertised Citizen: The Myth of Freedom of Choice
The problem with an advertising-based economy is that citizens turned consumers now become passive attention spans to be targeted, manipulated and profiled to nudge them to purchase products and services they might not need or can even afford with every little rational thinking or logic. Most importantly, how free is our so called American 'Freedom' when our every decision is manipulated by for-profit media and advertising agencies? Here I like to echo Slavoj Zizek to say that: "We ‘feel free’ because we lack the very language to articulate our unfreedom." We accept advertising as part of our freedom because we don't know what's it's like to experience a world without advertising. Yes we are free to think as we like but can we imagine total freedom, from corporate, political and media advertising and hidden agendas? And what about elections for political office, especially in the age Citizens United? Most candidates these days base their decision to enter a race not so much on polling data but rather on how much money they think they can raise to fund their advertising campaigns. Not only advertising budget is a critical factor in winning elections, the funding itself can come from various anonymous and undisclosed sources. It's not, hence, surprising that both Obama 2008 and 2012 winning campaigns became known for their level of fundraising, smart advertising and targeting and advanced data analytics. Professor David Parry's op-ed in TechPresident is a great reminder of how advertising has completely undermined democratic elections with the help of technology and neuroscience, with a most appropriate title: Big Data: What Happens When Elections Become Social Engineering Competitions.

Maybe Thomas Jefferson knew this all along:
Wealth acquired under capitalism is in and of itself no enemy of democracy, but wealth armed with political power – power to shake off opportunities for others to rise – is a proven danger.
As I was writing this article I shared some of my thoughts with a few friends who are either currently in Business School or involved with tech startups. They all seemed to agree that though advertising can be abused as a tool in the wrong hands, it is necessary, to connect consumers with their desired or needed products or services. Advertising, especially for most online-only stores has in fact become the language of commerce today, without which brands are simply mute and excluded from conversations. It’s obvious then that advertising is here to stay but seeing all the great inventions that started out cool and became annoying thanks to advertising (Journalism: Content Marketing, Mail: Junk Mail, Email: Spam, Myspace: Spam, Facebook: Supported Posts, Twitter: Spam/Following to be Followed, etc.) I wonder if there is a better way to communicate information without overwhelming the consumer's attention span with spam to manipulate their decision-making and eroding their trust in content.

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