Sunday, December 14, 2014

Cheaper products carry a hidden price tag

In a free market economy the incentive to externalize costs is so huge that the seller and the buyer get into an unapologetic understanding to get away with it.

Cheaper products are a marketing gimmick. Enticing nonetheless, deep discounts on popular brands release pent-up demand too. Less expensive means people buy more than what they really need or want. ‘Cheapness' has been an enigma. While one avoids buying anything considered 'cheap', striving for cheaper and cheaper stuff remains alluring. So much so that after a real bargain the stuff is showcased to friends and family for guessing its real 'price'. Lowest possible price paid for a quality product is exhibited as an individual's shopping prowess.    
'Cheapness is an illusion', says Michael Carolan, who teaches sociology at the Colorado State University, USA. The real cost of low price is alarmingly high because low price neither reflects the real cost of production nor accounts for all (environmental) factors contributing to the production process. Be it cheap food or free plastic bags and an affordable car or a smart computer, the true cost of the product is not paid by the buyer but by the society at large. 

The shopper may not pay at the time of purchase but eventually one has to, as initially externalized cost and risks of production finally get socialized. Given the egregious economy wherein the sellers and buyers do not fully pay for their good fortune, it is left for the future generations to foot the inflated bills. The cumulative cost to future generations, a UN study estimated in 2008, could be as high as US$2.2 trillion on account of environmental damages caused by some 3,000 largest publicly traded corporations in the world.

Come to think of it, cheap in itself could be terribly expensive in the long run. But in a free market economy the incentive to externalize costs is so huge that both, the seller and the buyer, get into an unapologetic understanding to get away with it. It offers a comparative advantage to both, however, at tremendous cost to those who have to pay for it now or later. Carolan questions the economics status quo, arguing that a system that socializes costs for the benefit of few can do little to actually enhance well-being for the majority.

Cheaponomics is a revelation! Drawing on a wide range of examples, Carolan unfolds the compulsive economy of cheaper goods which create a false sense of consumer celebration by making large social and income inequalities tolerable. Cheaper products reduce choice but encourage over consumption, adding to urban chaos through mass wastage. Over-consumption is at the root of present-day crises, from growing urban trash to mounting atmospheric emissions.  

Carolan concludes an engaging story with a set of practical recommendations. Governments ought to incentivize accurate pricing and enable affordability as the key to price rationalization in the market. Real cost may make goods expensive in the short term but not over the long term as these would be designed to last longer and avoid wastage. Affordability is about enabling, about capabilities and holistic well-being rather than the shallow freedom of cheap goods!

by Michael Carolan
Earthscan/Routledge, UK
Extent: 320, Price: £15.99

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