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Monday, Sept. 21, 2009

'Cheap: The High Cost of Discount Culture'

Ellen Ruppel Shell exposes the damage from ‘low-price’ goods

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At the very moment of sitting down to write this review of Ellen Ruppel Shell’s Cheap: The High Cost of DiscountCulture (Penguin Press), I received an e-mail from a friend warning me about a cheap pair of Chinese-made flip-flops at Wal-Mart that had caused severe, unsightly rashes. Wal-Mart withdrew the merchandise, but the coincidence offers a perfect expression of the high cost that Shell’s subtitle warns about: In discount culture we get what we pay for, though we don’t always know what we’re getting, its hidden expense or its long-term consequences.

Shell, a Boston University faculty member, Atlantic magazine contributor and author of The Hungry Gene: The Inside Story of the Obesity Industry, explains that the balance of power that once existed between buyer and seller has been lost—to the advantage of the seller. “In the Age of Cheap we are all tourists” in a modern world bazaar, “blindly reliant on the seller to wring out the best price,” she writes.

This leads to mistrust, which leads to buyer miscalculation. Something like Gresham’s Law (bad money drives out good) takes over. When we can’t tell whether a product is shoddy or good, eventually shoddy drives out good, and we end up paying too much for shoddy in a corrupted marketplace.

The author concedes that the impulse toward lower prices is basically good; department-store pioneer John Wanamaker showed that lower prices could improve the lives of ordinary citizens. But it was a more widely acclaimed retail pioneer, Frank W. Woolworth, who first understood what today’s discounters know in their bones: Price trumps quality. The corollary to that, in Woolworth’s blunt words, is, “We must have cheap labor or we cannot sell cheap goods.”

At the end of the 19th century, critics of cheap, including President William McKinley (“Cheap merchandise means cheap men, and cheap men mean a cheap country”), raised the alarm, but their voices were drowned out by the new century’s clamor for ever-lower prices in the emerging consumer culture. E.J. Korvette, the postwar price slasher, was one of the first to answer the clamor.

A series of seismic changes came about, though they did not necessarily register on any meters at the time. One of the biggest, other than the outsourcing of jobs overseas, was the shift in focus from the object to the deal. Retailers, always preferring to sell you what they have rather than what you want (the essence of discounting), were able to convince buyers that if the deal was good, the object under consideration was less critical to the transaction.

Another big change was the gradual disassociation of the consumer from the worker/citizen, as if they were not one and the same. A kind of cognitive dissonance lets us accept what we know is absurd: that prices can continually be cut without also necessitating cuts in quality, safety, variety, environmental responsibility, human dignity—or our own wages.

Not surprisingly, Shell frequently uses Wal-Mart as an example. After a Wal-Mart store opens in an area, University of California research shows, wages and benefits fall in other industries throughout the area. She is equally critical of IKEA, which “succeeds the way all discounters do: by passing much of its costs on to us.”

One trade expert puts it succinctly: “The severe exploitation of China’s factory workers and the contraction of the American middle class are two sides of the same coin.”

Economic arguments aside, Cheap is interesting simply as social and commercial history. You will be amazed at the ingenious devices corporations have invented to bamboozle and deceive you—or to let you deceive yourself. Mail-in rebates, for instance: Companies make out big-time because only between 5% and 10% of us bother to redeem them, yet we tell ourselves we still received a good deal.

The chapter on the psychology of pricing, “Winner Take Nothing,” may be worth—you should excuse the too-obvious wordplay—the price of the book alone. It is fascinating. Why, for example, is “9” the most seductive, and therefore common, number used in pricing?

Some observers may take Shell’s book as an elitist rant, though it is not. She does not have a solution to the problem, other than a not-very-realistic call to consumer action, but she leaves no doubt that there is a serious socioeconomic problem involving declining standards of living, beleaguered communities, rising debt and poisoned environments.

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