Advertising is a natural resource extraction industry,
like a fishery. Its business is the harvest and sale of human attention.
We are the fish and we are not consulted.
Two problems result from this. The solution to both requires legal
recognition of the property rights of human beings over our attention.
First, advertising imposes costs on individuals without permission or
compensation. It extracts our precious attention and emits toxic
by-products, such as the sale of our personal information to dodgy third
parties.
Second, you may have noticed that the world's fisheries are not in
great shape. They are a standard example for explaining the theoretical
concept of a
tragedy of the commons, where rational maximising behaviour by individual harvesters leads to the unsustainable overexploitation of a resource.
Expensively trained human attention is the fuel of twenty-first
century capitalism. We are allowing a single industry to slash and burn
vast amounts of this productive resource in search of a quick buck.
1. A classic market failure
The advertising industry consists of the buying and selling of your
attention between third parties without your consent. That means that
the cost of producing the good - access to your attention - doesn't
reflect its full social cost.
Movie theatres, cable channels, phone apps, bill-board operators, and
so on price the sale of your attention at what it takes to extract it
from you - namely, how easy it is for you to escape their predations.
This is often much lower than the value to you, or to others, of
directing your attention to something else.
Since advertisers pay less to access your attention than your
attention is worth to you, an excessive (inefficient) amount of
advertising is produced. We are all continuously swamped by attempts to
distract us from what we actually want to do - like watch a movie or
listen to a song - with messages we don't want or need. Being constantly
addressed in this way changes how we think and behave: it makes us
harried and irritable, and we try to cope by closing ourselves off from the world and each other.
It's a classic case of market failure. The problem has the same basic
structure as the overfishing of the seas or global warming. In
economics language, people's attention is a
common good. Taken
moment by moment it is a finite resource, like a sandwich, whose
consumption by any party means that other parties can't consume it,
including the person themselves (
rivalrous). At the same time, our current institutions make it difficult for any party to prevent others from consuming it (
non-excludable).
Our attention is a valuable commodity and a vast number of businesses
are determined to dig it out of us and sell it before someone else does.
2. Why now?
Advertising is an old racket, but these days it feels as if we are
almost drowning in its insidious manipulative bullshit - inside novels,
in airplanes, on concert tickets, on poor-people's foreheads, on eggs in
grocery stores, on public trash cans, on the inside and outside of
public buses, in police cells and on police cars, on the back of toilet
doors, inside newspaper "articles" and on and on and on. Why is this so?
A number of reasons suggest themselves.
First, as we have become more wealthy our consumption decisions have
become more valuable. People can now be induced to pay much more for a
carefully branded and positioned beer product than the competitive
market price of the mere commodity of "beer." We desire and can afford a
more interesting consumption experience. As a result,
supernormal profits
are available to those who can persuade consumers to buy their version
of beer. Of course, economics wins in the long run: the promise of those
supernormal profits both attracts competitors and finances increased
spending on advertising to compete to attract customers' attention until
economic profits fall back towards zero. But in the meantime, a vast
quantity of advertising has been produced.
Second, a shift in social norms has made it more acceptable to sell
other people's attention. Increased prices have spurred the development
of a sophisticated market for our attention, together with an entire
industrial sector of attention miners. Anyone in a position to access
our attention, like the managers of pubs or hockey arenas, will be
approached by multiple companies offering to pay a fee to install their
advertising screens, banners, or cookies.
Advertising has become harder to ignore.
Advertisers can hunt us more assiduously and individually as we browse
the internet, their banner ads and pop-ups following us around no matter
where we go.
Simultaneous to the appearance of this new opportunity for rentier
profits has come a weakening of our moral constraints against exploiting
this kind of power over people. Whether you call it
neo-liberalism
or something else, we are certainly living under the domination of a
cult of market individualism. The result is not only that it has become
morally acceptable to sell off other people's attention without their
consent in the name of free market economics. But, in addition, anyone
who refuses to do so is considered an economic idiot - someone who
leaves money on the table. If she is an agent for the owners, like the
manager of a city's public bus fleet, then she is guilty of neglecting
her
moral duty as a trustee to secure and advance their financial interests.
Thirdly, technology has made advertising even more intrusive. Not
only is it now possible to print advertisements on grocery store eggs
and to put digital displays above pub urinals. The digital age has added
an extra level of exploitation. Every moment we spend on the internet
or with our smart phones is being captured, repackaged and sold to
advertisers multiple times. Advertisers (and other third parties like
credit rating agencies) will pay a great deal for our profiles because
the better they know us the greater the effectiveness of their
advertising. That's another way of saying that their advertising becomes
harder to ignore. They can hunt us more assiduously and individually as
we browse the internet, their banner ads and pop-ups following us
around no matter where we go.
3. Counter-counter arguments: How economists defend advertising and why it isn't enough
The existence of the advertising industry poses something of a
challenge to the ideology of free market economics since it seems to go
against the principles of consumer sovereignty and consumer welfare
(efficiency). Two justifications are prominent in the defence of
advertising. First, that it is directly valuable for consumers because
it communicates valuable information. Second, that it funds universal
access to "club goods" (like television shows and internet services)
whose production is socially valued but would otherwise not be
financially viable. There is some merit to both of these, but I think
they are far from sufficient.
3.1. The direct value of advertising
Several mechanisms are usually appealed to at this point by
economists. First, that advertising gives consumers valuable information
about the sellers and prices of products they want to buy. The favoured
example here is the classified ads section in newspapers. This saves
consumers the attention it would have cost to do their own research and
encourages producers to compete more strongly on price, thereby allowing
consumers to make more efficient purchasing choices.
Perhaps
it was the case in 1961
that consumers struggled to find such information for themselves. But
it is hard to see how this can still be the case in the internet age,
where price comparison websites centralise such information in a far
more convenient format than billboards and classified ads.
(Incidentally, this is something which many companies resist, for
example, by deliberately offering complex and non-comparable service
packages.)
This argument also seems to neglect the fact that information has
costs as well as benefits, especially when you consider the difference
between publishing information for consumers to find and advertising as
we know it. Advertisements do not concern what the consumer is
interested in finding out, but what the producer wants to sell. That is
why producers pay to access consumers rather than the other way round.
Advertising can be used to reduce competition: high spending by rich
established players drowns out information from smaller newer
competitors and thus creates an entry barrier, converting markets to
oligopolies. And advertisements are deliberately constructed to
manipulate consumers rather than to inform them, by exploiting our
cognitive biases with misleading headline prices, statistical fallacies
and so on (behavioural economics research has been very influential
here). Heavy processing by consumers, and often further research, is
required to make this "free" information usable for decision-making.
Second is the counter-intuitive claim that brands communicate their
trustworthiness by their conspicuous expenditure on advertising not by
what it actually says. When considering which version of the generic
washing machine to buy, the rational consumer has to weigh up lots of
claims about quality against the objective fact of price. If a brand can
demonstrate that its quality claims are credible that makes the
consumer's decision much less of a gamble. Like banks housed in grand
marbled buildings, companies which pour vast amounts of money into
advertising campaigns must be supremely confident about the quality of
their products and its long-term sales. Otherwise they couldn't afford
to burn so much money on ridiculous Super Bowl ads.
In effect, advertising tries to do our
practical reasoning for us, shaping and ordering our inchoate desires
into actionable preferences for specific products. But will buying those
things really make us happy?
This argument rather reminds me of John Maynard Keynes's suggestion
that in a recession caused by a collapse of aggregate demand one could
solve the problem by burying bottles filled with bank notes and then
leaving it to private enterprise to dig them up again. Once again, it is
not that this argument makes no sense at all, but that it takes no
account of opportunity cost - the fact that we have better options. As
Keynes put it, "It would, indeed, be more sensible to build houses and
the like; but if there are political and practical difficulties in the
way of this, the above would be better than nothing."
Companies wanting to demonstrate their confidence in their products
don't have to waste so much of our time to do so. There are all sorts of
more constructive ways of spending money conspicuously. For example,
any large company these days has enormous discretion over its effective
tax rate. A company prepared to pay billions more in tax than it can get
away with must be very confident of itself and could communicate that
fact to customers by publishing it prominently on its products. Or, to
reassure customers of its very long-term viability, it could switch to a
defined benefits pension system for its employees. Or it could give
large amounts of money directly to hospitals and schools and publish its
philanthropy as a proportion of revenue - perhaps it could make this
specific to a certain product by promising to donate the first $50
million in sales.
Third, is the social status that advertising can confer on a product
and its consumption. What's the point of buying a Rolex or Mercedes
unless the people around you know that it is expensive and are able to
appreciate how rich and successful you must be? The business logic here
is sound, but not the moral logic. After all, what this comes down to is
that these companies deliberately waste the attention of the 99% of the
population who can't afford their products just so those who do buy
them can bask in the knowledge that everyone knows the price of what
they are wearing and driving. Such advertising constitutes a regressive
tax imposed on the rest of us by luxury brands in order to increase the
value of their products to rich people.
There is one further argument that occurs to me although I haven't
seen it made by economists: that advertising creates value by spinning a
story around a brand that customers want to buy into. They turn a
mundane commodity item, like shoes or a computer, into a choice of
lifestyle and a means to further your conception of the good. A kid puts
on a cape and imagines herself a crime-fighting superhero. This is a
crude version of the socially sustained illusions that adults can build
our whole lives around and which are nowadays sculpted, in part, by
advertisers. Their products become an end worth pursuing in themselves,
rather than merely a means.
I think the fashioning of these illusions - turning clothes into fashion; turning food into health;
turning diamonds into love
- is the most significant way that advertising creates economic value,
as real as the transformation of steel into a car or cotton into cloth.
But I am dubious of the worth of its achievement. In effect, advertising
tries to do our practical reasoning for us, shaping and ordering our
inchoate desires into actionable preferences for specific products. But
will buying those things really make us happy?
3.2. Financing public goods
Advertising is the financial model for many pure public goods like
terrestrial television and radio, as well as club goods like newspapers,
Google's search/email and Facebook. These are goods that tend to have
very low variable costs - meaning the cost of serving an extra
individual is almost nothing. The socially optimal level of production
is universal access at the marginal cost of zero. Yet there are still
significant fixed costs that must be recouped if producing it is to be
financially sustainable. In cases of pure public goods, it is
implausible to charge individuals for access.
In cases of clubbable goods, one could take a subscription approach,
but its transaction costs might raise the price well above the profit
maximising price. In addition, the profit-maximising price of a
subscription will exclude most people from access (the path chosen by
the academic publishing and pharmaceutical industries), meaning a
deadweight loss in social welfare.
Advertising provides an alternative revenue source that makes it
possible to profitably provide such services universally at the marginal
cost of production - that is,
zero. Advertising thus solves a problem the invisible hand couldn't reach and thereby makes us collectively much better off.
Of course, advertising is only one solution to the problem of
financing club goods. There are alternatives. If these things are so
valuable to society there is a case for supporting them from with taxes -
grants, license fees (many national broadcasters) or payments for
ratings. This is a well-established system for funding public and club
goods. Taxes have their own inefficiencies of course, as well as some
unfairness in requiring people to pay for services they don't use (the
childless paying for schools, urbanites subsidising rural bus routes,
smokers contributing to pension funds and so on). But the negative costs
of advertising are arguably worse, and harder to bring under public
scrutiny.
Why could we not have a democratic Facebook? Would this not be superior from a social welfare perspective to the current farming model of extracting maximum value from its members-cum-livestock?
However, the main challenge to this argument is that maximising
profitability is a business economics rather than an economics concern.
The level of advertising in a product - such as a magazine you thought
you had already paid for - is not calibrated to the requirements of
financial viability. It is just another source of revenue to be
maximised. Google makes $60 billion a year from advertising; Facebook
something like $10 billion. These figures bear no relation to the cost
of providing the services that their consumers value. They are best
understood as rents, payments that accrue to agents simply because of
their privileged access to a scarce resource: our attention. Many for
profit companies are
forced to rely on advertising only in the sense that it is their best strategy to maximise profits and that is what they exist to do.
Alternative models, like that of
Wikipedia,
are sometimes possible and are more socially - that is, economically -
efficient. Wikipedia's value to consumers is in the hundreds of billions
of dollars while its annual operating costs are only $25 million. If
Wikipedia were fully to exploit its advertising potential it would
realise revenues of several billion dollars per year. But it clearly
doesn't actually need to do that - its annual pledge drive is quite
sufficient.
Obviously Wikipedia's operating costs are so low, like Mozilla's,
because of its volunteer labour force. But that fact just makes one
wonder why we couldn't have a "democratic" Facebook too, and whether
that would not be superior from a social welfare perspective to the
current "farming model" of extracting maximum value from its members-
cum-livestock.
4. The right to preserve our attention
Advertising is a valuable commercial opportunity for businesses with
access to consumers' attention, or their personal information. For the
companies that buy and sell our attention it is - as all voluntary
transactions must be - a win-win. But advertising lacks the free market
efficiency that is claimed for it. Advertising is made artificially
cheap, like the output of a coal burning power station, because the
price at which it is sold doesn't reflect its negative effects on third
parties - us.
Defenders of advertising, including economists, point out that it has
positive side-effects for consumers, including price competition and
the funding of universal services like Facebook, Google and broadcast
and online journalism. But their calculations generally neglect the
costs to consumers' welfare of an excessive amount of advertising, and
the possibility of alternative funding systems like taxes (the BBC) and
philanthropy (Wikipedia). The problem is not just that particular
adverts are annoying and distracting and exploit our inability to
escape, but the cumulative effect of having to wade through an endless
stream of sugar coated crap.
It is not impossible to bring advertising back under control, but we will need more than one lever.
First, we should reinvigorate social norms and legal rules against
the excessive exploitation of our attention. We should carve out large
spaces - "attention preserves" - which would be off-limits to
advertisers (starting with restrooms). There are already some privatised
attention preserves, like Facebook or newspapers, which prevent a free
for all tragedy of the commons by
farming their users, limiting
the depredations of advertisers to just below unsustainable levels by
quasi-government fiat. A real government fiat could solve the tragedy of
the commons without treating us as farm animals.
We should also put particular restrictions on the most distracting
forms of advertising, with sounds or moving images. In some contexts,
these are a public nuisance on the order of cars without mufflers. And
we should restore the principle that we should give at least tacit
consent to advertising, meaning that we could realistically exercise our
notional right to exit. That means certain physical spaces should be
out of bounds, such as airplanes or police cells or schools. In digital
space it means that ad-blocking technologies should be generally
available and legal.
What is needed is an effective
property-rights regime that gives individuals the right to control where
we direct our attention, and thereby bring the market price of this
modern commodity in line with its true market value. Advertisers should
pay us, not third parties.
Second, in some spaces we should embrace the ethic of market
fundamentalism and then demand that advertising conform to it. The
reason advertising is artificially cheap is that no one has to ask our
permission to advertise at us. We are involved in the transaction only
as the commodity that is being bought and sold, and therefore the value
of our attention to us - the opportunity cost of being distracted and
interrupted by all those self-serving spam messages - does not determine
its price.
Instead, the market price for our attention is just the cost of
digging it out of us. That's the difference between the price of
conscript labour and free labour. From this perspective, the problem is
that our property rights regime does not reflect the ideal of consumer
sovereignty at the heart not only of mainstream (neoclassical) economics
theory but also the political ideology of market fundamentalism that
actually determines economic policy.
What is needed is an effective property-rights regime that gives
individuals the right to control where we direct our attention, and
thereby bring the market price of this modern commodity in line with its
true market value. Advertisers should pay us, not third parties. If you
could assert your property rights to your attention, you could sell it
at a price that reflects its value to you. If advertisers had to
negotiate directly with you, or at least your software agent, then they
would have to start paying a price that would not leave you feeling
violated. And at that price they would want to buy much less of your
attention than they do at present.
Capitalism being the wonder that it is, there are already some companies trying to make a business model out of this, like
Fluence. The increasing popularity of ad-blocking software is also leading some internet companies, such as the
Guardian, to offer alternatives.
Third, we should reconsider more socially efficient ways of funding
services that can be scaled up at almost zero cost. This is particularly
important now, because zero marginal cost is what the internet is all
about. Access to these digital services shouldn't depend entirely on the
dominant commercial models of advertising
versus subscriptions. Journalism, for example, is too important to be reduced to "clickbait" and
abject dependence on Facebook and Apple.
Other industries, like academic publishing, use a subscription model
that excludes a vast proportion of possible readers at the profit
maximising price.
From an economics perspective, this is idiocy. We are leaving social
value on the table. We should be looking for alternatives, whether
different funding models (like micro-payments, or a spotify for books
and academic journals, or
citizen voucher systems);
different funding sources (like pledge drives and taxes); and different
economic structures imposed by governments (such as restrictions on
third party sales of your information, or democratising the governance
of large social media companies like Facebook).
5. Summing up
Terrestrial television probably presents the best known example of
the economic - and moral - case for advertising. It is the model many
people immediately think of when this issue is raised. Other funding
sources - taxes or pledge drives - come with their own limitations and
don't have an obvious superiority. Consumers have easy exit rights, so
their choice of how much to watch more or less tracks their personal
level of dislike for advertising. Although consumers are not the
customers of television companies, they therefore have substantial
influence over the transaction, and the
quid pro quo for them is transparent.
But most advertising nowadays doesn't look like that. Advertising is
just another revenue stream to be maximised by those with access to our
attention. Whether it requires our tacit consent or a
quid pro quo
is entirely contingent. Since we are not formally - that is, legally -
part of the transaction, our influence over its terms declines in
proportion to our inability to escape it.
For example, lots of companies sell you things, and then go on to
sell your attention (and all the information they can glean about you)
to other companies as well. Like movie theatres, live sports events,
cable television, airlines and so on. The digital subscription I bought
from
The Economist feeds me the same advert for the same MBA
programme every couple of pages - a level of crassness that demonstrates
just how low these companies value the attention even of their paying
customers. It is hard to believe that advertising is about providing
information to aid rational economic agents make decisions. Advertising
to children in America has
increased more than 150 fold since the early 1980s, especially inside schools where the audience is captive.
Things that we find valuable and are
quintessentially our own are being stripped away from us without our
consent or adequate compensation.
Our right to preserve our own attention and to make our own decisions
about how we spend it and with whom our personal information is shared
must become part of the political agenda. We need a legal and policy
response to the market failures of the advertising industry, and we need
it soon.
As long as either our attention or our personal information is traded
by third parties in markets that do not incorporate their value to us,
they will tend to be underpriced and used in ways that are both against
our wishes and detrimental to our well-being. That meets the definition
of exploitation. Things that we find valuable and are quintessentially
our own are being stripped away from us without our consent or adequate
compensation.
The state of the advertising industry is a gift to critics of
capitalism as a whole, like Naomi Klein or Michael Sandel. And they have
a point. Our expensively university trained attention is the central
productive resource of the twenty-first century. It's what all those
shiny digital services and promises about the internet of things are
ultimately made out of. If we don't own this resource then it belongs to
no one and everyone - in other words, to whoever can grab it and
marketise it first. This is the set up for a tragedy of the commons.
1:00 PM
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