One of the major society’s problems is unequal distribution of wealth and resources. Because of improper distribution of resources, parts of the world are pouring their excess potato in Mississippi, while other parts of the world are starving to death. How to correct this improper distribution? Well, different economic systems provided the answer differently. Capitalism solved this problem by resting its trust on consumer’s preference/demand. They said, demand will dictate the allocation of resources. Socialism takes hold of centrally planned economy where all the resource allocation is done through central direction. Islamic economics deals this issue of resource allocation with mixed tool of consumer’s preference and central planning. However, as the world is largely dominated by capitalism, our question is, can the consumer really change the market? Can they really direct the allocation of resources?
Capitalism’s market based solution which focus on the power of the consumer is largely based on some pre-considerations. Those pre-considerations are-
- Equal share of economic resources
- Equal Access to information
- Rational action
Equal share of Economic resources:
Market economy proposes that consumer can dictate the market by their purchasing power. They can motivate the producer of environment friendly goods producer by purchasing green product more. In case of resource direction to necessary goods from unwanted luxurious good, consumers can deter the production of luxurious goods by their demand for necessary goods. But, in reality, this happens hardly. This is because; this solution of consumer’s purchasing power will work only when all the consumers have same and equal amount of economic power. For example, if A have 80% of the total money of the world and all other have rest 20% of the assets, then market will produce those goods that are demanded by A. Because he will pay for what he demanded. This is why most of the resources will be directed to fulfill the desire of A.
Though consumers don’t want environmentally damaging products, they are forced to consume that because of their limited economic resources. In a survey, 82% of the British citizens were agreed upon the point of using green-products, but 18% of them reflected this in their purchasing decision. Again, there is a great need for life saving necessary goods from majority of consumers. But they can’t affect the production due to their low share in consumption volume.
The notion of “consumers can change the market through their purchasing decision” is largely based on the assumption that, all of them have equal share of resources, which is not in place. Because of this, consumers hardly can affect the market.
Equal access to information:
Again, the idea that consumers can decide what will be produced also presupposes that they have equal and unbiased access to information about all market factors. This is also not the reality as there are notable inequalities among consumers in terms of education level, financial capacity etc. all these affect the access to information.
Consumer are highly affected by the million dollar advertising campaign launched by the corporations. The purpose of all those marketing campaign is to make the product more necessary, more exciting, and more essential and some time, more ethical. In the age of information, major providers of information are in pursuit of biasing consumers about their products. So, it is very unlikely that consumers will decide based on actual need of the society.
Rational Action
Rational action while making purchasing decision also depends-for its effectiveness, on purchasing power and available information. In previous example, only 18% of the British are acting rationally by purchasing green products. Rest of them failed to act because they were economically forced to consume less costly products.
Although proponents of capitalism argue about consumers’ empowerment by their rational actions, it is not the reality. Consumers are isolated and poorly informed about macro economic issues. Even consumers are informed enough; they can act rationally due to their vested interest or dependence on the existing system.
Noam Chomsky pictured this as the act of “molding consumers life style, desires in such a way that is against their oneself”. He says, ‘the ideal is to have individuals that are totally dissociated from one another… whose sense of value is “Just how many created wants can I satisfy?’ this disenfranchisement of consumers is the key to corporate strategies of advertising which isolate consumer from one another. This is why, consumers are motivated to think individually, can’t think in macro-terms.
In recent times, a new concept emerges, Ethical consumption. According to Wikipedia, Ethical consumerism is the intentional purchase of products and services that the customer considers to be made ethically. Ethical consumerism is practiced through ‘positive buying’ in that ethical products are favored, or ‘moral boycott’, that is negative purchasing and company-based purchasing. Corporations favors “ethical consumption’ very much. They tried to present this concept as democratic one. The idea that consumers will vote through their pounds to decide on which product to favor is an undemocratic one. This concept assumes that only who are empowered with purchasing power can only vote. What about the poor who don’t have the purchasing power? They can’t vote as they are not consumers. Is it fair enough? They can vote for necessary goods that are crucial for their existence because they don’t have a bulky wallet. In fact, this concept of “Ethical Consumption” lets the firm to off the hook. It allows them to pass on the responsibility to consumers.
So, what is the bottom line? Capitalism can’t safeguard the effective and equitable allocation of resources, but they are better at it than communism. And being better is not good enough. Any modern economic system must provide enough mechanism to ensure basic needs of all the citizen of the society. And only relying on interaction of market forces lets it to go imbalanced. Both ‘central planning of socialism’ and ‘consumer preference of capitalism’ have proved to be failure. We better stick to a mixed solution which enforces legal regulation along with customer preference.
Tags: capitalism, consumer power, market