Free Market Solution To Detergent Pollution

The following was part of an exchange on greenbuilding@crest.org in 1998 in response to the following request from Seth Melchert:

To better illustrate your various positions, can we do an online charrette?

Take the laundry detergent we were discussing some weeks back (it came as part of the thread on laundry discs). It was noted from laboratory studies that the actual amount of detergent needed to effectivly clean a load of laundry was a couple of tablespoons. This independent information is contrary to everything we see on the boxes and on commercials, where we see cupfuls being dumped in. I would hazard to guess that the companies know full well that they recommend excess servings, but that it enhances their profitability. (This would go along with images of toothpaste, shaving cream and shampoo). Furthermore, this is an environmentally-damaging situation, both in terms of manufacture (resource-consumption and pollution) and use (pollution). (Let’s leave out the additional issues of the public’s wasted wealth on the unneeded purchases for simplicity.)

OK, how does a free market effectively reduce or eliminate these wastes and pollution? How would a public’s value system change this? Whoprovides the revealing information that the advertisers are wrong?  In other words, folks, can you use this extant situation to illustrate your respective positions?

FREE MARKET SOLUTION TO DETERGENT POLLUTION

Seth,

There is an unstated presumption in the outline of your charrette of an evil conspiracy by the detergent industry to get us all to use way too much unnecessary product.  I’d be very surprised if this were the case. But as we know from the oil industry and are seeing in the tobacco trials, once free markets are compromised by monopoly practice, all sorts of things are possible. Personally, I’d want to see more than one study before I jump to such conclusions, but I will experiment with less detergent in the next load of laundry this weekend.

For arguments sake, lets presume the research is correct and a couple spoons full would do the trick. Here’s my naive simple minded approach.

The first question: where is the leverage to intervene in the system most effectively:

a) As a consumer: not much leverage there except on a personal level.

b) As a government regulator: After years of study and debate you could promulgate regulations dictating everything from the formulation of detergent and the labeling on the box, to how and where advertising is permissible. (we don’t want impressionable young kids exposed to those habit forming detergent commercials) When all is said in done, even if the well intentioned goals are somewhat forwarded, the prices will be higher for everyone and future creativity and innovation in the industry will be stifled.

c) As a consumer advocate or environmental alarmist: You may get a bunch of people angry, make a name for yourself and help some lawyers get rich. The best possible practical outcome toward a solution would be to enable a government regulator (see b above), after adding even more unnecessary costs for the consumer in paying off the legal settlements in every teaspoon of detergent.

d) As a detergent manufacturer: You have the knowledge, resources, distribution and marketing systems and the profit motive to quickly and easily impact the system in a major and positive way.  If creative, you can dramatically bring down consumer costs by revealing “the true secrets to bright white laundry” that have been hidden for years by a Neanderthal and inefficient industry. (Any company large enough to manipulate the type of monopolistic conspiracy that you are presuming, will also be bloated, bureaucratic and ripe for a gorilla attack by a shrewd and nimble competitor.)

To effect a real solution, I would first choose to be an player with leverage. (The  answer to the quiz is D).

So, If I were a detergent manufacturer (and I didn’t have a monopoly), I would try to grab market share by publicizing the hell out of my new miracle detergent that makes clothes whiter and brighter with just a couple spoons full. To avoid Ralph Nader’s lawyers and the truth in advertising bureaucrats, I’d probably change some inert ingredient so it really was a new formula. But I wouldn’t feel at all ethically burdened  putting the same old stuff in a new box. Just by changing the directions on the cover, it lasts ten times as long for only twice the price. (sure I’d raise the price to whatever the market will bear) Five times more value for my customers than my leading competitors, and I am going to clean up on profits. Who could have ever imagined, that just by being honest, I could garnish five or ten times the profit margins selling a lowly commodity item like soap, that Intel makes on selling microprocessors. (See what I mean about the presumption of this whole charrette being  a little unlikely. It is fun though)

When competitors respond with similar advertising and a price war, I’ll call their bluff and raise the ante. Let the price wars begin. There’s surely plenty of room to drop prices in this scenario.

Of course you might argue this would eventually spiral profits down to unsustainable levels, driving everyone out of business. Perhaps, I doubt it, and it’s all in the plan.

I’ll create a cash war chest derived from preemptively “right-sizing” my operation to match the reduced demand, and beating the competition by months or likely years in the new marketing paradigm (Huge companies that enter conspiratorial collusions aren’t real fast on their feet. They’d have to do studies and hire consultants and try to sue me before they hit on a strategy  like actually competing with me). I’d pour money into R & D in order find a way to add truly unique value in my product or delivery system, so as to beat the competition at the next level of the game. In the end I know the efficient producers of the best products will win. “Winning”, by being a smart and honest player won’t enable me to vanquish my competitors, it’s what I have to do just to stay in the game.

If detergent is truly effective at low quantities, eventually at least a few players will match their production costs to the lowest sustainable pricing levels for the most efficient products they can make. When the air clears and the price wars are over, we’ll all have new expectations about laundry soap and less pollution in our rivers and steams.

Seth, I don’t know anything about the detergent business, but I would suspect this scenario is being played out constantly, unless the whole industry is reduced to only one or two monopolistic enterprises putting out supposedly “competing products” under different brand names and fixing prices. If this is the case, and it’s really true that only a little dab will do ya, real detergent executives should be putting help wanted ads in Sunday’s paper under “lawyer”, because it won’t be long before Janet Reno will be knocking on their doors.

Alas, there is a legitimate role for government in my simple world. I might even propose that the government break up every company that grows to more than about a hundred or two hundred employees. Sure, that’s kind of arbitrary, but government can set the rules of the game to match whatever we value as a society.  Personally I think it’s a fairer, more interesting and more creative game with lots of small players. Two hundred employees should be more than enough to generate all the excitement and profit any reasonable person could wish for.

The issues and problems we are concerned with are often more a matter of scale than of systems or technology. (any ideas on the details for such a law?)

In my every day world, I do know well the brutally competitive pressures of the building industry with its thousands of independent companies.  I do some fairly presentable marketing and advertising. I’ve made enough money selling to know I’m a decent salesman. Yet I have a real hard time convincing my customers to pay unreasonable prices or do wasteful and foolish things. (except of course for the unreasonable things mandated by the building code)

If your underlying presumption is true, how about this year we all skip sending contributions to the Sierra Club, Earth First and all the other alarmist do-gooders. Rather than funding more sermons for the choir and lobbyists drafting complicated unproductive or counter productive mandates, instead let’s start an investment fund. We’ll buy a detergent manufacturing company and do something effective about the problem. Wouldn’t our money better be spent on such a practical and radical act. With the profits from our detergent venture we can tackle the next problem on your list.

Why am I such a nut on these foolish ideals of liberty, freedom and enterprise?  I got a degree in environmental studies and thought about being a government regulator or one of those clean up guys that charges folks a fortune to take polluted dirt out of one hole and move it to another hole. But those careers seemed really futile and boring. So I spent several years working for nonprofit government funded community action agencies doing energy conservation and other good work for low income folks, but the inefficiency and rampant corruption were disheartening. I tried the academic scene for about a year but found the pace such that I constantly had to check my pulse to make sure I was still alive. I was active in the protest scene for many years and just burned out because the constant negativism had me involved in so many problems but no solutions. When I was twenty three, I even tried standing in front of factory gates handing out “For The People”, a local communist party newspaper. That lasted until I slowed down long enough to actually think about what I was reading in the foolish things. Eventually I decided that the most radical, progressive, creative and environmentally friendly work I could do would be growing food or building houses (or making detergent) in a positive way. Then it was simply a matter of finding something fun to do.

I got a nice E-mail the other day from Vicky Hayes who mentioned she was “going over” to the private sector after twenty years in government. For her and others like her, I can only say: go for it. It’s fun. It’s exciting. It’s scary as hell some times. Like life itself, it is very imperfect. And it’s even more addictive than this darn greenbuilder list.  For those that haven’t tried it, you really should. Let us know how it goes.

As for Mikes comment that “Markets know the price of everything and the value of nothing”. That is exactly as it should be.

Ideals without action are meaningless. They have no value. The market place is the primary arena where we as human beings get to act on our ideals.  Its is only by being a player in the game that our ideals become relevant. Though the market knows no value, it is a wonderful vehicle that enables us to create value from our ideals and imagination.

Seth, thanks for the charrette.

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Filed under Best Stuff, Economic Policy, Environmentalism, Fundamental Perspectives, Old Stuff

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