Tuesday, December 18, 2007

The High Cost of Low Pricing

- "Lowest Price Guaranteed."
- "Buy Low"
- "Cheapest in Town"

Banners like these attract large segments of society, even the rich. Who does not want to pay less for more stuff. Who does not window shop for the best bargains available? Indeed, we are often quick to latch onto any good offers. Unfortunately, many first world consumers do not look beyond the price tag. They simply do not question much on why the price for the product can be so low in the first place. How can a product be so cheap? So dirt-cheap? With inflation rising every year, how is it then possible that prices are able to come down? Can it be simply explained through a supply-demand equation?

Vincent Gallagher brings to our attention that there is more than meets the eye. Calling the true cost of low price as due to the violence from globalization, he points out that:

"Low prices that benefit first-world consumers often put the poor at even greater risk. As transnational corporations continually try to increase profits by reducing costs, laborers in Latin America, Asia, Africa, or here in the US, work long hours but are still poor, hungry and subject to abuse." (Vincent Gallagher, True Cost of Low Prices)

In the film "Manufactured Landscapes", the cost of low price is brought home in a big way when the various scenes were flashed. Lowly paid workers do their jobs in conditions that are extremely dangerous. No visors were used when welding. No safety belts when painting at high altitudes. No footwear when working in grimy toxic environments. The list goes on. I ask, what if the first world manufacturers were to insist that their third world business partners adopt safety practices acceptable to first world standards? To the big public-listed producers, will they be prepared to endure the wrath of shareholders, when the costs of production goes up? For the middle-man, the distributors of products, are they prepared to help share the additional cost of safety requirements, or would they rather pass the costs down to consumers? For the consumer, are they prepared to pay more than 3 times what they are paying now? Even if Producer A decides to sanction safety rules, will other producers B and C take advantage of Producer A's ethically right moves? It is much too tempting for another competitor to fill the gap. If A decides to charge consumers higher due to ethically correct moves, will B's decision to continue ethically wrong practices be rewarded when customers flock to buy B's products in the name of lower costs? Through consumer behaviour, producers are financially rewarded for ethical poverty! After all, many consumers buy on price alone. Globalization in this sense puts the powerful in control, at the expense of the poor and weak.

Consumers have become hypnotized by lower prices, that they will go all out to buy anything based on price alone. "Low pricing" is like drugs. It is addictive. That is why when we see a supposedly cheap product, we must have eyes that see beyond the price tag. If a product cost $50 and is sold for $5, then $45 must have been absorbed somewhere else. Who do we expect to absorb? The rich or the poor? Gallagher witnessed first hand the following cases:

  • workers lose fingers and hands when protective shields are taken off machines to increase productivity.
  • Buildings can be constructed more quickly if fall protection is not implemented.
  • Food processing equipment can be cleaned more quickly if it is not shut down and the power locked out. If kept running without protective guards, it can be easily sprayed and cleaned, even though cleaners risk having their hands chopped off
  • Hundreds of deaths due to asbestos inhalation leading to ling disease because companies save on safety masks
(Vincent A Gallagher, The True Cost of Low Prices, Orbis Books, 2006, p2-3)

Gallagher tells a compelling story shared by Hasidic rabbi Levi Yitshal from Ukraine. It is so powerful that I will quote verbatim.
The rabbit visited the owner of a tavern. Two peasants were at a table. They were drinking with reckless abandon with arms around each other saying how much they loved each other. Ivan said to Peter: "Peter, tell me what hurts me?" Weary-eyed Peter looked at Ivan: "How do I know what hurts you?" Ivan's answer was swift: "If you don't know what hurts me, how can you say you love me?"
[Donald H Dunson, No Room at the Table: Earth's Most Vulnerable Children (Maryknoll, NY: Orbis, 2003, 25]

Indeed, we need to love God and neighbour through merciful and thoughtful spending or not spending. Whenever we buy a low price product, ask who is actually paying the actual costs. Are we buying cheap at the expense of the poor? Have we noticed that low price for the consumer does not mean low price for all?

Like cages full of birds, their houses are full of deceit; they have become rich and powerful and have grown fat and sleek.
Their evil deeds have no limit; they do not plead the case of the fatherless to win it, they do not defend the rights of the poor.

Should I not punish them for this?" declares the LORD.
"Should I not avenge myself on such a nation as this?
(Jeremiah 5:17-19)

Example: The Walmart Story documentary. An indicting film about one of the world's largest corporations that build its success on one factor - low prices. Why? Because consumers asked for it.

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