What the Communists did wrong - BD March 2000

If Karl Marx had been able to use modern branding strategies to create a demand and acceptance for his political system, it might have stood a greater chance of success. It failed because other brands (e.g. the market system) were more appealing to the bulk of its users, and also it never succeeded in generating viable economic benefits. A sure sign of the weakness of the ideology is the communist solution to unemployment. This is to build factories and produce more tractors. That, apparently, reduces the unemployment statistics but it also results in a lot of unused tractors. Occasionally, we hear our local radical socialists claiming that the way to full employment is for government to build more factories. They follow the doctrine of economic growth resulting from full employment, not the other way round.

What would these factories produce? Well, newly employed factory workers could make spades and shovels in them for other out of work people to use to dig ditches. Yet more unemployed labourers could then fill in the earth that the others have dug out. The problem with this approach, as economists will be quick to point out, is that this process ignores the rules of supply and demand. Economic systems work best when there is a consumer demand for what the factory produces. There’s not much demand for ditches that appear one day and vanish the next.

Not that there always has to be an existing demand for a new product to succeed. Elisha Otis’ elevator, George Biro’s disposable ballpoint pen and Percy Le Baron Spencer’s microwave oven are examples of innovations that have made markets rather than satisfied existing ones. Brands emerge from innovations so that consumers can easily distinguish the imitators and variations that soon hit the shelves. They act as anchors for stored knowledge about brands that allow preferences and dislikes to be recorded and recalled.

Branding has grown in developed free enterprise countries as a natural response to the consumers’ need for reliability and quality. It used to be thought that branding applied only to fast moving consumer goods, motor vehicles and appliances. This fallacy was finally buried last year when De Beers announced that it would be laser cutting its brand name on its diamonds sold through retailers. More surprising is Gold Fields, the South African world leader in mining the yellow metal, saying that it would be branding its product. De Beers expects to benefit from the typical consumer response to successful branding: that they will be willing to pay a price premium for the reputation of reliability and quality, built up over many decades and which now is etched into the diamond they have bought. This will translate into higher sales and greater profitability. Gold Fields will expect similar style returns from their branding policy.

The difference between what the socialists want to do and what branding actually achieves is a shift in emphasis from investing in fixed assets to focusing on the economic benefits that flow from the assets. Rather than build factories to provide work for the unemployed, branding and brand building creates demand that is fulfilled by the development of production facilities. That’s why the possibility of strong economic growth, currently being predicted, is so encouraging. Certainly it will not solve the unemployment problem over night, but as it stimulates entrepreneurs, small and big companies to innovate and create new brands, the work will follow. You only have to look at the American and British economies right now to see evidence of this. Creating jobs by building factories or digging ditches is tragically short term because it is unsustainable. Brands, on the other hand, can be forever.