Sunday, January 03, 2010

Getting the Price Right

Getting the Price Right: The Transformative Value of Associative Economics

“The Price is Right” is one of the longest running television game shows in the relatively short history of the medium. The show’s capacity to draw audiences, I assume, is based upon the viewer’s pride in knowing the MSRP [manufacturer’s suggested retail price] of everything, and then seeing if the contestants know it too. The show capitalizes one of the essential functions of television in that products that might normally be advertised for a hefty fee are instead featured as the content and focus of the program itself. Talk about product placement! Viewers are turned into vicarious contestants, their consumer-selves tantalized and tested. Forget that assumptions about what constitutes the right price—how it was derived, what it represents, its turnkey effect in the economy—are subsumed in the afterglow of consumer desire to acquire.

Given that the program was first broadcast in 1956, it would seem that its producers took quite seriously the following dictum from the Art Directors Club Annual No. 34 of 1955: “It is now the business of advertising to manufacture customers in the comfort of their own homes.” That defined a profound intention for commerce in the emergent medium of TV. I think it is fair to say that fifty-four years later that intention has transformed culture and extended its reach into the depths of identity formation. For a consumer culture, price is queen, not just for a day, but every day.

A manufacturer’s suggested retail price, finding its source in the capitalist maxim of charging what the traffic will bear, is designed to play on the conditioned desires of the consumer. It is a positioning game-show in and of itself for which the latest manifestation is the technology driven idea of “dynamic pricing.” This behaviorist approach to price setting is charged with the need for sales, profit, and shareholder benefit. As a consequence, it tends to be devoid of concern for the costs or consequences to human and natural ecological systems.

What if, instead of being a unilaterally manipulated mystery, price setting became a social process that took into account ecological stewardship and all the needs of the people affected by it? What if a price actually could be tied to the true costs of an object’s production and distribution—including real wages, environmental restoration and other constructive supply chain practices? What might this associative price-setting process look like and how would it practiced?

One functioning and accessible example can be found in Community Supported Agriculture [CSA]. Though CSA now refers to a wide range of financial arrangements between eaters (consumers) and farmers, it originated in Europe in the context of biodynamic farming. Further, it is significant that both the farming and the economics of it were based upon Rudolf Steiner’s insights and share a set of deep core values about the presence and purpose of spirit in our practical activities. In its archetypal form, a CSA is an association created between an enterprising farmer and a community that is committed to supporting the farmer in his or her vocation, with the production and distribution of food to the “shareholders” during the growing season a by-product of the relationship. Digging into the assumptions lodged in this statement unearths some radical concepts about farming as a livelihood that are in many ways diametrically opposed to the way most of our food reaches our tables. First and foremost in the association, there is a direct and personal relationship between the farmer and the eater. Second (and central to this article), the annual (not seasonal) share price is set by the association in conversation over the needs of the farm and farmer. The budgetary outcome is to be able to maintain and develop the farm, to take care of the farmer’s personal needs like health insurance, and also cover the costs of producing, harvesting and transporting the food. The math is simple: if the total budget is $100,000 for the year and the farmer can grow enough food for 100 shares, the share is $1,000. The association can take this an additional step and ask if some members could pay more so that some could pay less. The result is that the farmer is no longer at the whim or mercy of the marketplace. There are no distributor costs added; in fact, there are absolutely no externalized costs anywhere in the system.

What is created as well is that the association serves as a community of shared risk. If there is a drought and no food can be produced in any given season, the farmer will still have the income to carry on and prepare for the next season. This is an innovative picture of sustainability in which the eater/consumer is not paying for the food, but rather providing support for the farmer so that she can both steward the fertility of the soil and grow the food. Price and pricing are no mystery in this model. Instead the price is both right and real—the result of transparency, social engagement, long-term relationship, and the collaborative process called association.

CSA is a working successful example, and the model is transportable to other arenas in which there is an entrepreneur who can provide products or services for a community. Mutuality is at the heart of the practice, and price serves everyone’s needs, not just the manufacturer. The deep value structure in associative pricing is that as we become more effective in meeting real human needs through economic activity, the benefits of that activity will be equitable. It is appropriate to mention the rise of cooperative business practices and the rapid growth of fair trade, among other innovations, as further indicators of a fundamental shift toward a more associative view. Though differing in corporate structure, they represent multi-stakeholder community-based visions. They share the challenges of scalability and have had some successes, while recognizing the primacy of human values as essential to healthy economies. I would ask: What are the limits of community and enterprise working in association? And, what are the long-term consequences of not getting the price right? I am 99 44/100% sure that associative economic practices could transform the way the world works with money.

© John Bloom, 2009