The power of informed consumers

November 10, 2017

 

It often feels like the balance of power between consumers and business is frustratingly lopsided. We're constantly being sold things we don't need by sophisticated marketing departments that exploit our lapses of judgment, our legitimate concerns about health and safety, and our craving for status. But if you've ever seen a company scramble to respond to customer complaints, you start to realize the incredible power that consumers wield over large organizations.

 

As the creators of Spider-Man would say, with great power comes great responsibility. Consumers of all stripes have the ability to shape the way companies source inputs, produce their wares, and treat their workers and surrounding communities. The power of informed consumers is vast, if only we realize it. 

 

This is not to say that it's necessarily easy to be an informed consumer. Making buying decisions is hard at the best of times. We have to weigh convenience, price and perceptions of product quality amid a sea of options. The paradox of choice can be paralyzing. Trying to evaluate how ethical a company is on top of all that often just seems like too much work. It's also not always even clear what exactly it means for a company to be "ethical." Are we talking about the company's respect for the environment? Its relationship with its workers, or local communities? All of the above? It can be tough to delve into these issues. And finally, given the complexity of modern economies, it's often hard to link stages in the production process with a final product, which may not even bear the same name as the parent company. 

 

NGOs play a vital role in bridging this information gap. Until I spent time in the NGO world, I vastly underappreciated the role they play. Put simply, they research these issues so we don't have to. NGOs put pressure on businesses to act in a sustainable fashion, and on governments to penalize companies who flout local and national laws. As you might guess from someone who writes a blog on investing & finance, I don't think NGOs always get it right. Palm oil is a great example of this thorny issue (and indeed the complexity of being an informed consumer). Palm oil is an edible vegetable oil that has many uses in food, cosmetics and household products. Yet its spread has also been linked with rapid deforestation, particularly in South-east Asia. This isn't just about concern for tropical flora and fauna. Forests store large amounts of carbon, and are stunningly undervalued assets in the fight against climate change. Protecting them, therefore, is vital. But NGOs that call on consumers to boycott palm oil have got it wrong on several dimensions. First, the high oil content of oil palm means that switching to other edible oils could actually require a larger land footprint. Second, it's easy to forget that oil palm cultivation brings economic benefits to communities. As with all economic development, the trade-offs aren't always straightforward.

 

Consumers play a vital role in sorting this out. By being curious about where products come from (and where they go after we use them), we can strike a middle ground between indifferent consumption and a reflexive anti-business stance. Frankly, it's also a fun way to learn about the economy. But as consumers, we need help. So we should demand more information from companies, more nuanced analysis from NGOs and smarter regulation from governments. The answer, I think, is that consumers, local communities, NGOs, business and governments operate in an ecosystem whose moral arc is long but (hopefully) bends towards getting the balance right over time. That's a lot of different constituencies to please, but as Abraham Joshua Heschel said, in a free society, some are guilty, but all are responsible. 

 

I've focused primarily on physical products here, but these arguments apply equally to the services we consume. Curiously, despite knowing the investment management industry relatively well, I've only written about the ethics of investing in a sporadic manner. Time permitting, I hope that will change in the coming year as I try to grapple with the complexity of being a responsible investor in today's world. Stay tuned. 

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