There is an economic rule called the Utility Maximization Model. It is founded on some assumptions about our economic interactions, including that we all have less resources than we might need (there are some notable exceptions such as Bill Gates, Jeff Bezos, Warren Buffet and more, but all of us in a general sense). Because our resources are limited, products and services will compete for the attention of our dollars. Of course, we have all learned in a COVID-19/Wuhan/SARS-CoV-2 environment that sometimes the market can also ignore us a bit in certain instances.
I was reminded of that when an advertisement struck me one morning recently during my walk. I listen to a music application on my phone as I walk, and have learned to mostly tune out the advertisements. But, an ad for a very well-known bath tissue company caught my attention. It was bragging about its perceived competitive advantages over other tissues and the resulting professed value this brand offered the consumer. I laughed out loud at the ad because, at that time, the store shelves were persistently bare of any brand, type, or description of bath tissue. I am sure that they had purchased that ad spot many months before, but the irony was palpable.
The ad illustrates how marketers strive to appeal to our drive for utility maximization. They describe to us how their service or product will be of value to us, and/or will appeal to our values. We all want our needs met by a purchase. Additionally, though, we may be willing to have a somewhat less comfortable bath tissue if we believe some brand is more socially responsible, environmentally friendly, or otherwise consistent with our personal belief systems. That we perceive emotional, as well as utilitarian, appeals to products is nothing new.
One very small study (420 surveyed) led Clutch.com to conclude that customers and potential customers find companies' social issue stance important. Significant majorities in that survey supported that those "corporate social responsibility" or "CSR" positions affected their decisions. Some contend that such CSR is gaining influence over purchasing decisions; others contend that these perceptions matter "more than price." Thus, there is a resurgence of the idea that emotional engagement with a merchant may lead to commercial interaction.
There is also evidence to support that CSR must be sincere in order to be effective with consumers. Sciencedirect.com contends that "CSR activities improve a company's image when consumers attribute sincere motives." Thus, if consumers conclude that CSR is not genuinely about values or company culture, but about attracting sales, then the results are not as positive. The purchaser's accepted price point can be higher if there is the belief that the CSR is genuine as opposed to window dressing.
Over the decades, we have periodically been encouraged to "Buy American." The Business Insider says that "historically these initiatives have worked." That author believes our initial instance of this was in colonial times when our forebears eschewed British goods in favor of domestically produced alternatives. When we evolved into a conflict with the British, the argument is that Americans "realized pretty quickly the dependence we had on" both the British and their goods. Thus, purportedly, began the "buy American" tradition.
Thus, there was and remains a drive for domestic production and competition. Some do not perceive buying American as positive. One writer in the Washington Post asserts that "Buy American" is historically racist. She claims that this is true "especially against Asians and Asian Americans." There is the potential for CSR not attributable only to a company of origin, but even a country of origin. Should we buy products from a country whose social responsibility does not align with our own? It is possible that some consumers may ask whether some "made in" country is aligned with their values when making a utility maximization decision purchase. Is doing so "racist" or merely an extension of the value-driven analysis of CSR?
In recent weeks, we have heard reports of interruption in the flow to America of manufactured goods. According to CNN, supplies of face masks slowed in March 2020. American distributors noted that Chinese manufacturers had not "shipped any new stock in two months." They were, perhaps, favoring delivery to their domestic customers? This might be about the Chinese pandemic writ large. It might also be a comparative advantage issue regarding price (if you can sell your inventory for a similar price outside your factory door, without shipping expense, is it rational to ship products thousands of miles for the same or even similar pricing?). Companies often tend to be about return on investment, numbers-driven, and less focused on the big pictures.
The draw of foreign manufacturing may be various perceptions. Some see the trend to "offshore" jobs as belonging to the 1980s. The Harvard Business Review provided an overview of instances in which American companies made "direct investment(s)" in foreign markets that decade, seeking lower wage rates and thus lower product costs. That analysis recites as justification the desire to compete here with products produced by foreign companies on foreign soil, the "imports." It notes that some perceived then that the offshoring of jobs for the production of components or a complete process was "the only way to compete with inexpensive, high-quality imports."
According to Voice of America (VOA), China was producing about half of the world's mask volume prior to the COVID-19/Wuhan/SARS-CoV-2 virus spreading around the globe. There have been allegations that while China and the World Health Organization (WHO) minimized COVID's effect and threat early in the virus' development, that China also bought existing mask inventories that were shipped back to China from places like the United States. The Daily Mail contends that billions of masks were obtained by China in the early days of this virus.
In September 2019, before the news of COVID-19/Wuhan/SARS-CoV-2 reached U.S. shores, NBC News reported that the offshoring of some manufacturing was seen as a "worrying" by "American national security officials." The article claims that "the vast majority of key ingredients for drugs that many Americans rely on are manufactured abroad, mostly in China." The implication was that American's access to necessary and safe medication could be subject to tampering and medication could even be "weaponize(d)." Current claims regarding what percentage of American medication is dependent upon China or other foreign manufacturers have been the subject of some debate, as argued by Reason.com.
When manufacturing is local, access to goods is enhanced. When manufacturing is local, it is likely that the cost of labor involved in production is also enhanced. That may change with the advent of robotics and artificial intelligence. Those implications are discussed in Tech is Changing Work. It is possible that the technology influence alone will encourage on-shoring of production. The implications of that on foreign labor markets may be immense. And, there is the potential that there will be less than a one-to-one ratio between offshore jobs lost and onshore jobs gained, secondary to the onshore implementation of technology encouraged by the onshore labor cost differential.
In the coming days, Americans will return to work in large numbers and the economy will return to growth. There will undoubtedly be lingering effects of the COVID-19/Wuhan/SARS-CoV-2. There are likely to be tendencies to forego the purchase of non-necessities. Consumer confidence is likely to be bruised as individuals and families restock and re-save. But, consumers will return to the market and make purchases. A primary question will be whether they will do so with an eye toward something bigger than their individual utility maximization. Will perceptions of responsibility influence those decisions regarding nationality in the way they have been demonstrated in corporate culture?
It is possible that the mask shortage example will have illustrated to Americans that there is value in having manufacturing facilities in America. Perhaps when they see two products on a shelf, one "made in China" and the other "Made in America," they will select the second despite a notably higher price. There may be recognition that the responsible thing to do is to support those American-based manufacturing efforts and the jobs that they support. Perhaps the larger issue of supporting manufacturing here, and the greater economic good of that support, will appeal to purchasers?
It is possible that such focus may come from patriotism. It is perhaps more likely to come as regards perceptions of critical manufacturing such as the face masks or the pharmaceuticals. In the end, there is stability, predictability, and security in having a strong domestic manufacturing base. That comes at a price but is of value nonetheless. This is not in any way "against" China or the Chinese people. This is a recognition that domestic production has an intrinsic value that benefits our society and people.
It is possible that in the short term, Americans will buy American in a broad context, whether by patriotism or feelings of responsibility. It will be interesting, however, to see how long such a trend might continue as the memory of mask shortages and shipping delays fades from prominence into our collective ambivalence. Will we (can we) maintain a focus on the national social responsibility and the values our purchases support (or not)? Or, will we convince ourselves that support for our national well-being is somehow racist or otherwise inappropriate?
Interesting times lie ahead as we exit quarantine and lockdown. There will be much studied in this pandemic, both in science and beyond. How economic reality changes will be a significant curiosity over years to come.
