Pro Logo
By Alex Singleton | 24 February 2005
Imagine a socialist country where there is a single, state-owned producer of cola. It would be claimed that this market is better than the capitalist system of cola production. Instead of consumers being exploited by brands, they would receive cola sold at the cost of production: the poor would benefit. The product being produced would be superior to that produced by the capitalist economy as the ingredients would not be decided purely according to financial gain, but by a council of nutritional experts who would work in the best interests of consumers to produce a healthy product.
Of course, the idea that cola would be better produced in this sort of an economy is nonsense. For a start, I like the taste of Dr Pepper and find Diet Coke watery. The market provides different types of product for different consumers.
A single state producer of cola would not have to compete in a marketplace and therefore there would be no incentive to provide exactly what consumers want. Instead, as happens time and time again in the state sector, the forces of political correctness would capture it, producing what government thinks consumers should be drinking.
Cola would be of the 'diet' variety and without caffeine: both supposedly in the public interest. University lecturers would appear on Newsnight supporting the government's virtuous work in reducing obesity. As for the claim that without brands cola would be cheaper, this is an absurd fallacy. Brands have to compete against one another in a marketplace. If a can of Dr Pepper doubled in price, I would move to Pepsi. But, moreover, in the world of brands, there are economy brands. Safeway and Tesco produce their own colas, each cheaper than the main brands - and, I would contend, cheaper than the state could produce.
A state cola manufacturer would be inefficient, shielded from the rigours of marketplace. Costs of production are not fixed: brands in the marketplace have a duty to shareholders to keep costs down and are forced by market forces to keep their prices down. In the market, consumers snub products they do not like, as has happened with Virgin Cola. Brands also help guide those who do not normally buy in a certain market to know what is a safe bet: when buying trainers, a person can learn that while brand X are fashionable they also fall to bits - without conducting major market research.
One of the most unhelpful theories taught in basic economics courses is the notion of perfect competition, which has been captured by anti-capitalists to attack capitalism. They argue that brands are anti-market because they prevent perfect competition, a state where products are identical and where companies can only make 'normal' profits, whatever they are.
However, there is no such thing really as perfect competition, nor would it be desirable. In markets, different firms compete not only on price, but also on image and quality. In the car industry, the cars from Peugeot, Ford and Rover compete, but the products are not homogeneous. Consumers are made better off by this lack of sameness: manufacturers add new features and better designs in an attempt to lure custom, leading to ever improving products. In short, the perfect competition model is wrong because it oversimplifies how the market works. Ludwig von Mises, founder of the neo-Austrian school, would no doubt describe the model as "two hypothetical curves."
Add to this the fact that brands help consumers make choices about which products to buy. I know that if I buy cakes from Tesco, they will be of a high quality. I may end up spending more than buying from Mrs Globbin's shop, but I am paying for the peace of mind. When I see a can of Dr Pepper for sale, I know it is a product I enjoy and can trust.
What the "no logo" lobby fails to understand is that brands have to maintain high standards otherwise their image suffers. If a customer found glass in a can of cola, that brand would suffer massive negative publicity, lots of column inches, and a decrease in custom. The profit motive means that producers have to provide what customers want; otherwise their brands will not get repeat custom.
Adam Smith was spot on way back in 1776 when he said that self-interest on the part of the producer makes producers "as if by an invisible hand" produce good products. State-owned producers and anonymous, unbranded products do not have to be as responsive to consumers. If I buy an unbranded pair of trainers and do not like them, I will not know which manufacturer to avoid next time. Brands - and logos - help us make good choices.