In the days and weeks following the demise of the Berlin Wall near the end of 1989, West Germans saw a most curious sight: East German residents, finally able to travel a bit, flooded western streets and roads with Wartburgs and Trabants. Like so many vehicles built in Eastern Europe and the Soviet Union during the days of communism, they were a throwback to earlier days of the post-war European automobile.
The Wartburgs and Trabants were especially items of curiosity. They had three-cylinder, two-stroke engines that produced large amounts of both exhaust smoke and noise, and East Germans that wanted one waited an average of 12-15 years for delivery. As one might expect, the cars were boxy, slow, not very comfortable, and prone to breaking down, but in East Germany in 1989, at least they were not obsolete. It was a different story in the West, as these kinds of cars long ago had been “replaced” by vehicles that performed far better than their communist-produced counterparts.
Socialists and critics of the market claim that one of the evils of capitalism is that it promotes “planned obsolescence,” which, according to the AFP news site, “is a widely criticized commercial practice in which manufacturers build in the expiry of their products so that consumers will be forced to replace them.” The idea behind it is simple, logical – and mostly wrong.
People who believe in planned obsolescence as a tool to “force” consumers to replace current models by purchasing new ones seem to embrace the belief that the only reason a firm introduces new features to their products over time would be to make current models unusable within a short time. For example, many of us have purchased laptop computers knowing that in less than a year, the next models will have new features or will perform better than the one we have just purchased. In less than a year, we will have a choice either to hang on to what we already have — at least for a while — or to buy a new machine.
There are many reasons for companies to be in constant development mode — and they are not nefarious, despite what leftist critics might claim. Unfortunately, sometimes wrong-headed accusations can lead to serious consequences.
Apple recently admitted that it had “intentionally slowed” some of its older iPhone models, ostensibly to “encourage” people to purchase new products. In response, prosecutors in Paris have begun a probe into Apple to see if the company’s actions warrant charges and even criminal prosecutions of some of its executives. However, as one website explains, the reason for the slowdown was technical, not commercial:
By now you’ve probably heard that Apple has intentionally slowed down iPhones, just as some conspiracy theorists have been saying for all those years. It’s true, and Apple admitted as much. But the company isn’t slowing down iPhones to convince you to switch to a newer model. Instead, it’s to prevent unexpected shutdowns on older devices operating at peak power. Although yes, I will agree that some people may simply decide to upgrade their iPhones to a better model rather than deal with a slower device.
In fact, Apple even has made a newer battery available to users of older iPhones, and at $29, it is considerably cheaper than a new phone. Nonetheless, the accusations of Apple “planning” to make the older phones obsolete in order to bring about new sales continues, just as Ralph Nader more than 50 years ago accused U.S. automakers of “planned obsolescence” in order to “force” Americans to have to buy new cars.
Not surprisingly, economic analysis does answer questions thrown out by those convinced (or trying to convince the rest of us) that capitalism not only is wasteful, along with being built upon racism and slavery, but also that it results in the creation of inferior goods that people would not purchase on their own if conniving capitalists didn’t force them into the bargain. The first counter explanation comes from economists Armen Alchian and William Allen, who noted that “planned obsolescence” for the sake of bringing about new sales would be a self-defeating policy.
Pointing to financial analysis, the authors wrote in their text Exchange and Production: Competition, Coordination, and Control that a depressed resale value of a good will result in a lower price for a new good. Quick depreciation of a good means that its price, or, in finance terms, “present value,” will be lower than it would if the projected resale price of the good were higher. In other words, producers that simply switched out component parts or make sure their product would lose its usefulness quickly not only would lose profitability on the front end of a sale, but then risk losing customers to firms making products that last longer.
Nader’s accusations notwithstanding, if planned obsolescence indeed were the goal of auto companies, then cars today would not be lasting considerably longer than they did a half-century ago and they would perform even more poorly than they did before. In the 1960s, it was the rare automobile that could go even 100,000 miles without major repairs. I learned to drive in 1969 in a 1967 Pontiac Tempest, which had a three-speed Hurst shift on the floor and a four-barrel carburetor. (It wasn’t a GTO, but was fun to drive.)
We managed to get about 100,000 miles out of it, but that involved rebuilding the engine twice and doing a host of other major repairs. Contrast that with the 2002 Honda Odyssey van I drove until last summer. It had nearly 330,000 miles with no major repairs either to the engine or transmission. I’d still be driving it had my youngest daughter not bent the frame when she hit a deer on our road.
I am sure that the leaders of Honda would have loved for me to purchase a new Honda sooner, but if the so-called doctrine of “Planned Obsolescence” is to be believed, then it would seem that over time, Honda and other automakers would be making cars that would continue to break down before reaching 100,000 miles. Instead, car owners expect their vehicles to last well beyond 100,000 miles and for some automobiles, such as Volvo, longevity is part of the selling point. Not surprisingly, cars such as Volvo and BMW, which are expected to perform well for many years, sell at higher prices than do other automobiles.
(We realize that a GM car which has less life expectancy than a Volvo is not a perfect substitute for such a vehicle, and Volvos come with features that are not easily found in most GM or Ford automobiles or the cheaper imports such as Kia or Hyundai. Nonetheless, it is consistent with principles of economics and finance that the relatively high resale price of these cars is also reflected in their high prices as new cars.)
Do the same principles apply to mobile phones or laptop computers? Indeed, they do. In the past few decades, we have seen computer prices fall rapidly as the technology that powers them has improved exponentially. To put this into longer perspective, in 1982 my late father purchased a two-disk-drive Digital computer with 64K memory and a black-and-white screen that used the CP/M operating system, along with a dot-matrix printer, all for $4,000. That is about $10,500 in today’s dollars.
A recent check on Amazon finds a new laptop and printer, both far superior in performance to anything my father (and anyone else) could have purchased in 1982, for about $500. The available products are vastly superior even to laptops and printers for sale five years ago.
No one will argue that consumers are worse off because they no longer can use the large floppy disks or even the smaller HD disks on which I stored my own doctoral dissertation in 1999. Changes in computer technology over time make older models as obsolete as fuel injection has made carburetors ancient automotive history, but government investigators are not probing General Motors because one cannot use the same air filters in a 2018 Chevrolet Camaro that were in a 1968 model of the same vehicle.
All of this brings us back to the East German automobiles that began to putter across West Germany in late 1989. There was not much difference between the 1989 and 1959 versions; the earlier versions were not much different than the famous Volkswagen “beetles” that East German authorities wanted to emulate. By the time the Berlin Wall came down, however, the communist cars made the Model T look to be reliable and comfortable.
If the logic of Paris authorities were carried to its logical end, every automaker outside of the former communist countries would be under criminal investigation. In fact, any manufacturer of any goods that use changing technology and whose products improve over time can be accused of engaging in “planned obsolescence.”
That the very concept of “planned obsolescence” makes no economic sense and is little more than an excuse for government agents to harass (and shake down) innovative entrepreneurs means nothing to government, media, and intellectual elites. That should be no surprise, given that these same elites for decades have claimed that the system that gave people Wartburgs and Trabants is superior in every way to the “horrors” of private property and free markets.
