Economists, we’re told, were put on earth to make weather
forecasters look good.
Certainly, their ‘dismal science’ has struggled when it
comes to assessing the macro-economic role of advertising. Perhaps because
their classical model of ‘economic man’ (and presumably woman), making strictly
rational purchasing decisions on the basis of price/performance calculations,
tended to break down in the face of real people’s whimsical behaviour.
JK Galbraith accused advertising of distorting
demand and manufacturing excessive consumption of the wrong things to the
detriment of the economy and society at large. Other economists have taken
comfort from advertising’s role as a provider of useful ‘information’ (that
nice rational stuff again). More have confined themselves to assessing
advertising’s benefits to those who pay for it: most IPA Effectiveness Awards
are for how advertising works for its clients, not its consumers.
So when asked what advertising contributes to the UK economy,
answers have been confused and confusing.
Some things we can measure. We can measure the economic
impact of the advertising industry, defined as all those people
and companies whose principal role is producing advertising. The Work
Foundation did that job for Credos in 2011. The answer: about £15 billion. A
significant industry, employing thousands directly and generating revenues and
jobs for thousands more all around the creative services and beyond,
advertising is clearly a dynamo of the UK’s world-leading ‘creative economy’.
We can also measure the amount of money spent on
advertising. WARC does that for the AA. It’s about £16 billion at the last
count. That’s £16 billion to fund the content and delivery of the media that
entertain, inform and infuriate us all. A £16 billion subsidy, without which
our online, TV, print, radio, film and (don’t forget) mail services would all
cost us a lot more, or disappear altogether. But that, too, is only a partial
answer.
The big question with a bigger potential answer is: what
is the value of advertising as an activity to the economy as a whole? Do
all those people and companies who make and use advertising help or damage UK
plc? What does advertising do for us in economic terms?
Does it add cost to goods and services or enable people
to find them more cheaply? Does it bring innovations and product improvements
to our notice or help to confine us in a rut of brand loyalty? Does it give a
platform to bright young firms to attract customers or allow the big battalions
with the big budgets to protect the status quo? Does it tempt people to take on
dangerous debt or stimulate their savings habit? Does it encourage
over-consumption to society’s cost or educate people about healthy living to
save the NHS money?
The answer to all those questions is, of course, yes.
Advertising – within the strict constraints of our regulatory codes – does all
those things. It is a tool of thousands of communicators, a cacophony of
competing voices, but without it UK plc would diminish.
Consider...
Competition is fundamental to an open and thriving
economy. It forces innovation, product and service improvements, better deals
and lower prices. And advertising is fundamental to competition. Without its
incessant promotion of alternatives, companies lack the spur of challenge and
markets drift toward monopolies, complacency over product quality and service
levels, predatory pricing and a lack of accountability to customers.
Advertising, too, underpins branding. Brands help people
make choices that satisfy them and act as guarantees of quality, giving them
the security of knowing not only what they are buying but who to blame when
they feel let down and how to gain redress. Brands – corporate as well as
product – keep companies honest. They also enable companies to secure the
profit margins they need to fuel their growth, sustain their R&D programmes
to produce better and cheaper products, reward their shareholders, pay their
staff and venture into international markets.
It’s not that companies – or small businesses or
governments – want to spend money on advertising. Competing uses for their
funds are plentiful, but in an open market, a competitive market, communication
is crucial. No advertising, no real competition; no competition, no change; no
change, economic failure. The great German post-war experiment of East and West
taught us that. The two Koreas
are repeating the lesson.
So what is the value of advertising to the economy? Is
there a magic number? I haven’t a clue. Nor has any consensus of economists.
Credos is going to work hard this year to get some more answers, from
economists and consumers alike, and I’m sure of new enlightenment, but just one
big number? I don’t think so. Advertising is not a separable component of our
economy but, like energy or transport, part of its very infrastructure.