Dimensions: 8.5'' x 6.25'' 116 pages AEI Press  (Washington) Publication Date: September 1997 Paperback ISBN: 2940124027 Price: $ 19.95 Add to Cart   Examination Copies

September 1997
Fear of Persuasion
By John E. Calfee

This book challenges the conventional view that advertising manipulates and threatens consumers. Drawing on extensive research, the author explains how competitive advertising improves markets, how it promotes the interests of consumers rather than business, and how regulation tends to undermine its benefits.

The author, John E. Calfee, is a resident scholar at AEI.

Fear of Persuasion takes its title from an enduring phenomenon. Advertising is always under attack--by politicians, by so-called consumer advocates, by hostile academics (usually students of something other than advertising or economics), and even by business leaders seeking refuge from competition. They argue that advertising exercises too much power over consumers and that vigorous regulation or even ad bans are needed.

The critics misunderstand advertising from the outset. The proper starting point is not the power of mass communication but the implacable skepticism of consumers. After all, ads represent the seller's interest, consumers know it, and sellers know that consumers know it. That suggests that if advertising acquires power, it does so by serving consumers and the marketplace.

That insight is supported by some three decades of research, which has refuted the most popular misconceptions about advertising and yielded a new understanding of the links among advertising, information, competition, and consumer welfare. Fear of Persuasion provides an illustrative synthesis of the new thinking, including fresh material from the author's own research. From a multitude of telling details, three broad findings stand out: first, the ability of advertising to improve consumer welfare is much greater than is generally realized; second, advertising is fundamentally a self-correcting process; and, third, consumers have an enormous stake in the freedom to advertise.

Contributions to the Spread of Information

Advertising arises spontaneously to attack defects in the marketplace. It is an efficient and sometimes irreplaceable mechanism for bringing consumers information that would otherwise languish out of view.

The power of advertising to improve markets by improving information has been demonstrated over and over again. Advertising for eyeglasses has generated lower prices without sacrificing quality. Health claims for foods have led to better consumer information, wiser consumer choices, improved products, and even new research on nutrition. Pharmaceutical advertising has significantly heightened consumer awareness of such otherwise obscure matters as the side effects of over-the-counter drugs. Today, a dramatic increase in the advertising of prescription drugs to the American public is breaking new ground in educating consumers on such vital topics as the side effects of anti-allergy medications, the value of reducing serum cholesterol to prevent heart disease, and the importance of recognizing the signs of stroke so that patients can take advantage of revolutionary new treatments.

Equally noteworthy are the findings on such traditionally controversial topics as price advertising and advertising to children (who learn how to use advertising for their own purposes at a surprisingly early age). In both cases, advertising brings about a wider range of choices at lower prices, which tend to vanish in the face of sustained regulatory attacks on advertising.

For that reason, the modern Federal Trade Commission (FTC) defends advertising as essential for consumers (not for sellers) and attacks bureaucratic or conspiratorial restraints on advertising. A striking example, although by no means the only one, is the dispute over advertising for infant formula. While the rest of the world has attacked such advertising as inherently harmful, American consumer protection regulators actually sued a group of manufacturers for agreeing to prevent advertising for infant formula. That lawsuit was part of a larger shift in regulatory thinking. To a degree little appreciated outside the regulatory community, much of the new thinking about the value of advertising has taken root in the staff of the FTC, and it is starting to spread to elements of the European Union.

The Self-Correcting Nature of Competitive Advertising

The give-and-take of advertising constantly improves the quality of consumer information regardless of the self-interested goals of individual advertisers. Much of the credit goes to two of advertising's most unjustly maligned features: the selective use of small amounts of information, and "less-bad" claims, which focus on what is wrong with the competition. Those tools provide the agility necessary for quick attacks and equally quick responses, all under the watchful eye of the consumer over whom the battle is being fought. The result is typically the triumph of good information over bad and, ultimately, better products over inferior ones.

Competitive dynamics in advertising generate markets in which information is richer and more balanced than it is when detailed controls govern advertising and information. One of the best-documented examples should command as much attention today as it did when it transfixed the United States in the 1950s. At that time, brutally competitive cigarette advertising raced far ahead of government and public health authorities in alerting consumers to the dangers of smoking and, without intending to, actually encouraged smokers to quit. What brought that to an end was not industry self-interest or conspiracy but a series of misguided regulatory interventions that transformed cigarette advertising into the images of sweetness and light we take for granted today.

Less spectacular episodes of self-correcting market dynamics occur every day as sellers try to build brand share by telling consumers what is wrong with rival products. That approach is evident from ads for life insurance, fatty foods, airlines, health care organizations, medicines--and, of course, politicians.

Ad bans, in contrast, utterly fail their ostensible purposes. Whether the topic is price claims, prescription drugs, health claims for foods, or ads directed at children, prohibitions on advertising have been consistently harmful to consumers. Take away advertising, and you take away the benefits of advertising. New toys are rarer and more expensive in Greece and Sweden, where advertising to children is banned. Consumers know less about nutrition when food sellers cannot mention disease, and they know less about potent medicines when advertising goes only to doctors. Prices of just about everything are higher when price advertising is suppressed.

The more intensive the research, the stronger the evidence against bans. Bans on cigarette ads have served primarily to frustrate movements toward less harmful cigarettes and to buttress entrenched sellers. That is especially true in developing nations. China's ad ban, for example, was conceived by an unseemly alliance between antismoking activists and the Chinese state tobacco company (which happens to be the world's largest cigarette manufacturer). Cigarette ad bans have not reduced smoking, however. Bans on alcoholic beverage advertising have been similarly ineffective. The French Health Ministry's loi Evin, for example, was intended to improve public health by severely restricting alcohol advertising. Instead, the law has unintentionally provided a vivid demonstration that forcing two-thirds of alcohol advertising out of the market has no impact whatever on alcohol consumption or abuse.

In fact, a little appreciated alternative mechanism shows promise of far surpassing ad bans and detailed regulations when it comes to promoting the public interest. The mechanism is self-regulation, when it is practiced by broad-based groups that respect the benefits of competition and reflect the advertising industry's desire to maintain public confidence. Groups such as the Advertising Standards Authority in the United Kingdom, the European Advertising Standards Alliance, and the National Advertising Division of the Better Business Bureau in the United States have developed methods that are now being adopted by emerging capitalistic economies around the world.

Advertising and Freedom

Competitive advertising is stacked in favor of the consumer's interest, and the regulatory system is stacked against it. That is not because regulators, politicians, and advocacy groups lack wisdom or goodwill. Overregulation arises inevitably from the collision between the boisterous dynamics of advertising and the modern apparatus of the state. Excessive regulation of advertising has therefore become the norm, and consumers suffer accordingly. That situation is particularly obvious when one compares the fate of consumers in nations with and without the more stringent forms of advertising regulation.

The clash between advertising and repression is not easily resolved. Vigorous advertising can easily offend political authorities. In the modern regulatory state, those offended may include authorities whose influence over a line of business is so direct that wary business executives will decline to challenge advertising restraints at all. That disturbing trend is creating an extraconstitutional void in which essential information cannot be freely communicated. The void encompasses advertising for products as diverse as cigarettes, prescription drugs, and financial institutions.

It is in this context that worldwide efforts to provide a measure of constitutional protection for commercial speech are taking place. The parallels between advertising and political speech have become surprisingly close. The only way to ensure that public comment and advocacy provide a political system eager to please citizens--rather than pleasing the ruler--is to remove the content of political speech from regulation altogether. That much is widely accepted in free societies. But the same lesson applies to advertising. An unmistakable and unassailable protection of reasonably construed, truthful advertising is now a prerequisite for more efficient and more beneficial consumer markets.