Thursday 19 July 2018

The deals that changed the world: How an insurance worker spawned the diet industry

A new book details how bright ideas of the business world influence our everyday lives, writes Niamh Horan

TYCOON: Elon Musk made his first fortune with an online 'city guide' for newspaper publishers. He went on to be in at the start in PayPal, Tesla and SpaceX, earning billions in the process
TYCOON: Elon Musk made his first fortune with an online 'city guide' for newspaper publishers. He went on to be in at the start in PayPal, Tesla and SpaceX, earning billions in the process

LAST week millions of people got into a fluster over the thought that social media giants are controlling our behaviour. But investigative journalist Jacques Peretti says it is nothing new. Businessmen have been doing it for years.

In his new book The Deals That Made the World, Peretti shows us the ground-breaking boardroom deals that have transformed our society. He says it is not politicians or global events that shape our everyday lives, but deals made in secret - high up in boardrooms, on a golf course, or over a drink in a bar. "We tend to think of business as in a box separate to our lives but it affects everything - what we buy, what we eat, our attitude to health and money," he says.

"Everything we do is because of the changes brought about by the world's biggest deals. Why is cash being killed off? You think these things just happen by chance? There's always a reason and a handshake."

Peretti says: "What I do is marvel at the genius of these ideas. I am not seeking to make judgment. The fact that these guys can make you decide to do things yourself - to upgrade your own phone or car - is a lot cleverer than forcing you into it. The common factor I found is that these guys would invent a problem we never knew we had and then sell us the solution."

Here he lists some of those world-changing moments:

PayPal - the 10-minute meeting that killed cash

"In 2004 we began to move away from spending with cash. It happened without fanfare, a spike on Wall Street, mention on TV or Twitter trend. But how we spend has changed forever. By 2025, even drug dealers will not accept paper money.

"Far from just a natural trend, it all happened in the late 1990s, with a simple 10-minute meeting. In a quiet room in Stanford University, Max Levchin and Peter Thiel devised a plan to make money from the internet. With Levchin's coding genius and Thiel's finance expertise they knew they could create something special - PayPal, the world's biggest online payment system. Elon Musk came on board and pointed to the work of psychologist Drazen Prelec, who discovered the brain feels pain when it parts with cash. By making payments instant, the brain had no time to feel that twinge. It would open the brain to limitless spending - manna from heaven for consumerism."

The light-bulb moment and engineering dissatisfaction

"While researching the book, I went to see a light bulb in San Francisco that's been burning for 117 years.

"How is this light bulb still burning after well over a century, when in the rest of the world they break after six months? Simple: it threatened big business. So the five biggest light bulb manufacturers met in Geneva in 1932 to create a secret deal known as Phoebus. It stopped anyone from making a light bulb that lasts more than six months.

"But these companies did not simply produce light bulbs. They provided the everyday products of modern life, from refrigerators to ovens, the electrics for cars, homes and offices. And from 1932 onwards, it was all to be made to break.

"Today the upgrade is a way of life. We change our phones every 11 months, almost a third of us change our couch every three years and we change our partner on average every two years nine months (for almost one third, a sofa lasts longer than a relationship). The upgrade has since moved from objects to us.

"Perpetual self-improvement is the modern world's obsession from the perfect body to the perfect worker, partner, cook, lover, parent, carer, human. This relentless and all-encompassing self-improvement drive is 'upgrade culture'. It did not magic from nowhere, it was engineered, and the Shelby light bulb is the first clue as to how it happened. In that dusty Shelby bulb I saw in San Francisco is the secret of consumerism. It was the first step on the journey to planned obsolescence."

How an insurance worker spawned the diet industry

"When did we all get so hung up on BMI? It's all down to a down-on-his-luck statistician named Louis Dublin. While working at an insurance company in the 1940s, Dublin - who had been steadily failing to meet his targets - noticed how people's weight dramatically affected their health premiums. Dublin concocted the idea to charge policy-holders more by lowering the threshold weight at which they'd be categorised as 'overweight'. To do this he used the body mass index (BMI). The spin-off effect of the plan was that it caused a nationwide fat panic. Weight conscious mothers in the US began drinking baby formula to shed pounds. Lo and behold, a new 'gap in the market' was revealed, which the industry quickly targeted. From that spun the dieting industry, which changed the way we viewed food, diet and our waistlines forever.

"When I asked how a 'multi-billion-dollar business could be constructed on 'a high statistical probability of failure' - with a success rate of just 16pc - I was told: 'Because of the 84pc: that's where your business comes from.'"

Why healthy people pop pills

"In the 1980s, the world's pharma-giants were in big trouble. The post-war boom in prescription drugs, reaching its peak in the 1960s with Valium, was under threat. The lucrative patents they had relied upon were about to go generic.

"Henry Gadsden, the CEO of Merck Pharmaceuticals, came up with a genius idea. In an interview with Fortune magazine, he explained how the industry's problem was that they had been limiting the potential of drugs to sick people. He explained: "'We could be more like Wrigley's gum... it has long been my dream to make drugs for healthy people. To sell to everyone'. Gadsden decided to turn preventative drugs into a stick of gum, popped in the mouth every morning without thinking about it.

"From 15pc of the population who are actually ill to 100pc who might one day get ill - it was dynamite to sales. It did not matter how small the risk was, it could be medicated. The industry, went on to pitch the anxieties and neuroses of modern life as simply illness."

Engineering dissatisfaction

"What happens when you make a product so well it takes a long time to break? How do you make people part with their money in the meantime?

"In the 1950s, General Motors CEO Alfred P Sloan Jr found a way to upgrade a model of a car by making changes so new and attractive that it would create dissatisfaction with a person's current model - and instil in them the desire to own something "a little newer, a little better, a little sooner". Sloan saw how to make this happen.

"To resurrect planned obsolescence, he would engineer a new mindset for the consumer. Enter the 1956 Chevrolet Bel Air. A brilliant blue sheen reflecting the sky was picked for the dashboard. The colour was derived from nail varnish. The car was to be an accessory, matching your new coat or handbag. From there grew a whole cataolgue of colours and upgradeable features.

"Sloan employed in each consumer a nagging doubt that the new thing they had just bought has a forever ticking clock. This idea has been applied across the board today from televisions to mobile phones. The next time you feel the urge to upgrade, you'll know what's at play."

The Deals That Made the World is out in paperback on April 5

Sunday Independent

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