The Deals That Made the World

Jacques Peretti

• Publisher: William Morrow
• Year: 2018
• ISBN:
  9780062698315
• Topic: Business
• Subtopic: Business History
• Index: Business

"Excellent.... Impressive." — Financial Times

An award-winning investigative journalist takes us inside the ten business deals that have transformed the modern world

We tend to think of our world as controlled by forces we basically understand, primarily the politicians we elect. But in The Deals That Made the World, Jacques Peretti makes a provocative and quite different argument: much of the world around us—from the food we eat to teh products we buy to the medications we take—is shaped by private negotiations and business deals few of us know about.

The Deals That Made the World takes us inside the sphere of these powerful players, examining ten groundbreaking business deals that have transformed our modern economy. Peretti reveals how corporate executives engineered an entire diet industry built on failure; how PayPal conquered online payments (and the specific behavioral science that underpins its success); and how pharmaceutical executives concocted a plan to successfully market medications to healthy people.

For twenty years, Peretti has interviewed the people behind the decisions that have altered our world, from the CEOs of multinational corporations to politicians, economists, and scientists. Drawing on his vast knowledge, Peretti reveals a host of fascinating and startling connections, from how Wall Street's actions on food commodities helped spark the Arab Spring to the link between the AIDS epidemic in 1980s San Francisco and the subprime mortgage crisis of 2008. Touching upon tech, finance, artificial intelligence, and the other levers of power in a postglobalization environment, Peretti offers a compelling way to understand the last hundred years—and a suggestion of what the next hundred might hold.

An essential book for anyone seeking to understand the hidden forces that shape our modern economy, The Deals That Made the World is illuminating and surprising—and an immensely fun read.

1
The Upgrade
Engineering Dissatisfaction

• The Deal: General Electric, Phillips, Osram and the Phoebus cartel of lightbulb manufacturers meet to limit the life span of an average lightbulb.
• Aim: To systematize planned obsolescence and invent the upgrade
• Where: Lake Geneva, Switzerland
• When: 1932

Forty miles outside San Francisco is the town of Livermore. Halfway down the main street lined with cafés and antiques shops is a fire station, and high up on the back wall, away from the gleaming vintage fire truck, polished daily by retired volunteers with bushy white moustaches, is the pride and joy of Livermore. Making a low hum, flickering an eerie yellow glow, is a lightbulb. But unlike any other lightbulb on earth, this one has not burned out in 117 years.1

The Shelby Electrical Company made the Centennial Bulb in 1901. A hand-blown carbon filament that once emitted thirty watts, it now gives four watts, like a child’s night-light, but it still works. Why, if Livermore Fire Station has a lightbulb still burning after well over a century, does the rest of the world have ones that burn out after six months?

Today, the upgrade is a way of life. We change our phones every eleven months; our partner on average every two years, nine months.2 We belong to the global cult of what product designers call “infinite new-ism”—a distrust of anything “old,” when “old” might mean we upgraded it just a couple of weeks ago. And the Shelby lightbulb is the first clue to understanding how the perpetual upgrade became central to modern consumer culture.

The second clue is 5,600 miles away, in Germany. In 1989, as communism collapsed and crowds clambered over the Berlin Wall, a historian named Helmut Herger walked unnoticed into a building in East Berlin, the headquarters of the Osram Electrical Company.

Inside, Herger found overturned filing cabinets and papers strewn across the floor. He was sifting through the administrative detritus when something caught his eye: confidential minutes from a 1932 Geneva meeting between two senior members of the Osram executive board and the five biggest electrical companies on earth. When, two decades on, I met Helmut in a Berlin café and I asked him what was so special about these papers, he opened his briefcase.

The five biggest lightbulb manufacturers on earth had gathered to create a secret cartel, known as Phoebus, with one aim: to stop anyone from creating a lightbulb that lasted more than six months.3 The papers proved something we all vaguely believe exists when our kettle mysteriously stops working six months after we buy it and as it turns out actually does exist: planned obsolescence.

Herger showed me the signatories at Phoebus’s inaugural meeting: William Meinhardt, the CEO of Osram, and Anton Philips, the founder of the Dutch electrical giant now called Philips Electronics, who with the heads of the other biggest electrical companies on earth present, wanted to systematize obsolescence, imposing a global policy on the life span of a lightbulb and putting any company that did not follow their rules out of business.

The others included America’s General Electric, AE from Britain, Compagnie des Lampes from France, GE Sociedad Anonyma of Brazil, China’s biggest producer of electrical goods, Edison General, Lámparas Eléctricas from Mexico and Tokyo Electric. These companies did not simply produce lightbulbs. They provided the basic infrastructure of modern life: street lighting; copper wiring for phone lines; cabling for ships, bridges, train and tram lines. They made consumer durables such as refrigerators and ovens; provided the electrics for cars, homes and offices.

Two thousand years of ingenuity in manufacturing durable goods would stop. Henceforth, mass production would reverse engineer an object from the moment it should break, backward. Each object would have a different life span drawn up on a spreadsheet. Helmut Herger showed me the categories meticulously calibrated on a sliding scale of obsolescence, scrawled in boxes in spidery handwriting, each box stipulating life span.

Was Phoebus doing anything wrong? In 1932, the free world balanced on a knife edge between economic depression and recovery. Hitler was poised to take power in Germany. The Phoebus plan to systematize planned obsolescence did not simply sell more lightbulbs, but saved capitalism and therefore democracy when it was most perilously threatened. It kept people buying.

If Phoebus was to receive any pushback from the consumer for producing a lightbulb that suddenly stopped working, there was this bigger picture. But Phoebus didn’t receive any pushback. Not yet.

The Newest New Thing

Outside the Apple Store on Regent Street, London, two thousand people wait for the new iPhone. They stand patiently, scrolling through the last iteration of Apple’s flagship product, which, in ten minutes’ time, will be obsolete. The police overseeing the queue scroll through their phones too. The line snakes around the building, down the next street and into an adjacent park.

Those nearest the front have been waiting nearly forty-eight hours. The man at the very front sits on a fishing chair with a roll-up mattress and plastic tarpaulin to keep off the rain. He has a small gas cooker with which he heats up soup. He began queueing on Saturday afternoon. It is now Monday morning.

“Do you mind telling me,” I ask him, “what the new iPhone will do that your old phone doesn’t?” He frowns, annoyed at the stupidity of the question. “What do you mean?” “Well, you’ve been queueing nearly forty-eight hours in the cold, so I’m just wondering what’s so special about the new phone?”4 He sighs and leans forward. “It’s new.”

It is four minutes to nine, and when the doors open and the whooping Apple employees in their blue T-shirts try to hold back the rushing human tide, my new friend will be, for a very short period of time, the first person in the world to own the newest iPhone. In two minutes, the first buyers will put it on eBay and then it will be old.

Obsolescence is built into newness—it is the flaw at the heart of everything we buy. Not far from the Livermore Fire Station and the oldest bulb in the world is a warehouse filled with brand-new tech goods that have never even been used: phones, tablets, laptops, printers, microwave ovens, satnavs, headphones, drones. They are all still in their boxes, unopened, donated to charity by companies that bought the products in bulk but then upgraded to another product before even opening them.

“Where’s all this stuff bound for?” I ask the foreman of the warehouse. To Baltimore, Bangladesh, anywhere that people want it. The trouble is, he admits, they don’t want it, because out-of-date technology is as unappealing to the poorest half of the world as it is to the richest.5 We all want the newest new thing.

The Phoebus cartel invented planned obsolescence and the rules companies would follow: the parameters for the upgrade diktat whether it be a lightbulb or an iPhone. But to choose ourselves to upgrade a product before it has stopped working, to make the upgrade a desire on the part of the consumer, required a new idea. One rooted in psychology.

Engineering Dissatisfaction

We think patronizingly of the 1950s as a naïve time when the public could still have the wool pulled over its eyes, but nothing was further from the truth. War had politicized and educated the public. As a result of working in factories and on production lines, people knew both how things were made and what they were worth. This meant they were wise to being conned.

The 1951 Ealing Studios comedy The Man in the White Suit stars Alec Guinness as a scientist who accidentally invents a miraculous new material that never wears out or gets dirty. But instead of being hailed as a genius, union leaders and industrialists gang up to destroy him. The film is a satire about planned obsolescence and the complicity of industry and unions in perpetuating it on the public. Guinness’s antihero wears a symbolic white suit standing for public integrity and honesty in a world of murky collusion.

But Roger MacDougall, John Dighton, and Alexander Mackendrick’s script is far from anticapitalist. It pours scorn on both workers and bosses. This was a new, potentially dangerous kind of public disillusion: the disillusion of the consumer. Disillusionment with consumerism threatened the growth of the economy at a critical moment when Western governments needed the public to buy.

In 1951, the year The Man in the White Suit was released, the Korean War broke out. The world faced a stark choice between two competing brands: “communism” and “capitalism.” For capitalism to win, President Truman needed consumers to do their duty and begin shopping for big-ticket purchases in Britain and America, powering a consumer boom and thus economic recovery. Consumerism was not merely shopping, it was an ideological weapon for fighting the Cold War.

But there was a problem. Planned obsolescence made a mockery of the consumer doing their duty to buy. If consumers were aware that what they were buying was designed to break after a period of time, then there was a danger they might stop buying. So manufacturers wanted to reboot the credibility of consumerism in the minds of the consumer. They needed a new conjuring trick.

Alfred P. Sloan Jr., the CEO of General Motors, had steered the company sensibly for thirty years. Though a proficient boss, Sloan had for decades operated in the shadow of a colossus, Henry Ford of rival company Ford Motors.

Ford’s genius had hinged on one simple breakthrough. In the 1880s and 1890s, he had become fascinated by meat packers in Chicago. They had figured out how to pull animal carcasses apart efficiently, piece by piece along a conveyor belt. In effect, they had created the first modern production line. What, Ford thought, if you reversed the process? Instead of using a production line to deconstruct a cow, what if one used it to construct a car?

Henry Ford pioneered mass production with the assembly line that built the Model T Ford in 1908. Now, in 1956, nine years after Ford’s death, Sloan had his own idea to revolutionize the car industry, and transform planned obsolescence.

At a 1954 advertising conference, Milwaukee industrial designer Brooks Stevens had addressed delegates with what he believed was the greatest challenge facing postwar industry: “instilling in the buyer the desire to own something a little newer, a little better, a little sooner than necessary.”6 Sloan saw how to make this happen. To resurrect the discredited doctrine of planned obsolescence, he would engineer a new mindset for the consumer, one in which we ourselves wo...