Socialism collapsed because it did not allow prices to tell the economic truth. Capitalism may collapse because it does not allow prices to tell the ecological truth.
Oystein Dahle, former Vice President, Exxon, Norway
The leftist with brain knows that, for having success in the quest of a more equal world, is wise to use the economic law instead of trying to go against it. The rightist with hearth knows that he can still make a wad of cash while making the world a fairer place. Both can use the simple supply and demand law that we have been talking about.
Let’s have a given supply and demand curve for a product:
As we saw before, P1 is the current price that triggers demand for Q1 articles. The red square is the total revenue for the sale of the product.
They are some goods that are produced under strict quality controls, not only for the product itself, but also for the working conditions of the workers. The manufacturer/producer complies with environmental concerns, pays well for the job and allow the workers to share the wealth and benefits that the production carries.
Products that have less impact on the environment and follow social standards are desirable, but they are offered at a higher price than their counterparts. The organic products require more attention and are produced in smaller quantities. The fair trade products manufactures pay more to the workers that harvest or produce them and offer better working conditions. The premium can be as high as 200%, so it is hard to compete with the regular products.
So, for two bars of soap, we may have one that is biodegradable and other that is not. The former is $2.00 and the latter $1.00. Which one do you thing the vast marjory of consumers will choose, if the rest of the attributes are equal? The price difference will move most consumers to chose the non-biodegradable because cost half. That is simple and that is the way the world is. We need to find ways to sell the first bar! Enter Economic theory and marketing.
For encouraging people to buy the biodegradable bar soap we have several ways to go, first, we denominate it. We need to make clear that this bar is better than the other one because they may last the same and clean the same, but one is going to pollute the water and the other won’t. That is why Marketers created denomination such as organic, biodegradable, fair trade et cetera. The leftist with brains knows that Marketing can be a tool for promote over consumption but also for promote smart consumption.
So we need to map our target consumers, and studying marketing and sustainability, we find that there is a group called green consumers; the people that are willing to acquire a product that is better for the environment or that pursue social justice for that mere fact. They may not be interested in the cleaning properties or how long does the bar of soap last, but they are interested in the product because it is biodegradable.
There are 4 types of green consumers according on their activism and the willingess to pay more:
Inactive, who only would buy a green or social product if the price and properties are the same that the non-denominational ones.
Latent Greens, who are willing to pay more for the product if the properties (clean power and durability in our example) are the same than the others.
Green Activists, that may not be able or willing to pay more, or to travel the distance to the specialist store where the offer the product, but try to promote the product and try to buy it any time they can, when the budget and the opportunity allow them.
Green Consumer, who no matter what, will only buy the green product.
According to David Wheeler, the green consumers are distributed somehow like this:
So, by branding our product and certifying it as organic or fair trade, we are pushing the demand for it in the green market, and the effect is, when pushing demand, that we can charge a higher price and still sell more.