Multi-level marketing scams reveal the fundamental lie of capitalism

Back in high school, a friend of mine kind of went on a loop to attend a seminar aimed at spreading the right word about an exciting – albeit nonspecific – job opportunity. In retrospect, everything to do with the initial experience was less a string of red flags than a proverbial flotilla of giant crimson banners emblazoned with the words “obvious rip off.” In addition to the aforementioned lack of specificity (what was that “opportunity”?), The event itself was to be held in a dark-looking conference room in an airport motel – the kind of vaguely sinister and transient place we associate with. ugly carpets, compulsory retreats at the office, marital infidelity and petty heckling.

In retrospect, I don’t think the real nature of the concert (as it even existed) was ever really clear. From what I understood at the time, the participants were shown a series of Tim and Eric– esque videos featuring potential salt-of-the-earth types who allegedly transformed their lives overnight using the One Weird Trick bequeathed to them by the shady LLC that hosted the case. (My friend, to their credit, left after ten or fifteen minutes.) If I was a gambler, however, I would have put all my chips in on the fact that this was a multi-party marketing plan. (MLM) levels of one type or another – maybe a step or two away from being downright illegal, but no doubt fueled by a mixture of sordid, gullible and human desperation.

I’ve had MLMs on my brain since watching the recent documentary LuLaRich, which chronicles the rise and fall (at least partially) of LuLaRoe: a company that has managed to trap tens of thousands of Americans by peddling a beguiling story of economic independence and personal empowerment. At a basic level, nothing particularly sets LuLaRoe apart from other programs that leverage the same rhetoric and business model. In this case, the schtick was primarily aimed at women, who were sold with the prospect of selling personalized clothing at home and making a lot of money doing so.

The small problem, of course, was that the tale of stampede, rags to riches projected by the company’s surreal co-founders, DeAnne and Mark Stidham, was literally inaccessible to the vast majority of those involved. It was not, as the followers of this story would insist, for lack of sacrifice or effort. Many victims of LuLaRoe worked to the bone and took on heavy debt, only to find that the money they had invested for the privilege of selling its products was yielding a negative rate of return. (It is not known how often this happened, but LuLaRich also reveals that the company actually advised some women to monetize their breastmilk for capital.) In 2016, when LuLaRoe’s sales had swelled 600 percent to around $ 1 billion, 70 percent of reps didn’t make any money from their coveted recruiting bonuses, while a tiny 0.1 percent at the top received the equivalent of a lavish down payment each month.

It’s more or less the industry standard, by design. Distributors of Advocare, a fairly rare example of a multi-level marketing company officially declared a pyramid scheme by the Federal Trade Commission (FTC), mostly made money in the same year – with 72% not earning nothing and 18% earning $ 250 or less. A tax return from Young Living, whose game sells essential oils, shows that nearly nine in ten US-based distributors made an average of four dollars in 2018. The same is true of the health care company. skin Rodan and Fields, where about 67% of salespeople had a median income of $ 227 in 2019, and Color Street, where more than half of sales reps made monthly profits of less than $ twelve in 2018. According to a study by the Consumer Awareness Institute, 99% of people recruited to participate in multi-level marketing programs not only fail to generate profits; they are actively losing money.

Unsurprisingly perhaps, the pandemic has been a boom time for the industry, with a majority of multi-level marketing companies responding to a recent survey reporting increased revenue in 2020 and attributing it to to COVID-19. According to data from the rather sadly named DSA, the official professional association of MLMs (DSA, in this case, stands for “Direct Selling Association”), the 2007-2009 recession saw the ranks of those involved swell by millions. – a fact that tells you pretty much everything you need to know about the endless supply of economic ruin and human misery from which the MLM business model enlists the majority of its recruits. According to DSA’s own figures, nearly three-quarters of MLM participants are women, while one in five is Hispanic: two demographics statistically more likely to be poor and / or lack financial independence.

Officially, of course, a tiered marketing company is distinct from a true pyramid scheme. But, as longtime MLM critic Robert FitzPatrick argues, the line between “legitimate” multilevel marketing and straightforward fraud is porous at best. According to FitzPatrick, the United States government defines legal variety as “a type of business in which participants can make money through their own retail sales and commissions on the retail sales of other participants than they do. recruit from a genealogical chain ”. The problem, as he observes, is that the FTC has never actually identified a single MLM company that meets such a definition. “Since,” writes FitzPatrick, “no one in MLM actually makes or could make a lasting profit from retailing, no one makes an income from the retail sales of those recruited as well. Legitimate, retail-based MLM is as real as a unicorn.

In truth, it’s hard to think of a better microcosm for capitalism than multilevel marketing, or a more appropriate representation of why its core mythology is so blatantly a fraud. In the MLM world, we are just temporarily embarrassed millionaires. With sufficient effort and the application of a strong work ethic, anyone can be their own boss while spreading the good word everywhere so that others can rise up too. According to the MLM Oilseed Prosperity Gospel, sales reps help others by selling useful products and enriching themselves, engaging in a perfect symbiosis of enlightened self-interest. Those who lose money or complain are, by extension, either lazy or personally faulty.

It’s transparent, as even a rudimentary analysis of the MLM business model quickly reveals. As FitzPatrick explains:

The main fraud in multilevel marketing is in full view. It is the model of the “endless chain” of recruits, badly named “salesmen, associates, distributors, coaches”, and so on. How could a business organization have an “unlimited” number of salespeople operating in the same areas? How could a sales chain extend to “infinity”? The MLM model is actually two lies in one. First of all, of course, as the number of participants increases, the chances of recruiting a large progeny decrease for those at the end of the chain. The “opportunity” is not “unlimited”. It is finite and decreasing. The thousands of people at the bottom of the pyramid cannot enlist as many recruits as the few people at the top already have. . . . Second . . . the recruiting chain compensation plan requires each participant to enlist a certain number of recruits before profit is possible. Therefore, a “winners” to “losers” ratio is built in from the start.

Of course, in a capitalist market, a distinction can be drawn between a legitimate business transaction and outright fraud. If you sell me lumber because I am trying to build a barn, there are certain conditions under which we can both benefit. But if I sell you a vial of olive oil claiming it will cure blindness, you’ve clearly been fooled. Although many wealthy people have simply inherited or stumbled upon their wealth, a handful of individuals have successfully transitioned from rags to wealth through intelligence, courage or a combination of the two.

The problem is, under capitalism, this archetypal story of personal success will always be inaccessible to the vast majority, regardless of their work ethic or talent. At the end of the day, markets aren’t even grounds of competing entrepreneurs where rewards are distributed based on hard work and social value. By design, they are literally pyramids in which a few at the top dominate the vast majority at the bottom – a fact which is no less the case when the buying or selling of goods and labor is done without deception. or outright fraud. The system is not designed in such a way that everyone can become a boss, owner or entrepreneur, and many will spend their working lives working hard primarily to enrich someone else.

This simple, elementary truth has always been hidden in plain sight – though, for most of us caught in the proverbial conference hall of airport motels of capitalism, it risks being drowned out by the merchants. sordid peddling their false prophecies from the top of the platform.


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