Pyramid Economy 11/15/20

Thoughts by Richard Bleil

Pyramid schemes are supposed to be illegal. Unfortunately, they are very common.

Several friends of mine are now selling wares for companies that are increasingly following the Tupperware model. These are companies that make some given product, often a type of jewelry but they can be clothing, kitchen gadgets, even sex toys and far more. They recruit people to “earn money” by “opening their own business” as a representative for their products. Then they sell products through web sites and house parties, with a goal not only of selling product, but also to recruit more sales people with a portion of their profit going back to the person who had recruited them as an incentive for their recruits to further recruit.

Ultimately, this is unsustainable. In a pyramid scheme, each person gives money to the person ahead of them, and so on with the goal of recruiting more members to the pyramid to get their money back. This is highly lucrative for the people at the very top, but inevitably, the pyramid collapses as it becomes increasingly difficult to recruit people. The ones at the very bottom of the pyramid, that is the very last people recruited, are the ones who lose.

In these sale schemes, a similar approach is used. Sure, it’s a little bit different since they are selling a product, but unlike a traditional store (online or offline), the products they are selling are all from the same parent company, and the same style. The parent company gets an army of people selling their products and pushing money into the company (or the company owners) with no salary requirements, no benefits, and no obligations. Yes, the people selling the product can make money, but most of the money they make is from their family and friends, and while they may start creating other followers, I expect this to be only a very small part of their sales. For example, I have bought product from the daughter of a good friend of mine out of a desire to help her out as my friend’s daughter.

As they recruit new salespeople to follow in their footsteps, I’m guessing that most of them will be in the same general geographical region as they are, and likely with significant overlap in friends and family. That means that as they recruit new salespeople, they’re literally diluting their own customer base. Eventually, like it or not, this has to collapse. I’m guessing it’ll be gradual, where earlier significant income will simple become less and less so, and the people who are buying their product out of love and friendship will simply be unable to buy as much. Because these salespeople are selling products from a single company with a single niche, eventually interest and sales drop unlike in a store that carries products from a multitude of vendors, styles and types of product. This is where the pyramid begins to crack.

Now, I don’t intend to denigrate the people who have gone this route, as I have many friends who have done just this. Indeed, the intention here is to express my concern for the model, and to point out a larger issue with our economy. I’ve posted something like this before regarding new companies that “hire” independent contractors to do their work, and not only take part of the profits from their sales, but also charge them for the rights to use the tools to do their jobs (such as databases of potential clients). More and more companies are going in this direction, hiring “independent contractors” and siphoning their money off of the contractors. This means that these companies are not supporting an economy where people can find secure jobs, potentially with benefits. Once the sales for their people become no longer profitable, these salespeople simply leave, and the company that has been taking their money has no obligation to them any longer.

Tupperware has done this for years, with their infamous Tupperware parties, but I honestly can’t remember the last one I’ve seen. They were wildly popular in the sixties and seventies, but the people that made them a wealthy company were left behind as the company chose to begin selling their product in more traditional stores. While the government touts a “strong economy” based on the wealthy becoming wealthier, it seems to be that the economy is unable to even support traditional workers. Companies are becoming better at finding ways to take money from the working class, and increasing their profit as they do, and in return making for a stronger stock market, but eventually, this points to economic disaster. We must find a better way to measure economic success, one that does not rely on how much money is going to the wealthy.

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