Author Jacques Peretti has shed light on the backroom deals between big businesses that have ultimately shaped the way we eat, shop, and even choose medication.
His latest book, The Deals That Made the World: Reckless Ambition, Backroom Negotiations, and the Hidden Truths of Business, set to be released in March 2018, reveals details of the secret meeting that took place in Geneva that made nearly every product obsolete.
Peretti also lifts the lid on the invention of the multi-billion-dollar diet industry, which came about after a health insurance clerk was struggling to keep up his numbers.
THE GREAT LIGHT BULB CONSPIRACY
The light bulbs that illuminate our homes, offices, and streets come with a shelf-life and that’s thanks to a secret cartel deal made by the electric industry in the early 20th century, Peretti reveals.
The Centennial Bulb, known as the world’s longest-lasting light bulb, was created in 1901 and has continued to burn for 117 years. A seemingly everlasting light, it was the ideal product to the consumer, but quickly recognized as a threat for business.
General Electric was among the five biggest light bulb manufacturers on earth that took part in the secret meeting in Geneva in 1932 to create a plan that would make turn the ligh bulb and eventually all electrical goods – obsolete. Pictured above is the everlasting Centennial Bulb which threatened the business
In fact, this led the five biggest light bulb manufacturers on earth – including America’s General Electric – to gather in Geneva in 1932 and create a secret cartel known as Phoebus, which stopped anyone from creating a light bulb that lasts more than six months.
Details of the clandestine meeting were unearthed after historian Gunter Hess found documents strewn across the floor at the headquarters of the Osram Electrical Company in East Berlin.
‘William Meinhardt, the CEO of Osram, and Anton Philips, the founder of Dutch electrical giant now called Philips Electronics…wanted to systematize obsolescence, imposing a global policy on the life-span of a light bulb and putting any company that did not follow their rules out of business,’ Peretti writes.
But this approach did not stop at light bulbs, the cartel would soon impose a global policy that would put an expiration date on refrigerators and ovens.
Phoebus – made up of AE from Britain, Compagnie des Lampes from France, GE Sociedad Anonyma of Brazil, China’s General Edison, Lamparas Electricas from Mexico, and Tokyo Electric, put a stop to thousands of years of durable goods and slapped electrical products with lifespans, reverse-engineering an object ‘from the moment it should break, backward.’
Documents revealed a systematic approach to the scheme which included spreadsheets which listed each item on ‘a sliding scale of obsolescence,’ with each box indicating the product’s lifespan.
The effort succeeded spectacularly – as built-in obsolescence became standard for virtually every product.
HOW CHEVROLET BOSS MADE YOU WANT NEW CAR EVERY YEAR
Planned obsolescence took a step further decades later during the Cold War, when businesses went after marketing techniques deeply rooted in human psychology.
Big businesses decided they needed to ‘reboot the credibility of consumerism in the minds of the consumer’ after they realized the risk that came with shoppers knowing that what they were buying would eventually break.
By the 1950s, the CEO of General Motors, Alfred P. Sloan Jr. found a way to upgrade a model of a car by making changes ‘so novel and attractive’ that it would create an ‘amount of dissatisfaction with the past models as compared to the new one’ – meaning buyers wouldn’t wait for it to stop working to want a new one.
This was more than keeping up with the Joneses or being determined to have the newest: It was implanting in the buyer’s mind the idea that something better was coming soon.
The 1956 Chevrolet Bel Air (pictured) was one the first cars to be used to ‘engineer dissatisfaction’ in consumers. The car came with a catalog, which showed people there was always a better one coming
He found the solution to the challenge facing postwar industry which industrial designer Brook Stevens described during an advertising conference as : ‘instilling in the buyer the desire to own something a little newer, a little better, a little sooner.’
Peretti tells of his meeting with the man at the heart of Sloan’s project, Tom Matano, who was in charge of ‘engineering dissatisfaction’ using the 1956 Chevrolet Bel Air.
‘Tom points to the brilliant blue sheen reflecting the sky. “That color was derived from nail varnish. The car was to be an accessory, matching your new coat or handbag,”‘ he told Peretti.
The car would also come with a catalog, a clever advertising tool that would do exactly what Stevens was looking for: ‘it showed customers what the upgrade model would like, available in just six months’ time.’
‘The catalog offered all the upgradeable features of the forthcoming car that one’s current car lacked: a slightly better radio; different upholstery patterns; a more luxurious-looking steering wheel and shift stick.
‘The object was that, at the very moment somebody bought a Chevrolet, they were made instantly aware there was a better one coming, which would make the new car obsolete.’
The car industry switched its focus from performance and reliability, to aesthetics and cosmetic changes, successfully turning obsolescence into a ‘nagging kernel of doubt that the clock is always ticking on the new thing we have just bought.’
IF YOU’RE OBSESSED WITH LOSING WEIGHT, THANK THIS STRUGGLING INSURANCE EXECUTIVE
It was a deal that salvaged the career of Louis Dublin, a statistician working at insurance agency Metropolitan Life in New York in 1945, and subsequently changed the way we look at dieting and food.
Dublin had been falling behind on his numbers when he discovered how his customers’ weight hugely impacted health premiums. He realized he could charge policy holders more by lowering the threshold weight at which they’d be categorized as ‘overweight’ or ‘obese’ – which in turn would raise their health risks.
As a metric, he used the body mass index (BMI), a tool developed by Belgian statistician Adolphe Quetelet, which measures body fat by dividing body mass by the body height (in inches) squared.
Dublin’s new system inadvertently incited a – false – nationwide fat panic that led most people to believe they were overweight hence, at a risk of a heart attack or stroke
Dublin recalibrated the scale and created a desirable weight for people aged 25 as the threshold, meaning,’ the older you got, the less likely you were to hit this ideal 25-year-old self weight, the more you could pay in insurance,’ Peretti writes.
Dublin’s new system inadvertently incited nationwide fat panic that led most people to believe they were overweight hence, at a risk of a heart attack or stroke.
American mothers began drinking their baby’s formula to lose weight which revealed a ‘gap in the market’ which the industry quickly targeted.
New Jersey housewife Jean Nidetch began to host group confessionals in 1963 with her friends who would discuss their overeating problems. By 1968, it became a proper business with five million people enrolled and Richard Samba joined as the company’s finance director.
When asked how a ‘multibillion-dollar business could be constructed on a high statistical probability of failure’ – with a success rate of 16 per cent – Samba told Peretti: ‘Because the 84 percent: that’s where your business comes from.’
HOW THE DRUG INDUSTRY SUCCESSFULLY SOLD MEDICATION TO HEALTHY PEOPLE
Similar to the diet industry, drug companies learned they could capitalize on the fear or panic of common people, and in the last 20 years, the percentage of adults in the U.S. taking prescription drugs more than doubled.
But according to Peretti, this was not due to an influx of illnesses and disease.
In the 1980s the six pharma giants had hit a wall after the postwar boom – the first time in 150 years – after Valium, the brand name of benzodiazepine diazepam, was under threat.
CEO of Merck Pharmaceuticals Henry Gadsden realized there was an untapped market: healthy people and found a way to market drugs as ‘preventative measures’
The Hatch-Waxman Act of 1984, which would require generic drug producers to prove their products were just as effective as their brand-name counterparts, threatened the revenue of pharmaceutical companies.
But CEO of Merck Pharmaceuticals Henry Gadsden realized there was an untapped market that could solve their problem: healthy people.
‘He put it like this. “The problem we have had is limiting the potential of drugs to sick people,’ he told Fortune [magazine].’
“We could be more like Wrigley’s Gum…it has long been my dream to make drugs for healthy people. To sell to everyone.”‘
The industry, in turn, had to identify and diagnose new illnesses and reframed ‘nebulous anxieties and neuroses of modern life’ as treatable medical syndromes.
‘Gadsden saw the potential for drugs to be taken by all as a preventative measure or to deal with an illness not yet fully diagnosed, popped in the mouth like a stick of gum.’
THE MEN WHO MADE YOU SPEND PAINLESSLY
In the late 1990s when the internet was still something that of a novelty, entrepreneur Max Levchin and Silicon Valley’s Peter Thiel had a plan to monetize it.
They eventually became the brains behind PayPal, one of the largest online payment systems.
But the way this idea came to life, Peretti reveals, was after a ten-minute meeting between Thiel and Levchin first in a lecture hall at Stanford University.
Max Levchin, Peter Thiel, and Elon Musk (both pictured in 2000) the brains behind PayPal, made payment instantaneous, removing the ‘neural pain’ that comes with exchanging cash
‘Max Levchin was an encryption genius, but it was Thiel who knew finance. After Thiel finished his lecture, he and Levchiun talked privately for less than ten minutes but it was enough.
‘The realized they’d both spotted a gap: developing the software to make online payments possible. The following day, they met for breakfast, and got down to it.’
By 2000, they would join forces with Elon Musk, who advised they had to sell this to the consumer by removing the ‘neural pain.’
This neural pain, as discovered by Serbian psychologist Drazen Pelec, is the psychological feeling experienced when the brain parts with cash money.
Cash, actually, was discovered to hinder spending, but by ‘making payment instantaneous, the brain has no time to register pain.’