People don’t necessarily understand marketing
Haskel and Westlake have a great new book — Capitalism without Capital. In this they highlight a major problem that they see. The problem they note is that business has changed but the way we account for it (mostly at the national level in their focus) hasn’t. Accounting systems aren’t set up, at the national or firm level, to properly account for marketing and other activities that do not create tangible assets. (Tangible assets, for example, might be cars that can be used or sold, whereas intangibles might be customer relationships, or innovation know-how). Intangible assets are a major part of modern economies and it is a problem if those setting accounting, and governmental policy, don’t really understand them. Marketing is a major part of the intangible economy.
Does marketing just shift share?
One reason why those setting policy in accounting or government have a problem tackling economic change is they don’t really always understand what is going on. This isn’t just a problem for politicians or even accountants. It is quite easy to find papers in economics that seem relatively clueless about marketing
Indeed, reporting on marketing effectively is a problem if you don’t necessary know what marketing does. Take advertising, this can be portrayed as something that simply moves demand around from one firm to another. If this is true established firms would benefit from a moratorium on advertising — it would pickle in place the current standings. We don’t see this happening of course. Such an argument might suggest that tobacco advertising doesn’t increase market size which is a pretty dubious proposition. It is especially unlikely seeing as it wasn’t the established tobacco firms pushing to ban tobacco advertising which you might have expected if advertising was simple a waste of money that only moved demand around. Instead tobacco firms generally had to be pushed towards it by regulators.
Advertising does more than shift share
Instead advertising doesn’t just shift share around. We can see that, often, advertising has much more than just a head to head effect. If it will have other effects, then advertising has the ability to improve market outcomes. (Or make things worse if it is used to encourage more smoking). At a minimum advertising can let consumers know what there is to buy, people can see there is a solution to whatever problem they had.
Haskel and Westlake make this case to readers — some of whom may not be familiar with what marketing actually does. It is vital to understanding their point — that changes in the economy matter — that marketing is more interesting than the stick figure ideas often portrayed in simple models of the economy. Non-marketers will learn a lot from their work.
Read: Jonathan Haskel & Stian Westlake (2017) Capitalism without Capital: The Rise of the Intangible Economy, Princeton University Press