In Business Ticking Over

Listen to Ticking Over (20/05/2010)

Interesting how the dismal science of economics so theoretically influential on all our lives is now becoming, well, a little bit sexy.

Economists such as Andrew Dilnot, founding presenter of Radio 4's More or Less programme, and his pops-up-everywhere successor Tim Harford of the Financial Times have been delivering economic ideas without the carapace of academic distance that has hitherto made most economics so remote from ordinary life.

The British-born New Yorker writer Malcolm Gladwell has become a stage superstar off the back of his ability to make difficult economic ideas wonderfully accessible in books such as Blink and The Tipping Point.

One other economist who would probably have become something of a household name is the Austrian-born Fred Hirsch, who died at the age of only 47 in 1978, three years after he was appointed Professor of Economics at the University of Warwick.

One of his most continuingly resonant ideas was a concept with an awkward but accurate name of "Positional goods", put forward in his influential book The Social Limits to Growth.

Prof Hirsch explained the book's thesis to the New York Times like this: "Material growth can no longer deliver what has long been promised for it – to make everyone middle–class".

Part of these observation was the Positional Goods idea: putting it simply, positional goods are things whose value is partly derived from their perceived scarcity, or desirability.

Swanky

A house with a unique view is "priceless", perhaps. So is a particular painting, though people love to put "prices" on artworks. The "pricelessness" gives things a value which puffs up the owner and increases the value of the good or service.

Well, we cannot all own unique things, but we itch to be "special" and own special things. And in a world of increasing wealth for many millions of people, these special things are luxury goods. Around this desire for – yes – positional goods has grown a vast new luxury industry. Producing what you might call partly positional goods.

It's more than swanky houses, and clothes. It's the things we put in them: expensive clothes, handbags, jewellery, luggage, wines, single malt whiskies, limited release spirits in crystal decanters, all of them branded with much advertised names and endorsed by much photographed celebrities.

New kinds of things with new kinds of economics attached to them, in a similar way to how health care economics is different from conventional supply and demand ... the more health care you get, the more you will probably need at the end of your extended life. And network economics appears to be different from classical economics too, though it needs A Dilnot or M Gladwell to explain it.

These thoughts about positional goods are brought up by this programme on the mechanical watch industry.

For two centuries mass-made mechanical watches were the way you told the time until quartz watches were launched in the 1960s with superior accuracy.

Thus began the quick decline of the mass manufactured mechanical watch, hastened later by the digital display.

But of course mechanical watches were not doomed. They reappeared as a whole new industry, dominated by big luxury brands both venerable and also quite new.

The long boom that started the 21st century saw a big expansion in demand for luxury watches and the industry as a whole with new names appearing every year.

At the same time the maverick Nicolas Hayek pushed the threatened mass Swiss watch industry into turning out fashion–driven cheap digital watches under the Swatch brand, and that was so successful that the Swatch empire now embraces several venerable mechanical watchmakers as well.

Lubrication

Every new brand needed its own story, and so did the cascade of limited edition models produced by the existing watch houses, many of them still Swiss.

But I have been hearing the stories told by several people creating or designing expensive new watches in Britain.

Some, like the laboriously built handmade watches made by Roger Smith and his tiny team on the Isle of Man, are rare: 12 a year is what he makes, at £40,000 and upwards.

Roger Smith has been inspired by his Manx neighbour George Daniels, a legendary craftsman thought of by many experts as the finest watchmaker in the world.

George Daniels is the inventor of the something called the Co-Axial escapement which much reduces the need for the sticky lubrication of the watch.

It is a revolutionary change in the way mechanical watches work and has now been adopted by Omega of Switzerland. Mr Daniels says he expects the rest of the industry to follow, eventually.

His extraordinary reputation rests on only 37 watches he has made completely by hand (ignoring his prototypes, that is).

George Daniels is working in the great tradition of English watchmaking, producers of most of the great innovations in watchmaking in the 18th and 19th centuries.

Now others are trying to revive the English tradition with their own brands. The clock making company Dent, makers what is probably the best-known clock in the world, Big Ben, has been taken over by entrepreneurs who have launched the first Dent watches for 40 years, made in Switzerland to British designs.

They start at £8,500 each.

Christopher Ward has launched a completely different approach to positional goods with his own name brand of (again Swiss-made) watches selling on the Internet for £500, and boosted by an early enthusiastic appraisal from one of the multitude of Internet watch bloggers.

Appetite

I'm told the rule of thumb for conventional luxury mechanical watch brands is manufacturing prices multiplied sixfold to get the final retail sales prices, though that is been dented by recession at the moment.

Big luxury brands carry a huge overhead of promotion and marketing.

Watch advertising is still filling the pages of some magazines, newspapers and supplements when so much pother brand promotion has withered after the Credit Crunch.

And there is an extraordinary and growing appetite for branded luxury from the newly wealthy parts of the world, particularly Asia.

The big brand producers make hundreds of thousands of expensive watches a year, the ones that sell from upwards of £3,000 or £5,000 in the shops, an industry kept rolling by aggressive marketing and a flow of somewhat limited editions backed by heritage stories.

But I cannot get away from the weirdness of the marketing idea that the higher the object is priced at, the more "valuable" it is seen to be.

In the end the unstaunched flow of stuff may start to damage the reputation of these things Professor Fred Hirsch identified as positional goods. They will have to get more expensive, and more rare ... and much less advertised.

After all, if you know how rich you are, you are not really rich. Is "the best" anything to do with "the most expensive"?

Who can possibly tell?

Listen to Ticking Over (20/05/2010)

Previous Programmes

Watch Your Language - Peter Day joins a group of enthusiasts determined to improve the language of business.

Keep it Local - As pubs struggle to survive, Peter Day travels through villages in Yorkshire and Cumbria to talk to local activists.

Space - Peter Day asks what happens next on the USA's journey into space.

German Pencils - Peter Day asks Faber-Castell and Staedtler how they both stay sharp ...

Building BRICS - Peter Day finds out about the BRICS - Brazil, Russia, Indonesia and China

Over A Barrel - Peter Day contemplates the turmoil in the Middle East and fears it will affect the price of oil

Reconstructing Capitalism - Peter Day hears all about the challenges to the way capitalism works.

All at Sea - Peter Day hears all about sea transport.

China Dispossessed - Peter Day hears about some of the problems caused by China's rush for prosperity.

Back on the Road - Alan Mulally tells Peter Day how he changed the way Ford works and how it is now back in the business of selling cars.

Asia Bling! - Peter Day ponders how the rise of the Asian comsumer will change business.

Euro on the Rocks - Peter Day asks what is the future for the Euro?

Bitter Pills - Peter Day looks at changing face of drug development.

Operation Robot - would you allow a robot to operate on you? Peter Day looks at robot-assisted surgery.

Growing Pains - Peter Day asks, what is the main component of growth?

After the Crunch - Government funding and regional development: the view from Newcastle.

Chips off the Old Block - Computing in the UK, past, present and future.

Hidden Depths - Graham Hawkes, DeepFlight and exploring the oceans.

Sociability - How social technology makes new business models possible.

Are CEOs Up to the Job? - Two thirds aren't according to Xinfu's Steve Tappin. Peter Day investigates.

In at the Start - Saeed Amidi and Silicon Valley

Power Play - Is the 'smart grid' the start of something big?

Now Wash Your Hands Please - How a simple idea can transform lives in the developing world

Coming Soon - What can the experience of previous financial crises tell us about the current one?

Ticking Over - Can the Isle of Man rejuvenate the business of watchmaking?

Not Just Silicon - what can Silicon Valley teach us about innovation?

Press under Pressure - what lies ahead for the world of newspaper publishing?

Remembering CK Prahalad - in a world of change and multiple opportunities, how does a company keep up?

Rwanda Rising - building a clean safe state where business can flourish.

Life Cycles - building businesses around the idea of new kinds of bikes.

Who Sets Our Standards - the business and social benefits of standardisation.

Ready to wear - the ethical issues of the international clothing industry.

Doing It Wrong - what's wrong with the way business works?

New Age - the business of aging.

Project Alcatraz - rehabilitating offenders in Venezuela.

Selling Salvation - Peter Drucker and the Salvation Army.

Let Me Entertain You - office parties and away days.

Brazil's Sugar Rush - Brazil.

Small Wonder - microfinance.

Unlimited Company - organizational models.

Credit Crunch - cash and credit.

Student Startups - student entrepreneurs.

Media Mayhem - changes in the newspaper industry.

Squeaky Clean - branding.

Battery Power - Bolivia.

Women's Work - women in the city.

Hell For Leather - John Timpson and Timpson's Shoes.

Learning Curve - organisational culture.

Let's Start a Bank - banking.

Goodbye to Intel - Craig Barrett and Intel.

Location Location - So?

Iceland feels the Heat - the credit crunch in Iceland.

The Cisco Kid - Mike Lynch and John Chambers.

Grand Design - business schools.

Power Drive - the car industry.

All New - innovation.

Europe on the edge - What is this thing called "Europe"?

For more programmes visit the In Business programme archive.

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