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Feeding the commodity fetish frenzy

By Nicholas Gruen - posted Tuesday, 14 December 2004

First, they’re flying suicide bombers into buildings killing thousands of innocent people. I guess somehow we all knew that Louis Vuitton would be next. Will these terrorists stop at nothing? An international industry lobby group, campaigning for stronger measures to protect international brands like Dior, Cartier and Hugo Boss from imitation in the market, alleges that al-Qaeda is active in the “counterfeit goods” market.

Didn’t the word “counterfeit” once refer to making and passing off fake money? In the immortal words of Kath Day-Knight, I’ve got one word to say about “counterfeit goods” - “Karl Marx’s theory of ‘commodity fetishism’”. I’m no fan of Karl Marx (I always preferred Groucho), but “commodity fetishism” does seem to hit the nail on the head here. Marx argued that the more our lives became dominated by markets, the more obsessive we’d become about commodities - including the super commodity of money. You’re not wrong there Karl! That’s Karl Marx, not Karl Lagerfeld.

You’re average designer brand wallet is $500 fetish and $99 commodity, and that’s being generous. Should we be paying quite this much for our foibles and our fetishes? The association with al-Qaeda helps the lobbyists demonise “counterfeit goods”. But it’s a double-edged sword. As the Americans discovered during prohibition, outlawing everyday activities expands the natural market for organised crime. As we escalate enforcement against imitation goods, it's no surprise that al-Qaeda hops for its chop.


Prohibition taught us that we should outlaw only what we need to. That doesn’t mean we should legalise heroin, but it might give us a pause in the fight against imitation goods. This is particularly the case where, as with prohibition, we seek to criminalise behavior that is widespread.

Most of us appreciate the abstract argument that copying others’ products isn’t fair and is even analogous to theft. But hands up if you think wearing an imitation designer watch to a party is wrong? If you’re reading this on public transport and someone just put their hand up, go and tell them, kindly, not to take things so literally. It was only a rhetorical question. They need to lighten up a little.

The economics of innovation points in the same direction. We should give all the protection necessary to encourage our firms to fund the production of new intellectual property - designs, ideas, inventions but no more. Exceeding that minimum not only drives up consumer prices, it often obstructs other innovators who have to negotiate a legal minefield. Why don’t we criminalise one restaurant “counterfeiting” another’s recipes? Because we don’t need to. Those recipes just keep coming even though they produce a crop of imitations.

And for the same reason, we don’t need to criminalise imitation goods. The pitch of the intellectual property lobby is that selling items at three, ten, or twenty times the cost of manufacture is all about financing innovation and design. If their clients were five star restaurants we’d be hearing about pirated profiteroles.

If design really was a heavy cost in producing branded goods, like clinical trials really are a major cost in pharmaceuticals for instance, there should be some protection, because otherwise the economics of intellectual property production would be undercut. But for most branded goods design costs are like “recipe costs” in restaurants, a tiny fraction of the total. Against this tiny impost, firms gain kudos from being the first and the best. When choosing between the restaurant that invented a new dish or set some trend and an imitator who saved you only 2 per cent on your bill, which would you choose?

And, as you’d expect, firms eat away most of the margins offered by big brands, not in funding design but in advertising and promotion to associate their products with our deepest fears and fantasies. They should be free to do it but we shouldn't use criminal law to help them. What I’m suggesting would probably lead to more designer goods being sold, not less. They’d be cheaper because they’d have to compete against still cheaper imitations. There’d be a smaller but still hefty premium for originals. And there’d be a reallocation of marketing jobs, from expensive brands to cheaper ones and their imitations.


That still leaves one issue unresolved. We have every right to wear gold plated jewellery to a party and let people think it’s 24 carat. But no one should have the right to sell gold plate on false pretences. See where I’m headed? We should keep those basic trade practices laws that require customers to know exactly what they’re buying. But having bought the goods, we should all retain the right to use what commodities we like and keep others guessing.

It won’t happen any time soon, but it wouldn’t do any harm for the law to acknowledge the public’s already widespread complicity in frugally funding their fetishes.

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Article edited by Jill McGavin.
If you'd like to be a volunteer editor too, click here.

First published as 'Copycats row a fake' in The Courier-Mail, December 6, 2004.

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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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